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When your big swing is a big miss
How to shut down a startup
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Alright! Letâs dive into this weekâs edition.
It pays to solve a hard problem in tech.
In 2014, Karim Beguir and Zohra Slim started a scrappy web design service in Tunisia.
They turned it into a beast - building AI solutions for global companies.
And last year, BioNTech, the company behind Pfizerâs vaccine, acquired them for $680 million.
Instadeepâs fairytale ending is every founderâs dream.
But most times, your big swing is a big miss.
90% of startups fail, and success stories like Instadeep are rare.
While shutdowns can shake market confidence, theyâre also a good thing.
Failure helps the ecosystem grow up.
It helps founders learn what doesnât work in our market.
So instead of being hard on founders when they fail, we could figure out how to fail properly.
Whatâs a smooth shutdown process like? How do you go down without people losing faith in you?
We looked into Africaâs startup shutdowns and found five gems on how to end a startup.
1. Donât wait until you have zero in the bank
When youâre flush with cash from investors, you think about how youâll build the product, acquire customers, and scale into new markets.
Not how youâll need some of that cash to wind down.
But closing shop is not cheap.
Some startups, like Sendy, end up selling their assets to make ends meet.
Some, like MarketForce, end up in court with suppliers baying for blood.
Then others, like Kenyan agritech iProcure, file for bankruptcy to buy some time to scrape cash together.
But you donât have to go bankrupt before you shut down.
You can plan for failure
It costs anywhere between $25,000-$75,000 to shut down legally - depending on how big your startup is.
You'll have to:
Pay out your employees as you lay them off
Settle debts to avoid getting dragged to court by suppliers
And cover legal and accounting fees to stay in line with market regulations.
To afford it, track your startup's runway, keep cash stashed away, and donât wait too long to close up.
When you hit an extended plateau, talk to a legal pro about your shutdown options.
2. Whatâs hard about layoffs?
Finding talent is a big deal when starting something new.
You convince your team to leave their cushy jobs, or to leave their own startup dreams to join yours.
But when it all falls apart?
You look them in the eye and tell them they boarded the wrong ship.
Itâs easier said than done.
When Lazerpay, a Nigerian crypto-payment startup, folded last year, Emmanuel Njoku felt the weight of letting the team go.
Emmanuel Njoku, Founder of Lazerpay.
In a podcast episode with The Flip, he says:
âI remember I cried. I was like, âOh, my God. I built out a really great team, and to see everyone go was really, really painful.â
How to handle it?
Talk to your team yourself - don't pass it off to someone else.
When laying off his team at Lazerpay, Njoku says:
âI sent these internal letters to everyone on the team, and then I asked people to schedule a one-on-one call with me.â
âIf you're a good leader, your team will actually have your back.â
So let your team know what's up.
Tell them why youâre shutting down and what you can afford to send them off with.
And if you can, help them get hired.
We have great people leaving Airbnb, and I think other companies will love them as much as I do. If you are hiring, reach out to me at [email protected] and our team will connect you.
â Brian Chesky (@bchesky)
6:08 AM ⢠May 6, 2020
After laying off over 1,900 workers, Airbnb set up a platform for ex-employees to share their profiles, resumes, and work samples.
The platform drew in thousands of recruiters and visitors, and many ex-employees landed new jobs.
3. Your co-founder relationship could crumble
Your co-founder is the first person who shares your startup ambition.
But when things are good, youâre never ready for when they go bad.
Last year, the Nigerian fintech Pivo shut down when its co-founders couldn't sort out their differences.
Nkiru Amadi-Emina (CEO) and Ijeoma Akwiwu (COO) founded Pivo in 2021
But theyâre not the only ones.
65% of startups dip because of co-founder conflicts.
And conflicts thrive when sales are falling off a cliff, money's bleeding out, and investors are bailing.
Sometimes, it ends in a relationship that canât be fixed.
But your teamwork can outlive your startup
Co-founders disagree on many things when a startup is ending.
Whether to pivot or close up shop entirely. Or how to explain things to the press, investors, or the team.
So first things first - share the decision.
You might have different shares in the company, but let everyone chip in on how youâll call it quits.
And for new founders, draft a co-founder agreement from the start.
It's a legal document that guides your partnership and covers:
Who does what when shutting down
Who owns what you created and what happens to it
And how to settle disputes or when to bring in a mediator
4. Donât hide from the media - own your story
Media can do the most. We get it.
When dealing with failure, the last thing you want is a reporter bugging you for their next big story.
And you may feel triggered to react like this:
Here comes the Chief fake news reporters.
â Hanu (@Fejizzy)
1:17 PM ⢠Apr 30, 2024
But here's the thing - youâre a founder.
Success or failure, you are accountable for what happens at your company.
And speaking to the media:
Builds trust with your customers, investors, and the whole ecosystem
Gives other founders some solid lessons on what you couldâve done better
Keeps your reputation intact by stopping any gossip from flying. Or slowing it down.
And in 2024, media does not have to be Tech Safari.
Media can even be a simple blog post, like what Tesh Mbaabu wrote to explain the MarketForce shutdown.
Mesongo Sibuti and Tesh Mbaabu - founders of Markeforce
5. Your investors want to help you through this
âHey, I lit up that $2 million check on fire. And I have nothing to show for it.â
Tough convo. But you need to have it.
Investors who put their money where your mouth was want you to lay it all on the table.
What went wrong?
What will happen to their investment?
And what's next for you?
Two weeks ago, The Peer, a Nigerian API startup that raised $2.1 million in 2022, closed shop.
Kosisochukwu Chike Ononye and Michael âTrojanâ Okoh - founders of ThePeer
The founders offered to give back $350,000 to investors.
But their investors were skeptical - and wanted an audit of the company.
Lesson? Be transparent.
You never know when youâll raise funding again. And who youâll need on your cap table.
While it may feel like it, failing isnât the end.
Sometimes, it is the start. And your chances of getting it right next time go up:
So be prepared. Be practical. And keep going.
What did we miss about shutting down?
Reply to this email to let us know.
And that's a wrap!
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