To be successful it is important to understand the different stages of business growth and what it takes to be an entrepreneur. There are a lot of unknowns and uncertainty when it comes to startups. For example:
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What defines a growing startup as compared to an early-stage one?
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What are the different phases startups go through before becoming multi-million dollar enterprises?
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How do you know if a company has “unicorn” potential to become the next Uber or Facebook?
In this article, we will discuss four crucial stages to startup growth which will answer these questions.
Stage 1: Idea Validation
In the idea validation stage startups are focused on understanding if their business idea has value and whether customers will pay for the products and services they offer.
In this stage startups typically create a prototype of their product or service, talk with potential customers and gather customer feedback, seek financial help from family and friends, and establish relationships with mentors and advisors.
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Focus: Talking to all stakeholders, prototype demonstration
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Milestone: Paying customers
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Approximate Size: 1-5 people
Stage 2: Early Stage and Seed Funding
Once your business idea has been validated the next step is to start your search for seed funding; either from investors (i.e., angels, super angels, venture capitalists, independent investors, crowdfunding, etc.) or friends and family.
After securing seed funding it’s time to grow a paying customer base and market presence. At this stage every entrepreneur needs to ensure they are satisfying customer needs and hitting key business metrics.
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Focus: Grow market presence and establish a customer base
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Milestone: Secure seed funding
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Approximate size: 5-20 people
Stage 3: Growth
Once a startup has made it through its initial years the growth stage is a key step in business development. Customers and revenues should steadily increase (even exponentially) as you face many new challenges and opportunities. Profits are strong and so is the competition. A well-versed management team will ensure the growth stage of your startup continues on the right trajectory.
Most startups begin to truly understand their sales funnel matrices, lead conversion rates etc. For example, improving the visitor to free-trial conversion rate by a few basis points can have a huge impact on the bottom line. Also, having a detailed understanding of click through rates (CTR), conversion rates and split testing during the growth stage is very important.
Be very selective about your hiring process; bad hires can negatively impact your company culture and reputation with stakeholders. By now if you’re still on the fast track you will have raised a Series A round of funding to cater to the increasing cost of doing business.
“Series A financing tends to occur when the company is generating some revenue from its business model, but rarely will the business be generating net profits at this point. Most series A investors will be venture capital funds or angel investors who are willing to accept the high levels of risk found in these early-stage company investments (Investopedia).”
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Focus: Aggressive customer acquisition
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Milestone: Secure Series A funding
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Approximate Size: 20-100 people
Stage 4: Scale and Establishment
This is the stage where you will grow your startup at a massive scale (in terms of scaling your technology, people, marketing and client base). If you have completed accurate financial forecasting and raised enough money then you can spend aggressively on marketing and customer acquisition. As an established company your focus should be on improvement and productivity.
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Focus: Project execution, incremental improvement and boost productivity
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Milestone: Strong revenue
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Approximate Size: 100-1000 people
This article has been edited and condensed.
Gaurav Kanabar is the Founder and CEO of Alphanso Tech, an India based IT Consulting company that provides software solutions. Connect with @alphansotech on Twitter.
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