Entrepreneurs Beware: You May Need To Pull The Plug

by Daniel B.  

Exactly seven months ago you changed the world. It was on that magical day that you envisioned the greatest online start-up ever—better than Facebook, Google, and Twitter…combined. Your flawlessly written business plan received accolades from all the top VCs, and your all-star development team finished coding weeks ahead of schedule. As you prepared for launch, you checked repeatedly that the servers could handle the horde of users that were destined for your site. When you went live though, no one came. Days later, still no traffic. Dumbfounded by the inactivity, you contemplated your next move: keep fighting, or pull the plug? 

It’s unfortunate, but most of the tech ventures we create will end in failure (yes, this includes your business). We think through all of the ways we’re going to build a successful company, yet we neglect to consider what we’ll do when the business deteriorates. In some cases, the decision to pull the plug is easy. For example, if your bank account is empty, your investors won’t call you back, and your site is the laughingstock of TechCrunch, you should probably bow out. In most other cases though, the decision is not straightforward—especially if you’re building a lean startup.

The lean startup process seeks to avoid waste and optimize resources. The process is loosely characterized by five steps: envision, hypothesize, test, learn, and decide. Speed is critical. The more tests you can run, the more you can learn. A core component of the lean startup process is the ability to pivot. In other words, if you learn that a test rejects your original hypothesis, you can decide to modify your vision (pivot) and then test a new hypothesis. This fast, iterative approach can help you hone in on a more promising outcome, but it’s a double-edged sword. While you may think you’re just one more pivot away from success, you could already be five pivots past failure. It is because of the pivot that the decision to pull the plug is harder in a lean startup.

The ability to pivot is a naïve optimist’s best friend, since an entrepreneur could hypothetically tweak his vision forever. In fact, according to Eisenmann, et al., an entrepreneur does not need to shut down his business until a “test decisively rejects a crucial business model hypothesis, and the entrepreneur cannot identify a plausible pivot.” This can be dangerous though, since a red flag that typically signals disaster for a non-lean startup can be identified as a pivot point for a lean startup. Where do you draw the line?

I support the “never say die” spirit implied by the lean startup process, but I think it needs to be tempered. There are cases when an entrepreneur should pull the plug, even if he can identify a pivot. For example, if co-founders possess irreconcilable differences, or if a founder loses his passion, a pivot may solve the short-term problem, but it won’t help in the long run. As lean entrepreneurs, we need to be cognizant of the pivot trap. Passion is a critical ingredient of any successful startup, but it shouldn’t prevent us from pulling the plug when we need to. 

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