Signs that your startup is ready for shutdown?

Most successful entrepreneurs have at least one story of how they started a promising business which then hit a downward spiral and crashed.

Jordanian serial entrepreneur Humam Dweik has experienced this first-hand, having traversed the rocky path of a start-up journey numerous times.

After shutting down two companies that he co-founded, he realised that both episodes had a few things in common: the co-founders had contradictory goals and visions and put in different types and amount of effort into the business, resulting in the team not working in harmony.

Seeing the signs

“If the founders are not putting in as much time and effort as they can, this will affect the organizational culture,” said Dweik, whose startups include ProTechME, a heart-attack detection solution. “Whether it’s time, money, connections or energy, as a founder you need to be ready to do everything. I’m not saying you shouldn’t delegate, but encourage everyone to put in the same effort.”

If at some point you find that some people who were energetic and enthusiastic at the start were slacking off after a few months, it could be because they were originally in it only for the thrill of being in the startup ecosystem. This is sign of impending danger, Dweik said. Investment interest will be low if the team is unbalanced or weak.

Nawal Fayez Hasan, an Amman-based financial consultant and business coach, says that when a founder feels they are unable to maintain clients or sales volumes that cover their fixed costs, and if they’ve tried different strategies to grow but can’t, these should be seen as warning signs.

“This usually happens because there is little demand for the product or service — there was a mistake in the market study, or perhaps there were changes in the market, whether technological or new competition. That requires us to reassess the situation,” said Hasan.

In that case, the owner should start thinking in a dynamic way of the tools they have to shift to another product or service. They don’t need to shut down, unless they have no other ideas.

Timing is everything

According to Dweik, who has mentored hundreds of entrepreneurs through various programmes, a common mistake is for a company to try and force a product into a market that may not want it or be ready for it. Instead of pivoting towards another market that might want it, they insist on staying in the same market.

Rola Fayyad, founder and CEO of ViaVii, a tour guide app that helps travellers discover local experiences in the MENA region, advises start-ups to “fail fast” instead of continuing to pump in funds when things aren’t going well.

“If your product is not monetising, and you’re not satisfying your customers, it’s a sign something is wrong. You can pivot as many times or change strategies, but if customers aren’t buying or understanding why your value proposition is better than your competitors, most likely it will never work out,” she said.

A survey of 100 Idealab companies and 100 non-Idealab companies conducted in 2016 to find out what made start-ups succeed or fail, found that timing was the single biggest factor.

Timing accounted for 42% of the differences between successful and failed start-ups, followed by the team (32%), idea (28%), business model (24%) and funding (14%).

“Myspace, Instagram and Facebook all are similar concepts but those that have succeeded did so because of timing. If we had Uber or Careem 20 years ago they probably wouldn’t have succeeded,” said Dweik.

If the start-up is still at the early idea stage, he suggests pausing or shelving it. “You never know when the time may be right in future.”

Ali Tabbalat, founder and CEO of Solfeh, an Amman-based micro-lending platform that has extended more than 3,000 loans since mid-2018, recalls how he started years ago with a fintech for budgeting monthly finances.

At the time, banks and users were risk averse, and he couldn’t establish a sustainable business model, so he decided to pivot. “It’s not do-or-die. What’s important is to pivot to something that makes more sense. We decided that the start-up didn’t look promising and we looked at different models. That, along with market acceptance, revenue, and sustainability, are the key elements,” he said.

Trust your instincts

Whether it’s for external reasons such as an economic crisis or market factors, or internal factors related to product, team, or finance, the moment you start thinking about closing down, it’s often a sign that you should.

“A lot of this process is psychological and about whether a start-up has the fight. If part of them has surrendered, it’s usually time to close down. Maybe somebody else should be doing it,” suggested the late Emile Cubeisy*, founder and former managing partner of Silicon Badia, a venture capital firm that invests in technology companies globally.

“To me, when you ask that question, it’s probably because you already know the answer. I can go challenge the founder, but it doesn’t matter what investors or others say; what matters is what’s inside of you. If you believe it’s time, then it’s time,” said Cubeisy, who was also a partner at BeyondCapital, a company that promotes the entrepreneurial ecosystem in Jordan.

Sometimes, it’s the reverse, he added. “Everybody will be telling you that you need to keep going, but you know it’s time to shut down. About 99% of the time it’s the most responsible thing to do, because at some point in time, you’ll just be wasting money and people’s time.”

Cubeisy himself had gone through the experience of shutting down an NGO called Shabakat, which he founded many years ago. He admitted it was one of the hardest decisions he ever made.

“It wasn’t the end of the road for the company, but it was the end of its usefulness — it was no longer solving a problem. Yes, I’m gifted at fundraising and I could’ve raised money, but we would’ve had to completely transform who we were,” he said.

“I felt that getting more money would be an irresponsible thing to do. As a founder, you should be looking at the situation holistically.”

While Cubeisy initially hesitated to pull the plug out of concern for his team of 12 people, he knew it was the best move for everyone. “I cared about them and their livelihoods. Every employee had a family and responsibilities. So I pulled the trigger and liquidated it.”

It was a tough decision but later proved to be rewarding. “When I look at those team members today, I realise that if I had kept the NGO open, it would have slowed down their growth. They have made great achievements and I’m very proud of them. They all look back at those days with fondness,” Cubeisy said.

Consider selling it

As the founder of a company, you can always restart your business anytime if you feel the time is right. But if you finally decide to close down, don’t forget that you’ve created value.

Giving up your start-up means that you took it as far as you possibly could, and that continuing to raise money is not a responsible thing to do. Perhaps, it is better for somebody else to do so.

“I would encourage people not to just shut down but to look for solutions. You’ve created value but you haven’t been able to extract that value, so try to sell it,” said Cubeisy. “Even if you sell it for five dollars and you protect jobs and somebody else benefits from it, that’s good. Don’t underestimate what you’ve built even if you have to shut it down, and don’t assume it has no value even when it’s at zero.”

*We interviewed Emile Cubeisy for this article prior to his tragic passing in January, 2021. Emile was a pioneer in the entrepreneurial ecosystem in Jordan, founding Silicon Badia, one the region’s first VC funds.