When to Quit Your Startup vs Never Give Up!

When to Quit Your Startup vs Never Give Up!
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About 13 years ago I attended a party in London with the theme “Never Give Up!” It was organized by an angel investor buddy of mine from the Silicon Valley who is a true round-the-world ticket traveler with entrepreneur networks everywhere.

It was a bunch of entrepreneurs that got together on a Saturday night to get loaded, share their challenges and motivate each other to “never give up” with their startups regardless of hard times.

It was a big party and I don’t remember meeting any entrepreneurs that I thought were “VC fundable” that night. I had a good time, but I recall saying to my wife as we walked out of there that those entrepreneurs are more serial killers than serial entrepreneurs.

I think it is an important thing for founders and junior cofounders to consider when it is the right time to give up, quit that startup and move on. Most startups fail, because they run out of cash. When the startup is generating cash from customers or investors it becomes more complex for the founder to lift her head up from the ball and look at the entire playing field and think.

Tom Cruise

I live in the Silicon Valley and commute most days to our office in San Francisco and I think that being at the very far west end of western civilization means that most of us are separated from our parents and family. Being far away from these conservative forces like your Jewish mother telling you to quit that startup and take a job at an accounting firm like your brother is part of the secrete sauce of both Silicon Valley for tech and LA for entertainment. Being around like-minded entrepreneurs and VCs that live from the blood of founders taking huge risks and just being here encourages us to never give up and keep going.

It is good to have cheerleaders to encourage you to never give up, but in some ways it’s harder to be the guy telling you to consider throwing in the towel. Once you have taken money from investors it gets VERY hard to give up. As an entrepreneur I felt a moral obligation to return capital to those that trusted me, believed in me and invested their personal money into me as an entrepreneur. Also don’t expect to go back to the same investors ever again if you walked away from your startup while mid-way crossing the chasm. I would not react well to one of my entrepreneurs quitting after I funded the company as a VC (it has happened). Word will spread throughout the investor community as well. Don’t be fooled by someone telling you it’s cool to fail and failure is rewarded. It is very hard to walk away from a startup for many reasons. The earlier the startup is in its life cycle (like pre-VC funding) the easier it is to walk away.

Here are some guiding principals to consider to help entrepreneurs balance the voice of your mother probably telling you to quit and take a high paying job and your party friends from the ecosystem telling you to drive off the cliff like Thelma and Louise.

1) Always put the needs of your career, yourself and your family (if you are responsible for children) ahead of the needs of the company. In brief, never put the needs of the company ahead of your personal needs for more than a relatively short period of time. Do not let your career get stuck for 5 or 15 years at a startup that is not making progress when the world is making progress quickly around you. Likewise if you are at a big corporate and you are growing faster than the company then you are out of balance. You might be growing as an executive, but working at the US Post Office they keep closing locations and downsizing; so there is limited opportunity for advancement if the company is contracting. In contrast if you are working at Palantir, they keep growing like crazy. The company is growing faster than you are as an exec. Your stock options are likely to be in the money and growing. That’s the balance you want.

2) Think clearly in accounting terms of the opportunity cost of every time decision you make. Each day you decide to stay with a startup is analogous to a VC investing a dollar into a startup that she can no longer invest into a different startup. This is mutually exclusive. Every day at one startup has the opportunity cost of being at a different startup or corporate. Like a stock portfolio, you want to keep your money in the stocks that are going up not down.

3) Is the company generating enough cash for you to survive without dipping into savings. If you are burning savings, then quickly understand your personal runway and decide how long you want to “invest” before moving on. Consider how long it will take to find another job and consider going to a few networking events this week to keep your contact network warm and growing so you can make a quick jump to a great job at the time you choose to. One reason I find good accelerators attractive to the entrepreneur is that you should be able to bond with the other startups in your cohort and be able to move to one that is well funded and growing quickly if yours is crashing.

4) Give yourself a clear set of milestones for the startup to achieve and then give some dates that you need to hit these minimum milestones or else you will leave. This could be revenue, net income, users, MoM growth, key team hires, angel or VC funding, the opening of an office in San Francisco or some other key milestone that is important to the viability of the company or compatibility to your specific life requirements. You might be VC funded and the company continues to turn down offers to sell the business and keep raising capital or growing on retained earnings. You might give yourself a milestone that the company needs to be sold and exit by a certain date or you keep your founder or vested stock and move on. I believe good communication is good for a marriage and good for a startup team (which in some ways is more legally binding than a marriage). Communicate to your cofounders the time lines you are attaching to key milestones. This will provide your cofounders with motivation to focus on these important milestones to not risk losing you.

5) Consider your age and your career goals. Consider how old you are and how many startups you have left in your lifespan or other options to work for large corporates mixed in with other startups. You may not have enough lifespan to stay at this startup. Working at a string of failed startups in your late teens, early 20’s or 30’s may be more valuable than an MBA, but at some point you need some success under your belt. Taking a 2-year stint at Apple, Facebook or VMware might generate some stock option wealth, experience and contacts that enable you to take another crack at entrepreneurship with a stronger power base and be more successful. Getting some big company pedigree experience will also make it easier to go back to a big corporate later rather than just having pure serial killer experience on your resume.

I’m all for taking big risks, but remember to keep your own interests in focus. My advice on all of this is to take risks, fail quickly, fail cheaply (fail by losing a minimum of investor capital) and fail without guilt or with less guilt. Sometimes quitting a failing startup or one that’s dragging on for too long can be like quitting cigarettes.

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