The Valley of Death

“I can’t take on more business without more staff…but I don’t have the money to hire anyone!”

I’m sure you’ve been there. Your business is busy, but you’re not making enough money. You have cash flow, but not enough to hire someone else without cutting your own pay.

This is the Valley of Death: when you have to hire for capacity ahead of cash flow.

Greg Crabtree coined the phrase “Valley of Death” in his book, “Simple Numbers”.
The Valley of Death is when you have to hire ahead of cash flow, so your profitability drops. Then you race to generate new cash flow. You get out of the Valley when your profitability grows higher than it would have before the hire.

For example, when Two-Brain reached $1M in revenue, it plateaued. I couldn’t fit more sales calls into my schedule; didn’t have capacity to take more clients; and didn’t have time to train more mentors for the team. I was absolutely stuck.

The only way forward was to hire an Admin. This cost money, and cut into my profitability. But hiring Joyce bought me back a lot of time: she processed payments, helped clients find resources, shipped our ‘welcome boxes’ and filtered my emails. While her role didn’t generate revenue directly, she created the bandwidth I needed to find, hire and train two mentors for the team. Within two months, we were more profitable than we could have been without her.

A few years later, we hit another – larger – Valley. I couldn’t move forward without people who were more skilled than me: a dedicated marketing expert and a real, experienced COO. I also had to hire someone to lead our growing tech team, and someone to lead our Media production. Finally, we needed to upgrade our bookkeeping and accounting. Together, these roles cost more than our annual profit…but I knew we couldn’t reach the next level without them.

Of course, the new CMO paid for their role–and more–very quickly. The head of Media upgraded our content, boosting sales and retention. The COO took every headache off my plate, took over HR (the hardest part of any business) and started running operations. The new Chief Information Officer oversaw app development (another huge investment) and doubled as part-time financial analyst. We hired a fractional CFO to guide us on big decisions. Our profitability dropped to nearly zero…but we’d built the team we needed to take us to the next level.

Here are the keys to beating the Valley of Death:

  1. You can’t avoid it; the best thing you can do is get out of it fast.
  2. View every new hire as an investment. Either they generate more revenue than they cost, OR they buy you the time to generate more revenue than they cost.
  3. Hire the revenue-generating people first. This is a balancing act, because you don’t want to sell a service you can’t deliver well. But the marketers pay for the operators. Hire them very close together, but if you need cash, hire the marketer a month or two ahead.
  4. Hire people who are already better than you. I’ve often tried to train a beloved staff person to do a new role. But they’re always limited by my own skill; it rarely works out; and it’s actually more expensive to train them than it is to hire an expert.

The hires that will lift your business are, by definition, better than you are at their job. That’s what makes the Valley of Death so scary: you’re hiring experts, and experts are expensive. But if you want to make it to the next level of business, you need people who are ready for that level and can pull you forward.

I got lucky: my CMO was a former client; my Media head was a former boss; and my COO was my sister, who had enormous experience as COO for larger companies. That didn’t make the Valley less scary, or the race to generate new revenue less urgent. In fact, hiring friends and family made the race to grow even more critical, because I didn’t want to let them down (and they didn’t want to let me down, either.)

Someday, you will reach the limits of your skills.

At that point, you can choose to cap your business, or to hire experts.

Neither is the “right” choice for everyone.

If you choose to hire expensive experts, be prepared to sprint fast–but know you’ve made the necessary step. You can’t achieve your maximum potential alone.

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