When to know you should walk away from a business opportunity

Companies large and small have pivoted over the past several months, finding new products and services that work in a pandemic-ridden world. And while some of these solutions and offerings may stick, others won’t last in the long term. But the question is: How do you know the difference? And when is it time to pull the plug on something you’ve poured time, money, and energy into?

I learned the answers the hard way. A few years ago, I was running my first startup, which offered writing and citation tools for students. After some initial success, schools began asking for an enterprise version of the platform with features that would allow them to collaborate with students.

The opportunity to sell to large organizations, not college kids on a budget? My cofounder and I were thrilled. We built the new products the schools were seeking, and we brought on sales, customer support, and training teams to support them.

Pretty quickly, we realized that our eyes may have been bigger than our stomachs. While customers did want the product, revenue wasn’t anywhere near enough to support the staff and operations. That’s okay, we thought. Lots of businesses start out with losses.

You can probably guess where this is headed. Three years later, we were in exactly the same boat: running a business that was not only unprofitable—it was hemorrhaging cash. Complicating matters was the fact that half of our employees were working on this product. What would it mean for our culture if we shut it down?

Ultimately, we did, and my only regret is not doing so sooner. Whether it’s a partnership or a product, a sales strategy or something else entirely, here’s my advice for knowing when it’s just not working—and how to avoid this fate in the first place.

Establish a clear timeline

It’s smart for businesses to think about new areas of growth. But you have to be disciplined on how you’ll assess their viability. What outcomes do you want to achieve, and by when? You can adjust those goals along the way, but if you don’t know what you’re building toward, it’s easy to drag a project on for far too long.

In hindsight, we should have set a clear timeline with specific revenue and profitability targets. Having this time limit would have forced us to act more decisively in our efforts to make the business work. Perhaps we wouldn’t have hired the sales team, or grown it as large as we did, but rather tried inbound marketing techniques that required a lower headcount. Or perhaps we would have scrapped the whole idea sooner, bringing me my second tip.

Consider the alternatives

There’s a lot to be said for diversifying your offerings, but there is another angle worth considering—what if you invested more in what you’re already doing?

Often, after an initial period of hyper-growth, startups settle into a period of slower, more incremental progress. We did too, and we didn’t stop to ask ourselves if, instead of investing in a new product, we could have looked for ways to double or triple the existing business instead. Frankly, we didn’t think it was possible. But as it turned out, when we later focused exclusively on our direct-to-student offerings, we did. The lesson we reached was you can think bigger than you expected, if you learn to focus.

Recognize your emotions

Part of our challenge when considering whether to shut the enterprise offering down was thinking about the individuals we employed. They were people we respected and part of the fabric of our company. Letting them go would disrupt or ruin the culture we’d worked hard to build.

Thinking about our team was important, but we found that emotions were clouding our judgment. When we ran the numbers, we realized that we were spending money to preserve jobs, when we could have invested it in our core business and create new opportunities for the people we were trying to protect.

This isn’t to say that emotions don’t have a place in business, but you can balance them by looking at the big picture, your North Star. While you may have to make tough decisions in the short term, think about what will lead you toward your long-term gains.

Stay nimble when facing new opportunities

While painful to have gone through, this experience has shaped the way I think about any new business, product, or partnership today. For instance, with my new brain training app, Solitaired, instead of pursuing an opportunity with every resource possible, my cofounder and I first assess, What’s the quickest, easiest path to testing this?

Try to avoid spending months working on an idea before you understand if it’s truly feasible. Before launching a major marketing campaign, could you test it with a few paid Facebook ads? Rather than building a new product, could you put a mock feature on your website and see how many users engage with it?

These types of baby steps can teach you a lot. If your idea fails, that’s a good thing—you can try the next idea or iteration. And if it doesn’t? You can move forward with confidence, knowing you saved a whole lot of time and money in the process.

Neal Taparia is the founder of Imagine Easy Solutions, an educational software business, which at one point reached over 30 million students annually. After selling the business to Chegg and serving as an executive with the company, he started SOTA Partners, which invests in companies around the future of education and food, and cofounded Solitaired, which connects classic games to brain training.