Pining for the Fjords

I got some excellent advice from a former manager, back in what my kids call “the 1900s”, when I still wore a suit and tie to work and starting my own company hadn’t yet entered my mind.

I wasn’t enjoying the work and started to think out loud about quitting.

He took me aside and said:

I’m not going to try to convince you to stay, but don’t quit because you’re frustrated, leave because you’re excited about what you’re going to do next.

Thankfully, I took that advice and stayed on the project. I spent the next six months or so thinking about what I wanted to do instead. The decisions I made during that time have shaped the rest of my life.

I’ve subsequently given similar advice to several founders, trying to decide if they should shut down or sell their company. Often the question of an exit has only come up because they have lost their enthusiasm and they are feeling exhausted.

More than once I’ve said:

Don’t sell the company because you’re tired. Sell because you’re excited about what you can do with the proceeds - at least more excited about that than what you’re currently doing with the team and product you have.

Worse than failure

I’ve learned that most founders think in reasonably binary terms: a venture is a success or a failure, and often we oscillate between those two extremes several times in the course of a single day, depending on how things are going.

However there is a third outcome which is worse than failure: a venture is living dead.

Most investors in early-stage companies will be familiar with these ventures, but unfortunately founders often don’t realise when theirs is one.

Here are some features of a textbook living dead venture:

It has some customers, and associated revenues, but few if any who really love it. Because people don’t feel strongly about it, one way or another, it’s difficult to get any feedback on how to improve it. Product work crawls to a standstill because designers and developers can’t get excited about working on something that hardly anybody is using. People don’t find it remarkable and so don’t tell their friends. It may even have a bunch of customers who stick around purely out of loyalty to the founders and because they are embarrassed to admit that they don’t use it. This can be hard to believe, until you see it happening - it’s like the absent gym member who can’t bring themselves to quit because that would mean that their commitment to get fit is officially over.

It makes enough money that it seems silly to think about shutting it down, but nowhere near enough to attract further investment to drive growth, and probably not enough to properly pay people for their time. As cash burns down to below subsistence level the company is effectively driven down a narrow dead-end street, because there is no longer enough money left to spend on trying different things to turn it around, so by default it trundles along on the path it’s on, accumulating sunk costs.

It operates mostly in the dark. The founders stop looking at the numbers, because they’re depressing. Faith starts to trump facts in decision making. Investors don’t get any updates, because founders are waiting on fortunes to change so they can give an upbeat assessment (and this always seems like it must be just around the next corner).

Most tellingly, it has no momentum of its own. It atrophies. It only moves forward when the founders or investors really lean hard on it. And the progress, when that happens, is never in proportion to the investment of time and money - working on it is like running in soft sand.

If we find ourselves in this position, as a founder or as an investor, we have a difficult but important decision to make.

Call it a day

It’s tempting to think of our startup as our child, an embodiment of our own ambition. Who wants to kill their baby? Maybe it’s just a phase sent to test our commitment? Maybe there is hope just over the horizon? After all, in theory if we can just avoid dying we win.¹

But this is not about the hard patch that every successful startup seems to have to go through at one point or another. This one has never really fired in the first place.

Because few early-stage companies are profitable it can be difficult to tell from the outside if any venture is on track or not. When we are on the inside, it’s important to be honest with ourselves about whether we think we can get to the next milestone with the resources we have. That could be either getting to a cash flow break-even position or to a state where we are confident about raising whatever new capital is required to fund the next stage of the business. As soon as we lose that confidence we’re living dead.

It seems nearly every early-stage founder thinks of their venture as a rocket ship (at least out loud!) This is often just bravado. Even so, it is actually a useful metaphor, if we think of it in practical terms. We always start out aiming for the stars, with the intention of getting into orbit, but few will make it that far. Unless we can find another booster stage to fire, once our momentum runs out it’s already over, however high we may be at the time and whether we acknowledge it yet or not. Gravity eventually wins.

As soon as we admit that we are living dead, we need to consider the other potentially much more rewarding things we could be doing with the time and other resources that we are currently putting into a zombie venture. Think about all of the successful startups that we could be working with instead. They are almost all constantly struggling to hire enough good people and would likely be delighted to have our experience.

It’s a brave decision but a logical choice. The important thing to realise is that from this position it’s better to have already failed than to be continuing on as we currently are. We need to forget about the sunk cost and get our head around the opportunity cost of continuing.

A startup is an unbounded commitment, and in any life there is only room for one of those at a time. As long as we stick with one we don’t leave room for any other.

So when it’s obvious we’re done, we should call it a day. Then get on with the next thing.

Who knows, the next thing might be the next big thing.

Headline Inspiration: Dead Parrot Sketch, Monty Python, 1969

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