Communicating a Startup Shutdown to Your Team

A Guide to Compassion and Transparency

Closing down a startup is undoubtedly one of the most challenging decisions a founder has to make. It’s not just about ending a business venture; it’s about navigating your team’s emotions, expectations, and futures — the people who believed in your vision. Here’s how to approach this delicate process with the care, respect, and honesty it deserves.

The Heart of the Matter: Communication

When the tough decision has been made, how you communicate the shutdown to your team can significantly impact their response and well-being. It’s crucial to approach this conversation with transparency, empathy, and responsibility.

1. Make a Plan: Shutting down your startup is a process, so having a plan in place is critical. This should include everything from how you’ll communicate with your employees and customers to how you’ll dispose of inventory and assets. (source)
2. Transparency is Key: Your team deserves the truth about the company’s status. By the time a shutdown becomes inevitable, there are often signs that your team has likely picked up on, such as changes in spending habits, missed targets or hiring freezes. Acknowledge their awareness and be upfront about the situation (source).
3. Respect Individual and Collective Contributions: Recognise your team’s dedication and hard work in the venture. Emphasise that the decision to shut down is not a reflection of their efforts but a response to broader challenges. There is also some accountability from you to them as colleagues — and let’s face it, in an early-stage startup, you’re almost like friends or family working together (source).
4. Prepare for the Legal Aspects: In the UK, the process is more straightforward for smaller teams (less than 20 people) than for larger layoffs (20 people or more); handling the process with a clear understanding of your legal responsibilities as an employer is essential. Also, if you are a UK-regulated company or a fintech company or have been managing money on behalf of some of your customers, you have some extremely important responsibilities in terms of an orderly wind down.
5. Be Prepared for the Emotional Impact: Winding down a business can be an emotional experience, so it’s important to be prepared for it. This may mean seeking support from family and friends or talking to a therapist about how you’re feeling (source).

Be Ahead of the Problem

Some of the best founders often think of this stage as “yes, I have to do what is needed to wind down the company legally”. But you must also ensure you get all your people on a lifeboat and to safety, even if ‘You stay with the ship’. And strangely, as they say, leaders eat last. Founders often have to think of themselves last and ensure the team is initially secure.

What does the bad version of this look like?

There are countless stories of how founders have completely messed this up.

• In fact, many people remember those companies that shut down so badly that they couldn’t even pay the last payroll.
• Or worse, inform people after they’ve missed a payroll that they’re shutting down and leave employees hanging about not sure what the future looks like. And employees become creditors in the legal process. TERRIBLE.

That is the worst thing you can do.

You need to be ahead of this problem.

Don’t wait until you have nothing left in your bank account (source). Sooner rather than later, estimate the severance payment you must put aside and start thinking about how much more time you can give your employees. Can you add a couple more weeks, maybe a month, by trying to pull the cord early?

Actions to Soften the Impact

A founder’s responsibility doesn’t end with the decision to shut down; it extends to how you support your team through the transition.

1. Early Warning: Provide as much notice as possible. Giving your team a heads-up, even when you’re still hoping for a turnaround, allows them to prepare mentally and financially for the possibility of a shutdown. (source)
2. Active Support in Job Transition: Go beyond the basic severance package. Offer to help with CVs, LinkedIn endorsements, personal recommendations, and introductions to your network. Leveraging your contacts, especially with founders who are hiring, can help your team find new opportunities more quickly.
3. Consider an Acqui-hire: If your team is cohesive and talented, they might be attractive to other startups or companies. This provides them with new roles and could bring in some funds to help cover the shutdown costs (source).
4. Product and Customer Responsibility: Work with your team to ensure a responsible wind-down of products or services. Whether transitioning customers to other providers or securely handling data deletion, these tasks are vital for maintaining integrity and trust.
5. Maintain an Open Dialogue: Encourage questions and provide a safe space for your team to voice their concerns and feelings. Honest conversations can help ease the uncertainty and fear associated with job loss.

After the Announcement

How you conclude the shutdown process can leave a lasting impression on your team.

1. Letters of Recommendation and Employment Verification: Prepare letters confirming employment dates and roles. These documents are invaluable for your team’s future job applications, especially if the company ceases to exist.
2. Narrative for the Future: Help your team frame their experience at your startup in a positive light. Discuss how to describe the lessons learned and skills gained in a way that adds value to their resumes and interviews.
3. A Proper Goodbye: If possible, formally organise a final team gathering to close the chapter. It’s a chance to express gratitude, share memories, and say goodbye in a meaningful way.
4. Stay Available for Referrals and Checks: Keep lines of communication open for future employment checks or referrals. Your support in their next steps is crucial.

Final Thoughts

Shutting down a startup is a profound challenge, marked not just by the end of a business but also by its impact on the lives of those who helped build it. You can help your team transition into their next chapters more confidently and positively by handling the process with empathy, transparency, and proactive support.

At UNWIND, we understand the weight of these moments. Remember, how you end this chapter can define the next one just as much as how you began it.