The phrase “death valley curve” is a traditional concept that references the period between a startup’s initial seed investment and its first revenue. You’ll hear this term used frequently among venture capitalists. The phrase derives from how a startup’s cash flow burn looks when plotted on a graph.
During this time, the startup will deplete the initial equity capital that its shareholders invested. Many startups die during this critical time. It’s difficult for newer firms to get additional finances because they haven’t proven their business model yet.
If a company has a longer curve, they’re more likely to fail because it’s harder to invest in growth initiatives and scale the business. Because of that, surviving the death valley curve is an important milestone during a startup’s life. It’ll signal to potential investors that your company survived its first phase and has a better chance of reaching maturity.
A big reason that the curve is so tricky for startup firms is because of how many expenses the company has before their products generate revenue. Some costs are predictable, like paying employees or renting office or warehouse space. Others, like marketing, research, and development, are harder to predict.
Startups have different death valley curves depending on factors like their business plan, niche, and initial seed capital from shareholders. In all cases, if a startup doesn’t budget for the phase and monitor expenses, it’ll have liquidity issues.
Even though it’s hard to get out of the death valley curve, it’s possible with the right amount of planning and expense monitoring. We’ll talk about the best basic practices for a solid startup.
One of the most important things that a startup company can do is hire smart people. People are a significant asset of a firm, making or breaking a company. Let them do what they need to do to push the company to think differently and drive business.
In the past, people expected leaders to have control and command their employees with authority. Employees expected leaders to know all of the answers and dictate rules. Leaders expected their employees to do what they’re told and follow the rules they made so that they’d have the possibility of a promotion to a position with authority.
Now, this dynamic is a little different. Instead of being authoritative forces that tell employees what to do, leaders often act more as guides. They’re still in control of their team, but instead of just dictating rules and enforcing them, they lead their team through work and thought processes.
When looking for employees to hire, it’s crucial to find driven individuals who are passionate about what your company does. Leaders should focus on the bigger picture and mission, and employees should be more focused on the smaller, more day-to-day tasks at hand.
Development and Validation
There’s no right way to develop your product or service, but there are better ways than others. Many people think that they need to run specific tests and only build as much as they need to confirm their hypothesis.
Companies need to conduct user research instead of just proving or disproving solutions, but you can use many different methods to accomplish this. All the results that you get should be based on the outcome, and you should involve everyone you can.
Following every best practice gets tedious, and if you try to follow every rule, it’ll take a long time and cost a lot of money. If these practices take too long or are too pricey, how should a company solve issues with products?
A few frameworks can help out, but you need to make the right judgment calls. Look at the type of product problem you’re working on, and outline how to solve the problem. Make sure to keep in mind for whom you’re building the product.
Your Work Is Never Finished
The products and features your company creates must improve so that they can maintain relevance with users. No products are perfect upon release, so you need to refine them over time with feedback from your users.
Many companies will launch new products and features and forget about them, leaving them behind without improvements. This process is incredibly inefficient and doesn’t create sound, long-lasting products or customers. Instead, you should keep innovating and updating your products to increase the value to customers.
However, continuing to support and build upon older features and products takes time and effort. Before you start working on something, you should keep in mind that you’re probably going to need to keep updating it for a few years. Mapping out the work you need to do and dividing it into chunks to release can help you plan and work.
No matter what, when your company creates a product or a service, there’s going to be an initial high opportunity cost. Regardless of who or what you’re building for, remove risk from your investments by learning about the issues you need to solve. Talking to customers might help a little bit, but they aren’t always reliable. They aren’t the best at understanding their likes and behaviors.
Despite that, don’t disregard things that your users tell you, especially if they’re other businesses or sophisticated customers. However, that means that there are two separate areas that you need to observe – regular customers and sophisticated ones. They’ll have different ideas about how to approach problems.
Many people think that the best way to remove risks and issues with products is by using the minimum viable product (MVP) framework, but it isn’t perfect. It doesn’t mean what a lot of companies think it does. The framework is all about giving value to users by creating the smallest product to test your hypothesis.
Most things your firm creates won’t be minimum viable products. That’s because the framework is for creating new products, which are very rare.
