Without a doubt, perseverance is a core characteristic of every successful entrepreneur. You’ll never make it in the startup racket if you can’t push through some adversity. But there’s a difference between intelligent and insane perseverance. Not every business is long for this world. If you’ve got a loser on your hands, there’s no point in dying a slow, painful death. If you find yourself in a hole, stop digging! Cut it loose and move on.
How do you know when to fold ’em? There’s no easy answer to this question. The only practical advice – that you probably won’t follow because it’s the hardest thing for a passionate entrepreneur to do –is to make sure that you don’t dig yourself into such a deep hole that you can’t get out. In other words, don’t invest all of your retirement savings and home equity into your business. Make sure that you have a safety net. It’s intelligent to be financially committed, but insane to have your entire net worth on the line. It’s better to lose the battle and still have a shot at winning the war.
Another important piece of advice—if you do have to shut down, realize that there’s no shame in it. Serial entrepreneurs invariably say they learned a lot more from their failures than their successes. Take the lessons you learned and use them to make your next company even better.
When building your company, you will inevitably have a number of “it’s over” moments. A moment like this happens when things have become so dire and hopeless that closing up shop seems like it’s your only viable option. Every entrepreneur goes through this. In startups, these near-death experiences are so commonplace that surviving one is a rite of passage. After a while, you will become hardened to these kinds of shocks. People you work with will wonder how you hold it together when the world seems to be crumbling around you. There’s only one thing that matters, and that’s not what happens to you. All that matters is how you respond. So get mad for a few minutes if you want to. Then, after the initial shock of the third “catastrophe” this week wears off, regroup and figure out next steps. You’ve got work to do.
Cash is always tight in a startup, so you have to watch every penny that goes out the door. But there comes a point when frugal turns into cheap, and you end up doing more harm than good. By skimping on certain expenses, you could seriously hinder your business’s ability to perform or to expand.
Entrepreneurs are notorious for trying to do everything themselves. Taxes are a great example of being too cheap. Rather than paying a bookkeeper $50 a month, founders often try to do their taxes themselves. Not only does it take them forever to learn Quickbooks and add the necessary entries, but they’re usually wrong.
There are two things you should do to be frugal and not cheap. First, make a monthly or quarterly budget of projected expenses. By doing this in advance, as part of a larger strategy session, you take the emotion out of the decision making, and do what’s best for the business. Second, especially when it comes to larger capital investments, do a back-of-the-envelope payback period calculation. Figure out how long it will take to earn back your initial investment. This payback period should give you an idea as to whether the proposed expense will be worthwhile.
Be careful not to be too cheap. Otherwise, as Henry Ford said, “If you need a machine and then don’t buy it, you’ll eventually find you paid for it but don’t own it.”
Even if you have no intention of selling your business down the line, it is always smart to begin with the end and build it as if you are going to sell it. On the winding road of life, you never know what lies around the next curve. Your situation could change drastically in the future, so it’s always better to have the option to sell. What does build it like you’re going to sell it mean? More than anything else, this means taking yourself out of the picture. The less dependent the business is on you, the more valuable it will be to someone else. Businesses that depend on the founder are usually not sellable. You may be the rainmaker now, but reduce your burden by hiring other rainmakers. Get yourself out of the picture and build an organization that can sustain itself. This way, even if you never end up selling the business, it can provide the lifestyle you hoped for when you first started out.
Your reputation is one of the few things that will stick with you forever. It’s a small world, even in big cities like Los Angeles or New York. You will end up working with and running into the same people over and over again. How you handle yourself and your business will quickly solidify your reputation in the business community. Your reputation is very sticky, and once set, it’s hard to unstick. As Warren Buffett said, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” It only takes one or two events for your reputation to be set. As a result, make it a top priority to protect your reputation and that of your company. Protect and nurture it with the business community in the same way you handle it with your customers. Be transparent, direct, and honest. There is little adversity in the good times, so you will be judged most by how you handle yourself in the bad times. Therefore, when times get tough, dig deep and do the right thing. When in doubt, take the moral high ground. It’s longer and harder, but worth the extra effort. Even if the right decision means you have to shut down your business, an untarnished reputation will allow you to bounce back quickly.