In business, as in life, you win some and you lose some. The question is, how do you handle a loss when all you've done is win?
A former entrepreneurship student of mine, Jake Jorgovan recently faced just such a situation. As an undergraduate student at Belmont University, Jorgovan knew nothing but success. He started a highly successful video company. Based on this business, he won several business plan competitions. Shortly after graduating from college, he was named the Nashville, Tenn., Youth Entrepreneur of the Year in 2011.
For his second venture, Jorgovan moved away from the video industry and applied his entrepreneurial prowess to a healthcare startup called Telehealth PT. With this new company he was planning to develop a framework that allows physical therapists to connect with their patients, anytime, anywhere via a live video conferencing session on the patient's mobile phone or home computer.
Despite his earlier successes, Jorgovan began to have serious doubts about his latest startup. And not long after that, he came to the realization that his new venture was just not going to work.
"Sometimes as entrepreneurs we become cursed with success," says Jorgovan. "It becomes hard to admit that we are failing at something and to cut ties with our idea."
Sound familiar? Too often, when faced with a failing business--or even a problem employee--entrepreneurs move into "I-can-fix-it" mode. They dedicate even more hours each and every day to working on the venture, often including nights and weekends. They pour every last dollar they have into the company to try and buy themselves more time. They assume that if they tweak the business model with enough pivots they should be able to find a way to save the business.
The reality is that some businesses simply aren't destined to be successful, and some employees just won't work out. But rather than face the fact that they have started a doomed venture or hired a problematic employee, they persevere hoping that something will turn things around.
So why do entrepreneurs refuse to give up even when a situation, to any objective outside observer, appears doomed for failure?
- A mighty heart (and ego)
First and foremost: entrepreneurs too often let their egos get in the way of making a sound business decision. They start to define who they are as a person by their successes as an entrepreneur. They let their pride get in the way of admitting they made a mistake.
- Emotions can cloud judgment
Also, emotions can cloud entrepreneurs' thinking about their businesses (a.k.a., their baby.) They become so emotionally attached to the business that they could not image giving up on it.
- Living one day at a time
Finally, short-term thinking comes into play. "When faced with failure, you often become short sighted," observes Jorgovan. "You can get stuck looking at the short-term consequences of this failure. You become afraid what people will think of you. You become afraid of what that will mean financially."
The truth is that most entrepreneurs experience failure at least once in their careers. Is it hard to deal with? Yes. However, your most important lessons will be learned from adversity and failure.
When I realize that I have made a bad business decision I always think back on one of the most important lessons my first accounting professor taught me thirty-seven years ago. He gave us a lecture on sunk costs that I still remember to this day.
"The worst way to make a decision about what to do in the future is to base it on what you had invested in the past," he told our class. "You can never change a decision that has already been made, but you can avoid making it worse by not throwing good money after bad."
If you started a business that is struggling, ask yourself this difficult question: Is there any realistic hope that I can actually turn this around? If not, consider the time and money you have put into it a sunk cost that you will never get back. Shut it down and then move on.