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How do you know when you should shut down your startup?

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A 106 Miles member asked me this recently out of the blue, and I thought it might be helpful for other entrepreneurs to hear my answer.

I believe that a founder should shut down the company when s/he concludes that there are unresolvable structural issues preventing the company from fulfilling its mission.

Sometimes this unresolvable structural issue is genuinely capital-related -- for instance, right after 9/11 the flow of venture capital dried up entirely for a while -- but I believe that actually capital is the fundamental problem less often than it appears on the surface. Very often when I've seen startups "run out of money", the true issue is actually one of the other major structural issues.

* You slowly come to the dreadful realization that actually no one wants your product that you slaved away on for so many hours.

* You realize that there is a "hard" business constraint that cannot be overcome with the resources available to you in the nearish future. For instance, Paypal's founders famously calculated that they needed to get to $1bb worth of transactions a year to make their network profitable -- if they couldn't achieve that volume, the whole thing would be nothing but a giant money suck and they were prepared to shut the company down.

* Your team -- by which I mean co-founders, board members, investors, and truly indispensable employees -- develops some kind of insuperable inability to pull together in the same direction. This might be illness, different goals, or extremely divergent business ideas.

Remember that as an entrepreneur it is often better for you to be released from a venture that has little chance of success, so that you can dust yourself off and try again.

Here's how I summarize what you just wrote:

Startups succeed because of team, market, and product.

When one or more of those is unfixable, the startup will be unsuccessful.

Did I get it right?

Sounds right to me. Also, a good general principle is that if everyone involved would rather move on, shut it down. I've seen situations where everyone--entrepreneur, investors, employees, wanted to move on, but they soldiered on out of duty. Startups require true believers; turning the crank simply doesn't get the job done.

This is REALLY good.

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