Nesheim Online Blog

STARTUP SHUTDOWN: Use Bankruptcy to Buy Time: Part 3 of a Series

As difficult and just basically sad is a shutdown, there are ways to not make it worse.  Below are listed some suggestions that may be helpful.  My hope for you during the process of shutting down Is that you carry away suggestions contributing to your future.  You will have a future and one of the purposes for this book is for you to have a personal plan bringing hope and reestablished confidence.

Use Bankruptcy to Buy Time

You can buy time, not shut down, if you move your company into the legal status of bankruptcy.

In the US and other countries, there is a system of legal rules and procedures with judges that offer struggling businesses an opportunity to step inside a safe room that no one else can enter.

The intent is to give the company’s leaders time to figure out a plan that will enable the business to survive. While in bankruptcy, you’ll be allowed to stop paying creditors (such as suppliers, banks, landlord and contractors), and they cannot take legal action to force you to pay them. I’ve seen several startup leaders make the necessary changes to their businesses and emerge to fight another day.

Here are some of the important things to know about using bankruptcy effectively.

• You’ll need a good bankruptcy lawyer. Your corporate attorney will make a recommendation and introduction. These are specialists and will enable you to make the most of the time that you are given to proceed to a point of restarting the business in a healthy financial condition.
• You’ll need cash to pay the bankruptcy lawyer. Be prepared, plan ahead so you have the cash on hand you’ll need.
• You’ll need a prepared plan so you can operate the business in some form during bankruptcy. Get started, document your plan. Prepare details such as names of people for your layoff or furlough. Include steps to communicate with suppliers, contractors and landlords that you’ll stop paying for a while.
• Get ready to negotiate with all stakeholders. You need to “cut a deal” with creditors, investors, suppliers, contractors and employees. It’s in the best interests of everyone to compromise. They all will benefit from your business returning to healthy operation once again. I’ve found this is a process that takes time and is very stressful for first-timers. Get advice from your attorney. Ask board members with negotiating experience.
• Start soon. Most first-timers wait until it’s too late to make the most of bankruptcy. Your objective is to buy time, enough to work out what needs to be done with the remaining cash on hand.

Hang in there, it’s not the end of the world, it just feels that way.

I wish you The Best on your Adventure!

JOHN

STARTUP SHUTDOWN: Good Actions to Take: 2 of a Series

As difficult and just basically sad is a shutdown, there are ways to not make it worse.  Below are listed some suggestions that may be helpful.  My hope for you during the process of shutting down Is that you carry away suggestions contributing to your future.  You will have a future and one of the purposes for this book is for you to have a personal plan bringing hope and reestablished confidence.

Good Shutdown Actions to Take

I’ve got a list of the important actions you can take to make a good outcome of ending your dreams for a building a great startup.

These are from those used by startup veterans whom I’ve worked with and who made a positive outcome from shutting down their startups.

• Be realistic. When growth is not happening, when competitors are racing faster and faster ahead of you, when your product is a dud, when employees and your board of directors say it’s time to stop, accept it. It’s time to stop.
• Stop. You probably have already done a layoff and seen it did not stop the problems. You ‘ve run out of fresh ideas to salvage the business plan. Key employees are leaving, others are sitting close to the exits.
• Be decisive. Stop all of it. End the on-going agony. Close the doors swiftly after you’ve made your decision. Insanity is repeating the same thing over and over, expecting a change.
• Warn your stakeholders. Give them time to prepare. They want to know when the end is coming. They need time to start changing their lives. Employees will remember you. And customers. And suppliers. And investors. When it’s over, you will want them to say that you treated them well under difficult circumstances. They will be your references for the future, for your next move in your career.
• Reserve cash for shutdown. You will need to pay for legal expenses to end the business. You may have legal obligations for paying employees for sick leave and other labor related requirements. You’ll need an HR expert to help you sort your way through the labor laws of your state and country.
• Keep your lawyer in the loop. Your lawyer should not be surprised at your decision. As the bad days accumulate, keep your counselor clearly informed, well before you decide to stop the business.
• Listen to your board of directors. The investors will provide wisdom and perspective for you. Fighting with them is a waste time and energy.
• Plan to sell the company and assets. For one dollar or more, someone will be eager to purchase your corporation or some of its assets: technology, brand, something. I’ve had giant corporations eager to hire a handful of engineers and a couple of product marketing people. You should be putting a dollar valuation on the entire business every month, in good or bad times. That will prepare you for setting a realistic price for its sale or assets.
• Get expert help early when planning to sell your business. Your lawyer and board of directors will know the private firms who specialize in sales of startups. Those firms will swiftly prepare documents and story to tell to potential buyers. They need time to prepare well. I’ve had some startups call in such firms two years before the end was in sight.
• Encourage without being co-dependent. Set a constructive behavioral example. Support your employees without behaving as a troubled co-dependent. You are not responsible for their lives, they are. They will appreciate assistance from you, where and how you can, especially giving them the early warning noted above.
• Have your escape plan ready. Don’t surprise yourself. Years before you reach the time-to-stop day, your personal plan for returning to normal life should be ready, documented, and shared with your support group. Every soldier has prepared an escape route in case the battle does not go well.
• Stay close to your support group. As discussed in this book, your emotions and well-being are going to be hit hard during the process of ending your startup dream. This is not time to try to be a tough hero. It is time to be a human being going through a very difficult process in life. Talk to people you trust about how you are feeling.

