The D2Z Podcast

What Every Entrepreneur Should Know About Closing a Business with Brendan Mahony - 125

• Brandon Amoroso • Episode 125

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In this episode of D2Z, Brandon Amoroso chats with Brendan Mahony, CEO of Sunset, about the critical yet often overlooked aspects of winding down a business. Brendan shares his journey from a Y Combinator alum to navigating business closures, offering a transparent look at the challenges and necessities of responsibly shutting down a company. This conversation sheds light on the legal, tax, and emotional intricacies involved in business dissolution, providing valuable insights for entrepreneurs at any stage.


Here's what you'll learn:

🚪 The necessary steps and considerations for shutting down a business.

📈 The differences between asset sales and stock sales in acquisitions.

🛑 Common pitfalls in the dissolution process and how to avoid them.

🔄 The emotional journey of moving on from a failed venture.

📊 Insights on managing financial liabilities and investor expectations during closure.


Timestamps

🎙️ Introduction to Brendan Mahony (00:00:00)

🛑 Discussing the Importance of Proper Business Shutdowns (00:00:33)

🎢 Brendan's Entrepreneurial Journey and Founding Sunset (00:00:51)

🤔 The Differences Between Asset Sales and Stock Sales (00:01:57)

🔍 The Role of Dissolution in Business Acquisitions (00:02:24)

🚫 Common Misconceptions and Challenges in Business Dissolution (00:03:07)

📉 Impact of Incomplete Dissolutions on Future Endeavors (00:03:42)

📊 Financial and Emotional Aspects of Closing a Business (00:04:51)

📚 Lessons from Failed Ventures and Importance of Closure (00:06:55)

🔄 The Process of Working with Sunset for Business Closure (00:27:58)

📈 Exploring Expansion and Future Directions for Sunset (00:29:34)



Brendan Mahony

LinkedIn - https://www.linkedin.com/in/brendan-mahony-72929385/

Sunset - https://www.sunsethq.com/


Brandon Amoroso:

LinkedIn - https://www.linkedin.com/in/brandonamoroso/

Web - https://brandonamoroso.com/

Instagram - https://www.instagram.com/bamoroso11/

X - https://twitter.com/AmorosoBrandon

Scalis.ai - https://scalis.ai/

Speaker 1:

I'm Brandon Amoroso, and this is the D2Z Podcast building and growing your business from a Gen Z perspective. Hey everyone, thanks for tuning in to D2Z, a podcast about using the Gen Z mindset to grow your business. I'm Gen Z entrepreneur Brandon Amoroso, founder and president of retention as a service agency Electric, as well as the co-founder of Scaless, and today I'm talking with Brendan Mahoney, who's the founder and CEO of Sunset, which is a company that helps companies shut down. Thanks for coming on the show.

Speaker 2:

Thanks so much for having me man Appreciate it.

Speaker 1:

So before we dive into the interesting topics behind why and how you can shut down a business, can you give everybody just a brief background on yourself and sort of how you ended up here?

Speaker 2:

Yeah, of course. Yeah, definitely an interesting journey to run this company. But yeah, I went through Y Combinator a few years ago, back in 2018. So kind of started like a tool for digital agencies out of there, ended up selling that to private equity. Kind of immediately started another company after. That should have taken a minute but, yeah, ended up not working out, couldn't really find product market fit. So went through the dissolution process. Knew nothing about it, was very sad and painful and long and expensive and so, yeah, I mean that's kind of how we got to where we are today. So, yeah, I run a company like you mentioned, called Sunset. We help primarily, you know, tech companies wind down, handling, you know, all the legal, tax and operational aspects that go into a dissolution.

Speaker 1:

Are there any components to what you do that are required when a business is getting acquired versus, you know, actually like shutting down because they're closing the doors?

Speaker 2:

Yeah, it's a really good question. So you know, especially if you haven't gone through an acquisition before, there's a lot of different flavors of them, so a lot of them might be an asset sale actually. So you know, let's say the buyer is looking to acquire your startup. You know they could do a full stock sale. So they're actually literally purchasing all of the stock of your entity and you know there's some benefits to that. But you can imagine there are a lot of risks, right, if you're buying the whole entity, you're buying all the contingent liabilities.

