When you hear the word startup, what’s the first thing that comes to mind? A fancy tech venture based in Silicon Valley? A scrappy physical products business pulling all-nighters in someone’s garage? Maybe you think of the founders and inventors who present on Shark Tank.
Startups mean different things to different people. That’s the beauty of the concept — it’s completely up to you how you want to formulate, define, and grow your startup.
But what’s not necessarily customizable is the path to success. Every startup needs a validated idea, sufficient funding, and a long list of customers. Stuck on how to achieve those? That’s why we created this guide.
Below, we’ll talk about how to validate your idea, obtain necessary funding, and grow your customer base. We’ll also cover a few common startup struggles and how to overcome them. Use the chapter links below to jump around, or keep reading to dive in.
What is a startup?
A startup is a new business that’s formed to solve a problem for a target audience. The term startup refers to an entrepreneurial venture that's designed to scale quickly and is funded through bootstrapping, venture capital, or other means.
There are many stages of development that startups go through. The most common ventures people think of when they hear the phrase 'startup business' are early-stage startups.
What is an early-stage startup?
Typically, an early-stage startup is a business with a product or service that hasn't hit the market because it's still in testing. The business may also be unable to pay its few employees because they're still fundraising (which may include pulling from personal funds, personal and professional networks, and/ or accelerators).
Not only are early startups awaiting funding, but could also be working on research development, product business development, market research, and more. Due to being so early in the process and facing uncertainty, early-stage startups are considered to be the riskiest stage of the startup roadmap.
Beginning a startup is not a linear path, but having a plan can clarify the chaos. Many entrepreneurs begin their ventures with a startup roadmap, which can take the form of a document or template with the goals and expectations of where a business has been and where it’s going for the future. The planning process can start with a high-level overview to keep the big picture or end goal at the forefront of operations.
Since every business is different, no two roadmaps will look the same, but there are plenty of roadmap types to explore when devising your own.
Whether you are planning to launch an early-stage startup or you need to develop a strategic plan for an existing one, you'll need to have first identified which of the six types of startups your business falls under. That way, you can tailor your strategy accordingly and kickstart a successful launch (which we'll cover in more detail shortly).
Types of Startups
- Small-to-mid-sized business startup
- Social startup
- Large business startup
- Scalable startup
- Acquirable/buyable startup
- Lifestyle startup
Let's briefly review what makes each of these startup types unique.
- Small-to-mid-sized business startups: A startup that maintains revenue, assets, and has a workforce no greater than 2,000 employees.
- Social startups: A startup that develops, funds, and implements solutions for social, cultural, and environmental solutions.
- Large business startups: Companies created with the intention of innovating and making substantial waves in their industry.
- Scalable startups: Businesses that are formed to scale immensely over time to turn into high-growth, profitable companies.
- Acquirable/buyable startups: Startups with little capital but quick development, created to be sold off to larger companies.
- Lifestyle startups: Startups created to focus on the behaviors and activities (or the "lifestyle") that the founders — and their target audience — are passionate about.
Keep in mind that a startup could fall within multiple of these categories rather than just one exclusively, too.
In addition to these types of startups, you've also probably heard the phrase lean startup. The Lean Startup methodology refers to development and growth processes designed to minimize the need for funding as well as market risks. This process saves precious time and resources — two assets that startups can’t afford to waste.
Instead of working through these issues the hard way, our Startup Growth Playbook (as well as the tips below) can help you avoid some of these problems before they happen.
Step-by-Step Startup Guide to Launch a Successful Business
Launching a startup isn’t a linear process. Some steps predetermine others, but can get confusing among all the moving parts. This section outlines the different spokes that make up the proverbial startup wheel.
1. Determine the type of startup you want.
The first step to launching a successful startup business requires you to create a strong foundation — this is critical to your ability to grow and scale your business effectively. To do so, determine which of the six types of startups your business fits under.
Questions to ask yourself to determine the type of business you want to start are:
- Do you want to scale your business or maintain a small, local one?
- Do you want to go public with your business?
- Do you want to keep your business or eventually sell it off?
Once you narrow down your options through this step, the rest of the process will become more clear because you will know the intentions of your business.
2. Choose your strategy.
Consider various factors like the strategy and legal structure of your business. These factors will differ according to the industry vertical you choose.
For example, if your company offers financial consulting, you’ll have to learn what type of software is best for managing client data. This could include a strategy based on obtaining the proper investment advising licensing, giving your business an LLC, and if you need to form a team if the scope of your business is more than one professional can maintain.
Once you have chosen these ideas for your startup, it's time to validate the product or service you want to sell.
3. Conduct market research for your product or service.
You’ve got a business — now you need an idea. Let’s say you’ve got a great one. Subscription boxes for pets, toothpaste tablets, or a co-working space for servicing your car … whatever your idea is, you’ve got one. You’ve named it and outlined how it solves a problem that customers face. And you’re excited about it.
