What if My Startup Fails? Guide to Navigate Failure as a Founder

I received the following message from a good friend last night: “I think I am going to shut the company down. Have time to chat tomorrow?”

As I write these words, he and I are scheduled to speak later this morning. I am sitting in my office thinking about my friend and all that he has been through.

We met early in our journeys as founders. Both of us were simply trying to figure out how it all worked. We were navigating major questions about whether the people we had chosen to partner with were a good fit and whether the ideas we had chosen to work on had any merit at all.

Fast-forward nearly a decade, and my heart is heavy thinking of all that my friend has navigated to arrive at this decision.

If you’re holding this question too, you’re in the right place.

You Are Not Alone in Facing Startup Failure

Coincidentally, I have been working with a client recently who has been working through a similar decision (I will call her Jess; not her real name.) Jess wrote to me looking for help navigating burnout and some heavy questions she was holding about the future of her business.

When she first reached out, Jess described what looked like a successful startup from the outside: millions raised from high-profile investors, a product used by Fortune 100 clients, operations spanning multiple continents. But beneath the surface, traction was slowing. The board was losing patience. The team was losing energy. The gap between the external image and the internal reality was widening fast.

Jess confessed to me on her first call that she was feeling overwhelmed, anxious, and depressed. She could not sleep. Nothing in her life felt fun or energizing any longer. She could not seem to find her way through the questions that were haunting her thoughts:

• Where had she gone wrong?
• Had she let down her team, investors, and employees?
• Should she shut down the business, or try to pivot?
• Should the team try to buy out the investors?

The heaviest questions seemed to surround the what-ifs around the company failing:

• How was she going to tell the team they did not have jobs anymore?
• Would she ever be able to raise money again?
• Would she be able to support herself while taking time to recover, find a job, or start something new?
• How would she ever find her way back to energized?

The Hard Data on Startup Failure

75% of venture-backed startups fail to return capital. 75%! (Source: HBS.edu.)

Take that in for a moment.

Here is what the data tells us about startup failure rates:

It is really hard to raise capital! The venture-backed founders I know represent some of the brightest, most educated, most hardworking, most resourceful, and most creative people I have ever met.

Any given venture capitalist will likely lead only 1–2 rounds per year. She may meet with nearly a thousand companies in a year and only choose one in which to invest.

It is very hard to win the opportunity to build a business with the backing of professional investment.

And yet…even with all that preparedness and selectivity, most companies who do receive funding fail.

Common Reasons Startups Fail

Before we go further, it may be helpful to name the most common patterns behind startup failure. If you see yourself in any of these, know that you are far from alone:

• No product-market fit: The product solves a problem customers do not care enough about to pay for.
• Running out of cash: Burn rate outpaces revenue growth, and the next round does not come.
• Wrong team dynamics: Co-founder conflict, leadership gaps, or cultural misalignment erode the foundation.
• Bad timing: The market is not ready, or a competitor moves faster.
• Founder burnout: The emotional toll of leading through uncertainty leads to exhaustion and poor decisions. I have written more about this in navigating founder burnout.
• Scaling too fast: Hiring ahead of revenue, expanding into new markets prematurely, or over-investing in infrastructure.

Most startup failures are not caused by a single catastrophic decision. They result from a slow accumulation of hard circumstances, bad luck, and the inherent uncertainty of building something new.

Why We Need to Talk About Startup Failure

For the technology ecosystem to thrive, we need founders who try and try again.

Many of the companies we admire most were not built on the first try. Their founders failed once, twice, sometimes three times before they found the combination of timing, team, and market that clicked. Startup failure, in this light, is not the end of the story. It is often the beginning of a much better one.

If all founders gave up after their first failure, employees would be short on jobs, investors would be short on companies to invest in, and the world would miss out on tremendous innovation.

And yet we do so little to resource founders who are going through the painful questions surrounding failure.

Founders like Jess often find themselves surrounded by guidance, partnership, and resources when their companies are taking off. But when the startup starts to fail? Those same founders end up alone in their apartment at 2 AM, staring at the ceiling, trying to figure it all out. The support vanishes precisely when it is needed most.

