The focus here is when you should make the call on a business that’s not making you enough money for it to be worthwhile—or worse, one that’s eating your personal assets. Walking away—for personal, family, or health reasons—from a business that is making money is altogether different, and I don’t cover it here. (I’m also assuming that you’re not contractually or ethically bound in some way, that you have the choice to walk, and the world won’t end if you do.)
Here’s my checklist of what you should weigh when making this decision:
- You’re out of money
- You’re out of ideas
- You’re out of will
- You’re out of support
If one of these factors applies, give some thought to closing down. With two, those thoughts turn serious. I’ve been in the eye of that emotional storm myself, and I've heard the thought processes of many small business owners who’ve also gone through it. These owners impressed me with an attitude that I’d sum up as: When one door closes, another opens. This captures my outlook as well.
You’re out of money
The first step is realizing you have a problem: You’re dealing with a business that’s not working, i.e., one that’s losing money or not making enough money. Two things to consider here in terms of reaching your limit: money that you’re investing in your business and opportunity cost.
For a very large majority of small businesses, any money invested in the business comes from the owner’s personal accounts as a shareholder loan or it comes from third party loans that the owner personally guarantees. Owners uses these funds to purchase assets and to pay bills during their launch phase. When their businesses do well and generate profits and positive cash flow, these loans can be repaid. When their businesses struggle, these loans become shaky.
Lenders have limits when it comes to losses. Reach that limit and they pull the plug: no new funds and potential insolvency. This may feel unfair after all your blood, sweat, and tears—but it’s also sane. Just like it’s sane for you to have a number in mind for how much of your own assets you’re willing to risk in a venture. Once you’re at or near that number and the business is still losing money, you have to think long and hard before throwing more of your savings onto the fire.
The second situation involves a business that isn’t losing money but also isn’t making enough profit for it to be worthwhile. Worthwhile is measured in terms of alternatives. If you could be working for someone and making two to three times what you’re making in your business, that represents your opportunity cost for continuing to be a business owner. The longer you pay that cost, the more you have to eventually get from your business to recover the ground you’re losing financially. It gets late early.
You’re out of ideas
Sometimes it’s OK that the business isn’t working as long as you have some ideas on how to fix it. Some theories, for example, you can try on your processes, or some experiments you can run in your marketing. Profitability means managing two variables: revenue and expenses. If you still have moves you can make with either variable, there’s still some game left to play. Once you’re out of moves, you’re going to feel stuck and, eventually, trapped.
You’re out of will
Having ideas is one thing. Having the energy and drive to carry them out is another. Small business, especially a struggling small business, wears you out. There are peaks and valleys. Then there are sheer drops. After you’ve fallen down one of those, it’s hard to look up and contemplate climbing out. Climbing out while also carrying up a struggling business requires hope and everyday resolve. You’re the owner, you’re the one who has to supply those things. If you don’t have the will to carry on—much less succeed—then it’s likely time to try something else. No get up, no go.
You’re out of support
If you have people who’ve given you money, they may not understand what you’re going through in the business. If you have people who’re working for you, they may see what’s happening, but you can’t really open up to them—there are lines you can’t cross. If you have partners, struggles are as likely to bring out the bad as the good when it comes to relationships and people. As for family and friends, there are lines there as well, not to mention barriers to understanding entrepreneurial life.
If, despite these networks, you feel you’re alone, then you’re missing out on the perspective, insight, and back and forth that stimulates idea generation. You’re also missing out on the camaraderie, mutual support, and encouraging words necessary to follow through on ideas. We’re acutely aware of this need for support here at Origami, having relied on each other over the years. We try to design our services to counter that sense of aloneness that small business owners sometimes feel.
When one door closes, another opens
In Origami’s early days, we were office neighbors with a couple of young engineers. They were working on a diagnostic testing device for the health care field. They wowed investors in startup competitions and eventually raised initial funding from a very successful entrepreneur. He saw that they had cutting edge tech targeting a large, deep-pocketed market. The pair seemed can’t miss.
Some time later, they attended a product launch from a large established player in their space. The presenter mentioned, almost offhand, that his company would soon be launching another device, one that was nearly identical to the tech that our neighbors were working on. Our engineers didn’t have IP protection, I’m not sure if it was possible in their specific case.
They were crushed. Their investor, a tech founder with a very large exit to his name, still wanted to back them. He believed in them as a team. He encouraged them to stay in the startup world. He was willing to fund their pivot.
Our neighbors thought about it, talked about it, and turned him down. They returned the funds they’d raised and wound up their corporation. That was the door closing.
They brushed themselves off and applied to highly competitive MBA programs and both got in. They graduated a couple of years later and joined multinational corporations, where they’ve since flourished. Any financial ground they lost in their unsuccessful bid at entrepreneurship has been made up many times over by their decision to not linger in the startup space once they had nothing worth pursuing. They knew their strengths, and they knew that businesses with vast resources and opportunities valued those strengths. They didn’t need to be entrepreneurs that badly. There were other doors that opened to other paths.
I don’t know your context. It’s likely very different from what I described. But there’s always another door. That much I know.