January 19, 2019 | Shreya Panchal

The Startup Lifecycle – Ultimate Guide for New Entrepreneurs

Ever since you decide to set up a startup, you’re in the “Startup Lifecycle”.

As per the Startup Genome Report, approximately 90% of the startups fail primarily due to self-destruction. It was their initiator’s poor decisions or lack of business preparedness or market conditions that are often out of control.

Every startup experiences a roller coaster of hits and misses. While riding this huge roller coaster, the majority of the entrepreneurs get baffled where their roller coaster is heading. This blog could work as a roadmap for you if you are planning to get on this ride.

Startup lifecycle will have you witness the journey from an idea to startup, and if successful, across to the growth and maturity phases. Comprehending the position of your startup in the startup lifecycle helps you stay competitive and defy the odds, as you foresee potential challenges that are upon your startup or are on the way depending on what startup phase you are in or about to transit

Straightforwardly put, as your startup grows and develops, so does your startup aim, objectives, priorities and strategies. Awareness of startup lifecycle can thus be helpful.

So, how does a typical startup lifecycle look like?

 

Phase 1 Business Ideation

The business ideation phase is precisely where the nascent concept of a startup is developed. The foundation idea of a startup is decided during this phase. You/your skilled team determine on the principle of your proposed startup and the central question “Why are you doing this?”

In the ideating phase, one builds and polishes their potential scalable product/service idea for a big enough “Target market”. At this a considerable amount of time is spent on market research, accumulating data about the primary and secondary audience. The end outcome of these efforts is an easy-to-understand business plan document that characterizes all the critical variables of your startup in a nutshell. Significantly, at the end of the ideating phase, you should know, who would finance your product/service and why?

At this phase, you should accumulate advice and opinions for your business idea from as many sources as possible: friends, colleagues, family, business associates, or any industry specialist.

The ideation phase further advances into the conceptualization phase where the execution of your business idea is planned. The concept construes how your design will be taken forward, and majorly revolves around the point “How are you doing this?”

To get a more clear and concise picture, let us consider Facebook as a model. The idea of Facebook was to create a platform where people could connect virtually. Whereas, the concept of Facebook was to devise a website which empowers individuals to add their friends, upload pictures and put their fundamental information to their Facebook profile.

Eventually, the success of your startup will narrow down to a lot of important factors- including your capabilities, the readiness of the target market you wish to enter, and of course the financial foundation.

In many ways, this is a soul-searching stage. It’s a point wherein you rethink and consider the feasibility of your business idea, and also question yourself if you have what it takes to make it a big hit.

Gazing at the PC screen for hours wouldn’t be of much help if you don’t spend the time on the right business idea generation tools and right ideation techniques. Here is a compactly curated list of some of the best brainstorming, mind mapping, and idea generation tools to help you do better.

100 Whats of Creativity, Mindmeister, Reddit r/startups & r/startup_ideas, Coggle, Point, Curator and IdeasWatch.

 

Phase 2 – Market Research

An enormous step toward converting your product/service idea into a feasible business concept, and eventually finding investors, is basic market research. Let us explore what in market research surveys to validate a startup idea

Fundamental market research must answer the following three questions. These are the ultimate keys.

  • Who is my Target Market?
  • Is my product/service idea in Demand?
  • How much are people around Willing to Pay for my product/service?

Target Market

You probably defined on your market early on. Probably even before determining your product/service. Moreover, you are perhaps convinced on knowing who wants your product/service. However, we need DATA to rely on. Investors wouldn’t ever count on guesswork, nor should you.

Consider beginning by asking a few demographic and behavioural questions. Demographic questions based on gender, age, household income, region, and so forth. These questions are not product/service specific, but they give you an insight of your survey audience, which in turn helps you learn how distinct groups of people respond to later questions about your product/service. Followed by behavioural questions which uncover fact about your audience lifestyle that relates to your product/service idea.

Demand

Quantifying demand for your product/service has always been a two-step process. First, the question about competing/similar products/services. Do people leverage competing products/services? What do they not like about them? How long have they used them? Where did they first learn about them?

These questions are significant. While you can (and undoubtedly will) request your audience to rate their interest in your product, market researches are always limited- respondents cannot in real experience your product idea firsthand. However, the target audiences have already used competing for products/services which could give you insights about demand for your product/service from their experiences with competitors.

Secondly, introduce your product/service concept and ask for first impressions. This is often the most sensitive and most-often failed part of market research. One can present in the form of a sentence, a paragraph or even a video. The more descriptive, the better. Make sure the product/service production video is not more than 45 seconds or not more than 25 seconds should be spent reading a description.

