Any business, no matter how ingenious, will run into trouble. One of the most common issues for startups is the death valley curve or J curve. This is a financial phenomenon that occurs to startups when they run out of their initial funds and have to face a harsh market. At this point, they will either fail, adapt, get more funding, or scale-up.
Planning for the J curve of startup death valley must be part of your strategy as a CEO and founder of a startup. With only 10% of startups making it in the long run, being ready to face this financial situation will ensure your business has a better shot at being one of the ones that thrive, holding you together until you can start to turn a profit again.
What is the startup death valley curve?
The startup death valley curve or J curve refers to the graph that comes out when your cash funds are plotted against time, which is expected to dip to the negative before rising again. It is an assumed risk of entrepreneurship and almost unavoidable for any new business. Overcoming the death valley curve is a sign of maturity for both leaders and the idea at the core of the startup.
How your industry type affects your J curve
While the J curve will always follow the same shape, depending on the industry it will have a more or less dramatic decline.
Low-risk business ventures like food, hospitality, or traditional services, will have a smaller dip in most cases. As expenses can be accurately calculated as well as revenue expectancy.
High-risk ventures like tech startups have more pronounced dips in their J curves, caused by product experimentation and development expenses. The graphic is more dramatic also because of the high return high-risk ventures can produce.
How does scaling up help you avoid falling victim to the startup death valley curve?
The best way to help your startup pass the death curve valley is to scale up and start making a profit again fast.
Having a strategy for growth is the best antidote for a slump in your finances. Why?
- It gives you a direction to place your efforts and the rest of your funds
- Makes it easier to get more investment when you have a plan
- Opens your business to new markets that can bring in profit
A healthy J curve startup progression looks like this
- Startup creation
- Release your product
- Experimenting and investing with the best product version (death valley area, usually where the dip happens)
- Building a solid business model
- Scaling up
- Invest your earnings and celebrate your wins!
How to scale up your Startup business?
Scaling up your startup is the best plan to take on expected death valley curves, even if you do not experience a dip in your financial situation. Because scaling up is basically just a road map for growth it’s going to come in handy no matter what. Here’s how you can get started with a scale-up plan for your business.
- Do an internal evaluation
- Set concrete and achievable goals
- Explore scale up new partners and markets
- Create a growth plan and focus your investments on it
- Commit to the scale-up plan