Ask HN: What happens when your startup fails? | Hacker News Reader

Ask HN: What happens when your startup fails?

45 pointspilom33 comments

I keep hearing that only 10% (if that) of startups succeed, but what happens to the other 90%? What happens to you personally? Do you just start looking for a new job or do you have baggage for the rest of time?

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When Sonicity failed, I was the second of the three founders to leave; the CEO was the last to go, and we had something like 5 employees up the last day of the company, which was something like a month or two after I left.

I got a job at another startup, this time in Ann Arbor, MI. We packed up and moved from SF to A2 (truth be told, we were happy to get out of California and back towards the Midwest). I honestly didn't interview at all in California; my friend Dug had invited me to the A2 company many months before, and I just chose to take him up on the offer when Sonicity blew up.

If you have funding, the story gets (very slightly) trickier than if you're bootstrapped. Sonicity was (very) funded, so there were liquidation details I wasn't party to. Presumably someone at Sony owns all our old source code. The company assets were (mostly) liquidated.

Nobody cares if you fail with a startup. That's what startups do: they fail. Losing a startup is precisely the same as losing a job. You pick yourself up and get another one (a job or a startup, interchangeably).

The sole caveat to this is that if you're a serial startup flopper, your resume will communicate flakiness. This is very easy to fix: don't repeatedly start new companies, but instead alternate between starting things and doing something useful for someone else's (established!) startup. Consider as a rule of thumb that you should always start a company after a high note of some sort.

it depends on how (and how well) you structure it. If the company has no debt, you can fold it and walk, obviously. Often you can find someone else willing to buy it off you for a pittance, if you want someone to keep providing for the customers you have.

If the corp has debt you haven't countersigned personally, you can still usually walk, though if it's a lot of debt the creditors can try to 'pierce the veil' and come after you personally. depending on how well you separated business and personal accounts, this may or may not be possible.

If you have debt you countersigned personally, well, you've gotta pay that off or declare personal bankruptcy.

The worst 'baggage for the rest of time' case I've seen is tax related. If you make a lot of revenue and you fuck up your taxes badly, you can be on the hook for those taxes forever. Bankruptcy doesn't get you out of your tax debts. I know two people who will likely be in debt for the rest of their lives because of tax mistakes. If you run a business, /always/ spend the money on someone who knows about taxes.

anyhow, that's just the debt problem. My experience has been that employers, when you tell them that you are looking for a job because your startup in a related field failed can only be described as eager. Especially if the startup got some publicity, a failed startup looks pretty good on the resume.

edit: s/debit/debt/

lsc makes some good points. One of the biggest, which I'll reiterate because it's so big:

Run your business like a business!

Hold board meetings, even if it's just you and your mom. Keep separate bank accounts, even if it's just for 40 bucks. Make everything look legit, so when it comes before a court the court can say it was an independent entity. (Courts prefer to say that.) In other words, don't treat your business like it's your personal piggy bank. That will lead to pain.

a failed startup looks pretty good on the resume.

I would say this is true in US, especially in the entrepreneurial regions (here in SV/SF and also the NY/Boston/DC triangle).

Probably less so in Europe and the UK. I'd like to think that is changing but we're still a cynical lot back home (in the UK).

Any evidence for that?

My 2nd job was at a failed startup in the UK. Never got a single raised eye brow in any interviews I went to after that and I got a glowing reference from the CEO.

It was a massive positive for me, so not sure why you think this.

Any evidence for that?

Yup, I was involved in hiring positions at a big company in London and had some of my candidates down-graded in the committee because the startup they worked at failed (thus they must be a failure).

(ok, you could argue this is BigCo thinking, but I don't think it would occur at the big companies here in SF/SV)

Also anecdotal evidence from friends who have been in this boat. Banks are especially cruel as it's all about 'being the big dog' and weakness and failure isn't tolerated at any level (ok, you could find that ironic given what happened to the bank industry - but it's hard to argue when you are the one interviewing. Plus most people in the banking industry still don't seem to accept they had any fault, grrr).

So hire an accountant, be careful what debt you create and it's not really that scary?

pretty much.

On the other hand, when you are running your company, you will quite often make decisions that, if you decide wrong, will result in failure of the company. For some people, knowing that their company is one or two mistakes away from failure is pretty scary. But yeah, especially here in the US, the actual consequences of having a failed company, barring debt, are mostly positive.

fyi, it's debt

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Check.

Mate.

When EventVue failed we wrote a post-mortem about what went wrong. If you're interested, you can read about it here: http://blog.eventvue.com/post/372936164/post-mortem One of the benefits of having an open-casket funeral for your startup like we did is people know you are available for a new gig. After we announced the news, our phones started ringing from friends, users and former competitors giving their condolences. We also got calls from companies like Google, Facebook, Twitter and a few dozen startups wondering if we'd be interested in new positions. For us, our "worst case scenario" of completely failing had come true and that's when we discovered even the "worse case scenario" is not that bad. My cofounder took another job. I started contracting. Both of us are making considerable more money than if we'd never tried with EventVue. I know we're both going to be back in the startup game before long.

