Aug 14, 2012 10:54
The only thing worse than failing is sticking with a doomed business long after its fate is sealed, according to Brian Hamilton, co-founder and CEO of Sageworks. He recently described for Inc.com how to know it's time to move on.
Every small business struggles. Struggle is what you signed up for when you became an entrepreneur. Even the most successful business builders have all gone through moments when they wondered whether they should call it quits and try something different.
And, let’s be honest: Sometimes the answer is yes: It just isn't worth it to keep pressing. How do you know it's time? Here are three ways:
1. You See Little Revenue (and No Profit) After Many Iterations
It takes between three and seven years to become established. I'd like to offer a more specific date, but it depends too much on your industry. I can only say it will take the most complex businesses seven years to start up.
In this beginning period, you consistently change your products' make-up as you receive feedback. A pull from the marketplace should develop—and grow. This means revenue flows in, and profit follows.
If you reach the end of the development stage, and you see stagnant or declining growth, then it's time to get out. Again, I wish I had a precise growth number, but it's entirely industry-specific. It should be a healthy amount, though. And don't waste your time if your revenue has flat lined. Avoid clinging to the hope that you'll find a way to make it grow again.
This happened to me when I ran a consulting business in the 1990s. Revenue rose, but then fell flat after Year 3. I continued for another three years, and I regret it. I should have realized scaling the business any further was impossible: A company would hire a single consultant—they'd pay me to tell them what to do—but they would balk at hiring an entire company of consultants.
2. You've Borrowed A Lot of Money
The fundamental goal is always this: Make a profit. Too much borrowing can keep you from achieving it.
By "borrow," I mean receiving any financial capital that isn't yours. This can mean the old-fashioned sort of seed funding—a bank loan or some money from family—or outside equity financing such as venture capital and angel investment.
This financing can disrupt a revenue stream. Too often now I see companies eschewing revenue and profit for outside funding. Sure a Series D round may sound good, but, to me, that's a fundamental flaw. Companies today can rely on funding to grow their business, forsaking organic growth, and soon too much funding can distort a business's value.
If you stopped taking funding, would your business still grow? If the answer is no, then you have a problem. Just because you're a successful fundraiser doesn't mean you run a successful business—at least as I would define it.
3. You Hate Working Weekends
You start a business with the loftiest goals and ideas. It's your passion. You don't notice how early you start or when you go home.
So, when you start feeling like you don't want to work a weekend, that's the biggest red flag I know.
This business is your dream. You shouldn't care how long it takes to perfect it. Or when it needs you. You've lost that entrepreneurial drive, and that's exactly what fuels you and your business through any struggle.
Brian Hamilton is the co-founder and chief executive officer of Sageworks. He is an original co-developer of “FIND” (Financial Information into Narrative Data), the company's core artificial intelligence technology which converts financial numbers into plain-language reports. “FIND” is the basis of ProfitCents® and Sageworks Analyst®, applications that are used today by thousands of financial institutions and accounting firms throughout North America and the United Kingdom.
In addition to being an entrepreneur himself, Brian is a noted expert on privately held companies whose expertise has been featured in hundreds of national TV and radio interviews and print articles. He is currently a guest columnist for Forbes and Inc.com. Brian also oversees Inmates to Entrepreneurs, a community outreach program focused on teaching ex-offenders to start low capital businesses.