A variation of a famous quote goes like this:
“Winners never quit and Quitters never win. But those who never win and never quit are idiots”.
Seth Godin explained this in his book “The Dip: A Little Book That Teaches You When to Quit (and When to Stick)” where he stated:
“Winners quit all the time. They just quit the right stuff at the right time”.
This morning, I had to deal with this question when I met an earnest hard-working young entrepreneur who is in the process of leaving a start-up after investing about two and a half years.
One of his queries was should he release his stake to other co-founders, most likely at suppressed valuations? This was making sense to him since he is no longer excited by the idea and one of the core reasons for quitting is his own evaluation about the startup’s “bleak” future.
I have done similar things – quitting a startup at book value as soon as my judgment showed that the startup at that stage of its life was entering a stage of hara-kiri and I was no longer interested in wasting more “opportunity cost”. Last when I quit a startup in similar fashion, I joked with the co-founders that I might be added to annals of startup history about being another Ron Wayne, who was one of the original founders of Apple, but sold his shares for paltry $ 800 which would be worth $ 35 billion today as estimated here.
However, in this case, I suggested that he should consider not releasing his stake cheaply. The startup is in futuristic technology and the issues are more about the classical dilemmas of Project versus Product, Focus versus Diversification, Cash Flow Management, etc. These things could be resolved as they have already built some intellectual property with an excellent development team and generated a revenue stream as well (though extremely slow, unpredictable and with very low margins). Prima facie, the startup seems to have reasonably good potential. However, it is not easy to have this “realization”, especially if you are an insider and can “clearly” see the mess! Hence, this gentleman is still inclined to release his stake at book value or lesser as emotions seem to be the over-riding factor.
Here are some more takeaways from the discussion:
- If you are leaving a startup because of strategic differences with the other co-founders, make sure you have done all possible communication with the co-founders with clarity and “agreed to disagree” on various issues. This would help you leaving on a note of “completion” rather than leaving on a note of “frustration” because you feel your views are not being listened to or not being understood. Another strongly recommended option is to schedule a meeting with a mentor or a Business Coach to get an objective view on the differences, and, perhaps, come to an agreement on new strategic direction for the venture.
- Do not get in the trap of a biased undervaluation (leading to exit on book value) or overvaluation (to negotiate hard unnecessarily). Get the venture valuation done by a third party (we could help with this).
- As far as possible, continue to have a relationship with the startup as an advisor or play a structured part-time role. This usually leads to more constructive long-term relationships and you always have a chance to come back. In one of the ventures, where I quit, I was continually invited, long after quitting, to join back as a co-founder. Finally, a continued relationship could help you start-up again in the same sector with a synergistic business relationship with the startup you are exiting.
To end the conversation, we moved on to brainstorming on his next startup, though he really wanted a cooling period of 2-3 years before he starts up again. Here again, considering the emotional space he was in, I suggested starting at least some “fun” project immediately to keep the creative juices flowing before he finally zeroes-in on the next startup.
Are in you in a similar dilemma? Wondering whether to stick, pivot or quit? We could help – email at firstname.lastname@example.org to schedule a meeting with us.