Startups, COVID and the Valley of Zombies
COVID-19 threw a new challenge at startups who were pre-profit as the pandemic took hold.
While Lineup Ninja was in the very early days, we joined the Entrepreneurial Spark startup accelerator (since superseded by the NatWest Accelerator). It was really useful for education, networking, peer support and mentoring, not to mention practicing your elevator pitch endlessly!
One of the learning sessions covered the “Valley of Death” model of startups. This model describes how startups typically need early investment to fund initial activity, and that it takes time before earnings from customers begin to pay back that investment.
This risky period is called the Valley of Death, because it’s where many startups fail. The diagram presented to us at Entrepreneurial Spark looked something like this:
The Valley of Death is hazardous enough in the best of times. But startups who were in the middle of it as the pandemic started faced the prospect of a prolonged and deeper Valley of Death, as clients cancelled contracts and whole industries closed down.
It presented the risk of losing the momentum of any early traction, and losing first-mover advantage for startups bringing innovative products to market.
Needing government handouts (e.g. furlough schemes, bounce-back loans & grants) to survive, or having to continue servicing debt, but with insufficient income to pay off the principal risked turning startups into zombie companies before they’d even made it out of the gate. Hence I’ve used the the term “Valley of Zombies” to describe this prolonged stage of the Valley of Death:
This presented many startups with a fairly stark choice: a) pivot to something that was profitable in the short-term (e.g. manufacturing PPE, food delivery services, virtual event technology etc.), or b) hunker down and try to ride out the storm.
At Lineup Ninja, our resources were so limited, and our sector so crowded with competitors making the same pivot (to virtual event platforms), that option A wasn’t viable. So we hunkered down. Instead of pursuing a strategy of maximising short-term revenue, we focused on developing our competitive advantage and positioning for the post-pandemic landscape.
We took stock of the client feedback we’d gathered since our launch and used the unexpected spare capacity created by the lack of client activity (a luxury denied to startups in ‘normal’ times) to improve our core offer.
Needless to say, ours wouldn’t have been the best strategy for every startup. It’s also been extremely difficult to sit on the sidelines and watch others in our industry make successful pivots, all the while wondering if we’d missed an historic opportunity.
Nevertheless, it’s beginning to feel like our strategy is starting to pay off. As our industry begins slowly and falteringly returning to something like normal, we have a much better product. Our pipeline is healthy, our conversion rate has improved dramatically, we’ve cleared 75% of the principal on our loans, and we’re looking ahead to a bright 2022 and beyond.
We’re almost across of the Valley of Zombies.
Of course, anyone who’s seen a horror film knows that this is exactly the moment when it all goes pear-shaped, so we can’t breathe a sigh of relief just yet. But at least we can finally allow ourselves to believe that we might just make it out alive!
I genuinely hope that other entrepreneurs out there have been as lucky as we have - whether you’ve pivoted/diversified, or focused and hunkered down. Startup life is challenging enough as it is, without the threat of being turned into a zombie.
