“Stop this company before you develop its product – you have already wrecked your equity allocation and cap table with your handshake deals. Find another company to build.” (He did.)
“This is a fine company but it is a “back-bedroom” lifestyle business. It will make you and your founding team a nice living after the risk you have already put into it, but it seems unlikely to grow to create significant wealth for any of you. You have other much more lucrative offers that have experienced teams waiting for you, and with less risk attached. Relegate this company to the back bedroom and let it make a couple hundred thousand a year with very little attention, and share that among your partners.” (He did.)
“There are five market realities that tell us that this business cannot succeed, no matter how much the others say they want you to join as a founding partner, or how excited they are about the market potential. One: the patent on which the new technology is based has been allowed to expire. Two: you have no defensibility against your proving the market for this product and then having an offshore manufacturer produce and land a competitive product at less than one-tenth of your price, just as the mass market is ready for it. Three: market realities….” (He did not join this product business, but continued his successful consulting practice).
“The capital investment players are telling us that they are not seeing the value in this product. Even if they are mistaken, now that you are out of seed capital, your valuation at Series A will be so low that you are likely to lose control for your company by Series B, as your time to market is uncertain and could take much longer than you have planned. If this happens – if you miss your benchmarks in Series A, and find yourself in a down round in Series B – you may find yourself working for your investors without control of your company for the next several years, with no control over its growth or exit. So we should re-think your launch strategy, find strategic capital rather than equity capital, and grow organically or in niche markets or international markets until we have capitalized the company in a new way.” (She tried this approach but the economic crash caught her and the business could not be sustained).
“You must focus this enormous idea on a single market (pick enterprise, business or consumer) and productize this idea for that market and a target profile customer. This kind of product can be built quickly, with minimal capital, and thrown into the market in a soft launch or “Google beta” to see what feedback we get for refining the product. Then refine the product and move on from the soft launch to a hard launch, and get started. The longer you think about all the potential markets and products this idea can generate, the best markets will be closed to you.” (He did not, and missed his market timing, never gained significant market share, and his investors “sold” the company for its assets some years later, never creating wealth).
“I don’t like it. You offer your partner a chance to buy you out at $5-8 million before you put the company on the block for sale. You don’t know what competitive offers you may receive. You are leaving too much money on the table. Oh, the partner didn’t get it, so he turned it down? O.k., so now we write in the offering documents that as CEO you are available for 120 days’ orderly transition, then you are gone. That may limit your potential buyers to those that have management they want to put it place. It may reduce your ultimate valuation. But you will be free to move on to the next thing. If you are willing to risk these unknowns, we can write this in.” (She did, and the company sold for $50M and she walked away with $25M).
These stories are based on actual events. In some cases, the entrepreneur moved forward, in other cases he abandoned his plans. In one, she drew her boundaries and stuck to them. In others, the CEO persisted and the company perished, even after a long life.
As a CEO, you need courage. Every day you are faced with critical decisions, small and large, that determine the success of your company. For many CEOs, moving forward is the easier way – especially if the company has momentum. Then, moving forward is the path of least resistance. And sometimes moving forward is just the desperation of not knowing any other path to take.
Sometimes, moving forward means changing your strategic direction in a significant way. This can be more difficult than moving forward in the original direction. This flexibility takes courage to withstand the doubt it may place in others’ minds, or the criticism by those who do not understand how this shift fits into your larger vision.
It takes courage to stop. Many emotional issues are in play, even if they are unrecognized. Fear of failure. Embarrassment. Concern for the welfare of the team. Denial that the company is beyond recall. Loss of the dream which may have become your identity.
You need courage even to stop to think about stopping. It is an act of bravery to slow down long enough to objectively examine the company’s financial information, market data and product cycles (R&D and sales both), and to look at the information objectively, as if it were someone else’s company.
It takes courage to decide. To decide a strategy, a hire or fire, a new direction. Especially it takes courage to decide to stop – to stop before you begin, or before you take that first outside capital, or in the face of unforeseen market or economic changes. It takes courage to stop your company, to give the team and your colleagues and your market the news.
And it takes courage to stop your company and not to take on this ending as a mark of failure. A company can fail (or you can change your mind for valid reasons) without your failing as a person. The courage comes from the strength to separate your identity from your venture, to assess the qualities of each not in relation to the other.
I have said for many years, “When you have won one, lost one, and come back again to start your third company, then you can call yourself an entrepreneur.”
And the ultimate courage is to stay, or change direction, or take your best shot, or stop your company – and then walk on, self-confidence intact, and take your next best shot.
You can do it. If you have the courage to start a company, you have the ultimate courage to carry on as you decide. Good luck.