Why The Top 1% of Founders Quit Their Startups

Framework of quitting from a YC Founder, ex-MBB consultant, and Softbank Investor

“If you can just avoid dying, you get rich. That sounds like a joke, but it’s actually a pretty good description of what happens in a typical startup.”

That quote from Paul Graham’s essay How Not to Die stuck with me during my struggles as a 3rd-year founder backed by Y-Combinator.

For an average small business in the US, you beat 25% of competitors by surviving year one on average. By year four, you’ve beaten half.

For funded startups, the numbers look even better.

You beat out ~90% of your competitors if you’ve survived long enough for a Series-C. Directionally, if your chances of becoming a unicorn were 1% when you started, you 10x that probability by surviving long enough to get a Series-C.

Now, proposing “just don’t die” as a solution to “I’m dying” in an industry where 95% of startups fail sounds silly. But on a deeper look, it holds merit when you examine why most early-stage startups die.

According to surveys by CB Insights, founders list running out of money and competition as the top reasons. When you speak to founders, that’s rarely the case. Paul seems to agree with me on this one:

When startups die, the official cause of death is always either running out of money or a critical founder bailing. Often the two occur simultaneously.

But I think the underlying cause is that they’ve become demoralized.

Personally living the experience in search of PMF and speaking with peers, I’ve observed that the breakdown and demoralization of founders is the leading cause of death for most early-stage, pre-product-market fit companies.

To borrow language from Ben Horowitz in his book Hard Things about Hard Things, every founder goes through “The Struggle”.

Here are a few that struck hard:

The struggle is when you don’t believe you should be the CEO of your company.
The struggle is when people ask why you don’t quit, and you don’t know the answer.
The struggle is when self-doubt turns into self-hate.
The struggle is when you wonder why you started the company in the first place.
The struggle is when everyone thinks you are an idiot, but nobody will fire you.

Beyond anecdotal evidence of founders, Harvard Business Review research found that founders are 30% more likely to experience depression — only one form of mental distress — than others. There are endless reasons why founders face The Struggle.

For this piece, I’ll share some patterns I’ve seen, particularly of founders with a track record of being in the top 1% — esports, poker, law, consulting, finance, tech, sports, music, and whatever else field I’ve missed — that lead to demoralization.

1. Limited control, 100% responsible

Many of us who come from highly competitive fields are used to having control. We set objectives, processes and execute them. We control the variables, and most things fall within our planned margin of error.

In a startup, most things will not go your way. Even people who’ve seen it all will be happy to be right, even 50% of the time.

Chris Bakke on Twitter: "Running a company:2020: can you survive a pandemic?2021: still here? we're going to give all of your competitors $100m series A rounds.2022: wow, you made it? okay, all engineers cost $600,000/year now.2023: nice job! okay, we're going to take away your bank account. / Twitter"

Running a company:2020: can you survive a pandemic?2021: still here? we're going to give all of your competitors $100m series A rounds.2022: wow, you made it? okay, all engineers cost $600,000/year now.2023: nice job! okay, we're going to take away your bank account.

Having been an investor at Softbank focusing on fintech, I thought I knew a thing or two about starting a fintech company. But I did not predict the tech valuation crash, the interest rate hikes in 2022, and the digital bank runs in 2023 that crushed me. These were events outside my control.

A desire for control manifests in different ways. Some will want everyone to come into the office. Others might insist on a specific design process. But one common denominator of control I’ve found is time. Our intuition is to think of outcomes over time, ironically, the one thing we can’t control.

We need to hit 1,000 users by Q2 of this year.

We need to wrap up the Series-A in the next 2 months.

I want to hit a $50m valuation within two years of starting.

It’s not that companies don’t get there or hit PMF. It’s that it usually takes longer than expected.

The reason the top 1% have trouble with this is because, by definition, we have been exceptions to the rule and expect this to continue.

We think we can find PMF faster than everyone else. But when we become the average of founders, taking time to find PMF, founder depression gets worse, and eventually, demoralization hits. I had a super tough time with this.

One-liner on how I’m dealing with it: Relentlessly drop everything that takes away from the core metrics of the company. Don’t optimize for recognition or vanity metrics like valuations. Hyperfocus on a good process of iteration until luck finds its way to you.

