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How You Close An Unsuccessful Startup Says A Lot About The Leadership Of The Company

By Neil Senturia The San Diego Union-Tribune

WWR Article Summary (tl;dr) When is it time to "Call it quits" on your startup? If you do pull the plug, what things should you consider? Neil Senturia shares his thoughts.

The San Diego Union-Tribune

"Leave no man behind." This is a well-known Marine Corp motto that reflects the warrior ethos. It comes from the principle that we do not want our fellow comrades to fall into advancing enemy hands, and it is at its most relevant and powerful during a retreat.

Startup companies often find themselves in retreat. As the bombs are dropping and the water is rising, and the money is almost gone, sometimes the only option left is to close the doors. But how you close them says a lot about the leadership of the company. And my personal motto for those moments is "Leave no mess."

I have had successes and I have had failures. What has allowed me to be a "serial" entrepreneur, to get one more chance at-bat after a failure is that I have tried hard to never leave scorched earth behind.

Closing the venture, accepting defeat, is a hard topic to contemplate, but Tom Eisenmann, a professor at Harvard Business School, has some thoughts.

He tells the story of Munchery, a food delivery startup, that had raised $120 million in venture capital. When it filed for bankruptcy, it owed $3 million to 230 creditors, including some famous Hollywood celebrities. The question that Eisenmann asks: "Did a company that had raised that much money need to stiff so many people?"

We all know that shutting down is a messy affair. Before the fall, there is the last gasp for money, the hope for a lifeline, the possible deals with bottom fishing vultures that stall and make you crazy (this is what I refer to as the Nigerian Prince syndrome) and which never end well. And finally there is the painful realization that the ballgame has no more innings.

Eisenmann calls this "the fume date." For me, the key to this puzzle is the "when" the founders face reality, and how they deal with the myriad suppliers, consultants, lawyers and employees that for sure you will meet again on this well-traveled road. Remember, it is very hard to hide in plain sight.

Eisenmann says that "failing well starts with admitting defeat early enough to make sound decisions." Knowing the difference between slowly moving forward (maybe we should hang on) as opposed to going "sideways" is not always obvious. Making a pivot in a business model may be the absolutely correct move, but to use my favorite sailing analogy, while turning the boat 180 degrees, you may be dead in the water for a while, until the new winds arrive.

Eisenmann goes on to discuss the myth of persistence, the "never give up" trope that has fooled entrepreneurs for decades. There is the delicious tension between being the captain on the bow, flag in hand, who honorably goes down with the ship and the guy who calls the Coast Guard, lowers the lifeboats early enough for the men and women to be saved, fires a few flares to show his position and lives to fight another day — perhaps on a bigger ship.

He discusses the dilemma of "not letting people down." This is the lone survivor/hero meme, where you think you are Rambo, when in fact you are actually letting your employees down by not giving them enough time to look for another job.

On a personal note, a long time ago, I was the CEO of a material science company. We had raised venture etc., but science can be both expensive as well as intractable and even though we maybe had a chance, I shuttered the company with almost a million dollars in the bank, settled all accounts and gave back what was left to the investors. I didn't think the science would ever get there, and your job is to always manage risk, reward and reality.

Eisenmann says, "if the entrepreneur reaches the Kubler-Ross fifth stage of acceptance, it is then that they can truly reflect on what went wrong, acknowledge their role in that outcome and realize they are not stigmatized for life."

However, if a founder bails because "he is not going to make any money" and simply moves on, the venture capitalists get furious and they will make sure that guy will never eat lunch in this town again. Dead man walking.

Rule No. 637: "Some people feel the rain, others just get wet." — Bob Dylan

Neil Senturia, a serial entrepreneur who invests in early-stage technology companies, writes weekly about entrepreneurship in San Diego.  ___ Distributed by Tribune Content Agency, LLC.

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