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Did you know that the rate of developing startups was more than 10% in the United States and more than 5% in the United Kingdom as of 2020 and is rising sharply not only in these two regions but around the world.
With that the task of custom software development for startups
is getting even more challenging as the market is getting more competitive no matter what type of startup you are going to develop. Being an entrepreneur entails a great deal of risk. Almost none of them are easy to predict or overcome. As a result, it's no wonder that eight out of ten new businesses fail during the first few years of operation. Another significant reason behind this is because you don't have a clear idea of where your company is going. As a result, you must understand the gist of startup phases in order to determine when it is appropriate to raise funding in order to avoid losing your firm.
Research says that 21.5% of the startups fail in the first year, 30% in the second year, 50% in the fifth year, and 70% in the 10th year. And to not fall under this category, you must understand startup stages from day one. In this blog we have come up with a detailed guide about the stages of startup development you must follow. So, let’s get started.
What is a Startup Company?
Before we go over all of the stages of a startup company, let's clarify what a startup is. A startup is a business started by an entrepreneur (or a group of entrepreneurs) to meet market demand with a product or service under unpredictable and turbulent conditions.
Founders, their families, and other investors typically support such businesses at various phases of development. Let's take a look at them more closely.
Main Stages of Startup Development
There is no one-size-fits-all approach to categorizing startup phases. As a result, you may come across a lot of contradictory information and definitions from various sources and entrepreneurs. The reason for this is that stages of a startup business are as dynamic as startups themselves, and they can be complicated and interconnected to some extent. As a result, it's difficult to draw a distinct line between one stage ending and the next beginning.
Nonetheless, in order to alleviate the weight of this ambiguity, we have attempted to categorize seven startup stages based on our experience:
1. Idea Stage
This is one of the main stages of startups. Every business venture begins with a concept. It's a cornerstone of every business, no matter how you came up with it – during a brainstorming session with friends or coworkers, or by chance when you least expected it. Regrettably, not every "great design" is both unique and innovative.
Make sure that your "million dollar" concept can actually make a difference to avoid making a mistake by developing a software product or service that no one needs or wants. To avoid creating yet another copycat or poor product/service, conduct rigorous study to see if your idea is new and can add actual value.
Because you are your own investor at this level, you are most likely to use your own funds. You can sustain your firm and construct a business plan or, better yet, employ a business model Canvas by bootstrapping and without any outside aid. It will assist you in drawing a clear image of who your customers are, what your unique proposition is, defining your cost structure, revenue streams, and a variety of other important details.
2. Research Stage
In the startup environment, there's always room for new phenomena. The Airbnb founders, two designers, and an engineer, have stated that they lacked a common vision at the start of the company, owing to their focus on design and engineering rather than business development. And, yeah, these are two quite distinct things.
When we talk about the startup phenomenon, we're referring to companies like Airbnb. Airbnb practically invented a new niche with its unique notion of "renting a living place where you feel at home." As a result, it should be considered an exception rather than a rule.
We recommend that the strategy, risk management, and a clear vision shared by the entire team be the emphasis of your idea startup stage. Whether you're a first-time entrepreneur or a seasoned pro, don't let your passion lead you down the path without a plan. Here are two crucial points to keep in mind when you conduct your research:
Have a Research Plan
While researching your business idea, the Keller technique suggests looking in four directions: company, customer, competitor, and collaborators.
Before you start developing an MVP (Minimum Viable Product), you should have a plan that outlines exactly what needs to be accomplished. This may be a list of experts you'd want to interview, a clear picture of your target customers, market research, or a combination of goals.
Fill the Gap
Examine what your rivals have to offer and concentrate on what they don't. There are always holes in any business, no matter how successful it is - something that could be useful to your target audience.
Assume you develop an iOS or Mac app, and your main competitors are exclusively available on the Apple Store. This is a chance for your app to acquire more exposure by being listed on several platforms. Setapp, for example, is a subscription service for Mac software, and Fliptopia is a subscription service for iOS apps. Feature your goods on platforms that your competitors do not use. The quickest method to enter the leadership zone is to focus on the gaps.
Also Read: 6 Effective Tips to scale Product from MVP
3. Resources Planning Stage
Developing a worthwhile idea and sustaining it with your resources is merely the first step. You need to expand your business, and you'll need more money to do so because your current resources are running out. This is when the resources planning with friends & family, as well as the angel investors come to your startup's rescue.
Typically, there are numerous rather solid ways to acquire further funding – through family and friends, as well as angel investors.
Friends and Family is an investment round in which the founder's family members contribute money to the firm. These are typically people with whom the founders have long-standing and deep relationships. Also, you can ask angel investors to fund your firm at the same time. Angel investors, also known as private investors, are wealthy individuals or groups who have more than $1 million in cash (or assets) and are willing to invest in companies in exchange for equity in the company. They could be former business owners looking to put their money into a good enterprise.
Friends & family, as well as angels, are typically used in the early stages of a company's development when the entrepreneur wants to bring their idea to market but requires outside assistance.
