When It's Time to Shutter Your Businessby
Six years ago I tried to start a fashion clothing company. I did all the things I was instructed to do and put in countless hours that led nowhere. Everyone I spoke to loved my idea and no one can understand why I haven't made any money. Can you give me any advice? —J.P., Los Angeles
Business lore is replete with stories of tenacious entrepreneurs who hit it big after years of trial and—mostly—error. But if your company is not making a profit, and doesn't seem likely to after six years, it is probably time to look for a new venture, says George Cloutier, a business turnaround expert with American Management Services in West Palm Beach, Fla.
"The capacity of small business owners to hang in and stick it out continuously amazes me, even after 25 years in this business," Cloutier says. "But when your financials are not working and you're losing money faster than you can bring it in, or find it from investors, that's a strong suggestion that your products are not being accepted."
What went wrong? It's impossible to tell without a professional evaluation of your business plan, product line, capitalization, sales efforts, and other details. But Cloutier says there are common mistakes that often doom startups: flawed business models, poor product introduction, undercapitalization (you need at least $100,000 to fund a new fashion line, he says) and bad timing. (See a previous interview with Cloutier for advice on setting up a business to profit from its inception.)
"Many entrepreneurs think that a nice Web site will make a business work. But especially in fashion, you have to be all over the industry, showing yourself, working directly with clients. Manufacturers' reps can't do the selling for you. And now that we're hitting the wall in the economy, and angel investors are not around anymore, the chances of turning this around are tough," he says.
Never Risk Losing Everything
The positive feedback you received about your idea is outweighed by the fact that customers are not buying, Cloutier says. "The positive feedback you need is products selling, especially in a do-or-die situation."
Robert Chell, an organizational psychologist who does small business consulting in Indian Wells, Calif., agrees: "In starting companies, friends often tell us what we want to hear, not what we need to hear. When we are heavily invested in an idea, we often distort what we hear or we do not effectively listen because we are too busy attempting to refute it," he says.
When should you think about quitting? Joe Kennedy, author of The Small Business Owner's Manual, says maybe it's time when you've already unleashed your best products and ideas into the market and they did not work out well. Other signs include not being excited or enthusiastic about your venture and losing touch with why your competitors are succeeding, or not.
"If you could lose everything if the business continues at the current rate," you should consider closing up shop. "Never put everything on the line," Kennedy says, particularly in a down economy when you suspect your company is too financially weak to survive.
Consider a Partner or an Advisory Board
If you're absolutely committed to your company and want to continue trying, evaluate your own strengths and weaknesses and consider hiring or partnering with someone who has the skills you lack, says Paul O'Reilly, a small business consultant with O'Reilly & Associates in Los Angeles.
"Since so many talented people have been laid off, there may be someone out there ready, willing, and able to invest their time and energy into your company. In other ways, these tough times may make finding anyone willing to take a risk a tough task," he says.
Get help creating a business plan, if you don't have one, through an entrepreneurship program at your local community college or university extension course. You might also consider creating a board of advisors, O'Reilly suggests, who could serve as a support system and sounding board. "Small businesses usually lack this kind of support and, thus, often feel isolated and unsure of whom they can ask for advice and feedback," he notes.
If you can increase your efforts toward achieving your goal, find a new goal, or find a new way to reach your goal, you're more likely to succeed eventually—if you have a sound business model and desirable product line to begin with, Chell says. If you find yourself spinning your wheels with anxiety, leaning on defense mechanisms or rationalization, and using escapism rather than confronting your problems head on, it's probably time to move on.