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What Are the Various Stages of a Start-up?

One of the most fulfilling journeys anyone can undertake is to begin a start-up.  There are a lot of stories about how a start-up makes it big in the market and reading them can inspire oneself to undertake a similar journey.  However, beginning a start-up and scaling it up is easier said than done as there are multiple stages to running a start-up.  Identifying a problem and coming up with a solution is not the only thing which matters when it comes to founding a start-up but there are multiple other parameters which need to be considered along the journey.  By looking at the multiple start-ups which succeeded and the big picture, a start-up’s journey can be quantified into stages.  Skipping any of these stages and moving on to the next stage would surely be a setup for a failure.

Read along to find out the various stages in the journey of a start-up:

1) Problem discovery

Anybody can come up with an idea but the most important thing is to come up with an idea which solves a particular problem.  This stage is about discovering bottlenecks and problems faced by customers in a market.  This is the stage where a start-up needs to focus on what the customer wants rather than what a start-up needs to do.  This is where start-ups need to interview customers to find out the problems they are facing and come up with a solution.  For example, Uber discovered that customers need a simple way to hail a cab and came up with their platform which connects cabs with customers.

2) Ideating

The next stage is to find a value proposition for customers.  This begins by ideating to find opportunities and create good solutions.  There are high chances for good ideas to come up in the discovery stage during the customer interviews as they might provide their own insights and ideas.  By the end of this stage, a start-up should be able to come up with a solution which solves a problem by providing a solution which an existing competitor would not provide.

3) Problem/Solution fit

There is a high likelihood of the first solution not being the right solution.  The initial plans might not work out and therefore Plan A should never be assumed as the right solution.  Sometimes the immediate solution will not nudge a customer to make a purchase.  This stage exists to make multiple iterations and if possible, pivots into different product models.  During this stage, a start-up needs to introduce a product design, clickable prototypes, or product feature which the customers can interact with physically.  The initial problem could be solved if customers show interest and prepay for the product or have taken a certain set of actions that you can define based on your product, target and market.  For instance, in the case of freemium models actionable could mean completing a long survey, joining a waitlist and referring X number of people or applying to become a user.

4) Product/market fit

In order to go for a product/market fit, a start-up would need data like customer acquisition costs (CAC) and customer lifetime value.  This could only be done with a launched product which is in use.  One of the best indicators for a good product/market fit is acquiring customers at a lower acquisition cost.  A CAC can be calculated by dividing all the costs spent on acquiring more customers (marketing expenses) by the number of customers acquired in the period the money was spent.  For example, if a company spent INR 100 on marketing in a year and acquired 100 customers in the same year, their CAC is INR 1.  Net Promoter Score (NPS) is one of the easiest ways to measure product/market fit.  Net Promoter Score is the percentage of customers rating their likelihood to recommend a company, a product, or a service to a friend or colleague on a scale of 1-10 with 10 being highly likely and 1 being highly unlikely.

5) Scaling up

This is the stage where a start-up needs to focus on diversifying their product offerings.  This is where a start-up needs to iterate what is working and put in processes which make these workflows faster.  This is the stage where a company could think of hiring more resources, opening a larger office space and expanding in different areas.  For example, when the hyperlocal delivery start-up Dunzo began, it was limited to Bengaluru.  However, Dunzo soon expanded to other metropolitan cities to expand their operations and scale up.  

Many start-ups and entrepreneurs focus on scaling up rapidly without going through the proper start-up lifecycle and often end up in losses.  Building a start-up could be fun but it is important to pay attention to each of these steps throughout its journey.  


*This article was covered by Top Business Tycoon