What happens when your startup fails?

20% of small businesses fail in their first year, 30% in their second, and 50% are gone after five. As one who has experienced a lost startup, trust me when I say this: it hurts like you can’t imagine. But it’s also something entrepreneurs don’t plan for. When you’re swept up in it (and you likely will be) it’s a critical growth juncture in your life, but only if you fail the right way.

The entrepreneurial explosion is here, but this also means epic failure is around the corner. Just this week alone, one entrepreneur asked me about my own failure experience as he struggles to keep his business afloat, and the co-founder of a funded startup told me he just broke the news to his staff they’re going under.

What to do when your startup fails

When you’re looking down the barrel of startup failure, it seems like you begin to question everything, even your own sanity. You had convinced yourself you’d be successful and knew precisely how to make things work. But you were wrong. What else are you wrong about? Do you actually have any real knowledge or skill to contribute to another company? Will they hire you? Here are a few tidbits I learned from my own failure experience.

You Need To Grieve.

Losing a startup, at least for me, was traumatic. I lost my revenue stream, which was scary. But I also lost my passion project and what I thought was my dream. While it’s vital to know you’re going to be way stronger when your startup fails, it’s also important to take the time to fully grieve the loss. I didn’t get therapy when my startup failed, and that was stupid.

To this day, I have permanent mental damage and I firmly believe I’d have avoided some serious trauma if I’d found a therapist. Not to mention the burden on my wife would have been lighter. She put up with a lot. Please learn from my failure. Get help. Dr. Scott Barry Kaufman, of the Psychology Podcast, recommends Better Help. (Not a paid ad.)

Write Down Why You Failed

Don’t tuck away your failure. Fully confront it, and ask yourself why it happened. Failure is fuel, capable of propelling you to greater success, but if you ignore it you can’t learn critical lessons from it. I learned way more from my failure than from my successes. You can too, but only if you write it down. Here’s why.

It turns out, we are really crappy at remembering trauma in our lives. Seriously, just check out this recent episode of Build for Tomorrow on Covid Nostalagia. We’re also crappy at remembering things we don’t write down according to Dr. Bill Klemm. Because failure provides such a data-rich learning experience, write it down no matter how uncomfortable.

Look Deeper At Your Identity.

I believed my identity was being a successful entrepreneur. After all, I was featured in The Wall Street Journal. Not only would my failure invalidate all my previous meetings, pitches, and talks, but I figured no one would listen to my advice on being a successful entrepreneur in the future. I was so wrong. The reality is that successful entrepreneurs are experts at failure. Sadly, many entrepreneurs forget or hide their failure—causing you to feel alone.

Later, I learned that hyper-successful people have an intimately close relationship with failure. When they see another entrepreneur fail, the only thing that turns them off is when that entrepreneur doesn’t own their failure and denies it happened. When your startup fails, it’s a beautiful right of passage, and many entrepreneurs find non-failures suspect.

Don’t Question Your Sanity

You probably convinced yourself your startup was the exception to the rule. You wouldn’t fail because of XYZ. Now, you’ve discovered you were wrong. This may lead you to ask yourself, what else were you wrong about? When your startup fails, do you have any skills worth applying elsewhere? Were you a fraud this entire time?

Just because you were wrong about your startup, means nothing. Even the brightest people are wrong, and heck you may not even have been wrong. The better idea and better startup fail all the time for various reasons. Consider Chemex, originally invented in the 40s, never saw commercial success until recently when Intellgensia’s CEO Doug Zell in 2010. (I’m stunned the company limped along for so long.)

Know Your Future Is Strong

Getting back into the workforce is somewhat straightforward if you fail under 2 years, according to Gustavo Manso’s research at the University of California, Berkeley. But what of the entrepreneurs over that time period? While it may be challenging for them to re-enter the workforce due to HR’s fear of entrepreneurs, (been there) entrepreneurs tend to make more money over their careers, than people who haven’t worked for themselves. According to the data, when your startup fails, you may actually make more money than your entrepreneurial endeavors.

Tell Others

When you have the stomach for it, you absolutely should tell others. Failure hypocrisy is toxic and causes other entrepreneurs to feel alone. In my informal poll, 40% of entrepreneurs lie and polish turds and misrepresent their own success. The fear, sadness, or anxiety entrepreneurs feel is partially because failure isn’t openly discussed. Don’t be a part of the problem.

Other entreprenurial failure advice?

This post will evolve over time as I go over my failure notes, and as I hear from other failed entrepreneurs. If you’re a failed entrepreneur, let me know what else needs to be included and sign up to get updates. I’d love to meet you.


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