Do you have an innovative startup idea? Do you think it has huge potential? Here is an A to Z guide of what you need to do to build a startup and take it from an idea to an exit.
The four startup phases we will cover are Discovery, Validation, Efficiency, and Growth.
Click on the step in the infographic to get more details and additional resources.
A STARTUP FROM IDEA TO EXIT
Involve venture capital funds to get access to growth capital. You can grow organically without VC funding instead, but this hides risks in brand new winner-takes-all markets.
CASE STUDY SECTION
At VisionX Partners we work directly with startups in different developmental stages. We inserted these case study sections to illustrate how we put the theoretical principles explained in the guide into practice.
You’ll find them dispersed among the topics of this guide!
1. The Discovery Phase
The stage in which you discover startup ideas, think about them critically, discard the bad ones, and choose the one with the highest likelihood of success.
1.1 Understand What You're Getting Into
Before deciding to become a startup founder, you need to have a realistic idea of what you’re getting into. First and foremost, this means understanding what a startup actually is:
- A startup is not any new business. It usually has some form of innovation. It aims to be the first business to solve an unsolved problem, or at least to introduce a significantly better solution and as a result – disrupt the status quo in the market.
- A startup is not a small business. Being the first business to solve a problem comes with the big benefit of huge upside potential – as the innovator, you are very well positioned to become a market leader (or to be frank – a monopolist. As Peter Thiel said: “competition is for losers”). In order to (over)compensate for the huge risk of innovation, the startup solution needs to be scalable, and the market needs to be big enough.
Founding a new traditional business is hard enough. Working on an innovative and ambitious startup idea, however, is like playing the entrepreneur game on insane difficulty.
Unless you’ve lived an extraordinarily difficult life, founding a startup will be the hardest thing you’ve ever done, and the success odds are not in your favor.
If your main motivator is the money, you’ll probably do better by focusing on a career in a Fortune 500 company. Your chances of becoming a billionaire would be tiny, but your chances of becoming a millionaire would be much, much higher. Work hard, live frugally, invest in great companies, and enjoy seeing your investments compound.
And if your main motivating factor is to be your own boss and to escape the corporate world, then use your skills to start a traditional business – such as your own consultancy, etc.
So, why would anybody sane ever found a real startup?
The reasons are different from person to person, and many startup founders didn’t really know what they are getting into. That said, those that intentionally chose this path usually chose it because they find the problem they are tackling very interesting and because they love the thought of being a real trailblazer.
If you want to go down this route, make sure that you’ll be happy with your decision in hindsight even if your startup fails.
- Forbes: How is launching a startup different from starting a small business?
- Paul Graham: Why to not not start a startup?
- Paul Graham: What we look for in founders
1.2 How To Get A Good Startup Idea
The first and best way is to get it organically by noticing a problem that the market could solve, but hasn’t. One of the best ways to notice such opportunities before other people is to be at the forefront of a new market or a new technology, which means your life experience and expertise are vital for this kind of idea discovery.
The second way is to generate a startup idea intentionally. This makes it much, much more likely that your idea has already been discovered and implemented by other people. If you go this route, be EXTREMELY diligent during the idea evaluation and idea validation phases (more below).
Keep in mind that, brilliant ideas look brilliant only in hindsight, so don’t wait for an epiphany.
Equally importantly, however, building a startup from idea to exit can take over a decade, so you need to make sure your idea doesn’t have obvious holes in it before you start building.
- YC: How to get a startup idea?
- Paul Graham: How to get startup ideas
- Forbes: How to start a startup even if you have no clue what to build
- VisionX Partners: Develop an App Idea: Steps and Business Opportunities in 2021
1.3 Evaluating Your Startup Idea - Market and Competition Research
After you’ve settled on a single idea, it’s time to use Google.
Try to find out if a similar product or service already exists. A lot of strong competition in the space is usually a bad sign. However, a total lack of competition is a bad sign as well – it might indicate a lack of market need, or some unknown factor blocking the development of your particular business idea.
Ideally, you will see companies in the market partially solving the problem you are trying to solve (indicating existing market need), but they would be doing it in a different way (leaving you space for innovation, differentiation, and added value).
Once you find your closest competitors, study their business and clients as best as you can.
