How to deal with Startup Failure and Plan Ahead

Startup failure can be really painful for the team that put so much work into making things happen. It is especially painful when you are the entrepreneur and an idea you once thought would blow up is now being shut down. But holding onto failing startups can do a lot more damage than quitting a startup too early. It is the entrepreneur’s responsibility to know when to quit when to hold on, and to accept it when it’s time to quit. Moreover, it is important to know that all this could have happened due to past mistakes that now cannot be undone. It isn’t necessarily your fault, but making the right choice at this point is your responsibility, and it is crucial to think it out and take action with the team.

KEEP IT COOL AND DO IT RIGHT

First things first, don’t just shut it down out of the blue. One, that is very unprofessional, and two, you might end up facing unexpected consequences that you could have avoided if you wrapped it up the right way. As you might have already guessed, closing your startup might come with plenty of legal procedures, and you shouldn’t miss anything. This is especially annoying and complicated when you have a bunch of investors, loans, and forms that you need to clear before you send everyone home.

Your first step would be to evaluate your assets and liabilities, the current state of the company, and if the company has any contracts and obligations yet to be fulfilled. Here’s where you will need a lawyer to settle all the legal matters perfectly.

TALK TO A LAWYER

Your company has likely gotten itself into many legal and financial situations, and resolving this can add unnecessary pressure. If this is the case for you, it is recommended that you consult a lawyer who can help you with the process. Now there are many reasons for you to do this, and we have jotted it all down.

WHY DO YOU NEED A LAWYER?

1. Contract and Agreements: A lawyer can help you sort out the contracts and obligations that you might have signed with your investors and employees during your journey, and tell you whatever you must get done before shutting your startup down. Not paying attention to your contracts can have consequences down the line and you should clear this right away.
   
2. Intellectual Property (IP): Now your startup might be one of those being built over an idea you or someone on your team had come up with. Maybe this idea is something that came up during your startup journey. This is known as intellectual property(IP), and your lawyer can help you with protecting your intellectual property using trademarks, copyrights, and patents.
   
3. Personal Liability: Rarely, depending on your business structure, there is a chance you might be accountable for personal liability. Personal liability is the risks involved when you are held responsible for some property damage. A Lawyer can help you with Personal Liability protection, to minimize the personal risks you likely got yourself involved and take care of the financial coverage.
   
4. Dissolution: A lawyer can help you with dissolving your business by following all the necessary legal procedures and making sure you don’t run into problems later in the future for shutting down.

Make sure you look for lawyers who have expertise in startup law, and be clear about the fee structure and your budget. Startups can be complicated, especially when shutting down, and consulting a lawyer can always have its benefits in cases like this.

CLOSE THE CURTAINS, LET YOUR TEAM KNOW

It can be really hard, especially for the founder, to break this news to the team. No matter how brilliant the idea is, a startup can fail, and there can be multiple reasons why that can happen. When shutting down the startup entrepreneurs must take their time in collecting their thoughts and feelings.

When letting your team know, make sure you define the goals for the conversation and be aware and clear in the information you convey. Despite the urge to sugarcoat the shutdown, it is best to be honest about the closure, and more importantly to make sure nobody passes the blame on others. Be open about the shutdown, timeline, and severance process. Even though the startup has failed, your employees have tried their best to make it work. It is crucial to keep in mind that there might be several external factors that come into play when you look into the postmortem of your startup.

This goes without saying but, anticipate reactions from people, positive or negative, and handle them accordingly. Keep it formal, keep it concise, and express gratitude to the team for their hard work and dedication. It is better if all this is done by the founder of the company, although getting this done by third-party professionals is not a bad option either. Once the talking is done, make the formal announcement through email or any other platform and exit.

LOOK INTO YOUR FINANCIAL SITUATION

Before making any huge decisions, you must first look into your financial situation. Doing this would not only assess you in conversations with your stakeholders and investors, but it would also help you plan your next steps.

Your startup journey would have cost you a lot depending on its complexity. Try doing the numbers and find how much in debt you are. Knowing this can help you understand the payments you are liable to. This includes all the loans that you need to clear. Track all funds received, investments, grants, and other funds, and see if you have any outstanding payments.

