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Commentary

What This Entrepreneur Learned From Shutting Down His Company

May 18, 2017

The Entrepreneur Insiders network is an online community where the most thoughtful and influential people in America’s startup scene contribute answers to timely questions about entrepreneurship and careers. Today’s answer to the question, “What should budding entrepreneurs know about building a business?" is written by David Segal, founder of DavidsTea.

While it's tough on new entrepreneurs when their business fails, I know first-hand there's something far worse: being stuck in purgatory.

I’m talking about the entrepreneurial limbo between success and failure—where your company might be viable, but just barely, and you don't see any light at the end of the tunnel. Just as investors sometimes hold on to a falling stock for longer than they should, starry-eyed entrepreneurs can also waste too much time, energy, and money on a concept that simply isn't going to work.

Before I found success as the founder of DavidsTea (dtea), I spent three painful years in purgatory, and learned that the best way to get out is to know when to stop kidding yourself and throw in the towel. In my experience, there are three key things to look out for that will help you know whether or not it's time to quit:

The “interesting” dilemma
The most important thing in any successful business is, obviously, the product itself, and if you hear yours frequently described as “interesting,” then you may have a problem. It’s not enough to have come up with something people tell you is a brilliant idea. You need something people will actually fork over their cash for.

See also: 7 Tips for Building a Successful Company

My first company was called Fitting Room Central. You probably haven't heard of it. We created software that would allow a store to keep track of the clothes that went into the changing room and compare it with what ultimately ended up being purchased. I pitched to buyers at many, many meetings, and I kept getting the same response: “interesting.”

What you want to hear instead is: “Sign me up.”

We ended up getting a pilot at Macy's (m) department store in New York, but that was as far as it went. They thought it was “interesting,” but just couldn’t see a clear return on their investment.

The people problem
If it’s not the product keeping you in purgatory, it might be the people. Are the members of your team as knowledgeable as you? Do they feel as passionately about the business as you do?

I worked with an executive years ago who liked to use a lot of jargon in meetings—buzzwords like “snackable content” and “take offline,” along with endless unexplained acronyms like UGC, API, CTR, and PPC. It made her sound like an expert, but it eventually became clear that she was holding us back.

One of the best hires I ever made, on the other hand, was a guy with zero industry experience who had applied for a warehouse job. While he didn't have an MBA from a fancy university, he was open-minded, hard-working, and treated the company like it was his own. Over time, he grew to become the manager of a 40,000-square-foot warehouse with hundreds of employees, and he also came up with several ideas that ended up saving us a lot of money.

If your business isn't full of people like this who are always learning new things, challenging the status quo, and taking pride in their work, then you’ve got a problem.

Check your ego
It's not easy to give up on an idea you've poured your heart and soul into, let alone lots of money. But eventually, I realized that Fitting Room Central prospects had stopped taking my calls: I started to feel like the annoying telemarketer who phones during dinner.

It's a bit like if you keep asking someone out on a date out and they keep turning you down. This probably isn’t a sign for you to just change your hairstyle; it's time to give up.

One way to help make the decision is what I think of as “shark tanking” yourself. Imagine if the shoe was on the other foot and someone was pitching your own idea to you. Would you still want to invest, knowing what you know now?

Whatever your platform is, if you don't see either sales growth or profit (preferably both) within a short amount of time, it’s probably doomed to fail. There are exceptions of course, but it really is that simple.

As painful as it was when my first company folded, it taught me a valuable lesson. I'm now poised to launch a new business and, if we don't hit our targets a few months out of the gate, I'll know I'll need to either cut my losses and run or reinvent the business—because there's no way I'm going to spend another three years in purgatory.

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