The Rules To Follow When Winding Up A Venture
No one invests in a venture expecting it to fail. If that time comes, there are two sets of rules to follow when winding it up.
Winding up a venture is awful.
It’s one thing to make a public announcement that things didn’t work out as planned. It’s quite another to finalise the decision.
There is an assumption amongst the uninitiated that ‘winding up’ happens in the same way that you close an online account. There are times I wished it was that simple.
A painful reality of entrepreneurship is that winding up happens multiple times during a company building career.
This month my previous venture, AirShr, will be finalised. Although I’ve been here before, it’s still a bittersweet experience.
Events like this remind me that we achieved the incredible but for all the blood, sweat and tears, we couldn’t stay in market long enough to achieve the extraordinary.
And while lessons and experience are carried forward, the reality is that people invested time, opportunity cost and hard-earned, post-tax money to pursue a vision.
Founders, team members, investors and followers of failed ventures process the outcome differently. Some act dispassionately and it’s understandable why others don’t.
Falling short of expectations and having little to show for the effort is hard, sad and disappointing even when everyone claims they understand the risk at the start.
Own it because it won’t be the last time
If you’re a maker, someone who loves finding another way and creating a new order, you will launch another venture. And the one factor that will precede that venture and everyone after that is reputation.
As I’ve written about before, reputations are built on the interactions people have over time. Reputations are easy to maintain when partnerships, product and traction is developing BUT they are made or broken in times of stress and ambiguity. Making the call to wind up a venture and face the music is one of those times.
There are two sets of rules to follow when winding up a venture
The first set of rules are well-established and take place every day. Lawyers and accountants shepherd founders through these standard rules and for the most part they are black and white.
The second set of rules aren’t as straightforward.
When shareholders come together one final time to write-off their investment, they will look forward (and expect) to close this chapter of the relationship in the same way it began, with respect, candour and courage.
But there was a time when I struggled with the obviousness of this statement. When I wound up my first venture I was still grieving its loss. I had played an exclusive role in its failure and I didn’t think my investors and I would cross paths again.
Hindsight proved that to be short-term thinking.
In fact, there’s an excellent chance that somewhere down the road you will interact again with co-founders, team members and investors. You won’t know how this will play out until it does but one thing is certain. It will only happen if your reputation, and by extension the relationship, is intact, no matter how big the hit was to your ego or self-confidence when you initially parted ways.
With this in mind, here are the second set of rules.
1. Fight to preserve relationships
This should be the opening gambit for anyone involved in the venture. You engaged with them in the first place for good reason. The relationship may have changed but you don’t know what the future holds. At worst, you part ways amicably. The best case scenario is you realise there’s value to be had in partnering again in the future and at some point you make it happen!
It might not be realistic to save every relationship but that’s not the point. The point is that this is a mindset as you enter a difficult situation.
2. Tell the truth, especially if it is unpalatable
The right thing to do is always the right to do. There is no point in bending the truth or embellishing even just a little. And especially not at this stage in a venture.
Just be upfront. It pays dividends.
3. Absorb disappointment but seek comfort away from the situation
Expect there to be residual frustration, disappointment or sadness at windup and for a period afterwards.
It’s human to be upset and if emotion is directed at you, it’s likely to be a byproduct of a grieving process.
4. Over communication process
Winding up a venture usually requires unanimous shareholder agreement. And while the legal and accounting processes are well established, unexpected issues can arise. So to ensure a difficult situation doesn’t deteriorate, over communicate with shareholders and provide weekly status updates as the company moves through its final stages. It will be appreciated.
5. Acknowledge the reality and stay humble
Although it may be painfully obvious during the process, remember that no one wants to wind up a company. Acknowledge the reality and remain gracious and thankful for the investments in time, money and energy that people have made. It is essential to extend these signs of respect.
Difficult events like winding up a venture expose people’s true colours. Results aside, this stage of the journey will reveal to investors if they did in fact back entrepreneurs with courage and integrity. Similarly, founders will soon understand if they accepted money from the right type of investor.
Whether you’re an investor or an entrepreneur, perhaps look into the future and imagine winding up a venture with people whom you’re about to engage. What are their true colours at that point?