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David Segal

June 21, 2017 by Speakers' Spotlight

Escaping Business Purgatory: 3 Signs You’re Stuck in Limbo

David Segal is an entrepreneur and retail thought-leader. He is best known for bringing radical innovation to a 5,000 year product category with the launch of DAVIDsTEA, the company he co-founded in 2008. Segal takes audiences through the entrepreneurial journey, delving into the brand experience, growth at scale, managing the digital and retail waters, and more. Here, David asks if your ego is keeping you in a dead-end business, and shares what you can do about it:

This spring, Kit and Ace, the retail brainchild of Lululemon founder Chip Wilson, announced the closure of all its international stores amid mass layoffs. Despite heavy investment, the model wasn’t working, and the white flag was being raised

I feel for them, but I think it’s a brilliant decision. While it’s tough on entrepreneurs when their business fails, I know first-hand there’s something far worse—being stuck in purgatory.

I don’t mean purgatory in the Catholic sense of a place of atonement but rather as the entrepreneurial limbo between success and failure—where your company might be viable but just barely and you don’t see any light at the end of the tunnel. Just as investors sometimes hold on to a falling stock for longer than they should, starry-eyed entrepreneurs can also waste too much time, energy and money on a concept that simply isn’t going to work.

Before I found success as the founder of DAVIDsTEA, I spent three painful years in purgatory and learned the best way to get out is to know when to stop kidding yourself and throw in the towel. In my experience, there are three key things to look out for to know if it’s time to quit.

1. The ‘interesting’ dilemma

The most important thing in any successful business is, obviously, the product itself, and if you hear yours frequently described as “interesting” then you may have a problem. Given that an estimated nine out of 10 startups end in failure, it’s clearly not enough to have come up with something people tell you is a brilliant idea in boardrooms or at cocktail parties. You need something people will actually fork over their cash for.

My first company was called Fitting Room Central. You probably haven’t heard of it. We created software that would allow a store to keep track of the clothes that went into the changing room and compare it with what ultimately ended up being purchased. I pitched to buyers at many, many meetings and I kept getting the same response: “Interesting.”

The problem was that the product was simply information, and it was up to the client to do something with it or not. They could see that the info would probably be useful, but they couldn’t see a clear return on investment. We ended up getting a pilot at Macy’s department store in New York, but that was as far as it got. They thought it was “interesting” but it never became a priority.

2. The people problem

If it’s not the product keeping you in purgatory, it might be the people. Are the members of your team as knowledgeable as you? Do they feel as passionately about the business as you do?

I worked with an executive years ago who liked to use a lot of jargon in meetings—buzzwords like “snackable content” and “take offline” and endless unexplained acronyms like UGC, API, CTR and PPC. It made her sound like an expert but it eventually became clear she was holding us back.

One of the best hires I ever made, on the other hand, was a guy with zero industry experience who had applied for a warehouse job. While he didn’t have an MBA from a fancy university, he was open-minded, hard-working and treated the company like it was his own. Over time he grew to become the manager of a 40,000-square-foot warehouse with hundreds of employees, and he also came up with several ideas that ended up saving us a lot of money.

If your business isn’t full of people like this who are always learning new things, challenging the status quo and taking pride in their work, then you’ve got a problem.

3. Checking your ego

Calling it quits with Fitting Room Central was one of the hardest things I’ve ever done because it was at a time of my life when it seemed like everyone I knew was launching their careers and having financial success. I was sitting around the house in my underwear, clinging to blind faith that things would eventually pan out.

It’s not easy to give up on an idea you’ve poured your heart and soul into, let alone lots of money. But eventually I realized that prospects had stopped taking my calls: I started to feel like the annoying telemarketer who phones during dinner.

It’s a bit like if you keep asking someone out on a date out and they keep turning you down. This probably isn’t a sign for you to just change your hairstyle; it’s time to give up.

One way to help make the decision is what I think of as “Dragons’ Denning” yourself. Imagine if the shoe was on the other foot and someone was pitching your own idea to you. Would you still want to invest, knowing what you know now? Be brutally honest here. If not—if your own pitch is sounding desperate or not convincing you—you need to either say uncle or make radical changes.

Whatever your platform is, if you don’t see either sales growth or profit (preferably both) within a short amount of time, it’s probably doomed to fail. There are exceptions of course, but it really is that simple.

As painful as it was when my first company folded, it taught me a valuable lesson. I’m now poised to launch a new business and, if we don’t hit our targets a few months out of the gate, I’ll know I’ll need to either cut my losses and run or reinvent the business— because there’s no way I’m going to spend another three years in purgatory.

David Segal/June, 2017