Five years ago we started a company in the then-red-hot fiber communication industry. We’ve fought hard to stay viable, but now it’s obvious that the “growth space” for our company is much more limited than we’d hoped for. Should we give up and start again in a new area or stay in the survival game?
Since you’re from Silicon Valley, you probably know the answer to your question: The survival game stinks. And nowhere does it stink more than in the technology sector. In fact, sticking it out in a low-growth technology business is a fast road to commodity hell, where you will be forced to endure a painful eternity of low-cost slugfests with offshore manufacturers. What a way not to go.
Clearly, you would be better off to find a new business where you and your team can grow and flourish. It appears your company has a business model, so survival, at least for the foreseeable future, is an option. That’s good news. It means your immediate challenge will be harvesting the living daylights out of what you have to keep the cash flow coming.
Meanwhile, you can figure out the new game, allocating the resources to acquire a business or start one from scratch.
Now none of this may seem particularly easy or pleasant—exiting a business rarely is. But you can take solace in the fact that your situation is entirely common. The environment starts to change under your feet, and suddenly your business doesn’t make that much sense anymore. It happens every day all over the world, not just at startups. In fact, it’s particularly common at established companies where new competitive dynamics emerge almost out of nowhere to upend the status quo. All too often in big corporations, unfortunately, certain businesses have become such shrines that managers do not react with the kind of clear-eyed realism that your letter suggests.
Look, change requires leaders to overcome all sorts of human dynamics, like inertia, tradition, and head-in-the-sand hoping that things will get better. But strategic moments require courage, or at least a lack of sentimentality, which is rare. It is in these moments that the best leaders find a mirror and ask themselves the defining question that the late, great Peter Drucker posed nearly 40 years ago: “If you weren’t already in your business, would you enter it today?” If the answer was no, Drucker said, you need to face a second tough question: “What are you going to do about it?”
Every leader should heed his advice and, if need be, follow it through to its conclusion—whether it is to fix, sell, or close the business. Congratulations for having done that already. Your decision may be tough in the short run but will ultimately release your people from a losing work environment and give them a chance to find a future filled with opportunity, perhaps even with your new venture.
This question and answer originally appeared in Business Week magazine on July 10, 2006.
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