On Shutting Down | Hacker News Reader

On Shutting Down

blog.ycombinator.com

306 pointscraigcannon84 comments

There's a kind of shutting down not covered here: getting acquired. Too often a phrase similar to "our incredible journey"[0] appears, in which case as an end-user you know the time for enjoying the service is at an end just as surely as if the startup went bankrupt.

[0] https://ourincrediblejourney.tumblr.com/

It's pretty easy for founders/execs at that point to make regrettable comments along the line of 'this is going to be great for our customers'.

Sometimes being honest and taking care of your customer/employees/other stakeholders requires you to say "I don't know" or "this will be a change" instead of what you think they might like to hear.

It can be hard to hear what those other stakeholders are saying over all the noise the dump truck full of money makes when it starts backing up toward you.

It's not always possible to make such statements, depending on the terms of the buyout. That goes doubly so if the founders/execs have a continuing relationship with the buyers. Even if it turns out to be a short term relationship.

Maybe you need like a warrant canary. "This service is great for customers" is removed from a url once that is no longer true.

"I don't know" shouldn't be hard to say. If the terms require you to actively lie, well, that's shameful to accept.

That's a great website, I check it every now and then for a laugh. It's funny how similar every company portrays the acquisition experience.

It's almost always; a positive, reflective experience which dismisses any consequences to end users...

There's probably a template which rearranges the words a bit and fills in your company specific info. It's going to be aahmazing!

Is Tumblr's acquisition by Yahoo, then Verizon, on there?

YC has talked about how startups die of suicide, not homicide. Shutting down is a hard decision, and there always seems to be pressure to do it. Raising money looks like success to others - so it's tough to declare later that you have made nothing of value and will close shop.

Here were my shutdown articles after I closed Staffjoy:

https://blog.staffjoy.com/staffjoy-is-shutting-down-39f7b5d6...

https://blog.staffjoy.com/denouement-abe7d26f2de0

Thanks for open sourcing staffjoy by the way. That was awesome.

it's tough to declare later that you have made nothing of value and will close shop.

It's not that you've made nothing of value or that there was no need, it's simply that you weren't able to build a viable business from what you were doing. It doesn't even mean that nobody could build a viable business, it may be that your definition of viable is different from someone else's (e.g. minimum required growth numbers, desire for an acquisition, etc.).

I think the definition of viable isn’t really up for debate. But I do agree with your sentiment:

There may have been a need and you may have created value but perhaps the need/value wasn’t viable at the target size set for the business by the founders and investors.

I think the definition of viable depends a lot on how you started the business. For a bootstrapper the definition is totally different than if you have taken millions (or tens or hundreds of millions) in VC money. In general, VCs not only aren't interested in small-but-steady earners, they will be happy to destroy one if they think it gets them a chance at a big payout.

It kind of is though. Maybe a founder is happy making 90k a year off a small band of loyal customers. By all means, that's a viable business.

Maybe the business wouldn't be able to run profitably with anything less than 1000 users and one founder can't make it happen in their budget while another can, or another yet decides to raise money.

I guess retirement is a form of suicide. I run a successful one-man programming business but it too will need to shut-down as I would like to retire in 4-5 years.

It is especially hard as the company is totally viable, in a great location in the world and has great customers who are really happy to keep giving me work, this means I cannot really shut-down until they are taken care of by either selling off the company to another programmer who will support them or transitioning them (very expensively I guess) to another system

I wonder how many people in the same position are thinking this far ahead

Migrating customers away from a one-man band is a pretty thorny issue. Unless you happen to know another one person operation who can take over no other vendor will offer the same level of personalized, hands on service or the same level of trust that comes from always dealing with the same person.

The experience of dealing with "Jane the programmer" Vs dealing with "Outsourced software agency incorporated" is dramatically different.

Selfish response: Why not sell it?

I've worked for larger corps for most of my career but have certainly cultivated the desire to be the maker of my own success. That being said, I've had remarkably little luck in finding any side effort enough traction to get off the ground, and hit my stride the most when I can improve a system with a proven value prop. (Without sugarcoating it, I'm a terrible "idea guy")

Later in my life if I get a degree of financial stability, I'd like to buy or work for a proven small company (working for would be hard but not impossible given the aforementioned desire to be the driver and recipient of the fruits of my labor) and taking over from someone in your situation sounds almost ideal.

maybe instead of saying that you are 'raising money' say that you have sold part of your company to another company because they expect to get more money from you later

YC provides a toolkit for starting up and incorporation. Do they also provide a toolkit for shutting down and wrapping up legal / tax obligations?

