Thread by @dunkhippo33

Today's Sunday tweet thread is on when to give up on your startup and options for giving up.

This is a topic that I don't think is discussed enough, because founders don't want to think about giving up & investors don't want them to give up.

Read on >>

1) Yesterday I talked about tenacity as a top trait in the most successful entrepreneurs.

I ended by saying, "If this is the path you want to take..." then just keep going, and you'll be successful.

But what if you discover it's not the right path?

https://twitter.com/dunkhippo33/status/1368331369235902464

2) There are two ways that it could not be the right path.

1) Entrepreneurship in general is not the right path for you.
2) This particular idea / business / team etc -- the details of your current journey -- is not the right path for you.

3) These are 2 very different things. If you figure out that you hate being a founder -- you'd rather work for someone else -- that's a really impt discovery, and you really shouldn't make yourself miserable.

You should get out and cut your losses. Life is too short.

4) My first co-founder was like that. He realized that he hated the unknowns about being a founder. He wanted a high-paying stable check. He didn't want to have to scrappily figure things out.

He *thought* he wanted to be a founder, but realized he really didn't. And that's ok.

5) Now, there are of course, many days as a founder where you will HATE your life.

I was so nervous the day that a customer asked me for a $45k refund when I didn't have the money. I was upset when an investor called me a meek Asian woman.

There will be many awful days.

6) That just goes w/ the territory of being an entrepreneur. There are lots of ups and mostly downs. But you plough through the downs to live for the ups.

So you have to be honest w/ yourself about your career in the aggregate -- do you want a career like this?

7) Would you rather have a stable job working for someone else w/ capped upside? Or would you rather face all these ups and downs and have a lot more autonomy and be able to write your own ticket (for better or worse)?

8) And if in the *aggregate* being a founder is not for you, then you should just stop. It won't be fun or pleasant to convey that news to your co-founder or investors, but you shouldn't drive yourself batty for the sake of your own personal health.

9) On the other hand, suppose you like being an entrepreneur but there is something wrong w/ your circumstances - team / product / personal finances etc, what should you do?

The good news is that's solvable. It may not be easy but solvable.

10) Let's set team issues aside for now and just focus on suppose you have a product in market w/ some customers but it's not growing like gangbusters. You've been working on this for a couple of yrs. Running out of personal finances. What should you do?

Common problem.

11) I think many ppl think it's a binary decision to keep going or to fold. But really there are a LOT of options in this case.

First, should you keep it going in some way or another?

12) Be honest with yourself -- do you have *any* users who LOVE it? If you only have ppl who lukewarm like your product and would not really be too disappointed if you went away tmrw, then maybe you stop that idea.

13) But often the dilemma is that there are some ppl who LOVE it but not enough to make it a real business that can support your team full-time.

If you want to be on the VC-train and ONLY want to do this if you can be on the VC-train, I often think it's better to switch ideas.

14) But if your goal is to make this a profitable sustainable business (and who cares about the VCs), then there are a bunch of ways you can stick w/ that idea and solve for your personal finances.

15) Here's an example that some friends of mine did when they started a DTC company that had a low-value product and tight margins. They had passionate customers, but they needed *thousands* of them just to pay for 1 person's salary.

https://twitter.com/dunkhippo33/status/1313265188993294337

16) So they rotated the CEO-ship amongst the 3 co-founders every 2 yrs, & the other founders got jobs. They were also able to continue funding the business w/ their salaries.

Rotating back into something that was growing was always fun. They now do 8 figures & it's great!!

17) This is harder to do if you have investors (my friends couldn't raise so they were bootstrapped), but if it's about the business continuing or halting, your investors may be supportive -- that's why it's impt to have have strong communication w/ them.

18) Another idea is to run the co part-time. Again, a convo to have w/ your investors if you have them.

But if you have repeat customers who love your product, it may be worth automating as much as you can & slowly get new customers on the side.

Revisit going FT later.

19) A more common option is to pick up some consulting jobs or side jobs and keep working on the co. So many founders I know have done this for a month here and there to make ends meet and there's no shame in doing this.

20) Founders often ask how they can find an acquirer. This is really hard if your software co has rev < $1m, and even around $1m runrate, that's still going to be super challenging.

If you're lucky, the tech you've built is interesting for strategic reasons, but that's hard.

21) The good news is that there are now more micro PE firms looking to buy cos that are above $1m runrate. So, combining some above strategies w/ this, if you can slowly get up to $1m+ runrate, then you can sell more easily.

22) Let's talk about tough conversations. If you have investors, you're going to have to just level w/ them. The company is in a tough spot. The top option is to shut down, but you're considering the above 4 options.

Gauge their thoughts / feedback.

23) Obv this is NOT the outcome anyone was looking for. That being said, investors are professionals and account for high losses in their portfolio. So they should be able to handle this conversation.

Investors will want diff things.

24) Some investors will want to just take a loss. It's better for them to get the tax writeoff, get off the captable (and not spend more time here) than to have a slow growth outcome.

That actually works in your favor.

25) Other investors will applaud you for trying to keep the co alive - even if slower and will def want to stay on the cap table.

26) If you have any cash, you may want to offer to buy ppl out for $0.01 on the dollar in case ppl want to get off the cap table, and that consideration helps smooth out the transaction.

But only do this if you have more than enough cash to offer to everyone.

27) A friend of mine did that, let go of the whole team, and then when it was just him taking a low salary + consulting gig, he was able to build up the cash reserves in the co.

28) Later, he then added more ppl as the growth trajectory of the business changed. And even added new investors.

29) Put into marketing terms, it's possible to have PM fit but have slow growth. There are just going to be some products that have challenging unit economics to make high CAC work, and so they may just have to grow organically.

30) But overtime, -- esp w/ repeat customers -- revenue still compounds, so the business may just take a while to get going. And you're basically looking for a strategy to wait out the first few years.

31) In fact, one of the reasons for all these new private equity microfunds that buy out companies at $1m ARR is that they are largely started by serial entrepreneurs who know that it is better to buy an existing biz than start a new one :)

32) This is because waiting out the first few painful yrs is hard, so why not buy an entrepreneur just when things are taking off :).

33) So w/ that framing, for you as the founder, you need to figure out how you can get survive past the first few yrs to that fun part.

34) In conclusion, building a biz takes a long time. If you have something promising but not yet sustainable, there are many options besides shutting down. Think creatively about how you can get past those first few years.