Your startup is failing, now what?

Here’s a harsh reality. There are more startups that fail than those that succeed. Whether it’s a hiring misstep, a botched product launch, or a company that never gains traction, startup founders have to deal with all kinds of failure. Yet what really matters is how founders deal with it.

As an investor, I’ve seen failure addressed in two very different ways. Some founders try to rationalize their failure, by pointing to issues like, “The market wasn’t ready,” “The product wasn’t ready,” or “We were burning through cash too quickly.” To those founders, I often say, Well, who chose the market? Who developed the product? Who spent the cash?

On the other side of the spectrum, I see founders who take responsibility. They own the outcome, and the mistakes that led to the outcome. I wholeheartedly believe that this is the only way to ensure that they won’t repeat their missteps. That said, even among founders who react this way, some see taking responsibility as a lip service, rather than feel it viscerally.

But how do you move forward? After all, taking responsibility is just the first step. Here’s how you can bounce back from failure with grace and dignity.

Get out of the gray zone

When it seems like your startup is going downhill, being in the murky area where you keep spending money and are “hoping” for a turnaround is a bad place to be. You need to know: Is this right or not? If the idea isn’t good enough or big enough, determine if you can pivot or change your company’s focus. What do you need to do to restructure? What do you have to do differently? We recently had one of our portfolio companies pivot and replace the CEO–changes that saved the company. Of course, this solution isn’t right for every company. But bad business situations rarely fix themselves–you need to make the call on what needs to change, and execute that decisively.

Know when to let go

If the idea is never going to make it, determine how to sell the technology and the talent and return some capital to investors. One of our portfolio companies arranged a talent acquisition to Google. In finding a home for their team members, the founders took care of their engineers and returned all the cash they raised to investors.

Treat people the way you want to be treated

As you would with any job, leave on good terms. By treating everyone with respect, you give people another opportunity to remember you in a positive light. You want people to feel as if you treated them as well as possible even though the company didn’t reach its full potential. After all, it is very likely that you will want to start another company, and how you handle your failures now will set a precedent for how likely you’ll get funding for your future endeavors. What goes around comes around. If you flame out, it will be much harder for anyone to support you in the future.

Specifically, it’s crucial that you take the following actions:

1. Communicate early. Surprises are bad things, especially when all the money is gone. People should know the company is in trouble before it folds. Investors might be able to help get the company on the right path. Give them the opportunity.
2. Take care of your customers. Don’t crash and burn and leave them with nothing. If you have customers on your service, educate them on places to migrate and give them a date for the end of life of the service. If you can, try to keep it running for 90 days or more after you notify them.
3. Be generous with your employees. Make sure they have other jobs. I believe some severance is in order. There are some tough calls here about who gets what, and at what expense to investors, and there are no hard and fast rules. The decisions you make will be very situational and depend on team performance, among other things. The operative word in this calculus is fairness.

Turn your focus to, “Now what?”

Determine if you have the stomach to start a company again. Do you have the passion and enthusiasm to go after it again, or do you want to pursue a safer route, with more predictable economics? Take the opportunity to step back and reflect: What really went wrong? What have you learned about yourself that you didn’t know before? Are you ready to do it all again?

Part of entrepreneurship is failing. Don’t feel horrible about it. Don’t lose your drive to change the world and make a difference.

Remember, true innovation rests on trying, failing, and trying again. Thomas Edison discovered hundreds of ways not to build the light bulb before he found a way to make it something we can’t live without. Babe Ruth held a record for strikeouts–not just home runs. And Henry Ford had two car companies fail before he created the one that revolutionized modern production. The world needs more entrepreneurs who are bold enough to think of new ideas and brave enough to pursue them. You just need to accept that you might encounter some failures in the process.

This article is adapted from Dear Founder: Letters of Advice for Anyone Who Owns, Leads, Or Wants to Start a Business by Maynard Webb. Copyright © 2018 by the author. It is reprinted with permission of St. Martin’s Press, LLC.