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Know When to Fold ‘Em

It turns out that winners do quit. It’s knowing why and when to abandon a failing project that differentiates the leaders from the losers.


"Open Leadership"

It survived just 23 days.

Qwikster, the standalone DVD-by-mail company spawned by Netflix last fall, landed on the sacrificial altar three weeks after CEO Reed Hastings unveiled it to the public. Analysts and customers snickering over the company’s death spiral (NFLX lost 62 percent of its value following a July price hike) said Hastings had no choice but to kill Qwikster.

But that’s not true. He did have a choice — a very difficult choice that every leader must make often: Quit or persist?

It’s true that customers, analysts, and investors were unanimous in condemning Qwikster, but that didn’t make killing it a no-brainer. The fundamental business-plan challenge — user demand is quickly shifting from little red envelopes to streaming entertainment available on demand — is very real, so walking away from one potential solution was anything but easy. Other CEOs might have been far less quick to kill Quikster, with even worse results. (Although an 80% drop in share price from the 52-week high is, admittedly, mighty bad.)

“Often times, under pressure, it is difficult [for leaders]… to stop a project that is failing,” writes Anil Saxena, president of 214 Consulting, in a Linked2Leadership blog. Blame it on “a mixture of pride and hubris, dogged determination, and the feeling that quitting itself is failure.”

But admitting a failure quickly and correctly might be just the thing to save a leader, or a company, says consultant Charlene Li. “Business and leadership is all about relationships,” she writes in her Harvard Business Review blog post, “The Art of Admitting Failure”. “And the strength of a relationship is not how perfect it is, but how resiliently it deals with the inevitable failures.”

On her HBR blog, strategy consultant Dorie Clark offers three good reasons to abandon projects:

1. When the project sparks adverse consequences. A mass exodus of customers and plunging share price fall under the category of “adverse consequences” in our book.

2. When one project’s goals impede other company objectives. If revenue falls off dramatically, for example, you can’t invest cash in research and development or other key priorities. That’s bad.

3. When your goals are no longer appropriate. In a September 2011 letter to customers, Hastings wrote, “DVD by mail may not last forever, but we want it to last as long as possible.” Hmmm, perhaps that deadline has passed? We’re just sayin’…

Looking ahead to 2013, what is the most likely scenario for you?

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