The other day, I received a phone call from Geof Barker. Geof was the founder & CEO of Vigilos, the second company we ever invested in at Highway 12 Ventures, way back in 2002. I hadn’t heard from Geof in some time and it was good to hear his voice. Our investment in Vigilos hadn’t turned out very well yet we remained good friends. He was reaching out to me as the board of directors of Vigilos has recently decided to shut the company down, and he was literally calling to apologize for losing our money. He was extremely gracious and we had a terrific long talk which amounted to a great verbal post-mortem on the company and how things might have turned out differently. It was a classy move on his part and I look forward to a lifelong friendship with Geof.
Let me give you a little history. Back when we invested in ’02, Vigilos was selling a very elegant and rather sophisticated physical security platform which was really state-of-the art at the time. We conducted a great deal of due diligence prior to our investment and to this day, I believe that our investment thesis was a sound one. It was shortly after 9-11 and both the government and corporate America were spending a great deal of money to augment their physical security efforts. Due diligence suggested that a solution such as Vigilos’ would greatly resonate with these customers.
It wasn’t long after our investment that I realized that Geof and I had a difference of opinion on how to attack the market. We didn’t always see eye-to-eye at board meetings and there were a few times that it got a little bit lively. Given the slow progress, the company came back to the existing investor base to raise more capital and we made the difficult decision not to participate in any subsequent financings. The venture firm that had invested prior to us continued to invest in the company for many years after and we never put another dollar into the company after our initial investment, ultimately writing off the investment three or four years ago. To his credit, Geof was a complete professional about our not continuing to fund the company and we’ve remained good friends through the years.
On the other side of the spectrum from Geof, I’ve seen CEO/founders wallow in self pity, blame everyone around them but themselves, and hurt their personal reputations in the waning days of their start-ups. Including Vigilos, we’ve been involved in five companies at Highway 12 Ventures where we’ve lost all or most of our money. That’s the business we’re in and it’s part of the job. I understand that a CEO who has just watched his life’s work evaporate isn’t going to be thinking about singing kumbaya with his investors. When companies go south, tensions run high and no matter how well intentioned we are as humans, we don’t always live up to the expectations we set for ourselves. I’m not sure I can imagine what it must be like to be the Founder/CEO of a company that’s failed. Despite knowing that there are legitimate odds that every start-up won’t succeed, I’m sure every new entrepreneur sets out thinking that it won’t be them.
Therefore, if you know a CEO/founder, especially a first timer, share this with them. There’s a better than zero percent chance that your company won’t survive, that’s a fact. If you’re a serial entrepreneur, those odds go up dramatically. While you can’t guarantee the success of your start-up, you can guarantee how people will remember and think of you if the company fails. Here’s a few things to remember:
- There’s no place in the world where failure is more accepted than in the U.S. and there’s no segment in our country where it’s accepted more than the start-up community. (okay, maybe at Wrigley Field…)
- The game is long. Your next start-up is right around the corner. It may be hard to see right now but investors like to invest in people who have learned the hard lessons on someone else’s dime. Smooth seas do not make skillful sailors.
- Be the last man standing. The grace that you demonstrate as you wind your company down will be capital you’ll be able to call on for years to come. Look every person in the eye and personally connect with every single investor in the company. There’s a process to making sure a company is wound down correctly, find an attorney with this experience and do it the right way.
- Do all you can to make sure that the employees who stayed ’till or near the end land safely on their feet. There’s a good chance you may want to hire them again for your next start-up. They’re watching you carefully now, be a leader.
- Try and see the forest through the trees. There is no education like adversity. It was none other than Walt Disney who said “You may not realize it when it happens, but a kick in the teeth may be the best thing in the world for you.”
While I haven’t had the personal experience of shutting down a company that I started, I’ve been involved in my fair share. As an investor and board member, I’ve had a front row seat to the gamut of behavior that people exhibit through the personal hell that is a shut down and I hold those that manage it with dignity and class in the highest regard. I hope that anyone who has to go through this someday takes a nugget of wisdom from these words and it helps them make it through that gauntlet with head held high. Remember, the darkest hour only has sixty minutes…