Know When To Cut Your Losses When Your Profits Start To Fall

"Depending on the root cause of the fall, like a temporary decline in the economy, it very well could rebound. But there are times when the root cause cannot be fixed, or worse yet, will continue to "snowball" in the wrong direction. In those scenarios, you need to know when to pull the "ripcord" to save whatever value you have left before your business is worth zero."

"Meet Joe's Bikes, a fictional ecommerce seller of electronic bikes ("eBikes"). They were one of the first movers to be marketing eBikes online, launching their website in 2018, and were experiencing meteoric growth in the first several years that followed, growing their revenues from $0 to $20MM by 2022. But soon after that point, they were seeing a lot more competition from other eBike sellers online, and the effectiveness of their Google advertising was getting a lot worse."

Founders often stay emotionally attached to startups even as growth stalls and profitability declines. Increased competition and rising advertising costs can raise customer acquisition costs and reverse prior gains. Temporary economic declines may allow recovery, but some root causes cannot be fixed and can snowball, eroding value toward zero. In those cases, decisive exits can salvage remaining value and provide a soft landing for shareholders. The Joe's Bikes example shows an early-mover eBike seller that grew to $20MM revenue by 2022, saw profits fall from $2MM to $1MM in 2023, and experienced doubling CPC in 2024.

Read at Forbes