

Ask HN: What happens when your startup fails? - pilom

I keep hearing that only 10% (if that) of startups succeed, but what happens to the other 90%? What happens to you personally? Do you just start looking for a new job or do you have baggage for the rest of time?
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tptacek
When Sonicity failed, I was the second of the three founders to leave; the CEO
was the last to go, and we had something like 5 employees up the last day of
the company, which was something like a month or two after I left.

I got a job at another startup, this time in Ann Arbor, MI. We packed up and
moved from SF to A2 (truth be told, we were happy to get out of California and
back towards the Midwest). I honestly didn't interview at all in California;
my friend Dug had invited me to the A2 company many months before, and I just
chose to take him up on the offer when Sonicity blew up.

If you have funding, the story gets (very slightly) trickier than if you're
bootstrapped. Sonicity was (very) funded, so there were liquidation details I
wasn't party to. Presumably someone at Sony owns all our old source code. The
company assets were (mostly) liquidated.

Nobody cares if you fail with a startup. That's what startups do: they fail.
Losing a startup is precisely the same as losing a job. You pick yourself up
and get another one (a job or a startup, interchangeably).

The sole caveat to this is that if you're a serial startup flopper, your
resume will communicate flakiness. This is very easy to fix: don't repeatedly
start new companies, but instead alternate between starting things and doing
something useful for someone else's (established!) startup. Consider as a rule
of thumb that you should always start a company after a high note of some
sort.

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lsc
it depends on how (and how well) you structure it. If the company has no debt,
you can fold it and walk, obviously. Often you can find someone else willing
to buy it off you for a pittance, if you want someone to keep providing for
the customers you have.

If the corp has debt you haven't countersigned personally, you can still
usually walk, though if it's a lot of debt the creditors can try to 'pierce
the veil' and come after you personally. depending on how well you separated
business and personal accounts, this may or may not be possible.

If you have debt you countersigned personally, well, you've gotta pay that off
or declare personal bankruptcy.

The worst 'baggage for the rest of time' case I've seen is tax related. If you
make a lot of revenue and you fuck up your taxes badly, you can be on the hook
for those taxes forever. Bankruptcy doesn't get you out of your tax debts. I
know two people who will likely be in debt for the rest of their lives because
of tax mistakes. If you run a business, /always/ spend the money on someone
who knows about taxes.

anyhow, that's just the debt problem. My experience has been that employers,
when you tell them that you are looking for a job because your startup in a
related field failed can only be described as eager. Especially if the startup
got some publicity, a failed startup looks pretty good on the resume.

edit: s/debit/debt/

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dotBen
_a failed startup looks pretty good on the resume._

I would say this is true in US, especially in the entrepreneurial regions
(here in SV/SF and also the NY/Boston/DC triangle).

Probably less so in Europe and the UK. I'd like to think that is changing but
we're still a cynical lot back home (in the UK).

~~~
mattmanser
Any evidence for that?

My 2nd job was at a failed startup in the UK. Never got a single raised eye
brow in any interviews I went to after that and I got a glowing reference from
the CEO.

It was a massive positive for me, so not sure why you think this.

~~~
dotBen
_Any evidence for that?_

Yup, I was involved in hiring positions at a big company in London and had
some of my candidates down-graded in the committee because the startup they
worked at failed (thus they must be a failure).

(ok, you could argue this is BigCo thinking, but I don't think it would occur
at the big companies here in SF/SV)

Also anecdotal evidence from friends who have been in this boat. Banks are
especially cruel as it's all about 'being the big dog' and weakness and
failure isn't tolerated at any level (ok, you could find that ironic given
what happened to the bank industry - but it's hard to argue when you are the
one interviewing. Plus most people in the banking industry still don't seem to
accept they had any fault, grrr).

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joshfraser
When EventVue failed we wrote a post-mortem about what went wrong. If you're
interested, you can read about it here:
<http://blog.eventvue.com/post/372936164/post-mortem> One of the benefits of
having an open-casket funeral for your startup like we did is people know you
are available for a new gig. After we announced the news, our phones started
ringing from friends, users and former competitors giving their condolences.
We also got calls from companies like Google, Facebook, Twitter and a few
dozen startups wondering if we'd be interested in new positions. For us, our
"worst case scenario" of completely failing had come true and that's when we
discovered even the "worse case scenario" is not that bad. My cofounder took
another job. I started contracting. Both of us are making considerable more
money than if we'd never tried with EventVue. I know we're both going to be
back in the startup game before long.

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chintan
Its great to hear an update from you! Your post-mortem blog was/is a great
resource for all of us (in the startup world). I think sharing such detailed
lessons is very valuable. I'm personally keeping a log of my startup's
strategies/successes/failures and hope to make it public someday.

Best wishes for your next endeavor!!

