Here's a situation that is more common than VCs and entrepreneurs would like to admit: a company on life support, making just enough money (usually with concessions from the employees) to stumble along. There's not enough money to grow the business, but the economics aren't quite dire enough to close the place down. These are 'zombie companies' - the walking dead.
If you've been in a company like this (and I have -several times), you'll know what I'm talking about. The founders and employees are still dedicated to the vision and the product, but the rest of the world doesn't care. And the product doesn't necessarily suck - the company just can't seem to find people willing to pay for it. The staff has worked hard to keep the company going and no one wants to see it fail. And good stuff always seems to be just over the horizon: a big sale to a reference client, a possible investor or merger. But while those things never materialize (or are a disappointment when they do), some other potential good thing takes its place. To show their commitment, the staff is working for reduced pay, or deferred pay, or stock in lieu of pay.
I had an experience like this with one of my first startups, Logical Software. We built a technologically elegant and unique database management system, but the rest of the world didn't care. We had about 10 brilliant and dedicated people and whenever a check came in the door, we divided it up immediately. I loved working with the people, but the economics were killing me. Worse, it caused a lot of resentment in my sweet, patient wife who was working full-time and taking care of our two young babies. She reasonably expected me to be contributing more financially and domestically to our household. But I was looking for that next client or investor who was going to make all this worthwhile.
And that's the problem. If you are single and don't mind working for free, it isn't such an issue. But if you have a family, you seriously need to talk with your partner if you are going to continue to feed the zombie.
Why is it so hard to leave a zombie company? There is a notion of 'sunk costs' - that is the time (and deferred pay) that you have already invested, which you feel will be lost if you leave. Problem is: those sunk costs are already gone. Forget about them and your decision might be easier. Related to that is the feeling that you may be leaving a good thing. How will you feel if you leave and two months later the company is wildly successful? If you are able to keep some of your stock or options, this might not be as big an issue. The fact is that most zombie companies continue to fail. And possibly they'll welcome you back if the company does become successful.
I think one of the biggest challenges to leaving a zombie is feeling that you are letting your fellow employees down. Being in a startup is an intimate, engaging experience. You work hard and depend on others as they depend on you. Recognizing that things aren't working out may seem like a traitorous idea.
While it's hard to give up on your friends, don't worry about giving up on the company. You will learn soon enough that when times are tough, most companies will not hesitate to fire even the most devoted, loyal employees. If you're already working for low or no pay, you've already made a sacrifice. You need to know when to call it quits.
Obviously this is a very personal decision, and your own circumstances dictate how long you can hold on. My advice is that you set some objective goal or contingency when you are ready to move on and discuss it with your boss. Be as specific as you can. Don't say "Things have to improve." Try "I'm afraid I'll have to start looking for a job if we don't get the Walmart contract by the end of the quarter." Or, "I need to start getting a regular paycheck in two months." This may feel like an ultimatum, but it's making your decision dependent on an objective fact. I think it's ok to share your decision with other employees after you've talked with your boss, but that's up to you. It shouldn't come as a surprise when you do leave.
When the time comes, stick to your decision, even if (as always) it looks like the savior is just around the corner. You owe it to yourself.
