In business and life, the time comes when we have dilemmas like: What to do if the road to our goal is paved with failures? When to give up and when to hold on? Finally, you need to take one decision and move on. We cannot hold the situation for long. That decision may be right or wrong, which time will tell. But the winner makes even so seems the wrong decision to right.
“You only have to do a very few things right in your life so long as you don’t do too many things wrong.” – Warren Buffett
No Business without Obstacle!
Every successful company almost failed at some point. Don’t give up if you believe in the project. This is very important. The minute you lose your faith, things will start collapsing in a big way. Naveen Jain shared the example of Infospace, which he founded:
Every business has obstacles. A business that has not gone to the valley of death has never been successful. Every company will tell you that they almost had a near-death experience. And when you come out of it, you’re stronger, better. Infospace was a great example of this. I started it with my own money, and we had less than one month of payroll left in the bank, and I told every employee, we have one month to turn around; either we make something happen, we find a way to do business, or we’re going to die.
We were trying to build classified services for people to find homes for sale. And my business person comes to me and says, “Hey, there’s a guy, he wants to give us all the home listings for free and we can make all the money we want from it and he didn’t want any piece of it. We should just go out and take it, and we can do advertising and we can make money on it.”
Now, I was stuck on having to make money because we had no money left. I told him, “I want that guy to pay us for it.” And he said, “He’s giving it to us for free, why would he pay us?” And I said, “I want the damn money. Tell him he needs to pay us if he wants his listing there, he needs to pay us.” My business guy on the phone told him, “My boss wants you to pay. If you want this listing to be taken, he wants you to pay.” And silence. Silence is golden, silence makes people uncomfortable. And the response on the other end was “How much?” Now, I had a business.
We were burning $10,000 a month. He said, “Boss says $10,000.” Thought for a second, “Can I pay $5,000 in the first month then the second month I’ll pay $10,000, starting the second month?” And I said, “We have a deal.” But my point was when you are near death, you come up with a business model that you would never do if you had lots of money. If you have lots of money, you would never ask the guy how much?
Until then, nobody would pay for the content he provides. But Naveen realized that the home listings were actually advertising, and it saved his company. Infospace became one of the giants of the dot com boom, a $40 billion enterprise.
Analyze The Cause
When you are losing business or start making losses, then analyze the cause to take the appropriate steps. Cho Tak Wong, the Chinese auto glass giant, explained his approach:
If any business starts losing money, then I will admit that we must have made some wrong decisions. However, in order to set it right, I have to correct it right away. But before I do it, I will look for the reason. Is the reason the strategy, or was the reason the execution, or was it an environment change? If the reason was the environment change, then we didn’t do good study, so it was the wrong decision; so I will correct it, including stopping it.
Sometimes it’s wiser to give up one limb in order for the whole body to survive. Hüsnü Özyegin, a Turkish billionaire, recommends to cut the losses in unsuccessful projects: Make tough decisions. If you think that there is no end in sight to the road you are on, you have to get out. You cannot insist on a business where you’re not successful. Of course, you have to be patient, but if you cannot see the light at the end of the tunnel, you have to cut your losses. It’s difficult, but once you make the decision, you feel better. In Turkish we have a saying, “Cut the arm,” you know? The body doesn’t go away. You have to cut the arm sometimes.
Cut The Losses
When you can’t win, then it’s better to cut your losses. Don’t lie to yourself. Take the losses if there is no straight line to profit. Peter Hargreaves (Co-founder of the United Kingdom’s largest financial services businesses), stops a project immediately as soon as he realizes it won’t work, and he has a method to spot it relatively early.
Peter Hargreaves stops a project immediately as soon as he realizes it won’t work, and he has a method to spot it relatively early. I once started a venture in the firm with a guy, and I told him I would give him two years to make it profitable. What he didn’t know was that if after six months it didn’t look as though it was going to make a profit, I would have closed it down then. Big companies when they give something two years never appraise whether it’s actually likely to be successful and run it for two years when they should have known it wasn’t going to happen within the first year. As soon as you know something isn’t going to work, you should cut it immediately. You know when something isn’t going to work when suddenly you spend an inordinate amount of time discussing it.
Don’t spend more time on things that don’t work than on those that do. You must know when to hold and when to fold. (Excerpt is inspired from ‘The Billion Dollar Secret: 20 Principles of Billionaire Wealth and Success’ by Rafael Badziag.)