You can now work on a clickable prototype of your idea with a business strategy in place and additional funding backing. It might be a video demonstration (like Dropbox did) or something more interactive that gives your consumer an idea of what your product will be like and how they can profit from it.
4. Pre-Seed Startup Stage
A pre-seed startup is one in which the entrepreneur seeks additional money to help them develop software product or business. The importance of market validation, for example, cannot be overstated. This step is crucial from this perspective because it provides answers to your questions:
- Is your product something your buyers truly require or desire?
- If not, how will you be able to pivot?
- If so, are there any key features that it is missing?
To respond to all of these, you'll need to create a minimal viable product, or MVP, which is a tried and true method of validating a concept.
A minimum viable product (MVP) is a representation of your product that has all of the functionality required to satisfy early adopters. It gives you a general idea of where your startup is going, what should be altered or added right now, and what is working perfectly as far as your product is concerned. You can make minor changes, pivot, or abandon the concept entirely. Whatever the conclusion, the pre-seed startup stage provides answers to a number of important issues.
To know more about MVPs, read our blog - MVP Development Guide - Market Research and Customer Pain Points
5. Seed Startup Stage
The stage's name is self-explanatory. A startup can be compared to a seed that was planted in order to grow into a flowering tree. This level denotes that you've proven your concept. Your startup is gaining new clients and your product is producing revenue on a regular basis. However, if you want to expand faster, become bigger, and secure your market position, you should choose the Seed Stage.
Individual investors are less interested in seed stage enterprises than investment firms. These institutions can also assist business owners in attracting capital. For example, VCs (or Venture Capitalists) are willing to invest in new businesses. They can also supply you with crucial experience, personnel resources, and office space, as well as help you through the next stages of a startup's development. They will receive a portion of your company's equity in exchange for funding.
6. Early-stage Startup
Startups in their early stages have already figured out what kind of business model works best for them. They earn expected revenue, have customers, and are attracting new ones, but they must scale to meet growing market demand. They can now start the funding round series.
Series A, Series B, and other series are examples of early-stage startup stages. They act as critical checkpoints for entrepreneurs on their route to widespread success. To obtain money during this stage, you must show investors that your startup has a consistent flow of revenue, clients, and a solid business strategy in place.
Early-stage firms can rely on substantial aid from investors to achieve new heights, satisfy market demand, or even conquer new markets during fundraising series.
7. Growth Stage
Companies revel in the splendor of their accomplishment during the growth period. Investors and bank loans are two new ways for entrepreneurs to get the next round of funding. Banks have a number of advantages, including the ability to lend you money at cheap interest rates and the lack of a requirement for your company's ownership as collateral.
8. Exit Stage
Your company has multiple locations, some of which may be located outside of your country. Your product or service has solidified its market position to the point where it has become an inseparable part of your customers' life. It's now time for the IPO (Initial Public Offering). It's the last stage of the startup process.
An initial public offering (IPO) is the first time a startup (private firm) puts its corporation shares available for purchase to the general public.
This enables startups to raise capital from the general public, implying that the company's secret status is revealed and its shares are made available to an infinite number of investors. There are various reasons why you should think about this for your startup.
An initial public offering (IPO) can help you attract long-term investment, raise your company's reputation, and bring in high-profile partners and clients. Existing shareholders can sell their shares or you can sell your shares on favorable terms through an IPO. You can always choose this option for any reason you have.
More Tips to Follow the Right Startup Stages
A successful company is a trip from conception to expansion, and you should be aware of the route you'll take. Even so, it's the execution that counts. There are a few things to think about during each stage of a starting firm in order to nail it:
Investigate scaling capacities
Scaling occurs once you have a solid MVP, but it doesn't imply you should disregard it before then. Keep in mind that if you want to scale up in the future, you'll require investments when designing features and trying to discover a product-market fit. Half of success is catering to that at each stage of development.
Make sure you have a business plan
As your startup idea develops, this will be refined and improved. Approach your company plan in the early phases in the same way you approached scaling, so you can present your idea to investors, potential partners, and anybody else who is interested whenever they ask about it.
Everything that can be documented should be documented
Attempt to document everything related to your startup in writing, from the most basic description of your business idea to recruiting and scaling. This will save you time in the future while also developing and growing your business.
The Bottom Line
We've walked you through each of the seven stages of startup development. However, it is important to highlight that not all startups should, need, or will go through the same stages. Some fledgling businesses stagnate at the pre-seed stage, unable to progress to the next, while others successfully sell their business and launch a new endeavor. Each startup may have its own path to success.
However, without adequate capital, which is the primary means by which businesses thrive, you will not be able to stay in business for long. At the very least, you'll need to acquire financing during the early phases of your startup's development.
So, if you're an entrepreneur with a new and fantastic idea and you're trying to get your business off the ground, you might need some assistance - with funding. To avail a complete and competitive solution for any product development for your startup, get started with Third Rock Techkno’s professional solutions. Have a look at our extensive portfolio and get in touch to start today.