How to shut down your startup when you’re out of runway

Raising money has always been hard. Nevertheless, some industry insiders and VCs believe it’s now so difficult that it’s not even worth trying. Either cut costs and get to “default alive” or look for a buyer and shut down, they say.

This isn’t how founders think, of course, but at some point, pushing forward is no longer the right thing to do.

If you’re a founder and you haven’t found product-market fit, if your churn rivals your growth, or if your user number is growing by less than 10% each month, it may be time to think about closing.

Here are the steps I took, plus some things I would do differently.

Step 1: Tell your people

As a founder, there are usually two forces driving any communication: the desire and responsibility to tell the full story, and the need to be positive to keep staff, partners, and investors enthused.

I understand how founders believe they can turn things around. My company never found product-market fit, but that didn’t deter me.

We moved geographies, switched models from marketplace to SaaS, and even changed the entire purpose of the business. I thought we were good enough to pull it off, but we couldn’t.

I lost people at several points along the way. Surprisingly, when I told people their jobs were at risk, they weren’t usually as upset as expected. Some offered to work for less pay rather than see colleagues lose their jobs.

I realized how much people value transparency, no matter how bleak the picture is. I also learned how much my team cared about the company – they behaved like owners and, in some cases, seemed to care more about the business than about themselves.

If I were in the same position again, I would give staff as much information as possible. I would also provide options, like allowing everyone to take a pay cut rather than having to pick specific individuals for termination.

Step 2: Write to shareholders

Most founders don’t write thorough, regular investor updates, especially when things aren’t going according to plan. It’s tempting to delay a report while waiting for good news, but it’s the wrong move.

If you don’t tell your investors how bad things have become, they can’t lend their advice or expertise.

Be frank and present the facts to investors instead of being evasive or defensive, or blaming the macro environment.

Step 3: Call a board meeting

Step 4: Make a shutdown budget

Step 5: Speak to a lawyer

Step 6: Sell what you can

Step 7: Keep shareholders informed

Step 8: Find a coach or mentor

Step 9: Update your resume

Step 10: Don’t try again … yet

Step 11: It only gets harder, so make the next one count