Is it time to quit your startup?

**This blog post was inspired by a presentation made during Twin Cities Startup Week in September 2022. To view the presentation, click this link. To view the slides, click this link.*

Hi, I'm Elyse + I'm a Quitter

In April 2021, I quit my startup. It was a painful decision, but ultimately the right one for my company, my family, and myself.

As I started shutting things down (informing investors, playing phone tag with my attorney, and creating a communications plan for our users), I leaned heavily on the handful of my friends who were also startup founders and had shut down their own companies. While there are a ton of articles about growing and scaling your startup, there are far fewer pieces that speak to the realities of how dang hard it is...and how to spot the warning signs that come when you're trying to decide if it's time to call it quits.

So how do you know when it's time to walk away from your startup? What are the warning signs? What are the various items to consider? And if you *do* decide to shut down your company, how should you start the process?

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The Sunk Cost Fallacy

If you’ve ever let unworn clothes take up space in your closet just because they were expensive, or followed through on plans you were dreading because you already bought tickets, then you’re familiar with the sunk cost fallacy. 

“The sunk cost effect is the general tendency for people to continue an endeavor, or continue consuming or pursuing an option, if they’ve invested time or money or some resource in it. That effect becomes a fallacy if it’s pushing you to do things that are making you unhappy or worse off.” - Christopher Olivola

As humans, we have a tendency to follow through on an endeavor if we have already invested time, effort or money into it (whether or not the current costs outweigh the benefits.

So when it comes to your company, it's important to make sure that you're not simply delaying the inevitable. Sure, you've probably invested a lot of time, money, and energy into your idea...but it's far worse to keep investing more into something that's not working than to call it quits when the wriitng is on the wall.

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Warning Signs

While there may be quite a few indicators that your business isn't working (either for its customers, employees, or for yourself), oftentimes the decision to shut down a company comes from both concrete ceilings you keep butting up against, as well as the - harder to quantify - toll on your mental health.

Here are some warning signs to watch out for that might be indicators of a larger problem:

• You’re running out of money / runway
• You’re consistently not hitting your revenue, user or growth projections…by a lot…
• You don’t seem to have good product market fit (users are hard to come by and/or churn is high)
• You cannot raise money even though you’re doing “everything right”
• You’re fantasizing about quitting
• You hate Monday and spend all weekend dreading it
• You’re agitated and anxious pretty much all the time
• You’re burnt out and nothing seems to help
• Your health (physical or mental) is suffering (e.g. stomachaches, can’t sleep)

Remember, nothing is more important than your health. Not disappointing investors. Not pissing off users. You owe it to yourself and your family to keep your physical and mental health in tact. This is just a job. Trust me, it's not worth it.

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Things to Try First

While it's important to look out for the warning signs that your company might not be sustainable, it's also important not to make any rash decisions. Closing your company is not the kind of thing you can quickly change your mind about, so make sure you've pulled all the right levers to course-correct before you commit.

Here are some things to try before choosing to shut things down:

• Take a vacation, break, sabbatical, anything
• Delegate tasks to other employees or just stop doing certain things that aren’t critical to the business (whittle down your to-do list)
• Get more support from friends, family members or other founders
• Journal and write about your feelings
• Find a therapist or life coach to work with
• Prioritize your health: get more sleep, find ways to move your body that feel good, spend more time with family/friends/pets

If after all that you're still feeling fried and not making progress, ask your head and your heart a few questions:

• What are the numbers telling you? Run the math and metrics. Be honest with yourself about how things are really looking. How does your cash flow look? How much runway do you have? How do your projections look?
• What kind of feedback are you hearing from users/customers?
• Do you even want to keep trying to solve this particular problem?
• What is your gut telling you? Is this thing working? Do you see a way out? Do you feel trapped and stressed all the time?

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Other Considerations to Weigh

The decision to shut down your startup is deeply personal, but if you decide that's what needs to happen, here are some other important items to consider.

‍Legal Considerations:

• Can you quit? Do you own your company?
• Do you have active users who you have promised a service to?

Personal Finances:

• Will you and your family be ok financially? 
• What do you need financially?

Selling Assets:

• Could you sell your company or product? Is there interest or appetite from partners, competitors or employees?
• What assets do you own? Who do you know or could you be introduced to who might be interested?
• Could you sell pieces of your company or product? (Email lists, content or brand assets like logo, name, web domain)

Logistics of Shutting Down Your Company

There's no one way to shut down your company. In fact, there are quite a few different ways to “quit:”

• Option 1: Step down as CEO and tap someone else to run the company
• Option 2: Sell the company (or parts of it)
• Option 3: Shut it down completely

Before you make any decisions, make sure you have an A+ business attorney and accountant. You'll want to run all of this by them and make sure you're going about things the right way, since the legalities will change depending on how your business, investors and other items were set up.

Remember to account for the costs of closing a business (taxes, legal fees), so don't wait until your bank account is at $0 to begin the process.

Talk to your family, business partners and attorney (in that order). Then create a communications plan. Remember all the different people who will be affected by this decision and make sure you clearly communicate what is happening and why to your:

• Investors
• Advisors
• Employees
• Users/customers
• Public (potentially)

Lastly, make a list of all the IP and assets you own. Is it possible to sell pieces or parts to other interested parties? Some items you might own include:

• Name, logo + brand
• URL or domain name
• Data
• App or proprietary tech
• Email lists
• IG or other social media accounts

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Dos + Don'ts

Deciding to shut down your company is a big, emotional endeavor. There's a lot of grief, shame, and anxiety involved so make sure you have a strong support system to help you get through the ups (feelings of relief) and downs (feelings of failure).

So don't forget to give yourself props; GOOD JOB ON STARTING YOUR OWN COMPANY. Whatever you chose to do, you built something. You tried! Very few people do that and it’s important to honor this huge effort. A few other dos and don'ts...

Don't:

• Make any rash decisions
• Wait until you have zero dollars and zero runway left and are so burnt out that you can't even...
• Blindside your investors, users, and employees
• Overshare with the public (and be careful what you put in writing)
• Blame the company’s failure on external factors
• Judge yourself too harshly

Do:

• Honor your feelings: relief, guilt, stress, embarrassment, freedom. All real. All valid.
• Remind yourself what really matters
• Have a firm grasp on your personal finances and know what you need to do next (e.g. take a break, do consulting work, jump into something full-time)
• Make a plan and a timeline for getting another gig
• Talk to other founder friends - especially ones who have done this before and understand what you’re going through
• Take a lil break if you can afford it; I called mine a “sabbatical” and it lasted 6 months

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Even though it's been over a year since I closed Fruitful Fertility, I still get sad about it sometimes. And whenever those feelings of disappointment or shame start to creep in, I try to remember my favorite quote by Theodore Roosevelt:

“It is not the critic who counts: not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions, who spends himself in a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat.”