WHAT IS A STARTUP?
A startup is a fascinating word, and today, everybody seems to be talking about this. But, what is a Startup?
As per Wikipedia, A startup or startup is a company or project undertaken by an entrepreneur to seek, develop, and validate a scalable business model. Startups typically begin with a founder (solo-founder) or co-founders who have a way to solve a problem.
Basically, Startup is a young company (generally less than five years) that is started by a solo-founder or co-founders who want to develop a product or service to solve a problem that exists in the market.
In the words of Neil Blumenthal, the co-founder of “Warby Parker”- “A startup is a company working to solve a problem where the solution is not obvious, and success is not guaranteed.”
FEATURES OF A STARTUP
Before you start a startup, it’s important to understand the features of a startup.
Following are the Features of a Startup-
1. Age- A startup is a new company in its early stage. It is a company that is generally less than five years old.
2. Solving A Problem- A Startup identifies a problem that a lot of people are facing. In fact, all successful startups have identified a problem and solved it with their excellent services or products.
As per Paul Graham – “The way to get startup ideas is not to try to think of startup ideas. It’s to look for problems, preferably problems you have yourself.”
It’s also not necessarily that a startup only works on a unique idea. For example, it can solve a problem that some competitors are already solving, but you solve it better.
There are thousands of problems around us; we need to identify them and find out their viability.
In the forthcoming chapters, we will learn a systematic approach to identifying a business idea and how to validate it properly before building the startup.
3. Business Model- A startup does not have a fixed business model initially as it explores the possibilities to achieve a scalable and repeatable business model. However, it is true that a Startup can not become a unicorn if it does not have a scalable business model. So as a founder, you need to identify
the scalable business model for your startup as fast as possible. Investors also like to invest in a startup that has a scalable business model.
4. Growth– A Startup goal is to grow fast and be designed for the same. It is one of the points that distinguished startup a small business.
Startups are businesses that are intended to grow and scale fast, and this focus on growth and rapid scaling sets them apart from small enterprises. As a result, startups often have huge burn rates.
As per Paul Graham- A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, take venture funding, or have some sort of “exit.” The only essential thing is growth. Everything else we associate with startups follows from growth.
5. Structure– Most of the Startups are unstructured in the beginning. They may not have a defined hierarchy of employees and managers and their roles. But as the business grows, it is of utmost need to have a clear structure and defined roles in the startup.
6. Limited Resources– Startups generally function with limited resources. In the beginning, the startup should manage with minimum resources and focus on increasing the traction.
Most of the successful startups started with minimum resources and managed to scale with limited resources.
7. High Risk- Due to an unstable Business model, limited resources, lack of experience, there is a high risk of failure. Most startups are at high risk in the beginning until they find a stable business model, focusing on building & marketing the right product for the right people.
So these are the common elements of a startup you should be aware of.
STAGES OF A STARTUP
As an entrepreneur, you must know the different stages of a startup. Once you know the stages, you can plan everything better about your Startup for the future.
Following are the stages of a Startup
Stage 1- Pre-Startup Phase or Pre-Seed Stage – (Ideation, Idea validation and Business Formation)
It is the first stage of the Startup. It is the ideation stage. In this stage, you find out a problem you want to solve.
You validate your Startup idea. You form the company legally and acquire the necessary licenses. You also build a core team and are ready to work.
In this stage, you have an unclear business model and make a constant investment in your startup.
Stage 2- Early Stage
You convert your idea into a Minimum Viable Product or MVP in this stage. You sell your MVP and improve that constantly as per the early customers’ feedback. And based on the feedback and market requirements, you come up with a full feature product and launch it into the market.
I call this the struggle stage also. Unfortunately, most of the startups end up in this stage only. They never reach the next stage. To avoid this, you should focus on creating a workable business model, and your focus should be on building the right product for the right people.
Stage 3- Growth Stage
In this stage, your Startup is already built and stable. You have a workable business model and generate considerable revenue to grow the Startup. Your focus is on its growth. You do all necessary activities to increase the number of customers to make more revenue & profits.
Most startups remain stuck in this stage and struggle to move further.
It is when the Startup must concentrate on expanding its business and increasing profitability and the number of clients. It would be best to focus on sales & marketing; however, don’t overlook the importance of consistently developing the product to adapt to the Startup’s growth. You should start building a team to support you in growth. You must hire more people and build the departments as your Startup grows.
Stage 4- Expansion Stage
It is the stage where your Startup is well established, generating enough revenue and making some profit.
It is when you can plan to expand the business into new markets and segments.
This phase requires more financial support. If not done so far, it is time to approach the investors to raise funds. You may also use your own funds if available.
In this stage, you should bring professional managers and leaders to your team to reduce your involvement in the business. Never try to expand your business if you are not ready enough. In one of the last chapters of this book, I have explained how to scale a business properly.
Stage 5- IPO or Exit Stage
After a startup’s long and arduous path, the approach (or not) of the sale (exit) may come. Either you may sell the startup or can scale it to such a level where you can list it for IPO.
My Advice- Here, I would highly recommend that as an entrepreneur, you should never build a business with an intention to sell or to be acquired by someone. Selling or acquisition will happen if everything goes right and it’s a by-product. So I would ask you to focus on the growth and scalability of the startup and take it to the IPO.
So, these are the typical stages of a startup, and it is of utmost necessity that you should be aware of these stages to plan better for your startup future.
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