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Founders, break up with your stakeholders gracefully. Here are 3 ways how.

Like divorce in modern society, failure is the unfortunate fate of most start-ups.  No one gets married with the intention of divorcing, like no founder starts a company with the intention of failing.  But failure creeps into both relationships and start-ups insidiously, without anyone expecting or wishing it.  Start-up failures can be even trickier than relationships, as you’re “breaking up” with many stakeholders (investors, employees, and co-founders).  Here’s how to break up with your stakeholders gracefully:

  1.  Apologize.  In the business world, oftentimes apologies don’t seem like they make sense.  They seem too personal.  However, starting a company and asking employees to stake their short-term well-being (by pulling late nights and deferring salary for equity) for long-term gains is very personal.  Start-ups like 38 Studios moved their employees and families to Rhode Island from Massachusetts and eventually defaulted on a loan from taxpayers.  That’s personal, and deserves a personal apology.
  2. Take responsibility.  The sooner you can take a good hard look at what went wrong and recognize where you screwed up (and it was something you did, not the market, not the suppliers), the sooner people will begin to accept your error and move on.  You did learn a lot from your failure, and sharing that with all your stakeholders can be valuable and, if nothing else, a consolation prize for their investment.  It can also attract people to you for your expertise in that area, and perhaps lead to consulting gigs for other start-ups in a similar space.
  3. Salvage (and re-pay) what you can.  When you’ve failed, often the natural move is to have some downtime and “find yourself” again.  I advise against doing this right away.  Go and meet personally with your stakeholders (and apologize like in #1 above), but ask them what you can do to help them for their commitment.  If you borrowed money from family members, hopefully you can find it in yourself to repay them over time.  Perhaps they don’t need or want the money back, but wanted to try their luck on your venture.  At least ask them how you can ever repay them.  It will at least make Thanksgiving dinners a lot less awkward.  Similarly, stop by your cofounders’ and employees’ homes to make amends with them and their families.  See if there is something you can do to salvage a relationship with them.  This could mean the difference between you ever getting funded or finding cofounders again.

Once you’ve completed these steps, you can head out on your soul-searching mission to figure out what to do next.  At least you will have laid the groundwork with a graceful exit to someday return as a prodigal son to start-up land and try your hand again.  Like in the realm of love, word travels fast if you’re a “bad guy” or, more pleasantly, if thing just “didn’t work out.”


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