Unfortunately, entrepreneurs get bad advice all the time. There are many misperceptions around success and the journey of building a company, such as ‘entrepreneurs take big bold risks’ (they, in fact, take very calculated risks) or ‘failure is good’ (there’s nothing good about failure, but sure you can learn something from any experience). I can’t address all of them here but the one I’d like to focus on is ‘never give up’ (we’ve all heard it before).
True, in theory, if you never give up, you technically can’t fail. But you can end up spending a lifetime pursuing the wrong dream or being blinded from the stark reality of what it is you are doing.
Entrepreneurs – or worse yet, people giving advice to entrepreneurs, like investors – often like to present themselves as heroes or villains. The ‘macho’ daring people who had the guts to do what others couldn’t. Hence, they like to keep hammering this ‘we never give up’ mantra while drinking their own cool-aid. It boosts their ego.
The reality is that knowing when to quit is super important and quitting sometimes just makes absolute sense. ‘Quit while you’re still ahead’ is much better advice, in my opinion. And here’s why: everyone is capable of having bad ideas. Even the best entrepreneurs, like Richard Branson, did and still do. Virgin Cola was not a success, so he shut it down as one should. Would it be smarter to spend the rest of his life and valuable dollars trying to beat Coca-Cola just so that he could save his own ego?
Equally, even the best ideas may simply be attempted at the wrong time, or with the wrong group of people. There are so many ingredients that are needed to make a start-up work that no one (however smart) can predict or be in control of them all.
So the question then is when does one throw in the towel? For me, the acid test is these two questions:
Do your micro-fundamentals stack up?
Are the macro-fundamentals there?
A business with the right micro-fundamentals is one which:
Has happy customers;
Who are willing to pay a price for the service they receive;
Who cost you less to acquire than what they spend with you (in tech lingo – CAC < LTV);
Who keep coming back for more;
Who spread the word to others.
There’s a lot of buzzwords around these business basics, and today’s tech world often likes to think that it has reinvented the rules of business. WRONG. These business basics existed long before the world of technology and what we all now call start-ups. They may have become more trackable or measurable, which, for sure, makes starting a business easier and more probable to succeed. Metrics, such as NPS (Net Promoter Score), CSAT (Customer Satisfaction), Repeat Business, CAC (Customer Acquisition Cost) and LTV (LifeTime Value) should all be on your ‘micro dashboard’.
All of this may sound basic or obvious, yet there are so many ‘Unicorns’ out there who’ve raised hundreds of millions of dollars each without ever having these fundamentals. Not surprisingly, they are – one after another – starting to fail. They were kidding themselves and investors that these fundamentals no longer matter. Like, for example, the argument that in the long term your CAC will drop as you build a stronger brand and eventually, your unit economics will be positive. That may be true, but so is this: if you sell Dollar bills on the street for 80 cents each, you will – in the short term at least – have a very big business (so long as you can fund it!). In fact, the length of the ‘term’ in the idea of ‘short term’ is directly proportional to the amount of money you can keep raising to keep your Ponzi scheme afloat. Which, in turn, is directly proportional to the number of ‘greater fools’ out there willing to put new money on top of the last fool that did.
Unfortunately, even if you tick all these micro-fundamentals, you could still fail if the macro isn’t right. Recently, the CEO of Nokia was quoted saying in an emotional voice “we didn’t do anything wrong but somehow we failed”.
That’s spot on. The micro is about doing things right. The macro is about doing the right thing.
Kodak had all those fundamentals for many years, so did Nokia and Blackberry. Until the macro turned against them and they didn’t catch wind of it.
The scary thing in the tech world more than any other is that it takes many years of hard toil to get the micro right, but the macro changes overnight. Andy Grove of Intel famously said ‘only the paranoid survive’; and not coincidentally Intel is one of the few examples of a company that wasn’t afraid to disrupt itself and reinvent itself in the light of a changing macro (the business of memory chips was being price-disrupted by the Japanese and so they pivoted to microprocessors).
So, the key question around the macro is: is what you are doing today playing to the past, the present or the future? If it’s anything other than the future, you should pivot or quit.
Knowing when to quit and having the guts to do it, can make or break both your company and more importantly – YOU. All entrepreneurs are in love with their ideas, and they all think more of them than, in most cases, is justifiable. Do not make the mistake of selling to yourself. Sell to investors, to customers, to new recruits, to your bank manager, your landlord, your girlfriend for putting up with you, sell to journalists and your competitors. Sell ferociously to everyone, apart from yourself. You need to be brutally honest with yourself in answering these question above, otherwise, you may be in for a long marathon to failure. And failure, contrary to the common perception, is bad. It wastes the little time we have in this world to make a difference, and it’s not a given that you may ever fully recover from it.
Join Us for more Startup War Stories!
I will be talking about this and other startup war stories this coming Friday 6th May in NYC – claim your spot here!