245. What To Do If Your Start-up Fails

Start-up failure is never pleasant, but did you know you can actually make more money and be more successful as a result?

In this candid, no-nonsense episode, you'll learn exactly what to do when your venture doesn't make it.

This episode is for you if you:

• Run a company
• Are thinking of starting one
• Are thinking of joining one
• Are in the midst of a startup struggle and considering options
• Are working at a startup and worried about its trajectory

You'll learn why panic is unnecessary, how your startup experience makes you uniquely qualified for lucrative jobs, and why investors often prefer founders with failure experience.  

If you want your questions to be answered on this show, email [email protected]

Timestamps

00:00 Introduction

00:56: Embracing Startup Failure

03:00 Lessons from Startup Struggles

05:51 Experience in Failure

09:06 Leveraging Failure

12:13 Building a Network and Personal Brand

15:07 Navigating the Aftermath

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Transcript

Sophia Matveeva (00:00.342)
Startup failure is never pleasant. But did you know that you can actually make more money and be more successful as a result? Listen to this episode to find out how that works.

Sophia Matveeva (00:15.821)
Tech for Techies podcast. I'm your host, tech entrepreneur, executive coach and Chicago Booth MBA, Sophia Matheo. My aim here is to help you have a great career in the digital age. In a time when even your coffee shop has an app, you simply have to speak tech. On this podcast, I share core technology concepts, help you relate them to business outcomes, and most importantly, share practical advice

on what you can do to become a digital leader today. If you want to a great career in the digital age, this podcast is for you. Hello smart people. How are you today? On a totally unrelated note, I went to see the Cirque du Soleil in London last week and it was fabulous. If you have never seen them live, I highly recommend you give them a go. And now...

I want to tell you about a treat that I have coming up for you in April for free. So I'm going to answer your questions on this very show, but obviously this means that you have to send me your questions. So if you have questions about anything that we cover on the show, like career, entrepreneurship, digital transformation, AI, business strategy in the digital age and so on, just send them to info at

techfornontechies.co. That's info at techfornontechies.co. And I won't read your full name out when I answer your question, but I'll make sure that you'll get an email with the answer so you'll know that I'm answering you and not somebody else. And then that way your anonymity can also be protected. So once again, email your questions to info at techfornontechies.co.

And this is also in the show notes and I genuinely cannot wait to hear from you. Okay. And now we have a topic. We have a serious topic today. We're going to cover what to do if your startup fails and who should listen to this? Well, obviously if you run a company, you should listen to this. You should listen to this if you are thinking of starting a company, because I often see people get really freaked out when they're starting companies. And in my view, they don't need to be that freaked out.

Sophia Matveeva (02:34.25)
Also, if you're in the midst of startup struggle and you're considering your options, this will help you because this is basically going to show you that actually you have a lot of options and so you can stop freaking out. And also if you're working in a startup and you're worried about its trajectory, this is really useful for you. So for people, also this is useful for people who are considering joining a startup at a senior level.

because at a senior level, these lessons are going to apply. So if you're thinking of joining a startup at a very junior level, this is not going to be as applicable. But if you're thinking of starting a company or joining at a senior level, then this is going to be useful. OK, so let's begin with lesson one about what to do if your startup fails. Number one, do not panic. Startup failure is common. It is not catastrophic.

90 % of startups fail. Lots of very successful companies were founded by people whose first startups failed, like Reid Hoffman, who co-founded LinkedIn and sold it for I think $26 billion. So don't worry about it. You are in good company. Number one is get your financial affairs in order. And if you possibly can avoid personal bankruptcy. if

I've had to shut down my first company. It wasn't pleasant, but that actually didn't have impact on personal bankruptcy. didn't have to do that. And really, really, if you are running a company, make sure to keep your finances as separate from the company as possible. And I know that can be difficult because, you know, as founders, we often end up paying for things ourselves, but basically avoid personal bankruptcy. Of course you can recover from it, but shutting down your company, that's

basically enough of a big deal that you don't need to add another thing to that. Okay. Now remember that the skills that you have gained cannot be taught in any MBA program if you have been at a senior level of a startup. Because when you run a company, you have to be decent at lots of things. Not great, but decent. So you have to be decent at accounting. You have to be decent at managing people. You have to be decent at hiring.

Sophia Matveeva (04:53.56)
product management, at investor relations, at media relations and so on. Also, you have to know enough about the technology that your team is creating to be able to sell the vision, to be able to sell the product to your customers, to your investors and so on. so what I've just told you about, this is a huge broad range of knowledge and you can only get this knowledge experientially. You can't just study it. And I've done both. I've done an MBA and I've run a startup.

