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How to Survive the First Five Years as a Startup
Learn the 10 Keys To A Startup Surviving The First Five Years
Introduction
The “valley of death” is a common term in the startup world, referring to the difficulty of covering the negative cash flow in the early stages of a startup, before their new product or service is bringing in revenue from real customers. I often get asked about the real alternatives to bridge this valley, and there are some good ones I will outline here.
According to my experience and a this Motley Fool article, the challenge is very real, with around half of all new businesses no longer existing after five years. The problem is that professional investors (angels and venture capitalists) want a proven business model before they invest, ready to scale, rather than the more risky research and development efforts.
My first advice for new entrepreneurs is to pick a domain that doesn’t have the sky-high up-front development costs, like online web sites and smart phone apps. Leave the world of new computer chips and new drugs to the big companies, and people with deep pockets. For the rest of us, the following suggestions will help you survive the valley of death:
- Step n°1 |
Accumulate some resources before you start.
It always reduces risk to plan your business first. That includes estimating the money required to get to the revenue stage, and saving money to cover costs before you jump off the cliff. Self-funding or bootstrapping is still the most common and safest approach for startups.
- Step n°2 |
Keep your day job until revenue starts to flow.
A common alternative is to work on your startup on nights and weekends, surviving the valley of death via another job, or the support of a working spouse. Of course, we all realize that this approach will take longer, and could jeopardize both roles if not managed effectively. Set expectations accordingly. - Step n°3 |
Solicit funds from friends and family.
After bootstrapping, friends and family are the most common funding sources for early-stage startups. As a rule of thumb, it is a required step anyway, since outside investors will not normally consider providing any funding until they see “skin in the game” from inside.
