I am not my company.
I am not my company.
What I learned from the process of shutting down and selling my company
I was 23. I had just graduated from college and didn’t know what to do, so I did what any double major engineering student would do and got a job at a bar. I never felt a full-time engineering position was going to be for me. I had worked at pretty incredible firms from iRobot to Tesla during college and I really got to see the career trajectory so I figured pouring drinks wasn’t a bad way to spend a summer post-graduation. It wasn’t a glamorous job. I was working outside of Boston at a small chain restaurant serving Bud Lights to tourists and locals alike. A few months in and I was pretty bored. It wasn’t long before opportunity found me and I ended up launching a company with my college friends called Pillar Technologies. We started the company based on a research project looking at concussions in sports but eventually pivoted to construction site monitoring based on several key conversations with potential users. It's a long story but don’t be afraid to pivot! Starting a company promised a lot of things like the chance to take control over my professional destiny and test my ability to succeed in the world. Little did I know it would completely transform my entire life. Over the next 7 years, we built our company, raised venture capital, were nominated win selected as Forbes 30 Under 30 Entrepreurs, and ultimately ended up in the not-uncommon situation of being totally f’ed by Covid 19.
In March of 2020, I remember I had a deep sinking feeling that we were not going to come out of this one. We had closed a new round of capital about six months before COVID hit and were ramping up the team and our customer base. Then overnight, we lost 50 percent of our revenue and 100 percent of our sales pipeline. At our next board meeting, I told our investors I thought it was time to look at a different strategy. We didn’t have the capital to make it out of the revenue hole we were in and we were not certain how long COVID and our revenue drought would be. It was time to look at selling the business.
If you made it this far, you probably get the gist of what I’m going to be talking about. I want to spend the rest of this article talking about the hard truth of what it takes to run a sales process and shut a company down. I hope to shed some light on this not-so-often discussed topic and cover some of the practical and psychological challenges that occur when you have to face this challenge yourself. I will share some of the strategies and tips I learned along the way and discuss how to handle the impacts of this situation with employees, investors, and customers. I should note that this will not be an exhaustive list of the circumstances you may encounter, just one person's journey navigating the murky world of business death.
In retrospect, we saw this coming early and were able to make good decisions about how to handle the company sale process. A word to the wise here, time is your ally. The sooner you are able to make a decision about selling the better. No one like surprises, not customers, not investors, nor employees. I began a dilliegence process where I spoke with investors and founders who shared stories with me about how NOT to handle this situation. Much of what they shared had to do with waiting too long to share critical information that would affect people financially - employees and investors being the big groups here. (A word of advice, get second and third opinions about how you plan to handle the situation.) They told me the sooner I could accept the reality of what is, and not what I wanted it to be, the sooner I would be able to start making the best decisions available. I realized that reality, in business and in our personal lives, is composed of what is (objective) but also what we want it to be (subjective). If you have ever heard of the term selective hearing, its basically the same thing. It's like looking at the world through a special pair of glasses that only show us the things we want to see or are afraid of versus what really is. During this process, I experienced certain extreme emotions that ultimately made me have to take a look in the mirror and ask a very important question.
Is there anything else I could do to make this work? Have I exhausted all of my options? If you have more cards to play, play them now and play them fast. In this case, my answer was no. We had exhausted all of the options in our control. We were simply at the mercy of what was happening around us.
Like most journeys in life, my journey started inside of myself first. During my last year at Pillar, I went through deep self-loathing, feelings of worthlessness, and powerlessness but most present was the sense that I had failed myself, my employees, and my investors. I realized that if I ever wanted to get out of that dark place, I would have to confront the truth of my situation and really look at each emotion to see where they were really coming from. Through a process of self-guided and professional facilitation, I discovered that at the bottom of it all, my ultimate truth was that I had directly connected my sense of self-worth as a person to the outcome and success of my company. This created a fear mechanism that affected my day-to-day ability to show up in my company, my relationship with my team, and my ability to make clear decisions. I realized that, in the end, the outcome, or the success we want, is always out of our control. (Side note: We talk about this a lot at 1517. Decision quality is about the quality of making a decision at the time, not the inevitable outcome of that decision. There is too much luck and other circumstances that affect outcomes.) And through a fixation on the outcome, I was unable to see how best to show up each day to make the situation as good as it could have been. I used to be someone that drew a lot of my sense of self-worth from what I was able to accomplish in the world. I think this is true for many entrepreneurs. The risk here is that we begin to associate our fundamental worth, or who we are as human beings, with what we are able to accomplish (or in this case not accomplish).