Speaker 2:

So, like anything that comes out of the woodworks, you're now you're the rightful owner of that, and so what a lot of buyers will do is they'll do asset sales. So they'll literally just pluck specific assets and or liabilities even from your company and just purchase those, but they'll actually, in the process, leave behind, you know, your corporate shell that has all the other like we talked about contingent liabilities, taxes, you know, state agencies, registrations, all that good stuff will still be there, and so, and similarly with acquihires too, right, so when you know, maybe they're just getting some employment agreements, things like that. So we work with a lot of companies who had great exits, but yeah, they were in the form of an asset sale or an acquihire and, yeah, you know, you still basically need to go through the entire dissolution process, despite that?

Speaker 1:

Yeah, I don't think that. Because my exit was an asset sale, I don't think that the full dissolution process ever necessarily took place. I probably have the state of Washington calling me right now for my employer taxes. That has not been paid in like three years? Um what split, would you say, is like?

Speaker 2:

um you know, of the transactions that you see, are most of them primarily like asset sales well, yeah, so if they it, so what's you know the benefit of a stock sale, let's say, is you know you don't need to do the dissolution. The entity was fully engulfed in the acquirer. So we don't work with, we're just not in those transactions. But I would say probably about 30% to 40% of the companies we work with have some type of asset purchase agreement that was executed when they're working with us. So it's a decent chunk have gone through kind of an asset sale of some kind or acqui-hire.

Speaker 1:

I think it's relatively obvious, if you're selling your business in an asset sale why you would want to use a business like yours to dissolve the entity. But let's say you're somebody who you know, everything's just gone to shit and you know you're just like. Now I still have to deal with it. And what are some of the like, the repercussions if you don't handle things appropriately when it comes to resolving the business.

Speaker 2:

Yeah, we definitely get this question a lot. So I'll kind of caveat and say you know, most of the companies we work with are venture backed or have some type of you know, third party investors that put capital into the business. And so, using that as an example to start with, you know, it's actually pretty, it's not very cool to just like go zombie mode, because what a lot of founders don't understand is, as a venture fund, any of these types of firms, any investors, they get audited and when they get audited they need proof that your company actually shut down. So, yeah, you might think, hey, I sent an email, whatever we're shut down, but they actually need that certificate of dissolution to go to the IRS and say, hey, yeah, this company properly dissolved. So you know, one aspect is that.

Speaker 2:

So, like this is definitely a big reputational game, you know, especially in the startup world. And so it's not investors. We talked to a lot of investors and they get really not happy when folks literally just walk away. So that's one be when folks literally just walk away, so that's one. But two, you know you're effectively building up a case against yourself with all these state agencies, the IRS, so you can do that and like are they going to go? You know caveat nothing on this podcast is legal and tax advice Are they going to go after you? You know, probably not, have they? Yeah, they've definitely gone after people for sure, for you know being extraordinarily delinquent on their taxes.

Speaker 1:

So yeah, got it. No, that that makes sense. What are? You know, what are some of the things that you took away from? You know, your previous businesses that made you even want to, you know, embark upon this as the venture.

Speaker 2:

Yeah. So I mean, you know, going deeper in the story, so after my, you know, after my second company didn't work out and we dissolved it, it took like two years where I was working for other folks. I didn't know what I wanted to do. I didn't know what I wanted to start and during that time I started getting texts from like different YC buddies, other founders, I know, just being like hey man, shit is not going well, like this is bad. I know you went through this dissolution, like can you help me out? So after like the third or fourth text I was like this is insane, like it's so easy to start something. You know you're going like Stripe Atlas pay like 500 bucks, takes like five minutes, really not the same for winding things down. So you know that was kind of the journey to get here. But yeah, I kind of lost thread of your initial question so I apologize actually.

Speaker 1:

What even prompted you to want to start the business that shuts down businesses. It really is my favorite tagline for a company. Oh my God. No, but I didn't think about the asset sales, though, and the acqui-hires, so it's not like you're just a grim reaper here, like you are helping facilitate great things as well, too.

Speaker 2:

Exactly. I know it's not all doom and gloom, but you know why I wanted to do it. It's when I was helping some of those founders you know not not when we are actually running this business it felt really good, like you know, everyone says like start companies where you're solving your own problem. And this was really, you know, when I dissolved my company. Personally, like this was a huge low point in my life, just in general. And then I was kind of saddled with like seven to nine months of dealing with this shit. I screwed stuff up in New York. I had to pay like a few grand out of pocket like a year and a half later. It was a disaster.