Dedicate good time in designing these descriptions. Emphasize on key terms. The story must be as accurate as possible. Remember, when calculating demand, respondents are rating their interest based on your description. So, the closer your description matches the experience of the product, the better.

Willingness To Pay

In the end, calculate the respondent’s willingness to pay for your product/service. Leverage Van Westendorp- which is a set of 4 specific, open-ended questions that provide a comprehensive standpoint on how much your audience is willing to pay.
The questions include:

  1. At what amount would you consider the product/service to be costly?
  2. At what amount would you consider the product/service to be priced so low that you’d question its quality?
  3. At what amount would you consider the product/service is starting to get expensive, but you’d still consider buying it?
  4. At what amount would you consider the product/service to be a bargain- an excellent buy for the money?

Although, there’s one main exception while using Van Westendorp. If your product/service is something that the audience doesn’t have experience purchasing (i.e., there’s nothing similar to it in the market yet), they wouldn’t know how to respond to these questions. In such case, you’ll receive a broad spectrum of answers but eventually wouldn’t have enough data to make a price decision.

The key here is to validate your idea using market research majorly to see whether people want it and whether they would wish to pay for it. It is imperative to acknowledge this before you invest any more time on the idea.

In order to carry out effective research, you not only require a hardworking team but also set of powerful and intuitive tools. Here are some of the most effective tools to help you succeed in your venture.

Statista, Semrush, ContentMine, KNIME Analytics Platform, Pickfu, Survata, Worldometers, Google Public Data Explorer, Loop11, Followerwonk and so forth.

 

Phase 3 Building an MVP

As a business person, you must take the chance to validate your idea. First, you must determine whether your concept is viable or not; is it going to help customers? Your solution lies in the MVP.

MVP stands for Minimum Viable Product. As the name advocates, MVP is the phase where a startup principally crafts the zeroth model of its core idea. It is the initial saleable version of your concept designed with minimum yet adequate features to gratify early adopters and to authenticate the assumptions of usability and demand basis on which the final product (or the beta) is developed.

Building an MVP helps not only in authenticating your idea but also empowers you to understand your customer needs better. An MVP is not intended to be a detailed working model of your startup. However, MVP focusses on execution and is a rough model that carries out the basic idea of your startup.

Every single startup, regardless of the nature and size of operations, entails funds to convert its pioneering ideas into reality. Most of the startups commonly fail because of their incompetence to raise sufficient funds. After all, you require capital at every stage to keep your business running.

These days, seed rounds are classically regarded as the initial type of fundraising round available to the startups. However, in an ever more competitive business landscape, enormous growth in the number of startups has endorsed “traditional” seed investors to become far more sharp in how they pick their investments-raising the threshold needed to attract the “traditional” seed funding.

Standard pre-seed funding sees a startup team obtain a small investment to strike one or more of the milestones they’ll require to brace themselves up for “actual” seed investment: from hiring a significant team member to developing a prototype product. Funds raised in this phase are consumed for identifying the customers’ demands, preferences, and tastes, and then planning a product/service accordingly.

Most of the growing entrepreneurs raise this capital from friends, family, mentors, while a few take up loans in exchange for common stock.
Some of the top tools for building an MVP for your startup are listed as:

Proto.io, UXPin, Moqups, Wireframe.cc, Unbounce, Mockingbird, Webflow, Pidoco,Axure, Startup Stash, QuickMVP, Keynotopia, Justinmind, Balsamiq Mockups and many more.

 

Phase 4 Prototype Validation

Once you have evaluated and validated your business idea and found yourself a co-founder, your startup needs to begin building a prototype. The prototype is not just a part of product design, but it is one of the essential elements without which the future phases of the startup process are nothing but useless.

Building prototype is the next step to the PoC (Proof of Concept). While a PoC is meant for the internal validation of the ideation, we need a working prototype more for the external validation.

Prototype validation is a quintessential element before progressing into the final phase of introducing your business model and the product/service into the target market. In this phase, you, your investors, along with your co-founders and teamwork collectively on identifying the potential reasons your startup might fail in the real-world market.

It is very much recommended to have an internal validation team as well as an external validation team to identify potential fatal flaws in your startup or to discover the points where you can improve on your business model, revenue model, and the products/services to speed past existing competitors.

Some of the many tools available in the market for validation includes The lean validation playbook, Germ.io, Javelin, and more.

The external validation process of the startup lifecycle includes releasing of a beta version of the product.

 

Phase 5 Beta Release

The beta version is the preliminary version you offer your target audience to test out the look and feel of your product/service. This is the testing water for all the significant/minor changes, and one last chance to improve your final product before launching into the market.

