How to shut down a startup

Source |  | Dr Aniruddha Malpani, Angel Investor. Malpani Ventures. Funding frugal innovation in India.

There is a lot of excitement when you start up your start up , and there are lots of books which will tell you how to go about this process. You will find lots of advisors, mentors and coaches, who will tell you how to incorporate your company; get funding; set up your office; hire a team; and start marketing your product. These are heady and exciting times, and the adrenaline rush will keep you charged up and enthusiastic.

Unfortunately, there is very little information on how to shut down a startup. Even though most startups will shut down, this is one of those areas which no one wants to talk about. This is because the topic is so emotionally charged. Shutting down a startup is like attending a funeral of a loved one , because it is a kind of death – the death of your hope and your dreams. Death has always been a taboo topic – whether it’s a human death or that of a company, and it’s not something we like discussing.

The grief of shutting down

The truth is that when you encounter death, you have to go through a grieving process , so that you can emerge stronger on the other side. It helps to know what the stages of grief are, so you are better prepared to deal with this rough patch. The problem is that the process is often shrouded in mystery. Most entrepreneurs aren’t very willing to talk about how they went about shutting down their startup. Startup conferences are happy to highlight the success stories – even though these are in the minority. It’s true that these conferences are designed to inspire and motivate entrepreneurs, but I don’t think glossing over the truth helps anyone.

You need to start by acknowledging the emotional difficulty of accepting the fact that your startup is going to have to shut down. This could be for any number of reasons, and a lot of these maybe out of your control, but you do need to confront reality, no matter how bitter it may be. Please learn to be kind to yourself during this time of emotional upheaval – there’s no point in beating yourself up .

Once you accept the fact that your startup is not going anywhere, you can take steps to wind down in an organised fashion. Otherwise you will continue to force your startup to survive in a zombie mode. This will waste a lot of your time , and this could have been better devoted to shutting it down cleanly , and then starting on a new venture – or perhaps starting a job. It’s always tempting to believe that a potential big deal or a promised financing could turn things around, but false hope can be cruel . Keeping a dying patient alive on a ventilator is not an act of kindness.

All the experience you have gained while running your startup will actually be invaluable for the next company you work for – whether it’s your own , or a large corporate. It’s important to follow a process so you don’t leave behind legal liabilities which will come back to haunt you later. Generally, there are two ways this situation can turn out. You can handle failure with grace, or you can mess it up by running away . It’s abandoning the sinking ship which would actually be the final betrayal, and this will cause the most damage to your personal and professional reputation.

Professional advice

Please consult your lawyer to make sure you comply with all the formalities. An experienced lawyer will have done this before and will be able to guide you properly, to make sure you don’t leave any loose ends.

For winding up the business, you need to inform all the shareholders and take their approval. After that you also should inform all your vendors and terminate the contracts. Helping vendors to sell to find other companies who are in similar business is a good step, as it ensures that your relationship doesn’t completely end on a sore note. Who knows you may need their recommendation and network when you run your next business. All the liabilities should be cleared and dues should be paid to all the shareholders on the basis of hierarchy. Please consult your lawyer to make sure you comply with all the formalities. An experienced lawyer will have done this before and will be able to guide you properly, to make sure you don’t leave any loose ends.

The Government of India is also trying to reduce the winding up process for a startup. A new set of rules have been declared – the namely Companies (Removal of names from the register of Companies) Rules, 2016,which describes . This entails the process of striking off the name of a business from the Rregistrar of Ccompanies.


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