1.4 Write a One-page Business Plan (Lean Canvas)
The traditional business plan is a 50-page monstrosity that goes into detail about each aspect of the business. This kind of business plan is also a huge waste of time for startups – once the rubber meets the road, the details of this plan will constantly change.
This doesn’t mean that startup business plans are useful. On the contrary – ventures that create business plans tend to grow 30% faster.
The best option early on is to write a one-page business plan and to constantly update it as you gain more experience. The so-called “Lean Canvas” is the industry standard. It helps you understand and plan for:
- Problem: What problem are you trying to solve
- Solution: How are you planning to address it
- Key Metrics: Key performance indicators (ideally usage metrics) that would help you understand if you are moving in the right direction
- Unique Value Proposition: What distinguishes you from the current solutions to the problem
- Unfair Advantage: Why would you be successful instead of some random company/person with more resources
- Channels: How would you reach your customers? It’s better to focus narrowly on the early stages, rather than to spread yourself too thin.
- Customer Segments: What kind of people have your problem? Which segments would you target first? What’s your Minimum Viable Segment (the group of people that have the problem in common that would be easiest to reach from your position)?
- Cost Structure: What are the financial specificities of your business?
- Revenue Streams: How would you make money?
1.5 Evaluating Your Startup Idea - Conversations With Potential Customers
You need to define your Minimum Viable Segment (MVS). These are people that have the problem you are solving in common, and who would be easy to reach in the same manner. For example, they could be some kind of professionals that go to the same social media groups or forums, etc.
After deciding who those people are, get in touch with some and talk to them. Your main goal is to find out how your potential customers are solving the problem you’re targeting, and if your planned solution would add real value to their lives.
How we helped our client Scoozer refine their idea:
Once Scoozer approached us with a scooter-on-demand idea that they wanted us to develop, we entered a roadmapping phase. During this phase, we interviewed key stakeholders such as potential customers, distribution partners, and others. We built a data-backed hypothesis about the solution we should test, the customers we should go after, and the marketing and distribution channels we should use.
In Scoozer’s case, these conclusions were different from what the client had in mind initially. When they saw the data and research, they agreed that the refined idea has the highest success probability.
1.6 Finding a Cofounder
There is a reason single-founder teams are less attractive to investors. According to First Round, founder teams outperform solo founders significantly – by 163%.
It’s a startup cliché that in order to be successful, a startup needs a hustler (business & marketing), a hacker (building), and an artist (design and a cool brand). Yet, the optimal number of founders is two, so it’s pretty safe to hire the designer later. It’s hard for a single person to be a hacker and a hustler at the same time, so usually, two people are needed to perform both functions.
Even more importantly, solo founder startups have a single point of failure. Founders make startups successful, so if something happens with the solo founder in the early startup stages, the business simply stops (or outright dies).
Finding the right cofounder, however, is a conundrum in itself. It’s similar to marriage in the sense that you’ll spend a lot of time with this person and you’ll have to overcome extreme difficulties together.
Because of this, it’s very important to choose the right person. Different values, different goals, and expectations for the future, or even things as trivial as different time commitments (one person can grind 80 hour weeks, the other has a family and a full-time job) can break a startup team. Keep in mind that team problems are the third most common startup killer after lack of product-market fit and marketing (broad definition) problems.
Generally speaking, it’s best if you’ve had real experience working together with your cofounder.
If you don’t have a good co-founder candidate, it might be better to start the journey as a solo founder and to keep your eyes open for potential people to join your team. That’s easier to do if you are a technical person, but it’s also possible to launch a startup without a developer on the team.
An alternative solution...
When Scoozer reached out to us their founder was in a situation in which he couldn’t invest the needed time to properly test the idea and manage the project due to actively managing another business. When we started working with them, we assigned internally an entrepreneurial leader to the project who acts like a co-founder in Scoozer and provides a full scope of managerial services using VisionX Partner’s team and network.
Of course, a this is not a one-size-fits-all solution due to being more capital-intensive. Yet, it is a good way to minimize some of the co-founder risks and hassles mentioned above while making sure that the project is moving forward in a consistent and professional manner.
2. The Validation Phase
The phase in which you test your idea empirically.
This is hands down the most important phase for a startup. If you fail to do it properly, you risk investing a lot of money, time, effort, and emotions into something that’s doomed to fail from the very start.