Speaker 2:

And yeah, you know, the other companies I had were like they were like dev tools and design tools and it's like sure you're really helping people maybe. But for this, you know we've worked with some real, like you know we've. We've worked with some real, like you know we've. We've heard some stories from founders who definitely share some of them. But you know, we're going through some really intense stuff and being able to take this load off their plates and let them kind of move on and find another job, make some more money start another company. It's actually extremely fulfilling, despite it being a weird space.

Speaker 1:

Yeah, no, that makes sense and I think that's not an uncommon refrain that I've heard from other folks on the podcast that usually the best business comes out of whatever your current thing is that you're doing your current pain point and then being able to help and solve that for other people. It just seems like you know my new business is the exact same case I feel like most people's is. It's not like you're just sitting somewhere staring in the sky and then all of a sudden this light bulb moment comes to you. Uh, like they, they like they will, will glorify in the movies.

Speaker 1:

Yeah, exactly exactly what are you seeing in the market right now? Because you're obviously very close to it, you're very connected with a lot of VCs and investors. It seems like things maybe are a bit better right now than they were necessarily a year, year and a half ago. Would you say that's accurate or inaccurate? I was talking to somebody earlier today and they were talking about how it's, you know, interesting to see the dynamics between the private markets and the public markets, because obviously the public markets are pretty much instant. You know you're a publicly traded stock in terms of pricing and whatnot, but there's definitely a bit of a lag when it comes to, you know, venture. So what are you seeing? Um, you know, this year and and going into next, do you think things are getting better? Are they getting worse?

Speaker 2:

I think there's still a pretty long tail of the Zerp era going on. From what we've seen, there's still a lot of companies coming to us who raise crazy rounds. 2020, 2021, 2022, even that are either. You know, it's a mix. You know some folks come to us and, yeah, they're cash out and it's a problem.

Speaker 2:

A lot of folks that come to us and they've got a bunch of money to return but they've just been trying taking a lot of swings at bats and they're just kind of they couldn't figure it out, they couldn't get the product, we couldn't get to product market fit and they want to return that capital. So I think, from what we've seen, there's definitely more of I haven't really heard of too much pressure from VCs, necessarily from founders, but I think there is more of an appetite to return capital in some of those cases and maybe there wasn't as much back in the day. But from what we're seeing, at least again on kind of venture-backed, primarily tech startup sphere, yeah, it definitely hasn't slowed down. It's been only kind of increasing, especially as year-end is coming up. But I, you know, we're just like a microcosm of the space, so not entirely sure.

Speaker 1:

Yeah, well, it seems like you know there's still a lot of lag from 2020, 2021. That's still sort of sorting itself out, even at the amount of capital that's going into businesses that don't have PMF yet is significantly less than you know the way that it was going in in 2019, 2020, even 2021.

Speaker 2:

Oh yeah, big time. Yeah, definitely I mean so you know a lot of folks will come to us. You know, sometimes it's it's actually pretty good. We're the come to us early and they're and they're still trying to figure out their options and they're looking at raising bridge rounds, going to their existing investors, looking to M&A, things along those lines. That's always, I think, great. You know, you've got like nine months, cash out, something along those lines. It's really good to start thinking about those things.

Speaker 2:

Things become really difficult when you have no time and no money, cause then you can't sell it. Shutting down becomes a lot more complex. You can't just walk away. If you're in solvent, you've got a bunch of debt obligations, like it's a lot more expensive than you think and it's a lot more time consuming and difficult and, yeah, you definitely don't have time to raise capital. So we definitely been been seeing more folks come to us early looking at their options. But, yeah, a lot of funding rounds. We've anecdotally seen a lot of people have term sheets get pulled at the last minute. Folks have been trying for six, nine months to raise a bridge, raise that next round getting super close, but just, you know, folks pulling out at the last minute. So, yeah, we've definitely seen a decrease in kind of, you know, capital going into companies that don't have truly, truly strong growth.

