(I originally published this in Forbes.)
It’s a cliché of the startup world that successful entrepreneurs persevere even when everyone else thinks their idea is doomed (see: Pandora).
It’s a cliché of the startup world that successful entrepreneurs pivot when appropriate (see: Paypal, Apple opening an app store, etc.)
Unfortunately, these two clichés are both true and they both contradict one another. The key question is: in the face of the inevitable challenges of entrepreneurship, should you persevere, pivot, or shut down?
Eric Ries and Steve Blank have correctly argued that you should have an articulated test for progressing with a certain business model, e.g., >25% of users use our site every month. If you pass the test, then persevere; if not, pivot. I love the lean startup methodology, but in practice it’s hard to develop bright-line tests.
The key to answering this question is to acknowledge the human reality that everyone thinks their own baby is beautiful. (I do!) You loved your startup idea, which is why you founded it. It’s hard for your ego to say that your idea is bad, and/or you don’t have the skills to execute it.
So, you’re a terrible, biased judge of the validity of your business. If you believe in your business, but every investor and potential employee thinks you’re wrong, then they’re probably right.
So the key test is: have you persuaded a new investor, new employee, or new client, with no historical relationship to your business, to invest time and/or money in your firm? If so, that’s a sign that your business is likely worth persevering with in its current form.
If three months have gone by and no new investor, employee, or client has joined you, that’s probably a sign you should pivot (if you have cash left) or shut down (if you don’t).
As Paul Graham observes, most entrepreneurial ideas are bad and deservedly fail. Most babies are red, wrinkled, and scream. Unfortunately, most billion-dollar startup ideas also look bad on first glance and for the first few years, before they turn into billion-dollar companies. I propose this “new recruit” test is a way of differentiating between the really-bad and the good-but-perceived-bad .
(Photo credit: Wikipedia)