Shutting down your startup


There are hundreds of books, articles, videos, blog posts, etc. on how to start a company. But what if you are in the position of having to shut one down? Where do you get help?

Abigail Edgecliffe-Johnson is the founder of The Shut Down an open source project trying to build a road map for people who need to wind down their startup. It’s a project she says she took on because she might just need it herself someday.

She did need it, as her startup, Race Ya, failed to reach its Kickstarter fundraising campaign of $75,000 by half. So she realized that she had to shut it down. But looking for advice on how to close down your startup was scattered and incomplete. Her’s was a not uncommon problem:

Hundreds of thousands of new businesses get started every year, according to the Bureau of Labor Statistics. But between 30% to 40% of all startups fail, according to Harvard Business School, meaning the company liquidates all assets and investors lose most or all of the money they put into the venture. The numbers climb as high as 80 percent if you measure failure by whether a startup reaches its projected return on investment.

There’s plenty to do when it comes to a shutdown, including:

  • Letting your employees go
  • Notifying your Board and investors
  • Determining if you can pay severance, and if so, how much
  • Finding a lawyer to handle the dissolution paperwork
  • Paying any outstanding debts
  • Canceling corporate credit cards
  • Closing social media accounts
  • Notifying your customers, suppliers, and partners

If you have assets, how do you value them? And how can you sell them?

The survey that Edgecliffe-Johnson has posted online for The Shut Down asks people who have been through the process to share some of those details, from whether they had filed for bankruptcy to what they wish they had known. She wants entrepreneurs to spill everything “from which forms to file in New York vs. Delaware, to how you sold the company assets.”

Her goal is to build a single, open source resource that guides anyone who needs to shut down their startup through a customizable checklist.

I’ve been through this process myself with Throughline, Inc. as I’ve written about previously.  It’s a painful process. I do recommend that you do a formal post-mortem with staff, Board, and possibly investors to document what went wrong and how, what lessons are to be learned, and how to communicate the shutdown to the outside world.

Let’s hope you never need the Shut Down, but if you or a friend need help shutting down your startup it’s now just a click away.

The Decelerator: How Do You Shut Down A Startup? was a story produced and edited for radio by Ian Stewart, Francesca Paris and Evie Stone.

Author: Mentorphile

Mentor, coach, and advisor to entrepreneurs, small businesses, and non-profit organizations. General manager with significant experience in both for-profit and non-profit organizations. Focus on media and information. On founding team of four venture-backed companies. Currently Chairman of Popsleuth, Inc., maker of the Endorfyn app for keeping fans updated on new stuff from their favorite artists.

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