As an entrepreneur, there are many issues to consider when starting any business, that’s why business experts recommend proper business mapping, which is a major foundation for a startup. When you build a viable plan to guide you, advancing your business through different growth episodes will be less of a complicated experience.
A new business goes through a couple of growth stages and each phase is characterized by its own objectives, risk level, and funding needs.
Understanding how startup growth stages work will help you to know where your business is headed and you’ll be able to prepare strategies in advance.
What are startup growth stages?
Startup growth stages are differentiated phases of the life cycle of each and every startup company. It is important to note that these stages do not necessarily depend on the age of a company.
Rather, based on various independent factors (including funding), a startup can scale several stages in only a few months whereas it may take years (or longer) for others.
The Startup growth stages?
Let’s dive into what these startup growth stages are:
1. Pre-seed Stage
Pre-seed phase is the initial inception of a company. This is the foundation of every great company beginning from Google, to Amazon, Tesla, to Uber.
Investment in this stage is high-risk and mostly done by family, friends, the founders themselves, and certain startup investors, in rare cases. Pre-seed is characterized by the process of developing the product which is more or less still in its ideation stage.
Also, there is neither a validated business model, MVP, or product prototype to use in testing the market. Rather, founders have to be extra creative in their pitch for private investors’ funding at this stage.
Intense market research and analysis are carried out in the pre-seed stage to help assess the potential impact of the product on the market. As well as to determine if the business idea is solving the right problem with the right solution and addressed to the right market segment.
2. Seed Stage
Pretty much everything in the seed stage is about testing! Here, startups test their product on real people to see what works with the target market and what doesn’t. Plus, there’s actually a Minimum viable product (M.V.P) of their solution already being developed to help with the testing.
Just as the name implies, the seed stage is when a business expands upon the foundation already laid in its pre-seed phase. Startups do this by repeatedly validating their business model and product idea development based on real market data.
This may further be done by conducting miniature experiments called prototype. A prototype does not need to be functional as it is still in its earliest development stage and may not contain complete features yet. As against an MVP which should be both functional and viable.
In the seed stage, startups can either use the trial and error method, access business mentorship from industry experts who offer their years of experience, or leverage both, in order to solidify their product base and plan for long-term growth.
Financing in this stage usually comes from business angels, startup accelerators and incubators, friends and family, crowdfunding, and the personal resources of founders.
3. Early Stage
The early-stage marks the beginning of a phase in which a startup has finished developing its MVP and gotten data from real customers in its testing phase.
The business is ready to launch fully into the market. It can also begin modification of its products and services through a process that collects user feedback, fixes operational bugs, as well as fine-tunes the product to suit customer preferences.
The early stage of a startup is about developing product-market fit. It is a very vital growth phase for every startup looking to scale. Here a startup tries to establish key relationships, build strategic partnerships, and cement business alliances to better position it for claiming its share of the available market.
The company will look for potential growth opportunities, build the right team and focus on strategic marketing techniques, and maintain a positive flow of finances either as sales income or investment funding to be able to scale to the next stage.
Building the right team and maintaining a positive cash flow is crucial, but don’t overlook the role of efficient HR practices in scaling successfully.
Early-stage startups concentrate on hitting ‘breakeven’ since the business has started generating income but is not yet profitable at this stage. Just enough revenue to cover costs of operation.
4. Growth Stage
Growth-stage startups have enough traction to know what works with their target market and what doesn’t. They have recurring users of their products as well as a profitable business model underway.
The peculiarities of this stage are marked by validated products, rapid growth rate, positive cash flow, and definitely, a ready customer base.
The startup focuses on its long-term growth potential and scalability in terms of profits and market size. All these include a continuous process of product development and adaptability to market needs.
The growth stage is also characterized by external financing but this will be dependent on analysis of metrics from previous growth stages. Supposing a business isn’t doing well as indicated by its market stats and financial inspection, then getting investors might be difficult at this phase.
The reason is because the capital investment needed at this stage is quite more substantial than in previous stages and although investors appreciate a high-risk venture, the business also has to show the potential of high returns in the near future to be able to sustain their interest.
Growth stage is critical because statistically, many startups fail at this point and do not make it to the next stage for one of the very many reasons. Nevertheless, high-potential companies can easily get access to venture capital funding as well as private equity and other large-scale financing opportunities.
5. Expansion Stage
After successfully satisfying a market segment with a product, it is time to move into more ambitious spaces.
Of course, expansion-stage activities are not limited to only an increase in operational geography but also encompass any effort by a startup to become well established in its niche.
Expansion can come in the form of acquisition of companies, venturing into new market segments, opening new product and service lines, taking their operations international, hiring new professionals, building a formidable market presence, and becoming a household name in their industry.
To do any of this, startups need a huge ton of financial backing usually provided by two or more venture capital firms and accelerators, in several funding rounds.
Startups at this stage still possess a lot of risks as expansion decisions will shape the future of the company. If not managed properly, it could lead to an early exit of the business from the entrepreneurial space.
6. Exit Stage
At this late stage, companies are said to have reached maturity and hence, can end their life cycle by being sold out. However, not all companies have this goal when starting out. Many startups want to grow into high-value companies and industry powerhouses.
The startup exit stage comes up in three forms: Having an Initial public offering (IPO) which means it is going to be traded publicly on the stock exchange, sale of founders’ shares to another company, or acquisition by another company.
For a company to get this far, it must be a profitable business with high growth potential combined with skilled corporate management.
