Rule #21b – “On a warm summers evening, on a train bound for nowhere”

Kenny Rogers sang a little ditty once upon a time about knowing when to “hold’em,” knowing when to “fold’em”, knowing when to “walk away” and knowing when to “run.” The song is catchy and tells a fun story about two gamblers sharing a train ride in what must have been a wilder version of the West. However, the lesson in the chorus is a mantra you’d be wise to ingrain in to your brain.

Businesses rarely develop on the exact timeline and direction that you had in mind when you started out. Some folks don’t even look for an endpoint, preferring instead to make a quality product and then put one foot in front of the other to see where things lead. Whether you are a planner or a “let’s get started and see where it goes” type of entrepreneur, there is a harsh reality that you may have to face one day: your product or business has deviated from what you had in mind so much that the idea of remaining a part of it disgusts you. Broken down further, you need to be able to be honest with yourself and know when to walk away.

I’ll give an example: I knew 2 very intelligent and talented programmers who were building a site to reach a vertical search market. They had studied their competition and found some places where they thought the market was ripe for a new competitor. They built their product with fervor and after a long time of tinkering and getting it right, they were ready to launch. Then an ironic – and somewhat tragic – thing happened. The morning of the launch party, one of the founder’s realized that the business model they had implemented was not the best model possible. The features of the site that would be used heavily did not work as well as the functions that would be lightly used. Even more troublesome was that the relationship between the founders had soured and as a result, neither had the enthusiasm to work as hard on the programming angle long in to the night as they had previously.

With almost no money in the bank and investors icing down champagne, the founder contacted a trusted friend for advice. He laid out the story and the friend asked some very difficult questions. Does it work? As it works now, will it succeed? Is the relationship with your partner so strained that nothing – no money, no success – can fix it? Do you want to buy him out? Do you want to be bought out? If you were to start from scratch tomorrow by yourself, how hard would it be to start over and succeed? Do you even want to do this anymore?

The founder explained that launching the product as it was might succeed, but the long term health of the company would be in peril if the founders couldn’t mend their fences. He thought it was a huge gamble to take; what if things didn’t get better? Would that simply be putting off the inevitable death of their startup? Would it be wiser to walk away early on, saving the chance of long term success by simply going a different way?

The founder listened as his friend told him a few snippets of advice, some of which sounded logical, none of which sounded appealing: do the right thing always…if you haven’t done your best, don’t launch…if you don’t think it will succeed, don’t launch…if the structure needed to carry the product is not in place, don’t launch…do not use your one chance on a half-assed attempt because it’s the easiest way out…THE HARDEST THING TO DO IS ALMOST ALWAYS THE BEST THING TO DO.

After much thought, he contacted the other founder and the investors and explained the decision. He said, “I believe this is a great product and it can succeed. I do not believe it can succeed with the structure we have in place to support it. I would like to walk away from the project, giving my equity to my co-founder and the investor pool in proportion to current equity stakes. All I ask for is that my founder sign a “Free to Compete” contract, indicating that if I want to try and work in this industry, I will be allowed to do so.

So he left. And he was right. The original company launched, gathered customers, generated some meager revenue and folded up shop 14 months later when customer requests for service were taking to long to gain a response. The departing founder started his own similar company using a business model he thought was more in line with what people would be interested in using. He raised more capital, he coded in to the night, he found the enthusiasm that was gone on the previous venture’s launch day. Five years later, he wrote a check to each of the investors in the other company who had supported and allowed his departure for 3 times their original investment in that company. He’s still in business today.

A ship with a hole in the bow will eventually sink unless you get it out of the water. No amount of bailing water and putting tar over the hole will hold given a long enough time frame. Be honest with yourself about your venture. Don’t stay at the helm of a sinking ship out of principle when you have the ability to get back to shore and build a better boat.

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