YOU BE THE CONSULTANT
When to Call It Quits on a New Business
Jake Jorgovan had become a successful entrepreneur while he was in college. Jorgovan and a classmate started a video production company. They began by making videos of senior recitals for music students at their school. By the time they graduated, their company had hired several employees and was booked up with a combination of music industry work and shoots for corporate clients needing videos. Jorgovan won several local and national business plan competitions based on the plans he developed for the company. Shortly after graduation, Jorgovan was recognized as the Youth Entrepreneur of the Year in Nashville, Tennessee, where the business was headquartered.
Not long after that, Jorgovan made the decision to move away from the video industry and start a new business. After extensive research, Jorgovan identified an opportunity in the telemedicine growth sector of the healthcare industry. Jorgovan started his new company, Telehealth PT, to develop a telemedicine application for physical therapists. Telehealth’s business model was to provide a framework that would allow physical therapists to provide care through live video conferencing sessions on patients’ mobile devices or computers.
Jorgovan began developing the basic technology he could use to demonstrate that his concept could work. His goal was to offer a simple version of the product and test it with a few physical therapy clinics. However, not long after beginning work on the basic product, Jorgovan began to have doubts about his ability to launch the business. He persevered, trying to overcome the many technical hurdles and personal challenges the new business kept throwing in his path.
Even though it soon became clear that his new business was not going to work, Jorgovan had a hard time accepting this failure, mainly because he had known so much success with his previous business. He continued to try to uncover ways to salvage the venture, but eventually he had to admit he had failed.
One of the possible outcomes of conducting feasibility analyses and developing business models is that, like Jake Jorgovan, the entrepreneur may discover that the business just won’t work. Entrepreneurs should consider this a positive outcome because they are able to discover fatal flaws in a business concept early, saving time and money. It can be difficult for entrepreneurs to admit failure and walk away from an idea even when it becomes clear that it is doomed to fail. Why? What clouds their judgment?
Pride and ego. It is easy for entrepreneurs to let their egos get too wrapped up in their businesses, even very early in the life of their new ventures. They receive affirmation and encouragement from family members and friends for taking the risk to start a business. Soon, their pride in being an entrepreneur can get in the way of making a sound business decision and closing a failing venture.
Their “baby.” Many long and lonely hours go into getting a business started. Entrepreneurs can quickly become emotionally attached to a new venture. They can reach a point where they could not even imagine thinking about giving up on it.
Getting stuck on sunk costs. It can be difficult for entrepreneurs to look at the time, money, and reputation they have put into a failing concept as a sunk cost. That is, entrepreneurs can never recover the resources they have already committed to the venture. Continuing to pour money into a failing venture simply because one has already invested so much into it is not wise.
The purpose of feasibility analysis is to answer the question “Can this business work?” Sometimes the answer will be “no.” The entrepreneur must be ready to accept this answer and move on to the next opportunity.
Why was it hard for Jake to admit his newest venture was not going to work?
What would you recommend that entrepreneurs do to ensure that they don’t hang on too long to a failed business concept?