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When should a startup pull the plug?

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Started in 1981 Infosys was on the verge of collapse after 8 years when a joint venture with Kurt Salmon Associates (KSA) has collapsed. The Infosys-KSA joint venture was Infosys’s attempt to break into American market. If Mr. Murthy has accepted that as a failure and moved on, there wouldn’t be any Infosys. Murthy along with his co-founders decided to stay on. The rest is history which everyone is part of.

The story of Infosys is an inspirational one. But, the times have changed since then. The gestation period for a startup has come down drastically. 8 years is not a long time then, but anything more than 3 years is a long time now.

A startup which is 3 years old and doesn’t have a profits or break-even will go down unless its Twitter.

Pulling the plug though looks and sounds fashionable, is really difficult to do. There is a lot of emotional attachment. But, sound logic should overcome that attachment and say these three words – This is it. pull_the_plugIf you fail, it is not the first time someone has failed. If your startup fails, again this is not the first time a startup has failed. Besides, there is no such thing as a failure until you stop learning from these things. There are always learning’s.

The startups mentioned here have done just that. They have pulled the plug on a specific idea but not on the entrepreneurial spirit.Tripmela.com an online travel deal aggregator went was sold on ebay fro 112,000.

Reason is the aggregator is not cut for Indian markets as there weren’t many hotels offering deals.Rohit Agarwal’s Tech Tribe a networking startup which received VC funding shut shop after 3 years of operations. Reason again is the changing business conditions and bigger players with more capital at their disposal. Rohit moved onto to online education space.

Kesava Reddy’s MyDuniya offers  email-via-SMS service. The concentration on individual users instead of corporates did not work very well and instead found a new start-up called Numo Solutions. It offers customized SMS solutions for corporate’s.Bookeazy.com a movie ticketing service was doing good but the founders pulled the plug on it as it is taking too much of their time. They came up with Lipikaar a translation and transliteration product.

In all these startups there is a trend :

  1. You pull the plug, Accept failure and go into oblivion or a day job.
  2. You pull the plug on this idea, go on to a different idea and succeed. It is statistically proven that entrepreneurs get second time lucky.
  3. You start something up, you start something else along with it, work on them in parallel and then you decide to pull the plug on one of the things which isn’t working.

The first option does not seem likely as I believe in this saying – Once an entrepreneur always an entrepreneur.

I still have some questions left. What if a startup stays on the course to become the next Infosys? Should a startup have a  contingency plan or an exit strategy?  When do you think startups should pull the plug?

Update: Parts of this article have been picked up from this ET piece written earlier by Sudhir Syal. Thought it was important for trak.in readers to know this.

Please share your startup experiences in the comments section below. (source)

*Image credit

  1. Jiten says

    Hi,

    I really like this article. Although i am still at a stage where i m contemplating on what business idea out of the 366 ideas i have will work, this is surely better understanding of what will sell and what the VC’s will buy to put in their money so that there are no down shutters at the end of the day !

    Thanks, Look forwards for more information.
    Jit

  2. Web Snacker says

    The trick is to sustain your idea until you have what it takes to take on the world and you dont need VC money to do this.

    http://www.ideasonic.com

  3. Santosh says

    Thank you for the acknowledgment Arun, and sorry for the confusion around the author.

  4. Arun Prabhudesai says

    Hi Santosh,

    Thanks for dropping by. Incidentally this post has been written by Sriram, one of Trak.in editors, and not by me. Thanks for the link, I have already read it and I am 100% sure that Bookeazy was closed more because of the circumstances that were not under your control…

    Sriram, I’d like to quote from Santosh’s post, that will help readers understand why exactly bookeazy was closed

    Why is the Bookeazy service going away?
    As it turns out, there are significant forces that we cannot control. There has been a significant shift in the way Multiplexes view their customer-facing partners. They now see online ticket-booking as a premium service and have enforced policies to tilt the economics away from aggregators towards the owner of the inventory.

  5. Santosh says

    You rarely get to hear of how,
    * Microsoft dumped their focus on BASIC to go after the OS market (at IBM’s behest)
    * Paypal and Palm went through multiple business plans before they knew they were on the right track (Founders At Work)
    * In fact, at one point – Paypal was working on a business plan similar to what we know as mcheq, jigrahak

    @Arun, if you are quoting from the ET article (on BookEazy) you should also see this,
    http://blog.sukshma.net/2008/12/16/how-bookeazy-got-its-groove-back/

    – Santosh

  6. Ankit says

    Well said.Knowing when to pull the plug is something that is essential not only for the startups but for any organization.Nortel is a recent example with the company declaring bankruptcy despite the fact that they had enough liquidty to last another year.
    Well,with a startup the attachment and the dedication with the idea is very important.Execution then takes precendence.Last few years have seen startups flourishing from here and there and you almost got flodded with infinite travels sites.But how many of them had real differentiators to make them stand out.
    A startup which has a unique differentiator/USP and a execution strategy shld never need to pull the plug even if it takes a little longer for reaching their success barometer.

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