8 Startup Stages Every Company Should Know
From pre-seed to growth to eventual decline, startup stages vary. Check out our guide to understand a company's lifecycle to make the most out of it.
From starting as a small idea dependable on funding rounds to becoming one of the biggest, most popular, and independent organizations in the world, many big names like Dropbox, Twitter, and Facebook have come this way, setting an inspiring example for all those who are brave enough to follow their dream.
How have they managed to do that? There is no big secret. As many triumphant entrepreneurs and successful startup leaders agree, they all had enormous faith in their products and a grand passion for everything concerning their company. They did not have any business plan or potential investors initially.
Though, to be perfectly honest, they have not stepped into the business world completely unprepared. Along with developing and polishing every inch of their product to meet the ever-changing requirements and expectations of the target market, they were perfectly aware of crucial growth stages inherent to a well-established startup development model.
The latter implies getting help from professional design services for startups, building a solid brand identity, choosing the right business model, establishing a productive business process, implementing marketing campaigns, etc. This has helped them see through the obstacles during the early stage, which is the trickiest and the most fatal, and assisted them in moving through the startup lifecycle more efficiently and persistently to raise capital and grow faster.
The best part is that you and your startup business can also retrace these steps and give your idea a fighting chance to hit the shelves, stand the competition, occupy its place in the market and become the new Goliath of the industry. This guide discusses what startup stages are and lists all crucial startup phases that all small companies need to go through to achieve success.
What Are the Stages of a Startup?
Startup stages are a set of steps that a company undertakes to reach its prime goal. Some of these stages are well delineated, while others are loosely defined because many factors are involved in a company's development. However, they all intend to give the company the right direction towards success and get it back to the beaten track after failures and crises.
The startup lifecycle includes numerous stages, from ideation to seed round to maintaining your position in the market. And each one is crucial for a number of reasons.
Importance of Going through Startup Stages
Did you know that almost 90% of startups fail? According to recent studies, three new companies launch every second, but only 10% of them reach the first milestone and generate actual revenue.
As many analysts and professional marketers agree, premature scaling and ignoring vital phases in the primary startup stages are the main reasons for failure. Therefore, they all recommend brand-new companies undertake all steps during the startup lifecycle simply because each one brings its own set of benefits. For instance,
- The pre seed phase that almost every early stage startup tends to skip implies building the foundation for a launch. It defines the company's vision and mission, establishes critical milestones, develops a plan of action to achieve short- and long-term goals, and stands behind the deployment of a minimum viable product that will attract investors.
- The seed phase that every middle stage startup is dependable on involves steps that help the company secure investors and raise enough money to avoid stagnation. It establishes a fundraising foundation that attracts future investors and assists in building a team and infrastructure to move forward.
- The growth phase implies that the late-stage startup faces a series of steps to develop a solid business plan, establish a strong presence in the market and industry, and deploy support teams. During this period, the company runs marketing strategies to generate revenue, drive engagement, and extend the pool of employees with talents that should take the company to the next level.
To sum up. Following startup development stages is vital because of these reasons:
- They get the company off the ground.
- They develop a strong brand identity.
- They create healthy work culture.
- They raise funding.
- They expand the customer base.
- They help to gain acceptance from consumers.
- They help the product occupy its place in the market.
- They lead to a stable revenue and company.
- They make the journey to success much more manageable and enjoyable.
It is essential to note that startup growth largely depends on how well the company implements the stages and makes the most out of each phase.
The Basic Stages of a Startup Business
There are different stages of startups, and there is no established consensus. Depending on the niche, product, goal, and mission, a company may pass through various stages during its lifecycle. However, some steps are essential, and every startup company should go through them because they provide a solid foundation to build up, forward product, and avoid failure.
Everything begins with ideation and concept. Early stage startups are perfectly aware of how vital this phase in the company's lifecycle is. It defines such crucial factors as:
- target audience,
- and goals.
Teams conduct thorough research to understand whether their product has qualities or features to meet the target market's needs and expectations and whether it has the potential to become a success.
On top of that, they analyze the competition to identify advantages and areas where they can fill the gaps.
This phase also implies the development and deployment of the product and all the supporting materials.
This stage is a part of the pre seed era of the company's development. This means there are no investors, and the startup operates relying only on its resources and budgets.
Even if you are not shooting for the stars (though you should be), you still need investors. The business world is harsh. It may take years to reach your goals if you do not scale your business in time and benefit from modern technologies that optimize business processes. Therefore, the seed stage comes right after ideation.
At this point, the team has not only faith in their success and mission but, most importantly, a minimum viable product at hand and a thorough understanding of the market and competition. So, what steps should it undertake? They are:
- Define mission statement.
