Startups are dynamic and have different development stages with different characteristics and requirements.
A.
First, an opportunity is identified, followed by the clear definition of the value proposition. It is equally important to determine the target market(s). Offering a solution for a market which is poised to grow is the best strategy. Never target a stagnant or shrinking market; and try to avoid markets with low profit margins. (This merits a detailed discussion, which is out of the scope of this article.)
Once this is determined you are past the first stage: ideation.
By the end of this stage the core idea exists to start forming a business plan (alternatively business map canvas) and marketing map.
B.
Second, milestones should be defined, as well as the ultimate vision of the startup. In other words, the previous step identified the land to be conquered, and this second step devises the plan and milestones to conquer the land. If you are going in a partnership to conquer this new land, your first and major step would be to clarify what each partner will gain if there are victories in the future. It is even more important to make sure your fair share of the land will be secured for you. Procurement strategy is also important in this phase. Similar to a war, you need to have a truthful definition of the required human and financial resources, you need to know how long it takes to capture and claim the land and the benefits that will materialize. I would also recommend you should think about a surrender strategy. It is important to know when and how to retreat if risks materialize and cannot be mitigated.
At this point, you are past the second stage: Conception.
By the end of this stage, startup has a strategy. The business plan or the business map canvas are clearer. The four major elements, opportunity, people, context and deal are already thought of, and the first draft of the business plan can be prepared. (Further discussion about a business plan or business map canvas is out of the scope of this article). Partnership agreements as well as an article of association can be drafted out. These drafts may change and may be totally different as further discussions, research and investigation are conducted.
It should be noted that from financing perspective, the company is at seed stage at this point. Financing may be provided to entrepreneurs for the further research, assessment and initial development before actual implementation or even forming the startup.
C.
In third step, implementation begins. More than often, this step overlaps with steps two, and even one. It is difficult to find funders at this stage; even though financial resources are very important already.
People and contributors should commit, and implementation starts. Finances need to be procured in one way or another to make a progress.
This is the third stage of a startup: commitment
By the end of this stage, the final partnership agreement and shareholder agreements are available. The most dedicated founders and teams will have an initial prototype or demo by the end of this phase.
From financing perspective, you are at startup stage, and busy with initial marketing research and the early development of the product.
Up to this stage, major investments are provided by founders themselves, angel investors, or the three f’s, families, friends and fools.
D.
This is when the market fit and product fit are being validated for the first time. Multiple rounds of validation and iteration and product refinement will be conducted. Initial approach to a small friendly market with the pilot product/service is usually the first step. Often, KPI (key performance indicators) are defined in the beginning or during this stage, and compared against targets as iterations continue.
This is the validation phase.
By the end of this stage, the startup has a decent product to offer to a well-defined market, and might have started generating revenue. Many startups never reach this stage, and many others realize that their product was not the right fit for the market.
From financing perspective, this is the early stage. At this stage the startup has completed product development and is ready (and requires capital) to commercialize its product in the next stage. Investments usually come from venture capitals, and in some cases from strategic alliances, mergers or acquisitions.
E.
Commercialization starts at this point. Startup is now past the initial product development and marketing activities, and is ready for growth. Company may stay at this stage for a long time, depending on the nature of the product, its target market, motives and skills of the founders, motives and priorities of investors, and prospective buyers.
This is the scaling phase.
By the end of this phase, a company is not a startup anymore. Revenue, number of customers as well as the team is expected to grow in this phase. Company may reach the breakeven point or even become profitable. Many startups never get to this stage and similar to the validation phase, many ventures fail at this stage.
From financing perspective, the company is in expansion. Financing is required for the faster growth of the company, and is vital to the survival and successful transitioning of the startup to the next phase. Multiple rounds of funding with the same or different investors may happen during this phase. More often venture capitals and investors provide the funding in multiple rounds to limit their risk. Details of preferences and considerations of investors and venture capitals are beyond the scope of the present article.
F.
Congratulations to all startups who are past all previous challenging phases. The company, however, is in growth and transitioning phase, which has its own characteristics and challenges.
This is the establishing stage. Attracting resources and investors is easier now, as the company has a decent and established product and a group of customers. It is important for the company to remain loyal to their vision and mission. But it is equally important to review and revise it if required for their further growth and the growth strategy of the company. New processes should be defined and adopted, even if the management team is determined to maintain and encourage the startup and entrepreneurial culture and spirit despite growth.
From financing perspective, this is bridge financing.
At this stage a company may attract many more private and public investors (IPO), or major investors and buyers (Acquisitions/Mergers/Partnerships/Joint Ventures). Decision on how to proceed to the next level depends on many different factors, including the nature of the product, industry, economical environment, rivalry environment, motives of the initial investors, deals and contracts with venture capitals, motives and skills of the board members and the management team, etc.
Conclusion:
Startups are exciting, dynamic and eventful. Opportunities emerge. Visions shape. Startups are born and founders put not just their hopes, but their lives in them. Some survive, others sink, and many new ones surface. Being forward-looking, focused, and determined are the main elements of success, or as my two favourite quotes summarize it:
“I skate to where the puck is going to be, not where it has been.” –Wayne Gretzy, Hockey Star
“If you’re going through hell, keep going.” –Winston Churchill, British Prime Minister