No entrepreneur wants to pull the plug on a startup. But if it’s struggling to survive, when should enough be enough?
When I first heard from Lori Cheek last year, the New York resident was covering the costs of her dating service Cheek’d by digging into savings that she had accumulated over a 15-year career in architecture. Her business card-like products—which date-seekers could hand out and featured cheeky, flirtatious messages—were not selling swiftly at $20 to $25 a set, and few people were willing to pay a monthly $10 subscription to share their online dating profile with others.
To keep her business going, Cheek sold some of her designer clothes through consignment shops. She also hawked her electronics online. And she rented her apartment out while couch-surfing with friends to save money. “I was running a business out of a suitcase,” Cheek, now 41, tells Entrepreneur.
By the time she was filmed for an episode of Shark Tank in September, she had sunk upwards of $120,000 into her fledgling startup and earned just $56,000 in revenues. “The reality is I am out of money and resources to continue building my dream, so I desperately need this investment from the sharks,” Cheek said in the episode, which aired in February. None of the judges bit, however, and investor Barbara Corcoran offered some advice: “You’ve gotta move on!”
Watch for warning signs. Calling it quits is easier said than done. A study released last year in the International Small Business Journal found that some entrepreneurs resist quitting a venture even when there is another business opportunity that could have lead to more successful results. Why? Certain individuals find it difficult to let go when a startup goes south, or another promising opportunity arises, because they’ve already invested too much money or time—something one of the study’s co-authors and other management scholars have referred to as an “escalation of commitment.”
Simply put, many entrepreneurs stick to their guns or continue to give it their all—even when it would be better to move on. How do you spot the warning signs that it might be best to call it quits? Finding yourself focused more on keeping a business alive than ensuring a safe place to live is one clue. And, while not everyone will agree, looking at how healthy your current relationships are can help act as a barometer of sorts. Cheek, for one, touted on Shark Tank that her matchmaking business helped her find a fiancée after “decades on my own relentless pursuit for love.” But that relationship has since ended, in large part due to her passion for the business. “It didn’t work out,” she says. “Apparently I work too much.”
Others overestimate their ability to sell a product or service, or to transform a sleeper startup into a screaming success. “That can be a good thing, to a degree, because sometimes you need an extra dose of adrenaline to stick with it,” says Peter Bryant, an entrepreneurship professor sat IE Business School in Madrid. But, Bryant adds, “There is a danger there, and I think the reality is it’s one of those psychological risks that goes with the territory.” Indeed, if a venture’s products or services are struggling to catch on and others—like colleagues or potential customers—are providing suggestions for improvements, ask yourself why you’re ignoring their recommendations. That moment of self-reflection helped Marcus Lemonis snap out of a past business rut: “I really started noticing my judgment became very clouded, and I wasn’t open to people’s ideas,” says the chairman of Camping World and host of CNBC’s The Profit. “I was so caught up in my own world I couldn’t even see new ideas.”
For her part, Cheek is trying to find another way to boost her business, and that includes undergoing “a major pivot,” she says. The plan, this time, is to stop charging users a subscription fee and maybe even end the sale of her cards. Instead, she’s going to try to expand her user base (which she won’t disclose) through a freemium mobile app that might charge for certain features at some point in the future. In the meantime, Cheek says she’s keeping her business dream afloat—funded, in other words—by selling certain possessions on Craigslist, including a surfboard, bicycle and guitar.
“I’m thinking I’m onto something,” says Cheek, whose venture is now four years old. “There’s really nothing that’s going to make me stop.”