Coming to terms with this was a slow process. It took me the better part of six months to unwind my identity from the reality of what was happening to my company. I was actively in therapy, I was more honest with my team about my mental state, and most challengingly, I had to ask for support. This process was incredibly vulnerable because it meant I had to actually let people see what was happening. And through this vulnerability, I was able to realize something amazing. By allowing others to understand what you are carrying, you show them what you are dealing with, but more importantly how you are dealing with it. People see that you are actively working to improve yourself, and by improving yourself, improve what you are doing. My challenges and our challenges as a company became inspirations. Over time, and through many hard conversations as a team, we were able to shift the mood in our company from somber to unified. I learned that leadership is the simple act of going where you don’t want to go, outside and inside yourself as a model for others to follow.
Throughout this process, the conversations with my employees and investors changed. I was having less of the “this is how bad it is” conversations and more of the “this is how we are going to handle it” conversations. I had to get myself to a place where there was no denial about what was going to happen. We were either going to sell the business or shut it down. That was that.
Next, I had to figure out how each of my conversations with our multiple stakeholders would happen. To do this, I had to understand what each group cared most about. (Empathy is one of the most important skills you can practice at this stage. And yes, empathy can be learned.) What was the commitment I had made to each group that I would now not be able to keep? To myself, it was accomplishing something extraordinary at a young age to prove I could do it and, if I’m being honest, for the possibility that I would be done “trying to survive” financially. To my employees, it was a stable work environment, good pay, opportunities, and the future upside if we sold the business. To my investors, it was a financial return while making the highest integrity decisions. And to our customers, it was solving a problem and winning over their trust in a startup company's ability to succeed. Each is different and each requires a different but consistent message.
When things are hard - its time for honesty. I think honesty can be confused with emotional dumping. Honesty in this case is not sharing how you feel all the way down: that is a process for you and your therapist. Honesty is telling the truth about the situation as objectively as you can and addressing how each of those commitments you made is not going to be met. The sooner you can have these conversations the better. No one likes surprises. I recommend going into each of these conversations with a plan. The basics of that plan are, what's happening, how is that going to affect them, and what are you going to do about it.
For my part, I had already had an honest conversation with myself internally. For my employees, it meant letting them know that there were really only two options and both were less than ideal. We had about eight months of cash in the bank and were committed to keeping the team together to the end. Employees are always going to be worried about income. Some have a family to support, but everyone has financial obligations they need to meet. When I shared the news about what we were going to do, I knew we needed to offer severance to allow everyone to find new opportunities. We budgeted two months of team salaries into our plan. For our investors, I knew we needed to try and maximize the potential for a financial return. I felt the best way to optimize for success here was to bring in expertise, so we began interviewing bankers to help with the sale. (In hindsight, I would only do this if your company is at a certain point. We ended up selling the company assets to another firm that we already knew. Most times in the early stages, your buyer will be actually a partner or a company you already have a relationship with. Plus bankers are expensive.) (Also, if you have the budget, I would recommend buying Directors and Officers Tail insurance, look it up.) After five conversations with bankers, we found one we liked. In our subsequent board meetings and investor updates, I made sure to update on this process and the status of conversations with potential buyers. But I was also transparent on our drop-dead date and that, if we could not find a deal, we would have to shut things down. People had a lot of heads up and I think it was one of the reasons why our shutdown process went so smoothly.
Customer conversations are always difficult. Oftentimes relationships get built over years and trust is established. Not being able to serve our customers any longer felt like a personal defeat. To best mitigate this, we crafted an email as a team we felt was honest and proactive. When we were certain a shut-down was imminent, we reached out to several of our competitors and let them know what was happening and asked if we could refer our customers to them. We created a competitor contact list and sent it along with our email informing them that our services would terminate in forty-five days (give people as much time as possible to find a new solution). We felt this was the best possible solution to the situation which mitigated downtime as much as possible. Upon reflection, this was probably the hardest email I have ever had to send in my life. It was, for us, the point of no return.
I also recognize that the above is very situational and specific. My intention is to share some of the conclusions we needed to come to in order to execute a thoughtful plan. I’d encourage anyone in a similar situation to think about how to best help each stakeholder to the best of their ability. Doing this will honor the commitments you made to them as best as you can.
About a month before our drop-dead date, the last of our prospective buyers finally declined. The most challenging part about this situation was we were very close to a sale. We had support from the CEO of a close partner company and thought we had cleared all the deal hurdles but ultimately, one of their board members rejected the deal in the last meeting. There was nothing more we could do. I had to begin to wind things down.
It wasn’t until this moment that I had actually confronted the reality that I would need to tell our employees, investors, and customers that a shutdown was imminent. I had already prepared a mental model in my head of what was going to happen, but that was far different than actually executing.
