It could well be a tourist attraction from ancient Egypt or the name of a horror movie, however, in this case we are referring to moments in which companies, generally startups, remain stuck in an evolutionary stage without advancing, often with negative cash results.
It is a time when many employees lose confidence in the business model, in the founders or in the people in charge of the different areas. When they only listen to bad comments and are left without answers or lose motivation to keep looking for that value that makes them different or better.
In the dynamic world of startups, where innovation and uncertainty intersect, making informed decisions is the key to survival and success. Understanding that it is the least that develop and endure will serve to sort out euphoria and depression, both typical emotions in startup entrepreneurs.
Let's look at some relevant statistics:
According to the McKinsey Global Report more than 300 million companies are created per year. In the United States alone, half a million SMEs are started every month.
20% of startups fail after one year.
30% of startups close within two years.
50% of startups close their doors within five years.
70% of startups dissolve within 10 years.
In other words, only 8 out of every 100 startups last over time.
These figures show that the path of startups is challenging, but those that persist and learn from their mistakes have the opportunity to succeed.
The "valley of death" refers to a critical phase that these companies go through.
In general, it is a time when the startup has negative cash flow and lasts until the company reaches break even, where revenues exceed expenses. On average, startups take 2 to 3 years to turn a profit .
Unless the company starts its activity with positive numbers, the valley of death begins from the very moment the startup starts its activity.
There are different types of valleys of death:
Funded: If you have funding but have not yet reached break even, you will be in the valley of death. Although challenging, your investors are aware of this stage.
Unfunded: If you have no funding or it is drying up, you must be very careful. In this situation, your options are limited, and if you don't make a comeback, the company could close.
Suggestions to face these times...
New funding: Make sure you have enough funding to avoid premature closure. Although it doesn't get you out of the valley, it gives you room to continue operating. Sometimes, in the absence of external investors, you can involve key partners in the business or make agreements with suppliers to give shares in exchange for their services. It is advisable to have buy-back clauses in these cases.
Reduce your team: When launching the startup, keep the team as small as possible. Fewer employees means lower payroll costs.
Focus on customers: Increase your revenue and look for real customers. They are the ones who really finance the company.
Focus: Both for the success of the project and to provide assurance to investors, the commitment and suitability of the team and particularly its founders makes the difference.
Background: It is easier to get funding and obtain better operating results when those who are part of the team come from the sector in which the company will be developed. Knowing the market is essential to avoid making mistakes, to measure the scope and capabilities of the business and to have access to key players in the sector.
Define the business model: It is likely that during the development process the business model, i.e., what will be the main sources of income and costs of the company, may change. However, there must always be clarity in the business plan, accompanied by indicators that allow measuring the evolution and generating income to reach the break-even point. Without these qualities, investors are unlikely to invest.
In summary, the valley of death is a common challenge in the path of startups, but with careful and strategic management, it is possible to overcome it and achieve success.
The business world is constantly evolving, and startups play a crucial role in the global economy.
While many startups face challenges, those that persist and adapt have the opportunity to grow and thrive.
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