2. Results are everything

I’m reminded of some great words of reassurance from Sundar Pichai, the CEO of Alphabet —

You have to encourage innovation. Companies become more conservative in decision-making as you grow… be okay with failure and reward effort, not outcomes.

Unfortunately, we’re not at Google or McKinsey or Goldman Sachs anymore. There is no A for effort in this game.

It doesn’t matter if you had 500 investor meetings and used up every ounce of social capital. If you fail to raise, your company will die.
It doesn’t matter if you had 1,000 customer interviews and stayed up until 3 am to analyze. If users don’t buy what you built, your company will die.
It doesn’t matter if you’ve meticulously planned for your 11th launch of the month with the most clever attempt to create virality. If customers don’t come, your company will die.

You get the point. If you don’t get it right, you’ll desperately call up banks only to be stood up, fire team members you truly care about, and shut down your company. No one will pity you for working hard when their own life is on the line.

Ben puts this well in his book, Hard Things about Hard Things; “Because in the end, nobody cares; just run your company.”

You lose infrastructure

Why is it especially hard for those in the top 1% of their field? Because the chances are, you had systems and infrastructure that you built or at least used to reach that level of performance.

When I was a consultant, we’d spend thousands of dollars on research and expert interviews to get an answer in a few hours. We also had several safety nets. In slides, we had disclaimers, footnotes, and appendices to show our work. We also had shiny badges from our schools, titles, and jobs, adding to our credibility.

At Softbank, we had an entire research department and an operating team, which allowed me parallel process tons of workflows. We could also jump on a call with some of the most prominent people for expertise.

In startup land, you lose your wings

You can’t spend thousands of dollars on expert interviews. There is no system to leverage. You don’t have weeks. And no one cares about your credentials.

Systems, infrastructures, and processes we used to leverage impact and hide behind are no longer here.

You can do the best analysis in the world and, on a balance of probabilities, be making the perfect call, but if it doesn’t work, you’re back to square one, and you try again. It may not even be your fault. It’s like playing Game Theory Optimal plays; you’d still be playing probabilities.

Sounds tough? Well, as Ben agrees: “If you don’t like choosing between horrible and cataclysmic, don’t become CEO.”

One-liner on how I’m dealing with it: Cut through the BS and forget past successes. Start stacking up wins and build momentum — an upward inertia.

3. Counterfactual & financial reality

“Comparison is a thief of joy” is a commonly accepted proverb.

But it’s pretty damn hard not to compare when the realities of personal finance punches you in the face every day, and you see your former & current peers crushing it.

Money is a real problem. Recently, I had a few conversations with founders who moved on after 5+ years of working on their startups. They worked 10–14 hour days on minimum wage, and reality caught up with them. They could not do things like provide for themselves or their loved ones, living on the cheapest food they can find.

Opportunity cost is expensive. If you perform in the top 1% of your field, your opportunity cost is time. You have a pretty accurate proxy for your counterfactual from your peers who stayed in that game. For many of us coming from consulting, finance, and big tech, they become directors, junior partners, and L7s. Many hit the 7-figure salary and continue to build wealth.

You feel you’re the only one. Meanwhile, even some of your founder peers have raised a huge round, found PMF, or hit 10% weekly growth. They seem to have everything figured out and live the meaningful life you dreamed of when you left your success and started your company.

By the way, these are career-related stuff. What about all the time you could be spending with your family? Or finding the right partner and promising a life together? Or buying your first home to start a family?

All of this combined, I’ve observed, can lead to overworking and self-seclusion, leading to loneliness. No one will understand what you’re going through. And that’s okay.

One-liner on how I’m dealing with it: De-couple your self-worth from your startup, even if everyone judges you based on the outcome. You’re more than your career and your startup. Don’t sabotage yourself by losing focus on what matters most. If you don’t know what that is, then find out.

Is it ever acceptable for founders to quit?

Are founders destined to be in The Struggle and misery until the big break? Is anything short of that a failure or a weakness? Or even worse, cowardice? After all, the best founders have their variation of “I never gave up even in the worst of times”.

These questions were salient on my mind a few months ago as I went through my times of self-doubt as a founder. We were still looking for PMF. Some investors were becoming impatient. My twenties were coming to an end. My friends were getting married. There are a host of other reasons to feel this way.

