4 tips for startup on how to escape the “valley of death”

Sometimes attracted investments immerse the founders of the startup in a light euphoria. And those, despite the fact that the company works with losses, compensate for the shortfall. In particular, they hire expensive employees — for example, strong sales managers in the USA. At the same time, founders do not consider for how long the raised money will be enough for them. Will the product have time for it and earn at least zero?

The “death valley”, when investor (or own) money is already running out, and the project is still working in the negative, comes unnoticed. The state at that time is bloated. Perhaps there are good specialists in it, but the company has no money yet.

The Heroes: Death Valley as a stage in a startup

Death Valley is a period in a startup, its most difficult initial stage, when all costs, investments and other expenses were made, the project was launched, but there is no profit yet. That is, the project is not yet payable, unprofitable, but it is already too late to abandon it — as a sufficient amount of effort, time, resources and money has been invested.

"Death Valley ”can be observed in the following most risky startup cycles:

• Seed stage.
• Startup launch stage.
• Early Growth.

To avoid this, you need to consider and plan, know the current and projected burn rate (average loss, the rate of loss of money). The CEO must understand how he will finance the costs. When a project has no money, it has no blood. Consider the cost of 4-6 months in advance. At a minimum, this is office rent, salaries, hosting.

To understand how much money is enough to attract, you also need to consider the costs. Suppose you predict that the first revenue you will have in six months, and until then you will have only one million. Do not ask investors for five million: why should you give a large percentage of the company for money, without which you can do?

Many companies died not from starvation, but from overeating and indigestion. It is important that the investment that attracts a startup, was just — not a little, and not a lot. The CEO of the project, in addition to taking care of the product, has a great responsibility for the people who work for it. He should see where he will receive financing for the project development and the team’s salary in the coming months.

At the first stage, when you still have “garage” work, you can do without a professional financier. The CEO will be able to learn this himself: there is information in the public domain, courses and webinars. I know companies that already had multi-million dollar turnover, and the CEO himself successfully made financial plans "on his knees".

There are zombie companies working in zero or a small minus, which can be easily refinanced. They can exist for years, and their founders do not close. Perhaps there are good people working there, and the project is interesting. But it does not grow, but only pulls your resources. The reasons for this may be different — the result is the same.

You can try to make a pivot, change the team, but most likely, the project should be closed and do something else: the zombies do not come to life. To close companies that are definitely not “shot” and to abandon them for something more is a business culture that is not yet developed in Belarus.

Source: StartUpON — accelerator for start-up entrepreneurs.

Trainers: Irina Dubovik and Yuri Bespalov