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The Art of Knowing When To Quit

How to know if your startup should be shut down.

Hey — It’s Nico.

Lots of topics this week: When to shut down your startup. The launch of Airchat. A guide to raising a seed round. How to get intros with VCs. Stripe’s new funding round.

All this, brought to you by Zette, a subscription to unlock paywalled articles, which is currently crowd-raising a funding round.

Here’s what I got today:

  • A guide on when you should quit your startup 🔥

  • An analysis of Airchat, the new social media app that merges Twitter with Clubhouse 📈

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📰 News

Social media startup ShareChat's valuation drops from $5B to $2B in new funding round.

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AlleyCorp launches a new $250M fund to invest in early stage tech startups.

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Knowing When to Quit

Today, instead of delving into the demise of a specific startup, I will address a question that concerns many entrepreneurs: When is the right time to pull the plug on your startup?

It's crucial to recognize that there's no one-size-fits-all answer to this question. Every company operates within a unique sector and faces distinct challenges. However, despite this individuality, identifying common signs that signal the need to shut down is very important.

All too frequently, founders find themselves clinging to hope even when the writing's on the wall, leading to prolonged agony for both themselves and their startups. 

This often results in the creation of “zombie startups”: companies that stubbornly resist closure yet remain stagnant, unable to flourish. Rather than confronting reality and making the tough decision to shut down, some founders opt for the path of least resistance, perpetuating the existence of their failing startup with minimal effort and investment.

So, to avoid this, here are some of the most significant indicators that you should start thinking about shutting down.

The Indicators

  • No More Runway: Maintaining a runway of at least 3 to 4 months is crucial. Allowing this period to dwindle endangers your ability to meet financial obligations when the time comes to shut down. If you find yourself running low on runway, you should either try to increase revenue, secure additional funding, or reduce the burn rate. If none of these options are feasible, then it is time to seriously consider winding down operations before it's too late.

  • Lack of Clear Growth Path: Are there any viable ideas left to grow your startup forward? And, crucially, can you execute these ideas? If the answer to these questions is no, your startup faces a roadblock regarding sustainable growth. While you could attempt a hard pivot, the absence of a clear path forward often indicates that shutting down is the more prudent course of action.

  • Too Many Pivots: While strategic pivots can be vital for startup success, excessive shifts in direction may signal underlying issues. Take Instagram, for example, which pivoted from Burbn to focus on photo-sharing, leading to its acquisition by Facebook. However, constant pivoting without tangible progress can drain resources and erode confidence. If pivots become desperate measures rather than strategic moves, it may be time to consider shutting down.

  • You’ve Lost Interest: As a founder, if you notice your enthusiasm and energy for the business fading, especially during tough times, it's a sign that shutting down might be necessary. Many founders avoid this decision because they see it as a failure. However, continuing a venture when your passion is gone can lead to stagnation and wasted resources. Recognizing this loss of motivation is crucial for making the difficult choice to shut down and explore new possibilities.

  • Harsh Market Changes: A significant shift in the market could mean that your original startup idea is no longer viable. Maybe consumer preferences have changed, new competitors might have made your idea obsolete, or perhaps VC funding has dried up in your industry (as seen in the autonomous vehicle sector). Either way, if you cannot adapt to these changes, shutting down may be your only viable option.

Founder’s Blindspot

You might be under the impression that these indicators are glaringly obvious and that anyone who has founded a business should be able to recognize them from afar.

It is true that these signs are not difficult to see, but frequently, founders opt to turn a blind eye to them until the eleventh hour to evade confronting failure. 

In my years of interviewing numerous founders of failed startups, I've observed that it's remarkably common for them to ignore these signs until the specter of shutdown becomes impossible to ignore. 

This mindset stems from viewing a startup shutdown as a personal failure rather than as part of the iterative process of entrepreneurship. 

This is a mistake. Most startups fail, so being an entrepreneur also means knowing when to close shop and move on. 

Go Deeper

Trend Radar

Airchat, Naval’s New App

It’s always fun when a new social media app comes around. People everywhere engage in debates, trying to decide if this one will dethrone TikTok and Instagram or fade into obscurity like Clubhouse and others before it. 

This week, the spotlight shines on Airchat. Funded by Naval Ravikant, the brain behind AngelList, Airchat introduces a fresh take on social networking, centering around voice communication.

Many have been calling it the “voice Twitter,” and the comparison is not unwarranted. Airchat allows users to share voice messages that are visible to their followers, akin to tweets on Twitter. Instead of written posts, users communicate through voice messages. 

However, although the app forces you to create your posts via a voice message, it does offer a voice-to-text feature, enabling users to read messages instead of listening to them.

Could it Succeed?

So, what are the prospects for this new social network? Should you start building your building your community in Airchat right away?

Let’s look at some of the selling points of this new platform:

  • Stronger Connections: Voice messages could create stronger connections between creators and followers. Hearing someone's voice adds a personal touch that text alone often lacks, potentially deepening the sense of connection within a community.

  • Entertainment Value: Voice messages offer a unique dimension of entertainment. The nuances of tone, pitch, and pacing can enhance storytelling and engagement, making content more compelling than written text alone.

  • Audio-Only Content: In an increasingly visual-centric online landscape, Airchat provides a refreshing alternative with its focus on audio-only content. This differentiation may attract users seeking a break from traditional social media formats and visuals.

  • Less Polarization: In an Interview with TechCrunch, Ravikant said, “Humans are all meant to get along with other humans; it just requires the natural voice.” The founder seems convinced that his voice-centered social network could help to reduce the polarizing nature of text-only media.

However, there are certain factors concerning Airchat that could lead to its failure:

  • Voice is not Always Easier: One of Airchat’s mottos is “Don’t type, just talk.” This conveys that talking is easier, but I do not think this is true. Unlike text, sending a voice message can feel more invasive and exposing. When you speak, you're not just sharing your thoughts; you're revealing aspects of your personality, emotions, and even your environment through tone, intonation, and background noise. This level of exposure can make some users feel self-conscious, especially if they dislike how their voice sounds when played back. This discomfort could potentially lead to hesitancy and reluctance among users, impacting their engagement and the platform's overall success.

  • You can Read the Posts: Airchat offers the option to read posts instead of listening to them. While this provides users with more flexibility, it also undermines one of the platform's primary selling points. If users opt to read rather than listen (as most users will do, in my opinion), they essentially replicate the experience of using Twitter. 

  • Lack of Strong Differentiation: Voice messages alone may not offer sufficient distinctiveness to set Airchat apart. While they add a layer of personalization, the overall use cases of the app appear strikingly similar to Twitter's. Moreover, requiring users to record voice messages introduces an additional hurdle to engagement.

  • Social Media Apps are Just Though: Launching a successful social networking app is exceedingly challenging. To thrive, it's necessary to get a sizable user base while contending with huge competitors like TikTok, Facebook, and Instagram for users' attention and time.

Currently, Airchat has stopped sending invites to users due to the app's rapid growth. While this is promising, it’s important to remember that many other social networks, like Clubhouse, were able to grow quickly on their first days but failed to retain users afterward.

The coming months will reveal whether Airchat's voice messages have captured users' attention or if written communication will continue to reign supreme.

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