WeFarm — which combined a marketplace for farmers to buy agricultural products with a platform to connect and exchange advice — raised approximately $30m, employed 120 people and had three offices in Africa and one in the UK. At its peak, it sold more than $1m worth of products a week. But, when it came to raising its fifth round of funding last summer it wasn’t able to convince investors to come onboard, and founder Kenny Ewan knew it was time to shut up shop.
In our Startup Life newsletter, Kenny gives us his headline advice on how to close a company. Please note, this is not legal advice, and these are just a few of the many things you’ll need to consider when closing a company.
Get advice
The process of closing a business varies company to company — it depends on why you’re closing, how your company is set up, where it's set up and whether you are solvent (can pay off any outstanding debts) or not. If you have entities in multiple countries, ensure you’re aware of local requirements. Use your investors for support and get legal advice.
Listen to your board
A founder is so used to spending a lot of time teetering on the brink of failure that it’s difficult to recognise when it's time to close, whereas a board can help you take a more pragmatic approach. Making sure a company can meet its financial obligations — paying people and overheads — is one of the biggest fiduciary duties of a board.
The board needs to set strict deadlines for when you need to have cash in the bank, whether that’s investment or revenue. If that deadline isn’t met, a board meeting needs to be called to decide what the next steps should be, whether that’s appointing administrators to take the company into administration or to try and sell the company or some of its assets.
Keep your team in the loop
Be as transparent as possible throughout the process. The worst thing would be for people to wake up one day and be completely shocked to be losing their jobs. Create opportunities for people to ask questions in all-hands meetings — especially right now, during an economic downturn when people are likely to be seeing more articles than usual about tech company layoffs. There’s a fine line, however, between honesty and catastrophising — you have to keep people encouraged by sharing things you’re trying to do to save the business and your wins, otherwise they’ll feel demotivated and leave, which will only add to your problems.
Provide sufficient notice to your team
If you think there’s a chance you may close, give your team notice. We gave our team notice two months out — even though we still believed that investment would come through — as, legally, it was the last time we would have had enough money in the bank to give a two-month notice period to as many people as possible. Also, if possible, actively support the team in finding new jobs by leveraging your network.
Protect your mental health
The stresses and strains of running a business are hard. Closing a business is also hard. Founders get burnt out because it's difficult to work on something that doesn't have any hope anymore. The sheer scale of everything that has to be dealt with is surprising and emotionally difficult. Ensure you have support from therapists, coaches, mentors, etc. throughout the process. Be honest about needing time off to reset after it all ends.
Plan your announcement carefully
Companies aren’t built alone — people support with time, money and advice. You will want to tell your team, your investors, your partners and your customers before the information is public. Craft an honest, open message of thanks for their time, support and money.
On the subject of... closing a company
👩🏽🏫 Crisis lessons. Fintech Nuri filed for insolvency eight months ago. Here, the CEO shares her advice to any founder in a similar situation.
📝 Your framework for closing. The questions Y Combinator says you should ask before you decide to shut down.
🚧 Communication in a crisis. When things get hard, you need to know how protect your brand or personal reputation.
