Armed with the knowledge that the decision to close a venture is a solvable (i.e complicated) problem, I use four principles to frame the decision.
1. It’s an internal decision
The decision to close a business is one for the Directors of the company. In most startups, the role of Director is synonymous with founders who will often also be significant shareholders. While this interplay between investors, founders and Directors can make for multiple and sometimes confronting conversations, the rule stands that Directors must act in the best interest of shareholders.
This means two things.
First, as compelling as they might be, external voices don’t make the call to close a venture. The views of customers, users, suppliers, the media and the community built around the company are inputs. This is easier said than done given the investment made to bring them along for the journey.
Second, and in the case of smaller startups where Directors and shareholders are one and the same but with unequal ownership, majority shareholders can exercise rights which can be at odds with minority shareholders. Playing by the rules established in the beginning is important.
2. People aren’t using your product or they are criticising it are not reasons to stop
For the record, these are not reasons to close a venture.
All businesses face headwinds. Iterating, learning and coping criticism is par for the course.
Healthy perspective and capital are needed for entrepreneurs to deliver on ambitious visions.
Break down these two ingredients, fatigue compromises perspective. If you are extremely tired and all you can do is think about your business, take longer than a weekend to get some rest and be with people who make you laugh.
On capital, an entrepreneur’s speciality is securing resources and capital to make things happen. The question is: Has everything (and by everything I mean legal and won’t break the business) been done to secure capital to extend your time in market?
If No, then keep trying.
If Yes, entering the conversation to close the business may be needed.
3. How out of ideas are we?
I don’t often see the first incarnation of a product work well straight out of the gate. In fact, we spend a lot of time iterating and experimenting. This is fine until what you’ve built doesn’t resonate with the intended target audience and you run out of ideas (and/or money) to continue iterating.
What I think happens more often is that the founders and their teams realise, while there is still money in the bank, that their product isn’t working as expected. By definition, they have a little bit of gas left in the tank to course correct or pivot. This sounds good until they realise that their well of ideas is dry. I’ve been here before and it turned out to be a consequence of fatigue compromising perspective. In this case, bring in, if you haven’t already, mentors and investors to help ideate. It can make all the difference.
Three eventualities can arise from this situation. First, investing the remaining capital and resource into the new ideas and it works (no need to close). Second, no ideas result from ideation and the company has residual capital left over. Third, investing remaining capital and resource into new ideas that don’t work. In the latter scenarios, discussing how to close the business and return residual capital could be the next step.
4. Is your heart in it?
This is the issue people talk about least. At some point, founders can hit a threshold where a change in circumstance adjusts their perspective on the problem they set out to solve.
It can be a gradual buildup of signals they receive which leads them to this threshold. Or, they might wake up one morning and know that they’ve had enough. Importantly, the company could be performing poorly or doing quite well.
Either way, this threshold is best recognised by asking one question: Is your heart still in it?
The answer is binary. Good news if the answer is ‘Yes’.
If the answer is ‘No’ and you’re relatively well rested, the two next immediate thoughts are likely to be, ‘what will [Insert Name A, B, C …] think?’ And ‘how will I tell them?’