The Decelerator: How Do You Shutdown A Startup?

May 12, 2019

Want to launch a startup? There’s a book for that — or a few hundred.

Not to mention articles, videos, podcasts and even infographics: every part of the process of kicking a new business into gear has been documented, from making a prototype, to growing a customer base.

Figuring out what to do if your startup doesn’t take off? That’s another challenge, says Abigail Edgecliffe-Johnson.

“Startups are all about embracing failure and reinventing yourself and starting again,” she says. But when you’re actually in the process of failing, she says, “It’s like you’re a leper. Nobody wants to come anywhere near you because they think the failure is contagious.”

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.

When she first decided to start her toy company, Race Ya, in 2014, she wanted to help kids learn about science and engineering through customizable toy race cars. She built, tested and rebuilt the product, but she faced high costs to produce the part-plastic, part-electronic cars themselves. Then last year, her Kickstarter fundraising campaign stalled halfway to its $75,000 target.

“We realized that we weren’t going to hit our goal, which is upsetting and embarrassing and painful,” she says. “But it was also a really clear signal to say, OK, you’ve tried every which way to do this … and it’s not going to happen the way you thought it was going to happen.”

So she began to hunt for resources that could help her shutter her company, if it came down to that. The advice she found was scattered and incomplete, she says. “If you start to think about closing down your startup, you suddenly find yourself completely isolated.”

Her problem is a relatively common one. 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.

Such failure has been part of the American narrative around entrepreneurship and reinvention for generations, often framed as a necessary obstacle on a longer path to success. Think Henry Ford’s failed ventures before he built the Model T, or Milton Hershey’s early candy businesses that flopped.

But Edgecliffe-Johnson says the redemption narrative doesn’t help someone like herself deal with the minutiae of untangling the threads of a small business.

“Lots of people have shut down their companies and talked about shutting down their companies, but usually they only talk about it on the other side,” Edgecliffe-Johnson says. What’s missing is the story of how that failure plays out in all its nitty-gritty detail.

Consider just a few of the things that you might have to do if you’re closing down a startup: notify investors, let go of employees, figure out severance pay, find a lawyer to push through dissolution paperwork, pay outstanding debts, cancel credit cards and close social media accounts. You also have to figure out how to value your firm’s assets, Edgecliffe-Johnson says, which can be tricky when those aren’t computers and pens, but data, clients, brand and other intangibles.

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.

“What I’m finding is everybody is struggling with the same stuff,” she says. “So The Shut Down is hopefully kinda gonna be the decelerator as an adjunct to all the accelerators that are out there for startups.”

She says the response has been impressive so far and that the project feels cathartic. And she argues that a little hand-holding could be useful, not just for her or other entrepreneurs but also for the economy at large.

“If we can make this process less gut-wrenchingly painful for people, they’re going to feel better about moving forward and building more stuff,” she says. “We want entrepreneurs, we want people building businesses. We don’t want them crushed by their first failure.”

There might even be a podcast in the works, she jokes. Not How I Built This, but How I Broke This.

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