There is a lot of excitement when you start up your startup and there are lots of books which will tell you how to go about this process. You will find lots of advisors, mentors and coaches, who will tell you how to incorporate your company, get funding, set up your office, hire a team, and start marketing your product. These are heady and exciting times, and the adrenaline rush will keep you charged up and enthusiastic.
Unfortunately, there is very little information on how to shut down a startup. Even though most startups will shut down, this is one of those areas which no one wants to talk about. This is because the topic is so emotionally charged. Shutting down a startup is like attending a funeral of a loved one because it is a kind of death – the death of your hope and your dreams. Death has always been a taboo topic – whether it’s a human death or that of a company, and it’s not some thing we like discussing.
The Grief Of Shutting Down
The truth is that when you encounter death, you have to go through a grieving process so that you can emerge stronger on the other side. It helps to know what the stages of grief are, so you are better prepared to deal with this rough patch. The problem is that the process is often shrouded in mystery. Most entrepreneurs aren’t very willing to talk about how they went about shutting down their startup.
Startup conferences are happy to highlight the success stories – even though these are in the minority. It’s true that these conferences are designed to inspire and motivate entrepreneurs, but I don’t think glossing over the truth helps anyone.
You need to start by acknowledging the emotional difficulty of accepting the fact that your startup is going to have to shut down. This could be for any number of reasons, and a lot of these maybe out of your control, but you do need to confront reality, no matter how bitter it may be. Please learn to be kind to yourself during this time of emotional upheaval – there’s no point in beating yourself up.
Once you accept the fact that your startup is not going anywhere, you can take steps to wind down in an organised fashion. Otherwise you will continue to force your startup to survive in a zombie mode. This will waste a lot of your time and this could have been better devoted to shutting it down cleanly, and then starting on a new venture – or perhaps starting a job. It’s always tempting to believe that a potential big deal or a promised financing could turn things around, but false hope can be cruel. Keeping a dying patient alive on a ventilator is not an act of kindness.
All the experience you have gained while running your startup will actually be invaluable for the next company you work for – whether it’s your own or a large corporate. It’s important to follow a process so you don’t leave behind legal liabilities which will come back to haunt you later. Generally, there are two ways this situation can turn out. You can handle failure with grace, or you can mess it up by running away. It’s abandoning the sinking ship which would actually be the final betrayal, and this will cause the most damage to your personal and professional reputation.
Please consult your lawyer to make sure you comply with all the formalities. An experienced lawyer will have done this before and will be able to guide you properly, to make sure you don’t leave any loose ends.
For winding up the business, you need to inform all the shareholders and take their approval. After that, you also should inform all your vendors and terminate the contracts. Helping vendors to sell to find other companies who are in similar business is a good step, as it ensures that your relationship doesn’t completely end on a sore note. Who knows you may need their recommendation and network when you run your next business.
All the liabilities should be cleared and dues should be paid to all the shareholders on the basis of hierarchy. Please consult your lawyer to make sure you comply with all the formalities. The Government of India is also trying to reduce the winding up process for a startup. A new set of rules have been declared – namely Companies (Removal of names from the register of Companies) Rules, 2016 which entails the process of striking off the name of a business from the Registrar of Companies.
If I had to summarise my advice in a single word, it would be this – overcommunicate. Yes, I know you’re likely to be ashamed about the fact that you’ve been forced to shut the startup down and that you let everyone down. This can be a badge of personal shame, but pretending that everything is fine is not going to make the problem go away. It’s this denial which really causes most of the problems.
When you have the courage to look the beast in the eye, you will find that you have enough emotional reserves of strength to be able to bounce back. Remember that what doesn’t kill you makes you stronger – look at this as a trial by fire. You’re going to be angry that you didn’t get the financial backing you wanted from your investors in your time of need, and you’re going to feel depressed and let down – especially when you read about all the other co-founders who are going from strength to strength. You wonder what you achieved by burning the midnight oil and slogging for the last three years of your life, and may start feeling very sorry for yourself because you think the world is unkind and unfair. Don’t take it personally and don’t play the woulda, coulda, shoulda game. Look back, learn your lessons, pick up the pieces and then move on
Yes, it is depressing to have to shut down. However, you need to be disciplined and do this systematically, so that the final impression everyone carries about company remains positive. Unfortunately, when the company is collapsing in front of your eyes, you are completely stressed out and want to leave the dirty work to someone else. This is why it’s even more important to remain resolute and end the turbulence with as much poise as possible, so the death is peaceful. You can’t change the past, but you can certainly determine how you are remembered.
