Entrepreneurs need to know when to call it quits

Persistence is important, but for entrepreneurs, sometimes closing down the business is the smartest move

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Jody Sherman founded several companies. Some got bought out for modest success, and others failed. Ecomom was his last startup. Management and staff tried hard, but Ecomom didn’t work, and it burned.

When Sherman saw no hope for Ecomom, he saw no hope for himself, so he ended his own life.

But there is more to the story, as told in a riveting Business Insider article entitled The Story Of A Failed Startup And A Founder Driven To Suicide. It’s lengthy but you won’t stop once you’ve started reading, particularly if you’re an entrepreneur. The author does a great job of covering the story from various angles, but there is one element upon which I would like to pause.

Sherman made the mistake of letting his business success or failure define his worth as a person.

Every day, I meet with entrepreneurs who are seeking investment capital. Some are just starting their venture, others are flying through to success, and many are grinding away at a 10-year-old dream.

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Those that are just starting up are pretty easy to spot. They laugh and talk a lot. They’re excited and can’t sit still because they have so many people with whom they need to spread their brand of evangelism. They talk in that infectious change-the-world theatrical way that makes you want to stand up and cheer.

The experienced and/or successful ones are much tougher to spot. They don’t laugh as much. They’re wary, and they think before they speak.

But it’s the vast group of entrepreneurs that are still whipping a donkey they wished were a thoroughbred that worry me most. They don’t laugh at all. Their hands shake. They don’t look you in the eye very long and they often need pills or vodka to get to sleep.

If you’re reading this column you’ve likely seen an entrepreneur pitch for money. Whether it’s a good pitch or a bad one, they generally have the same three themes:

1) We face a huge market;
2) Our competitors are either non-existent or stupid; and
3) In three to five years, we’ll all be rich, fat and happy as the hockey stick growth curve kicks into its big ramp.

We see these at angel forums, tech events and gilded galas. We give pitch awards to the brightest and best and investment often follows.

But do you ever wonder what happens to those companies that are not in favour? Most of the time, the entrepreneurs take out second mortgages on their homes. They borrow from friends and sell their stuff to keep it going. They, like Sherman, allow their dream to become their ruin. The hockey stick revenue projection isn’t happening and they always blame themselves.

Our networking events and tech associations do everything to help entrepreneurs get ready for the investor pitch but do nothing to help them get out of the deal. It’s the company that needs to be shot and killed, not the entrepreneur, and yet we keep beating our collective chests with ‘Failure is not an option’ and ‘Never Quit’ bullshit.

An astonishingly high percentage of startups fail. A February 2013 article in Mashable reported that 90 percent of startups don’t succeed. So, what does this tell us? To me, it says, ‘I’m going to try this. It probably won’t work, but it might.’ Despite knowing that most startups fail, we treat those efforts like they never happened when, in fact, they’re immensely valuable. Nothing teaches like a failure.

I once attended a launch event for a new technology association with a panel of four successful entrepreneurs. One harried entrepreneur bravely asked, ‘Did you ever think you should quit?’ You could see the stress in his face and hear the gloom in his voice. The response that most of the newly-minted entrepreneurs wanted to hear was ‘No. Never surrender.’ Unfortunately, that’s what they got.

Only one of the panellists truthfully stated, ‘We were moments from bankruptcy so many times, I’ve lost count.’ But that moment of honesty was trampled by the din of ‘Keep going’. As a result of this kind of thinking, which has been perpetuated by antiquated thinking for decades, we have hundreds and thousands of jockeys who refuse to kill the donkey and buy a thoroughbred.

Dear Entrepreneur: Are you aware that by killing your donkey company, you might actually be helping your investor? If you kill it, they may be able to take the loss in your company and write it off against gains in others.

I know it is a hard phone call to make. You took money from Aunt May. You have to tell her that the money is gone. She didn’t even really understand what the company was all about but she wanted to support you.

It’s tough but it takes real courage to make that call and move on. Your next venture could be the successful one. If you’re reluctant to make tough decisions and choose to accept setbacks while continuing to struggle, you may be reducing the chances of recovery for everyone involved.

I once came across a 10-year-old startup with no revenue that had already re-invented itself three times. Now, they felt they had the right plan and wanted to raise more money. The problem was that they wanted to protect the stake of old investors, which led to an inflated valuation. They didn’t even have enough sense to consider that hundreds of other companies were competing for those same investment dollars without 10 years of baggage and lost investment. The entrepreneur was so blind to the challenges ahead that I couldn’t help him see the reality of the situation. He is another Jody Sherman waiting to happen. Entrepreneurship and suicide shouldn’t be linked, but sadly, they have become more commonly associated.

The word ‘pivot’ has become so overused that it’s almost cringe-worthy when someone says it. A company attempts to succeed with plan one, but when that fails, it switches to plan two, heading in a completely different direction. Okay, that’s fine, but if plan two also fails and you’ve burned through millions trying to make it work, it’s better to admit defeat, shut it down, and move on.

The only people who will criticize you for your failure are not worth listening to. Entrepreneurs provide employment to most of the world’s population and are usually the ones who bring positive change to our society.

Jody Sherman wanted to be something more than what others expected him to be. Entrepreneurship is good; just know that you are not your company.

Warren Bergen is the author of Swagger & Sweat, A Startup Capital Boot Camp. 

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