India being the third largest startup base in the world (2016 report by NASSCOM) behind the US and UK, it shows startups are thriving in India. While the idea of launching a startup is quite interesting and exciting, just ideas, passion and dedication can’t keep entrepreneurs going.
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In the real World, it is tougher than it seems to keep startups going in the right direction. Hundreds of startups shut down for various reasons, mainly due to lack of funds. Closing down a company is disheartening for the founders. Shutting down a company brings many stakeholders in the picture. An entrepreneur has to consider employees, vendors, investors, customers and financial institutions who may have lent the money. It’s important to inform them on the proposal to shut down and get their approval.
Next, an entrepreneur has to find ways to ensure that all liabilities like PF, employee dues and loans are cleared.
While all this might seem a tedious and complicated process, shutting down can be made less bitter and executed without many complications, if there’s proper planning in place. Right from the termination of services and contracts, vacating the office space and settling stakeholder’s dues, all these form part of the plan.
Another important point to be kept in mind is to be clear and frank in communicating important decisions. It is crucial to let the trust factor between you and employees remain intact even in these difficult times. Accept reality and help them too. Employee’s lives should be sorted first. Letting them know sends a clear direction to start looking out for employment elsewhere. If need be, you should not hesitate to give them a severance package.
Remember, you showed leadership when you planned and executed the launch of your start-up. Continue to be a leader in these adverse times too. This will earn you a lot respect from employees.
Stakeholders are very crucial to a business. Hence, it is important to keep them informed on your decisions. Remember, they were the ones who believed, funded and supported your startup. Therefore, even if you are only considering a closure, it is good to consult them on the best course of action.
It also shows that you still respect, trust and are loyal to them.
Do not make the decision of closure public, until you have a clear plan for winding up the business. Also, make sure you have a PR strategy and it is approved by investors, shareholders and board members.
The founder should not go through the winding up process alone. You need someone who is trustworthy and can help and guide you in these tough times. You may turn to a trusted friend, partner, lawyer, or mentor and seek the necessary assistance.
Not every plan gets executed well. Sometimes you win, while at other times you lose. Maintain the right attitude. Accept reality and walk the talk with your chin held up. Admitting failure to your investors doesn’t have much appeal, but remember that they are investors after all. They might have dealt with this situation many times before. The right attitude might earn the trust of investors.
1. Don’t seek financing:
You may be tempted to look for more financing options to keep your startup going. But if this is just speculation, don’t do it. Many a time, money won’t fix a problem. If more money is just a temporary solution, don’t go for it.
2. Save the remaining money:
Why would you want to spend all the remaining money to save a startup which is doomed? Think of ways to save whatever little is left of your money. Cut headcount and keep expenses as low as possible, so that you have some cash left in your hands.
Now that you have some money left, pay off some debts. Settling debts is crucial for peace of mind. If you do not pay your debts, creditors and vendors will knock on your door. Why let this happen and burn bridges with the people who supported you?
If the timing of going public on the winding up is not right, you can lose a significant amount of cash. Therefore it’s wise to first explore options for the sale of the startup. Getting discounted returns should also be fine. Remember, something is better than nothing!
If you go public on your failure, the value of your business will significantly decrease. Therefore, plan well before taking any action. Remember, you can always start afresh!
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