Take Time to Process Startup Failure - Please Don't Do a Rebound Startup

Shutting down a company often comes with a grieving process just like a breakup or the loss of a loved one. Give yourself time to process before jumping back into the startup fray.

I've had an unspoken policy not to invest in “rebound startups” as I think they are difficult for both founders and investors. Given what’s happening in the market, I wanted to share some more of my thoughts on why I find these companies challenging for both investors and founders. But first, let me explain what I mean when I talk about a rebound startup:

A “rebound startup” is a company where I feel the founder is starting something new without having fully processed the outcome of their last company.

Shutting down a company is a form of loss. I won't pass any judgment on how shutting down a company compares to a romantic breakup or the loss of a loved one, as everyone experiences loss differently. What I have seen (and experienced myself) is that shutting down a company is an emotionally difficult process for most founders. Even if the founders knew that the company was going to shut down for some time, the finality of the wind down often triggers a lot of emotions, including grief, sadness, anger, and frustration.

I understand the desire to get right back into a new startup after a shutdown. Many founders feel an instant desire to get back into a new company and apply what they think they learned from the most recent company to the new company they want to start. If they’ve seen the shutdown coming for a while, they might have already been thinking about a new idea for some time. And, in some cases, there is a desire to wash away the taste of a failed startup with a new, successful venture.

With the benefit of experience, I think it’s really hard to shut down your company on Friday and show up ready to start a new company on Monday. I’ve found that it takes more than a weekend to process that loss and get to a place where a founder is ready to take on the next challenge, given the level of commitment and effort it takes to build a successful company. The two biggest challenges I’ve seen are that some rebound startups are “revenge startups”; they’re designed to right the things that went wrong in the last company, and the founders are still fighting the last battle. The other big challenge is that it takes time and distance to have a more informed view of what really went wrong with a failed startup.

As a rule of thumb, I think it it takes about a year to have enough distance from a failed startup to have perspective on what happened and to be in a place to apply those learnings.

Some people get clarity and perspective quickly, and others need more time. The one-year timeframe I mentioned above is a generalization, but I think it’s right in terms of order of magnitude. It does take some time and distance to have a more holistic picture of a previous venture. When I think people are ready for their next adventure, I usually ask them if they have good answers to the following three questions:

• What was my role in the company’s failure?

• What would I do differently if I were to find myself in similar circumstances?

• What lessons from my last company will I take with me and apply going forward, and which will I leave behind?

I'm posting this because I feel like we're in a moment where a lot of founders are in various phases of winding down their companies or coming to grips with the fact that things won’t work out as planned. I hope this framework helps some people think through when and how to start their next ventures.