Y Combinator: How to close a company

It is well founded that the founders and investors spend so much time talking about things that go well. If we were wasting all our time, delving into the essence of companies that failed, we would have missed him for much more.

When people talk about the failure of a company, they often do it in a way that seems wise, scribing out the lessons they have learned from failure. I did something like this when we closed Tutorspree. I think it was a useful exercise, and maybe it even helped some people. Basically, however, it was a catharsis.

The founder has no intelligible way to think about when to close a company (1). The founder is not always able to make a closing decision (2). However, in most cases, this is the choice of the founder. This is a personal decision. Difficult and painful decision. This is an emotional, risky decision. However, the decision should not be blind.

The unintuitive idea about closing a company is that closing is not the path of least resistance. The “simplest” thing a company can do in distress is to fall into zombie mode — that is, neither grow nor truly die. This is easy, because it does not require a willful decision, you just need to continue to do the minimum that will keep the company alive. This approach involves a series of seemingly small compromises that lead to stagnation or failure.

Closing is difficult because it means publicly admitting that you were wrong, unsuccessful or incompetent (3). Because of this difficulty, we have developed a set of terms that often mean “close”, not to mention “close”. In no particular order, these are pivot, hard pivot, rebranding, strategic shift, customer orientation change and platform change (4).

Translation: Andrey Goncharov

Stakeholders

Closing is difficult because it usually means disappointing people who believed in you. Some of these disappointments are real, some are invented. The founders who managed to attract money are usually most concerned about the possible disappointment or chagrin of their investors. Investors are often really upset when a bet fails, usually in proportion to the amount of capital they invested, and the speed at which things went wrong from the moment they invested. However, investors know that most rates will fail and usually overcome their emotions. Much more than closing, investors are worried when the founders either distort the status of the business and suddenly stop it without warning, or slowly “bleed” for many years, taking a lot of investor time.

Founders often worry that closure will disappoint their customers. This is true, but companies that are not doing business usually notice that their products are degrading, which also upsets customers. Unless your product is critical to livelihood, an honest and open cessation of activity is much more preferable to a slow withdrawal into non-being (5).

Founders need to worry about how closure will affect their employees. The biggest burden of the founder is the payment of wages. The biggest emotional investment that the founders make, especially at an early stage, convince eminent people to believe in their plan and accept the offer to plow as damned without a guarantee of success. That is why transparency around the decision to close the company and the timing of its implementation are so important.

The worst thing that a founder can do to an employee is to assure that everything is going great, and then one day to report that she a) no longer works here b) that the company cannot pay her what was promised and c) that he knew all this a long time ago, but did not want to talk, because he was worried about her feelings. It is much better to make an honest decision to close the company in full view of their employees. At the same time, you have enough time and money to help them find new jobs and move on.

Closure framework

The decision to actually stop working on an idea can be made by answering the following questions (6):

1. Do you have any ideas for growing your startup?
2. Are you able to make this growth profitable?
3. Do you want to work on a startup that is the result of this growth?
4. Do you want to work with your co-founders on a startup that is the result of this growth?

The first two questions are quantitative and are due to the experiments that the founders constantly carry out with their products and users. Unfortunately, despite the fact that they are quantitative, there is no deterministic way to find out if you really did everything right. At some point, you will have to make a decision based on the accumulated data (7).

The second two are qualitative and present the greatest difficulties for decision making when the answer lies between "yes" and "no." For example, if you enjoy working with your co-founders in a business that provides positive cash flow, but does not grow, you probably should not close. However, if you hate people you work with in a fast-growing business, you must either close it or find a way to continue working without a team.

back side

I was terrified at the thought of closing my company, although everything indicated that this was the right decision (8). What scared me most was that I had no idea what would happen next. However, I realized that I have exactly one life, and it was silly to remain in a difficult situation because of fear.

After talking with many of the founders who went through a similar situation, I learned that most of them were incredibly suppressed within a few months after the close of their start-ups. After a while things started to get better. It may be hard to believe, but closing removes so much tension and removes so many burdensome expectations, which allows you to create new creative ideas and approaches. This is a necessary part of the startup cycle, to which the founders should approach more clearly and rigorously.

Notes

1. Throughout this essay, I use the word “shut down” (shut down) interchangeably for ideas and companies. The meaning differs only slightly.
2. Unexpectedly ended money, often as a result of unsuccessful fundraising, can force the founder to close.
3. Incompetence is unpleasant, but it would be strange to believe that you will be competent in all areas necessary to create a company from the first or even the tenth attempt.
4. I am sure that this list is not exhaustive.
5. In this case, the closure is inevitable anyway, but the process should be longer, you have to be in touch and make maximum efforts to find alternatives.
6. I could also make the opposite statement. The decision to work on a startup should be reduced to the fact that the answer to all these questions: "Yes."
7. It is important to make sure that you really tried many ways. Founders often stop working too early on an idea that takes longer.
8. Answers to questions 2, 3, and 4 were “no,” although me, Ryan, and Josh like each other as humans.