The validation phase is also arguably the hardest because most entrepreneurs will have to face it on their own with little to no access to resources.
Succeeding at the validation phase is arguably the key to being able to convince people that you are on the right track – team members, investors, clients, and most importantly: yourself.
The validation phase follows the principles of the Lean Startup book. Yet, some developments in the industry mean the steps don’t follow the book exactly. Lately, it’s become standard to try to validate your idea even before you build an MVP – a great way to test multiple ideas at little cost.
2.1 Content & Social Media Validation Experiments
One of the easiest ways to judge interest is by using the power of the internet: more specifically social media groups, forums (subreddits), and email newsletters that people who have the problem you are trying to solve (your MVS) are likely to visit.
Create content that is relevant to the problem: e.g. give advice for solving it, or alternatively – ask for advice for solving it. Share the content in these groups and see the reactions and comments.
If your piece of content garners a lot of attention, this is a good indicator that the problem really exists and is densely concentrated in the people who visit the places where you’re sharing it (validation for your MVS).
This kind of experiment serves a similar purpose to your initial potential customer interviews. The interviews can get you a deeper understanding of the problem, but such content validation experiments give you a better quantitative judgment of how common the problem is and how most people solve it.
- Nat Eliason: How I Started a $400,000 Side Business in 1 Month (for Free)
- VisionX Partners: Content Marketing Guide for Startups
2.2 Running Presales: Landing Page Validation Experiments
Unlike the content experiments which gather mostly information, presales are the first and most important direct test of your assumptions: are people willing to pay money for what you are offering?
Create a landing page (before you have created the actual product or service!) to present your exact offering and test it against your MVS. Make sure to entice your first buyers with your presale offer in order to ensure people are motivated to buy now rather than to wait for the product/service to be ready.
Also, make sure to gather the emails of the people who show interest – this will be crucial for your efforts later on. If your product/service idea is free (or there is another reason you cannot run presales), email signups will be your most important metric of success.
Once you have your landing page, test it in a few different places: first in the abovementioned social media groups and forums, but also run a few well-targeted low-budget ad campaigns (on Google, Facebook, etc.).
Last but not least, make sure to try to sell your idea at least a couple of times in person. You can combine this with a customer interview (do the interview first and try to sell your solution afterward). That’s important because when you do it programmatically, you cannot judge the reactions of the people who see the landing page. When you do it in person, you can see which points in the offering raise an eyebrow, and how people react when they hear the offer.
CASE STUDY SECTION
Scoozer A/B Test Validation Experiments
After Scoozer’s roadmapping phase, we had three major hypothesis to test out:
- Do we go all in on Scoozer on-demand with drivers?
- Do we start with Scoozer on-demand without drivers?
- Do we work with partners or do we go direct to consumers?
To answer these questions, we created a landing page that allows users to either book Scoozer with or without a driver. We did A/B testing through a small-scale Facebook ads campaign. This gave us empirical data allowing us to make an educated choice. Moreover, due to Facebook’s audience targeting capabilities, the landing page presales experiments allowed us to gain a better understanding of our MVS – minimum viable segment(s).
- Forbes: 3 Experiments for testing your startup idea
- Startupgrind: Ultimate step by step guide to idea validation part two
- VisionX Partners: Early-Stage Startup Sales Guide
2.3 Measuring Validation Experiment Results
Hopefully, besides helping you learn things by listening to your potential customers, the validation experiments you ran gave you quantitative results. Interpreting your results is what will guide you to determine where you’d take the project.
You have three possible scenarios.
In the first scenario, your results are nowhere near what you expected. i.e. you got no (or close to no) sales, your posts didn’t get any traction, people gave you convincing and reasonable explanations of how they currently solve the problem, they told you they don’t have that problem at all.
All of these are bad signs for your idea, but great signs for you – you wouldn’t have to spend time and money to learn this truth the hard way. In this case, you’d either discard the idea or return to square one in order to make major changes – e.g. targeting a completely different MVS and repeating the process.
The results fell short of your expectations, but you seem to be onto something. This is dangerous territory. Make sure not to tell yourself that the results are good enough simply because you want to defend the correctness of your idea. Mixed results are an invitation for further investigation.
First, make sure to check the analytics on your landing page and ad campaigns. People that click “purchase” but don’t follow through are a good indicator that you are onto something with the solution, but your pricing might be wrong.
