An Entrepreneur’s Guide to Surviving the “Death Valley Curve”

"According to recent estimates, around 90% of start-ups fail. With the global start-up economy valued at $3 trillion, much is at stake.

Our research has focused on a crucial initial phase of new ventures, known as “the death valley curve,” when substantial work on a new enterprise has begun but no sufficient revenue has been generated. During this period, companies deplete their initial capital in their quest to establish the business.

How do successful companies navigate this tricky period? The steps entrepreneurs should take depend on the strategic situation in which they find themselves. We have identified four phases of the death valley curve and created a matrix on which entrepreneurs can place their business to identify the key challenges going forward.

Our matrix is based on two key challenges that all new ventures face: 1) Do they have the right business model? and 2) Do they have growth ambitions?

To determine whether they have the right business model, entrepreneurs should use the two business-model tests suggested by Joan Magretta: the narrative test and the numbers test. An enterprise passes the narrative test when there is logic and alignment in the business model — in other words, when the story of the business model makes sense. The numerical test focuses on the financial performance of the business model and whether that business model can produce a profit. When turnover exceeds costs, the numerical test is passed..." Lire la suite