Speaker 1:

When it comes to you know, the psychological component of this whole thing. You know there's obviously a lot of business owners who are listening to this. How do you sort of detach yourself and like, how are you able to detach yourself from the the personal identity component of it being, you know, like your business and not wanting to let it fail? Yeah, because that, I mean, even that freaks me out, even today with the new business. You know it, you know it's like, it's like me. It can't fail. Like what do you mean? It could fail, it's impossible. So how do you like get over that, that hurdle and what are? You know, what are some things that you did, what are some of the things that you've seen some of the founders that you're interacting with and engaging working with right now, like you know, get through that.

Speaker 2:

Yeah, it's a really good question.

Speaker 2:

I mean I wish I had a better answer for you. I mean for me personally. So what we see a lot of folks do is like travel. I don't know if that works well. That's what I did. Like I rented a van with my wife. We like drove with the PCH, you know. Did it help? I don't know, but it was great, great memories, you know, I don't.

Speaker 2:

I think the answer is like it'll just have, like you will feel that way, right, and I think the only way to kind of heal that is just for me was just taking a bunch of time and just taking more swings at bat and just trying to start a bunch more companies and playing around with different ideas and just trying to learn from my huge mistakes of the previous ones that didn't work out. But, yeah, I mean I wish I had a better answer, but I don't. I feel the same exact way. I just like I can't have this one fail and it felt awful, like it felt absolutely terrible the first go around. So, and and after going through that like man, does that keep me up at night? Just like really not wanting to experience that again. So, um, it's a good question, but I, yeah, don't have a good answer.

Speaker 1:

No, I mean hey, hey, listen in a van on the PCH doesn't sound that bad.

Speaker 2:

It's great.

Speaker 1:

Yeah, it's sick, I think, the thing that I've been told time and time again. Even though it's easy to say it, it's a lot harder to actually believe it, because if you really do love entrepreneurship, then there's always going to be more businesses. You know, you're not, and it was even the same for selling the first business. You know, because there is that personal identity attachment, like there's always going to be something else, there's just going to be another one. So it's not. It sounds ridiculous, as we've been talking about you know, having to shut down your company because it failed, but there's a lot of founders that struggle after they've sold their company. Yeah, because they don't have it anymore and they don't know what to do. And it's not, you know, you don't have the. There's so much that goes into that aspect of things as well. I think maybe we've stumbled into our next business here with helping post-exited and post-shutdown founders with figuring out how to navigate life.

Speaker 2:

Oh man, I know, I know it is super challenging on both ends. I think for me too, probably kind of going back to your initial question, though, something that was really helpful which I didn't do a good job at at the time was just talking to more founders who've been through it. I think a big thing we're trying to do is just kind of remove the stigma of this, like this is a game, you know, if you sign up for the game, you should be well prepared, and we're all well informed that nine out of 10 don't work out like that is. That is the venture math, that is how this is played, and even not in venture. You look at Better Business Bureau data of SMBs since 1980, and yeah, it's like 75% of companies are going to fail within the first five to seven years. So I agree, it's just. I think what you said is totally accurate If you really love doing this, you'll be. You'll just be forced into kind of doing the next one and hopefully that won't be great.

Speaker 1:

You obviously see a lot of businesses that have failed. Are there any common themes that you see or you know? Mistakes or patterns amongst the ones that you are having to you know help dissolve that you would take away, as you know, a potential, like you know, insight, or or or learning lesson, for lack of a better way to phrase it.

Speaker 2:

Yeah, I mean, I think I think there's definitely, you know, we, we, we do see some of the hot industries you know what I mean and, like you're saying, kind of lagging indicators of those. So we see some betting coming, some crypto, things along those lines. So I think you know these are all obvious kind of lessons, nothing that's going to be new to any listener, but yeah, it's just kind of jumping on that bandwagon, especially being kind of late to it can work in many instances but also might not work out. We just do see a lot of those kind of like clumps coming in at any given time. But yeah, in general, I think a lot of folks we see they just like raise a bunch of capital, they burn a huge, huge, huge amount by hiring a ton of folks that's always what it is and they're really not making much money. And so I think our you know my biggest lesson from that and what we're doing here at Sunset is just being extremely, yeah, extremely aware of our balance sheet and looking at our P&L and making sure that what we're doing is profitable and looking at our unit economics.