Next, take a look at your credit reports and find what you are doing wrong, so you can improve moving forward. Along with this calculate your burn rate by finding the rate at which your startup is consuming resources and cash. By knowing this, you can get an idea of how long the operation can last before the shutdown.

Finally, try jotting down your income sources, and make sure you have cash flowing in even after you close your startup. This can be through part-time jobs, full-time jobs, or passive incomes. Either way, try to understand your financial situation as soon as possible.

KNOW WHERE YOU WENT WRONG

It might sound like a cliché to say all this is worth it, since you gained “experience”, and it does sound very convenient, much like a coping mechanism. Here’s the truth, all this experience is simply a waste of time and money, unless you analyze the story from start to end.

Now it’s true things haven’t gone your way, and all this can be quite depressing. An idea you once thought would make a great business, has now failed. There are many possibilities as to what may have gone wrong. Now you must try to understand your mistakes during your time as an entrepreneur, and how your startup could have done better.

POST-MORTEM

Firstly you need to acknowledge the decisions you have taken throughout your journey. Do you think there is something you could have done differently to get better results? Do you think there was a time when you chose to make the wrong move? It’s moments like these you must analyze to see what went wrong.

Were you thrown off by the competition? If so it is possible that you didn’t do the necessary market validation research before you got in. It is important to know why your audience would try out your product. In many cases, startups fail due to the lack of market research that went in. Unless your product has something unique and better to offer compared to the ones that are already in, getting an audience can be challenging. When you try analyzing how your company used to function, it is very possible that you would come across weaknesses and errors in team structure, collaboration, and communication

FEEDBACK

Get feedback from your team, reach out to your customers, and know what your company could have done better in terms of the product as well as teamwork. Through these surveys, you can tell where you possibly went wrong, and what you could have done to avoid this mess.

CREATE A PLAN

Although a startup failure can be traumatizing, it doesn’t have to be the end of everything. Take any successful business as an example. Most of the time the entrepreneurs who have built successful businesses would have gone through plenty of failed experiments before they got there. The goal is to thoroughly analyze your failures. When you do this, you will learn enough to create concrete plans that address current reality and outline future goals.

Once you are done take a break and get back to your schedule. With a clear mind, start by evaluating your options. See if you need to bring your old startup back to life. See if you can pivot and change the results. Do you have other great ideas in your mind that you want to try building? Look into your chances of taking the new venture up, and committing to it.

A PERFECT BUSINESS MODEL

Set goals that are practical and doable, and come up with a timeline and schedule to build your product. Create an overall business model. Create it in a way that you are always ready to pivot if things don’t work out. Your previous experience in building, running, and closing a company would come in handy in kickstarting this new one.

Additionally, as we discussed in the other section, you need to have a clear idea about your current financial situation. It is important to make sure that this new venture won’t leave you financially handicapped if it fails. Your new startup, just like any other startup, has its risks. It is your responsibility to keep yourself from being thrown out of the game forever.

Finally, leverage the networking that you have formed in your previous company, to your advantage. All the mentors, advisors, and team members can be invaluable to your new and upcoming startup. Take a look at our development articles for more information about running startups.

GET BACK IN THE RING

That’s right, get back in the ring. Don’t let one failed idea make you hesitant to try something new. Everything you learned during your startup journey is going to be useless if you are going to quit trying forever. You need to spend time trying to identify all the mistakes that you committed in your previous startup. Once you do that, you are going to be more capable than before, in starting a new one.

All this indeed costs you a lot of time and money. Rushing to build a new one can be a bad decision. Keep in mind, it’s about being willing to try again when you come up with a perfect idea and plan. You can do this by finding the right inspiration, whatever sparked your interest in being an entrepreneur once before.

As we discussed in the previous sections, you need to look for ideas and ventures that you want to commit to. Come up with a flexible business model to implement it. Thoroughly explore your target audience knowing the importance of market research. It is very possible your previous startup failed since you failed to do the market research properly. Consider your financial status, your networks, and your resources. Never hesitate to get back in the game, despite the risks of failure.

Entrepreneurship involves making decisions under overwhelming odds of success, so never let the possibility of failure scare you. After all, the resilience and ability to take risks is what differentiates us from the rest.