Beta testing is normally done for services catered typically online. Beta is where branding plays a significant role. The brand value is categorized here, and since this phase, the brand image is to be maintained no matter what.

Here is a tightly curated list of some beta tools to help you succeed in your startup.

Betalist, Startuptabs, Erlibird, KillerStartups, BetaPage, Click Funnels and more.

 

Phase 6 Launching and Marketing

Now that the concept of your startup has been validated and brought to the target market, it is followed by questions from both the sides. Business tries to identify what a customer feels about the concept. Does their product/service fulfil customer requirements? Will they buy it when it is launched?

Feedbacks aids startups to develop the concept further while testing results assist them in coming up with the final idea to be formed into a viable product.

Now, that the business has settled on a concept, it is time for it to examine and determine the marketing, branding and other business strategies that will be used. Also, estimated product profitability, marketing mix, and different product strategies are defined for the product.

During the launch phase, the product is launched in the market. This phase is primarily led by pioneers and early majority. These are the testers who test out your product, and the primary marketing strategy that works here is word of mouth. Early testers cater excellent insights for hits and miss for your product in the pilot phase.

The product in this phase is ready, so should be the marketing tactics. Product launch phase must scheme in a way that the impact factor of your product is maximum. The marketing mix is optimally put to use at this stage. Aggressive marketing is vital to get your product out in the market for maximum reach.

During the launch phase, the sales are usually low but gradually increasing. Startups concentrate on marketing strategies to their target consumer segments by promoting their comparative advantages and value propositions. Although, as the revenues are low and initial startup costs are high, startups are prone to experience losses in this phase. As a matter of fact, through the entire life cycle, the profit cycle trails behind the sales cycle and produces a time delay between sales and profit growths. This trail is crucial as it relates to the funding lifecycle.

Conclusively, the cash flow during this phase is also negative. This is mainly because of the capitalization of initial startup costs that may not be mirrored in the business profit but that are inevitably reflected in its cash flow.

GetResponse, Hubspot, Trello, NinjaOutreach, Kissmetrics, Buzzsumo, Hootsuite, Buffer, Marketo, and more are some of the most important marketing tools that startups can make optimum use of.

Also, product launch is not supposed to be a completely manual process. Rather there are several tools which can help in automating and streamlining product launch in startups. The tools are AYTM, Invision, AngelList, BetaList, Unbounce, Nouncy, Hotjar and  Retargeter.

 

Phase 7 Funding

In the funding lifecycle, the stages of startup lifecycle remain as it is and are placed on the horizontal axis. The level of risk in the startup is noted across the vertical axis. The risk involves the level of risk of lending money/providing capital to the startup and so on.
While the startup lifecycle comprises of sales, profits, and cash as financial metrics, the funding lifecycle comprises of sales, business risks, and debt funding as major economic indicators.

Finance is the lifeblood of any startup. Case in point is the bootstrapped or self-funded startups, which require a timely influx of funds to survive. It is very rare to see a startup born out of an entrepreneur’s brainwave, backed by an exceptional idea, would also have its treasure tank. This is the very reason why angel investors, accelerators, venture capitalists, crowdfunding, and other financing options are made accessible to startups are so crucial. For startups, the world of financing and funding can seem complicated and challenging. So, let us explore various options and how as a startup can you use this knowledge to fund your venture.

The funds that you obtain can be broadly categorized as:

  • Accelerators – Startup Accelerators are fixed-term, cohort-based programs that comprise of seed investment, networking, mentorship, educational components and conclude in a public pitch event to accelerate business growth.

  • Crowdfunding – Technology has made it stress-free for people to communicate their problems on a social platform that is interactive. Crowdfunding platforms are fundamentally set up for startups or individuals to pitch their business ideas to a community of investors or people willing to support their view. How it mainly works is that an individual makes a business pitch on the crowdfunding platform, they share their business model and its potential for growth. If the crowd funders on the platform like their business idea and they buy it, they’ll pledge to support the respective business model publicly.

  • Angel Investors – As the name advocates, angel investors are real-life business angels possessing deep pockets. These are the High Net worth Individuals (HNIs) who, if they believe in your product, will be keen to fund your startup in return for ownership equity or convertible debt. They may even provide a one-time investment to help propel the startup, or inject funds on an ongoing basis to back and carry the startup through its difficult initial stages.

  • Venture Capitals – Anticipating a massive investment? Go straight to Venture Capitalists. They are companies that raise funds from varied sources and leverage the corpus to further fund startups. They are often ready to invest in small businesses, funding young, unproven ventures that seem to have excellent ideas and a great management team.
    1. Series A: As soon as, a startup makes it through the seed stage, and they possess some grip- whether it is number of users, revenue, views, or whatever other KPI’s they have defined for themselves- and they are set to raise a Series A round funding to help elevate them to the next level.

