Companies shut down for many different reasons, and their lack of success doesn’t always stem from the faults of the founder. Many founders have good ideas and can scale their businesses to a certain degree, but they can’t find the necessary money to make it last. Here’s a cheat sheet to the most common reasons for why a startup failed:
- Great idea but ran out of money.
- Bad idea and ran out of money.
- Not cut out to scale a startup and, therefore, ran out of money.
What the common trend? Running out of money. While this does reflect on the founder to a certain extent, the radical shifts in financing, customer behavior, and market fluctuations can put any company through a storm, and it’s very unpredictable as to who will emerge victorious.
THE MIND OF A FOUNDER
As a company is approaching the end of its runway, founders begin to change their thought process from “how can I do more?” to “what am I going to do if this falls apart?” It’s human nature to contemplate this question, as it’s a pertinent key of survival. Bills still need to be paid, food needs to be put on the table, and employees need to anticipate their future, and that all takes cash. The responsible founder anticipates and prepares for this reality when it begins to set in.
Of course, a few other big questions that might cross a founder’s mind when they see their dream quickly turn into a nightmare is “What will people think of me?” “Will this affect my ability to get a job?” “Will people look at me like a failure?” It’s natural to fear the judgement of peers; humans, particularly in the business world, have a very short-term memory when it comes to success or failure. We are all as good as our last win. It’s a valid question to wonder whether we’ll be judged by our complete bodies of work or merely the last venture we participated in, and that spawns the follow-up question of whether this past failure affects our ability to be ultimately successful in our careers.
The benefit of hiring someone who has faced these challenges is that they have learned from the experience. Failure is a critical part of growing as a person, and the most successful people in this world have all failed miserably time and time again. However, what makes them win is that they don’t quit. They understand that failure is a tool that can be used in other ventures. Great leaders hire founders who have had failures because they know these founders understand what it means to strive for greatness. Additionally, how they have dealt with a failure shows that they can get back up, dust themselves off, and try again. This is a great quality for any hire, and particularly for someone in a higher position.
HOW NOT TO FAIL
There are so many variables affecting the success of a company that it’s necessary to consider the whole experience, from start to finish, to truly determine whether it was a fault of the founder or CEO or if it were simply a consequence of timing. However, it’s very telling of a CEO’s character to observe what they do when their company is sinking.
Take a look at the chaotic shut down of Zirtual. CEO Maren Kate Donovan informed her staff of 400 that they were out of a job, effective immediately, by emailing them at 1 AM. Rather than planning ahead and preparing her employees, she left them in the lurch. This total blunder resulted in a significant backlash over social media and through the startup ecosystem. While this is certainly extreme, and many people would never consider doing such a dastardly thing to the people who count on the company to make their living, there are many cases in which layoffs are necessary to either keep the company afloat or eliminate it altogether. Though it’s difficult to discern the backstory, it’s probable that her opportunities for post-Zirtual C-level positions were impacted by the perception that she cannot be trusted with such high-level decisions.
There are many more examples of this in everyday life, when a company closes simply because it runs out of funding. In most cases, this is a situation in which the CEO or founder is transparent with their employees. Though many might leave immediately, this retains the founder’s character as someone who is honest and trustworthy. Due to the variance of the market, the failure could have to do with any number of problems, but it’s the work ethic and communication style that dictates how employees will remember their leaders.
HOW TO SPOT A FAILED FOUNDER WORTH HIRING
A founder generally works longer hours than most people and should be rewarded in the job market for this. They are generally loyal, but will do whatever it takes to be successful. The fact they could not make it work on their own is not a case for failure, but simply a sign that it was not meant to be. If I had the opportunity between a failed founder and someone without founding experience, I would hire the founder in a heartbeat, knowing that they understand what it means to put in a day’s work and hoping that their passion for greatness will hopefully rub off on others.
A failed founder is without question one of the most experienced people to go after in the job market. They have shown that they will take risks, work long hours to achieve success, communicate with customers, and blend all of the different pieces of a company’s operations into one. Most importantly, their previous failures give them an insatiable hunger for success – and it’s your company that will benefit.
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