Small Business

When to Admit Defeat and Move On

Not every business is successful. How to determine if it's time to give up and live to fight another day

Written by Advisory Board

Welcome to Advisory Board, a weekly department in which a panel of experts—made up of entrepreneurs and professionals—answer questions you have about how to run your business better.

This week, a reader asks:

“I’m five years into my first venture, and my company has yet to turn a profit. I still believe in my initial idea, but there doesn’t seem to be much demand for it. How do you know when it’s time to quit?”

Here’s what the experts have to say.

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“The market tells you when it is time to quit. Have you asked your market what they think? Business is about creating a sustainable venture that solves a real problem. Whether or not you like your idea is irrelevant; the market has to like it and like it enough to give you money for your solution. If they are not doing that, the business you are pouring time and resources into is an expensive hobby. I’ve had one of these, so I speak from experience. It’s a terrible, heartbreaking thing to admit, but those things happen, even to good business people. The thing that differentiates the good from the great are those who cut their losses and move on at the appropriate time.”
Kelsey Ramsden, business guide and founder, SparkPlay Inc., London, Ont.

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“A business can struggle for years and then suddenly take off. There are numerous businesses that can only be described as €˜20 year oversight successes‘. You may not be turning a profit, but are you moving in the right direction? How are you performing against plan? Are there opportunities to run the business better?

“One good check would be to sit down one-on-one with your top 10 clients and prospects and ask for some feedback. How could you do a better job for them? How could you add more value for them? You should also take a look at your competition and see how they are doing. Are they making progress and you’re not? If so, perhaps it is a people issue or a marketing issue.

“You need to perform a diagnostic as to why your company isn’t turning a profit and why the market doesn’t seem to be taking to your product or service. You certainly wouldn’t want to pack it in just a few months short of success.”
John Wilson, founder and CEO, CEO Global Network, Toronto

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“Sometimes, an entrepreneur can fall in love with his or her own idea. I find it’s best to convene an ad-hoc board to review your strategic direction and business plan, and to provide an objective (often eye-opening) perspective on the business. This external perspective will help you make the right decisions, including whether to proceed, quit, or change direction.”
Phoebe Fung, proprietor, Vin Room and VR Wine, Calgary

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“Over a five year term, the market rarely lies. Your idea could be a good one, but if it is, your execution is lacking and one or more of a whole host of villains could be responsible for this. You do need to recognize our natural tendency to hang on to the ideas we breathe life into. If you’ve tried various approaches without success and you don’t have visibility on the business breaking even in the near term, it might be time to call it a day.

“If it’s any consolation to you, most of our most successful clients have had at least one major business failure before they put it all together. Even then, there are always challenges along the way.”
—Michael Koff, owner, Michael Koff & Associates, CPAs, Markham, ON

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“Year Five is a make or break year. Most businesses fold at this point, so it’s great that you are taking a close look now. Consider what was in your business plan, and what is normal for a similar start up. At this point you should be well on your way, so if you really aren’t making your planned targets then it may be time to look elsewhere before you lose much more time and money.”
—Christine Faulhaber, President and CEO, Faulhaber Communications, Toronto

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MORE INSIGHTS FROM OUR ADVISORY BOARD:

Do you have a question you’d like answered? Email us and we’ll put it to the experts. Have any advice to add to this list? Share your thoughts using the comments section below.

Originally appeared on PROFITguide.com