— June 17, 2018
The commonly cited statistic says that more than fifty percent of businesses fail within the first year. Companies fail for all sorts of reasons: cash flow problems, poor understanding of their marketing segment, or a failure to connect with their intended audience.
Many founders, understandably, are deeply involved in their startups. They may wear multiple hats within the company, be managing several different factors, and may even have spent a significant amount of their personal assets trying to get the company up and running.
While your startup may not survive, it’s important to keep from causing your own failure while the business winds down. Here are a few ways to make sure you protect yourself.
Don’t Burn Yourself Out
There comes a point when it’s obvious a business just isn’t going to make it. The cash just isn’t available to buy the next round of inventory, or the market is just not responding in the way it needs to for your company to thrive. At this point, most founders can accept their defeat and wind down the business, moving on to the next project.
But sometimes, you feel so passionately in love with an idea or a concept that it’s hard to let it go. You may try and convince yourself that if you try just one more thing, the business will finally get off the ground. While this could be true, founders sometimes burn themselves out trying to bail out a sinking ship.
When you start to think your business could be heading south, take a good solid look at where you are and what’s going on. If you can see a real, realistic path forward that will mean possible success for your business, go for it. If it means working twenty-four hours a day or maxing out your credit cards, this may not be a good idea.
Avoid the Perils of Bootstrapping
New businesses, especially those owned and operated by marginalized people, often struggle to get traditional lending without a substantial history of successful business operation. Many young founders, therefore, reach for credit cards and lines of credit when they need cash for their business.
While this can be a viable method to get a business started, if the business fails, you may find that you still owe all that money. You can’t file bankruptcy as a business if your debts were clearly taken on your personal finances – and you may find that you are directly liable to unpaid creditors.
To avoid the danger of this pitfall, do as much as you can to separate your personal assets from your business ones. See if you can get business credit cards, and loans for your business. This can protect you – and your finances – if your startup does fail
Understand What Went Wrong
Knowing what you did right – and what you did wrong – in your startup is an important piece to moving forward. Whether you plan to go back to a regular 9-to-5 job or look for another great idea to bring to the marketplace, an important step for creating later success is to do a solid post mortem on your company. If cash flow was the issue, you can better plan for the ins and outs of your company dollars next time. If you failed to connect with your marketing segment, you will know to do more research next time around.
Understanding where you went wrong will help you make better choices going forward, both personally and professionally.
Don’t Give Up
It is discouraging to see a passionate idea not come to fruition. When you think an idea is going to make it big but then bottoms out, you may feel like a personal failure. It’s important to remember that many businesses fail due to owner inexperience or bad timing within the market. The good news is that inexperience is fixable and can do a lot to mitigate bad timing.
Don’t give up on your entrepreneurial dreams due to a failure. Keep learning; take business classes or classes in your specialty field, work with other startups that are just getting off the ground, or look for a mentor in your business community. One set-back isn’t the same as a total failure; you may even find a way to relaunch your original idea in a way that better reaches the target market.
Alternatively, your startup’s failure may have convinced you that the world of entrepreneurship is not for you. If so, that’s fine! Running your own business is hard, and not everyone is cut out for the task. Move on to your next career step grateful for the knowledge you picked up in the meantime.