startup-lifecycle

What Is The Startup Lifecycle? Startup Lifecycle In A Nutshell

The startup lifecycle describes the various stages a startup will move through as it grows and develops. Usually, a startup’s life cycles goes through five main phases: solving a problem, development, market-entry, scaling, and maturity. For each of these stages, the startup will have to focus its efforts on various elements, like product development initiatives, then marketing and distribution. And as maturity is reached business model scalability and organizational design.

Understanding the startup lifecycle

Every startup company is different, but most will encounter the same few stages as they grow and develop. Collectively, these stages make up the startup lifecycle.

For the management of a startup, understanding the lifecycle is a useful way to anticipate future obstacles. It can also assist in the development of a robust business plan that helps reduce some of the doubt and uncertainty that is common in early-stage companies.

The founders must avoid the temptation to cut corners and move to the next stage before the company is ready. This can be avoided by management focusing on their own journey (and not the journey of a competitor) and ensuring the client remains a priority throughout.

The five stages of the product lifecycle

There are various startup lifecycle models in existence, with most interpretations featuring three, four, five, or even seven stages.

In this article, we will discuss a five-stage interpretation.

Stage 1 – Solving a problem

5-whys-method
The 5 Whys method is an interrogative problem-solving technique that seeks to understand cause-and-effect relationships. At its core, the technique is used to identify the root cause of a problem by asking the question of why five times. This might unlock new ways to think about a problem and therefore devise a creative solution to solve it.

Every great business idea starts with a problem that needs to be solved. To ensure the solution is commercially viable, the startup must determine whether there is demand for it among consumers. Then and only then should it research the target audience and develop a specific buyer persona.

Demand can be tested by creating a crowdfunding campaign or by sending traffic to a landing page with an offer. Provided there is interest, the startup can subsequently develop the blueprint for a minimum viable product (MVP). To fund this stage, the founders often rely on donations from friends and family.

Stage 2 – Development

product-development
Product development, known as new product development process comprises a set of steps that go from idea generation to post launch review, which help companies analyze the various aspects of launching new products and bringing them to market. It comprises idea generation, screening, testing; business case analysis, product development, test marketing, commercialization and post launch review.

In the second stage, the startup builds the minimum viable product with the smallest possible investment in time and capital. Once the MVP has been released, it is important to onboard some users and seek their feedback.

The MVP should be improved upon over time to reach a point where it can solve a real user problem. Note that the priority is not to make the product perfect but to attract seed funding interest from investors in preparation for stage three.

leaner-mvp
A leaner MVP is the evolution of the MPV approach. Where the market risk is validated before anything else

Stage 3 – Market entry

go-to-market-strategy
A go-to-market strategy represents how companies market their new products to reach target customers in a scalable and repeatable way. It starts with how new products/services get developed to how these organizations target potential customers (via sales and marketing models) to enable their value proposition to be delivered to create a competitive advantage.

The third stage of the startup lifecycle describes a company that is ready to optimize its product and enter the market. It has demonstrated the viability of its business model using data gathered from the MVP and has attracted interest from angel investors, crowdfunding platforms, or micro venture-capital firms.

Every company should strive for product-market fit. This is a scenario where the target audience is purchasing the product, using the product, and telling others about their experience. The third stage is characterized by a lot of trial and error as the startup tests various channels and marketing strategies.

Stage 4 – Scaling 

business-scaling
Business scaling is the process of transformation of a business as the product is validated by wider and wider market segments. Business scaling is about creating traction for a product that fits a small market segment. As the product is validated it becomes critical to build a viable business model. And as the product is offered at wider and wider market segments, it’s important to align product, business model, and organizational design, to enable wider and wider scale.

Scaling is one of the most critical stages of the startup lifecycle. The startup must double down on the channels it has identified as the most effective and expand its team by hiring specialists with the knowledge necessary to drive the company forward. In most cases, these initiatives will require venture capital funding.

Once a channel has reached saturation point, it is important to repeat the process and secure another channel to ensure growth is sustainable.

Stage 5 – Maturity

A mature startup is one that has an established presence in the market, has a reasonable customer retention rate, and is making a profit.

Where the company heads from here is at the discretion of the founders. Some will choose to solidify their presence by holding an IPO or acquiring other companies, while others may be serial entrepreneurs who want to sell the company and work on the next big idea.

Key takeaways:

  • The startup lifecycle describes the various stages a startup will move through as it grows and develops.
  • The startup lifecycle helps entrepreneurs anticipate future obstacles and develop a business plan that removes some of the uncertainty inherent in early-stage companies. However, the company should never cut corners in an attempt to progress through each stage of the lifecycle prematurely.
  • The startup lifecycle can be explained in five stages: solving a problem, development, market-entry, scaling, and maturity.

Connected Business Frameworks

Balance Sheet

balance-sheet
The purpose of the balance sheet is to report how the resources to run the operations of the business were acquired. The Balance Sheet helps to assess the financial risk of a business and the simplest way to describe it is given by the accounting equation (assets = liability + equity).

Income Statement

income-statement
The income statement, together with the balance sheet and the cash flow statement is among the key financial statements to understand how companies perform at a fundamental level. The income statement shows the revenues and costs for a period and whether the company runs at profit or loss (also called P&L statement).

Cash Flows

cash-flow-statement
The cash flow statement is the third main financial statement, together with an income statement and the balance sheet. It helps to assess the liquidity of an organization by showing the cash balances coming from operations, investing and financing. The cash flow statement can be prepared with two separate methods: direct or indirect.

Finanial Structure Modeling

financial-structure
In corporate finance, the financial structure is how corporations finance their assets (usually either through debt or equity). For the sake of reverse engineering businesses, we want to look at three critical elements to determine the model used to sustain its assets: cost structure, profitability, and cash flow generation.

Tech Modeling

business-model-template
A tech business model is made of four main components: value model (value propositions, missionvision), technological model (R&D management), distribution model (sales and marketing organizational structure), and financial model (revenue modeling, cost structure, profitability and cash generation/management). Those elements coming together can serve as the basis to build a solid tech business model.

Read Next: Income StatementBalance SheetCash Flow Statement, Financial StructureWACCCAPM.

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