Failing With Integrity discusses how to fail a business with minimal damage. It suggests caring for customers, partners, employees, and investors by being transparent about failure and minimizing negative impacts. For customers, provide alternatives or refunds. For partners, consider acquisition offers. For employees, provide severance or help finding new jobs. For investors, maintain communication and potentially buy them out. Overall, fail fast but leave time and resources to fail with integrity by prioritizing stakeholders over personal interests.

1. Failing With Integrity
how to fail without
screwing over everyone

2. DISCLAIMER
I am not a legal, insurance, financial, or spiritual
professional.
Information is provided in summary form and
does not purport to be complete or perfectly
accurate.
This presentation is for educational purposes
only and does not replace independent
professional judgment.
2
photo credit: Apostolos Lerios

3. WHY ARE WE
DISCUSSING
FAILURE?
Ukemi: how to break a fall
● Avoid injury
● Avoid hurting partner
3
Failure is unavoidable.

4. “9 out of 10 businesses fail.”
20% of small businesses fail in their first year
30% of small businesses fail within 2 years
50% of small businesses fail within 5 years
70% of small businesses fail within 10 years
75% of venture-backed companies will
not return cash to their investors
(Wall Street Journal, 2012)
4
(Bureau of Labor Statistics, 2018; summary/rounding by Fundera, 2019)

5. 5
U.S. BUREAU
OF LABOR
STATISTICS

6. Fail with Integrity
Minimize the damage inflicted on everyone
affiliated with your business…
Including yourself
6
Failure is OK

7. 7

8. CUSTOMERS Erroneous results returned to patients
31,000 (>11%) test results were voided
8
Walgreens: $100M access fee + $40M loan
Safeway: $30M loan + $350M commitment
PARTNERS
EMPLOYEES Toxic corporate culture: secrecy + loyalty
Ian Gibbons; Erika Cheung & Tyler Shultz
INVESTORS $700M raised, $10B valuation reached → $0
2018: SEC fraud charges & sanctions
2020: criminal fraud trial scheduled
THEMSELVES

9. 9

10. CUSTOMERS $3M in unfulfilled gift cards
10
$3M in unpaid bills to suppliers and vendors
● $20K to ThreeBabes Bakeshop
● $150K to unnamed LA vendor
PARTNERS
EMPLOYEES Drivers did not receive final paycheck
Did not provide 60-day notice for layoffs
INVESTORS $125M raised, $300M valuation reached → $0
Original founders had already left last yearTHEMSELVES?

11. “
“In a start-up, if a company is doing
well, and a founder gets greedy and
takes more than his fair share,
people sort of forgive him.
But when a company is going down,
when you protect your own interest
it's always at the cost of someone
else. People don't forgive that.”
11
(2011, HBS Working Knowledge)

12. Personal failure is ruinous* 12
Enterprise failure can be an asset*
Reputation is everything
*(2011, HBS Working Knowledge)

13. “
Ironically, a personal failure often occurs because an
entrepreneur is trying too hard to avoid an enterprise
failure. Trying to keep the venture capitalists happy and
the bankruptcy at bay, the founder or CEO will resort to
illegal acts such as fraud, or to morally problematic acts
such as blatant misrepresentation of the company's
capabilities or prospects when talking to customers or
financiers.
“And when you do that, you're then on the slippery slope
of taking an enterprise failure and making it a personal
failure,” Ghosh says. “Executives do that all the time
because they do not distinguish between the two.”
13
(2011, HBS Working Knowledge)

14. ABOUT
VENTURE
CAPITAL
Better than anyone, they can distinguish between
enterprise failure and personal failure.
Better than anyone, they understand risk.
14
VC’s define failure differently.

15. INOCULATING
FOR FAILURE
LEGAL
C-Corporation
S-Corporation
LLC - Limited
Liability Company
Patents
Trademarks
INSURANCE
General Liability
Directors & Officers
Errors & Omissions
EPLI
Cyberliability
Crime coverage
Key-man Life
Umbrella
FINANCIAL
CFO or financial mgr
Keep accurate
financial records
GAAP-compliance
Sarbanes-Oxley
Fundraising levels
Lines of credit
15

16. PLAN F
What would failure look like?
16
Do I have alternatives or other options?
● Loans/line of credit
● Pivot
● Acquisition
○ Divestiture: sell part of company
○ Divestiture: sell intellectual property
○ Acqui-hire
What are the metrics and KPIs that signal failure?
Is there a threshold or tipping point?

17. 17
Fail fast...
But leave enough
time and resources to
fail with integrity.

18. CARING FOR
CUSTOMERS
SPRINGPAD
18

19. CARING FOR
PARTNERS
19
EMPLOYEE
No desire to
transition to
acquiring
company
PARTNER
No services or
access to
technology due
to terms of
acquisition
RELEASED EMPLOYEE
TO BE HIRED BY PARTNER
Employee could use expertise
to continue services and find
workarounds with available
technologies

20. CARING FOR
EMPLOYEES
REDDIT
EXAMPLE
20

21. CARING FOR
INVESTORS
If funds are left, certain investors get priority
(ie: preferred vs. common stock)
Maintain communication and transparency with
investors
When the time comes, tell them about your next
venture!
21

22. CARING FOR
YOURSELF
Compensate yourself fairly.
Take care of yourself mentally
● Process grief and forgive.
● If you can, take time off to spend with family,
pursue diverse interests.
Consider a “recovery job” to pay the bills and stay
sharp before starting another company.
22

23. CUSTOMERS Customer feedback → product roadmap
Develop engagement and loyalty programs
23
Partner feedback → early trends
Incentives, commissions, acquisition
PARTNERS
EMPLOYEES Bonus programs, stock options, patent awards
HR: benefits, underrepresented hires
INVESTORS Maintain transparency and communication
Consider buying them out
SUCCEED WITH INTEGRITY!