Its great to hear an update from you! Your post-mortem blog was/is a great resource for all of us (in the startup world). I think sharing such detailed lessons is very valuable. I'm personally keeping a log of my startup's strategies/successes/failures and hope to make it public someday.

Best wishes for your next endeavor!!

I bet that most startups don't fail miserably, they probably just fizzle out. We've all had those light bulb moments where a great idea hits us and we think it would make a great business. You get a couple coders together and hack something together only to realize it's too hard, or you don't have enough time, or a number of other excuses. You go back to work and soon your startup is forgotten.

I'm not sure whether the total number of startups (of which maybe 10% succeed) includes the ones I described, because they're so hard to track.

Do those really count as "start ups"? If so I've had about 10 start ups. And I really don't consider anything I've done as a "start up".

That's my question...when does an idea become a startup? After the first all night hack-a-thon? After you set up your "coming soon" page? When the first person quits his day job? Depending on what we're calling a startup, that 90% number can be very reassuring or very depressing.

In my own personal view, quitting your day job is the indication you've embarked on a start up.

The stats I think consider only the startups that were incorporated (if that's the right word).

I failed big last year with an iPhone app.

I'm at it again this year with a web app - trying not to make the same mistakes I made the first time around.

The jury's still out on the 2nd round but I am releasing in a few weeks time so I'll know soon enough.

Hats off to your new venture.

Would you care to write a post-mortem for your iPhone app (if you don't mind sharing the knowledge)? Probably many folks can benefit from it.

Thank you. Here it is: http://teabuzzed.com/2009/08/the-number-one-reason-my-startu...

You move on to a new project.

Dismantle the project and organize the technology and assets you developed over the course of your startup. Try to sell those individually if possible, otherwise document and keep them for future use if that's viable (eg. frameworks, algorithms, etc).

be careful trying to firesale assets. we spent 9 months selling our assets and the price we got and time involved was NOT worth it. we should've just walked and shut everything down as quickly as possible.

I read somewhere once that while 90% of startups fail, 80% of second time startup founders succeed.

While I think it's a totally made up statistic (there was no citation, IIRC, and there are all sorts of problems with measurement and bias), there's probably a grain of truth to it.

If you had to guess, is it just that second-time founders have more experience, or is it that a lot of the first-time founders who aren't 'cut out' for startups try once and then give up? (Honest question!)

I'd say a little of both.

It would be hard not to get better at being an entrepreneur through the practice of starting a company and failing. There's no shame in failing at something that's really hard to begin with, so long as you learn a lot and act with integrity.

I can't imagine that 80% success rate for second time startups is anywhere near correct.

It's depends and varies from one to others. It also depends on how you define 'failure'.

I think it's mostly dependent on personal preferences. Some will start another, some will get a job, some will travel and change career. So whatever it'll happen, why do you care?

The statistic is misleading - it says, "90% of business are not a going concern after 5 years." That could mean they were acquired, or closed down for a good reason. For instance, if you built a startup with a great product but not much traction, and that attracted the interest of a company that hired you for a $250,000 per annum salary, that would be a "failed business" in this statistic, but obviously it worked out pretty well for you.

I've ran companies that are no longer going concerns, but that delivered things that made customers happy, paid employees well in an awesome work environment, and the founders made good coin and had good experiences. Now everyone's moved on to other things, but these aren't failures (even though they'd be counted so in that statistic).

Also - Companies fail. Persistent entrepreneurs succeed.

I'm not sure what you mean.

If one out of ten average startups fail, and you're average, you have nine failures ahead of you before you succeed.

So each idea you put aside to work on something else is just another necessary step towards succeeding, right? Why call this putting-aside process a failure?

It's like dating when you are a teenager. The first girlfriend who breaks up with you, it's the end of the world. But after a while, after you have dated for a while, breakups still hurt yet you understand that breakups are part of the dating process. Why would startups be any different? You wouldn't ask somebody after one bad relationship if they would give up on dating, would you? It's a very similar situation.

You should work as hard as you can on your startup, and it's not good when things don't pan out. But it's not necessary to have so much drama at the end of an idea -- in fact it's probably very counter-productive for everybody involved.

The 90% failure rate is nonsense. Ignore it. Actual figures are more like 30-50% depending on what you term a 'failure'. Many include successful sell-outs in failure rates. People who have been profitable but then moved on are also usually counted as failures. Figures show long-term success is more likely if you incorporate, work on the company full time, employ someone else, be in particular sectors, etc.

One study I read had failure rates as low as 5% (defined as bankruptcies).

If in doubt, do some googling. Try 'business failure rates', 'business success rates', etc.

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