The shut down of a company is final. It’s the end. There are similarities to every shut down of a company. Some investors get mad. They argue that it shouldn’t be shut down. The dream is still alive. If it’s some sort of earn out acquisition, other investors will argue that the terms are no good.
Recently, two companies I were invested in had to make difficult decisions about whether to live or die. One shut down, one didn’t.
There are lots of reasons to shut down.
- The classic product market fit problem.
- Company couldn’t raise money.
- The vision wasn’t big enough.
- The company was really a “me too” company to start with and it wasn’t unique.
- The problem that it was attacking wasn’t solvable, or too big
- Poor execution. Team wasn’t up to the task.
These are all known and have been blogged about extensively.
When confronted with a shut down or keep going decision, one discussion I always have with the CEO surrounds their mental state. Are they tired of fighting the fight? How do they feel emotionally, physically and mentally? How does their team feel with respect to all these?
Sometimes, you just get tired. Psychologically, you can’t take it anymore. Even people with all the grit in the world get tired.
As a kid, I was an athlete. I pushed myself as hard as I could. I thought I was exhausted. Then I went through basic training at the Air Force Academy. Nothing pushed me more mentally, physically, or emotionally. Being in that consistently exhausted state wears on you. The one thing you could count on was food and a place to sleep for a few hours and that was about it.
I get being run down and out of gas.
When you are an entrepreneur, you need to calibrate yourself. Find out how much gas is in the tank. This is why when you start a company it has to be more than simply a passion. The big vision propels you through the tough times. Mark Cuban likes to say, “follow your effort not your passion”.
This can apply to startups when they face that shut down decision. Are they distracted? Or, is there still a tinder burning deep inside it that wants to carry out the vision?
Only the CEO can decide that. VC’s are there to help them through the process and help them be realistic about their choices.