The 5 stages of a startup

If you’ve got a great business idea and big ambitions, then it pays to think ahead. Where will your business be in a year? What about two years? Or even five years’ time?

Of course, making predictions is never easy, particularly when you’re just starting up. However, one good way of anticipating the challenges that lie ahead is by studying the millions of businesses that have gone before you.

What are the stages of a startup?

While every startup journey is ultimately very different, most businesses will go through roughly the same phases as they grow and develop – this is known as the stages of a startup.

Understanding the typical phases a startup goes through can therefore be super helpful when building your business plan. This is because you can prepare for what each stage has in store and adapt according to your business' plans.

Here’s a summary of the five key startup stages, and what you can do to successfully graduate from each one.

1. Solving the problem

Running a successful business is all about producing something that solves a problem. If there’s something bugging you in your daily life and you’ve got a way to sort it out for everyone, why not make it happen (and earn a bit of dosh at the same time).

Of course, businesses don’t just spring into life the instant you have your lightbulb moment – there’s a lot of practical and financial stuff involved in making your vision a reality. But having a clear and effective solution to a real-world problem is the first important step.

At this stage, you should be fully engrossed in testing the demand and enthusiasm for your solution through conversations, surveys, social media, crowdfunding sites – anything you can think of.

And when your research throws up issues with your idea, address them and float your improved concept in the same way again. Keep querying, researching and modifying until you’ve got what you need to draw up a workable blueprint.

2. Development

This is where it starts getting serious.

In order to truly test your hypothesis in the real world, you need to build a prototype or MVP (Minimum Viable Product). The aim here is to get as close as you can to your ultimate solution without spending a ton of resources in the process.

The amount of time, money, and people you’ll need to build your MVP will vary considerably depending on the nature of your product or service.

For instance, if it's a resource-heavy enterprise, you may need to seek funding at this stage, whether through friends and family or angel investors, to secure the resources you need to bring your idea to life.

And as with the previous stage, here you’re looking to keep testing and iterating your prototype or MVP with your target audience, to reach a point where you have something that works, and that meets a real need. It doesn’t have to be perfect, but you need to be able to prove that it is worth investing real money in, before moving forward.

3. Entering the market

Once you’ve developed your MVP to a point where everything seems to work the way it should, it’s time to hit the market.

There’s a lot more to this than simply going out and selling. You need to work towards something called product-market fit, which means fine-tuning your product to meet the demands of your target market.

Achieving the ultimate product-market fit is an ongoing process which you’ll probably revisit time and again during the lifetime of your business. But a startup is most intense in the early stages.

Again, this is all about testing and research. Listen to your customers, address their pain-points, capitalise on your USPs – rinse and repeat.

You’ll know when you’ve achieved a viable product-market fit because your product will begin to gain traction and you’ll start seeing customer retention.

Customer retention is generally agreed to be the gold standard by which product-market fit is measured, so be sure to ask plenty of people if they’d return to your product, and if they’d recommend it to their friends and family.

At this stage, you should also be applying the same consideration to all of your channels. Marketing, outreach, funding - this is the point to experiment and discover what works and what doesn't. Your business model going forward depends on a lot of trial and error in these early stages.

4. Scaling

You’ve got a product that works, you’re nailing down your best marketing practices, your business model is proving itself - now you need to grow into your potential.

However, a word of caution: it’s very common for startups to try and scale before they’re ready, and this is rarely a good idea. Trying to grow too fast, too soon can lead to burnout and wreak havoc with your brand image.

Remember, the bigger you get, the bigger and more established your competitors will be. So, don’t go there unless you’re certain you can hack it.

You’ll know you’re ready to scale when your channels start hitting the saturation point. Once this happens, bring in experts and put resources into expanding these channels. That is likely to mean seeking more funding (you’ll probably be pitching to VCs by this point), building your team and company culture, and investing in external partners to help with specialist areas.

This is where the real work starts, so remember that you don’t necessarily have to scale all channels at once, however, you may well find that scaling one channel depends on wider scaling throughout your organisation.

To read more about this, check out our guide on how to scale a business.

5. Maturity

If you’ve got an established foothold in the market, have a good customer retention rate, are influencing your industry and turning a profit, it’s a fairly good bet that you’re nearing maturity.

At this point, depending on your ambitions, you might be thinking about exiting through acquisition, or, if you’re thinking really big, by listing on the public markets.

At a personal level, you might also want to take a holiday, regain your work-life balance or, if you’ve caught the entrepreneur bug, think of a new business idea to start!

Starting a business can be a long-old slog and, as a founder, it can be easy to lose sight of the big picture. That’s why understanding where you are within the different startup stages can be so valuable, helping you to stay motivated and focused when the going gets tough.

Remember, you’re not the first to set out on the rocky startup road, so drawing from the experiences and insights of your predecessors and peers, will make the whole process much easier – and greatly boost your chances of success.

Related links

• Find out more about startup insurance