by Katalyst International contributor Jessica Olivo
The Lifecycle of a Startup
There are many steps that a company can take during its time as a startup and each company’s path is different. Any one particular business may skip certain points of the process. Others may linger in a specific stage before moving forward. There may even be times when a company needs to go backwards or repeat steps until they are successful. However, most of these steps fall under three major phases which most startups will pass through on their journey to success: pre-funding, seeking funding, and growing funds.
Phase One: Pre-Funding
Prior to raising money for a startup, or as you are in the beginning stages of doing so, there are steps you may take that will help determine how much you need to raise to successfully move forward.
The lifecycle of a startup begins with an idea. No money has been raised and the product or service has not yet materialized. You have a vision of what you want to achieve, but haven’t yet begun to put the wheels into motion.
Most of the time, your startup begins with recognizing a problem in the world around you and seeking its solution. That solution is the beginning of your product. Once your idea begins to take root, there are still several facets to consider before you move into the next phase. Is your problem something that actually needs solving? Do other people recognize it as an issue and are they seeking a solution? Is the problem specific enough to warrant your product as its answer, or is it too broad to solve with one idea?
The best way to get the answers to these questions is to move your startup from the conceptual stage into research and development. Research can be as simple as talking to people you know, discussing your solution to the problem at hand, and finding out if you’re pursuing a problem worth solving. It can also mean reaching out to potential consumers through email or social media surveys. It’s important to find out if your solution appeals to a broad base. If you find that you may have missed the mark in any way, use your research to refine your idea or product to better suit the actual needs of society. During this step, you want to prove that there is an existing problem and that your product solves it.
Minimum Viable Product
Once you’ve fully conceptualized your product and refined your idea as a viable solution to an actual problem, you can start to build your MVP or Minimum Viable Product. The idea behind the MVP is to build an effective product while spending the least amount of time and money. When you have your first working model of your product or service, you can go back to the research step, testing it in the market and making changes as needed. You have achieved your MVP when you can affordably offer a solution that fits the problem for a price that suits the market.
Once you’ve determined the costs of getting up and running, you’ll be ready to start acquiring the funds necessary to do so. As you start bring in money, there are a few more steps you may need to take.
Building a Team
When evaluating what positions you need to fill during this growth phase, consider at which skills you excel and in which you are lacking. You want to surround yourself with a team who will fill in the gaps where you fall short. Next, think of your long term goals for your company, not just the players you need during the start up phase. Surround yourself with people who are in for long, hard hours; who will hit the ground running; and whose personalities will be an asset in selling your product. Decide which departments you need right away--marketing, sales, IT--and build those up first.
The idea behind the Product/Market Fit concept is that your product not only meets the needs of the market in general, but is also satisfying individual consumers. When your product or service is being purchased and used, the hope is that your consumers are having a good experience, recommending it to their friends and family, and become returning customers. Word of mouth and referrals will be a great source of marketing when you’re product is meeting the Product/Market Fit. You can follow up with customers through emailed surveys to find out if they are enjoying your product and asking what may be improved. You can also take the opportunity to learn more about their purchasing and usage habits in general. This is also the time to refine your marketing message, your product description, and your sales pitch to ensure they are all resonating with consumers.
Your product is working in the market. You’re building your team with key players in place. Now it’s time to grow. You want to expand your company at a rate with which you can keep up and that is appropriate for your product. Growth that is too fast will drain your resources and scaling up before your ready may push you back a few steps. There are many business owners who prefer not to expand their business and keep them easily controllable with no need for large investors or extra employees.
If you do seek to grow, start with channels such as SEO and referrals that work best for your company and your product. During this time, you will also be able to narrow down exactly what drives growth for your startup and capitalize on it.
Your product has taken off. You’ve scaled up to your largest viable size. Now what? The final stage of a startup is all about how to continue growing.
Acquiring another company is an excellent way to grow your business, especially if you have the necessary funds. Smaller companies may have had success in different markets or their products may complement yours, giving you an opportunity to expand. Also, they may have staff that would be an asset to your team as well as technology you may not be utilizing yet. It’s also fair to point out that buying a competitor would eliminate them as you competition.
Before making an offer, you will need to do your homework to properly vet the company and protect your investment. You also want to be sure that an acquisition won’t cause a major disruption to or create unease within you current work force and culture.
Going public can be a startup’s endgame from the very beginning, but there’s a lot to the process that might serve as a deterrent. First and foremost, you have to prove that you are making money and will continue to do so. Not only do you need money coming in, but your gross margin, the money you make after your expenses are paid, has to be well over fifty percent. You should also be able to show that your company is continuing to grow in different ways. Can you provide an achievable plan for the future? Can you adapt and respond to changes in the market? Does your product have a competitive edge in the market and is there a reason your product outperforms the competition? Ask yourself these questions before you consider spending the considerable amount of time and funds needed for an IPO.
If you’re not in a position to take your company public or acquire another company, there are other options for expansion. You could grow into other countries and markets that you haven’t tapped into yet. You could also add to your product or service line to offer something new to your customers. There are plenty of creative ways you can continue to expand.
As previously stated, each startup is going to take a different path on its journey and there isn’t one proven method for success. Depending on your product, experience, and resources, you will have to take the steps that make the most sense for your individual situation.