When should we end a business?

I think I need some courage to write this article, because it may inadvertently change the fate of some entrepreneurs. Therefore, I would like to use the most rational way to explain, as far as possible not to be mixed with emotional factors.

The reader of this article should be those who venture more than 3-5 years, still in the survival line up and down struggling, the account will always be enough to send three months wages of cash, but also absolutely no time to the end of the rope. At this time, facing the growth of the fog, difficult to work out the strategy, constantly losing the backbone, you should have been heart tired. You start to compare the opportunity cost if you don't start to imagine if you give up how to face employees, customers, partners, so you start often insomnia, a cold sweat.

Finally you begin to admit that you are really asking yourself the question: Should I end this business?

This is indeed a difficult question. You never know which is the right decision to stick to and quit. All the entrepreneurial public opinion points to "bravely start, persistent insistence", no one tells you when should be happy to end, even your most intimate friends, will never in your hardest time to persuade you to give up. They may think it is immoral to do so. However, business can not only start, not end, if so, all industries will become unbearable Red Sea, business start-up and closure are neutral behavior, outside the mood, are objective. The question is, in addition to the difficult decisions, how should we objectively analyze the circumstances under which you should let go of the moment.

1) long-lasting, no-increase gross margin

Low gross profit is the first taboo of business, not high enough margin can not be diluted increasingly high fixed costs. But not all the low margins are so scary. In order to get a cost advantage as quickly as possible, it is possible to seize a larger market share with low margins, which is even acceptable in this case, with a negative margin (subsidized customers). In the process of seizing market share, the competitor will gradually be forced to withdraw, thus making gross profit to a reasonable level. The increase in gross profit does not necessarily need to be through price increases, reducing unit costs through increased production and sales is a more common means.

However, most businesses do not succeed in establishing this cost advantage. Low margins are stuck for long periods and cannot be lifted. Common causes include long-term upstream bargaining power and the inability to reduce costs by increasing sales. At this time, upstream manufacturers are usually small, more concentrated than the industry. And if the industry is also fragmented, then the situation is even worse, not only the cost can not be reduced, the price is also because of continued fierce competition can not be saved. This would even make it difficult to maintain the existing margin levels.

When you are in an industry where you are selling non-differentiated products (competitors are selling products similar to yours), quitting early is an absolute rational choice.

This situation is particularly prevalent in the e-commerce sector. The extremely transparent market price will stall the gross profit margin tightly. This is also why more and more e-commerce attempts to integrate upstream, leading product design, control the supply chain.

2) services that cannot be customized

The second situation comes from the service industry, which uses some proprietary skills to provide clients with a professional service, such as software development outsourcing companies, advertising companies, etc. Regardless of the gross profit margin of the service, the real challenge for this business model is capacity constraints.

When this kind of business develops 3-5 years, usually enters a watershed, either obtains enough good customer, can choose the customer according to the gross profit margin, either is the capacity exhaustion, in the increase capacity (usually increases the manpower) the process, has the obvious marginal effect decreasing situation, The wages that can be given are no longer attractive enough to attract the right people.

Sometimes, entrepreneurs start such businesses with the intention to standardize the personalized services, so as to break through the limits of capacity, in many areas, such practices are successful, for example, I know a number of software vendors have started from a custom system, In the process of early service customers, they observed and analyzed the commonality of customer requirements, abstracted the product framework, and put in enough energy to develop, in the final delivery of the market when there is a decision to choose, willing to sacrifice a portion of customers, and ultimately to the service product. Software giant Microsoft has also started to build its own Windows Empire from the development of operating systems for IBM PCs.

However, there are a variety of reasons for the failure of more services, the most common situation is that some areas of customer demand is indeed too large, such as the nature of advertising companies are almost no product, the second reason is the service phase of customer bargaining power is too high, not only the product difficulties, And the service brings the gross margin is also seriously insufficient, causes the enterprise to have no way through the profit accumulation to develop own product, but if at this time abandons the custom business customer, then faces the survival threat directly. In the field of professional services, so that the card in the middle of the enterprises abound.

3) industries that are already declining

In the wind industry, everyone is easy to peremptorily to the same market, but in the tide began to fade in the industry, entrepreneurs choose to quit at the right time is much more difficult. But there is no doubt that this is the best decision to make, as long as the entrepreneur is objective enough.

Some people say that there is no sunset industry, only sunset enterprises, to be precise, the sunset enterprises can not fight the sunset industry, and Chaoyang Enterprises usually early in an industry before the tide began to re-planning the future. And the industry's ebb-and-tide has become more and more rapid in technology, unlike digital cameras that took 10 years to replace film cameras. Smartphone replacement function machine is about 3-5 years; marketing alternative microblogging marketing is a one-to-five-year time, in such a short period of time, it may be an entrepreneur vacation two months back is completely different situation. Therefore, to avoid the pain of choice for this reason, can only maintain the vigilance of the market at all times.

4) Depart from vision and get farther

This reason does not sound so rational, but an explanation of the previous one or two reasons from another angle. A considerable part of the entrepreneurs to start a business is to achieve a vision, but the beginning of the choice of a different path, after 3-5 years of persistence found that the original set of goals not only not close, but more and more distant. Services are not product-efficient, unable to provide effective services to target groups, and product services bring negative effects to customers. Everything happens to make the entrepreneur more miserable, but powerless to turn around.

At the end of last month, smash hit's anonymous social apps secret closed, and the founders ' Frank Secret on the blog has been a departure from his founding intentions (he used to think that anonymous social services such as adding secret in the world of social media can make information more transparent), The end of the business may be the best option. To know that a significant portion of the company's $ tens of millions of financing has not been used in the closing hours, and he has opted to return the money to the investor under the terms of the investment. Didn't he want to change the shape? The problem of transformation is what I want to say at last.

When your business faces these problems and painful choices, many entrepreneurs choose to stick to it and look for opportunities to transform, and ending a business doesn't mean ending a business.

Of course, many successful companies have experienced these years, and their later success is not even a transformation brought about. At a time when the money chain breaks, they try to sell to the investors, even at the expense of the mortgage of personal property, in order to give the business a more chance. Some of them succeed, do not ask about the success rate of transformation, this quantitative figure will only pour the salt in your wound. But there are two facts we have to accept quietly:

1. The success rate of the problem enterprise is not higher than that of the newly established enterprise, it is only possible to succeed;

2. Those who escaped from the lost and seemingly lucky firms have at least an effective team, and their CEOs have enough leadership to lead a group of brothers fearlessly into the fog again.

Disclaimer: Please do not make any decision directly based on this article.

When should we end a business?