I don't know if they do, but I'd really love to see it if they do! Always good to have.

This is a great idea. We've thought about this a fair amount but have not yet found the right solution to implement.

When you have a good plan for getting out of something you're that much more likely to get into it. Think about it -- this the easiest way to get more people to try creating more startups.

In my imagination this would initially be like your SAFE template or perhaps a checklist. A legally vetted document that tries to take into account the interests of both founders and investors while covering the important bases.

I'm glad it's being thought about one way or another!

> tries to take into account the interests of both founders and investors

Customers first, employees second, founders third, investors last. You may want to think over why the last two are in that order, my reasons are simple: investors know the risks going in, and they will not eat one sandwich less. Founders need to be able to get on with their lives too.

Unfortunately, the legal obligations are almost reversed.

In that case they just need to forthcoming to the customers early on that they are last in priority.

Which is why you have to go out of your way to do them in the order specified.

You have to operate within the confines of the laws at each step, but if you don't take care of the employees before the founders and the investors, then they're going to get screwed the most.

YC provides assistance but unlike starting from zero, shutdown is unique for each company.

My latest company started the same as all the others but ended up registered to varying degrees in four states, each with its own dissolution procedures. Never mind financing, vendor, customer, and other agreements that may be in play.

What to do when a company has found a market, reached sustainability with regard to its employees and customers, yet probably will not be providing the anticipated return for its investors? I'd like to hear about ways this has been bridged. Have there been any SV "exits" to a ESOP? Unfortunately, an ESOP requires at a minimum 30+ people to be legitimate exit option and quite a bit of administrative attention and expense. It seems an unlikely path for a technology startup.

The company can continue to operate, but that'll probably depend on the equity structure. Not a lot of incentive for founders and key employees to stay-on and manage a "lifestyle" business if they only hold a minority stake in the company. In that scenario, I think the investor-owners would probably want to recoup some/all of their investment quickly in a sale to a competitor rather than slowly over-time by milking and growing cashflow.

Do founders typically own a minority stake in VC-funded businesses? Even a lifestyle business may be able to throw off several million a year in disbursements beyond payroll. Sure if you own a fraction of a percent that's not much money but if you own 20% of a company disbursing $2MM+ every year that can fund quite a bit.

I know VCs are aiming for home runs and 10x+ returns but trying to get someone to shut down a business like that seems short-sighted.

If a company is throwing off profits like that (as dividends, presumably) they are in absolutely no risk of being shut down.

Absolutely - I had to rub my eyes and make sure I just read that a sustainable, profitable business (by that metric already more successful than most startups) is being referred to as a "zombie" etc.!

Anything that isn't a unicorn is a zombie if its received VC funding. Its a good reason to not take on VC unless your in a market that can magically meet the extreme growth expectations that are tied to that lump of cash.

I enjoyed this as an option and would love to see more companies doing things like this: https://wistia.com/learn/culture/taking-on-debt-to-grow-our-...

The dreaded "zombie". Profitable enough that the investors can't pull the plug by force. Not growing enough that anyone will make any money out of it. It is my observation that because of "natural attrition" often both the management and employees tend to get replaced with B-players over time. The investors lose interest, their money is gone, their incentive to care a whit is gone, so they apply their attention where it has the chance to make a difference.

Dreaded by everyone except the users/customers, who come to depend on the service the startup provides.

... and the people it employs? I see alot of winners in "zombie" startups. I wonder what the ROI of the average business is. Pizza places, AI shops alike.

Problem is when someone bigger comes and puts you out of business. Like a fancy new pizza place with modern decor or a Costco or amazon or Uber. You need the ROI to keep placing other bets to increase your chances of survival.

If you care for your pizza, your customers and employees, you will stay in business for a long time, regardless of who opens a shop next door. Staying power, habits: those are huge positive factors for businesses.

“Mom and pop” businesses around the country show otherwise. A few restaurants with a very loyal customer base or outlier popularity might do well, but certainly not most. Same with hotels, rental cars, airlines, retailers, etc. There’s just advantages to scale that can’t be matched, and if there’s margin, someone is going to want a piece of it.

So many people running small businesses make very good money. I hear 20% a lot for normal businesses. Mine is more computer oriented, and old school too, and it is around 45%, several hundred $K a year. Nobody advertises around those because there is no rewards to do so.

