Business Owners May Fail, Yet They Make The Right Hiring Decision In Future. Know How?

Nobody starts a company thinking that they will fail. Every founder believes that they ultimately will be very successful, and for these founders, failure is not an option. But unfortunately, it happens to about 90% of startups. However, this experience should not deter another company from looking for talent. A failed founder is the best hire for their knowledge and character alone.

Companies shut down for many different reasons, and their lack of success doesn't always stem from the faults of the founder. Many founders have good ideas and can scale their businesses to a certain degree, but they can't find the necessary money to make it last. Here's a cheat sheet to the most common reasons why a startup failed:

1. Great idea, but I ran out of money.

2. Bad idea and ran out of money.

3. Not cut out to scale a startup and, therefore, ran out of money.

What is the common trend?  

Running out of money. While this does reflect on the founder to a certain extent, the radical shifts in the financing, customer behavior, and market fluctuations can put any company through a storm, and it's very unpredictable as to who will emerge victoriously.

The mind of a founder

As a company is approaching the end of its runway, founders begin to change their thought process from "how can I do more?" to "what am I going to do if this falls apart?" It's human nature to contemplate this question, as it's a pertinent key to survival. Bills still need to be paid, the food needs to be put on the table, and employees need to anticipate their future, and that all takes cash. The responsible founder expects and prepares for this reality when it begins to set in.  

Of course, a few other big questions that might cross a founder's mind when they see their dream quickly turn into a nightmare is "What will people think of me?" "Will this affect my ability to get a job?" "Will people look at me like a failure?" It's natural to fear the judgment of peers; humans, particularly in the business world, have a very short-term memory when it comes to success or failure. We are all as good as our last win. It's a valid question to wonder whether we'll be judged by our complete bodies of work or merely the previous venture we participated in, and that spawns the follow-up question of whether this past failure affects our ability to be ultimately successful in our careers.  

The benefit of hiring someone who has faced these challenges is that they have learned from the experience. Failure is a critical part of growing as a person, and the most successful people in this world have all failed time and time miserably again. However, what makes them win is that they don't quit. They understand that a failure is a tool that can be used in other ventures. Great leaders hire founders who have had failures because they know they know what it means to strive for greatness. Additionally, how they have dealt with a failure shows that they can get back up, dust themselves off, and try again. This is excellent quality for any hire, and particularly for someone in a higher position.

How not to fail

While a founder who fails can be a great asset, it depends on what they did with it. I believe that the answer lies in how the company failed. There are so many variables affecting a company's success that it's necessary to consider the whole experience, from start to finish, to truly determine whether it was a fault of the founder or CEO or if it were simply a consequence of timing. However, it's telling of a CEO's character to observe what they do when their company is sinking. Take a look at the chaotic shutdown of Zirtual. CEO Maren Kate Donovan informed her staff of 400 that they were out of a job, effective immediately, by emailing them at 1 AM.  

Rather than planning and preparing her employees, she left them in the lurch. This total blunder resulted in a significant backlash over social media and through the startup ecosystem. While this is undoubtedly extreme, and many people would never consider doing such a cruel thing to the individuals who rely on the firm for a living, there are numerous circumstances where layoffs are required to either keep the company afloat or remove it. Though it's difficult to discern the backstory, her opportunities for post-Zirtual C-level positions were probably impacted by the perception that she cannot be trusted with such high-level decisions. There are many more examples of this in everyday life when a company closes because it runs out of funding.

In most cases, this is when the CEO or founder is transparent with their employees. Though many might leave immediately, this retains the founder's character as someone honest and trustworthy. Due to the market variance, the failure could have to do with any number of problems, but it's the work ethic and communication style that dictates how employees will remember their leaders.  

How to spot a failed founder worth hiring

A founder generally works longer hours than most people and should be rewarded for this job market. They are usually loyal but will do whatever it takes to be successful. They could not make it work independently, not a cause for failure, but simply a sign that it was not meant to be. If I had the opportunity between a failed founder and someone without founding experience, I would hire the founder in a heartbeat, knowing that they understand what it means to put in a day's work and hoping that their passion for greatness will hopefully rub off others. Failed founders have something that others do not. They have taken a significant risk of being great and came up short, which means they have learned lessons others can never know. Without question, a failed founder is one of the most experienced people to go after in the job market. They have shown that they will take risks, work long hours to achieve success, communicate with customers, and blend different pieces of a company's operations into one. Most importantly, their previous failures give them an insatiable hunger for success - and it's your company that will benefit.