Understanding the startup growth stages can help your business focus on the tasks most critical to its success and frame growth expectations internally and for investors. Unfortunately, there is some debate in the startup world about the specific stages of a startup. Additionally, the time each startup business spends in each phase can vary dramatically.
Typically, the evolution of a startup is an ongoing process, and the lines between each growth phase are murky and difficult to identify. This post will serve as a rough guide to the growth stages associated with startups. Understanding the basics of each growth stage can help your business form a concrete business plan and align project management with the current realities of your startup’s growth stage.
Defining the Growth Stages of a Startup
Whether you are a HiTech startup focusing on developing cutting-edge software or a startup driven by a disruptive mobile app, the growth stages are the same. However, depending on your startup’s ultimate goals and objectives, some growth stages may not apply to your business. Remember, the length of each growth stage will vary depending on several factors, including fundraising abilities, business execution, and industry.
There is some debate about the number of startup growth stages. Some people combine some of the stages included on our list. However, whether you count three or six growth stages, the rough stages of a startup remain the same. The growth stages of a startup are as follows:
The pre-seed phase of startup development is also known as the idea stage. During the pre-seed growth stage, your startup should identify and analyze niche markets, business opportunities, and pain points. The key to your startup’s ultimate success is weighing the available opportunities versus the cost of the opportunity. Therefore, you should analyze the broader market, available alternatives, and competition to your startup.
Ask yourself if your startup is providing a real solution to the pain points or problems you have identified. Is your product or service similar to another already available on the market? Can you improve an existing product or service? During the pre-seed development stage, it is beneficial to speak with potential customers to get their insights about the pain points they experience and the potential ways they can be addressed.
Once your startup has an established idea, it is ready to move into the seed stage. The most important facet of the seed stage is validating the business model and idea. During the seed stage, you must make important business decisions, such as the methodology your startup will follow. Additionally, your startup should begin conducting experiments to validate the idea on which the startup is based.
Your objective in the seed stage is to validate the value hypothesis you developed in the pre-seed stage. You can create early-stage prototypes to test your ideas. These prototypes do not have to be viable or functional at this phase to provide valuable information to your business. Don’t confuse early-stage prototypes with MVPs (Minimum Viable Product) which must be viable and functional.
During the seed stage, you will also need to begin thinking about financing. Typically, startups in this development stage rely on family, friends, and angel investors to raise funds. It is possible to begin attracting venture capital as well, but these investors generally like to wait for a more established idea and product before investing.
An early-stage startup must allow its idea to evolve and see if it is capable of establishing itself in the market. During this stage of startup development, you should launch an MVP to test your product in the market. A Minimum Viable Product might not be the completed version of your application, but it will be functional and offer your business a chance to test the core functionality and idea of your startup on the market.
As you receive feedback from users, you will make improvements to your MVP to ensure that it meets the needs of your target audience. At this growth stage, your business should be taking shape. You should have an established team and business model. An early-stage startup will have more contact with customers. This is a vital stage to understand what effect your product and business will have on the market.
Early-stage startups begin to attract more venture capital funding. There are also accelerators and crowdfunding options to help early-stage startups test their ideas and access additional customers. The early stage is critical for future success. In this stage, you will either demonstrate real potential and attract capital investors, or your product will fail to gain market and investor interest.
If your startup reaches the growth stage, it has demonstrated there is a product market fit and consumer interest in the service or product. At this stage of startup development, funding and profitability are critical as the business attempts to grow and meet the demands of the market. Making it to the growth stage demonstrates that there is real potential for your business. However, during this stage, most startups fail.
Failure at this stage is less about the idea or product and more about the business’s ability to scale, meet market demands, attract new customers, and occupy new market spaces. Funding is critical to the growth of a startup. During the growth stage, your startup will likely attract even more venture capital, especially the investors that like to wait for a more established idea and business model with demonstrated value.
At this point, some people believe that the term startup is no longer appropriate. Some have taken to calling businesses in this development stage scaleups because, at this point, it is all about scale. Startups in this growth stage have an established and proven business model. During this time, the business can consider more ambitious endeavors and scale, such as international expansion, diversification into new sectors and markets, and hiring more employees.
Funding is still critical at this stage of business development to expand the startup into new markets and develop new products or services. However, at this point, the business should also be generating revenue of its own. Investor funding is still necessary, though, because it allows proven businesses to scale faster without having to wait to generate the necessary capital internally.
The exit phase is not necessary or always followed, but since some companies plan for this phase, we will cover it. There are two possible end goals for successful startups. One, create a high-value, long-term business that continues to grow and innovate. The other option many entrepreneurs take is to build a successful startup and then exit by selling the company.
There are a few different ways to execute the exit phase. The most common options are acquisition by a larger company, sale of founder’s shares to another company or stakeholder, and IPO (initial public offering).
There are many different thoughts concerning the stages of a startup. Many would argue that there are only three stages, seed, early-stage, and growth (sometimes referred to as the venture capital stage). However you choose to think about startup development, the process is more or less the same for every business.
Getting a startup off the ground and successfully into the market takes more than a good idea. Startups require a strong technical partner to help them develop their solutions and guide them through the different phases of startup development. If you need help developing a world-class software product for your startup or need guidance through the startup growth stages, reach out to an experienced app development partner.