Enough of that.

Let’s talk about failure. Let’s talk about what to do if your startup comes to an end.

The Voice in Your Head After Startup Failure

What am I going to do if this fails? Surely no one will ever want to work with me again. No one will give me money again. How will I make a living? It has been so many years since I had a real job. Am I even qualified to do anything anymore? I will just be a failed, thirty-something-year-old wanna-be founder.

That is where the voice in my head went during my years as a venture-backed CEO. Often at 3 AM, while I lay awake in bed during one of the many downswings in the crazy ride of building a company from nothing.

If you find yourself entertaining a similar narrative on your own dark nights, you are not alone.

Every founder I meet has their own version of this story running through her or his head.

Often, alongside the ‘what will I possibly do with my life after this thing implodes’ questions comes a parallel narrative that goes something like:

• I have let everyone down
• I should have figured all of this out sooner
• If I was a better [founder, CEO, leader, entrepreneur] this would not be so hard

These are not random thoughts. They are shame narratives, and almost every founder I have coached has their own version. They feel true in the moment, but they are almost never the full picture.

Many of us founder/CEO types tend to find the job, at least as we understand it, a comfortable fit.

I have written previously about how many of us experienced childhoods marked by an early promotion to adulthood. We have grown, consciously or subconsciously, to view ourselves as caretakers of others.

When the chips are down, we are good at rallying resources and people and finding a path to keep everyone safe. There is a superpower there. However, there is a dark underbelly to that power.

The dark side often comes by way of a view that we are ultimately alone. If it is ‘me’ who is the one that keeps everyone [on-track/motivated/safe] then I am by definition alone in the hardest moments. I also am, ultimately, the one who carries the blame and shame when things go poorly.

It took me several years as a founding CEO to wake up to the very life-giving news that I was not actually alone in this way. I had a team around me capable of being real partners in the hardest questions facing our business.

The aloneness is a fallacy, albeit one many of us have a difficult time navigating our way out of.

Practical Tools to Get Grounded When Your Startup Is Failing

We all have these voices in our head. Mine are quite loud and often persuasive. When I allow the voices to run the show, I find myself in pain and unmoored. One of the most practical ways I have found of inviting myself back to clarity and solid ground is through journaling.

If you are struggling today with your own voices, you might take some time with a journal on the following questions:

• What is it that happened or is happening (the events as a someone observing my life might see them)?
• What is the story I am hearing surrounding these circumstances (“This is all my fault,” “I deserve to be alone,” “I am no good at any of this,” etc.)?
• Which parts of the story I am hearing are measurably true?
• Which parts of the story I am hearing are measurably false?
• Which parts of the story I am hearing are measurably unknown?
• Based on what I am seeing here, what would help me to move forward with my feet more firmly on the ground?

In moments like this, as I sit with my journal, my effort is not to feel better immediately nor silence the voices entirely. That’s too much to ask from a half hour with my journal. The hope is simply to stop the room from spinning and to quiet to voices marginally so my wiser, more grounded voice might emerge.

To allow myself to hear my own rationale mind, my own wise inner-coach, alongside the voices. To find some semblance of solid ground to stand on and from which to decide how to move forward.

In times where your own head is spinning with questions surrounding prospective personal or company failure, this grounding might help you as well to find some solid footing.

Other Tools That Help

Journaling is not the only tool that works. Here are a few other practices I have seen founders use to find solid ground when everything feels like it is falling apart:

• Talk to a therapist or coach: Having a trained thinking partner can interrupt shame spirals faster than going it alone.
• Move your body: Anxiety lives in the body. A walk, a run, or even ten minutes of stretching can shift your nervous system enough to think more clearly.
• Call one person: Not to fix anything. Just to say out loud what you are carrying. Shame loses its power when spoken.
• Limit the news cycle: If you are doom-scrolling startup Twitter while your company is struggling, you are pouring gasoline on the fire. Give yourself permission to turn off.

Finding Partnership Through the Shame of Startup Failure

Most founders I meet who are considering shutting down the business are getting hit with a pretty heavy sense of shame.

