Ask YC: Story for Forbes - What really happens when your startup fails?

45 points by wschroter 17 years ago | 18 comments

The last few inquiries I did on HN for Forbes stories had great results. Would love to hear from you guys on this one...

I'm writing a story for Forbes about what really happens when your startup company fails. I need to hear from entrepreneurs who have had failing startup companies with an honest explanation of how they were affected financially and emotionally.

The story looks to explore the difference between what potential entrepreneurs expect to go wrong and what really happens. This isn't a postmortem on why your startup failed - it's a short summary of what was lost in the process and how you dealt with that loss.

Some basic questions -

- How did you expect the first few years of your startup company to go?

- What did you risk to launch your startup?

- What do you felt you lost when your startup company failed?

- How did you recoup from this loss?

- What advice would you give aspiring entrepreneurs launching their own startups?

Please respond to - wschroter <at yahoo

About the Author

Wil Schroter is a serial entrepreneur and startup columnist. His columns appear in Forbes and are syndicated in newspapers nationally through American City Business Journals.

j2d2 17 years ago |

Please post a link when this article is finished.

dennykmiu 17 years ago |

Wil - Recovery from failure is the most important survival skill for an entrepreneur. I tried to summarize my own experience in the following. It is really tough but it must be done. Hope it helps.

http://www.lovemytool.com/blog/2007/10/riding-a-bike.html

Alex3917 17 years ago |

A few years ago I heard a great lecture on this topic given by John Nesheim. He was talking about how three times he's stood next to entrepreneurs while they were on the phone calling their parents to tell them that they'd just lost the family's retirement savings. He might have a couple of good stories if you were to contact him.

Brushfire 17 years ago |

In my case, this has just happened (about 8 months ago).

I'll add some bullet points: - I'm still in good spirits and not destitute.

- Out of the last 5 employees, the majority are still friends, including my partner in the venture. This seems to be rare to me, but perhaps not.

- I am in a significant amount of personal debt. We did a few personal guaranteed items from the LLC, and now I'm stuck with paying them, including corporate credit card debt. The debt occurred when we were being a little irrational about survival in the last 6 months. It was easy to do because we were being led on a little by a big client. Overall, this debt is going to keep me poor for a while and limits my new startup options some (but not a lot).

- The money invested by my family, friend, and contacts is now completely lost. Software startups really have very few assets worth a damn afterwards. I think most of them are OK with it, but they aren't happy with it, and likely wont loan/invest money again anytime soon. In other words, most of my potential startup cash pool has dried up for future startups.

- I have an immense knowledge now of what it takes to make a business, a software project, a success, and some huge pitfalls that we hit that we can avoid next time. Hiring pitfalls are the most costly and damaging, especially when they are programmers. Good programmers, on the other hand, can basically save a company almost single handedly. We had one of each; unfortunately the good came too late.

- Immediately after we closed, I was terribly unmotivated to do anything. Partly I think this comes with being burned out. I wouldn't call it depression, but it wasn't far from that. I drank too much, and really didnt do much except sometimes try to find a job and watch movies. Luckily I had some investments that I sold that could sort of pay for my worthlessness during this time.

- Slowly I came out of that pseudo-depression, and I am now collecting my ideas, plans for a new startup. This time I'm taking things a little slower. I know I will hire employees a lot later, and look for investment a lot later. That means the business will take longer to get running and gain traction, and will be a side-project to my job for longer, but I don't have much choice monetarily. I think it will benefit me in the end.

- I wouldn't trade my experience for debt reduction -- What I went through was kind of a form of an MBA crash course, and I think the experience will be highly valuable in the future.

Hope this helps.

wschroter 17 years ago | |

This is great - can you drop me an email at wschroter at yahoo so I can follow-up?

altay 17 years ago |

When you're spending most of your waking hours on a startup, your personal identity gets completely intertwined with your company's identity. So I think the the most important part of recovery is to separate those things. The goal is to internalize the distinction between "My company failed" and "I am a failure."

Two things helped me reach this point after my first company fell apart. First, I taught myself how to program. (I wasn't a hacker at the time.) No new skill has made me feel more empowered. Second, I got a job with a big company, where I was surrounded by a lot of people who -- to be totally frank -- weren't as ambitious or capable as I was. That experience was also very empowering. I saw my strengths, whereas before I'd been dwelling on my weaknesses.

I only lasted about a month at the big company before I got my mojo back and thought, "screw this, time for another startup." =P

wschroter 17 years ago |

I've read a whole bunch of postmortems on TC and FoundRead that were great case studies on the biz side, but I wanted to get more info about how the entreps personally dealt with the companies. My experience is that failure is never nearly as bad as you would think, but I would imagine others have had very different experiences.

swivelmaster 17 years ago |

I was involved in a very small startup. There were three of us, and we didn't release anything. What happened was that my cofounders decided that they would have rather had someone else on the team than me because I didn't code (at the time) and can be occasionally difficult to work with. Several months later both of them, after failing to find another third person for the venture, called it quits.

