What are the 7 stages of a startup?
Stages of startup development are as Gray an area as a Startup’s own creative ideas themselves, and they can be convoluted and inter-twined with one another to a certain degree. That’s why it’s difficult to draw a clear line where one stage finishes and another one starts.
However, from a broad outline we have listed the 7 potential stages a Startup would aim to go through with Success.
1. Product Gap
Every business “Has to” fulfill a Need.
A “need” from a consumer willing to Pay money in exchange.
The Need can take the form of either as a “Service” or as a “Product”.
For e.g. Uber and AirBNB are Services Technically.
And they filled a critical Gap with their Software as a Service (SaaS).
Whereas Tesla makes Electric Cars and it a Product Gap that fills the space of Mobility.
The Product Gap can either be Explicit or Implicit.
Explicit Product gaps are Known by the consumer. For e.g. every consumer does have a need for a Longer battery life for their smart phones or Electric cars. A startup that comes with a Longer Battery life is a clear winner.
On the other hand, Implicit Product gaps are unknown to the consumer. Ford very famously said, if I asked the people what they wanted, they would all say “a Faster horse”. Hence I built the Car.
No matter how you come up with it — during a brainstorm with your friends or colleagues, or you were just hit upon when you least expected it — it’s a cornerstone of every business.
But unfortunately, not every “grand design” is neither new nor innovative.
To avoid making a mistake by launching a product or service that nobody needs or wants, make sure that your “million dollar” idea can indeed make a difference. Conduct thorough research to see if your idea is fresh and can bring real value to avoid creating yet another copycat or mediocre product/service.
2. Friends & Family, and Angels Stage
Coming up with a Product or Service idea and funding it with your resources is only a beginning. And it is a very crucial period of your business.
Just like a baby, the initial stages of it’s life need the most amount of attention and care. You may need to expand your business and for this, you’ll need more money as your sources may only take you thus far. This is when the Friends & Family, and also the Angels stage comes to the aid of your startup.
Remember to use this source very wisely. It may not be very wise to keep going back to your limited number of Friends and Family and ask for funds, when your last startup that was funded by them just a Year ago, did not take off the ground! Oh-oh…
Angel investors or simply angels (or also known as private investors) are affluent individuals or a group of them, who have more than $1 million in cash (or assets) and can invest in startups in exchange for the company’s equity.
Friends & Family, and Angels is an initial stage when the founder wants to bring their product to market but needs outside support. With a business plan in place and new financial support, you can now work on a clickable prototype of your product.
3. Pre-seed Startup Stage
At this stage your Prototype has taken shape and you are going to the Market and receiving Positive feedback from your consumers.
You have not yet made the Break even point where revenues = expenses.
You are still taking a loss, but atleast you can see the Light far away.
Critical period where the Business demands more money to hire new recruits, marketing budget and where your Product gets tweaked by the Best engineers.
This Pre-seed is where 80% of all Startups Fail.
As the business is growing, it requires additional funds to support itself.
Is your product something that your customers really need or want? If not, how can you pivot? If yes, are there any essential features it lacks?
To answer all of them, you need to build a minimum viable product also known as MVP which is a proven tool to validate an idea.
MVP is a representation of your product with the necessary features to satisfy early adopters.
Minimum viable product provides you with an overall understanding of where your startup is heading and what should be changed or added right now and what works just fine in terms of your product.
4. Seed Startup Stage
This stage suggests that you’ve validated your idea, consumers are getting their Value’s worth from your Product/Service.
And your product is already generating revenue on a regular basis and your startup’s acquiring new customers. Your cost accountants are happy that you are Breaking even and your turning around the corner towards Profit.
However, the startup has to grow faster, become bigger, and secure your position in the market as a Key player.
Seed stage startups gravitate towards investment firms rather than individual investors. Venture Capitalists can willingly provide money for startup companies. Moreover, they can provide you with valuable experience, human resources, office space, and even guide you through the next development stages of a startup.
In exchange for funding, they will get some share of your company’s equity.
5. Consolidation Stage
During this phase, the chief task for the Business executives is to make sure that the Strategic direction of the company is well understood by the team.
Especially from Audit and compliance perspective. And for better Risk Management.
The Product and Services offering needs to be well oiled and glued together for a great customer experience. All the crinkles need to be ironed out and Software bugs at this stage is a Big no-no.
This is the time to consolidate your existing customers into repeat buyers to help your Startup to expand and conquer newer markets.
6. Growth Stage
This is when the exponential growth of your Brand comes into fruition.
At the growth stage, companies bask in the glory of their success. Entrepreneurs have some new options of how to secure the next fund — investors, bank loans. Banks provide some good advantages, for instance, they can loan you money with low interest rates, and they don’t require your company’s equity in return.
7. Exit Stage
Your company has several offices, maybe even outside of your country. Your product or service has secured its positions in the market so strongly that for now it has become an integral part of your clients’ lives. And now it’s time for IPO or Initial Public Offering. It’s the final stage of startup development.
IPO is the very first time when a startup (private company) makes its corporate shares available to the public for purchase.
This allows startups to raise funds from public investors and it means that the company’s private status becomes public and its shares become available to an unlimited number of investors. There are several reasons why you might want to consider this option for your startup. Initial public offering helps you attract long-term investment for your business, boost the company’s prestige, which provides you with high-profile partners and new clients. IPO allows the existing shareholders to sell their shares or you can sell your shares on favorable terms.
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