How to know if it's time to shut down your startup?

I shutdown my 3rd startup in May 2024. First 2 failed too.

Oct 25, 2024

Founder's dilemma: 2 years in and no growth. Do you double down or bow out? In this newsletter, I have shared my rollercoaster ride to make this tough call - not once, not twice, but three times. Let's talk about some startup survival (or extinction!)

I have shut down 3 businesses

And, every time, it's painful to arrive at the decision.
And, every time, immense relief follows after it.
And, no, I don't want you to shut down yours.

But, for some, it might happen.
For, what's important? It's not the decision.
But, the process of arriving at it.

Here’s the story of my last startup shutdown

We provided live online music classes for kids.

We were,

doing 1.2 CR of annual revenue
breaking even with 2 profitable months in the past 2 quarters
healthy CAC:LTV ratio

And, not just that,

we built the playbook for scale, understood the depth of the market
our cost structure was 1/3rd of any competitors
our retention was off-the-chart

And, not just that,

we raised our 2nd round of funding
investors were ready to wire the money on 2nd May.

And, just that,

on 1st May, I told them not to wire the money
on 1st May, I decided to shut down.

Why did I shut down?

Even after raising funds, (something most founders aspire to)
Even after a profitable business, (something most founders fail at)
The answer is that, between Jan 2024 and March 2024,
My inner being was in a conflict.

The tussle between self-doubt and self-confidence

On one hand,
I was raising funds, showing my conviction to investors
I was confident about our PMF and playbook

On the other hand,
I was doubting the opportunity
I was doubting my abilities

And, in the end,
self-doubt won over self-confidence.

“The Million Dollar Question”

How did I arrive at the decision, to shut down my startup?

“The Million Dollar Answer”

By finding base-level scenarios that are unavoidable. (let me explain)

”The Million Dollar Process” to find “The Million Dollar Answer” to “The Million Dollar Question”

From starting, I had 3 goals in the business :
1. to solve the problem 10x better
2. to build a 100 crore revenue company
3. to do that in 5 years (by 2029)

Here’s the thing,
We successfully solved this problem 10X better than anyone.
Our 6-month retention was 70% compared to 5% of the industry.

But, the problem was in Goal2 and Goal3
Both of them were achievable,
Just not at the same time,
or in the same industry.

The approach I took to get clarity was
1. to talk to as many people and multiple POV
2. synthesis of base-level scenarios which are easy to answer and are unavoidable.

Out of 20+ conversations with founders, and leaders, 2 conversations stood out and helped me conclude my decision.

Key Question from Conversation 1:
"A healthy business should afford founders market salary in 3-4 years."

My expected salary in 5 years (2029) would be 1.5 CR+
The only way for a business to afford that is to -
either, have 100CR+ funding
or, 10CR+ net profit which means 100CR+ revenue

So,
Revenue needed - 100CR
Revenue Projected - 100CR

What's the problem? Everything fits perfectly.
Here comes 2nd conversation.

Key Question from Conversation 2:
"On what basis I am projecting 10X growth?”

A founder friend runs a STEM edtech for kids (similar space)
They have raised 150CR
They have been in the market for 10+ years
And doing 250CR revenue
Their market size is 10X of ours (curricular versus extracurricular)
The consumer has a 10X sense of urgency for their service

So the question I asked was -
On what basis, then, I am saying that I, with a market that’s 10X smaller, has a 10X lower sense of urgency and priority, 50X less capital will do 100 Crore in 5 just years.

In short - what leverage do I have?

3 base-level unavoidable scenarios

After 2 months of deliberations, 3 scenarios originated.

Scenario 1:
It can become a 100 crore company but needs more capital to get there in 5 years.

Scenario 2:
If capital is not available, it will take 15-20 years to reach 100 crore organically.

Scenario 3:
If not 15-20 years, then in 5 years the best case would be 15-20 CR of revenue.

Hence, by establishing/deciding the base-level scenarios, making the decision was easy. (the decision was still a tough one)

First:
In edtech, scenario 1 was out of the question.
No one was funding.

Second:
I didn't want to wait 15-20 years to reach 100CR ARR.
Taking up a job would have been better.

Third:
15-20 Cr in 5 years was too small an outcome and not exciting.
I could start something new from scratch and it might become bigger.

The answer was clear : Shut Down, Move Ahead and Write a Blog About It.

PS: Help me grow by sharing it with fellow founders.