Make sure your customer interviews give you the same indication. The click-through rate of your ads could also be an indicator. If people aren’t clicking, then maybe you aren’t presenting your idea clear-enough, and the problem isn’t in the actual solution but rather in the presentation.
Second, make sure to iterate on your offering. Make changes to the promises given on the landing page based on the feedback you’ve gathered and run the tests once again.
Don’t spend too much time iterating on the same idea if it fails to give you the expected results a couple of times. You haven’t built anything yet, so it might be better to scrap it and test something new.
Speed is important – one of the main benefits of these validation experiments is that they are easy to do (or at least much easier than building a real product), which means you can test multiple ideas as fast as possible and choose the right one.
The results match or exceed your expectations. Good job, the experiment is a success and you’re ready for the next steps!
2.4 Incorporating: As Late As Possible, But Not Too Late
Most people, especially legal professionals would advise you to incorporate as early as possible. Although we’re not in a position to share legal advice, speaking from founders to founders, usually, it doesn’t make sense to incorporate an idea that’s still in the air and that could be forgotten in a couple of months.
If you just have a startup idea, you don’t have a business yet. If you don’t have a business yet, you don’t need to incorporate yet.
From experience, there are generally speaking three signals that it may be time to incorporate:
- First, you’ve reached an agreement with your co-founder for your shares in the business. Shake your hands or sign a simple agreement on a piece of paper. If you can’t trust each-other for this in the early stages, your business is doomed anyway. You can always solidify your agreement later on when you incorporate for a different reason.
- Second, your idea is starting to gain traction and earn money.
- Third, someone is going to invest money in the business. We put this step here because the next step is fundraising. If you’re going to put outside money into your business, you’ll need a legal framework for this business, so you wouldn’t be able to postpone incorporating any longer.
2.5 Fundraising: Angels, Friends, Family
You have a great idea, and you have been able to validate it convincingly. The next step is to build an MVP. If you have a builder on your team, it is preferable to do this without outside funding.
However, if this is not the case, you might need to use your savings or raise at least a small amount of capital for your MVP.
Since you don’t have a real product yet – you have just an idea and hopefully some presales to show for it, it would be very difficult close to impossible to raise money from professional investors. They know the risks and simply require more convincing evidence.
The first source of capital is your own money, but since you are fundraising we would assume you don’t have any to spare.
Debt (i.e. credit from the bank) is another form of funding you can take. It is great for a traditional, not-so-risky lifestyle business (because it gives you high leverage and doesn’t dilute your share in the business), but it’s WAY too risky for an early-stage startup – remember that if your idea fails, you’ll have to return the debt yourself.
So, this is where angels, friends, and family come in.
Although the knowledge and expertise of your investors can make a big difference in your venture through advice and connections, wealthy individuals that you know and who are willing to bet on you even though they don’t understand startups well-enough can also help you move forward at this stage. Just make sure to explain the risk just as well as you explain the upside potential in order to avoid future conflict (and to have a clear conscience).
Most of the time, friends and family, however, invest not because of the idea, but because they want to help you be successful. It’s important to make this investment with one thing in mind, however: do you want to drag your family and friends into a highly risky startup if they cannot afford it? Your parents could be extremely supportive, but is it fair to burn their savings over a risky idea?
If all of the above options are unrealistic for you, you’re left with the option to find a builder cofounder who can be responsible for the technical side of the business.
2.6 Building an MVP (in the open)
This step is pretty self-explanatory. Build the most minimalistic, yet viable version of the product you are envisioning (and that your clients who pre-purchased are expecting).
The key to a successful MVP is to focus on the most crucial must-have features needed by your target market. In an ideal world, your MVP is a single-feature product that serves perfectly the needs of your MVS.
Later on, you can expand your offering as well as target market, but in the early stages, you need to be as focused as possible.
In case you did the validation experiments from above, you should have an email list connecting you to future customers. Make sure to involve them in the building process and ask for their feedback. Building in the open (or to have enough people in your closed alpha/beta) is a great way to make sure you’re not going in the wrong direction.
CASE STUDY SECTION
Building Scoozer's MVP
After running our validation experiments to have a better understanding of our next step, the MVP of Scoozer was clear:
We needed to have a kiosk at one location starting with on-demand without a driver, and focusing on our MVS (seniors).
