I have been working with startup companies for nearly 40 years. I joined my first startup in 1983 when my boss left the company I was working for to join a competitor. When he announced he was leaving, I asked him why and my career trajectory changed forever. Here’s how that conversation went:
Me: Why are you leaving?
Roger: I am going to a startup company!
Me: What is a startup?
Roger: It's a small company that will grow quickly.
Me: Interesting… sounds fun. Good luck!
Roger: Wait a minute, I want you to join me at the new company.
Me: I already have a job.
Roger: It pays $1,500 more a year.
Me: I’m in — I love startups.
At the time, startups were rare and considered very risky. Starting a company was hard, expensive and required a lot of capital and planning. Most companies grew very slowly — in many industries it took decades to gain a foothold or reasonable market share.
Venture capital firms didn’t appear until the personal computer era, so without available capital, only wealthy or previously successful business people could participate in startups because they were usually the only people who had the money to execute.
Since then, the startup world has exploded. Fast forward to today and startup culture is celebrated as a primary way of providing innovative products or services, solving problems, creating wealth, building a career and driving the economy. Because of the availability of technology, experience, and capital virtually anyone can create a business plan and start a company.
Let’s take a step back, and expand on the definition of a startup, and review its key stages
What Is A Startup?
A startup is typically defined as a new business created to solve a problem for a specific customer segment. The term ‘startup’ refers to any type of entrepreneurial venture that is built to scale quickly.
In the last decade, I have worked with hundreds of startups as an advisor, investor, board member, and sales strategist. Like all businesses, startups go through phases of growth that can be defined and evaluated for effectiveness.
One of my mentors in the startup world is David Skok, General Partner at Matrix Partners and an early member of the Board of Directors at HubSpot. According to David, startups can be defined by the following three stages:
Find the right product market fit.
Create a repeatable, profitable and scalable sales model.
Scale up the business.
I name the stages differently, however the same general categories apply.
Stages of a Startup
Ideation and business formation.
Proof of concept.
Scaling the business.
Entrepreneurs start companies for different reasons, some want to make a lot of money, others want to solve a business problem, and some just want to work for themselves and not for a boss. Regardless of the entrepreneur’s intent, most companies follow a very similar process of scale going through the following stages.
1. Ideation and business formation.
This is considered the first step for an early stage startup. During this stage, the founding team comes up with an idea and builds a concise business plan to explain the program. I strongly suggest startup entrepreneurs answer the document the following during the ideation and business formation stage to get their thoughts in order.
Creating a Successful Startup in 2020
Name of Company
Website URL or Domain
Now go through the following questions to solidify your initial business goals:
Are you working on this business full time? If not, why not?
Do you have specific domain knowledge that would give you a competitive advantage to build this company?
Why do you want to start this company? Consider the following questions: What problem are you looking to solve? Why do you want to solve this problem now? Have you thought through the personal and professional implications of becoming an entrepreneur?
What kind of company do you want to build?
What are the goals of the company over the next 12-24 months?
Do you have a co-founder? What is their role?
Do you have a concise business plan that outlines the structure and future growth of your business? Check out this post for step-by-step instructions on crafting a business plan.
Have you identified three advisors you can meet with periodically that can help you scale?
How will you know when you have proven the concept of the company to meet the defined goals? How will you measure success?
Do you have access to capital to work on the company full-time?
The purpose of this stage is to define what you are going to do and the company's competitive advantage, refine the basic assumptions and begin to acquire customers. Picking the original startup team, building a website, and selling and delivering your product or service rarely works out in real life the way you think it will in your business plan.
This stage is where the company proves there is a market for the product or service that the company produces, that they have the ability to compete in said market, and to earn money to execute.
2. Proof of concept.
The next phase is the proof of concept or gaining traction phase. This is when a company starts to refine their initial idea and refine to create a predictable, sustainable business.
The proof of concept stage typically includes making necessary improvements to the product, and filling out the product line. From within the company, this is also when many startups look to grow their sales and marketing teams, pick an ideal customer persona based on their improved product, and define a corporate culture that will provide a sustainable advantage.
This stage also typically includes a seed round of funding between $1-$2 million to fund that growth. The goal of this phase is to get a good foundation for showing that the company can execute its business plan and is getting closer to growing and retaining a solid customer base.
3. Scaling the business.
The final phase of a startup is the proving the business model or scale-up stage. This is where a startup company will take the core group of entrepreneurs, add additional capital and transition to growing the company at scale.
Depending on the business, that could entail opening additional offices, adding additional offerings to the product line, and building out a development team. During this startup phase, there should be enough data to clearly articulate a competitive advantage and showcase how to leverage that advantage to an even broader customer base.
This phase typically includes a Series A investment round led by a Venture Capital company that gives guidance and support to help the company grow into an established, sustainable entity.
HubSpot for Startups has helpful resources for startup founders as they navigate growing their companies. Check out the Startup Growth Playbook to learn how we grew HubSpot from a startup to a public company.
Originally published May 7, 2020 8:30:00 AM, updated May 07 2020