When should a startup pull the plug?

from Trakin' the india business buzz by Sriram Vadlamani

Started in 1981 Infosys was on the verge of collapse after 8 years when a joint venture with Kurt Salmon Associates (KSA) has collapsed. The Infosys-KSA joint venture was Infosys’s attempt to break into American market. If Mr. Murthy has accepted that as a failure and moved on, there wouldn’t be any Infosys. Murthy along with his co-founders decided to stay on. The rest is history which everyone is part of.

The story of Infosys is an inspirational one. But, the times have changed since then. The gestation period for a startup has come down drastically. 8 years is not a long time then, but anything more than 3 years is a long time now.

A startup which is 3 years old and doesn’t have a profits or break-even will go down unless its Twitter.

Pulling the plug though looks and sounds fashionable, is really difficult to do. There is a lot of emotional attachment. But, sound logic should overcome that attachment and say these three words - This is it. If you fail, it is not the first time someone has failed. If your startup fails, again this is not the first time a startup has failed. Besides, there is no such thing as a failure until you stop learning from these things. There are always learning’s.

The startups mentioned here have done just that. They have pulled the plug on a specific idea but not on the entrepreneurial spirit.Tripmela.com an online travel deal aggregator went was sold on ebay fro 112,000.

Reason is the aggregator is not cut for Indian markets as there weren’t many hotels offering deals.Rohit Agarwal’s Tech Tribe a networking startup which received VC funding shut shop after 3 years of operations. Reason again is the changing business conditions and bigger players with more capital at their disposal. Rohit moved onto to online education space.

Kesava Reddy’s MyDuniya offers  email-via-SMS service. The concentration on individual users instead of corporates did not work very well and instead found a new start-up called Numo Solutions. It offers customized SMS solutions for corporate’s.Bookeazy.com a movie ticketing service was doing good but the founders pulled the plug on it as it is taking too much of their time. They came up with Lipikaar a translation and transliteration product.

In all these startups there is a trend :

1. You pull the plug, Accept failure and go into oblivion or a day job.
2. You pull the plug on this idea, go on to a different idea and succeed. It is statistically proven that entrepreneurs get second time lucky.
3. You start something up, you start something else along with it, work on them in parallel and then you decide to pull the plug on one of the things which isn’t working.

The first option does not seem likely as I believe in this saying - Once an entrepreneur always an entrepreneur.

I still have some questions left. What if a startup stays on the course to become the next Infosys? Should a startup have a  contingency plan or an exit strategy?  When do you think startups should pull the plug?