And I've learned so much more from running the startup and podcasts like mine and courses like mine, they definitely help. So I really recommend to founders and to people in founding teams that you learn as much as you can from experts, but you can't just sit there and learn from other people and not apply. You really, really learn these lessons through applications. So remember that your failure story can become a

powerful differentiator when framed correctly, whether you're starting a company, which is what we're going to cover, or whether you're going to get a corporate job and we're going to cover that too. And you know, just on a human level, isn't it better to start something and fail than to never try anything at all? Like, don't you want an interesting life? And remember, there's a significant difference between business failure and personal failure.

because the real failure would be not trying anything at all and then also not learning anything from what you've tried. And if you have been in a startup right from the start to the end, you have seen the full life cycle of a business and most people never do that. And frankly, if you've seen the full life cycle of a business, you've had a truly unique experience that most people never get to have. Okay, so.

Here is some more good news if your startup fails. You're actually in a very good position for highly lucrative jobs. And two jobs that I'm thinking of right now where they really, really love startup founders are, venture capital and product management. So let's begin with product management. I have heard senior product managers at Facebook say that we prefer hiring people

Sophia Matveeva (07:13.524)
who have had experience of creating a product, of building a product and shipping a product, we prefer those people, and even if their startup fails, we prefer those people than to somebody who has an MBA from Harvard and has worked at McKinsey and has taken a product management course. Literally, I've heard this from these people. And you know what? If I were them, I would much prefer somebody who has done the job.

and learned on the job than somebody who's basically just created a bunch of PowerPoint slides. Because in product management, it's kind of like what we talked about earlier. You have to not only be focused on the customer, you also have to understand enough about the technology. You have to learn how to work with engineers. You have to know how to work with community managers. So if you have created a product, you shipped a product and you've seen how people use it and you've iterated based on their feedback, actually you have really

really valuable experience. Venture capital firms also value your first-hand experience. And as I mentioned in the last episode, I've actually heard this rumor about MBAs are starting companies to basically just run them for about three years so then they can go and become VCs with startup experience. Now, I think this is hugely unethical. don't think you should do that, but I can also see why it works, right? Because

failed startup experience is so much more valuable than basically being a banker, than being a McKinsey consultant. Because as we mentioned in my interview with Promise Fel and the venture capitalists I talked to last week, as we were talking about, you know, remember we're talking about operator venture capitalists versus finance venture capitalists. And basically if you're an operator investor, especially at the early stages, you have so much more to bring to the startups you're investing in, but also

You really understand where those underwater rocks lie and the way that people who've only done management by spreadsheet basically can't. you, as somebody who has worked at a senior level in a startup as a founder or in the senior levels, you understand customer development and product market fit from experience. You've developed rare skills in resource allocation under constraints.

Sophia Matveeva (09:32.743)
you can now speak the language of multiple business functions. You can speak tech, you can speak finance, you can speak sales. Your hiring value is in the pattern recognition that you've developed and not just in your resume. And by the way, if you're actually looking for a start, if you're looking for a job after the startup experience, you can literally just get the transcript from this and then you can use what I am saying in your interviews and in your job application. So.

Your hiring value is in the pattern recognition that you've developed, not just in your resume. You can speak the language of multiple business functions and your experience is going to be super useful to companies who are rebuilding or pivoting and they're going to really need your experience or companies that are creating new products, entering new markets. Also, whatever you are doing in the startup, you have likely developed

sales skills, regardless of your role, because you probably had to speak to customers, you probably had to speak to new hires and sales skills are going to be useful everywhere. And you have worked in ambiguity and working with ambiguity is a remarkable superpower. This is what people at the very top of companies have to do. So if you you are at the very top of a Fortune 100 company.

you are working in ambiguity. If you're middle management of that same company, you are not working in ambiguity, not at the same level. So if you've had startup experience, you actually have way more in common with the big boss at the top than you do with maybe people who are your peers, you know, in terms of age or in terms of graduation and so on. Also, frankly, you are just going to be really interesting to interview. So imagine, you know, if the

There is somebody in a big company and they are looking for a new project manager and they are speaking to all these people who've basically done exactly the same jobs at similar companies. And then you come in, you are going to be just so much more fascinating. Your answers are going to be so much more fascinating. You are going to bring so much more to the table. So you really will stand out. And also you understand the why behind business decisions, not just the how.

