Making the Decision to Stop

In my last post, I discussed the powerful motivation that drives entrepreneurs to found and build a high-potential startup and the odds against building a successful startup. Most startups do not make it, which means that many entrepreneurs will someday face the profoundly difficult decision to stop and abandon the attempt. What does that look like—and why is it so hard?

The decision to stop pursuing something you have poured a great deal into is psychologically difficult. Change is hard. Facing failure and loss is hard. Letting go is hard. Telling others bad news is hard. And deciding to stop is incredibly hard, not only for entrepreneurs but also for investors, team members, and other stakeholders. Let us explore some of the reasons why.

The Journey of a Startup is Always Volatile

While, from a distance, it may appear that the journey of a successful startup is a smooth upward trajectory, the truth is that all startup journeys are volatile. There are peaks and valleys. There are moments of acceleration and accomplishment, followed by heartbreaking disappointments and deep frustrations, and then glimmers of hope. The “most successful” entrepreneurs and startups have stared into the abyss or experienced devastating setbacks before ultimately finding the path through. This is the norm, not the exception.

The volatile and uncertain nature of startups means that it can be challenging to discern whether the current struggles you are facing can be overcome or are actually signals that it is time to quit. The reality is the information you have is often confusing, conflicting, unclear, complex, and changing. This means deciding to stop is inherently difficult due to the nature of the circumstances surrounding the decision.

It is Not in the Nature of an Entrepreneur to Stop

Passion, commitment, vision, intensity, and tenacity are all required to forge a path no one has taken before. The very characteristics that an entrepreneur leverages to overcome all the naysayers and to work incredibly hard over a sustained period to build a high-potential startup are also the very qualities that make it incredibly hard to stop driving forward.

It is Not in the Interests of Investors to Stop

One common reason entrepreneurs are forced to stop is that they run out of money to continue. For startups that have raised money, running out of money means you cannot attract new investors, and your existing investors have decided not to continue funding your venture before achieving profitability.

You might think that investors kill startups easily. However, I have not found that to be true. To make their original investment, investors had to reach a certain level of conviction about the opportunity, so like entrepreneurs, they will have a certain amount of psychological commitment to the startup and what it is trying to do. Furthermore, once they put money in, the decision to stop means that they are potentially locking in a loss. So, while an investor may conclude that they are personally not prepared to continue to support the startup, it is common for existing investors to be willing to let others continue to invest and keep the hope of potential future success alive rather than making the hard choice to force a shutdown unnecessarily.

Fundamentally, like entrepreneurs, existing investors feel psychological pressure to continue rather than admit defeat. They have little motivation to pull the plug if there is a team willing to keep trying and resources to support that effort. In fact, I have found that it can be tough to convince investors to let a startup whose path forward has dimmed drastically to let it go!

Suggestions on Approaching the Decision to Stop

The choice to stop is always available, even if it is challenging. I have coached others through such choices and wrestled through them myself as the CEO of multiple startups. For this post, I am assuming that things are not going fantastically for a startup you are leading, and that a sneaky little question — should we really continue to pursue this? — has crept into the back of your mind a few times. If that happens, take a moment to consider the question’s merits. Here are some of the mental tools I have used when considering this most difficult and consequential decision for a startup.

• Remember that a startup leader’s responsibility includes regularly considering whether to continue: You are doing your job engaging that question and making a deliberate continue or stop decision. As a startup leader, it is rarely easy to determine that you should not continue until you exhaust every resource you have access to and simply cannot keep going. However, going until you absolutely cannot continue is an abdication of the responsibility of a startup leader to determine the right path to take, the best use of resources, and the likelihood of success. Make sure you are periodically stepping back and considering the totality of the information you have about your startup, its challenges, and its prospects to understand if things have changed.
  
  
• Critically and objectively analyze the situation the startup is presently in: It is easy to get so focused on driving forward that time passes, circumstances change, and you do not even realize it. Keep in mind that the signals that perhaps quitting is necessary often appear to be just more hurdles to be conquered, hence the need to stop and evaluate. What have you learned? What are your crucial drivers of success? What feedback have you been getting from your target customers? What changes in the competitive landscape have occurred? Are your product development efforts bearing the hoped-for fruit you anticipated? Will your product have the value proposition relative to the unmet need you anticipated? Given whatever has changed, how confident are you that you can succeed?  
  
  
• Watch out for the sunk cost fallacy:  Psychologically, when you pour your energy, your time, your every waking thought, your money, and your sacrifice of so many things in your life, it becomes profoundly difficult to decide to let those investments go. However, once you have made them, those investments become sunk costs. The sunk cost fallacy is our tendency to continue with an endeavor we’ve invested money, effort, or time into—even if the current costs outweigh the benefits. And while the term sounds like technical jargon, it is a common decision-making pitfall in both life and business, so you must consciously identify the sunk costs you do not want to “lose” and be sure to be very intentional about how much weight you give them in your decision-making, possibly even excluding them entirely from consideration.
  
  
• Consider the opportunity costs: When you and your team focus your time and attention on building one startup, you necessarily are not doing something else. While that commitment might have been the right decision at one time, does it continue to be so? Remember that continuing on the current, possibly low-success-probability path is costly because you do not have infinite time and resources, and a startup’s circumstances can change over time.
  
  
• Validate your assumptions and analysis: This is tricky. You should test your assumptions and analysis when considering whether it might be time to stop. However, the very fact that you are thinking about the question (while very appropriate for a startup leader!) can be scary to others involved, like team members or investors. They can often leap to the conclusion that you have already decided to shut down – and start taking actions based on that assumption. Therefore, when you are still in the analysis phase, ask questions about the underlying elements of your thought process rather than discussing the overall implications. For example, solicit input from the team on what changes they have seen in the competitive landscape, product performance results, or the latest customer feedback rather than asking if it is time to close down your startup.
  
  
• Communicate carefully: While this probably deserves its own blog to unpack the nuances, for now, let me just say that if you conclude that it is time to stop, then it is imperative that you write out your analysis and communicate to different individuals and groups in the right order. This is a delicate process, and you should expect some resistance, so take care as you approach it so that you do it with integrity and attention to the relationships and authorities involved.

Deciding to stop is hard but also too often necessary. In my experience, any number of things can cause a startup leader to conclude that the right answer is to stop with integrity. To make it a little more tangible and real, I have seen:

• The competitive landscape shift so dramatically that a value proposition that depended on a 50%+ cost advantage disappeared, wiping out the ability to raise more capital
  
• Bad investors interfere with a startup’s cash flow to the point that it became impossible to make payroll – and they did not care that it would destroy the company
  
• The product development team’s efforts fail to achieve the necessary performance to meet customer needs – and they were out of ideas for achieving the goals.
  
• Despite solid customer discovery feedback, when it came to getting customers to pay, the team could not close the deals needed to create a sustainable business in a timely fashion. Hope is not enough!
  
• The funds we were able to secure from government and private sources were insufficient to achieve the next critical milestone that would support future fundraising.
  
• Investors who did not want to give up even when the path to success was no longer apparent.

The list can go on and on, with every startup’s situation being unique. As a startup leader, you must always consider carefully and thoughtfully the situation your startup faces. Your ability to continue an entrepreneurial career may depend on how well you navigate this decision-making process. Honesty, integrity, and transparency can help you determine the best path for all involved, even in the face of an emerging harsh reality. Do make the hard decision and move on if you have to.