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5 Stages of A Startup: All You Need to Know — QIT

Jul 24, 2023 6 min read
"5 Stages of A Startup: All You Need to Know — QIT"

Any form of entrepreneurial activity designed to grow fast is referred to as a “startup.” So, you believe that your brilliant new concept may be the next startup success story. And you have high goals to emulate the startup success of Instagram, Uber, and Airbnb. You should know that success in the startup sector requires much more than simply having an amazing idea before you start referring to yourself as the next Elon Musk. In fact, 90% of startups fail. In this article, we bring the analysis of the stages of startup so you can avoid many mistakes on your path.

How then may your business join the exclusive 10%? Understanding the diverse expectations at various stages of startups, from idea to exit, is one of the necessary components.

When should your product be introduced? How do you know when your product is prepared for sale? When should you scale? When do you begin communicating with investors? Knowing each stage’s new needs and milestones might help your startup stay on pace for success. 

Let’s get started because there is a lot of ground to cover.

Stage 1: Pre-Initial Stage

startup investment

Making a launch without completing the required preparation is one definite way to become one of the 90% of failed launches. Every startup aims to solve a particular issue, and the pre-initial stage is crucial for examining and verifying your business theories. Sadly, 42% of firms fail because there is no demand for their goods or services.

By closely examining current issues, rivals, and the viability of launching a new product or service, the pre-initial stage may help you determine if your startup can succeed or fail. Consider this phase as building your company’s base.

It’s important to gather other opinions to understand how your startup will be welcomed and how your ideas may be used, but because you think your concept is wonderful (it is your idea, after all), you should do so. Going directly to the source, your potential consumers is the greatest way to do it. You may better understand your client’s requirements, wants, and price ranges by conducting interviews with them.

Additionally, spending the effort to conduct interviews can pay off tenfold when you can build goods and marketing strategies using actual client feedback rather than simply educated assumptions. Not to mention that the information you acquired from the interviews will be invaluable when you create a special pitch deck. It makes sense to not go over this phase because 14% of firms fail because they disregard their consumers.

Market research is expensive, so even though you’ll be using money from your pocket to get things started, you’ll probably be seeking money to assist. Funding for the pre-initial stage is sometimes referred to as the “friends and family” round since you are not about to begin pitching venture capitalists with little more than a concept that you scrawled on the back of a napkin.

A piece of advice: You should resolve any required partnership agreements, copyrights, or other legal matters as soon as you can. The cost and complexity of dealing with legal issues subsequently might increase.

Stage 2: Initial Stage

initial stage of startup

After you’ve completed your research and established the foundation for your startup, it’s time to plant the seed that will grow into your company.

The initial step of formal equity fundraising is called seed funding. It usually denotes the initial formal funding that a firm or enterprise raises. Some businesses never raise Series A or higher rounds of investment after receiving seed money. The “seed” financing might be compared to planting a tree in your mind.

The initiation of equity investment opportunities for your firm is formally marked by this step. And that’s important because even if you have the finest concept your sector has ever seen, it won’t matter if you lack the funding to implement it. With 38% of firms failing due to cash flow issues, the most common reason for failure is running out of money or failing to acquire new funding.

You now have a minimal viable product (MVP), and your goal is to develop it into a finished product that can be sold. To improve your product-market fit, you’ll also want financial backing for marketing initiatives, personnel decisions for critical positions, and additional market research. Consider this to be your startup’s development stage.

This is also the time to consider insurance plans that will let you take calculated risks to grow your business. Making your company more appealing to potential partners and investors by using insurance policies as a risk transfer can help place your business on a steady and safe growth path. (And keep in mind that whenever you begin recruiting staff, you’ll need workers’ compensation insurance.)

You’ll need to explore outside of your family and friends for donations because cash starts to become crucial in the initial stage. Incubators, crowdfunding, and angel investors are potential sources of VC funding for firms at the initial stage. Investors will anticipate receiving an equity interest in the company in return for their monetary investment because investing in your firm at this time entails a big risk. In 2020, the typical initial round investment was $1 million, and the median pre-money valuation was $6 million, in case you’re wondering what other start ups frequently raise at this time.

Stage 3: Stage of Series A

Series A is one of the terms most associated with the startup business. And for good cause. This phase represents a significant accomplishment for your business and the start of venture capital funding.

A firm might choose to transition to Series A capital to expand and improve its services once it has created its product or service, built an audience, and established a consistent cash stream. The first round of venture capital funds for your business occurs at this stage.

Establishing a business strategy that will provide long-term earnings throughout the Series A stage is crucial. All too frequently, an entrepreneur has a brilliant concept that initially sparks a lot of excitement, but they don’t have a plan for long-term monetization, which causes it to fail. Therefore, before you start phoning potential investors, you should brush up on topics like fundraising tactics and improving your presentation deck.

Remember that at this point, investors are interested in more than simply a brilliant concept. They are interested in learning about a startup that has a workable business plan for turning a profit. Simply put, they are interested in learning about the return on investment (ROI). And it makes sense given that Series A investments have increased dramatically in recent years, with a median of $13 million in 2021. The average pre-money value for Series A businesses as of 2021 was $24 million.