Shame comes with two difficult arrows. The first arrow is the pain. The second arrow is the aloneness.

The pain comes because we tell ourselves we have done something wrong. “I convinced all these people to invest in me, to work with me, etc. And now I have let them down!”

And it does not stop there. Shame is nasty because in addition to causing us pain, it often causes us to self-isolate. Self-focused anger and disappointment cause us to withdraw from others and spend time alone.

During my darkest days as a founder, when I found myself shame-spiraling over my own failure, I found it incredibly hard to reach out for support. And yet support was exactly what I needed most.

If you are face to face with the prospective failure of your business, your shame will tell you that you do not deserve help, support, or relationships.

Do not take the bait.

This is a time when support is most necessary.

Let your people in.

Here is what I would tell any founder sitting in this place right now:

• Let your closest friends or family into the questions and pain you are carrying. You do not have to have answers first.
• If you do not yet have a therapist, find one. This is not a luxury. It is infrastructure.
• If you do not have a coach, consider one. A good coach can help you see what shame is obscuring.

Reach out to other founders who have been through a shutdown. Their perspective will normalize what you are feeling. You might start by making friends as a founder.

Once you have resourced yourself and found some solid ground, it is time to explore how to take care of your people.

How to Take Care of Your Team During a Startup Shutdown

The voice of shame might say something like: ‘I am letting everyone down.’

The truth, in startup life, is generally closer to ‘We did not make it.’

You had an idea. You went after it. You shepherded some resources and people around the idea and tried to make it happen. For some reason, things did not unfold as you hoped.

That is how startups go. Some hit, usually with a very heavy dose of luck and timing. Most do not.

It is tempting to trace every failure back to yourself. Every hire, every product decision, every delayed pivot. But startup failure is never one person's fault. Luck plays a massive role in every breakout success story, and even with perfect execution, the odds are against you. Rather than running another lap on the self-blame circuit, redirect that energy toward the people who need you most right now.

Rather than taking another lap around the self-blame circuit, it may be helpful to take that energy and turn it toward taking care of the people who are going to be impacted by the shuttering of this business. The work at hand is this:

How can we live our values in the way we support our people even in this time of shutting down the business?

Severance planning

One of the most practical ways we, as leaders, can go to bat for our teams when a business does not work out is ensuring we do all we can to help bridge each of them to their next opportunity.

As we explored above, startups failing is a part of the equation. For the ecosystem to survive and thrive, for founders to start more companies, and for employees to agree to work for these risk-fraught, fledgling enterprises, we need to take care of people when things do not work out.

Many CEOs I speak with find it difficult to bridge this conversation with investors or board members, but the conversation is critical. And it behooves all of us in the ecosystem to do all we can for employees (including founders) when companies do not work out.

If you are navigating this conversation with your board, you might find it helpful to read about how to manage your board relationship during hard times.

Job Exploration Assistance

Beyond financial assistance, practical assistance in helping each team member to explore and secure their next position can be an effective way of living your personal and company values even in the face of a shutdown.

Here is a practical checklist for supporting your team through a startup shutdown:

For a deeper look at handling layoffs with compassion, I have written more about handling layoffs with grace.

Life After Startup Failure: What Comes Next

Why Rushing to "What's Next" Backfires

Once you have a plan in place for taking care of your people and your customers and you have your arms around the administrative work surrounding the shut down of a company, questions about your own future may come racing to the forefront.

Here are the questions that haunt nearly every founder facing a startup shutdown. I carried every single one of them myself:

• Will I ever be able to start another company?
• Will anyone ever want to work with me again?
• Would any investor ever fund me again?
• Will these feelings of [fatigue, numbness, anger, etc.] ever pass?

For us action-oriented founder types, the natural inclination is to figure out what’s next. To move, sort, get going.

However, the energy and creativity necessary to imagine and create something new may be decidedly absent.

Think of it like a breakup. After the end of a serious relationship, there is a process that has to be felt and lived before you can be open to something new. There is grief. A loss to mourn. Reflection to be had. The end of a startup carries all of that, and often more, because your identity was wrapped up in it too.