Speaker 2:

And I mean another big thing too, just on the side note, is debt right, like just, I think founders don't quite understand that debt can follow you, even if you raise it through the business, if you've got personal guarantees on it, if that debt is secured against any assets, anything like that. It's kind of no joke, it just pretty. It's. Yeah, it just becomes very, very tricky once you're insolvent. So you know yeah, and all the kudos to founders that you hear the stories, the outlier tales, of the folks who have the credit card binders.

Speaker 2:

I know the Airbnb guys. They always talk about that. They built up all this personal credit card debt and they have binders of it and they kept going and kept going and they finally figured it out and that's awesome. But you should remember that they're one of a billion, they are so so, so rare and that story is cool, but it doesn't mean you should copy it, you know, just be aware that, yeah, it's just, we just see a lot of this and it's just, it's really tough to, it's hard to help out, it becomes a lot harder really tough to.

Speaker 1:

It's hard to help out. It becomes a lot harder. I mean, I think the media in general there's a tendency to for I mean rightfully so, because the story is crazy. And then that and in some of the other stories that you'll see about the founders, that is not the norm. You know. That's not how most businesses become successful. That's the crazy outlier, which is awesome.

Speaker 1:

But like what if one or two things went a different way? And then you know it's not airbnb it. Or you know, even if airbnb did still exist in some capacity, it could be a different company. You know there's, there's a business that I'm blanking on. The name of that basically was yelp. Before yelp was a thing but because of, like the server technologies or something you know, they had to shut down like a year before Yelp got started. And then Yelp became what it was because of timing and all of those other things and factors that go into it. So you know, it's good to read the books about Airbnb or to read the books about some of these companies that have these crazy, like rising from the ashes stories, but that's not necessarily the model that you should emulate and want to uh, you know, aspire to be stressed as one. I can't even imagine how stressed they had to have been at that point. Oh my God.

Speaker 2:

Oh my God, I know, but I think I think actually something you know kind of. Again, going back to your earlier question, something that is interesting too is we definitely come across a lot of companies and they'll come to us winding down and they pivoted a lot. They pivoted a lot, you know. We've talked to some companies where, because you know we help them out with their assets, we try and understand what's up with their IP, things like that, and some of these folks we talk to have like five different products. I don't understand what's up with their IP, things like that, and some of these folks we talked to have like five different products. And that's another thing too.

Speaker 2:

You know, it's just, these things take so much time. I mean, as you know very, very well, like it's, it's just not. It goes back to these outlier stories, the YC stories of like Code Academy and all these things of just like oh, I launched it, I have like a million users and if you don't, if it doesn't all check that box ahead of time, don't do it. Or, you know, if you don't see crazy traction in the first like 10 days, you should move on to the next one. I think that mentality has really kind of plagued the industry as a whole and, um, it's just such a long game like you just need to stay in it.

Speaker 2:

So I would say those are another kind of factor of things we've seen, but again kind of going back to debt too, like especially on the e-comm side. Speaking of that, when we talk to e-comm companies we often see a lot of debt obligations, a lot of inventory that's been unsold. You know different lines of credit, personal guarantees, personal credit cards being maxed out. So we definitely see that even more so on the e-comm side, for whatever reason and again, I just be, just be cautious, especially with personal guarantees. You know that's coming right back to you and you know the corporate shell will protect you to a degree for sure. But yeah, just be careful with all types of debt instruments. Just know what you're getting into ahead of time, really model that out and make sure you can make those payments. And if not, you know, try and kind of put the halt on it earlier rather than waiting till the very end.

Speaker 1:

try and kind of put the halt on it earlier, rather than waiting till the very end? What are your thoughts around like venture debt? Because I've had a few founders who I know, who you know they might not have any issues with their business, but then they trigger a covenant and you know the venture debt is going to come in and like take their business and sell it off for parts or just like blow it up. Is that something that you've seen come through your door as well?

Speaker 2:

Yeah, we have. Yeah, we have. Yeah, it's just another thing to be super cautious about and really understand what your covenants are. You know, we've seen a bunch of folks where it's like you might have a decent chunk of capital left back in your bank but that bank is held, you know, based on covenant, that bank is held with, um, you know, whatever facility you you took it out from and you know you read, like you said you reach that, you reach that number. Uh, they're going to take all that money and now you're going to be a cash out zero that you might not even expect, like we've seen that. We've heard of that. And um, yeah, again, just, uh, the just be careful with that stuff. It's, um, it can be pretty nasty.