Sophia Matveeva (11:45.627)
So you are not just an implementer, you are also a strategist and this is C-suite level thinking. And, you know, I honestly found that after my startup experience, I've been able to connect and to understand people who are managing big companies kind of much, much more quickly than say people who graduated from business school at the same time as I did, just because my startup experience was

A massive career accelerator. So for those of you who don't know, I started my first company after I graduated from business school. So I worked in the media, then I worked in private equity in London. Then I went to Chicago booth, got my MBA there, started my first tech company and shut that down during the pandemic. Because the pandemic completely killed our use case. And then straight from that, I started Tech for Non-Techies and Tech for Non-Techies is basically going so much better.

I don't think one of the key lessons from that is there is this kind of startup tuition that has to be paid. So, if you're starting a company for the first time, it doesn't matter how old you are, there are just some similar mistakes that you're probably going to make. And this is what kind of accelerators and courses try to help you with because a lot of founders make similar mistakes. So, once you've done that, once you've paid your startup tuition, you've learned those core lessons.

starting a second company actually can be easier. And so what I've done is I started another company and this company is going much better. So what I have noticed as well is when people end their first startup journey, a lot of the time they don't dive into starting another company straight away. And frankly, a lot of the time it's because they're burnt out from the startup journey and they want to get their finances in order. So.

I've often seen that people decide, okay, I want to be an entrepreneur. I'm going to be a founder. And so they create a company and they do that for a while. And then that doesn't work out. And then they think, okay, my peers, they are working in corporates. They have savings. Maybe they have mortgages. I don't, I really need to figure that out. I need to sort that out. And so they go into the corporate world and they basically get some money. And then they carry on feeding their...

Sophia Matveeva (14:10.205)
pre-nurial drive and then eventually they start another company. So I've seen this happen over and over again. And often what I see is that when people are starting their second company, they are more confident, they are more calm and also they kind of don't have these mad stars in their eyes because they're kind of more realistic about what it's going to take and what it's going to be like. And did you know that successful founders are usually in their 40s?

So, know, Mark Zuckerberg is an outlier with his dropout credentials. So successful founders are usually people in their forties. And so if there's a startup founder in their forties and it's not their first startup, well, it makes sense, right? They probably started something in their twenties and their thirties that didn't work out. They learned from that. Maybe they worked in corporate, increased their financial capabilities, improved their network and tried again.

If you decide to start another company, you are frankly more likely to succeed on your second or even your third time around. And Silicon Valley VCs, they prefer founders with failure experience. And I find that American VCs in general, they prefer startup founders with failure experience. In Europe, that is less the case, but that is stupid because

Who has better financial returns? So frankly, who has better returns? Let's listen to the winners, right? And the winners, the people with a better return, they generally prefer people with failure experience. Okay? Second time founders also tend to raise money faster as a result because as I mentioned, your startup tuition has been paid. And so here are some things for you to think about as you're thinking, you if you're thinking of starting another company.

you already know which early warning signs to watch out for. If you don't, you know, maybe note them down. But in general, I would say that if you've gone through the startup failure experience, you kind of know what works and what doesn't. You already have a potential network of co-founders, which is going to be so much better than what you would have done at the start. And so what I noticed, for example, at the beginning, first time, early stage, non-technical founders,

Sophia Matveeva (16:34.471)
They think, my God, I need a technical co-founder. And then they just find some random person who can code and give them 50 % of their startup. And that never works out. That is never a good idea. And so if you're doing it for the second time and you've done this, then you're not going to do it again, are you? Okay. You also really know which metrics matter versus vanity metrics. So for example, in my second company, now I am...

really laser focused on customer lifetime value. I'm really focused on bringing cash in. I'm also really focused on getting invoices paid. And this is so much more important than downloads, than likes, than shares and all of this. Like that's absolutely delightful. Thank you very much, but money matters. And so I know I now am so much more focused on these metrics than frankly I used to be. And

Also, if you're going to start another company, you know how to be properly capital efficient because you've already been through that experience. You know how to basically watch the pennies. And so your understanding of unit economics is practical, not just theoretical. And you basically know what works in terms of customer acquisition, in terms of hiring and so on. And you've really developed your instincts and startup experience.

