For small-business owners, failure isn’t an option — it’s a reality.
For example, consider the roughly 733,000 businesses that launched in the U.S. in the year leading up to March 2016. Only about half made it to March 2021, according to the Bureau of Labor Statistics.
“One of the inside secrets of great entrepreneurs, and businesspeople in general, is they are resilient when it comes to failure,” says Mark Coopersmith, co-author of “The Other ‘F’ Word: How Smart Leaders, Teams, and Entrepreneurs Put Failure to Work ” and a faculty member at the University of California, Berkeley’s Haas School of Business. “Failure happens a lot.”
What can set you apart is how you respond to failure in the moment — and what you learn from it when you look back.
SHUT DOWN CORRECTLY
Before you walk away from your business, make a list of everything you need to do to shut down properly. A lawyer or financial adviser can help with this process.
“If you’re in dire straits, sometimes people do foolish things,” says Manny Henson , a certified financial planner and founder and president of Maryland-based Gamma Wealth Management. “Talk to your consultants to make sure you understand what you need to do.”
That process includes paying your taxes, paying your employees and closing your books correctly. If you miss any of these steps, you could face fines — and put your reputation at risk.
“It’s a small world nowadays, and you’ve got to treat people well,” Henson says. Memories of your business failure will fade, but “how you go about addressing and reacting to that situation is going to impact you for longer.”
CARE FOR YOURSELF
Once you’ve closed up shop, take time to care for yourself.
A business failure can feel like the death of a friend, says Penny Pompei , who coaches small-business owners in the Palm Beach, Florida, area and is a certified SCORE mentor. It’s OK to grieve the loss.
Before you investigate what happened, “Stop and breathe,” Pompei says. “You’ve just got to be able to just decompress and give yourself permission and time to mourn.”
If others ask why your business went under, you don’t have to give an answer right away.
“Don’t even try to go there, because your first inclination is going to be to blame,” Pompei says. “You really don’t know yet what happened.”
FIGURE OUT WHAT WENT WRONG
Once you’re ready to look back at your business, Coopersmith recommends bringing together trusted stakeholders — like customers, partners, key employees, investors or funders — for a postmortem.
To start, ask: “What were the risks that we missed?”
As an investor or when presenting a business plan, Coopersmith focuses on mitigating the risks businesses face in five areas: