When to Quit Startup: A Founder’s Guide to Knowing When to Fold

Building a startup is thrilling, yet unpredictable. Excitement and passion fuel the initial climb, but the ride can become a slow descent. Knowing when to quit a startup is tough, a question many founders grapple with. This isn’t about giving up easily. It’s about recognizing when perseverance becomes stubbornness. This post discusses factors and strategies for making an informed decision about when to quit startup.

Table of Contents:

• Grit vs. Quit: A Founder’s Dilemma
  • Why is Quitting So Hard?
  • Recognizing the Signals: When to Quit Startup
• Making the Decision: A Strategic Framework for When to Quit Startup
  • 1. The Monkey and the Pedestal: Prioritize the Hardest Problems
  • 2. Base Rates and Reality Checks
  • 3. Expected Value: A Cold, Hard Look
  • 4. Kill Criteria: Setting Boundaries for When to Quit Startup
  • 5. Seeking Outside Counsel: The Quitting Coach
• Conclusion

Grit vs. Quit: A Founder’s Dilemma

Startup culture glorifies grit, with stories of founders persevering through hardship. Success stories like Roblox or Figma can create a bias against quitting.

Why is Quitting So Hard?

Quitting is emotionally charged. This decision often becomes tied to our identity, especially for founders. Walking away can feel like personal failure.

The sunk cost fallacy also plays a role. We invest so much time, energy, and sometimes years of our lives. It’s hard to let go of that investment, even if your current company isn’t working.

Another factor is the “planning fallacy.” This is the tendency to underestimate project timelines, leading to extended runways and more sunk costs. A recent survey revealed 93% of Americans have a side hustle after work. Founders tend to overestimate short-term achievements and underestimate long-term ones.

Imagine launching a SaaS tool in late 2021, expecting a $4 million seed round at a $40 million valuation. Market conditions change. You might need 3x the growth to achieve a $4 million raise at a $15 million valuation. Most founders are unprepared for such shifts.

Recognizing the Signals: When to Quit Startup

Several indicators can help you decide if it’s time to quit your startup:

• Lack of Product-Market Fit: Are customers interested and buying your product? If pivoting isn’t working, consider attending SaaStr Annual for insights. Venture capitalists often look at customer growth or ARR per sales rep. They analyze why companies aren’t growing.
• Stagnant Growth: Some traction is good. Even winning sales with tips from podcasts can be a positive sign. However, flatlined growth after repeated pivots is a warning sign.
• Financial Instability: Is extending your runway feasible? If you are not making money, your startup might not last.
• Team Dynamics: What do other founders think, especially if early product-market fit hasn’t been found? They might believe the market doesn’t exist, as discussed at SaaStr Build. Even pivoting might not be enough.
• Personal Wellbeing: Founders invest heavily in their startups. If your physical or mental health suffers, or if you dread work, re-evaluate. Many engineers leave venture-funded startups for public companies. They often overestimate financial stability based on metrics like ARR and net dollar retention. Reading about better decisions could be beneficial.

Making the Decision: A Strategic Framework for When to Quit Startup

Knowing when to quit a startup isn’t easy. Approach it strategically.

1. The Monkey and the Pedestal: Prioritize the Hardest Problems

Focus on your biggest challenge. Astro Teller, CEO of Google X, uses the “monkey and pedestal” analogy. Train the monkey (your core challenge), not the pedestal (trivial details).

For startups, this means testing core assumptions. Don’t get bogged down in minor issues.

2. Base Rates and Reality Checks

Avoid founder optimism. Ground projections in reality, using base rates. Look at how companies are performing within a similar niche. This helps assess market viability. If they are not performing, why are you different?

During boom times, raising funds might be easy. However, sustainable growth requires a solid foundation. Focusing on organic growth (like SEO) rather than paid acquisition is crucial in the long run. Blitzscaling, prioritizing rapid growth over profitability, is risky. Market downturns can severely impact companies relying on this strategy.

3. Expected Value: A Cold, Hard Look

Continuously assess future upside. Compare sticking with your venture versus starting a new company. It’s essential to look at how long you’ve been at the startup stage, even if your job title sounds impressive.

Is the potential reward worth the risk, effort, and sacrifice? Consider your free time and how it impacts your overall well-being. How long have you been at this startup?

4. Kill Criteria: Setting Boundaries for When to Quit Startup

Knowing when to quit means setting clear boundaries. Kill criteria provide objective markers for making tough decisions. They help prevent clinging to failing projects.

Regularly examine your kill criteria. This enforces objectivity. It prompts crucial questions about when to quit.

5. Seeking Outside Counsel: The Quitting Coach

Seek impartial perspectives from “quitting coaches.” Ron Conway, a famed investor, emphasized grit when it worked. He recognized the importance of community in finding product-market fit, particularly with PLG sales motions. He championed community-led growth.

External advisors can guide you on various startup aspects. They offer advice on making better decisions, when to take VC money, and even when to quit. This is valuable even for experienced investors.

Conway was also a proponent of quitting when necessary. Most startups fail, even those that are funded. This allows founders to learn, network, and build a “best customer list” for future ventures.

Conclusion

Knowing when to quit startup is a crucial skill. It’s not about lacking grit. It’s about recognizing when to preserve your time talking about when to quit and allowing room for new endeavors. By understanding cognitive biases and using a strategic framework, you can save valuable resources and money. You learn to prioritize objective metrics over stubbornness. This framework, advised by SaaStr community speakers at SaaStr Annual, empowers you to make the logical decision to quit.

Hard conversations with mentors, “quitting coaches,” or investors can reveal underlying issues. They might explain past funding decisions and highlight potential for repeating mistakes. These conversations provide a vital opportunity to seriously consider when to quit startup.