by Arsalan Sajid, startup community manager at Cloudways
Life is not a box of chocolates and startups are not always easy to start. There is a complete process that governs the startup lifecycle including inception to exit.
You must have heard about people who build startups, make them successful, sell them, and move on to start another startup. And, you must have wondered, ‘Man! How are they doing it? Who is buying from them and how are they keeping up their cash flow?’
These people exist and they are called ‘Serial entrepreneurs.’
Serial entrepreneurs are those who understand the complete concept of a startup lifecycle and benefit from that. They make money by starting a product from scratch and then selling it in thousands of dollars. In most cases, they hit the jackpot when their products are sold for millions.
In this article, we will discuss why it is important to understand the whole startup stages concept before you start a business to get the most benefit.
This startup stage starts from the day you decide to work on a startup idea. According to Lee M Von Kraus, PHD and a mentor at Clarity.fm, “Early stage startups are usually pre-money startup that are bootstrapping the early development of a product.”
Here is the complete list of points available in early stage startup.
This is the very beginning of the startup stages. You have a refined idea and you are ready to work on it. Inception stage usually includes the ideation of the idea and formation of the team.
During the ideation startup stage, the startup is still just an abstract concept. You don’t have a product and most of your meetings will not bring any fruit. You are looking for cofounders that can help you build a product. You will also be pitching in most early stage startup competitions to get some funding and meet like minded people – in 99.9% cases you will fail.
You have finally found a cofounder that can take care of the startup. Now you are coming up with some tentative plans around your startup. This stage is usually the trial and error part and you won’t be risking anything except your time.
In this stage, you will also search the market to check if your idea is viable. There is a simple rule of thumb. If there is a gap in the market, there will be demand. Now the question is: How to find gaps in the market? You will have to ask people about the problems they are having. Now come up with solutions that can fix those problems.
Now that you have a refined product idea and a team that can turn this idea into reality, the product development stage will start. Initial product development usually consists of prototyping and MVP.
Prototyping usually means the initial working draft of the product idea. The only condition is that it should WORK. Once you have a prototype, get it tested from your team and solve the basic bugs they found. Refine it further and come up with some sellable features. Integrate these features to your product.
MVP is the product that you can bring to the market. Once your prototype is refined and ready by all aspects it will be called an MVP. Forbes says that MVP is the smartest way to release your product in the market.
Now that you have an MVP ready for the market, it is time to come up with a launch plan. Remember to make your launch fantastic so it can spread the word out. Your startup launch plan is the only way into the market and you should make it count. Here are a few things that you need to finalize your product launch.
What is your business going to be? How are you going to earn money through your product? Is it a one time sell or is it a recurring service? What market are you targeting and how are you going to get sales? These are some serious questions and you need to have an answer for all these questions to create a sound business plan. There are many more things you should work on to create a business plan that is plausible and doesn’t keep suspense when you take it to investors.
Next is marketing. Remember when I said the marketing needs to be epic? Another stage of startup phases is ‘marketing’ and during the initial launch, you only work on making your product better. This is your only ticket to sell your products. So, ask yourself a few questions:
- What market am I trying to sell to?
- What type of marketing strategies should I focus on?
- How am I going to target the right audience?
- Should I focus on online marketing or offline marketing as well?
There are many more… but these are enough to give you an idea.
Ah yes! You won’t make it big unless you have a network. A network of investors to back you, a bench of mentors to give you a kick, and a network of support group i.e. friends, family, that stays with you while you launch the product in the market.
This brings us to our next BIG question.
What if you fail with the launch?
Nothing happens. You try again. Do you think every company is able to launch an epic product in its first go? Nope. There are many failures. In fact, you can find some of them on Kickstarter, Indiegogo, and other crowdfunding websites. But do they stop? Nope. Here is what you should do:
- You market and try to acquire initial customers, enough to get you going.
- Next, you start preparing for another launch – this time even bigger than the first one. Make sure you have links in the media to spread your message.
- You need better features in the product now, because your initial features weren’t enough to make the public go ‘Wow!’
Finally, you have a product, a business plan, and a marketing strategy. Now it is time to form a great team that can turn your product into a great business. Your team will be a stepping stone for the future of your company so make sure to find those people that align with your companies missions and goals.
Finding the right fit is both an art and a science. By offering the advantages of your company, you will be able to find some great employees.
Entering the Market.
Congratulations, you have made it to the market. Now is the time to market like crazy and get initial traction. So, how do you do that? You set a goal. Let’s say you have a goal to get at least 1,000 customers in first three months. You are going to work on it by making some initiatives. Let’s see what initiatives should you work on in the following startup phases.
First is to focus in promotion. How are you going to put your product in front of the people? What is your marketing budget going to be? If you are not a marketer, you need marketers on your team. Marketers that can make your product the PINK COW of the industry.
Next, get better at learning from customers. Find out how your customers are perceiving your product. Are they liking it? How many of them use it on a daily basis? What features they want in the product? How can you add them to your product and what should you do to get that done? Do you need more people in the team? Think about them now.
With the first 1000 customers you will have tons of ideas coming. Some will ask you to add a certain feature, some will ask you to reduce price, and some will ask you to enhance support and things like that. Every customer will have some wishes and you don’t have to work on all of these. Here is what you can do, classify the feedbacks into categories and fix that category that gets the most feedback.
