Knowing When It's Time to Give Up the Ghost

Thankfully, entrepreneurs are optimistic creatures.  Most launch their companies on a wing and a prayer and then work with their radically under resourced teams to create their first product and gain initial customers. Sometimes, things go smoothly.  Funding comes in, customers sign up, and product reviews come back positive.  A majority of the time, however, young companies struggle and ultimately don't survive to fight another day. In fact, most start-ups hang on longer than they should, because, as I said before, entrepreneurs are optimists.  They glom on to any shred of evidence that might indicate that they could be successful and ignore or minimize the rest.

Here are the signs that an entrepreneur might want to chart another career path:

• Your competition is way ahead of you. Way ahead can have several definitions:

  • Your competitors are much better funded and are using that funding effectively to create a lead in product capabilities, marketing, and customer penetration.

  • Customers prefer competing products. Many entrepreneurs may reason that the next version of their product will fix that, but your competition will have a next version, too, that will probably be much better.

  • You can't sell a date to a sailor on leave. Some products sell themselves, but yours is incredibly hard to sell and the reasons for this tough sales cycle are a mystery. Meanwhile, your competitors are making lots of sailors happy.
    

• Your market is more limited than you thought. Sometimes, a market looks good, and it just doesn't pan out. This happens for two, main reasons:
  

  • Customers just aren't interested. For example, right now, consumers aren't buying nearly as many 3D TVs as consumer electronics companies expect, and, when they are buying them, it's because really good 3D TVs tend to have really outstanding 2D picture quality.

  • Your market is subsumed inside of a larger market, and your product becomes a feature of a larger solution as opposed to a discrete product category. This happens a lot in software, where customers prefer integrated enterprise suites over point solutions that need to be supported in the IT department. One or two targeted solutions Is okay, but 30 or 40 isn't.

• You don't have the talent and determination to compete. Markets aren't won and lost through analyst reports. People win markets by creating great products and selling and supporting them effectively. Usually, victory is relative as in:

We did a better job of making fewer mistakes and spending our money more wisely than our competitors.

From 1980 to 2000, Microsoft did the best job of any company of using its talent and resources to compete effectively.  In 1980, Microsoft was tiny and unproven but able to face a larger competitor, Digital Research, head on and win its PC-DOS contract with IBM.  Going forward, Microsoft faced an unending list of powerful foes from IBM to Compaq, Novell, Sun, Apple, and Netscape.  It's not Microsoft didn't make mistakes; it is that, when the chips were down, its competitors made more. Plus, Microsoft hired the best people and let them figure it out. And Microsoft didn't give up when its first attempts didn't go well. Version 3 of a Microsoft product seemed to be the one that changed the game.  Look ahead 15 years, and you’ll see Microsoft trying to recapture its competitive mojo – this time with a lot less hubris.

So, for all you entrepreneurs out there, please try to think clearly. Customer feedback, competitive actions, the quality of your team, and access to capital are the most important factors in the success of your business.  If you get low scores in any of these areas, chances are that your company has big issues.  If you're thinking that you're doing your employees a favor by running a company that's limping along, you're not.  Your HR headaches are only going to get worse, and your best people will leave anyway.  And don't think about the money invested to date:  Think about what it would take to compete effectively going forward.  Past spending is referred as "sunk costs" for  reason - because it's sunk. Future financial needs should be your main concern.

If you're behind in most or all of these areas, it's time to give up the ghost and find the next great thing to do.