How to know when to walk away from your business
As entrepreneurs, we are predisposed to persevering when things get tough. But when do you know it is time to walk away, asks Bri Williams.
How do you know when to walk away?
Let’s say you are trying to crowdsource funding for a new product using a platform like Kickstarter to attract and secure investors.
It’s a nervous wait, and if fundraising doesn’t go to plan, there are two paths to follow.
You can let things run their course, deciding not to invest more resources into the process, or you can make changes to the product to try to capture new interest.
But what factors influence that decision? That’s what researchers were keen to know.
They followed 576 fundraising campaigns over 14 months, monitoring each campaign’s fundraising status and product three times a week (6,758 observations in total).
They found 67% of entrepreneurs made changes to their product offerings, and did this when:
- Money raised was below their goal
- They’d raised far less than comparable peer campaigns, and
- There was still enough time to make the changes.
The timing of the product changes was interesting because they tended to make extensive changes at around 50% of their funding goal but not if the deadline was looming.
This reveals something very important when it comes to making our own go/no-go plans.
While most people focus on the money and may decide to reevaluate at the halfway point of their financial goal, that could be too late.
Instead, we should work backwards from the deadline and aim to determine go/no-go according to how long a revised product would take.
Let’s say our campaign for $20,000 is 30 days, and a product revision would realistically take five days. That means by day 24 we need to make a decision. If we’re around 50% pledged, we should make changes to improve the odds of hitting our goal, but if we’re below $10,000 we shouldn’t invest in any changes.
When to walk away
I share this research because it encapsulates the experience we all have at work. When should you stop investing in something? How do you know when enough is enough?
James Dyson famously created over 5,127 prototypes of his bagless vacuum before he got it right. Thomas Edison failed 2,774 times before creating a working electric light bulb.
As entrepreneurs, we are predisposed to persevering when things get tough. The Sunk Cost Fallacy means we are wired to continue to invest in something in which we’ve already spent time, money and labour.
The problem is we only hear stories about those who ultimately succeed. What we hear less often are the more common stories of bankruptcy and breakdown.
That’s why having firm go/no-go decision points before you start is crucial. Walking away will hurt in the short term, but will leave you better placed to try again.
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