If you want to start a business and make money, do not rule out old economy, and bootstrapping. Whatever VCs say.

Only in the insane world of "startup" culture, a sustainable business that meets enough customer demand to pay their employees and make some profit, is a bad thing.

If you take money from VC’s and compensate employees with stock options then you need to show VC returns. If the company can’t provide VC returns, don’t take VC money, find another source of funding.

If you/investors are not satisfied with the current growth of the company but the company is profitable and not in danger of shutting down, it seems like it would be a wise move to invest the profits towards R&D to create some sort of product that may have better growth. You'd have the benefit of "infinite runway" for your next product and the investors have a chance at getting their money back.

On the other hand, there was recently and article in Forbes about a tech billionaire who saw this pattern (small tech companies with one main successful product that were then pouring money into other speculative as-yet unsuccessful products) and built a fortune doing the exact opposite: he'd buy the companies, basically stop all investment in new products (meaning lay most people off and outsource the maintenance to cheaper countries) and milk the maintenance revenue stream until it basically died. I think of it as "the world's most depressing business model", but it was definitely highly profitable.

https://www.forbes.com/sites/nathanvardi/2018/11/19/how-a-my...

Interesting. I found it discussed here:

https://news.ycombinator.com/item?id=18516584

Random idea.

If you have profits sufficient to fund R&D you could also potentially approach your investors about buying them out with those profits. Something like "It has become apparent that this company is never going to provide the growth you are after. Instead, every quarter the company with pay you $X in exchange for N of your shares. After two years the company will have bought back the last of your shares and you will have twice your investment. We enjoy running the company and intend to do that for the foreseeable future despite the limited growth."

The people who invest labor in startups often have the same kind of vision of how things will go as people who invest capital, and are prone to looking to invest labor in a new startup if the old one doesn't produce as hoped. The trick is transitioning (not all at the same time, usually, but before people flee and destroy continuity) to ownership, management, and staff that are interested in a small, steady-state business.

this is the best shutdown i've seen to-date: http://vmashup.com/BDMLAWn6

The author writes about the founder in an idealist way, i.e. searching for the most effective and honest way to manage a shutdown.

I'm interested in the moral dilemma, especially regarding employees.

Aaron writes: "The biggest emotional investment that founders make – especially early on – is convincing great people to take a leap of faith and accept an offer to work their butts off on a long shot. This dynamic is why transparency around the decision to shutdown and the timeline of it is so important."

Imagine you're a founder and your company is on its last legs. You can make a last-ditch effort to pivot and save the company, but that means that if you fail, which is likely, your employees will get shafted. Can you really communicate this transparently to your employees, and risk having them start searching for a way out, dooming your chances to succeed in turning around the company?

When shutting down, founders need somehow magically to know how to do it "right" or as best possible, when they have no experience of that.

I think investors should consider requiring founders prove they know how to shut down properly before giving money to grow in the first place.

Here are the basics:

-- what the ethical issues, how to "do the right thing"

-- how to shut down when they can still do so without debt being incurred.

-- what to say to which staff members and investors and when to say it

-- what the legal obligations are

-- how to either get acquihired, or how to find jobs for existing exployees

-- what legal bombs to avoid and how

-- what the biggest legals traps are in shutting down, such as leases which will remain fully payable

A lot of founders are first time founders. They barely know how to run a company let alone shut one down. I think it is fine for investors to invest in great inexperienced people.

Maybe it would make sense for the investors to mentor them during the shutdown to make sure it is done correctly, since investors have been through it many more times.

>Because of this difficulty, we’ve evolved a set of terms that often mean “shut down” without saying “shut down.” In no particular order these are: pivot, hard pivot, rebrand, strategic shift, change customer focus, and platform switch.

How about "serialize"? As in "I'm a serial entrepreneur, so I'm serializing my current project, and spinning up a new one!"

Building a sustainable business that meets customer demand and is able to pay employees, without the need for growth, is called a zombie and needs to be shut down?

You know, sometimes I forget that this stuff if just a "get rich quick" scheeme, but then an article like this comes along and reminds me.

In the case of a startup shutting down, what would be the best way to try to resell the technology that the company has built (with the hope of recouping some money for the investors)?

I once called a friend that I hadn't talked with in a while, only to find out that he was helping load their office chairs into a U-Haul for their new owner. Awkward.

