June 5th, 2019 | By: Wil Schroter | Tags: Strategy
Everyone talks about starting companies — yet no one ever tells us how to shut them down.
That's because by the time startups go into this dark, hazy abyss called "shut down" mode, things get really quiet. We stop hearing from Founders, investors start talking about other "hot new investments," and the media has moved on long ago.
That doesn't change the fact that most startups fail, and with that, Founders need to have a grounded understanding in how to wind down their startups gracefully.
This is very difficult advice for a frustrated Founder to seek because it's often embarrassing to even ask, or in some cases, the people they need to seek counsel with are actually connected to the business.
So for all of my fellow Founders who are wrestling with this problem, here is a useful approach toward shutting down your startup gracefully. While I don't love knowing this may apply to you, I take solace in knowing I can hopefully get you past this startup and on to the next one.
We tend to struggle with telling staff about our shut down because that's often who we're working the hardest to save.
We want to believe that if we hold out one more week, make one more pitch, or change the minds of that one investor, that we can be the hero that saves our team from the brink of disaster.
But the truth is, that rarely works, and what we wind up doing is leaving our staff stranded. We hurt the very people we're trying to save.
The best thing we can do is notify our staff in two stages: the "early warning" and the "final countdown."
The early warning is when we tell our team at least a couple of months in advance what we're working on doing in order to extend our runway, with a clear note that if in the event we can't make things work, we'll have to shut down or make other provisions.
Often the management team will avoid this discussion for fear of inciting an exodus, but the truth is that most people won't up and leave until they know for sure that their destinies are locked. But at least they have the option — which is what we owe them.
The final countdown is what we share when we know for a fact that there is some timeline between now and the end — ideally not "today" or "this Friday."
Our goal is to give folks as much early notice as possible because at that point we're no longer talking about the fate of our startup — we're talking about the fate of our people. It's game over for our startup, but our people need to continue on. We have to give them as much time as possible to make provisions.
By this point, we're absolutely dreading the conversation with our investors. We worked so hard to earn their trust (and cash) and have promised them so many times in so many ways that we'll make good on our commitments. And yet here we are — ready to tell them we failed. It sucks. So, so, so incredibly hard.
The reality is that our investors probably knew the game was over a long time ago. That doesn't mean they were happy about it, but this conversation isn't going to come as a surprise.
The only way to have a conversation with investors is to be blunt about the finality and own the outcome ourselves.
The conversation is this simple:
"Here's what I was working toward. Here are the mistakes I made. The outcome is on me. We're 100% done."
What investors don't want to hear is a sob story about how we tried our best, or that there's some bizarre scenario where this thing comes back to life. They need to know the bet they made is a loss, and that we're big enough to own that outcome.
For what it's worth, these conversations tend to last 5 to 10 minutes. Which is nothing compared to how long we've probably labored over them in our minds.
Our other fear, whether big or small, is how this shutdown is going to look publicly.
If we had gotten glowing press before, what kind of witch hunt are we about to be the subject of? What are our colleagues or community members going to say about us? We're slowly curling into the fetal position ready to be stoned publicly.
That assumes we let someone else control the narrative. If we just shut down and let that be the only fact or story that anyone sees, we sort of deserve the distorted punishment.
Instead, the proactive thing to do is to get in front of it. It's almost cliche when a Founder writes a heartfelt Medium post about how hard they tried and what they learned. But at least they get to create a version of the story that's more likely accurate, but at the very least theirs.
We should remind folks what we set out to do to begin with — the vision we had. We should highlight a few of the bets we made and how they didn't work out to show we've learned something valuable (and teach other Founders). We should sincerely thank all of the people who helped us along the way and what that meant to us. And last, we should talk about what good we think we can do with what we've learned.
It's a lot harder to vilify someone who's shown genuine contrition and appreciation. That's because they tend to be better humans!
Back in 2015, we acquired a company called Zirtual.com that had quite famously shut down overnight. We bought it the next day with thousands of active clients and hundreds of virtual assistants who worked for us.
At the time we didn't know exactly how viable the business would be on an ongoing basis so we did something unusual — we told all of our new clients and employees that they could simply work together without us.
We lost many millions of dollars that day. It was absolutely the right move.
When it comes to the sanctity of customers — and we know for a fact that we may be leaving them in the cold — all we can do is come up with the most creative or generous gift we can think of in order to preserve our good will. Customers are like any relationship, they'll only remember how we left them.
In some cases that "gift" may not monetary. It may be a humble offer such as "Here is my email. If I can help you in any way to find another solution or just answer questions, I'm here." People may never take us up on that, but the simple act of showing that we intend to stand by them, the way they stood by us, is critical.
Once we've taken care of all the people that have taken care of us, the last step is to shut this thing down hard. Get our name off of every credit account, bank account, service agreement, legal agreement — everything. The moment it's done, we need to be as done with it as we possible can be. No loose ends, no reminders.
Dissolve the entity. File final taxes. Send everyone their formal "goodbye" agreements and be done. This is the one case where going out of our way to sever ties will never come back as a regret.
While all of those steps may seem excruciating, they actually aren't the hardest part.
The hardest part about winding down a startup is to be done with it mentally. To move the hell on. To take all that negative energy and for the first time in a long time just concentrate it all on something productive.
The healthiest thing to do is create a mental and emotional cutoff point. Literally, a date that says "this is the last day I will be accountable to this entity' and move on. While that's easier said than done, sometimes simply cementing the date creates a sense of finality.
None of these steps will make the process any easier — breaking up is brutal. But we can at least move forward knowing that in every possible case we did the noblest thing amongst the people we worked so hard to build something with.
And that's why they will be there when we do it again.
Wil Schroter is the Founder + CEO @ Startups.com, a startup platform that includes Bizplan, Clarity, Fundable, Launchrock, and Zirtual. He started his first company at age 19 which grew to over $700 million in billings within 5 years (despite his involvement). After that he launched 8 more companies, the last 3 venture backed, to refine his learning of what not to do. He's a seasoned expert at starting companies and a total amateur at everything else.