24. 24
Pay It Forward
Mentorship
Charity
Free/heavily discounted products or services
Foundation tied to company mission
Share your time and experience with others

25. 25
THANKS!
Any questions?
https://www.linkedin.com/in/christinelerios/
https://www.slideshare.net/mumedia

26. SOURCES Slide template: Octavia by SlidesCarnival
[Photograph of ukemi practice] (2019). Retrieved from //martialartskills.com/ukemi/
Gage, D. (2012, September 19). The Venture Capital Secret: 3 out of 4 Start-Ups Fail. The Wall
Street Journal. Retrieved from
//www.immagic.com/eLibrary/ARCHIVES/GENERAL/GENPRESS/W120919G.pdf
U.S. Small Business Administration. (2018, August). Frequently Asked Questions About Small
Business. Retrieved from
//www.sba.gov/sites/default/files/advocacy/Frequently-Asked-Questions-Small-Business-2018.pdf
McIntyre, G. (2019, September 5). What Percentage of Small Businesses Fail. fundera.com.
Retrieved from //www.fundera.com/blog/what-percentage-of-small-businesses-fail
Bureau of Labor Statistics. (2016, April 28). Business Employment Dynamics: Entrepreneurship
and the U.S. Economy. Retrieved from
https://www.bls.gov/bdm/entrepreneurship/entrepreneurship.htm
26
slide 3
slide 4
slide 5

27. slide 7 [Cover] (2015, October). Inc. Magazine. Retrieved from //www.inc.com/magazine/oct-2015
[Cover] (2014, October). Forbes Magazine. Special issue. Retrieved from
//www.vox.com/2015/10/26/11620036/theranos-ceo-elizabeth-holmess-five-best-cover-story-appea
rances
[Cover] (2014, June 12). Fortune Magazine. Retrieved from
//www.vox.com/2015/10/26/11620036/theranos-ceo-elizabeth-holmess-five-best-cover-story-appea
rances
[Composite of various newspaper headlines] Staff, CB Insights. (2015, October 16). Wounded
Unicorn: Sentiment Analysis Highlights How Badly Theranos Has Been Destroyed In The Press.
cbinsights.com. Retrieved from //www.cbinsights.com/research/theranos-news-sentiment/
[Graphic and timeline of Edison tests] Weaver, C. (2016, October 20). Agony, Alarm and Anger for
People Hurt by Theranos’s Botched Blood Tests. The Wall Street Journal. Retreived from
//www.wsj.com/articles/the-patients-hurt-by-theranos-1476973026
[Cover] Carreyrou, J. (2018). Bad Blood: Secrets and Lies in a Silicon Valley Startup. New York, NY:
Knopf
27

28. slide 8 Carreyrou, J. (2018). Bad Blood: Secrets and Lies in a Silicon Valley Startup. New York, NY: Knopf
Carreyrou, J. (2018, May 21). A New Look Inside Theranos’ Dysfunctional Corporate Culture. Wired
Magazine. Retrieved from
//www.wired.com/story/a-new-look-inside-theranos-dysfunctional-corporate-culture/
Associated Press. (2019, June 29). Theranos CEO Elizabeth Holmes’ criminal fraud trial is set for
July 2020. Los Angeles Times. Retrieved from
//www.latimes.com/business/la-fi-theranos-elizabeth-holmes-to-trial-20190629-story.html
Clark, K. (2019, January 21). After Raising $125M, Munchery Fails to Deliver. Techcrunch.com.
Retrieved from //techcrunch.com/2019/01/21/munchery-shuts-down/
Harnett, S. (2019 February 2). Munchery Folds, and These Local Businesses Are Paying the Price.
kqed.com. Retrieved from
//www.kqed.org/news/11722735/munchery-folds-and-these-local-businesses-are-paying-the-price
Staff (2019, January 29). Munchery Sued By Ex-Employees Over Shutdown. PYMNTS.com.
Retrieved from //www.pymnts.com/legal/2019/munchery-sued-ex-employees-shutdown/
28
slide 9 & 10

29. slide 9 & 10 Clark, K. (2019, March 4). Failed meal-kit service Munchery owes $6M to gift card holders, vendors.
techcrunch.com. Retreived from
//techcrunch.com/2019/03/04/failed-meal-kit-service-munchery-owes-6m-to-gift-card-holders-vendors/
Newcomer, E. (2019, January 24). Munchery Becomes the Latest Casualty of the Food Delivery
Shakeout. bloomberg.com. Retrieved from
//www.bloomberg.com/news/articles/2019-01-24/munchery-becomes-the-latest-casualty-of-the-food-d
elivery-shakeout
Nobel, C. (2011, March 7). Why Companies Fail--and How Their Founders Can Bounce Back. Harvard
Business School Working Knowledge. Retrieved from
//host.uniroma3.it/FACOLTA/ECONOMIA/db/materiali/insegnamenti/611_8960.pdf
[Springpad shutdown notice] (2014, June). Retrieved from //www.facebook.com/pg/springpad/photos/
[AskReddit comment] (2019). reddit.com. Retrieved from
//www.reddit.com/r/HumansBeingBros/comments/bcfomn/the_best_possible_outcome_of_layoffs/
Original thread at
//www.reddit.com/r/AskReddit/comments/aoh8hq/whats_the_best_job_quitting_story_you_can_tell/
29slide 11, 12 & 13
slide 18
slide 20