      In Series A, startups are also likely to possess a plan for developing a business model, even if they haven’t proven it yet. They are also anticipated to use the money raised to increase the revenue further

    2. Series B: A startup that is all set to build a Series B funding has already found their product/market fit and needs assistance in expanding. The critical questions here are: Can you make this startup that you’ve created work at scale? Can you evolve from 100 users to 1000? How about 1 million or more?

      The expansion that takes place after a Series B round includes not only acquiring more users but also strengthening the team so that the startup can serve the growing customer base.

    3. Series C: Startups that make it to Series C funding stage are doing exceptionally well and are all set to expand to new markets, acquire other businesses, or maybe develop new products. Usually, Series C startups are looking forward to taking their product to international markets. They might also be looking to raise their valuation before stepping in for Initial Public Offering or an acquisition.

  • Initial Public Offering (IPO) – When a startup determines to raise funds from the public comprising of individuals as well as institutional investors, by trading its shares, it is known as an Initial Public Offering (IPO). IPO is generally portrayed as ‘going public’ as the general public now are willing to invest in your startup by purchasing shares. IPO fundamentally helps startups grow and diversify in areas of choice. It is not a compulsion for startups to unveil their financial statements before public if they go for an IPO, but they need to submit data related to financial statements, the purpose of raising funds and so on to the SEBI.

It is necessary for a startup to focus on the financial balance. On the top of it, investors always appreciate entrepreneurs who include calculated numbers in their pitch deck. But not everything can be achieved with a pen and paper. We need some good financial tools to avail this. Tools like the Startup Financial Model, Xero, WaveQuickbooks, Freshbooks, Freeagent, Bill.com, Gusto, Float, Expensify, and more.

 

Phase 8 – Growth

All through the growth phase, your product/service has set a steady foot in the market. With the brand producing a loyal customer base, this is the stage where a brand fundamentally moves out of the breakeven phase and goes on generating revenue. During the growth stage, expansion of the startup is mandatory as quantity will welcome revenue and reach is improved by stepping out from your tested zone.

The growth stage is to be designed in a way that the existing customer base is hooked to your product and sufficient incentive is catered to new users to try your product over the existing market competition.

Tools like Mopinion, Qualaroo, Consumer Barometer, Poll Daddy, Kampyle, Colibri, Mix Rank, Clicky, Crazy Egg, Mouseflow, Clicktale, Visual Website Optimizer, UsabilityHub, Mozbar, LeadCrunch, and more help your startup in its growth phase.

 

Phase 9 – Maturity

Maturity is a sign that your startup life has touched a saturation point. Your idea is no more matchless, several competitors have evolved, and you no more have a substantial competitive edge in the market. This is necessarily the stage where you need to determine the next steps of your organization.

It is significant to hold your loyal customer base by catering quality services and improvements in your existing products, during the maturity stage. It is to be perceived that new competition in the market would woo your customer base from this point onwards and countermeasures to prevent this must be taken. Maturity is the stage where you need to comprehend that your organization is no more a startup.

Beyond this phase, an entrepreneur has three options:

  • Expand – The expansion is portrayed by a new period of growth into new markets and distribution channels. Expansion phase is often the choice of small business owners to gain a larger market share and find new revenue and profit channels.

  • Merge/Sell – Mergers are a great way to gain resources. However, at the same time, it could also mean your start-up getting wholly swallowed up in the combined enterprise. Mergers allow you to grow quicker than you could on your own since you can make use of the resources of the company acquired.

  • Exit – When could be the right time to shut down a business? The answer depends and varies from one entrepreneur to other. It can be anytime. Sometimes, a start-up doesn’t work as planned. Other times, the market trends and the product/service might only not be needed. Alternatively, the founders may want to initiate another new business, take an extended break, or probably retire.
    Regardless, the best reason goes down to the bottom line of the business- the financial one. If a start-up has reached a point where it is no longer making money, and there’s no favourable outlook, it might be a good time to shut down.

 

So, What’s the catch?

90% of the startups collapse primarily due to self-destruction. This is possibly because some do not know the significance of pre-releases, the correct time to launch products in the market, when to scale the business, or when to get away with the term ‘startup.’
Understanding the startup lifecycle is very much important for every entrepreneur as it varies a lot from any other product lifecycle. If you get things right, there are no downfalls in your startup lifecycle. However, one wrong assumption/decision and you’ll have to begin all over again.

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