How to Be a Successful Failure
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The CEO of a startup we funded called to tell us his tough decision: He had $1 million in the bank, and he was shutting down his company. Crazy, right? Not really. He had set a benchmark for progress and failed to reach it, and so he was returning the remaining capital to investors -- saving us all from making millions in wasted, additional investments. We were so impressed that we’ve since handed him the reins at two other problematic companies.
Some of my best experiences with CEOs were during the worst situations for their companies. Exiting gracefully takes precision and tact, and VCs will take notice. Here are the qualities I’ve come to admire in CEOs of struggling startups. You’d do well to adopt them yourself.
Nothing frustrates investors more than a CEO who is so optimistic that he or she refuses to recognize the bumpy road ahead. When it looks like things will be getting tough, it is far better to keep investors informed than surprised. Don't wait for good news to share; investors like more dialogue when growth numbers are missed, burn is higher than expected, or a new, well-funded competitor emerges.
Entrepreneurship is emotional, so take feelings out of the equation. Preemptively map out your “stage gates,” the specific objective metrics (revenue, funding, etc.) that initiate specific courses of action (proceed as planned or wind down the company). Share them with your team and investors, and stick to them.
Winding down a company is not trivial work. Aside from the unpleasant need to fire people, a leader has to deal with expectations from lenders, investors and customers. Respected CEOs make sure all these matters are settled before moving on, even if the outcome is difficult for everyone involved. Investors, who are often stuck with all this dirty work when leadership bails early, especially appreciate this accountability.