You should make obtaining extra insurance coverage your top priority at this time due to the increase in financial commitments. Most institutional investors, such as venture capital companies, will stipulate in the term sheet that directors and officers (D&O) insurance coverage must be in place before the financing is concluded when it comes to obtaining cash.

We won’t pretend that this stage is simple. Despite having a successful initial round, many entrepreneurs find it difficult to attract investors for their Series A investment. In actuality, just 7.5% of businesses that receive initial capital go on to secure Series A funding. If you succeed in this stage, it will require a lot of work, but your business will be well-positioned for development in the future. An accelerator could be a wise choice later in the startup early stage after you’ve built your product, a network, and possibly some sales.

Stage 4: Growth Stage

startup growth stage

Give yourself a massive pat on the back if you’ve made it to the growth stage. The early years of creating your business were a roller coaster trip of highs and lows that you overcame. You’ve set your sights on further growing operations now that you’ve established that there is a market need for your good or service. A company grows in new markets and distribution channels during the growth stage. In this phase, a company experiments with new ventures and sources of income. Growth equity and private equity companies may also participate in these rounds in addition to venture capital firms.

After securing Series A money, the growth stage, which also includes Series B and C investments, begins. At this point, your business has developed beyond its potential and has demonstrated the capability and expectation to meet its revenue goals. As of 2021, the typical pre-money value for Series B firms was $40 million, while that for Series C startups was $68 million.

There’s no denying that scaling might be challenging to understand, and you’ll surely return to the roller coaster. However, having the flexibility and willingness to change course when necessary might help you escape potentially disastrous circumstances and seize opportunities. Just be careful not to scale too quickly. According to research by the firm Genome, premature scaling accounts for 74% of high-growth firm failures.

Don’t forget about your product or service amid all this growth; it will need to change to keep up with your business growth and improve to appeal to more clients.

Your staff will need to grow as part of increasing operations. Therefore, you’ll need to start growing your workforce beyond the essential jobs and bringing in more specialist talent. Fortunately, you now have the resources (and reputation) necessary to find brilliant people who will aid in elevating your business. 

You’ve probably been donning 14 hats up until this point, just like most founders do. However, you can no longer serve as the company’s CEO, CMO, HR division, and tech support. So that you can concentrate on leading the business through this critical time, you’ll need to delegate some work to other team members.

Stage 5: Maturity Stage

Congratulations! If you’ve made it to this stage, your start-up is a real, established, and successful business.

There’s no question that things have changed a LOT since your initial stage days, and there’s a high probability that people no longer think of your business as a startup. Your company is now well-known within the sector and has a track record for its goods or services, loyal customers, and a completely staffed workforce. In essence, it’s every founder’s fantasy.

During this stage, entrepreneurs must decide what to do next. By launching new goods or services, branching out into uncharted territory, or making acquisitions, you might push for additional expansion. But first, you need to decide whether the company can handle further expansion and where you’ll find the money to finance it. If so, you might wish to think about an escape plan.

Going public is a choice you could take into account to aid in financing future development. Going public is frequently seen as the ideal conclusion for tech startups by founders. That’s only one option, of course, and many firms never make it to the IPO (initial public offering) stage. To determine if an IPO is the best course of action for your business now, you must carefully weigh all the potential consequences of doing so (which won’t be easy). And if you decide against an IPO, it doesn’t imply your business is doomed; just take a look at Cargill, one of the biggest U.S. private firms with $134 billion in revenue in 2021.

Even if your business isn’t ready for an IPO, you could realize that you’re itching for a change and want to move on. It could be worthwhile to reap the rewards of your labor after all the blood, sweat, and tears (though ideally not literally) that you have expended establishing your company from the ground up. Other choices include merging with or selling the business to a bigger enterprise.

It’s crucial to keep in mind that there is no predetermined order in which the startup phases must be completed. Other firms would never advance past the initial funding stage, while others might spend years trying to develop through Series A, others might be acquired by other businesses early on, and a select few—the unicorns of the group—might see exponential growth that propels them forward through the startup stages. Whatever works best for your firm should be used.

No matter when your business starts its journey, though, being aware of the many stages of a startup’s lifespan may help you take advantage of opportunities to increase your chances of success.

Advice on Achieving Success Throughout the Stages of Startup Growth

A startup’s path is not simple. One method to bring greater clarity to the chaos of digital entrepreneurship is to focus on one goal at a time. Use the following tips to support your business’s success during the beginning and growth stages:

Appreciate your uniquenessRemember that each firm is unique and develops between phases at a different pace as you travel through the startup growth stages.Put your consumers firstServing the wants and wishes of your consumers is your primary focus as you build up your company, so keep them front and center throughout the process.
Ensure simplicityWhen starting your firm, concentrate on one niche so you can develop a straightforward, high-quality product or service that fits within your budget, keeping in mind that you may add other things later.Scale up graduallyBefore spending a lot of money and introducing your product to a broader audience of customers, start your business with a small audience so you can determine what works and where to make improvements.