Reality Check: How to Know When To Pull the Plug

by Private
                                                                                

What is the difference between persistence and denial? How many unsuccessful pivots do you need to go through before you should realise it’s time to call it quits?

This topic of knowing when to pull the plug is potentially one of the most difficult questions I’ve faced to date. Although our LTV classes have sparked multiple discussions on this topic, I unfortunately admit that we’ve yet to uncover the ideal answer to this question. In typical HBS fashion, the answer seems to be... “It depends...”

So what does it all depend on? Here’s my attempt categorize what I believe to be the critical consideration factors into three buckets; internal, external and personal factors

Internal
  • How much cash (and thus time) is left in the bank? How does this relate to the type of business you’re in and its associated development costs and cycles?
  • Are there still new untested ideas that could potentially be the light at the end of the tunnel? Would these ideas be merely be band-aids or do they have the potential to finally make it all work?
  • Is the team still convinced and supportive of the idea or some iteration of it? Have they started to leave?


External
  • What kind of customer feedback have you been receiving? Are your customers still actively engaged with continuous feedback or have they been cold and unresponsive? If it’s the later, do we know why? Is it just a matter of marketing and sales inefficiencies or rather the inability to find product market fit?
  • How supportive are your investors at this stage? Do they still share a similar belief in the business opportunity and viability? Are they willing to invest more money to help extend you remaining runway?


Personal
  • As a founder, what are other alternatives could you be pursuing? What are your opportunity costs? Are you still passionate about this venture and idea?
  • Are your extended entrepreneurial pursuits influencing your personal relationships with friends and family in an irreversible and negative fashion?
  • What would the impact be on your team if you decided to quit? Would you be able to live with the consequences or mitigate them?


As you can see, the answers to these questions are circumstantial and should be weighted according to your individual situation and beliefs. Knowing the importance of our personal biases in this consideration, is there anything we can do to help ensure we provide objective and truthful answers to ourselves? How do we prevent ourselves from falling into our own ‘reality distortion fields’? I believe these can be addressed with several pre-emptive measures:
  • Set decision gates and thresholds upfront (e.g. if we’re not cash flow positive in 2 years, we’ll call it quits) Please note that I’m saying this with full knowledge that this is very easy to say, yet extremely difficult to do in real life.
  • Pre-select a few third party advisors whom you know will be able to provide you with objective feedback that you respect and trust enough to act on when push comes to shove.
  • Last but definitely not least, employ lean startup practices. The faster you test and the more you learn, the more objective external feedback you’ll have to assess the situation you’re in.

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