In the exciting world of startups, founders must not only focus on the current phase, but also keep an eye on the phases to come.
Unfortunately, there are many reasons why companies fail. But the good news is that some of these reasons are preventable. Not understanding the business life cycle is one of them. Leaders can avoid it by recognizing that business strategies must change over time as the company evolves. For example, when a company is in the launch phase, it must work harder to gain recognition in the market, so marketing efforts must be based on building its reputation. Later, the focus may be more on specific products or services.
In the following sections, we explore the other phases of the business life cycle, how it applies to startups, and how to adjust strategies accordingly. To start, let's take a closer look at the business lifecycle.
What is a business life cycle and how does it work for startups?
The business life cycle refers to the phases that companies go through from beginning to end and is typically divided into five phases:
To throw. Every company has to start somewhere. During the launch phase, a company introduces itself and its products or services to the market. The main objectives should be to convince consumers why the brand is better than its competitors, gain market share and manage cash flow.
Growth. During this phase, sales typically increase, but expenses can also increase as companies invest in R&D, equipment, and new employees. Therefore, cash flow is still a concern. It is at this stage that companies begin to see positive cash flow and greater profits. Challenges may arise in the effort to balance expectations with reality (such as hiring more employees to accommodate expected sales, which may or may not materialize).
Plateau. By now, many of the problems have been resolved and company leaders know what it takes to succeed. Many of the major expenses, such as equipment or delivery vehicles, have already been covered and each department understands what is needed to contribute significantly to the company's success.
Maturity. Maturity is the continuation of the plateau, at which companies continue to reap the benefits of understanding critical success factors. It may seem easy, but this is where companies can become complacent if they don't work to stay relevant.
Decline. Companies that cannot effectively manage the previous phases find themselves in a phase of declining revenue, cash flow, market share and profit. When they lose their competitive advantage, they discontinue operations.
The five stages of startup growth
But what about startups? Is it just early stage companies listed above? Kind of. Startups must certainly go through the same phases of the business life cycle. But they also have their own unique phases of the startup lifecycle.
To clarify, a startup is generally recognized as a company that is no more than five years old, is innovative or disruptive in some way, has aggressive revenue and growth goals, competes in a global market, and is funded by entities outside of itself. as venture capitalists and investors. Startups also typically take a problem-solving approach and are run by highly motivated individuals who want to make a big impact. So, what are the five stages of a startup life cycle?
The startup lifecycle phases are roughly equivalent to the general launch and growth phases of the business lifecycle listed above. When a company reaches the plateau phase, it is established and is no longer considered a startup. Given this history, startups typically follow the phases listed here.
Conducting research. Startup founders must determine the problem they want to solve and ensure there is a potential market or demand for the proposed product or service. Highly ambitious companies may decide they want to create demand. Either way, there must be a compelling enough argument to convince potential financiers of the revenue potential.
Secure financing. This phase can overlap with the rest and should always be in the founders' minds, as it is essential for their success. They must be able to prove their point, including how they compare to competitors, their ability to run an efficient organization, and their potential for growth. The following video describes lesser-known ways to secure startup funds.
Developing an MVP. Founders must create a minimum viable product (MVP) to test in the real world. For physical objects, this means producing something close to the real thing for focus groups to use and provide feedback. This phase is tricky because founders must have an MVP to get funding, but they may also need funding to create the MVP.
Creating the business. Creating the MVP is one thing and building a business is another. Both must be of high quality to ensure the success of the business. The business founders or manager must create a structure for manufacturing or procurement, distribution, contracting, and marketing. As the company grows, they must find ways to scale .
Gaining recognition. Certain signs indicate that a company is establishing a foothold in an industry. They include repeat business, social media mentions, and attention from industry watchers. It is at this point that startups enter the challenging growth phase, in which – even with all the trials of the previous phases – companies can easily prosper or fail.
How to successfully navigate each new phase
The descriptions in the previous section reveal that in each phase, startups must meet specific objectives. The key to success is knowing what these goals are and how to achieve them successfully. For example, developing an MVP requires the ability to create a product as close to the ideal as possible without overspending.
Some of the steps may require the help of an external partner or consultant, and knowing when this is the case is part of the founders' skill base. In the exciting world of startups, founders must not only focus on the current phase, but also keep an eye on the phases to come.