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byoung2
I bet that most startups don't fail miserably, they probably just fizzle out.
We've all had those light bulb moments where a great idea hits us and we think
it would make a great business. You get a couple coders together and hack
something together only to realize it's too hard, or you don't have enough
time, or a number of other excuses. You go back to work and soon your startup
is forgotten.

I'm not sure whether the total number of startups (of which maybe 10% succeed)
includes the ones I described, because they're so hard to track.

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city41
Do those really count as "start ups"? If so I've had about 10 start ups. And I
really don't consider anything I've done as a "start up".

~~~
byoung2
That's my question...when does an idea become a startup? After the first all
night hack-a-thon? After you set up your "coming soon" page? When the first
person quits his day job? Depending on what we're calling a startup, that 90%
number can be very reassuring or very depressing.

~~~
city41
In my own personal view, quitting your day job is the indication you've
embarked on a start up.

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fjabre
I failed big last year with an iPhone app.

I'm at it again this year with a web app - trying not to make the same
mistakes I made the first time around.

The jury's still out on the 2nd round but I am releasing in a few weeks time
so I'll know soon enough.

~~~
d_r
Hats off to your new venture.

Would you care to write a post-mortem for your iPhone app (if you don't mind
sharing the knowledge)? Probably many folks can benefit from it.

~~~
fjabre
Thank you. Here it is: [http://teabuzzed.com/2009/08/the-number-one-reason-my-
startu...](http://teabuzzed.com/2009/08/the-number-one-reason-my-startup-
failed/)

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dryicerx
You move on to a new project.

Dismantle the project and organize the technology and assets you developed
over the course of your startup. Try to sell those individually if possible,
otherwise document and keep them for future use if that's viable (eg.
frameworks, algorithms, etc).

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bandhunt
be careful trying to firesale assets. we spent 9 months selling our assets and
the price we got and time involved was NOT worth it. we should've just walked
and shut everything down as quickly as possible.

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wooster
I read somewhere once that while 90% of startups fail, 80% of second time
startup founders succeed.

While I think it's a totally made up statistic (there was no citation, IIRC,
and there are all sorts of problems with measurement and bias), there's
probably a grain of truth to it.

~~~
mitcheme
If you had to guess, is it just that second-time founders have more
experience, or is it that a lot of the first-time founders who aren't 'cut
out' for startups try once and then give up? (Honest question!)

~~~
wooster
I'd say a little of both.

It would be hard not to get better at being an entrepreneur through the
practice of starting a company and failing. There's no shame in failing at
something that's really hard to begin with, so long as you learn a lot and act
with integrity.

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csomar
It's depends and varies from one to others. It also depends on how you define
'failure'.

I think it's mostly dependent on personal preferences. Some will start
another, some will get a job, some will travel and change career. So whatever
it'll happen, why do you care?

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lionhearted
The statistic is misleading - it says, "90% of business _are not a going
concern_ after 5 years." That could mean they were acquired, or closed down
for a good reason. For instance, if you built a startup with a great product
but not much traction, and that attracted the interest of a company that hired
you for a $250,000 per annum salary, that would be a "failed business" in this
statistic, but obviously it worked out pretty well for you.

I've ran companies that are no longer going concerns, but that delivered
things that made customers happy, paid employees well in an awesome work
environment, and the founders made good coin and had good experiences. Now
everyone's moved on to other things, but these aren't failures (even though
they'd be counted so in that statistic).

Also - Companies fail. Persistent entrepreneurs succeed.

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DanielBMarkham
I'm not sure what you mean.

If one out of ten average startups fail, and you're average, you have nine
failures ahead of you before you succeed.

So each idea you put aside to work on something else is just another necessary
step towards succeeding, right? Why call this putting-aside process a failure?

It's like dating when you are a teenager. The first girlfriend who breaks up
with you, it's the end of the world. But after a while, after you have dated
for a while, breakups still hurt yet you understand that breakups are part of
the dating process. Why would startups be any different? You wouldn't ask
somebody after one bad relationship if they would give up on dating, would
you? It's a very similar situation.

You should work as hard as you can on your startup, and it's not good when
things don't pan out. But it's not necessary to have so much drama at the end
of an idea -- in fact it's probably very counter-productive for everybody
involved.

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mattmanser
The 90% failure rate is nonsense. Ignore it. Actual figures are more like
30-50% depending on what you term a 'failure'. Many include successful sell-
outs in failure rates. People who have been profitable but then moved on are
also usually counted as failures. Figures show long-term success is more
likely if you incorporate, work on the company full time, employ someone else,
be in particular sectors, etc.

One study I read had failure rates as low as 5% (defined as bankruptcies).

If in doubt, do some googling. Try 'business failure rates', 'business success
rates', etc.

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durbin
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