When to Say When

It's your business. Your dream. Your <i>baby</i>. And it's failing miserably. Is it time to call it quits?
Magazine Contributor
4 min read

This story appears in the April 2001 issue of . Subscribe »

Perseverance, tenacity, a never-say-die attitude-these are all traits that drive entrepreneurs, against all odds, to build multimillion-dollar companies. But successful entrepreneurs also know when it'stime to get out of a venture-whether to cut their losses or make way for better management.

You see, there's a fine line between perseverance and prideful obstinacy. When you fall on the wrong side of that line, you risk paying a huge price in terms of your personal and professional relationships, bank account, credit rating and emotional stability.

"There is a definitive point at which you and your company may be better off parting ways," advises Gene McCubbin, 30, president and CEO of RealUse.com, a small-business Web hosting, applications and wireless broadband company based in Houston, Texas. "In some cases, that may mean dissolution of the company; in others, that simply means the company continues without you."

McCubbin understands from experience. The first company he founded was a small Web hosting and design firm with over 30,000 customers nationwide and close to 130 employees. "How did I know it was time to go?" McCubbin reflects. "As my company was imploding around me, I arranged a merger deal with a growing company in another state. My board voted down the merger and approved a different deal that was much riskier. When the board turned down the deal-based on their emotions instead of logic-I knew we were moving along different paths and it was time to resign."

McCubbin, however, didn't bail on his entrepreneurial dream. Six months later, he got back up and founded his second venture, RealUse, which today serves about 15,000 customers and generates $3 million in annual revenue.

How can you tell whether you should keep going or pull out ASAP? That's a tough question-one that only you can answer for yourself. However, there are warning signs or red flags that tell you something is seriously wrong and you should at least consider getting out before you accrue too much debt, damage family relationships or (believe it or not) impede your company's growth. Watch for these four indicators:

1. Lack of market acceptance. "This is easiest to judge when you're trying to raise money," says McCubbin. "If no one wants to invest, you may have a problem."

Customer response is also a key indicator. If you haven't developed your product yet, are prospective customers willing to give you their time to offer guidance on the development? If not, re-evaluate whether there's a real need for your product. Then, once your product is developed, determine whether customers are buying it. If customers don't want what you sell and you don't adjust accordingly, persistence will only drive you into deeper debt and frustration.

2. When your company outgrows you. Says McCubbin: "It is a rare entrepreneur who can transition his or her role from a seat-of-the-pants startup to a mature, money-making corporation. Most people have skill sets to lead a company at certain stages. For some entrepreneurs, the time to leave (or at least step aside as head of the company) is when the company has grown beyond your abilities."

3. Partner conflicts. If you and your partner aren't getting along-whether because you're fighting over the company's direction or use of finances, or simply because your personalities clash-don't try to ignore it. The situation will not get better on its own. Bring in an investor and/or board member whom you both respect and trust, and try to talk things out. If this doesn't work, then for the sake of your company, somebody should leave-whether it's you or your partner. The decision would depend on how much power you retain in your company and what price you're willing to pay, in terms of attorney's fees, potential bad publicity and emotional stress.

4. Disagreements with investors and your board. McCubbin's situation with his first venture is a case in point. If you and your investors and/or board members disagree strongly on the direction of the company, you may get squeezed out, unless you can persuade enough voters to side with you. If you don't have the votes to exert influence, it may be time to walk.

Remember, know when to say when. "Anyone can see it's time to bail when the lights are being shut off and employees are all walking out with staplers, laptops and fax machines," quips McCubbin. "One of the worst things to watch is an entrepreneur who continues with a business regardless of outside indicators that say, 'Hey! The party's over!'"

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