3 Ways to get your Startup out of the Valley of Death

Entrepreneurs are the rock stars of the 21st century. From the early trend setters (Jobs, Gates) to the internet 2.0 superstars (Zuckerberg, Dorsey) and finally to the new kids on the block (Kalanick, Spiegel), society today reveres those who dare to dream bigger and farther than the rest of humanity. Make no mistake – these people are the Elvis and Lennon of our age.

This quest for fame and fortune has led to unprecedented numbers of undergrads and young adults throwing their hat in the ring in the hopes of winning their golden lottery ticket, only to soon discover that start-up life is not quite what it is made out to be by TechCrunch and Wired. The mortality rates for young start-ups are astronomical, and I’d venture to guess that at least a few of those aforementioned dreamers would have opted for the LinkedIn Jobs search over the path of entrepreneurship if these figures were better known. According to Investopedia, a third of startups do not live to see their first birthday. Half will not see their second. If 1000 start-ups launched today, statistically speaking 900 would declare bankruptcy within 10 years. Most of those who survive will likely become lifestyle businesses – companies that exist solely to support the lifestyles of their owners, in much the same vein as barber shops and groceries.

A start-up goes through 4 distinct phases – (1) initial euphoria, which is characterized by the early excitement and enthusiasm that causes its founders to see everything through rose tinted glasses, (2) the valley of death, where reality begins to set in as the founders realise the difficulty of the task ahead of them, (3) product market fit, where the start-up finally begins to see some actual (i.e sizable) revenue, and (4) growth and scale, which in the start-up world is where legends are made.

As you’ve probably guessed from the name, most start-ups do not make it past Phase 2 – the Valley of Death.

Why? It’s simple – there are little to no barriers to entry in tech (Facebook copying new Snapchat features every quarter is a prime example of this) so something new and trendsetting is almost instantaneously replicated, and consumers have been spoilt into expecting everything to be handed to them on a silver platter for free.

So what do you need to do to get yourself and your start-up out of this position? Take it from me – it’s not easy, and in fact will be the most challenging thing you’ve ever had to do in your working life. But if you succeed, you’ll have successfully turned things around and be on your way to that Forbes featured article you’ve always dreamed of.

Rule #1 – Cash is King

The #1 reason why start-ups fail is because they’re underfunded. ‘If you launch and get traction then it’ll be easy to raise capital from angel investors’ is the biggest lie you’ve ever been told. Assess your projected expenses (called ‘burn rate’ in start-up lingo) for the foreseeable future – 12 months minimum, 18 months recommended – and ensure you have this amount of capital plus twenty percent reserve for when things go haywire (they almost always do) in the bank.

Think of this like an oxygen tank when diving underwater. You’ll eventually find your pearls, but until you do this, capital will keep you alive. Forget this rule and you’re as good as dead already.

Rule #2 – Bullseye Ops

Let me guess, you’ve read Jim Collins’ Good to Great a couple of times. Or you’ve spent a generation working in corporate life and you think you know everything there is to know about building a company. Then you launch your start-up and the ground starts to fall from beneath your feet. Don’t be alarmed for this is a phenomenon that plagues most entrepreneurs – even Instagram pivoted from a social itinerary app Burbn into the photo sharing behemoth which eventually sold to Facebook for $2 billion. The path to victory here is what we call Bullseye Ops. Similar to shooting darts, Bullseye Ops allows you to continue shooting with limited risk in multiple directions until one shot finally hits the bullseye.

To successfully execute on this, ditch everything that you hold dear – it’s as irrelevant as that Geography class you slept your way through in 5th grade. Just shoot your darts and wait for the bullseye. Is your marketing not panning out? Try as many platforms as you can get your hands on until you find your users or your users find you, whichever comes first. Do you have a product that’s not selling? Continue to iterate on your product strategy, even if it means you have a new sales pitch with a new price every month. 3M, one of Jim Collins’ Great companies and now most famous for giving us COVID masks, has 60,000 products.

As Nike says so eloquently, just do it.

 Rule #3 – Tunnel Vision

The purpose of Rule #2 is to find what works – what’s your optimal marketing strategy and how are you going to make money. Once that’s been discovered, put your head down and develop tunnel vision. If you’ve followed Rule #1 and assuming it took you 6 months to discover what works, you’ve only got between 6 to 12 months to pull yourself out of the Valley of Death. That might seem like a lot of time, but in the start-up world it’ll fly by in the blink of an eye.

Cease all marketing efforts on platforms that haven’t yielded traction. Cancel all scheduled product development on features not relevant to monetisation. Lay off all employees that are not involved in the core product. The start-up ecosystem is Darwinian in nature and is entirely determined by natural selection. Only the strong will survive, so be ruthless.

Following these 3 rules is by no means a proven formula for success, and many of you may still fail depending on the quality of your team, your ability to plan effectively, or other life circumstances like a global pandemic. However what I can promise you is that adhering to the above will significantly improve your chances of navigating your way out of the Valley of Death. Once you’re through you’ll find yourself in the Product Market Fit stage, starting to earn some real cash, and be on your way to your IPO and eventual multi billion dollar acquisition. 

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