Of all of the startup jargon discussed in this series so far, the valley of death certainly feels the most ominous—and for good reason. The valley of death is a feared phase in the startup life cycle, typically occurring after the company launches a product but has not yet seen any revenue.
The term comes from plotting the shape of a company’s cash flow onto a graph. It comes during the commercialization phase. The valley, predictably, is the part of the graph where cash flow is at an extended low point. The below example shows a visual representation of the valley.
Hence the ominous name, the valley of death can be impossible to avoid and difficult to get out of without robust planning. According to Embroker, about 70% of startups fail during years two through five.
Though the valley is difficult to avoid falling into, there are ways to minimize the impacts that a period of no revenue has on a startup. We rounded up the four best pieces of advice.
Emerging from the Valley
Crowdfunding can be one of the best ways to quickly emerge from the valley of death if you have a product that could excite the general public. This method solicits small donations from everyday people instead of large sums of money from investors.
In the digital age, there are more options than ever for crowdfunding. If you can raise enough money through this non-traditional funding source, you may be able to avoid feeling the impacts of zero revenue. For more information on how crowdfunding works, check out this blog from a few weeks ago.
A joint venture is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. For startups, this usually looks like seeking out a larger company that could help bring a new innovation into an existing market. This strategy is especially successful for technology and software startups.
There are a few reasons why joint ventures can help get startups out of the valley. Having access to the resources and money of a larger company can alleviate concerns about spending without revenue. The temporary structure of a joint venture means that startup companies can sustain brand identity and control. It can also greatly increase brand recognition.
We aren’t just saying this for self-promotion: startup incubators and university-supported research institutes can be a great way to avoid the valley. Supports for startups vary by organization, but most can help with initial funding, networking, research and development, and much more. With these resources at your disposal, it becomes much easier to handle periods of low cashflow.
Contests and grants
Why not have a little fun with it? There are hundreds, if not thousands, of grants and competitions for startup companies and entrepreneurs to apply for. These can be used for startups still in the ideas stage and established but growing businesses alike.
A simple Google search of “startup competitions” or “startup grants” brings up countless results—from pitch competitions specifically for women to national student entrepreneur contests. Landing just one of these prizes can transform a business plan.
The valley of death is daunting, but with prior planning, it doesn’t have to be. Creative approaches to funding can help avoid or lessen the impacts of a prolonged low or no-revenue period.