But that doesn’t matter … not as much as how excited your customers are about it. Ideally, excited enough to pay for it.
By talking to your potential customers and understanding their wants, needs, and expectations, you can avoid investing in products or services in which your customers aren’t interested. The same goes for competitor research. This is how startups avoid wasting resources — by ensuring their idea and product will be well-received before they take the time and money to create it.
How can you do the same? By conducting market research.
Market research is a must when it comes to building a startup. It’s an invaluable tool to assist you to execute tasks like:
- Define and engage your target audience to learn more about how you can better solve their problems.
- Analyze your competition, research their product or service, pricing structure, messaging, and unique selling proposition (USP) to better understand how you can set your business apart.
- Formulate your positioning statement for your product and your brand.
- Fuel your go-to-market strategy to outline precisely how you'll present your product or service to your intended market.
4. Obtain startup funding.
Now, let’s talk money. Did you know that the vast majority of startups are funded by their founder(s) or by their friends and family? That’s called bootstrapping — when the owner pays for their business expenses.
Bootstrapping is tough work. (Remember when we said 90% of all startups fail?) Getting funded by outside investors doesn’t necessarily make it easier, either … considering that 75% of funded startups fail.
But that’s not to say you shouldn’t get funding. If done right, working with investors can give you more than money — it can also provide connections, advice, and mentorship.
There are a few ways to raise money for your startup — read through the following list to determine which might work for your business situation.
Incubators help startups accelerate their growth through support for management training, office space, capital, mentorship, and networking connections.
Incubators can be sponsored by a variety of organizations: for-profit ventures, non-profit organizations, academic institutions, and even community and economic development organizations. Incubators can also be organized by industry, niche, or location — some may work specifically with fin-tech or agricultural startups while others only accept startups in Kansas.
Not every startup is a good fit for an incubator. Fit depends on capital and physical needs, size, location, and how much equity you’re willing to give up. Regardless, for new startups, incubators are worth looking into.
(Learn about the differences between incubators and accelerators here.)
Venture Capital Funding
Venture capital (VC) is private equity (money) given to startups that show high, long-term growth potential. This money is provided by venture capitalists who spearhead these specialized firms or funds.
VC is often a give-and-take scenario: Venture capitalists give money and take equity — thus gaining a seat at the table for company decisions. Some startups appreciate the extra voice; others don’t. Tools like capitalization tables (cap tables) can help you understand your equity and manage your ownership.
Also under the VC umbrella are angel investors, which are high net worth individuals who are also entrepreneurs themselves. Angel investors often look to fund startups in the same industry as their own, and they sometimes “co-invest” with another angel investor or group of investors.
(Fun fact: HubSpot’s Dharmesh Shah is an angel investor in over 60 startups.)
Crowdfunding refers to raising money from your future customers and fans. It’s a great way to gain equity without giving away ownership, although crowdfunding doesn’t offer the same level of mentorship and education as incubators or venture capitalists do.
Crowdfunding is also valuable for more than raising money. Crowdfunding increases awareness around your brand and product, markets your brand to a new audience, and inherently validates your product or service ideas.
5. Grow your customer base.
Startups scale fast because they target the right customers and continually work to grow their customer base.
How do they do this? The answer is growth hacking, a fancy term for using creative, innovative, low-cost strategies to help achieve exponential user growth.
On the surface, growth hacking might seem overwhelming and intimidating. But if you’ve ever tested any aspect of your marketing strategy — an email subject line, web form format, or social media copy — you’ve dabbled in growth hacking without even knowing.
Startups can also organically grow. This process refers to growth achieved by internal initiatives versus external funding and/ or acquisitions. Some examples of organic growth include content marketing, social media marketing, search engine optimization (SEO), PR, paid advertising, and email marketing.
Small Business Startup Guide
Now for the dreamers who want a small business or side hustle, the steps are still the same — except you won’t be thinking about scaling as far. Differences for small businesses may include:
- Growth Intent: Small business startup owners won’t be looking to begin a business to rival large competitors or have a large number of employees. The risks are much lower in maintaining a smaller scale and will not require as much fundraising effort.
- Business Objective: Small businesses aren’t disrupting the markets, these instead serve a more local market for earning revenue to successfully stay in business.
- End Goals: The goal of this type of business is simple — to remain profitable. Large business startups will continue to innovate and compete to gain the largest market share.
How you choose to start your business is up to you — but be careful because no matter the scale, there’s going to be some challenges.
Common Startup Struggles
With such a high failure rate, it’s no surprise that startups are hard work. Thankfully, the impressive number of risk-takers and founders that have come before you have learned a thing or two about common startup struggles and how to overcome them.