Don’t prolong the agony – it can be difficult to pull the plug, but it’s kinder to do this quickly, so it causes less pain. The sooner you can wind down, the sooner you can go on to focus on something positive. Take ownership and don’t try to pass the buck. This was your baby, and burying it is also part of your responsibility of the outcome.
Being Open And Transparent
It can be very hard to look people in the face, especially your faithful employees. You promised them so much and are not even able to pay them their salaries on time. It’s not easy to tell your employees that the startup is kaput, but it’s far kinder to be honest, rather than to waffle. They sense the turmoil, and will lose all respect for you if you try to cover up the facts.
The least you owe them is the truth. Be kind and help them to find a job- or at least providing a glowing reference. Remind your employees that you are losing your job too. If you have treated them well (and I hope you did), they will be much more forgiving and understanding. Share the load, talk to your cofounders, talk to your significant other.
Your customers will feel let down, and many may be upset that you can no longer provide them with the services they may have paid for in advance. Try to say goodbye with as much grace as you can and try to compensate – if not in cash, then in kind. Inform them in a timely fashion, so they don’t discover the bad news through the rumour mill – they will feel betrayed.
You may be ashamed to face up to your investors and tell them you have lost all their money – but the truth is that they already suspected that the startup was doomed a long time ago. Give your investors credit – they’re smart. Explain to them what assumptions failed and why – you don’t need to apologise, you need to explain, so they can become smarter. Take the time to answer their questions – this may be no fun, but this is part of your job.
You may want to run away and hide in a dark corner, but this is not the time to shy away from your responsibilities. Be direct, honest and transparent and do not withhold anything – they will forgive you for failing, but not for lying. Keep them in the loop by sending weekly reports, so they can see you are in control and are winding down systematically and thoughtfully.
They want to be sure that you are not abandoning ship, so include details about cash position, customers, legal, concerns and next steps. If you behave like a honourable gentleman, they may be quite happy to back your next venture.
Friends And Family
Be grateful for the support of your friends and family. You may feel that you have let them down, but remember that they will continue to love you even if you startup has failed. You can afford to unburden yourself in front of them, but please don’t use them as a punching bag. Having someone you can confide in will help keep you sane during these crazy times. Remember that businesses may come and go, but friends and family are forever – they are your safety net. They are the ones who you had to neglect during your single-minded pursuit of building your startup, so you now have a chance to make up – make the most of this!
It’s very helpful to keep a diary. This can be cathartic, as it allows you to dump your emotions, and look at the problem more objectively.
Take a break and regroup. You need to give yourself some time to pause, rest, and recharge. You have been through a huge emotional roller coaster ride in the past few months – much more than most people will experience in an entire lifetime. Learn to be kind to yourself, and when you are ready to bounce back, put the past behind you and focus on the future. You are a better and wiser person now, and you can put all your hard-earned lessons into building something great. Startups fail all the time, and there will always be another chance. What you have learned from the School of Hard Knocks is worth far more than an MBA, so don’t think of yourself as a failure. There is always the next time.
Try to keep the media and social media out of the picture until you have crafted your PR strategy. If you aren’t proactive about this, a disgruntled employee may leak information and journalists may end up painting a messy, distorted picture of your shut down,
It’s always tempting to believe that a potential big deal or a promised financing could turn things around, but false hope can be cruel. Keeping a dying patient alive on a ventilator is not an act of kindness. Ensure that you have kept enough money in the business account to pay all debts. This is crucial for your investors who do not want to inject more money just to shut down a failed business.
A New Beginning
If you accept responsibility and shut down your startup in a transparent, forthright manner, your chances of running a second startup and doing this far more successfully are much better. Yes, shutting down is a painful process, but you can emerge stronger!
Remember to look at the big picture. Your world will not end just because your startup did, even though it may feel like this at the time. The four wisest words known to man are – This too will pass!
When you are feeling down, please recite the Serenity Prayer – God grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference.
[This post by Dr. Aniruddha Malpani first appeared on LinkedIn and has been reproduced with permission.]