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5 ways to fail well

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.

  1. 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.
  2. 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.
  3. 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!
  4. 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.
  5. 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.

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1 thought on “5 ways to fail well

  1. Great post….I totally agree with your approach towards failure… I most agree with point number 5 where either we succeed or we learn. If we look at missed opportunities as opportunities for learning we never felt like time was wasted. I think that your approach leaves failure as a process we put into our everyday actions and help with keeping our goal focused on success. I don’t think the human mind can focus on multiple things at once and focusing on failure and success sets up behind individuals who are only focused on success. I do however think that by incorporating the lessons you listed above of transparency, clear communication with stakeholders (family, investors, employees) are all good practices.

    The only question I have is that many times as CEO and founder your view of the future may be different than all the stakeholders mentioned. Usually you have this view b/c you see and know more than any of them. Ultimately, we are the ones responsible for deciding and which of these would tipped the scales the most. If employees and loved ones say go do you stop because investors said no? Just curious of how our own personal senstiments tie into the decision of calling “we failed” or “onward”.

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