There is a lot startup founders can do to manage their failure “successfully”
Failure stinks. No one founds a company for it to fail one day, but the sad truth is than 9 out of 10 fail. Some suffer from inappropriate market timing, while others lose to competition, and still others shut down because of execution issues — be it sub-optimal organization structure or poor cash management. In any of these situations, it is important for founders to deal with failure “successfully”, in order to mitigate the downside for the parties involved in the venture, and to preserve their own reputation and personal human capital. Here are five things founders can do to fail well.
- Treat your investors’ money like your own. Spend it sparingly, and spend it well. Design experiments that provide you with information to help prove or disprove the viability of your business. Pivot, quickly, if and when needed. Venture capitalists understand the risk entailed in funding startups, but if you had non financially-savvy people (such as friends and family) invest in your company, consider returning them their money. The goodwill you generate with your investors will make them invest in you again in your next venture.
- Take care of your family. Don’t put your familial obligations and responsibilities at risk. Determine what’s the maximum amount of risk you can take (and personal capital you can invest) without negatively impacting your family. Remember to keep some cushion in the bank to get you through your ensuing job search after you close your business down.
- Treat your employees fairly. Let them know in as much advance as you can, to leave them with enough time to find new jobs. Help them with their job search. Pay them their due salaries. If you treat them well, they will come right back to work on your next venture, and will bring their friends along too!
- Communicate well. Let people know the rationale behind your decisions. If you decided to close the business, let them know why. If you decided to return the angel investors’ money, explain yourself. Doing simple things like sending a thoughtful email or writing a blog post goes a long way.
- Take time to reflect. Failure breeds success, as long as you learn from it. Think why you failed, and what can you do differently the next time around. Seek feedback. Write these reflections down in a diary, so you can go back to them again when you’re down to start your next venture.
With these tips in mind, founders can make sure they fail well. As long as one learns from failure and manages it well, it’s only a matter of time that success comes by.