Know right time to cut your start-up’s losses and run

If you are riding a dead horse the best thing to do is dismount,’’ states an Asian saying.

Entrepreneurship is like riding a horse that is supposed to take you across a desert to a land of fortune.

If you realise that your business is dying or is dead, the best thing to do is quit. I like the saying that entrepreneurs don’t fail; its enterprises that fail. It is evident that most successful entrepreneurs have had failed businesses before.

Unfortunately, most entrepreneurs emotionally cling on hopeless businesses until it’s too late. They fail to know when to dismount their dying business and start another one. Majority behave like frogs. If you drop a frog into hot water it will frantically try to jump out.

But if you put it in cold water and slowly heat it up, the frog will continue to enjoy the warmth until it eventually gets boiled without realising what is happening.

Incidentally, business failure is not an overnight event. In most cases problems start gradually and grow worse over a period of time until one day the owner closes doors and leaves empty-handed.

Most entrepreneurs mistake business decline that heralds failure for a normal low cycle or temporal downturn.

However, if a business that has been doing well — growing both in terms of client base and profits as well as making good money for the owner — starts having prolonged cash flow problems and losing market share it’s time to watch out.

Usually, the first sign of impending doom is when the owner keeps working extra hard and increases products and the sales force just to maintain the save level of growth.

The second sign is zero growth. This is where the business is just able to meet its obligations. It may be recording moderate profits but it is not growing to keep up with its peers in the industry.

It is a precarious position to be in and every owner has a cause to worry. The third sign is drastic decline in revenue and profitability.

These signs can easily be overlooked or blamed on several factors such as the economy, currency fluctuation, and weather.

But continued decline in profits translates to less money for product development and marketing as well as reduced reserves, putting stress on honouring obligations.

The first thing to do once you venture into business is to identify performance indicators and treat any deviation with the seriousness it deserves.

Have an exit strategy if things don’t work well for you. If you realise that you are riding a dying horse, dismount fast and find another horse to ride. Don’t hold emotionally onto a struggling business. Do not be blinded by the often misapplied mantra that winners don’t quit and quitters don’t win.

The truth is that most winners do sometimes quit. You must know when to dismount a dead horse and mount another one to continue with the journey.

Mr Kiunga is the author of ‘The 7 Pillars of Financial Success and The Art of Entrepreneurship: Strategies to Succeed in a Competitive Market’. Contact: [email protected]