Let's start with our employees. We chose our usual weekly team all-hands meeting to discuss the bad news, so as not to cause additional concern around a random meeting popping up that could create speculation. The number one lesson here is it's extremely important to control the narrative of whatever bad news needs to be shared. The last thing you want is employees discussing and speculating on a guess about what a meeting is about. Controlling the narrative means you have to address ALL of the major points about how this will affect them, especially the most difficult ones like what will happen to their jobs. Mentally prepare yourself for this as best you can and deliver this news confident, but understanding manner. I ultimately shared that the company had two months left and that people should start looking for new work immediately. My Chief of Staff made sure that everyone understood what would happen to their salaries and benefits and we made it clear that all team members would get two months of severance on top of starting to look for a job early. After the initial fallout from the bad news, everyone came to an understanding that this was actually not a very bad position to be in and felt we had done what we could to take care of them. We didn’t lose a single team member all the way to the end.
I realized that I need to be very honest with our investors about the situation and the ways in which we were going to go about shutting things down. We hired a firm that specializes in company shutdowns to manage the nuts and bolts of this process. (I spoke with many founders about the best ways to go about this and hiring a firm that specializes in company shutdowns was, by far, the best option. There are many reasons why you should do this but the biggest one is you, as a director of the company, will need to stick around for up to 3 years to handle all potential liabilities and creditor requests. Not fun. Budget at least $80K for this fee.) A large part of the decision to do this came from being able to protect my investors from any potential lawsuits by using this 3rd party firm as a fiduciary to take care of any outstanding debts we had– which were, thankfully, minimal. Once this was all in place, I contacted each of our major investors independently with a quick update and asked if they would like to have a call one-on-one to discuss the situation. Some did, some didn’t but I think it was this additional effort that mattered. People want to know you care and there is not better way to show that than a little one on one attention. Once that was done, I followed up with a final email about the process and the shutdown dates.
I was expecting that our investors would be disappointed and upset. In fact, quite the opposite was true. I received heartfelt emails from almost everyone on our cap table saying effectively that they were sorry this was the outcome, but they knew we put everything we had into the company. Many even indicated that they would be willing to look at any new business venture I may start in the future. At this moment, I realized a very important lesson in life: It's not what you accomplish, but how you treat people along the way that will ultimately determine holistic success in life. I realized that I had just spent the past seven years building relationships with people who could support me in the future regardless if this venture was successful or not. Investors are looking for people who can get results, yes, but also for people who know how to handle the storms and the bad times and who won’t break under the weight of challenging circumstances. I will carry this lesson for the rest of my life. Treating everyone with respect and integrity is one of the best life investments you will ever make.
Finally, our customers' responses were primarily neutral. They were grateful we were giving them a heads up and helping find a replacement solution. In the end, the company was sold for its assets and bought by one of our best customers who realized there ultimately wasn’t a better comparable product on the market. All in all a silver lining. The company continues to run and thrive today under a new umbrella. Its been recapitalized and rolled up under a larger technology solution.
I want to take a moment to talk about something that I think is not often discussed. The changes that occur inside of me when I went through this experience. Any situation in which we experience extreme adversity, whether it's the loss of a loved one, a special relationship, or a company will change who we are. There is a process of grieving that occurs that must be given its due time and attention. Whenever a loss occurs you are reminded of what really mattered to you. It's what hurts the most that shows you what you really cared about. After all, you won't grieve what you never loved. For me, I was grieving an identity. It was the ability to feel I had some control over the world. That what I had created mattered. It was the sense of security, physically, financially and as a mental identity that having my own company gave me. It was a sense of purpose. All of these things were changing and I realized that I needed to ride the wave. I was becoming a different person and whether I liked it or not and I could not go back to what I was before. I needed to reevaluate who was looking at me in the mirror. My only suggestion here is to allow yourself the time and space to properly transition between these identities. If you do not, you will only have to deal with the fallout later in life. Best to get on with it now.
As an entrepreneur, the space between things is a very difficult place to be. We rely on the doing of things for much of our sense of meaning and value. It can be a hard place to intentionally be. I have been meditating on two words that have brought a lot of clarity to me - intentional discomfort. Can I sit–metaphorically–in a place where the only responsibility I have is to be, to watch, and experience? Through this practice, I have learned that in this place lies true potential and creativity. Nothing is where something is born. Where an idea takes root. Where an inspiration plants its seed in your mind and in your heart.
I’m writing to you now in a place of discomfort and wonder. Discomfort in not really knowing what is next for me. Not seeing the path clearly laid out. And yet, I’m sitting in one of the most beautiful places on earth, Telluride CO, under the shadow of magnificent mountains reminding me that, even when everything comes crashing down, we are still right here. When we are able to recognize that we are not what we do, we are truly able to face anything.
Alex Schwarzkopf is a 1517 Advisor-In-Residence and was the cofounder and CEO of Pillar Technologies.