Startups · Entrepreneurship

What to do after/if a startup fails?

Eduardo Fonseca Cloud Provider | Azure & Unity 3d Developer | Senior .NET Software Engineer | MCTS

August 10th, 2015

As far as I know in Costa Rica, more than half of startups fail in the first 3 years.
I know that failing is not the end, and that it actually teaches a lot.

The question is, how do you do to continue working towards another startup if one fails,
since chances are you would have lost the money.

I ask the question because if a startup fails chances are you won't have lots of savings to invest again,
(if you used family and your own savings)

Is it required to get a part/full time job, generate new savings and continue?
As a founder, you’re always in fundraising mode (whether active or passive). In this course, we’ll teach you how to successfully raise follow-on capital, establish a valuation for your company, build an investor pipeline for your next round, and more.

Brian McConnell

August 10th, 2015

Probably the most important thing to do is to take time to rest, including taking a few months off work altogether if its possible. Running a startup is exhausting even if everything goes well, so jumping right back to work, and especially another startup without adequate time to rest and reflect is best avoided. The good news is that even in failing you've obtained an education that few people ever get which will prepare you for whatever comes next. Quite often the difference between success and failure boils down to luck and/or timing, so don't let anybody tell you that it reflects badly on you. Anybody who knows anything about business knows how difficult it can be, and how a lot of things have to go the right way to have a good outcome. Also, its important to remember who you would want to work with or do business again. You'll probably keep crossing paths with them, so make sure things are good with them. It is equally important to note who you would not want to work with again. People's moral character tends to reveal itself most in adverse situations like this, so if someone threw you under the bus during this process, you can be sure they will do so again (its best to separate one's self from toxic or dishonest people, little good comes from working with them any more than is absolutely necessary). My $0.02

Dan Maccarone Co-Founder/CEO at Charming Robot

August 10th, 2015

Eduardo- It's always hard for a founder, especially, when a startup fails and the reason it didn't succeed isn't always someone's fault. it could be timing, could be anything. I think some good advice can be heard from Christina Wallace in her interview here: http://storyinabottle.charmingrobot.com/2015/02/christina-wallace/ and Ashley Granata in her interview here: http://storyinabottle.charmingrobot.com/2015/07/ashley-granata/ Both of them have had challenges dealing with the end of their startups but have picked themselves up and gone on to amazing careers with new ventures. Take a listen.

Steve Everhard All Things Startup

August 10th, 2015

There isn't much detail in your question so the answer is going to be somewhat generalist by definition. I'm assuming that you are contemplating what failure means rather than actually going through it yourself. If this is the case then the goal is to avoid your startup failing in the first place. Although timing is an important part of hitting the kind of success that grabs headlines, building a startup business can be paced in order to avoid common causes of failure.

One of those is "my timing was wrong - I was too early/too late". Research your market(s) and stay in contact with them through your development phase. Ensure through testing that what you are building reflects where your market is. That doesn't mean you are a follower but that you create a product or service that has a defined audience, whether they expect your arrival or not, and that the business is able to deliver.

Preserve cash at all costs. If you raise money the be clinical about what you will use that for. Don't tolerate cost overruns by using good management and careful planning. Don't let anyone scare you into running faster than you can afford or in investing in things that aren't core to your tested proposition. Negotiate everything you need.

Find your revenue model,even if you don;t exercise it right away. Don't assume that cash naturally follows popularity or early adoption. If you don;t plan for it then it won;t happen.

What happens if you fail? Well it shouldn't be a sudden situation if you have practised good management. Be honest with their funders. They should understand at the outset the risk of their investment, so let them know early if you believe the business is worsening the risk. This will make things easier if you have to wind it up. This is equally true of creditors in general - don't take money or credit if you don;t intent to service it.

A sabbatical is sometimes necessary. I know a couple of startups who took 6 months between early beta and late beta simple to take outside contracts and build up their war chest. It also gave them the space to evaluate their direction and perform a small pivot and avoid running headlong into a brick wall of failure. Space to make good decisions is necessary but underrated in the overheated environment that commentators place on start-ups.

Plan to win and not to fail. Make good decisions. Pace yourself. Do your homework to ensure your assumptions about product/service features and markets are defensible. Look up occasionally to see what others are doing and whether the environment has changed. These are all sources of failure. 

Gaurav Khanna Intercontinental Business Connection

August 10th, 2015

Dear,
More than money you need to be in touch with other startup enthusiasts. When u fail u learn and none onto next gig.
Contacts are more important and valuable then money.
Email me gk@ibcstrategy.com
Regards 
GK 
Entrepreneur / thinker

Michael Farmer Managing Partner, MNSA: Inspire, Aspire, Achieve: 2-10x results from strategic conception to field implementation

August 10th, 2015

Excellent responses and advice here, particularly by Steve and Brian, and with which I concur.  Start-up failure in the first couple of years is as much as 95%.  The number one reason is "owner/founder's ego" and the number two is cash and cash flow management.  One of the best things to do, is to sit back and objectively review why - the how, the what - the venture failed.  What could have been done to prevent failure.  Usually there is a trend or a pattern that will become evident.  Also, none of this happens overnight.  To a trained observer, the "sickness" is in place long before the illness becomes obvious, or too obvious, and by that time, too late to save.  So, what happened in your experience?  Dig deep, ask yourself why to a level of five (a "why" to each answer until you get to the root of the matter).