To do this, we needed a bare-bones app working together with an electrical scooter.
Hardware: we researched, interviewed, tested, and selected a scooter distribution partner.
Software: we build the first version of Scoozer’s app which allows users to rent the scooter. We also built an IoT device that facilitates the communication between the scooter, the app, and our admin panel.
While building the MVP, we continued talking to potential partners and customers to get a deeper understanding of our market and to scout for the perfect MVP launch location.
2.7 Launching Your MVP
Once your MVP is ready, it’s time to launch it. If you have a huge following or a lot of media attention on you, attempting to organize a media launch with a presentable version of the product is a good idea. In order to do this, you need to make sure you’ve had enough people in your closed beta version giving you good feedback, otherwise, you risk launching something that hasn’t really been validated yet.
Most likely, however, this is not the case, so you shouldn’t make a big deal out of your launch. For most startups a launch is not a magical date on which your project officially becomes a real business – an MVP has a long way to go to reach this state. In reality, a startup launch is just a way to gain some additional traction and a bit more beta users to help you test your MVP further.
In a way, a normal startup launch doesn’t differ that much from the landing page validation experiment. You want to launch in relevant online communities, evaluate the results, and measure the feedback. Unless you’re lucky, you would likely do this more than once until you find a real product-market fit.
Scoozer MVP Launch
With the MVP ready, we launched Scoozer at it’s first location.
For the duration of the launch (March 22nd until April 15th 2020) we managed to attract 190 paying customers and generated several thousand dollars in revenue, which took us very close to break even.
Even though we weren’t profitable, we were very excited from the MVP launch results – we validated the real need for our offering, and we were confident we were going to be able to increase our margins when we scaled up operations.
2.8 Measuring Results: KPIs, Iterations, and Pivots
Your goal is to measure if you’re moving in the right direction toward product-market fit. This usually means an answer to the question “Are your customers getting real value out of the product?”.
There are generally two ways to get an answer to this question.
The first is to choose and measure relevant (case-specific) KPIs and to see if your efforts are improving them. Those are usually usage metrics and revenue. Are users actively using your product? Which features (if more than one)? What are your daily/weekly/monthly active users, and what is your user retention rate? Finally, are you making new sales (revenue)?
Try to evaluate at least one usage metric in addition to revenue, because one can be deceiving without the other (e.g. a good salesperson can generate new sales, but a bad user retention rate could invalidate those sales in the long run).
The second is to ask your users. Besides customer interviews, you can create a questionnaire that you can send to your users periodically. Superhuman (an email startup) used such a questionnaire as a leading product-market fit indicator with great success and their case study is an invaluable read for any founder that has a product but hasn’t reached product-market fit yet.
Of course, the KPIs, customer interviews, and questionnaires will let you know if you’re successfully moving towards PMF. If the indicators are bad, it’s time either iterate (if you’re receiving mixed signals) or to pivot fully (if you’re not finding any real traction).
Hopefully, doing the idea validation experiment steps diligently would greatly increase the chances that your MVP is close to PMF and real pivots (i.e. starting from scratch) wouldn’t be necessary.
3. The Efficiency Phase
After having a successful MVP with good product-market fit, it’s time to try to convert your project into a successful business. In order to do this, you need to find the right, sustainable, scalable business model.
3.1 Fundraising: Pre-seed and Seed Rounds
With an MVP that is gaining traction and good indicators of PMF, your startup would for the first time in its life become attractive to professional investors. Since your startup is still in its early stages, your most likely investors would be incubators, accelerators, and later on pre-seed and seed funds.
At this point, you’ll have to make an important decision. Should you find investors or should you continue growing with your savings and revenue?
The answer isn’t that straightforward because there are pros and cons to both approaches.
If your project is a truly innovative, scalable startup that is creating a new market and that needs to grow as fast as possible in order to remain a market leader, taking funding is most likely the best approach. It will allow you to grow as fast as possible without worrying too much if you’re spending more than you’re making in the first few years. Moreover, the right investors would have an invaluable network that would help you find advisors, employees, even clients if you are a B2B startup.
However, if your project works in a smaller niche and its upside potential isn’t as huge, it might be better to try to grow more slowly and sustainably without diluting your ownership. Consider if your own goals and most importantly – risk tolerance align with the goals of your investors. If you take on funding, your investors would have an incentive to push you to be more ambitious and as a consequence- to take bigger risks.
