Startups die frequently, quickly, and painfully. Whatever statistics you believe in, whether it’s the one that says 75% of venture-backed firms fail or the one that says 50% of all businesses fail within five years.
Of course, that doesn’t imply you should make a U-turn and cut your losses on the next street. Every company is unique, and how well yours thrives, in the long run, is determined by a variety of factors currently in play.
These elements include how well your product resonates with your market, how healthy your ROI is, and even how well you as a leader adapt to the demands of an unpredictably changing marketplace.
Truth be told, cutting your losses and fleeing maybe your greatest option for freeing up time and energy to establish a more sustainable (and profitable) business elsewhere. “Becoming able to quit things that don’t work is fundamental to being a winner,” says Tim Ferriss.
Here are three telltale signals that your firm is on its final legs, culled from startups whose founders abandoned them.
Masking in a negative Return On Investment
Business is, at its essence, straightforward. You have to spend money in order to make money. And, in a perfect world, you earn more money than you spend. Many businesses, however, close their doors for one simple reason: they aren’t producing a healthy profit. And a declining ROI might occur for a variety of reasons.
High overhead and low-priced products can sometimes result in a negative ROI. Other times, sloppy financial management, hiring too many personnel, or purchasing too many tools before your company is ready does the trick.
For example, Airware, a firm with over $100 million in funding, was forced to dissolve due to excessive spending. CB Insights provided the following explanation for the company’s demise: “Airware will be remembered as a cautionary tale of startup overspending in the pursuit of product-market fit.” Airware might have kept solvent if it had been more economical, saving money to lengthen its runway and giving corporate clients more time to figure out how to employ drones.”
In an email, Anthony Walsh, the founder of the health supplement company EcoLife, repeated this notion of early frugality. “Unfortunately, many entrepreneurs are unaware that a business must have a solid ROI from the start [emphasis mine],” says the author “Walsh penned an essay. “Many entrepreneurs believe that their company’s success is only a matter of time. They think to themselves, ‘I’ll simply wait it out.’ But if the business isn’t profitable, you’ve got a problem, and it’s a big one.”
Being a generalist.
It’s alluring to start a company that caters to everyone. The notion that “the larger the market, the greater the potential for profit” is incorrect and frequently leads to startup misdirection.
In actuality, the narrower your specialty, the easier it will be to promote, advertise, and sell your goods. Just because your company can serve various markets does not imply it should, especially at first. It’s a lot easier to build a successful firm in a certain niche than it is to compete with businesses ten times your size.
Gowalla, a social networking business that labored relentlessly to find its footing in 2007, failed quickly as it fought with Facebook for $3 million, $5 million less than the company had obtained in venture financing.
In this light, Kenny Kline, co-founder of Jakk Media, a growing business, expressed his agreement with the concept of a small niche: “I’ve come to believe that targeting niche groups is a solid business strategy,” he added over the phone.
Lack of activeness for shifting to meet market requirements.
“The only way to win is to learn quicker than everyone else,” Eric Ries stated in The Lean Startup, describing one of the most crucial principles about business.
In fact, when you stop learning, your business begins to fail. Take, for example, Blockbuster, a big corporation that suddenly vanished overnight. The reason for this is that Blockbuster did not adapt to market demands. Blockbuster became obsolete as Netflix and Redbox (smaller, faster-moving companies) established themselves in a market seeking convenience.
It’s difficult to jump ship after investing so much time and money into your firm, and you shouldn’t have to. You might start by attempting to repair your company. When the market says “jump,” ask, “How high?” Build a healthy ROI, locate a niche to operate in, and ask, “How high?”
If none of that works and you’re locked in a firestorm that won’t let up, your time and energy would be better spent creating a new and different business that will benefit both you and your market. Consider the following example: CCM was a Canadian bicycle and automobile manufacturer until it started producing hockey skates out of scrap steel more than a century ago. Since then, the name has become synonymous with hockey. IBM used to make typewriters and computers. As cheaper personal-computer technology became available, the company had to change or die, first to servers and IT services, then to software and cloud services. In franchising, the same survival rule applies. Even the most trusted companies may require a drastic redesign in order to keep up with market demands. Change is difficult, but it provides the ideal chance for entrepreneur’s eager to join in and help a franchise reestablish itself.
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