The Six Start Up Stages
There’s plenty of uncertainty when talking about funding and startup stages: What defines a growth stage startup as opposed to an early stage one? How do we know if a company has graduated from one stage of its lifecycle to another?
To answer your question, we will explore the general 6 phases of a startup then challenges you can find in each stage to help you gauge your progress and set your sights on the next important milestone.
Before we start, we advise that the first stop is not the last stop. It’s no secret startups are never successful overnight, but an entrepreneur should continuously share confidence and faith with his or her business or product while facing challenges. Though the time spent in each stage will be different for every growing company, it’s important to understand that running one is a process that requires patience, perseverance, and a realistic evaluation of its evolutionary stage.
STAGE 1: Inception
Can the team execute and build a working product?
It seems everybody has (what they consider) a million-dollar idea, but making an idea into reality is very rare. Rarer still is the “great idea” that not only gets off the ground, but finding its perfect audience. This is the earliest stage startup when you have to carefully research your target audience and your offering’s potential product-market fit before the company itself ever launches.
Researching and answering questions like
– Do people really need my product or service?
– What problem does my offering solve?
– Is my idea already out there, being sold by an existing company?
may help you understand your company’s future orientation against many potential competitions and future customers in the industry. It’s an important stage that exposes the big difference between having an idea and actually executing on that idea. Are you the Winklevii or Zuck? Put your research into practice, create a prototype, develop a process and start building a business plan and goals for the development over next years.
STAGE 2: Validation
Is there enough of a value proposition where you can convince a potential customer to actually invest resources (i.e. time) to try your product?
Traction, or validation phase is more important than most entrepreneurs think. This is the stage where you begin to get the word out about your product and gain your first customers. It is absolutely critical to get potential customers to try the product, learn about deficiencies in the product, critical features, and, most importantly, to get real-world feedback from someone not on your team. Call upon friends. Call in favors. Pay someone to try your product if need be.
You will find whether or not your product or service is truly viable. Even if there are a few good sounds, continue to shaping and reshaping your product or service according to the initial feedback received from the customers, focus on growing your customer base and actually attaining the product-market fit you researched earlier. Adaptability is the key in the growth of your start up.
STAGE 3: Refinement
Continuous improvement of products for the needs of customers
You have finally launched your business, kudos to you! You may have been receiving—and soliciting—feedback from early adopters, then using that feedback to continue refining your product or service. If so, is there a room for improvement in your offering? What about your customer experience?
Our tip of the day is to ask you to concentrate on expanding the aspects of your product that are most beneficial to customers. Your early interactions with customers go a long way toward establishing your credibility and building customer trust. Show that you are genuinely taking customers’ concerns into account as you continue to develop your offering.
Refinement also means refining your process, making it more efficient. How can you streamline your process? Are there parts of the workflow you can cut out altogether? Is product performance matching your projections, and if not, where is it getting derailed? Test your strategies and track Ad conversion rates (1), social media analytics, and any other data you can to inform your decisions.
(1) Ad conversion rate is an indicator that reflects the impact of online ads on product sales
STAGE 4 : Establishment
Keep the business viable and interesting and prepare the further growth and expansion
In this stage, you may see considerable growth, although not at the dramatic rate you did while scaling up. Business will look more of a routine job, where everyday situations are mostly predictable. Congratulations—your company is no longer a start-up, but an established enterprise.
However, such momentary success must not make your shift focus from the bigger picture, that is, further growth and expansion. You need to keep in mind that the initial ideas, which had led to the success, must be rethought in order to keep it viable and interesting, in which increase customer retention and loyalty as well as further develop your strengths.
STAGE 5: Expansion
Ensure the quality of service during the business expansion
You really can scale your business! Business at this stage is marked by rapid growth in revenue and cash flow. This is where you can capitalize on newer possibilities and ventures.
While having a successful business model behind you is undoubtedly an advantage, it is very hard to get an idea of what will be the results of your undertakings within other markets, or that new offerings will result in the same success.
Your task is indeed to take on new challenges as you look to constantly expand, but look at your resources, measure your risk through careful planning, keep an expert eye on how expansion might impact the current quality of service you provide your existing customers and do your best to secure the company for all eventualities.
STAGE 6: Maturity and Smart exit strategies
Planning your exit strategies at this point or keep going your business
Boss Level! At this point, your company has several hundred employees and is operating in more than one country. You are also starting to speak with investment banks, and the leadership team is working on their IPO. In most cases, you own a microscopic amount of the company you started at this point, and the valuations and committed capital may vary wildly in this phase and are heavily negotiated.
You may have a real chance of becoming a unicorn (a company valued over $1 billion) with an excellent chance of going public. However, although sales and profits remain stable over the years, competition keeps and will keep increasing. Operations become very complex at this stage with the CEO having to make both short and long-term decisions. So, you can consider to sell your business at this point after that, unless you are indefinitely the next Facebook.
Hopefully, the stages we’ve laid out will provide a good way to measure progress and set your sights for the next milestone in your efforts to transform your idea into a successful company. Startups are hard and sometimes progress is difficult to see when your burgeoning idea is still so nascent that typical key performance indicator like revenue or increase in users don’t apply.
Learning is progress. Even making mistakes is progress. When you make mistake, it is the only true way for you to understand the context of the impact or the cost of your actions. Without that context or that framework, it is really hard for you to internalize your decision making progress of choosing the next right thing to do. So we encourage you to make mistakes, just don’t make the same mistakes. Twice.