- Determine short- and long-term goals.
- Create a timeline and set deadlines and milestones.
- Assess what resources the company needs to reach the goal.
- Assess what expertise the company needs to deliver the product to the target market.
- Outline the most important characteristics of the product.
- Develop a business plan.
- Develop a financial plan covering forecast profit and loss, cash-flow statements, and potential revenue.
This phase also sees the constant improvement of the product based on early feedback. As a rule, teams expand the pool of employees with talents who will respond to growing demands and create healthy and transparent relationships with prospects and customers. These actions help establish commercial agreements for the future and prepare the solid ground to secure investors who will provide adequate capital to get the company off the ground.
It is important to note that seed capital is the earliest source of investment. Nevertheless, the company should clearly define investment interests and provide tangible deliverables, milestones, and regular updates.
The growth stage is where the real fun begins. It has various phases that largely depend on the niche, type of business, target market, product, and result of the seed stage.
It begins with a start-up phase, which implies officially launching your company, creating brand identity, increasing your customer base, and making the product and overall user experience even more beneficial by collecting as much information as possible.
The next step is scaling business because companies have reached a steady source of income. This phase implies hiring more people and increasing product development and marketing funding. As a rule, at this point, companies develop a compelling and well-researched pitch to secure accredited angel investors (individuals who have a net worth of at least one million dollars).
At the end of this era, the company should have a clear business model, a refined marketing strategy, and a budget and team to meet its current needs.
The established stage is a part of a growth era. However, some companies put it in a separate category since it plays crucial role in the company's lifecycle. Factors that define this stage are:
- a consistent source of income;
- formation of a loyal customer base;
- steep growth;
- popularity spike.
It is largely believed that things become more predictable for cash flow. However, this stage is full of challenges. For instance, companies experience the steepest competition ever. Plus, they struggle to accomplish such crucial tasks as:
- accommodating an expanding workforce;
- taking more time in the recruitment process;
- improving product or service;
- fostering healthy and strong relationships with customers;
- establishing real order and cohesion inside the company;
- building reputation.
Therefore, startups remain alert.
The name of this phase is self-explanatory. It is an era of expanding the market, covering new distribution channels, and developing complementary products and services. Many leaders agree that at this point, it feels like
- Staff is in place to handle the areas.
- The business has a strong presence in the market and a successful business model.
- There is a rapid growth in both revenue and cash flow.
Therefore, companies embark on an entirely new adventure of trying new ventures or profit options to capitalize on this particular level of stability.
The main pitfall of this stage is that many companies overestimate their capabilities and take on too much, thereby failing. Therefore, it is highly recommended to measure risks and be realistic about the effort, cost, and potential returns while taking on new challenges.
When businesses start to see stable profits year-on-year and a loyal customer base sees constant growth, as a rule, this means that they have entered a maturity stage. It involves a strong presence in the market, a powerful reputation, proper brand perception, and high revenue.
Companies hire a seasoned CEO who is more fit to navigate the new challenges and is ready for the further expansion giving founders time to focus on other ventures. The essential characteristic of this stage is that leaders and co-finders become less involved in the daily operations because the business is well-organized and the management team takes over. Therefore, one can often see a change in leadership in organizations.
Last but not least
Two more vital startup stages should be noted here.
The first one is the decline stage. It appears when companies are unable to adapt to fluctuations in the market, ever-changing demands and expectations of the target audience, and the fiercely competitive landscape of business environments. In this case, they experience a decline in sales at an accelerating rate that eventually leads to product deletion or elimination.
It is essential to understand and evaluate a decline stage in time and adopt the proper strategy. For instance, coming up with another use for a product or reducing costs or investments into the manufacturing process.
The second one is the merger and acquisition stage. Businesses may merge to amplify their presence in the market or combine resources and operation efforts to reach new heights. Alternatively, another company can acquire the startup to gain control over the market segment or expand its sphere of influence.
The startup world is harsh, competitive, ruthless, and relentless. Every new business faces a parade of challenges. Therefore developing a strong brand is a long, complicated process that requires much capital, planning, and team efforts. For some companies, it might take decades to gain a foothold or reasonable market share. However, this does not mean your idea does not have a chance.
Many successful entrepreneurs and company leaders agree that to emerge victorious, it is crucial not only to stay determined, resilient, and faithful to your noble cause but, most importantly, to go through basic startup growth stages. The latter includes ideation, seed stage, growth stage, established stage, expansion stage, maturity stage, decline stage, and acquisition stage. Each one plays a crucial role in a business's lifecycle, and each one helps the team forward their company and keep it afloat.