A start-up failure is not necessarily a failure - perhaps it was a trial run for later.  What did you learn, what experience did you gain.  What do you know now that you would never have known if you hadn't "failed".  Real success is linked to many failures on the way.  Learn and move forward - as Gaurav also advised.

In our Entrepreneurs Blueprint, we cover the 11 essential areas of Must-do's that will lead to success.   These eleven come from analysis of thousands of entrepreneurs, the few who made it and the majority who did not.  The eleven are cost-free, but require serious dedication, desire and commitment. If these are performed well, attracting investors is significantly easier.  Money is there if you are prepared.

Don't give up.  Do your homework and start-up again. 

Rick Feldman CEO at Universal Quality Machine LLC

August 10th, 2015

Start-ups are typically resource-lean, yet the entrepreneurs tend to spend resources quickly.  The first part of my response to this question is: learn an approach that prevents quick expenditure of resources by mastering a lean start-up approach.  There are a lot of materials and now web-sites that are helpful on this topic, many based on the work of Steve Blank, Bob Dorf, Eric Ries, and others.  
As part of a lean start-up approach, the entrepreneur wants to think clearly about what "failure" means: did he or she launch too soon, with a fully developed product or service, before finding out whether or not there were real buyers in the market place?  Then the failure here was inadequate preparation. Or was the failure the discovery that the initial plan or path was ill conceived, or off on the wrong track, in which case the entrepreneur needed to "pivot" in a new direction?  That's not a failure: that's a valuable discovery to continue to build on.  
If failure means that the entrepreneur has now spent down all available resources and is now less than lean, then a new plan of action needs to emerge: what to do differently in the next iteration, how to gather the necessary resources to get it started inexpensively and thoughtfully, what assumptions were proven incorrect and what new assumptions emerge that now need to get tested, and how will these assumptions get tested that result in productive information without carrying large costs?  
And yes, sometimes the new plan requires one step back: get a job, build up some capital, but be networking and learning like crazy: it doesn't cost anything to meet and interview customers and those thought to be possible customers.   

Robert Eikelboom Empowering the Powerless

August 10th, 2015

Take time off to relax and honestly examine the question: Why did it fail? Ask all involved the same question and don't accept standard answers.

Only after you know that answers, design a new strategy for the failed company.
If you are able to do this, you show yourself that you have learned from the experience. After that all options are open.

Thomas Sutrina Inventor at Retired Pursue Personal interrests and family

August 10th, 2015

I spent 20 years working for aerospace OEM I obtained two dozen patents and not one of those patents turned into a product.  That means that I have failed at least dozens of times.  A big cost.  
I think that Costa Rica more then half of the startups fail within 3 years is actually a better return on investment that my OEM.  
People that invest in a startup look at the projected return on the investment and set a return amount greater then the losses from all there investment in start ups.  So if you can get a 2X return in two years you earn money.

Laurie Wright Commercial Real Estate/ Design Industry

August 10th, 2015

Please take me off these emails. Thank you!

Steve Everhard All Things Startup

August 12th, 2015

I don't agree that failure is a learning process per se. I do believe that you can learn from failure if you are analytical enough, but generally folks just blame a factor that they believe they couldn't control from which there is no learning. What do you actually do with "we were too early" make sure you are appropriately late next time. The real issue is that they did;t track their market entry, but I don't that is a take away when you are licking your wounds or trying to avoid friends and family whose money you just lost. Don't assume failure is a path to success, it may just be a path back to employment and perhaps a move to another town!

Research leads to an MVP but is not an action you take instead of testing your assumptions. Put yourself in the place of the user - you acquire a product or service or download it. Best case scenario it simply doesn't work, but worst case damages other resources meaning you spend time fixing it and sending them increasingly abusive messages. What is the chance you'll download v2? 

 Testing your assumptions is the most valuable thing you can do - what behaviours do you expect and what behaviours do you get. Let folks use your product undirected but with a similar problem to the one you're addressing. Question why they did things after the event. Learn from their process.

One really bad scenario is that you launch an MVP and get early traction. You don't solicit feedback on the current product but focus on new features. What you didn't realise is that most of your users are not utilising the product in the way you thought so when you add in features you change behaviours. Suddenly you have unhappy users, maybe an expensive rewrite, maybe your market just went. We can all cite products that have done this.

Whether you design for a local market or an international one, the infrastructure needed for success has never been cheaper or easier to access. Make sure you test your assumptions and build the right team and there is no reason for failure, as long as you launch and grow at a rate appropriate to your resources and not because startup paranoia tells you to move fast and fail quickly.