As you start off with your business idea, you have high hopes and great dreams of making it big. But the reality is that, as you progress with your idea and business model, it seems almost inevitable that you will need to cross the ‘valley of death’, a common term used in the startup world. This valley of death refers to the grueling period between proof-of-concept till the time you begin mass production and start the commercial sale of the product.
During this time it is rare to receive any additional funding, which increases the probability for the startup to die before they start earning any revenue. As you might view to be on the far side of the valley where there is stability, there are several costs that must be incurred before reaching there. To realize economies-of-scale there will be a need for an office, employees need to be hired, and there will be several rising overheads making it even more complex as there are no significant cash inflows. If the description sounds familiar and describes your business, then sadly you are in the valley of death, and you must run as fast you can to get out of it. It might bring you some comfort to know that many startups end up here, but if you get too comfortable with the fact then the death is inevitable.
While most investors are unwilling to fund your company as it may not have made significant sales, you may be strapped and to continue production and make sales you will need funding. This Catch-22 might make things complex, but you can make it out of the valley if you can go by below suggestions.
Reduce Risk by Resource Planning
Before you plunge into your business, accumulate resources and do planning about the funds that will be required to be on the other side of the valley. A good plan always reduces risk, which will help you save money that will be needed to cover up the costs when you make the big jump.
Funds from Family and Friends
Family and friends can be the saviours during the early stages of the startup. Since investors are always skeptical about funding during this phase as they always want to see some results before they take the risk, funds from family and friends can save the day.
Don’t Quit Your Job
This has become the most common way of starting up these days, and it is beneficial too if you can manage to work on your business during the nights and weekends. Surely you need to keep the balance between your job and business as you don’t want either to suffer, but in this way, it will be helpful to survive the valley of death.
Broaden Your Horizons
It is hard to get funding at this stage but you need not restrict raising funds by trying to attract only angel and venture capitals. One major focus these days is taking part in contests and applying for business and government grants. Although this may take a lot of time and effort on your part with bleak chances of winning, the bright side to this is that you don’t give up on equity. Another of the most popular way is crowd funding by using online websites such as Kickstarter, where you can request donations and allowing patrons to pre-order or getting a reward for the amount that they pledge for your startup. If your business is attractive enough then you might earn huge in small amounts from people across the world that will help you wade through the valley of death.
While you might not have money now, but if you make through the valley successfully you will be needing funds and so you should build up your network by attending conferences, meeting, dinners, and parties that will get you noticed and someone might just be ready to help you out.
Join an Incubator
With many people starting up their own businesses, several startup incubators have come up. A startup incubator can be anyone like a company, university or any other kind of organisation that helps startups succeed. They essentially provide resources such as workspace, seed funding, training and consultancy which help the entrepreneurs to grow their businesses. Most universities and B-schools help their students and alumni to be a part of it.
Get a loan
This is a tricky one because banks won’t give you a loan unless your business is earning some revenue, and if you still wish to secure the loan, then you may have to commit your personal assets as collateral. Even though it doesn’t cost you equity, you should be prepared to pledge your personal assets for this.
Trade your services
This may not give you substantial funding but it will help you in savings costs by exchanging your services for other’s services. For example, if your product requires distribution you may take help from a local vendor from whom you can borrow his vehicles and in return you promise to make their deliveries as well.
The valley of death tests the determination and commitment that will showcase the true entrepreneurs who can create value from nothing. While being in the valley can be dark and lonely, it can definitely be crossed. It will not happen at once, but if you plan it well then you can achieve it.
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