What you may find yourself most in need of is time, space, and healing.

If you are facing the end of your company, it is likely you have been living through what feels like war. Your own needs, joy, and well-being may have been sidelined for some time.

That’s no state for creating your next thing; if what you are seeking is clarity on what you would like next in your life, what may be most helpful is some time where that question is left aside until it returns organically of its own accord.

So how might you spend your time in the interim?

If you are struggling with burnout alongside the shutdown, you may also find help in my writing on navigating founder burnout.

Separating the Tactical from the Emotional

After we sold my last company, I found myself in a period of transition that was disorienting. I did not really have a role in the business going forward. There was work for me to do around the transition, and around the managing of the company’s relationship with investors and the like, but it did not require the usual 40+ hours per week. Nor did it require my attention and imagination in the same way the CEO role had.

If you are facing a shutdown, you may find yourself in a similar liminal space.

What I found helpful was to mentally separate the practical work I needed to do from the emotional or mental processing work I needed to do. I began bucketing my week into two parts:

You may find it helpful to do the same. If you are facing a shutdown, make a list of things you need to do administratively for the week. Put the hours for that on your calendar.

Then, ask yourself, what would be helpful for me this week to support processing, reflection, and healing? Put the hours for that on your calendar too.

If you want to be an entrepreneur, learning how to reset between projects, irrespective of the outcome, is part of the craft.

Consider yourself an apprentice to healing and recovery.

As you work your way through the company shut down, invest as much time as you can in your own recovery.

This is a time to be selfish and self-caring. A time to make sure your own oxygen mask is firmly affixed.

I have also written more about how our darkest seasons incubate our greatest gifts, if you are looking for a longer-term perspective on what this pain may be making possible.

Key Takeaways: What to Remember When Your Startup Fails

If you take nothing else from this article, hold onto these:

• Startup failure is the norm, not the exception. 75% of venture-backed startups fail to return capital.
• The shame is lying to you. It says you are alone and unworthy. Neither is true.
• Support is not optional. Let your people in. Get a therapist. Get a coach. This is no time to walk alone.
• Take care of your team first. Severance, job help, emotional support. Live your values even in a shutdown.
• Do not rush to what's next. Grieve, rest, recover. The next chapter will come when you are ready.
• This is part of the craft. Many great companies were founded on the second or third try. Your failure is data, not a verdict.

An offer

As you work your way through this challenging time, know that you are not alone.

Most startups shut down.

Take that in for a moment.

Startup founders represent some of the brightest, most resourced, most motivated people on the planet. And yet most startups shut down.

You are in the majority, not the minority.

This, too, is part of the craft.

It is to our own detriment that we do not talk about failure and normalize this part of the experience.

There is an opportunity here to be part of the change. Talk about your experiences. Share with a friend, share in your founder groups, or share in writing. But please share.

If you would like direct support, please feel to reach out.

Wishing you peace, recovery, and many hours of self-care.

Matt

Frequently Asked Questions About Startup Failure

What percentage of startups fail?

Approximately 75% of venture-backed startups fail to return capital to investors, according to research from Harvard Business School. Across all startups, about half fail within the first five years, and roughly 65% fail within ten years. Startup failure is the statistical norm, not the exception.

How do I know when it is time to shut down my startup?

There is no clean formula, but several signals tend to cluster together:

• Runway is running out with no realistic path to more funding
• The team has lost belief in the mission
• You have exhausted meaningful pivots
• The personal cost to your health and relationships has become unsustainable

If you are sitting with these questions, working with a coach or trusted advisor can help you see more clearly.

Can I start another company after a startup failure?

Yes. Many of the most successful founders failed on their first attempt. Investors often prefer founders who have been through the full lifecycle of a company, including failure, because of the hard-won lessons. What matters is how you process the experience, take care of your people, and recover before jumping in again.

How do I tell my team the company is shutting down?

Be direct, compassionate, and prepared. Come with a plan for severance, job transition support, and emotional resources. Avoid sugarcoating or delaying. Your team deserves honesty and practical help. I have written more about this in handling layoffs with grace.