Startup investors make all of their returns from their biggest hits. Keep in mind that an undiluted $10m business might be a life-changer for a first-time entrepreneur, but it’s generally speaking a failed project for most startup investors and they’ll gladly risk it for a tiny chance to make it into a unicorn (a $1B business).
3.2 Finding and Refining a Sustainable Business Model
Once your MVP is up and running, you’ll be able to start measuring your customer lifetime value and customer acquisition costs.
This will allow you to narrow down on the most efficient customer acquisition strategy. For example, in the early stages, it’s a viable strategy to sell directly to each customer because it helps you learn a lot about your market. However, direct sales are a very expensive customer acquisition channel because each purchase needs to pay for the time of the salesperson. Because of this, if you want your business to be self-sustaining, you need to check your customer acquisition costs in relation to customer lifetime value.
For B2B businesses, the lifetime value is very high, so direct sales are the usual channel. A SaaS model might not always justify direct sales, but each customer might be valuable enough to justify pay-per-click ads.
And at the other end of the spectrum – if you offer a free service that relies on ads, your CAC needs to be extremely low, and your viable channels would be most likely from user-generated content.
Improving unit economics
In the 5 months after the launch Scoozer had nearly 1000 rentals. We conducted a thorough analysis of the data to find ways to improve margins and income. In the case of Scoozer, this meant focusing on decreasing the overhead costs of each location.
The implemented changes in the business model and product following our analyses progressively helped us get closer to attaining our margin targets.
3.3 Scaling-up Operations - Repeat What Works
You have a product that has good product-market fit.
And you have a sustainable business model.
This means you are exiting the phase of exploration (a startup), and entering the phase of repetition (a scaleup growing into a big business).
Rather than constantly experimenting on a small scale to see what works, you need to choose your best-working channels and focus all your efforts on them.
This is not only important in order to make more money. It’s vital to test if your business model, acquisition channels, and product work at scale.
Unfortunately, for example, it might be the case that your early-adopters were happy with the product/service only because of the increased personal attention you gave to each one during the validation phase. It might also be the case that the early adopters are easy to reach, but the general market has a higher CAC.
You need to know if this is the case because if your model isn’t scalable you don’t have a real startup on your hands.
Fortunately, this is much less likely to happen (compared to people not needing what you are offering – lack of PMF). If your product provides real value and there is real product-market fit, you’d usually find your way into a sustainable business model within a few iterations.
Expanding the business
In the six months after launching Scoozer’s in its first location, after doing continuous efficiency improvements, we were confident enough to open shop in two more locations.
In 2022 five more locations are planned – Las Vegas, Chicago, San Francisco, Seattle, and Texas (some of these locations, of course, are subject to change).
At the moment of writing this, total rentals grew to 3300.
3.4 Teambuilding: Early-stage Hires
If you fundraise (or if your business is generating enough money on its own), you’ll have the luxury to expand your team.
At the same time, while scaling-up operations you’ll need more human capital to run your business – not only to build your product and to sell it but also to provide customer support, etc.
Your major decision would be whether to expand your in-house team in order to benefit from intangible advantages like culture and intrapreneurship or to out-source most of the heavy-lifting in order to keep your costs much more flexible in case your cash-flows aren’t predictable yet.
If you have access to sufficient funding it might be worthwhile to invest in a bigger in-house team. Otherwise, it might be more prudent to keep the core team small and to out-source.
According to the Startup Genome Project, premature scaling is the biggest startup killer, and over-hiring is the easiest way to burden your business with fixed costs it can’t carry yet.
- VisionX Partners: Building a Startup Team: What To Know, Do and Avoid
- VisionX Partners: How to Attract and Keep Top Startup Talent to Your Project
3.5 Creating a Productive Culture
The right culture leads to the right behavior which leads to a good business.
Thinking about culture is a luxury, and at the same time, it is crucial at this stage. Culture is easier to build when your team is still small – you have a personal connection to everybody and every team member has the opportunity to be involved in the conversation about your company values. Moreover, this initial core team is going to be involved in the hiring and training of the new people you’d inevitably hire while scaling up operations.
If your core team embodies the right values, they would propagate in the company. If you have culture problems from early on, they would only amplify as the company grows.