Speaker 1:

I uh, going back to your comment about the pivoting, um, I mean, even for this new business it's taken so much time and effort and investment to get it to this point. I can't even imagine if we were like pivoted right now or if we, you know, had like multiple product lines or something. And I think sometimes with a pivot you might even be better off, just like starting a new company, because let's say, you pivot but you only have, you know, six months of burn left. But if you was a new business and you had 18 months, then you'd actually be able to see that through and it would have that product market fit and you could start to grow it. But, like, six months is an untenable timetable to try, and you know, go for something when it may or may not be better for you to just, you know, walk away.

Speaker 2:

Yeah, I totally agree. I think, yeah, just like the pivot's been really romanticized and I think people have very different definitions of it. I think there's and again, you hear the story of Slack. Right, they were working on something totally different, it's like a video game and they made Slack, but it's just so rare. These things are so rare. It's, I totally agree. And you know, what they also don't account for too is normally.

Speaker 2:

Normally, when you pivot, you're you. You you're feeling the pressure at that point right, like you knew, you know that the first thing didn't work out. You're, you've already burned X amount of capital, like you're saying, you don't have that much left. Your investors are like what the fuck are you doing? Um, it's. You know that pressure can force you to make bad decisions and be even less patient, ironically, with that next one, for it to magically work out. So, yeah, I totally agree. I think a lot of folks could be better off just kind of winding things down, taking a beat and kind of seeing what they can test out and figure out for that next one. But yeah, yeah, yeah.

Speaker 1:

Well, I got one last question for you before we wrap things up here. Um, if you are a business owner and you have to, you know, go through the dissolution process, uh, for, for better or worse, whether it's an asset sale, um, or if you need to, you know, just just walk away like how, how did they go about, you know, getting started with you? What does that process look like? How does that whole thing pan out?

Speaker 2:

Yeah, totally. So you know, I'll say too, feel free to talk to us, no matter what. We know a bunch of different people in this industry lawyers, bankruptcy attorneys, firms that do alternative, you know alternatives to bankruptcy. We're not a great fit for everyone, right, but founder, founder, we're always just here to help folks at this time. So, yeah, feel free to reach out just to get intros or referrals to other places. But, that being said, yeah, you know we, we really try and handle, like I said, that end to end dissolution process, just kind of all the legal work, tax work. You'll have a project manager on your team as well. Just, you know, really our whole goal is to help you move on to what's next and not have to worry about this. So, yeah, feel free to, you know, email me directly, brendan at sunsethqcom, or feel free to go to our site sunsethqcom book some time. You know someone from our team will be happy to chat with you and, you know, send you on your way or kind of find some other solution if we're not a great fit.

Speaker 1:

I lied. I have one last question. Do you have any thoughts around? You know areas or opportunities of expansion for you. You know, outside of just you know, dissolution, whether it be asset sales. You know, if this company comes to you, maybe you can sell off parts. I'm sure there's a lot of different things that have come up that you'd be like oh you know, maybe we could do that, but maybe we shouldn't, but we could, and then maybe we make more money and then you might have your own. You know multiple product lines.

Speaker 2:

Yeah, no, I think you're, you're totally right. I mean we've, we're, we're very excited about the adjacent opportunities and just, you know, trying to help founders even like we're, like you know, earlier in the process and kind of get them the outcome that they actually want. Right, they don't want to dissolve, so can we help them, um, find ways to not get to that point. So, yeah, we're super excited about doing that. But, yeah, right now, going back to you know, pivoting and focus it's super hard. But, this, being my third go around, I think that is one thing I've gotten better at is just not being as tempted to try and do everything and just stay really focused on what's working. So, yeah, that's what we're doing now, but we definitely know a lot of buyers, a lot of bankers. So, again, if you're interested in selling, happy to chat and again kind of refer you out, things like that.

Speaker 1:

Awesome. Well, I appreciate you coming on. Thanks again for taking the time. We'll put your info in the show notes as well, so if people need to reach out, they can. But thanks again for taking the time. We'll put your info in the show notes as well, so if people need to reach out, they can. But thanks again for everybody listening, as always. This is Brandon Amoroso. You can find me at BrandonAmorosocom or Scalistai. Thanks for listening and see you next time.