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4 Signs It Might Be Time to Shut Down Your Startup

Sometimes a startup encounters a problem so serious or complex that it simply cannot be solved. Whether it’s an internal issue with staff or culture, or an external challenge such as the inability to connect with customers, issues of this magnitude can be company-killers.

As a founder, if you’ve exhausted your time, knowledge, resources and funding and you still face a problem that you just can’t fix, it’s probably time to take a hard look at the future of your business.

However, staring down serious business issues doesn’t automatically mean it’s time to wind down your startup, says Lauren Siegel, an adviser at trepwise, a New Orleans-based consulting firm that works with startups and established businesses.

Siegel says the first step for founders facing existential questions about their venture is to get over the fear of talking about it and seek help from a trusted adviser, a consulting firm or a knowledgeable figure in an accelerator or incubator. “Someone out there has the information that can help you make that decision,” she says.

The next step is to assess how bad your problems really are and what the potential solutions could be. For founders who are deciding how to move forward, here are four warning signs your entrepreneurial venture could be nearing the end.

You Can’t Reach Customers in a Sustainable Way

Siegel says that when startups are struggling to secure customers in a way that makes sense over the long term, it’s commonly because the market is saturated with similar products or offerings. The marketplace can become so competitive that the company can’t effectively reach consumers in a way that’s financially sustainable.

“That often happens when someone has a great idea that comes along a little too late, when there are other people out there, big players, acting on that idea, selling the product and reaching those consumers,” she says.

This makes it hard to differentiate your product and build a customer base to sustain the business over the long run, and should be cause for concern.

You Can’t Find the Talent You Need

If your venture requires specialized talent that you just can’t seem to secure, something could be fundamentally wrong with your approach.

“If you have something hyper-specialized and there’s no talent in your area to support that, you can outsource, you can move, but is that sustainable for your business?” Siegel says.

If you can’t find the people to deliver the value you need as a company, it’s time to assess why that is.

The Necessary Pivot Is Beyond Your Capacity

It’s a serious red flag when your business has come to a point when the necessary pivot to meet the market demand is outside the capacity of the founder and the business. “It requires too great of an investment to catch up with first-movers,” Siegel says.

As an example, Siegel says an artisanal lock-maker that finds itself overrun by digital-based “smart” door locks hitting the market probably wouldn’t have the resources or know-how to suddenly compete with such technologically advanced competition.

Some founders reach this point with a startup but fail to either realize the full breadth of the problem or take the necessary action, Siegel says. “What happens is they see their business dwindle and are just at the mercy of the market,” she says. “That’s really the most dangerous place for a founder.”

Your Company Has Experienced a Catastrophe

The final potential company-killer is when the company experiences a catastrophe, such as a “PR nightmare” or unethical behavior by someone in the company.

In this scenario, everyone with an interest in the company or the brand may want to distance themselves as quickly as possible.

With each of these issues, Siegel suggests approaching them from an honest and logical standpoint by considering whether you’re able to formulate a realistic, research-based strategy to turn things around.

“If the answer is yes, and it doesn’t require exorbitant amounts of money that you don’t have, then go for it,” she says. “If the answer is no, it’s time to consider how to elegantly get out of this thing I created — and what can I learn from it?”

Stephen Loy