The interval between product innovation’s emergence from the MVP (minimum viable product) and its arrival in the marketplace at full commercial scale.
Ways For Startups To Survive The Valley Of Death
Accumulate some resources before you start.
Financial Issues
- Solicit Funds from Friends and Family
- Use Crowdfunding
- Apply for Contests and Business Grants
- Get a Loan or Line of Credit
- Calculate Life Time Value (LTV)
- Check with Governmental Institutions and Innovation Aid Programs
Skillsets Issues
- Join a Startup Incubator
- Barter Your Services for their Services
- Joint Venture with Distributor or Beneficiary
Customer Acquisition Issues
- Commit to a Major Customer
- Manage and Optimize Customer Acquisition Cost (CAC)
Example of a Death Valley Curve
Software-as-a-Service (SaaS) business model.
You recently obtained $5 million from seed round fundraising,
- Two years to be spent developing the SaaS platform
- The third year to be dedicated to user acquisition the software
With 20 team members and an average salary of $70,000, you estimate that payroll expenses will total $4.2 million over the period, for an average of $1.4 million per year.
Office and administrative expenses, meanwhile, are estimated $100,000 per year so $300,000 in total.
Altogether, you expect to spend $4.5 million over the first three years, leaving a contingency budget of $500,000.
Considering that you expect your expenses to remain at roughly $1.5 million per year.
Your company will need to begin generating at least $125,000 in revenue within four months following the end of the three-year startup period.
Failure to do so would cause your company to burn through its contingency budget and face a cash crunch.
One way to overcome these barriers and become more attractive to potential investors is to plan a ‘Go to Market strategy’ which helps startups to scale their products and learn to sell them correctly in the market. The Go to Market strategy is based on specifying who the potential customer is and your market niche, as well as identifying the appropriate price point and avoiding idealizing the solution offered.
“Many entrepreneurs are very good at the technical side of their product, but there’s a very big gap between that and becoming a real business.” It’s important to honestly assess the organization’s situation and to craft a corresponding strategy.