When it comes to culture – strike the iron while it’s still hot.
3.6 Incentivizing Organic Growth
At the end of the efficiency phase, you’d hopefully have a product that has a great product-market fit, customers that love your product because of it, a market giving you a lot of room to grow, and a sustainable, scalable business model which means your company won’t become unsustainable under the influx of new people.
Under these conditions, your goal would be to incentivize growth, and hands down the best growth channel is word of mouth – not only is it free, but it comes by default with a trusted recommendation.
Because of this, if you already have some word of mouth going for you, it would make a lot of sense to incentivize your customers in order to turn them into brand/product advocates. The exact strategy is case-specific, but the two most common ones are a referral program (Dropbox), and/or an invite-only exclusive phase (Facebook, Clubhouse, Superhuman).
- Viral-loops: Dropbox grew 3900% with a simple referral program. Here’s how!
- VisionX Partners: The Complete Startup Marketing Guide
4. The Growth Phase
The final startup phase is the phase in which your scaleup turns into a real big business.
If you are planning to start a new venture you shouldn’t think about this phase too much. It won’t become relevant until you reach product-market fit, and when you do, there would be plenty of people to give you detailed, high-quality advice. That said, here’s what to expect when you are at the growth phase.
4.1 Fundraising: Series A (to Z)
Seed and pre-seed investments aim to allow the business to find product-market fit. Series A (to Z) investment rounds aim to help a business dominate its market. VCs invest in companies that have very solid proof of the viability of their business and have shown potential to become huge.
So, don’t waste your time chasing venture capital if your business isn’t mature enough to fit the investment profile of the VC.
4.2 Investing In Non-organic Growth
Generally speaking, the sole reason for the series A to Z rounds is to allow you to invest in extremely aggressive growth. The startup world knows that most startup niches are a winner-take-all proposition. You aren’t striving to build a competitive business, you are essentially striving to build a world-wide monopoly in your market niche.
This aggressive growth doesn’t just mean buying ads. It can mean providing your service at a loss in order to smother any possible competition and to gain market share as fast as possible.
4.3 Targeting Additional Market Segments
Up until this point, your business was likely hyper-focused. Now you have the resources to invest in additional market segments, which require additional features, or even additional products.
In the discovery to efficiency phases, Facebook was focused on college students (their MVS). In its growth phase, the social media giant opened up its business to everybody with a computer or smartphone and access to the internet.
4.4 Targeting Adjacent Markets (Horizontal Expansion)
Horizontal expansion is harder to do because it essentially requires you to experiment with new businesses for new customers. Yet, it’s worthwhile exploring in the growth phase, because the assets of your business might give it a competitive advantage in these adjacent markets. Success in those markets makes the company less susceptible to turmoil in its main market.
Examples are Uber Direct, Uber Connect, and Uber Eats, which all use the assets and core competencies of the ride-hailing giant and served as a lifeline for the company during the COVID pandemic which shrunk its main business significantly.
4.5 The Full-stack Startup (Vertical Expansion)
While the early-stage startup usually aims to be lean and hyper-focused, the established growth-stage startup can afford to try to expand in the whole supply chain and to provide users with an end-to-end service.
A great example is Microsoft vs Apple. For most of its existence, Microsoft dominated one spot on the value chain – the OS. Apple, on the other hand, integrated manufacturing and software to provide a full, singularly-branded product and/or service to the end-user.
4.6 Becoming a Platform
Controlling a whole ecosystem is the end-game for a lot of startups. If you can house whole businesses and their customers under your roof, their growth becomes your own growth. Holding and regulating the whole market is a much sweeter business than competing in the same market.
The end goal of most startup investors and some startup founders is to cash-out in a type of event called an exit.
Most often those exits take the form of an acquisition – a bigger company buys the growing startup for strategic reasons, most commonly to preserve its monopoly in a niche – e.g. Facebook buying What’s App for more than $20B
The second most common exit is the IPO – the startup opens up its gates for public investors.
Hopefully, this step-by-step guide gave you a detailed top-level overview of the startup journey– its goals, difficulties, standard practices, and ultimately its huge potential.
If you have an idea you’re excited about, we, VisionX Partners, can help. Tell us about your vision and goals. We’ll tell you how we can help you build your startup from idea to growth.