Published Work

How Chicago's Digital Disrupters Knew When to Quit

Growing up, I heard my dad repeat Vince Lombardi's mantra many times in an effort to motivate me to accomplish my goals. It's only after being in the business world for more than 20 years that I realize it's simply not true.

It's not that winners never quit. Rather, winners know when and how to quit. Vince Lombardi also said: "The harder you work, the harder it is to surrender." I agree that it's more difficult to quit than to sustain an adventure. Change is always tougher than the status quo.

We have some great winners who know when to quit in Chicago.

Mohnish Pabrai, a veteran of three other start-ups, decided to close Digital Disrupters in August 2000. He started the company to incubate start-ups that would develop disruptive technologies. Pabrai wanted to emulate the philosophy of Harvard professor Clayton Christensen (author of "The Innovator's Dilemma").

As Brad Spirrison wrote on ePrairie then: "The Digital Disruptors model is simple: co-invest $1 million with an established domain leader and watch 50 percent of nothing grow into 30 percent to 35 percent of $10 million, which is the anticipated valuation of its portfolio companies after round one of financing."

The company failed to raise the initial $10 million it was seeking for launching the incubator. Instead of trying to accomplish the same goal with only half the money that was committed to the business, Pabrai decided to call it quits. He opted not to take the money from his investors. Rather, he tried to find jobs for his employees.

It was reported that he invested almost $2 million of his own money in his first three portfolio companies.

Successful Failure

Rich Melman runs Lettuce Entertain You Enterprises, one of the best groups of restaurants in the country. The chain is well known for its frequency of failures. Typically, four restaurants fold for every one that remains open.

I dine at Melman's many successful restaurants. I also have eaten at ones that he has shuttered. He did not hesitate to close Lawrence of Oregano and Jonathan Livingston Seafood when they weren't doing well. If the concept failed, he licked his wounds and moved on.

I admire these kinds of people. Melman, for example, had a vision for doing something different with his business, but when he couldn't make it work, he called it quits and moved on to something else. This is much easier on paper and harder in practice.

In business, you always think that next prospect, customer or consultant will make the difference and propel your business.

It rarely happens this way. Most of the time, we spend too long going down the same path, doing the same thing and hoping for it to change. While hope is an important component of the entrepreneurial spirit, it alone is not a marketing or sales strategy.

In 1997, I was riding my bike to work when things were going particularly bad in my business. I remember wanting to call it quits. I felt I had an impossible task and it was just too hard to make it work. The realization that day that I could close it down and walk away was freeing. It gave me a choice.

We eventually did stick it out and was able to turn the business around.

In my first business in 1988, we decided something different. We stopped and closed the business to pay back the $10,000 we owed. This was freeing too because a few years later, I started my next business.

So how do you know when to stay the course or when to close? If you and the business continue to fall deeper into debt on a monthly basis, shut down.

It is similar to a famous expression that is a favorite of Bob Geras: "If you find yourself in a hole, the first thing to do is stop digging." Secondly, if you have lost the passion for your business or if you no longer like who you are working with at your company, it?s time to close the doors.

You are not alone. There is no shame in surrender. In fact, surrender can open you up to new possibilities and a fresh start. For many entrepreneurs, closing one business opens up the ability to start another one and begin that ride all over again.

As Vince Lombardi said: "It's not whether you get knocked down. It's whether you get up."