For startup founders, shutting down a failed company is a common, if deeply unwelcome, experience (if it hasn’t happened to you yet, you’re either incredibly lucky – or watch out!). Much as we try to put a positive spin on failure by emphasising the resilience it teaches and lessons learned, it’s still a tremendously trying process which is also deeply specific. No one who hasn’t watched their own company crash and burn can fully understand the emotional and psychological strain it creates. 

Shutting down a venture at any stage is difficult, but at least in the early stages it should be comforting to know a company’s failure is relatively low-impact. You and a few collaborators have built a product or written some code. You’ve ploughed in your own time and resources, and may even have picked up users and customers. Calling it quits will no doubt be painful, but at least the only person you’re making redundant is yourself.

The complexity of shutting down a later-stage startup or spinout is orders of magnitude higher. It’s not simply pulling the plug on something you built in your garage, but rescinding job offers and telling your suppliers you won’t be working with them anymore. It’s deciding how to communicate this to existing staff, and potentially going through the agonising process of delaying the worst by making staff cuts.

Many will no doubt feel that in this situation, the bulk of their sympathy should lie with team members who suddenly find themselves without a job, and not with the CEO who has to break the upsetting news to them. This is undoubtedly correct. Leaders who try to invite sympathy for themselves are usually criticised, and fairly so. However, it also overlooks the disorientation and whiplash that leaders live with as they make the switch from relentless optimism to desperately trying to slow a sudden and terrifying descent. 

The most challenging aspect of this is what I think of as a timeline mismatch. By the time a CEO shares the news a company might not make it, they will have known serious trouble could be ahead for at least 5-6 months. During this time, they will have scrambled to secure the funding necessary to continue. They will have entertained, and possibly executed, a series of increasingly long-shot attempts to gain that support. Despite their best efforts, it won’t have worked – but none of this can be shared with employees until the end is nigh, because nothing closes the lid on the coffin quite like losing the confidence of your team and having them jump ship. 

There isn’t a quick fix to the sense of disappointment and betrayal your team will feel when they finally learn the company is going under. After all, these people came onboard because they believed in the vision you sold them – and now you’re admitting it hasn’t worked. This creates a terrible sense of having let people down which those who haven’t had to pull the plug on a startup may struggle to understand.

Of course, it’s my sincere hope that no one reading this will ever have to go through this wrenching process. But, by way of closing, here are three things I learned the hard way, and some suggestions for how you can better handle it than me:

1) Even if you’re not able to fully share the bigger picture with your team, or share how big the risks are, it’s important to find a way to acknowledge that your team’s fears and worries are real. The worst thing you can do when they are feeling fearful about the future is to try to gaslight them into thinking they have nothing to worry about. They will hold this against you when the whole truth comes out. 

2) Everyone should have someone or somewhere they can go to for straight talk. Even if you can’t disclose the complete situation, team members need to be able to vent. People need to be able to say that they are angry, they are scared, they’re frustrated, they’re confused. As the situation develops, this needs to be given an open forum to depressurise rather than allowed to explode.

3) Leaders also need to be able to acknowledge when they are struggling and need advice. This can be quite difficult, as many entrepreneurs are ambitious people with a god-like sense of their own capabilities and destiny. Far from undermining confidence in your leadership, however, being upfront about the fact that you also need help sometimes will reassure your team that you understand your own limitations and are seeking out the extra support you need.