When Startups Fail: What Happens Next?

Grace Holden

Let’s face it, no founder likes to think about what might happen if their startup fails, but like everything in startup land, it’s important to be prepared. When every business has to shut down, losses are inevitable, but by preparing as much as possible, you can facilitate a much easier exit process and ensure you lose as little as possible!

Believe it or not, the process of shutting down your startup is just as important as when you first create one. Many of the things you need to consider when your business launches also need prioritising when you close it, including legal obligations, stakeholders, investors and employees.

The first thing to remember is you need to put your employees first, even before yourself. As members of your team, they have legal rights, and you face serious ramifications if you fail to consider them. Let them know that you’re having to dissolve the business as early as possible. Remember they will have to find new jobs! Be transparent with them and clearly outline the reasons why the business has failed. Let them know that you are there if they have any questions or concerns and try to help them wherever you can!

When you realise that you’re going to have to close your startup, approaching your investors can seem scary, especially if you feel they have supported you through the process. It’s really important to be truthful with your investor. Don’t be embarrassed or ashamed - investors know the risks of taking a gamble on startups! Don’t put it off either - just like your employees, your investor needs to know as early as possible so they can sort things out on their end too.

Don’t forget about your consumers. Even though your startup hasn’t quite worked out the way you wanted it to, you’ll likely have customers that are still relying on your product/service. Be upfront with them about why you’ve had to dissolve your business. If you have anything outstanding you need to provide your customers it’s important you follow through and provide them with that service, or else reimburse them. You might want to keep your email address open so they can approach you with any questions even after the service has closed.

Once you have looked after your employees, investors and customers, it’s time to start sorting any outstanding bills, closing any lasting contracts and, finally, dissolving the entity. If you’re a new startup owner, the best advice anyone can give is to think about and prepare for the worst now. It might not seem like the most positive way of starting your new business, but by making a solid exit plan you can minimise stress and profit loss if the worst happens.

What founders should do if their startup fails

Once you have taken all the practical steps to dissolve your startup, it’s time to start thinking about yourself. It might seem melodramatic, but taking time to grieve can be an important part of letting go of your startup. It can be difficult to move on from something you have been working on potentially for years and can make you feel dejected and dispirited. However, it’s essential not to wallow in those feelings for too long. Remember you are not alone - most startups do fail, and it’s not necessarily anything you did majorly wrong that caused your startup's downfall. Having said that, it might be useful to consider some of the mistakes that were made and what you can learn for next time.

Even though this startup has failed, it doesn’t mean the next one won’t. There are so many reasons that could have contributed to its failure, including things that are completely out of your control like the market space and the changing business landscape. Don’t give up!