There’s a type of startup that stays alive but doesn’t achieve meaningful growth. One that keeps raising bridge rounds but whose valuation stagnates.
Anecdotally, their founders belong to two groups:
- They’re still convinced that the business will work and are unflappable in their resolve.
- They’ve fallen prey to the sunk cost fallacy and are looking for a way to stop but might be afraid to quit
For the second group, a key question is:
When am I “allowed” to quit and not be labelled a quitter?
In other words, how much time should they have spent on the business before it counts as a legitimate attempt and that failure is not just them quitting when things got difficult?
I can think of two milestones at which you should re-evaluate whether you need to continue.
(Please note these are suggestions for when you might need to re-evaluate, not indications that you’ve failed. Plenty of counter-examples exist, but if you find yourself at one of these points, in my opinion, it’s perfectly reasonable to decide that you don’t want to continue.)
1. Two years and no seed
If you’ve spent two years building the product and haven’t been able to switch to full-time and/or haven’t been able to close seed funding, to me at least, that’s a very strong indicator that you should re-evaluate.
There are two qualifiers here, however.
Firstly, it should be most (all?) of your free time not a couple of hours every other week.
If you’re not willing to spend that kind of time think about whether it’s a business or a hobby, and then treat it as such.
Second, you need to have pitched dozens of times before you can conclude that you won’t raise seed - several dozen if you’re an engineer with no sales or public speaking background. Even then, you should consider if you just suck at pitching and if you need to bring in a business co-founder.
A bit later, if you’ve had to close multiple seed or multiple bridge rounds, it might also be worth reconsidering.
2. 4 years to 1 million ARR
Further down the line, if you’ve been working on the product for 4 years, preferably full-time and with external funding and you did not achieve 1M ARR yet, it’s time to re-think.
I think that’s a good point at which to close up shop. You will have learnt a great deal about an industry and running a company and have had enough time that you didn’t leave a lot unexplored.
If you’re looking to build a unicorn, and not a lifestyle business, 4 years is enough time to get a feeling for whether you’ll succeed or not.
The timeline in this scenario would roughly be:
- A year of building the product
- Raise seed
- A year to year-and-a-half of confirming PMF
- Raise series A
- Two years to get 1 million ARR
I think this is enough time to spend a year building the product and figuring things out.
This time will be especially useful for first-time founders who might not be competent at sales yet.
It’s enough time to transition away from a job, perhaps starting with the weekends, then switching to 40%/50%/60% time at work and eventually becoming full-time.
It is enough time to be able to iterate over a couple of potential value propositions and market segments.
It’s a clear milestone that indicates a certain level of success that isn’t ridiculous but might be out of reach without VC money.
And then either the next stage begins or the journey is over.
PS. I’d not even put companies that you “co-founded” that lived for less than a year on your resume.