When to stop a new venture

How do you know when it is time to call it quits? Suvi Nenonen outlines the signs that indicate it is time to pull the plug. 

Talking about innovations and launching new product and services, we tend to associate timing with starting things. Whether first-mover advantages exist, or if one is better off betting on a fast-follower strategy.

Naturally each new venture must be kicked off at some point, but there is curiously little advice available when it comes to the other end of the timing spectrum: stopping things. 

However, we know that not every experiment or new business venture is going to be a roaring success. To make things even more confusing, anecdotal evidence seems to promote diametrically opposite positions: The Silicon Valley slogan “fail fast and cheap” is often presented next to a story of a heroic entrepreneur whose long-term perseverance – even at the face of insurmountable difficulties – proved to be the winning strategy. Thus: when do you know that it is time to call it quits?

 

Stagnant key progress indicators

When launching something new, you should spend considerable time and energy on developing canaries for your venture: what are the key progress indicators that will tell you if you are heading for trouble? 

Serial entrepreneurs suggest steering away from so-called vanity and busy-ness metrics. Vanity metrics measure the big-picture market development (for example, the general interest in electric vehicles), but because they have no direct link to your venture (for example, selling charging stations) or actions (influencing councils to include municipal charging solutions into their transportation plan), they don’t tell you anything about whether or not you are getting any traction.

Busy-ness metrics, as the name suggest, merely measure how busy you are (how many phone calls, how many investor meetings). Unfortunately, busy-ness does not always translate to business – and thus most of your key progress indicators should be linked to tangible external developments (number of pre-orders, amount of capital raised). If most of them are stagnant, it might be time to consider stopping the venture.

 

Too slow 

Making progress is also a relative phenomenon. In fast-moving industries, such as high-tech, the final curtain comes down much faster than in industries with more relaxed clock speeds. In innovation, shipping often beats perfection – and thus it makes sense to pay attention if your venture seems to progress much slower than other projects in your sector. 

In addition to the information provided by progress indicators and the relative speed of the venture, there is an even more prosaic signal to stop: your bank account. No matter how exciting the venture, you usually don’t want to risk the future of your entire business for it. Unfortunately, in this respect the playing field is not level for all firms: the deeper the pockets, the longer one can persevere – and thus absorb the risk of starting too early.

 Therefore, the third and final sign to call it quits comes from the chief financial officer – you cannot spend more than you can afford to lose. 

 

The silver lining

Despite the above-described variations, successful firms seem to share two traits when it comes to the actual act of pulling the trigger. 

First, clever executors seek to recycle or reuse as much of the salvageable resources and competences as possible. Perhaps the newly acquired digital marketing know-how or the new supplier could be used in some other part of the business?

Second, good quitters aim to stop things as often as possible. This may sound counterintuitive, but constantly starting new initiatives and never stopping anything increases the complexity of any business. 

And we know from systems theory that the more complex the system, the more energy it requires just to remain in stasis. In business contexts, this translates into higher costs, less agile processes, longer lead times, increasingly frustrated employees, and profoundly confused customers. 

So, perhaps we should all investigate opportunities to stop things to simplify our businesses – and become stronger by doing so. 

Associate Professor Suvi Nenonen works at the University of Auckland Business School’s Graduate School of Management and teaches in the MBA programmes. Her research focuses on business model innovation and market innovation.

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