Learn how startups should handle Death Valley

The term “Vale da Morte” is well known in the startup market for describing a critical phase in the business lifecycle. Typically, this is the period when companies are most vulnerable, that is, between the stage of product development and the point at which the startup begins to generate revenue to cover operating costs.

A study conducted by the Dom Cabral Foundation on the causes of mortality of Brazilian startups indicated that at least 25% of them cease to exist in the first year and 50% of them are already closed until the fourth year of life. But why does this happen?

According to Marilucia Silva Pertile, startup mentor and co-founder of Start Growth, which supports visionary founders on the journey to the next level, combining expertise, capital and experience, the “Vale of Death” or “Death Valley” is the life cycle phase of a startup facing high financial challenges, making the startup very prone to failure. "We can say that the valley of death is almost an all or nothing, after all, the high criticality of this period is what will determine whether or not the business will survive”, he says. 

According to Marilucia, during Death Valley, the startup has already spent a significant part of its initial capital, however, it has not yet achieved a stable or profitable revenue.“The Death Valley phase usually happens after the first investment, when the product is already developed, market analysis has already been done and the idea has been validated with customers, however the startup still does not generate enough revenue and profit to maintain itself. That is, it is a phase in which it needs” resources, he explains. 

The executive points out that, although it seems scary, you must consider that every entrepreneur goes through Death Valley when starting a startup.“It is a natural process that is part of the business maturation cycle. The secret is to have the rational and financial ability to go through this phase quickly and with the least amount of risks possible”, she says.

Preparing for Death Valley, according to Marilucia Pertile, requires the awareness that hard work, dedication and resilience will be needed. “You need to bring in people who help and also deal with a certain flexibility to face a plan B or C. In addition, seeking mentors and investors should be part of the” process, she says. 

For a faster overcoming of Death Valley, the co-founder of Start Growth suggests that the startup seek partners who can help with non-financial counterparts and also look for some significant customer who is willing to learn and who helps validate hypotheses in search of market fit.