One of the hardest things for some entrepreneurs to do is admit failure and move on. I view it as a sign of maturity and business intelligence, but all too often, many entrepreneurs do not see it that way.

But the better question is “How do you know when it’s time to let go?” It’s not like there are manuals out there that tell you “when.” I personally have been through this dilemma of holding on too long, and it cost me greatly what I consider my greatest asset, which is time. Sure, I lost money (everyone has). But what I regret most about hanging on too long was the “time” I lost thinking that what I had was salvageable. Like most people, I think most entrepreneurs know deep down inside when it’s “time” to let go. But at the time, I was stubborn and I had too much pride to admit I was failing. Failure was not an option cause failing sucks.

Over the last few years, I’ve had the opportunity to interact with hundreds of entrepreneurs in a wide variety of industries. I’ve come across some really cool companies and some really, really bad ones. But no matter the company or the industry it’s in, I’ve noticed a common formula for why some companies succeed and others fail. It’s a very simple formula that I’ll breakdown in more detail in the text to follow but the three core components are Timing, Team, and Capital.

First, let’s examine all of the reasons for why most companies fail. When you think of the optimal scenario of a Favorable Market + Right Team + Sufficient Capital, it’s easy to imagine a successful outcome. But when you put together a matrix of all of the possible reasons for why a company might fail, the results are somewhat discouraging. See below:

Scenario 1: Unfavorable Market + Right Team + Sufficient Capital = FAIL

Scenario 2: Unfavorable Market + Right Team + Insufficient Capital = FAIL

Scenario 3: Unfavorable Market + Wrong Team + Sufficient Capital = FAIL

Scenario 4: Unfavorable Market + Wrong Team + Insufficient Capital = FAIL

Scenario 5: Favorable Market + Wrong Team + Sufficient Capital = FAIL

Scenario 6: Favorable Market + Wrong Team + Insufficient Capital = FAIL

Scenario 7: Favorable Market + Right Team + Insufficient Capital = FAIL

Scenario 8: Favorable Market + Right Team + Sufficient = Likely Success

As you can see by all of the scenarios above that the odds are stacked against entrepreneurs. Statistically if you only look at these eight scenarios, only one of them is ideal yielding just a 12.5% chance for success. However, given that each of these scenarios are dynamic in nature and are subject to change due to market conditions, funding needs, and personnel changes, it’s becomes even more apparent that charting a path to success becomes even more statistically challenging.

It’s very difficult to have all of these elements align and stay (somewhat) aligned in the very early stages of a company’s growth. Experienced entrepreneurs closely monitor each of these three elements (Market, Team, Capital) and understand how to  navigate through all of these scenarios to produce successful outcomes. Experienced entrepreneurs also know when it’s time to cut the cord and say goodbye. Maybe they cut the cord because they have a great team, but they’re in a bad market and they’re having trouble raising capital. Or maybe they’re in a great market, have sufficient capital, but team dynamics have diminished. It could be a number of different reasons.

Knowing when to move on is tough. But if you’ve carefully thought it through and have a fundamentally sound reason to quit and move on, I say it’s better to do it fast and save yourself time, rather than linger around wasting it. Cheers – KM