Embarking on the journey of building a startup is an exciting and transformative experience. However, it is not without its challenges. As entrepreneurs navigate through the six stages of startup development, they must possess the knowledge and skills to succeed at each phase.
In this article, we will explore the 6 startup stages and provide valuable insights on how to master each one.
I. 6 startup stages you should know
1. Pre-Seed Stage
This stage is all about laying the foundation for your company. The aim here is fueling ideation and building enough preliminary data to prove there is a real market need for the solution you’re trying to create
What we need to do
- Identifying the business idea
- Research the industry/problem, identify target customers
- Focus on forming the founding team
How to master the pre-seed stage?
A recent CB Insights report found that lack of market need was the top reason why startups fail, contributing to 35% of failures. It is critical for entrepreneurs to determine if there is real market demand for their product/service before embarking on product development and fundraising efforts.
You can validate the hypothesis by:
- Conduct customer interviews, surveys, and focus groups to understand your target audience. Direct feedback is key to ensuring you are solving a real problem
- Seek funding from initial investors dedicated to market research. Thorough research requires resources beyond a founder’s personal funds.
- Pitch your business plan to your personal network. While eager to pitch to investors, ideas alone will be unlikely to convince them at this point. Therefore, networking and meeting with close contacts is the best bet.
2. Seed stage
No longer is it just an assumption, you now have important data that prove viable market demand exists for your product/service. In this stage, you should gain early financial support to turn your idea into a functioning business.
Start-ups need to prove business model viability and decrease investment risk via prototype testing and refinement before an MVP is ready. Multiple fundraising avenues and willingness to partner are key.
What we need to do
- Verify the hypothesis with a working prototype (This does not need to be a full MVP yet)
- Carry out market experiments and testing on the prototype.
- Refine the product multiple times based on feedback and testing results.
- Validate the business model
- Gain financial support
How to master the seed stage?
Based on CB Insight’s data, 47% of startups failed in 2022 due to a lack of financing or investors. During this stage, convincing investors to invest millions of dollars is a challenge.
To succeed in the seed stage, you should connect with the right people and tap into various sources of startup funding. These may include revenue, angel investors, crowdfunding, and accelerators. Since your business is still in its early stages, investors perceive it as risky, often requiring an equity stake in return.
3. Early Stage
VentureBeat reports that only 7.5% of seed-stage startups progress to this stage. The early stage, often referred to as “Series A,” is characterized by securing its initial round of venture capital financing.
To thrive at this stage, your company must have developed a minimum viable product (MVP), garnered a substantial customer base, and established a consistent monthly revenue stream.
What we need to do
- Reach 1st round of venture capital financing
- Craft MVP
- Establish a sizable customer base
- Steady monthly revenue
- Present ROI to investors.
How to master the early stage?
At this stage, your product is in its initial version, although it may still require further refinement.
One of the primary hurdles is demonstrating that your offering can generate sustainable revenue in the long run. It becomes crucial to fine-tune your pitch deck and direct significant attention toward venture capital (VC) firms.
Investors are keen on understanding the potential return on investment (ROI) associated with your startup. Incubators and accelerators play a valuable role in helping you get investment-ready.
Read more: Whole Product Concept & Technology Adoption Life Cycle: Guideline to Win the Market
4. Growth Stage
If you reach this stage, you’ve likely proven that your offer has market demand, got a great customer base, and received offers to purchase your business. Now, it’s time to focus on growing your startup.
What we need to do
- Scale to a bigger market
- Maintain long-term profitability
- Aim for healthy growth
- Expand the team
How to master the growth stage
At this stage, there are two key areas of focus: funding expansion and team expansion. Securing more funding is crucial for scaling your business and ensuring long-term profitability. Venture capital firms remain central to fueling your growth, while investment banks, private equity firms, and hedge funds may also show interest in your company.
Scaling a company requires careful strategy. Scaling too quickly can deplete your resources faster than revenue generation, while scaling too slowly may result in an inability to meet growing demand or meet deadlines. As a founder, it is essential to choose the right people and partners, including startup mentors, to propel you to the next stage.
5. Expansion Stage
Once your startup reaches the expansion stage, you have achieved profitability and self-sustainability. This milestone often marks the transition from being perceived as a startup to becoming a scaleup. Your primary objective at this stage is to pursue further growth, keeping the larger market in mind.
A significant indicator that your business has entered the expansion stage is if you have experienced consistent annual growth of over 20% for three consecutive years, whether in terms of billing or employee count.
What we need to do
- Grow at least 20% for 3 consecutive years
- Expand market segments
- Consider acquisitions or accelerate expansion
How to master the growth stage?
Startup founders and executives often seek outside counsel, such as startup mentors and experienced founders, to tap into expansion. As you advance through each stage, relying on help, guidance, and strategic partnerships becomes crucial for fueling business growth.
6. Exit stage
This phase may not always be a part of every start-up’s journey. There are business models that aim to establish themselves as high-value, long-term companies. If you’re unsure whether you have what it takes to sustain more growth and gain new funds, you may decide to plan an exit strategy.
What we need to do
The 3 common ways to exist:
- Sell the founders’ shares to another company
- Be acquired by another company
- Conduct an Initial Public Offering (IPO)
How to master the growth stage?
Deciding to exit your business depends on your goals. Many founders who exit their startups choose to embark on new ventures instead of retiring. To maximize your exit deal, it’s advisable to hire a team of lawyers to assist you throughout the process.
II. Conclusion
Mastering the 6 startup stages is crucial for long-term success. By understanding the unique challenges and opportunities presented at each stage, entrepreneurs can navigate the path to success more effectively.
Adaptability, networking, and learning from experienced individuals are key factors in achieving milestones and overcoming obstacles. Embrace the journey, stay committed to your vision, and celebrate the milestones along the way. With a strategic approach and determination, you can maximize your chances of building a thriving and successful startup.
Need help to navigate startup stages? Contact Enosta today for a free consultation!