Instead of focusing on building an MVP, focus on phased delivery. This development happens when you have a strong idea and can quickly validate the problem and solution. The goal is to build toward the idea, releasing as you go until the vision is complete.
MVPs focus more on proving that an idea solves a problem. To do that, you’ll need to invest a lot more resources to fulfill your expectations.
Instead of building everything right away, take your time and do it right. If you don’t, you won’t deliver all of the value you wanted the product to have. Instead, spend more time developing and improving your product before you reveal it.
Even if you have a strong idea backed up with data, your users can surprise you. They might not use the product as you intended. For that reason, it’s usually better to make adjustments as you go and get feedback from customers.
Having a regular release schedule to release incrementally can help keep your idea on track. You’ll be able to see how the product works over time instead of only at once.
When you first start your business, be careful about managing your cash flow. You’re the most important factor of your company, and you’re the one that needs to believe in it.
Making money is just one aspect of a successful business. Because of the curve, you’ll lose money at first. You won’t have a massive salary in the first few years, so you need to invest the money you already have into your business to get it out of the death valley curve as fast as possible.
The best time to raise money for your business is during the initial creative process. It’s where a lot of the excitement is for startups, and you’ll have an idea, a team, and money. It’s the best time to build excitement about the company, which will draw in investors so that you have something with which to work.
As you go on, listen to what your more sophisticated customers say about your product. Remember, users might not always be the best judges of their behavior and actions, but don’t ignore feedback. You can use it to correct issues with your product.
Keep in mind that you won’t make money right away. It’ll take a long time, so invest your time and money into your business to make sure it gets off the ground.
First Clients, Traction, Sales Cycle
Other than having a good framework and investing your time and money in the right places, there are a few more things that you can do to ensure success. Getting your first clients and building traction is difficult, but you can plan your strategies better by understanding the sales cycle.
To find your first clients, you’ll need to do a decent amount of prospecting. Look at websites like LinkedIn, check out news stories, and find referrals. The prospects should be a good fit for your product, and you should try to focus on ones that’ll be interested in listening to you.
Contact and Connect
After that, you’ll need to find a way to contact your prospects and connect with them. You can ask that someone you both know introduce you, or you can reach out on social media, email, or phone. Start by introducing yourself and share what you think is valuable about your product. Ask them if they want to know more.
You’ll also need to do research. If a prospect wants to learn more, you’ll need to know about them first. Find out what their needs are and see if you can fit them. Sometimes, you’ll find that you’re not a good fit for that prospect, and that’s okay. Just move on and try again with another.
Once you make a connection, you’ll need to present your product or service. Usually, presentations work like a sales pitch. To create a successful presentation, build it around a template that your sales team already uses, but make sure that you alter it for the prospect’s needs.
Be prepared to handle any objections, too. It’s doubtful that you’ll run through your sales cycle without any issues. You’ll probably see some pushback from your perspectives, and they’re going to ask questions and voice concerns about what you offer.
You might also see some questions about the price, budget, or competitors. If you need to repeat information or explain it differently, you should do so. They might not understand your product and need more clarification about certain aspects that you already talked about. They may also have other business challenges to discuss, and there might be a question for which you didn’t prepare. Listen to them, and don’t be afraid to ask for context before answering.
Closing and Follow-Up
The last two steps are closing and follow-up. You might need to contact your legal or IT department during this step. You should ask if the prospect’s ready to buy. If you get a yes in response, start working up a contract with them. If it’s a no, you might need to answer more questions or leave the deal alone. Not every prospect is going to want to buy.
The follow-up step also includes generating referrals. After you close the sale, you’ll need to work to satisfy your customers and keep them around. They’re also a valuable asset, so use them to generate more customers.
Remember, you want the customer to be happy with you so that they’re more likely to come back to you. They’ll also be more likely to refer other people and businesses to you if you give them a satisfactory product or service. Focusing on fostering your relationship with your existing clients can help you find new ones down the line and increase your traction.
There are many things that you need to keep in mind to propel your business out of the death valley curve. It’s easy to get trapped here, but if you’re smart about how you conduct your business, you’ll be able to get your company off the ground. It’s all about fostering your relationships with customers and finding ways to meet their needs. Keep innovating and updating existing products and build upon them.