Plan on taking time off after it’s over. You will be subject to depression and escape modes that can be dangerous. That will not be the best time to launch your next startup idea because your brain will be focused on processing so many other thoughts and concerns.

Therapists experienced with startups warn founders and startup leaders about what can go wrong during the post-shutdown of a startup. There are ways to make it very positive. One grizzled veteran told me “After the shutdown, it’s very important for the leaders to pause and reflect with people they trust. One tool I recommend is starting a personal journal to document what the person has gone through. That has proven to be a positive help in recovery. And who knows, it might be a source of what becomes a book to publish later. It can be filled with “Next time, I’ll never again do that, and I’ll always do this.”

In my blog tomorrow, I'll help you think about a plan that can give you time to avoid a shutdown.

"Use Bankruptcy to Buy Time"

Hang in there, it's not the end of the world -- it just feels that way!

I wish you The Best on your Adventure!

JOHN

 

STARTUP SHUTDOWN: If You Must Stop The Business: 1 of a Series

As difficult and just basically sad is a shutdown, there are ways to not make it worse.  Below are listed some suggestions that may be helpful.  My hope for you during the process of shutting down Is that you carry away suggestions contributing to your future.  You will have a future and one of the purposes for this book is for you to have a personal plan bringing hope and reestablished confidence.

SHUTDOWN

Sometimes the dragon wins. The knight in shining armor ends up as lunch. His enemies cheer, family and friends weep.

After a while, life goes on. A shutdown may be a constructive opportunity for you. You might decide to change careers, go back to school, work for a paycheck and a big company and so on.  Experiencing bad or good helps us make decisions for future life.  

That may sound harsh and negative, but it’s reality: most new enterprises close their doors within three to five years. The records show that around 85 percent of venture backed startups shut down. The chances are high that your fledging business is going to stop and your dreams with it.

In spite of the odds against success, there is nothing wrong with trying to be an entrepreneur and “having a go at it.” You can learn from what your predecessors have experienced and get prepared for the inevitable encounters you are going to run into along the startup trail.

When prepared, you’ll boost your odds of not being part of the bunch that closes its doors. And if you are ready to fight your inner personal challenges that will accompany life-threating battles to save your business, then you have a super chance to emerge personally stronger and able to manage the most violent of encounters that could seriously damage your soul, truly a better person. Even if the business ends.

If You Must Stop the Business

There are things you can do to be successful when stopping a startup.

Those are business things that must be done, things that have to be done.

There will be emotional consequences to everyone.

Everyone will feel intense, negative emotions, no one will be immune. Leaders will feel very exposed, responsible. I’ve listened to founder CEOs express how bad they feel, knowing employees are going to be struggling to pay the mortgage or rent. Battle-scared , veterans will tell first-timers they have to overcome those powerful personal forces and get on with ending the startup.

During the shutdown process, your best business friend will be your attorney. He’ll keep you legal, and knows how to avoid being taken advantage of by other corporations or people. Stay close to him.

In my blog tomorrow, I'll help you prepare your shutdown plan:

"Good Shutdown Actions to Take"

Hang in there, it's not the end of the world -- it just feels that way!

I wish you The Best on your Adventure!

JOHN