Lessons from Business

Posted 2026-04-08

For-profit businesses weren’t the focus of the workshop I planned to create, but there is a lot to learn from the literature on how to shut companies down.

Organisational Decline Is Not a Single Event

Whetten1980 argued that management science had almost entirely ignored organizational decline in favour of growth. WeitzelJonsson1989 extended this into a five-stage model: blindness (warning signs go unrecognised), inaction (signs are seen but nothing changes), faulty action (the wrong remedies are tried), crisis (resources are depleted and options close off), and dissolution. The practical insight is that by the time closure feels urgent, the organisation has usually been in decline for much longer than anyone acknowledged. For project teams, this predicts that the moment when shutdown becomes undeniable is rarely the moment it became inevitable: the warning signs were there earlier, and recognising the stage a project is in determines which interventions are still available.

Exit Planning Is a Skill That Takes Time to Develop

Burlingham2014 interviewed entrepreneurs who had closed or sold their businesses and identified a consistent finding: the owners who were satisfied with how their exits went were those who had started planning years in advance. He organises the exit process into four stages he calls exploration, strategy, execution, and transition, and shows that skipping the first two because they feel premature is the most common mistake. Warrillow2011 makes a complementary argument: a project or business that can only be run by its founders has no transferable value, and building transferable value requires deliberate, ongoing effort rather than a last-minute handover document.

Founder Departure Has a Psychology of Its Own

Sonnenfeld1988 studied what happens when leaders leave the organisations they built and identified four departure archetypes:

Monarchs refuse to leave until forced out and undermine successors.
Generals depart reluctantly, maintain close ties, and often attempt to return.
Ambassadors leave willingly, remain available to successors, and are the most satisfied post-exit.
Governors leave cleanly for new pursuits and disengage entirely.

Which of these a founder becomes is shaped by how central the project is to their identity; recognising which pattern someone is likely to follow is useful preparation for the handover conversations.

Financial Distress Has Direct and Indirect Costs

Wruck1990 analysed the cost of financial distress in a large sample of companies and found that direct costs like legal fees and asset sales at distress prices were typically modest relative to enterprise value. On the other hand, indirect costs like lost customers, departing employees, cancelled contracts, and management distraction were substantially larger and harder to measure. The indirect costs arise because distress signals that the organisation may not be able to fulfil its commitments, which triggers defensive behaviour that in turn accelerates the decline. For project teams under funding pressure, the analog is the chilling effect on contributions when a shutdown is rumoured but not yet confirmed: the information vacuum does more damage than the honest announcement would have done.

Grief Is a Normal Response to Business Failure

Shepherd2003 and Shepherd2016 found that the intensity of grief experienced by entrepreneurs after a failed venture is proportional to the degree of personal identification with the project, and that it directly interferes with the ability to learn from the experience. Crucially, grief recovery is not linear and is not accelerated by forcing “lessons learned” conversations too early. Instead, structured reflection is most productive when it begins after a period of acknowledgement, not immediately after the loss. This suggests that a retrospective held the week a project closes will capture less than one held a month later, once the initial shock has passed.

The Asset Sale vs. Entity Sale Distinction

When a company closes or transfers its work to another organisation, the transaction is typically structured either as an asset transfer (selected assets and obligations are transferred, but the original legal entity persists or is wound down separately) or as an entity transfer (the entire legal entity, including unknown liabilities, changes hands). Marks2022 covers this distinction in detail in the context of private company transactions, and the same logic applies to project closure: handing over a GitHub organisation, a domain name, and a mailing list archive is not the same as handing over the project’s governance obligations or data privacy commitments. Being explicit about exactly what is and isn’t being transferred protects both the outgoing project team and the incoming maintainers. Every handover should therefore be treated as an asset transfer with an explicit list of what is included, rather than assuming that “the project” is a single indivisible thing.

Legal Obligations Survive Shutdown

Business closure triggers a set of legal obligations that are easy to overlook and expensive to ignore. Creditors, including employees with unpaid wages, suppliers with outstanding invoices, and landlords with remaining lease terms, are entitled to notice. In most legal systems they also have a defined period in which to submit claims before residual assets are distributed. In addition, most jurisdictions require formal dissolution filings with the government and final tax returns covering the period up to the dissolution date; failure to file typically results in ongoing tax and reporting obligations even after the organisation has ceased to operate. Intellectual property assets do not transfer automatically on dissolution and require explicit assignment or licensing agreements. Employment notice requirements vary widely across jurisdictions but typically require advance written notice of redundancies above a threshold size, with failure to comply entitling affected employees to compensation.

Project leaders must therefore identify jurisdiction-specific equivalents of these obligations early in the closure process, not as a final step, because some of them (such as creditor notification periods) create binding deadlines that constrain everything else.

Bibliography

Burlingham2014: Bo Burlingham: Finish Big: How Great Entrepreneurs Exit Their Companies on Top. Portfolio/Penguin, 2014, 978-1591844976.
Marks2022: Kenneth H. Marks, Christian W. Blees, Michael R. Nall, and Thomas A. Stewart: Middle Market M&A: Handbook for Advisors, Investors, and Business Owners (2nd ed.). Wiley Finance, 2022, 978-1119828105.
Shepherd2003: Dean A. Shepherd: “Learning from Business Failure: Propositions of Grief Recovery for the Self-Employed.” Academy of Management Review, 28(2), 2003, 10.5465/amr.2003.9416377.
Shepherd2016: Dean A. Shepherd, Trenton Williams, Marcus Wolfe, and Holger Patzelt: Learning from Entrepreneurial Failure: Emotions, Cognitions, and Actions. Cambridge University Press, 2016, 978-1107569836.
Sonnenfeld1988: Jeffrey Sonnenfeld: The Hero’s Farewell: What Happens When CEOs Retire. Oxford University Press, 1988, 978-0195065831.
Ucbasaran2013: Deniz Ucbasaran, Dean A. Shepherd, Andy Lockett, and S. John Lyon: “Life After Business Failure: The Process and Consequences of Business Failure for Entrepreneurs.” Journal of Management, 39(1), 2013, 10.1177/0149206312457823.
Warrillow2011: John Warrillow: Built to Sell: Creating a Business That Can Thrive Without You. Portfolio, 2011, 978-1591843979.
WeitzelJonsson1989: William Weitzel and Ellen Jonsson: “Decline in Organizations: A Literature Integration and Extension.” Administrative Science Quarterly, 34(1), 1989, 10.2307/2392987.
Whetten1980: David A. Whetten: “Organizational Decline: A Neglected Topic in Organizational Science.” Academy of Management Review, 5(4), 1980, 10.5465/amr.1980.4288962.
Wruck1990: Karen Hopper Wruck: “Financial Distress, Reorganization, and Organizational Efficiency.” Journal of Financial Economics, 27(2), 1990, 10.1016/0304-405X(90)90063-6.