It's experience, it's experiential. This is where you develop your instincts. You cannot develop your instincts from reading a book about startups. You cannot develop your instincts from just taking a course. You have to do the thing. And here are some examples of people who have gone on to be remarkably successful after not having a great start. So Reid Hoffman, as I told you, he started a company called Social Net in 1997 and he

basically just kind of, it didn't work out, so it was kind of abandoned. And then he joined PayPal as an executive where he played a key role before it got acquired. And then he co-founded LinkedIn, which was acquired by Microsoft for 26.2 billion. Okay, not bad. Here's another example, Evan Williams, the co-founder of Twitter. He created something called Odeo, which was a podcasting platform.

Sophia Matveeva (18:52.891)
which did struggle after Apple integrated podcasting into iTunes. So, Odeo wasn't a huge failure, but basically Williams realized that it wasn't going to be viable. And so then he started working creating Twitter, which obviously worked out very, very well for him. And here's another example, a guy called Max Lefchin. He is kind of Silicon Valley nobility, and he's also one of the PayPal mafia.

And create, he created a bunch of startups. So he created something called Net Meridian software. He created Sponsor Net New Media. These didn't work. And then he created a third company and his third company called Confinity basically ended up merging with Elon Musk's x.com, which then became PayPal. So you see by the third startup, things worked out for him.

And all of these examples that I just gave you, they're all Silicon Valley people. And this is why in Silicon Valley, they see these examples and they're like, okay. Your first startup didn't work out. Your second startup didn't work out. What have you learned? What are you going to do differently as a result? Let's talk. Okay.

Whichever route you're going to go down, whether you're going to do some consulting, whether you're going to get a corporate job, whether you're going to start another company, you need to use your founder network and your personal brand because the investor relationships that you've built, they won't disappear when your company does. Your relationships with your vendors, with your partners, even with your competitors, they can be relationships that you can use for your next step.

And also remember your failure gives you permission to reach out to your network and basically ask them for help and say, I'm open to opportunities. This is what I can do. Would you like to have a conversation? And you probably built thought leadership content. If you haven't, you should be doing it. But essentially you should have established yourself as an innovator, as a digital innovator, as a digital innovator in a specific industry.

Sophia Matveeva (20:58.543)
And then that is going to be something that's going to be really, really useful as you start on your next adventure. And remember that other founders are also going to value your battle scars. So I often have founders that speak to me about, okay, so what was it like when you had to wind down a company? And it's something that people don't necessarily want to do, but it is also really, really valuable experience to share. that network and that experience and that

personal brand that you've been building as a founder, this is something that is going to pay dividends if the startup doesn't work out. And final note, your exit strategy matters. So basically how you wind down the company has an impact on your reputation. So basically try to be as sensible and as graceful as you possibly can. So if there's any capital that's unused, return it to investors.

If possible, proper handoffs and customer care during shutdown, they really, really matter. So notify people early, as early as you possibly can, because the grace with which you handle failure often determines future opportunities. So I'm actually friends with some of the people who are my last investors. I am still in touch with people who are in my company and that's a testament.

frankly to me, but also to testament to them, right? Like we went through this experience. It didn't go the way we wanted to go, but we have all learned from this experience and we still can have great relationships. But I'm going to be honest, I don't have great relationships with every single person who was involved. So I have great relationships with some, but not with all of them. Because when you're in these stressful situations, you really see who people are. And frankly,

There are some people who I've seen them in stressful situations and I think, yeah, that is a really wonderful person. That person has great moral character. I want to support them in any way I can. And then other people, I'm like, no, I have seen what you're like when things are not going your way and I don't like it. So also just remember.

Sophia Matveeva (23:17.625)
know the difference between what went wrong versus what you did wrong because sometimes we do make mistakes and we need to learn from them. But sometimes, know, when it's like pandemics or wars, that wasn't your fault unless you're really, really powerful. And so if it's something like a huge exogenous event, that's just say something you have to take on the chin and move on. So, listen, the bottom line is startups are risky. They are stressful. But if you play it right,

starting a company can be. Tails you win, heads you win. The key is focus on everything you've gained and not what you've lost and build from there. And remember, it is better to try something. It is better to give something that you're going to have a more interesting life than basically if you just carry on sitting there and thinking, what if and what if and what if. That's not going to be an interesting and fulfilling life. Okay, well, thank you very much for listening to this. Remember, if you have

questions about this episode or anything else to do with entrepreneurship, digital transformation, career, corporate innovation, AI, business strategy in the digital age, just send them to me so I can answer them in our April episode. So send them to info at techfund on techies.co and on that note, have a wonderful day and I shall be back in your delightful smart ideas next week. Ciao.