Many businesses meet their downfall during the so-called startup “valley of death.” But what is this critical phase and how can entrepreneurs survive the death valley curve? While the startup market may not be as dynamic today as it once was due to global economic headwinds, it’s still a great time to get to know those initial hurdles today to help you build a better startup tomorrow.
What is the startup death valley curve?
The death valley curve, also known as the valley of death, is the period when a startup has begun operating but has yet to bring in revenue from customers. The longer a company remains in the startup curve, the more likely it is to fail due to a higher burn rate. After all, the faster a new company consumes cash reserves without generating profit, the shorter the runway.
A company’s trajectory through the startup valley of death will depend on both industry and business plans. For example, most software tech companies experience the famed J-curve trendline which shows an immediate, dramatic gain following an initial loss. A young startup struggling to break into the market usually faces a sudden nosedive. Once the business gains momentum and hones in on their market fit, the growth journey transforms into a gradual ascent.
Typical stages of a startup business J-curve
However, the path to success is not always paved for other verticals. Climate-tech startups, for example, confront the valley of death four times — during formation, the product development phase, the market validation stage, and when establishing a reputation of reliability. No matter what industry you may be in, there are some key steps you can master to help your company make it through.
How to overcome death valley as a startup in 7 simple steps
During the initial phase, many startups struggle to narrow down their target audience, build initial capital, or even secure multiple funding sources. While these challenges are typical of the startup valley of death, all is not lost. With the right guardrails in place, you can invest in your company’s development while maintaining a solid budget.
Here’s how to improve your company’s chances of success from day one:
1. Determine product-market fit with a minimum viable product (MVP).
In the research and development stage, what’s the first step of any consumer journey? Determining if your product or service is something people want or need. Conduct market research, attract adequate funding, and survey customers to demonstrate your product’s fit within a particular market.
A minimum viable product is not a technology prototype, but rather a way to test a business idea to validate sales value to your target audience and venture capital leaders. Start by introducing a version of your product that allows your team to source the maximum amount of proven customer knowledge with minimum effort.
2. Seek diverse startup funding.
Cash flow is a major challenge for startups. In fact, 58% of startups have less than USD 25,000 at their disposal during the startup phase. A strong investment foundation involves a clear business model that maintains a solid budget while investing in company development. Be sure to seek funding from multiple sources to maximize your company’s financial security.
Partner with venture capitalists, work with angel investors, or seek government and organization-based grant funding. Consider online investment platforms, which are modern crowdfunding solutions that offer a dynamic space for innovative ventures and potential investment opportunities. Looking for a more secure solution? Consider partnering with an incubator firm for added support.
3. Embrace AI to scale quickly.
Technology is key to making your business more efficient, and artificial intelligence (AI) technology is already having a profound impact on how companies break into new markets and scale globally. With the right solutions in place, you can streamline hiring, onboarding, payroll, and other business needs.
From improving workforce management to promoting communication, AI can help you increase collaboration, streamline marketing workflows with AI-generated content, and even improve customer acquisition by automating online communication via widgets.
4. Hire anywhere to drive growth everywhere.
Growing to new markets ultimately increases your revenue and your chance of long-term success. Ask yourself, what are your growth ambitions?
Global growth expands your market opportunities, attracts customers before competitors, and unlocks diverse talent pools to help you find the most qualified people for every job. Not sure where to start? At G-P, we have over a decade of experience helping companies seamlessly hire anyone, anywhere, regardless of entity status. From early-stage startups to large-scale enterprises, our fully customizable suite of global employment products is designed to accelerate your growth, no matter which step is next.
5. Build your teams with care.
Building a strong team is crucial, as 23% of startups fail due to poor team organization. When hiring while your company is still in the death valley curve, start with the executive team and work downward as resources permit. Generally, startups should look for candidates who are flexible enough to assume multiple responsibilities, problem-solve under pressure, and embrace the company’s mission.
While a startup’s founders often assume the roles of chief executive officer and chief information officer, they must find talented individuals to fill other roles, including:
- Product managers
- Sales managers
- Business development managers
- Chief technology officers
- Chief marketing officers
- Customer service representatives
Remember: Your needs will change as your business grows, and you need to land those first critical hires to build a team that can set you up for success. Unlike in years past, you don’t need to start a business where the talent is. With the support of growth experts like G-P, startups can think globally about their team from the start, from anywhere in the world.
6. Partner with an Employer of Record.
Partnering with an Employer of Record (EOR) can encourage startup growth, especially when expanding into international markets. But what is an EOR, and what are the benefits of partnering with an EOR? An EOR legally employs workers on your behalf, handling the HR and legal complexities for you, so you can focus on your team’s day-to-day responsibilities and growing your business.
While founders are most concerned about implementing their ideas and achieving product-market fit, they often have little bandwidth to deal with onboarding, payroll, contracts, local labor laws, and tax compliance. When you leverage the expertise and services of an EOR like G-P, you can begin hiring globally starting in just minutes — regardless of entity status.
7. Take strides to plan ahead.
The final secret to startup success? Be ready for anything financially and operationally. Hire a diverse, global team to expand your resources.
Alongside an experienced team, it’s essential to ensure your business has raised enough funds to cushion potential fallbacks during the death valley curve. Yet, 33% of employer startup firms have a capital level that’s USD 10,000 or lower. Tight budgets across verticals leave companies with very little margin of error, and limits their chance of success. With that in mind, it’s critical to start a business the right way, with the right amount of funding.
Regardless of your industry, it’s generally best to raise more money than budgeted. Markets are constantly evolving, and the future can be unpredictable.
Stay ahead of the curve with G-P.
As the recognized leader of the Employer of Record category, we continue to pave the way with new technology for new times. Our Global Growth Platform™ offers everything companies at any stage need to find, hire, and manage global teams – quickly and compliantly – in 180+ countries. Request a proposal today to learn more about how we can help you break through “death valley” tomorrow.
