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When You Have To Shut Down Your Startup

When You Have To Shut Down Your Startup

One of my founders just called me. He was feeling extremely guilty and ashamed about the fact that he was going to have to shut his startup down because he couldn’t make ends meet. He had tried every option he could think of, but everything had failed. He was embarrassed and was scared that I would berate him. I was his largest angel investor, and he felt that he had let me down by burning through all the money and having nothing to show for it.

I tried to offer him a balanced perspective. “As an angel investor, I understand that most startups will fail – after all, this is the fate of most of them, so you don’t need to beat up on yourself. As an angel, it’s impossible to identify which startup will succeed, which is why I assume they are all going to fail when we invest in them. Now this doesn’t mean that I like throwing away my money. It’s just that I need to be realistic, so why would I get upset because your particular startup has failed. Logically, no matter how hopeful and excited I am when I sign the cheque, there is no logical reason to expect a particular startup to be the exception ( though I do agree that hope springs eternal in the human breast, and every angel feels that they have identified a winner when they sign their first cheque).”

What upsets me is not the fact that the startup failed, but that the founder refused to communicate with his investors even though he could see his startup was spiralling downwards. Rather than fulfill their feduciary duty of keeping their funders in the loop, many founders clam up and enter prolonged periods of radio silence, during which the investors have no clue what is happening. The sanguine ones naively believe that ” no news is good news” and trust that all is well, which is why they get a rude shock then the founder tells them he is going to have to shut down in a few weeks.

Investors Hate Surprises

They have no idea what you have been trying; why you are failing; what you are trying out as your Plan B; and why nothing seems to be working. Investors will forgive failure, but they will not forgive failure to communicate. Not only is this a sign of disrespect, it also means you have betrayed their trust by hiding the dark truth from them, and this is not acceptable.

It is especially when things aren’t going well that you need to be radically transparent and honest. Interestingly, this is the time when a good angel can be worth his weight in gold. It is when you are at your wit’s end that you need an empathetic sounding board – someone who can help you think through your options objectively and thoughtfully.

The problem is that most good entrepreneurs feel guilty when they find they are failing. They try to hide this bitter reality – sometimes, even from themselves. They beat up on themselves because they feel they’ve let everyone down – their employees; their customers, their family, themselves, and their investors.

There’s no need for me to add to their angst – this is hard enough to manage as it is. And in any case, I’m a big boy. I understand that angel investments are a risky investment class and lots of them will fail.

I don’t think he had any reason to fear that I would give him a whiplashing. I am okay with forgiving failure – after all, I have failed many times in my own life. However, I am not okay with his trying to hide the truth.

Do Not Lie To Your Funders, Founders

I counselled him – You are young, and the end of your company doesn’t spell the end of your life  Even if the outcome of your startup was unhappy, as you worked hard and did your best; there’s nothing to be ashamed of. As we all know, shit happens – life is not always fair.

Sometimes you were just unlucky; or in the wrong place at the wrong time, and there’s nothing much anyone can do about this, so you need to accept your lesson from the school of hard knocks, and move on, rather than wallow in self-pity. Having to shut down your startup can be emotionally devastating because you feel like you’ve been forced to kill your first-born. It takes time to recover, but if you learn to be kind to yourself, you will bounce back quicker.

When It Is To Move On

It’s true that every entrepreneur ( and the angel investors who fund him) is sure that he will succeed when he starts his company, but unfortunately, not everyone’s dreams come to fruition. This is one of the most important lessons life can teach you, and you’re lucky that you’ve learned this so early thanks to your having the courage to start off as an entrepreneur. Give yourself some time to allow the wounds to heal, but please don’t become a recluse.

Make sure you comply with all the relevant government rules and regulations for shutting down a company. Don’t leave the paperwork incomplete – this may come back to haunt you later on.

I offered some suggestions which may help him to snap out of his despair. It’s useful to keep a detailed journal of your journey – this will allow you to ventilate, and spilling your guts in the privacy of your personal diary can be very therapeutic. It will allow healing to occur , so that you can move on. Otherwise, you may find yourself spending sleepless nights in playing the woulda, coulda, shoulda game, and that doesn’t help anyone. You need to stop living in the past and move on into the future.

It’s helpful to share your lessons with other entrepreneurs. You have experienced first hand how painful failure can be, and if they can learn from your lessons, maybe their chances of failing will go down.

I reminded him that, as a failed entrepreneur, his value in the startup world has increased a lot. The truth is that your chances of becoming a successful entrepreneur increase a lot after you’ve failed once. Not only do you have your domain expertise, you have also acquired valuable battle scars which only life can teach you – you can never get this from any MBA course or textbook! The fact that you’ve battled failure and managed to bounce back says a lot about your emotional resilience and your mental strength.

Don’t think of your failure as a weakness or as a blot – please don’t try to bury it, hide it or cover it up. In fact, you should be open about your failure, and wear it as a badge of honour. When you fail, please don’t try to pass the buck or offer spurious justifications. For heaven’s sake, don’t blame anyone else. Behave like a mature adult and accept responsibility for the failure gracefully, if you want to keep your self-respect.

In Conclusion

The next time you pitch to an investor, emphasise that this failure has also taught you what not to do. The reality is that the number of reasons why a company fail are fairly limited.

When you’ve been the CEO of a failing company, you’ve seen the reasons for the failure play out in front of your eyes, so that with hindsight wisdom, you are now aware of what you could have done differently to salvage the situation.

Please accept full responsibility for your failure. Be honest about what happened; why you failed; what you learned from your failure; and what you are going to do differently this time. You don’t need to change your domain, because that’s what you are an expert on, and you can make better use of your hard-earned lessons in the same field. In fact, if you keep the current investors in your failed startup in the loop they will continue to trust you, and may be quite happy to fund your next company as well!

Unfortunately, you’re not going to be able to turn the clock back, but you can make good use of those hard-earned lessons to make sure that you don’t repeat the same mistakes in your next startup. As compared to someone who’s never run a company before, you now have a phenomenal head start and are much more likely to do a much better job the next time around.

Finally, please remember 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.

Failure is never final unless you decide it is.

[This post by Dr. Aniruddha Malpani first appeared on LinkedIn and has ben reproduced with permission.]