I remember March 11, 2000 really well.


I had just helped launch a company called Trymedia focused on the nascent downloadable games market. We were in San Francisco, epicenter of the dot-com boom – and we were riding high on investor enthusiasm. We raised money at high valuations with a “get it while the getting is good” mentality.


By the end of the year, there was no more money available to be raised, and seeing the writing on the wall, we let most of the team go in an effort to keep the company afloat. We believed in the mission and wanted to see it through, but going from 30 people to 5 in a layoff was hard, and it really took its toll on us.

Through some deft maneuvering by our CEO, and the eventual strengthening of our core market, we were able to weather the storm. Slowly, over years, we grew again to over 50 people, selling the company to Macrovision (Rovi) in 2005. We had come to dominate the market both through good strategy and competitive attrition.

So all’s well that ends well, I guess. But I can’t help but notice that we’re entering another period of profound global economic instability, and the tech industry is over-leveraged, over-capitalized and under-educated about its history. A shake out is definitely coming, and it’s going to be history’s biggest.

Before you dismiss this as the rantings of a skeptical old man, hear me out: I’m not worried about the loss of shareholder value, or the destruction of the whole tech industry.


What keeps me up at night is the impact this will have on entrepreneurs themselves, as individuals. I’ve worked with thousands of aspiring founders as a mentor, angel investor and frequent guest lecturer. Many (if not most) have minimal experience failing – and we simply don’t know how to learn from our failures. I certainly didn’t, and when Apple recently Sherlocked my venture-backed startup, all the terrible feelings from 2001 came rushing back.

I came to the startling realization that while everyone says things like “Fail Fast”, “Break Things”, “Fail up”, no one really teaches you how to handle fallout when things don’t work. And though it’s obvious, it bears repeating: the riskiest things you do are highly unlikely to work the first time. During the dot-com crash, nearly 80% of venture-backed startups failed, and while that number has settled down to 60%, once you take into consideration Angel, Bootstrap and Friends & Family funded startups, those numbers are truly daunting.

So it would be great to learn how to fail well so that you can succeed. And after looking at many failures – both mine and others – I’ve adapted a famous psychological schema called the Kubler-Ross model (aka the stages of grief) that can help guide you through the failure of your startup. Here are the various phases, what they mean and what the implications may be for your well-being:

Denial

In the early stages of a startup failure, you will be in denial. Perhaps – like me – you will not listen to your own advice and view 4-5 VC “No’s” as evidence you won’t raise another round. The most common myth about entrepreneurs I hear repeated is the “stubborn genius” model, where famous/successful guys like Steve Jobs had to ignore all the naysayers and eventually proved them wrong with brilliance. You would be forgiven for having this bias, but when the axe finally falls you will rotate to second-guessing your decisions during the denial phase. Not recognizing the denial phase will generally deprive you of the last opportunity to exit gracefully.

Anger

As your startup slowly, inexorably declines, you will likely feel angry. Angry at your lazy employees, feckless co-founders, dilettante investors and users that simply doesn’t understand your amazing vision. I had many moments in this phase where I found myself unusually “snippy” with teammates, and would get super hot under the collar incredibly quickly. This phase’s biggest risk is that you will both be hurting yourself physically (the stress hormone cortisol is deadly) and creating long-lasting damage to your most important professional relationships. Not taking steps to reduce your anger will cost you in the long-run.

Bargaining

In the bargaining phase, you generally start engineering your startup/fundraising strategy to appeal to people at any cost. Whereas before you were holding out for the best investors, the best talent and the highest-profile media, now you’re an opportunist trying to unload the venture on anyone within earshot. Of course, savvy buyers can usually spot a desperate seller, and nothing kills growth opportunities faster than a whiff of desperation. Don’t confuse the bargaining phase of loss with employee/investor negotiations. If you can’t persuade insiders to continue supporting your vision, widening the circle is unlikely to solve your problem.

Depression

This is probably the least talked-about and most poorly understood aspect of the startup founders journey through loss. Because of the shame and stigma associated with mental health issues and the generally sociopathic nature of silicon valley startups, there is minimal-to-no support for your emotional wellbeing. Who knows how many founders have killed themselves, turned to drugs or suffered lasting psychological scars as a result of their failures. And because in this stage you are usually facing team members (or co-founders) jumping ship, you may feel even more alone and helpless than before. Not to mention, cash running out makes it hard to spend $250/hr on a therapist. Taking care of yourself in this phase is key, because you will need to recover before you can do it again – no one likes a rebound relationship.

Acceptance

It’s been over six months since I shut down my last startup. I remember feeling a weight lifting off my shoulders the day I decided we weren’t going to continue. But that sense of relief was relatively short-lived, and even now hardly a day goes by where I don’t run through a mental checklist of the ways I messed things up – the mistakes I made, the failings of vision, and once the whole cycle is obvious, my lack of understanding of the grief I was experiencing.

I think for most relationships, the rule of thumb is that it takes 1 month for every year of dating to recover after a breakup. I think startup founders can easily multiply this by a factor of 2 or 3, and recognizing the time it will take to accept this loss is critical to your future success.

What most don’t realize the first time they fail is that many of the people who encouraged them to take the biggest risks, make the most sacrifices and burn the candle at both ends will be the ones without sympathy or empathy for their shattered dreams. If you don’t have a sociopath’s lack of regard for others’ feelings, you are unlikely to be comforted by the withdrawal of investors and advisors from your life.

It is these hard-fought lessons that I find most interesting – and the science definitely backs up the power of learning through failure, but we need to learn to fail better. Not just faster, not just more often, but with greater agility and self-awareness. We need to be kinder to ourselves and to each other, and uncover the bio and psycho-mechanics of failure and how to avoid developing a failure PTSD. I call a comprehensive approach to this issue “Failosophy”, a unifying theory of action that will enable entrepreneurs and corporate executives alike to take risks and rebound more quickly.


There have been many days since closing down Onward that I’ve thought life would be better if I just quit trying to change the world and ran a coffee shop. This is a marked change for a person who dreamt of nothing more than starting his own company at the age of 16. While startling, I also recognize it for what it is – residual hurt from this implosion, and a set of important questions about whether or not I’m cut out for this life, and whether I have what it takes.


Regardless of where you or I land on that question, one thing is for certain: your heart, mind and shoulders are needed now more than ever if we’re to address the serious issues in our ecological, political and economic world. Now is not the time to shrink from the fight, and hopefully, together, we can build a new way of thinking about failure – so we can all succeed.

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