There was pressure to live up to the expectations of my team, customers, investors, and myself. There was also fear of admitting failure publicly, and some inevitably judging me as a quitter: the captain who left the sinking ship.

Is never giving up the only way to be a respectable founder?

Founders should avoid the worst case scenario

I remember walking on Marina Del Rey with an accomplished investor who raised billions and personally invested in my company.

This was a year into my startup, and I was crushing it. But he gave me a puzzling piece of advice on that walk. Here’s a paraphrased version:

“Daniel, you’re doing a good job. You have the potential to build a successful company — I believe that, and that’s why I invested. But I want you to know it’s okay to walk away if you feel like you’ve taken every shot and don’t see a path forward.

I’m not saying this because I think you’ll fail. I’m saying this because I’ve seen founders trapped and stay for years — they were miserable. Many of those founders took a long time to recover. But when they started another company, I invested in them again.”

When everything was going up, I gave little thought to his advice. But any founder who’s gone through hard times will recognize kindness in this advice.

To be clear, I’m NOT advocating for founders to quit when the going gets hard. If you can’t handle hardship, you shouldn’t be a founder.

However, I am suggesting that founders seriously think about a structured framework of quitting to avoid the worst-case scenario: Facing the consequences without agency.

Many demoralized founders can end up working on their startup, being miserable without true agency. The unintuitive thing about figuring out if you should shut down your company is that it isn’t the path of least resistance. The “easiest” thing to do for a struggling company is to fall into zombie mode — neither growing nor truly dead.

This is easy because it doesn’t require an active decision.

As a founder, you’re in command. You must make a call even if the control tower — investors, customers, team, and ego — tells them otherwise. The important thing is making an active decision to either continue your startup or walk away. And to be clear, this is not necessarily a one-shot game. Just because you’re taking a step back to upgrade your skills, network, and whatever else does not mean you’re quitting for good.

You need to make the call.

Frameworks for quitting

The strategy to quit is hardly ever talked about, which is tough for founders to make these decisions. YC offers a formalized set of questions founders should ask themselves to get to that decision:

Do you have any ideas left to grow your startup?
Can you drive that growth profitably?
Do you want to work on the startup that results from that growth?
Do you want to work with your co-founders on the startup that results from that growth?

One counterintuitive thing I learned after speaking with successful founders (who’ve hit real metrics and built real companies) I know is this:

They did not shy away from the question, ‘should I quit?’

Almost all of them had a version of a quitting framework. If certain conditions were met, they would walk away.

“If I feel horrible about myself 1–2 days a week, that’s okay. Startups are supposed to be hard. But if I feel horrible for 4–5 days a week for a few weeks in a row, that’s a sign I need to walk away.”
“If I’m not learning, or I find a better place to learn, then I’d leave my startup and go do that thing.”
“I started this company for a specific vision based on my values. If my company forces me to compromise those values, then I’d leave. It defeats the whole purpose of me starting this.”
“If my partner and I decide to start a family, and we haven’t grown enough to pay myself a real salary, I’ll prioritize my family and get a job.”

They also didn’t ask themselves this question once but constantly came back to the question, “should I quit?” in their startup journey.

I hypothesize that founders who actively pursue the answer to this question do well because of authenticity and conviction. Notice that no one mentioned, “well because I’m afraid of looking like an idiot” or “because my investors would be disappointed”.

Over the last few months, I’ve asked myself the same questions and devised this solution for myself:

When I’m authentic to myself and honestly working through my emotions and values, I have conviction in my decision.
I didn’t hide my feelings, values, and motivations from myself. I embraced it even if it wasn’t perfect or virtuous. Then I made a decision according to that.
So even if everyone else doubts me, I have one person who will have full conviction — me.

I’m not quitting for now

My company is not generating tens of millions of dollars and changing the world as I imagined two years ago when I started the company — or at least not yet. Despite that, I’ve been fortunate to have an amazing co-founder who supported me through ups and downs and investors who supported us both. Without them, I wouldn’t even have this choice.

For now, I’m choosing to survive and maximize our luck. But I don’t think that makes me stronger than the founder who walks away.

Maybe I’ve made the right call. Or maybe not. But I made that decision.

You should make yours.

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Why The Top 1% of Founders Quit Their Startups was originally published in Entrepreneur's Handbook on Medium, where people are continuing the conversation by highlighting and responding to this story.

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