While we’ve hardly captured them all, here are three major issues you'll want to keep an eye on as you grow.
1. Product Management Struggles
When designing and selling a product, it’s good practice to listen to your customers and continue improving on the product. But, have you ever thought about when to stop? Not many founders do … which is how they experience feature creep.
Feature creep is the ongoing, excessive expansion of a product or the continual addition of new features. While improvement is a good thing, non-stop improvement can be a drain on resources and eventually become unhealthy.
Think about it this way: If you had a goal to lose weight, you wouldn’t continually lose weight until you die, right? No way … you’d waste away into oblivion if you tried. At some point on your weight loss journey, it’d become more about maintenance and balance than loss.
The same goes for your products. It’s great to have goals and to shoot for the perfect product, but at some point, you must stop and focus on maintaining a best-seller. Then, you can reroute your resources to a new goal or product.
2. Money Management Struggles
Ah, the silent startup killer: money management and cash flow.
Lots and lots of startups fail because they 1) can’t bring in money, 2) spend their money on the wrong things, 3) manage their money all wrong, or 4) all of the above.
While we can’t necessarily advise on how to fix all of these problems (as that will depend on your specific startup and expenses), we can equip you with a few helpful tools for managing your money better.
- Operating income formula calculates your startup’s profitability. Profitability is a major indicator of success and potential future success.
- Burn rate shows you how fast you spend money before you reach profitability. A correctly calculated burn rate can be responsible for growth, planning, and future success.
- Debt-to-equity ratio shows how exactly your capital has been raised. This number tells lenders and investors how financially stable or risky your business might be.
- Working capital calculates how much money you have left to pay off short-term debts. This indicates the current financial health of your business.
- Cash flow tells you how much money you have coming in and out of your business. It shows exactly where cash is coming from and how it’s being spent.
Use these tools and formulas to evaluate and improve the financial health of your startup.
3. Growth Management Struggles
If I asked you to, I bet you could list a whole host of startup founders who’ve been successful — Steve Jobs, Bill Gates, Jeff Bezos, just to name a few.
In the startup world, it’s easy to compare. It’s also easy to change our decision-making and problem-solving processes when we hear what worked for others. But when we blindly focus on startup success stories — and forget about the numerous failures — we risk learning the valuable lessons that those failures could teach us, too.
This is called survivorship bias, and many startups struggle with it. As you grow your startup, it’s important to learn from successes and failures. As amazing as the stories of Jobs, Gates, and Bezos are, they represent a fraction of the business owners that have come before you.
To avoid survivorship bias and grow your startup on your terms, try to keep your "business blinders" on. Focus on what’s ahead of you, and do your best to not compare to other founders or startup businesses. If you have a pressing question, try to seek answers from successes and failures alike — there will be valuable lessons available from both.
Growth in the startup lane moves quickly, and managing it can be super difficult. Keep your business’s growth on track by balancing your influence and focusing on your own business.
If you want to learn more about startups and starting a business, check out some of the below resources.
- OnStartups — By Dharmesh Shah of HubSpot. This blog talks about lots of common startup topics and features guest posts by other startup experts.
- Signal v. Noise — Started by Basecamp’s founders, Jason Fried and David Heinemeier Hansson. These founders share strong opinions and perspectives on the current state of startups, business, and capitalism.
- A Smart Bear — By Jason Cohen, the creator of WP Engine. Cohen writes about all things startups, sales, bootstrapping, fundraising, technology, and entrepreneurship.
- Venture Hacks — By the creators of AngelList, a site for finding job and investment opportunities for startups. This blog features a mix of how-to content, opinion articles, and guest posts from fellow investors and startup founders.
- The Lean Startup — By Eric Ries. This book covers the entire Lean Startup methodology and how to apply it to your business.
- Rework — By Jason Fried and David Heinemeier Hansson. The co-founders of Basecamp talk about “a better, faster, easier way to succeed in business.”
- Do More Faster — By Brad Feld. Feld aggregates practical advice from founders and investors about startups, growth, and raising money.
- Startup Owner’s Manual — By Steve Blank. This book provides a step-by-step guide to starting a profitable, scalable business.
- Startup Weekend — A 54-hour startup event put on by Google for Startups and TechStars. Multiple locations around the world.
- SXSW — A week-long event in Austin, TX that celebrates entrepreneurship, tech, music, and film. 2022’s event is March 11-20th.
- TechCrunch Disrupt — One of the oldest startup events in the world. Held in San Francisco and Berlin.
Over To You
So, what does startup mean to you? After this guide, you should have a good idea of how you want your startup to look. As long as you have a validated idea, plan for funding, and rapid growth mindset, your startup should be poised for great success.
Editor's note: This post was originally published in January 2019 and has been updated for comprehensiveness.
Originally published Dec 22, 2021 7:00:00 AM, updated January 03 2022