How to Shut Down a Startup Responsibly

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SDS 058: How to Shut Down a Startup Responsibly

Hey! thank you for reading issue 058 of Startup Definition Sunday (SDS). You can read past issues here.

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As an angel investor in several companies, I often joke that after writing an angel check, I assume the money is gone. If things turn around in the future, it’s a pleasant surprise. Beneath this dark humor is a hard truth: not every startup succeeds, even with external funding. That’s the reality of building businesses.

But here’s the thing—how you handle shutting down a startup is just as important as how you built it. It reflects your integrity, leadership, and reputation in the startup world.

If you’ve made the tough decision to close your business, here are three actionable steps to do it responsibly and professionally:

Communicate Transparently with Your Team (Responsible Offboarding)

Your team has been with you through ups and downs. Now is the time to show them the respect they deserve. Hold a company-wide meeting to explain the situation honestly. Share your reasons for the decision, the timeline for closing, and what comes next.

Support your employees during this transition:

• Write personalized recommendations: Offer letters or LinkedIn endorsements to highlight their skills.

• Tap into your network: Share their profiles with recruiters, founders, and investors to help them land new jobs.

• Provide severance pay if possible: Even a small amount shows you care and respect their contributions.

This moment will define your leadership long after your startup closes its doors.

Address Legal and Financial Obligations

Closing a startup isn’t just about informing your team or investors. You need to wrap up all legal and financial responsibilities to avoid future complications.

Here’s a checklist to guide you:

• Settle outstanding debts: Pay creditors, vendors, and employees if applicable.

• Cancel contracts: Inform suppliers, software providers, and other service vendors about your plans to terminate agreements.

• File dissolution paperwork: Officially dissolve your business entity by filing the necessary documents in your state or country.

• Ensure tax compliance: Work with an accountant to file final tax returns and resolve payroll taxes.

If you’re unsure about any of these steps, consult a lawyer or financial advisor. This is about protecting yourself and your future ventures.

Close the Loop with Investors and Care for Your Customers

Your investors believed in you, and it’s important to honor their trust. Schedule one-on-one calls to explain why the startup is shutting down. Walk them through your efforts to save the business and why this was the best decision. Be transparent, thank them for their support, and share any future plans you have. Investors value resilience and may back you again if you handle this moment with maturity.

Don’t forget about your customers. Notify them promptly about your plans to close. Offer refunds if possible, and guide them to alternative solutions. This goes beyond legal obligations—it’s about maintaining goodwill and protecting your reputation for whatever comes next.

My Two Pesewas

Shutting down a startup is painful, but it’s not the end of your journey. Many successful founders have a failed business in their past. By managing the process thoughtfully and professionally, you’ll set the stage for your next venture.

Once the dust settles, take time to reflect. What worked? What didn’t? Document your lessons and share your story. Turning failure into a badge of honor shows resilience and positions you as a thoughtful founder ready for what’s next.

If you found this advice helpful, be sure to share this newsletter with other emerging founders in your network. Together, we can change the narrative and unlock the full potential of African innovation.

That's all for today. As always, thank you for being an engaged reader. Let me know your thoughts on this issue. I’d love to hear your experiences or tips on navigating tough decisions in leadership.

Until next time,

Jasiel

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