Having invested time, effort and money, changing the direction of your business despite vague prospects is undoubtedly a tough call to make. Persistence however, is not always a virtue.
“Cut your losses!” That’s what a facilitator at?a day trade training program kept repeating. I didn’t complete the training (wasn’t my thing), but I still think it was a decent piece of advice. It’s not easy to drop an idea, especially when much time and effort has gone into it. Its worse when the idea has already taken the shape of a business. How do you stop and turn? What if the tipping point is right around the corner? Despite the cost, and the desire to cling on to hope, sometimes it’s wise to cut your losses and change direction.
Parakhi.com made a similar transition in March 2013 when the company shifted its primary focus from hotel reviews to bookings. Nirmal Thapa, Director of Operations at Parakhi says, “After one and a half years, we realizedthe limitations in our core direction, and our new way was the answer to those limitations.” There were four main reasons behind this. First, the information they provided included blogs, events and offers besides the hotel reviews which was confusing for clients. Second, most Nepali businesses are yet to understand the changing market with empowered consumers and their unlimited options. Third, despite the tools and resources at hand, consumers here are yet to fully utilize them. And four, as Nirmal admits, the business was simply not financially sustainable.
In November of last year, the team started working on its new direction – a hotel booking portal. The company conducted market research for months to validate the new idea. They asked several hotels if they would use such a service; would it help them? They also conducted surveys amongst tourists, asking if such a service would make the process of visiting Nepal simpler. After the research, the company decided to move ahead with their idea, shifting the core business to hotel booking from reviews. They decided to stick with the name Parakhi.com, as there was a huge client pool associated with that name already.
For most businesses, such a fundamental change would not be that simple, but for Parakhi – a young company with a young team – change is adapting. Nirmal says, “The transition was not that hard for us. We are a small team and were even smaller back then. We are all young, and we are all here to learn. All of us understood why we were doing this, and everyone was a part of the decision. The technical team was ready, the marketing team needed a bit more effort, but the transition was as smooth as anyone could hope for.”
Parakhi.com is not the only company that has made such a change. Businesses, big and small, have to make adjustments regularly because of changing markets, consumer preferences, technological upgrades and other reasons. However, sometimes the core idea starts to fall apart, and what is needed is much more than an adjustment. At these times, it takes a lot to pull the plug, cut your losses and start a new i.e., after you have done your homework.
Understand what went wrong before you come up with your new idea. Only after understanding their limitations was Parakhi.com able to identify a possible solution to their problem. Without understanding what went wrong, a solution becomes little more than a blind swing.
Accept setbacks and losses Often times, holding on to sunk costs leads to a deeper ditch. Before you start afresh, accept your losses and move ahead. Keep time in perspective, to understand the actual cost of sticking with the old idea or to change course into a new one.
Research and Plan your new venture It’s always advised to research something you don’t know much about, for example a new business idea. Parakhi’s transition didnn’t happen overnight; it involved five months of research and execution.
Prepare and engage your employees It isn’t that hard?to change ideas. What’s hard is changing people’s minds. Your team needs to be a part of the change too. The more integrated the process is, the smoother the transition. Parakhi might have had it easy with a young, small and connected team, but getting the team to adapt to the change might be a Herculean feat for a larger company.
Tackle the legal ramifications However, in some instances the changes in your work might be drastic, requiring notification to the Company Registrar’s Office. Other possible issues such as taxation and legaility should also be checked.
Keep going with the same vigor but in a different direction.