So the whole thing, which was based on my idea from the start, failed. This was in mid-January.

The way it happened, however, gave me a great deal of what I would call "negative inspiration." When I first got the news that I was off the team, I spent a weekend away to relax and collect my thoughts. When I got back, I went to the library and checked out books on programming, called and emailed several contacts who I had talked about working with before, and got to work. I learned PHP and started writing a Facebook app, talked with the CEO of a video game art outsourcing company about working on a spinoff project, and talked with some young founders I had met along the way about joining their teams.

It's a great way to harness energy (though I wouldn't recommend the way it happened to anyone): I ended up in a state of "Oh yeah? I can't program? We'll see about that!" and had a working prototype of a Facebook app coded from scratch within two weekends (no fancy frameworks, which I now know is a stupid idea but I wanted to do it more to learn the language). I worked my ass off on the other fronts for several weeks, spinning plates left and right, while taking extra work at my freelance/contract 'day job' running A/V at meetings in the corporate penthouse of a very large company.

There was a bit of panic because I had expected some compensation for my first startup which never arrived, so I had to borrow a bit of money - about a month of living expenses.

About a month later, I started at my current job, which I love. I've learned new skills on the job as well as sharpening old ones - as employee number 2 at a startup, I can pick up tasks that interest me. I'm now coding in Actionscript 3, RoR, and occasionally Java (with a few tiny bits of PHP and Javascript here and there).

So it all worked out in the end. Though I'm disappointed that my original idea and company didn't work out, I realize that it wouldn't have worked out between the other members of the team and me anyway, even if I knew how to code and wasn't occasionally a jerk about things. In that respect, I'm glad I was out when I was and not later, because I would have been wasting my time.

(edited for grammar. COMMAS!)

j2d2 17 years ago |

I find the acceptance of failure quite interesting. I'm curious if people are more likely to abandon a venture because they want to handle failure properly and positively.

echan00 17 years ago |

I just wrote a blog post about my "failed startup"...

http://airik.blogspot.com/2008/06/where-you-want-to-be.html

It didn't work out from a business point of view, but it was probably the best experience of my entire life. And in that sense, I feel like I succeeded. Frankly, I'm quite proud of it.

jdunck 17 years ago |

What news regarding the story?

Link?

RobertL 17 years ago |

When all else fails you have to go look for a job.

I never really got emotional about failed startups. I just took the code and the experience and used it as much as possible when I went on to the next project.

This is one of the neat things about software development. When you are the coder you own the code regardless of any agreements that were signed. They can "sequester" the actual code on the hard drive. That's fine, but they can't sequester what's in your head.

If your startup is an internet business or a software product then the worst case scenario is that you will have a lot of code and a lot of knowledge for jump starting your next startup.

andresvi 17 years ago |

Dude.... Wil Schroter... right now, when economy is down pretty much everywhere around the world, is it really a good time to write a story about why startups are failing? You should write about reasons why people should start their own companies not vice versa! Don't you get it man? What's the point of helping people to do worse? Screw your boss if he/she is behind it... start your own Forbes magazine!

wschroter 17 years ago | |

It's not about why startups are failing - it's about understanding exactly what happens to you personally when they do. When I talk to a lot of people about starting a company, they tend to be freaked out about "losing everything". I try to explain to them that it's rarely as bad as they think (the downside). Everyone I know that's "failed" has recovered in some way. But my data set is limited, so I'm reaching out to get other's viewpoints.

menloparkbum 17 years ago | | |

I lost $30,000 of my own money when my startup failed back in the day. It kind of sucked.

I could have used that money to get a master's degree, or put a down payment on a house.

I didn't have to live on the street and go to soup kitchens, but startup failure did set me back about 5 years economically. I had to work at jobs I did not particularly enjoy, and live in shitty shared roommate situations for longer than I would have liked in order to get out of debt.

If I had simply taken the job I was offered at Google way back when instead of trying to do my own startup, I'd be as rich as Marissa Meyer right now.

So yeah it isn't that bad and you do recover but it isn't the greatest experience.

jamongkad 17 years ago | |

OTOH I appreciate what Wil is doing, have you every heard of the Stockdale Paradox? You might want to give it a quick read but here's a snippet for you just to give you an idea

"This is a very important lesson. You must never confuse faith that you will prevail in the end -- which you can never afford to lose -- with the discipline to confront the most brutal facts of your current reality, whatever they might be." The Stockdale Paradox, coined by Jim Collins in Good to Great (Collins, 2001).

nuff said.

SwellJoe 17 years ago | |

I think you're over-reacting. There's nothing wrong with talking about the impact of a failed venture...in my experience, it's usually less damaging to ones ego and lifestyle than losing a regular job. Though my experience may be non-representative.

Nonetheless, most grownups understand that things don't always work out, and that it's not sufficient reason not to pursue ones dreams.