In his book, the Startup J Curve, noted entrepreneur and angel investor, Howard Love, essentially states that there is no straight line from startup to sustainable success. Rather, it follows a J Curve where the company initially dips after it starts. The dip can occur for several reasons:
- Product takes longer to develop
- Customers don’t embrace the initial product
- The business model doesn’t quite work
Love describes this dip as the Valley of Death. A young startup needs to be able to crawl out of it before they run out of cash. Much of his book describes strategies in working through the Valley of Death.
Here is a description of the 6 phases of the Startup J Curve:
- Create: This is where the initial excitement occurs for a startup and the three elements come together: the idea, team, and the money. This is the best time to raise money because the startup is selling the dream.
- Release: This is where a startup releases their product to market and where the market will provide feedback. It’s where the rubber hits the road and reality hits. It’s at this phase where founders really need to listen to their customers.
- Morph: In this phase, the startup needs to make adjustments on their product or business model based on customer feedback. At this phase, there needs to be several iterations until product market fit is achieved.
- Model: In this phase, the startup needs to optimize their business model. The goal is to get to a point where there is a direct ROI if more money is invested in the startup.
- Scale: After the business model has been nailed, this is where investment into the startup is able to scale the business.
- Harvest: this is where the startup graduates to a fully established business and is where the founders have the opportunity to reap the benefits of their labor. It is also where they need to decide on what direction they would like to take including IPO, acquisition, etc.
A startup founder needs to be aware where they are on the J Curve. For example if they focus on scaling strategies before they actually nail the business model, the odds of success are diminished. This video is a great overview of the Startup J Curve.
If you like to meet Howard Love and get a copy of his book (while supplies last), he will be speaking at Startup Grind Sacramento on December 13, 2016.