Business failure in the United States, unlike in many other countries, is not regarded negatively. In fact, US bankruptcy laws are structured so that those who fail in business are encouraged to continue entrepreneurial pursuits. “If a business in the United States fails, the individual can move on with his or her life without living in shame or total poverty,” says Nathalie Martin, Dickason Professor of Law at the University of New Mexico. “The ability to start over is what makes some Americans willing to take risks in business, which can be good for the overall economy.”
There are two main types of bankruptcy for businesses. Some can stay in business under Chapter 11 while they reorganize their debts. Thus, unlike most bankruptcy systems around the world, US laws allow a bankrupt company to continue in operation, with the same management, while it tries to restructure its debts. In other words, typically, no trustee or custodian is appointed. Some people think this system, known as a debtor-in-possession system, promotes economic and job growth because more companies remain in business and their assets are protected. Businesses can also simply liquidate their assets under Chapter 7 and use the sale proceeds to pay creditors.
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“The experience of building and managing a newsroom in cyberspace was fantastic. What I didn’t anticipate was just how vulnerable even well-funded startups are. When there’s a storm at sea, the SS Business Week my rock a bit—but the little boats can sink. At Business Week, I never had to worry about the company itself. On the net, there’s no guarantee that it’s going to work out. It’s hard to love what you’re doing when you’re constantly keeping an eye on the life rafts.”
Geoffrey Lewis, Former Senior Editor at Business Week. From “Unit of One: Dots Dashed,” by Lucy McCauley and Christine Canabou. Fast Company, February, 2001.
“Looking back at some of the earlier times I can’t believe we stayed in business. There have been several moments when we looked at each other and said is enough enough?...We have failed 5 million times! We have made many mistakes such as having inventory stolen, using the wrong glass for packaging, incorrect inventory counts, delivery trucks stolen, delivery trucks vandalized, and even our product formulas stolen from our offices.”
“We did not have any capital or a business plan. We did not have a marketing strategy. We did not have one damn thing. All I did was get on the phone and convince people that we were going to be a huge beverage company one day so why don’t you sell me the resources I need. Give two guys that have absolutely no credit, the credit to buy 200,000 cases of glass—and I did it. Nobody in their right mind would think they could do that.”
Tom First, Co-founder of Nantucket Nectars. From “Keynote Entrepreneurs – Nantucket Nectars,” www.benlore.com.