To be clear, since now ycombinator is in the business of clickbaiting titles, this is a blog about shutting down a company, not a blog about ycombinator or HN shutting down.

Edit: the original title was 'Shutting Down'

Yeah definitely thought ycombinator was shutting down at first

“On Shutting Down” isn’t a whole lot better!

Most real shutting down announcements are titled with some spin that makes it sound like the opposite though like: "The next chapter of advancing Y-Combinator"

I think that "On Shutting Down" may have been a better choice of title here

Good edit. Hadn’t thought of that. Changed.

"Shutting Down Your Startup"

It's still honestly confusing, the first thing I did after reading the title is look at the url to see who's shutting down...

Oh man, for a few seconds when I saw "Shutting Down (ycombinator.com)" on my aggregator, I thought HN was shutting down! And then I was like, "Oh, April Fools.. wait, it is December". Man, that scare woke me up more than this coffee sitting next to me would.

I was scared that tech pedants would need to find a new place to bicker.

I don't know Aaron at all, but I'm curious about what kind of bonafides you must have to be a Partner at YC. Do they mean partner in the financial sense (ie: he bought into it) or in an operational sense? If it's the latter, at first glance there's a bit of strange optics to have someone in that role whose only notable experience to my knowledge in the startup world ended in failure.

When your job is to help startups, your experience of failure is much more valuable than your experience of success, because it’s much easier to learn from your mistakes.

In any case, YC partners quickly accumulate enormous experience from the failures of all the startups they’re helping. I bet Aaron has personally seen hundreds of startups fail, and has learned from every single failure in order to better help his next batch of startups. That experience probably eclipses whatever else he did before YC.

To me that’s YC’s biggest competitive advantage: they aggregate the learning experience of thousands of startup failures, and use it to keep their success rate above market.

Partner at a VC fund generally means you have a proven track record picking winning deals or bringing on investors and have been given a seat at the adult table by the other existing partners. Usually it involves putting up some of your own money so you have skin in the game. Doesn't necessarily require startup success of your own.

Sam Altman is the President of Y Combinator, and that was roughly his experience as well. YC does not consider having a billion dollar exit to be a requirement for advising and picking billion dollar startups. Neither do most VCs I’d guess.

In some ways it may be counterintuitive, but in others it makes sense. A successful founder only has a single anecdote. Someone running an incubator has something much closer to empirical data. You can only run 1 experiment at a time, while they can have hundreds or thousands.

Also, you don’t necessarily need talent executing in a specific domain in order to recognize it in others.

To avoid further cardiac anomalies maybe change the title a bit?

I thought the same thing

Same. I was really worried for a second... semi- (unintentional I hope) click-bait....

Fuck it. Move on.

This is like a FREE BEER ad.

The worst thing is to keep beating up the dead horse. At least in the gaming industry, you can clearly see some companies "milking" the brand of games, Bethesda and Blizzard have been doing nothing else recently IMHO. But as long as it sells I guess the company is still satisfied with chosen politics, even though it's profit over quality.

It's always profit first, in any given public company.

Blizzard released Hearthstone in 2014, Heroes of the Storm in 2015, and Overwatch in 2016. It's very difficult to characterize that as "milking". And Bethesda has Starfield in the pipeline, though it's a next-gen title at this point.

I also don't think Blizzard or Bethesda are particularly good examples of game studios "milking" it. Sure you can use the "new IP" filter to describe those who are "milking" and those who aren't, but to me it's ok to reuse existing IP if there's a significant new spin to it (rather than beating a dead horse). Take Doom 4 (2016) as an example from Bethesda via id, rather than being a knockoff it totally revived the series, capturing what it means to be "Doom" while also feeling fresh against all the other FPSes at the time. In contrast look at Nintendo's parade of 2.5D Mario side-scrolling platformers since New Super Mario Bros DS. They're all basically the same. Yet even then they can still sometimes produce something greater than that with Odyssey.

To be honest, I was trying to respond in good faith and not consider other Zenimax/BGS properties outside of Bethesda proper. And even they're doing Starfield, as I mentioned.

Fallout 76 seems to kinda suck, but that's one game.

You can bring in some fresh cows while continuing to milk the older ones, which is what both appear to be doing (e.g. WoW, Fallout) ;)

Rockstar certainly is milking their Red Dead Redemption franchise.

https://youtu.be/cfTnsqNuDg8?t=137

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