Now that you have the problems fixed, get the version two of your product out in the market. This is the time to relaunch it with more marketing budget.
After a few times, you will realize that you are now sustaining customers. Take two or three more years. If you are getting a steady stream of cash, a good amount of customers every day and meeting your goals, you will reach the growth stage.
Now let’s say you have around 10,000 customers and they are sustained. You have a low churn rate and you are in the business for last five years at a minimum. In the growth stage, you do what? Let’s learn that.
You have two options. Either to go for investors pitch to them directly about your product, or keep yourself bootstrapped.
If you decide to go for pitching sessions, your investors will be interested in knowing a few things. How much revenue are you generating on an annual basis? What type of funding do you require and how you require it? How are you going to return the money? Is there an exit strategy? You have to cover all these answers by creating a startup pitch deck.
Series A, B, C Funding.
The money that you receive will fall in funding stages. If you are getting funded for the first time, which means that you have not diluted the shares of your company, you will be receiving Series A funding.
Further Customer Acquisition.
You need to improve your customer acquisition process. There are a few ways to do this. Either to double your marketing budget, or double your development budget. You can upscale to your own customers, or you can target new industries to acquire more customers. Both are good and it depends on you which way you go.
More Product improvements.
As we were saying in the previous point, product improvements are necessary to grow further. So, come back to those feedbacks that you had in the category. Hopefully the category will have much more data by now. Also, search what type of product features your competitors are adding and why? Now, make product improvements that work for your business and help fuel growth.
Hiring more resources.
When you are done with making product improvements, start hiring more resources that can work to solidify your brand presence. You might have to hire more team members because your initial team will be struggling to manage all those customers. So, hire more people or go for outsourcing to remote workers. You should be delegating jobs so that you have more free time on your hand to plan the future or your business – exactly that is the beauty of startup phases.
Maturity stage is when you are at the peak of your business. This stage is different for every type of startup. An app will have different maturity stage, an IoT product will have a different maturity stage, and similarly, an ecommerce business will have a different maturity stage. So, read more about the ideal business cycle of the type of business you are in to plan the business better.
Coming back to the topic, during the maturity stage, you are at the peak. You will be experiencing the most growth and customers will be flocking in. So, what you should be doing during the maturity stage, let’s see.
Yes, you should be going for global expansion. That’s the first thing you should do. If you are already in the global market, then search for markets that you have not tapped into, or go for partnerships that you haven’t made yet.
Entering new markets and industries.
Let’s say you were just targeting a certain type of audience when you started for the first time. But now that you have reached the maturity stage, it is time to enter new markets and new industries. How can you do that? You create a new buyer persona, and you work on it the same way you did for the current persona. It is the same stage, starting from zero.
You will need to create more partnerships if you want to stay at this stage. These partnerships need to bring in more revenue. Remember we are not talking about a couple of thousands of dollars now, we are talking about HUNDRED THOUSANDS. This can be within different countries, or within different states of your country. You can also penetrate from one niche to the next altogether by modifying your product a little. Because SKY IS THE LIMIT!
More funding rounds.
You may or may not go for more funding rounds. The funding you get now will be Series C or D. It will be in millions and you will have to dilute your shares even further if you are aiming for another funding round. Most companies don’t go for more funding rounds because they are fine with the type of growth they are witnessing.
Note: Maturity stage can come even in five years – take Zynga, and sometimes it takes a few decades before you get to the maturity stage – take Sears. It depends on the type of business you have and the type of customers you target.
And finally, you have the Exit startup stage. If you are on this stage, well done! A hearty round of applause for you. You held your ground and you succeeded at turning your idea into a million dollar company. It may have taken you 5 years, may be 15 or 30 years, but you did it. Now is the time to exit i.e. if you are ready for that.
There are two ways to exit a company.
Most startups prefer to go public. Take Alibaba, Google, Facebook, and even Twitter. Your stock can be a success and double within a day, or it can be a failure and take ages to grow. Again, it depends on the goodwill your market has, the hype it can create, and the way it does that.
There is a complete process to go for an IPO. After an IPO, you can retire and get a new management to work for the company. You can also become a member of the Board of directors. Again, it is your call.
You can also go for an acquisition like Instagram, WhatsApp, and LinkedIn. Acquisition is much better because you can retire and work on your NEXT BIG IDEA. This is the calling of a serial entrepreneur, this is what he/she will do.
Acquisition offers start coming to companies that are in the maturity stage. It is all about how high you can bargain. See Instagram did it for $1 billion, WhatsApp did it for $16 billion in just after two years. So, it is how you position your product in front of the company.
And, the last choice is Merger. You can also opt for a merger with a company of similar nature. Like Hubspot merging with Hootsuite or Buffer. Both will be a win-win situations but you won’t be technically retiring from your post. But then again, this is just an option for exit as you will now have the least liability of the company.
Creating and selling a startup is an art. Only the very best succeed at doing it in the finest way. But at the same time, the skill can be improved and serial entrepreneurs are a living example of that. We hope you liked this article on the four startup stages.
If you think we have missed something in this write up, let us know in the comments below.
Arsalan Sajid is a digital marketer by profession and works as startup community manager at Cloudways. His job is to create value for startups by connecting them with mentors and providing them tailored growth resources through the Cloudways Startup Program. His content marketing skills and love for the startup ecosystem derives him to write and publish content about startups and entrepreneurship on Cloudways blog and on other platforms.