Startups can fail in a number of different ways, but the two most obvious signs are lack of growth and lack of revenue. A company that’s run out of resources or can’t attract customers is going nowhere. Other major red flags include huge obstacles like intractable government regulation or a massive competitor entering your startup’s space.
It’s also important to consider your own feelings about the company. If you’re consistently unhappy with what you do, then you should think about walking away no matter how rosy the financial picture looks. And listen to your intuition. When you started your business, you had an instinct that your idea was solid. If your gut is now telling you that you’re circling the drain, pay attention.
Let's start first by stating the obvious startup statistic. It's true, 9 out of 10 startups tend to fail. This failure rate can be found via the Bureau of Labor.
Here at the Launchpeer incubator and accelerator program we come across a ton of different reasons a startup might not make the cut. Some common reasons for failure are listed below and might seem somewhat obvious, others may be good ones to note.
Don’t Waste Time on a Doomed Startup
As a founder, you’ve poured so much into your startup that it can be hard to even think about pulling the plug. Your company is an intensely personal project, and it can come to seem like part of your identity. Cutting it off might feel like an amputation.
But succeeding in the startup world often has more to do with flexibility than with having a single great idea. We probably don’t have to tell you how many successful companies had to pivot from their original business model before they made it big. Sometimes shutting down your doomed venture is the ultimate pivot.
Even if you do manage to keep a failing business limping along, staying there for years while it fails to grow will only hold you back from launching your next venture. The kind of person who can dream up one business idea is usually capable of producing many more. Don’t make the mistake of believing in your company more than you believe in yourself.
Signs It’s Time to Walk Away From Your Startup
In theory, you can keep a company going as long as you can secure enough loans and investments to pay your expenses. In practice, it’s better to shut down long before the repo men start showing up. Here are a few key indicators that you need to leave the business behind:
1: You Aren’t Attracting Customers
The most cut-and-dry signal that a company has no future is a failure to pull in clients. Sadly, founders may be so convinced of their product’s genius that they keep trying to sell it to a market that’s clearly not interested.
You should certainly try many different marketing approaches; don’t give up after a single failed ad campaign. But it’s important to listen to your potential customers as well as talking to them. If you’re hearing things like...
...then there’s a chance you’re not meeting a real need for your customers. Consider trying to refocus on a different target market, a different problem, or a different solution. And if you’ve already made repeated adjustments without growing your customer base, it might be time to admit defeat.
2: You’re Out of Money
It’s not uncommon for startups to take time to get to revenue. This is particularly common if you’re offering a free service and monetizing through ads or upgrades. However, companies can only keep losing money for so long before throwing in the towel.
Many people counter by pointing to companies like Amazon, which kept going for more than a decade before becoming profitable. Fair enough; if your company is reshaping entire industries and receiving multi-million-dollar funding rounds, then you can ignore this advice. For everyone else: when you’re nearing the end of your runway and investors are backing away from your business, it’s time to think about your exit strategy.
3: You’re Facing Down a Behemoth
Lots of small startups with great products wind up getting crushed when an enormous, entrenched company like Google or Apple develops a competing product. We won’t try to sugarcoat it; it sucks when this happens to you.
That doesn’t change the reality of the situation. You’re probably not going to be able to match the resources, talent pool, and built-in audience of a massive competitor like this. Think long and hard about how long you want to play the game of Rebel Alliance vs. the Death Star. You may be better off trying to launch a new idea before you end up like Alderaan.
Sometimes what stands in your way isn’t a competitor but some other feature of the marketplace, such as a lack of investor interest or a regulation that cripples your business model. There’s a limit to how long you should attempt to change or work around major obstacles like these. When you’ve tried again and again without making any headway, you need to reassess whether your startup is really viable.
4: You Don’t Like What You Do
Startup success is a real labor of love. If the passion you felt for your company is gone and you hate coming to work every day, you should give serious thought to getting out.
That might not mean closing down the entire business; you might be able to sell it, or cash out and let your co-founders run it. But a startup that’s already floundering isn’t going to pull through without a leader who truly believes in its future.
When Not To Give Up On Your Startup
Many early stage startup founders consider pulling the plug when they find themselves struggling to grow outside of their immediate network, even though they’ve landed a few solid customers and are pulling in steady revenue.
It’s understandable to be concerned when you don’t seem to be able to get the word out about your product. Don’t underestimate the success you’ve already had, though. Getting people to actually pay for your product is no easy task - even if they are people you already know.
You might just need help with your startups marketing angle. Check out this past blog post = Marketing Strategies and Tips
It’s okay if you’re better at building a product than selling it; it just means you need to look for employees or contractors who can handle the salesmanship for you.
Your existing customers are also a valuable resource from a marketing perspective. Talk to them and find out what they love about your company. Then use their words in your ad copy and product descriptions. Paying customers are the real experts on what makes people buy what you’re selling.
The Bottom Line
There’s no formula that can tell you precisely when to shut down your startup, but the warning signs we’ve outlined above should make you stop and reconsider. Every entrepreneur needs to be ready to shift strategies when things don’t go as planned. Sometimes the best adaptation is to start over somewhere new.