We don’t talk about failure in business enough, yet talking about it and the reasons why it happens can help us learn valuable lessons. I want to bring attention to those entrepreneurs who put their whole heart into their businesses, who care deeply about their employees and support their communities, but end up needing to close. When this happens, we often forget that the founders and owners who started and ran the business are people too.
Entrepreneurship is hard. Starting something from scratch, growing it, financing it, hiring, and keeping good employees is stressful work. An academic study on the mental health of entrepreneurs found that while 7 percent of the general population reports suffering from depression, 30 percent of founders report dealing with its effects. That statistic is staggering but entirely believable. Entrepreneurship is a deeply personal journey, and it’s incredibly difficult to separate your identity from the business you’re trying to create. Business setbacks can feel like personal setbacks, and depression can quickly take hold.
We’re pretty good in Vermont at helping startups find resources and capital. We’re not as good at helping entrepreneurs close up shop so they can help employees find other work, minimize losses to their investors and lenders, and find a way to move on personally. Sometimes it may require patience or just a little more time to pursue another avenue to find a better outcome. I’ve seen things turn quickly from what was moving toward an orderly sale of a business to a forced liquidation scenario.
When things don’t go as planned, and a business needs to wind down, we can find ways to do this with dignity and respect for what was built by the entrepreneur. As an investor, I’ve seen how easy it is for funders to get caught up in preserving “capital and collateral,” considering only what’s at stake for their own organizations. We can do better—remembering that we need to consider the long-term, bigger picture of how our actions impact real people: the entrepreneurs, the employees, the other funders in a financing deal, and the community.
I hope we as funders can allow entrepreneurs time to work with their creditors and investors in a way that will maximize the outcome of repayment and minimize the detriment to entrepreneurs and their employees. When entrepreneurs work diligently and in cooperation with their funders, I’d like to think that we can do things differently—treat founders with respect, and understand they are grieving for the loss of their businesses, which they put their hearts and souls into building. After all, these entrepreneurs are our neighbors, our family, our colleagues, our community members. And, they took the real risk, didn’t they?
A post from a colleague at Goodworks Ventures, an impact investment fund in rural Montana, really hit home: “There is a lot of discussion around failure and startups these days. Fail fast. Failure is the way you get to success. Failure is a badge of honor that makes you more investable. All of these notions have some measure of traction in large well-funded entrepreneurial communities like Silicon Valley or New York or Boston, but that is not the landscape of Montana. Failure here means that the risk you took with your money, your friends and family’s money and, perhaps, investor money, did not pan out. That you will now have to figure out what to do next in a place where jobs are not easy to find. Where going home for Thanksgiving Dinner might be more difficult than it has been in the past.”
The Flexible Capital Fund (Flex Fund) is a Vermont-based and mission-focused investment fund that provides risk capital to help businesses in Vermont’s food system, forestry, and clean energy sectors grow. We’ve learned firsthand that investing in Vermont’s innovative businesses that are putting everything on the line to help make the world a better place is, well, “risky business.” And, with risk, sometimes comes failure.
We’ve had three Flex Fund portfolio companies close their doors, all due to different circumstances. This is out of 14 total companies funded. That’s not a bad track record, but even one business closing in Vermont is enough to impact the entrepreneur’s life and everyone around them. We can do better together.