The Startup Lifecycle: 4 Stages to Success
No two companies share the exact same path to growth and success. The plain fact is that various factors influence how a business develops; these can include existing market conditions, industry type, founding team (or lack thereof), so on and so forth. However, there are general stages of development that a majority of startup companies experience:
Scale and Growth
In this blog, we will offer some unique insights from leading experts in each of these areas.
Stage 1: Market Validation
The first in our "startup lifecycle" series concerns validation. You may hear various terms for this, but it really boils down to the question: should I invest any more of my time or money into developing this business idea? Credit to Hart Shafer, innovation coach for Adobe and CEO/Founder of Theraspecs, for a majority of the information included below (except where cited otherwise).
Why should you validate?
As Hart notes, running experiments leads to more validated learning over time, which basically means that the information you gather is substantiated with quantifiable data. In terms of your business, this ongoing learning loop decreases risk and ensures that you as an entrepreneur are investing your money in something that is more likely to yield a positive return.
Eric Ries’ lean startup process also explains that it is not just about “failing fast, failing cheap;” instead, entrepreneurs are building a methodology that eliminates uncertainty through constant testing- an approach that will ultimately aid in the ongoing development of their companies.
What should you validate?
In the simplest of terms, you need to validate ACTUAL customer behavior. This seems easy on the surface, but there are numerous challenges to it. For instance, we all have cognitive biases that can become traps for our experiments because they frame our questions, our tests, our assumptions, and can therefore yield less-than-ideal data. As a result, we must acknowledge where these biases exist and adapt our experiments to reduce and eliminate them as much as possible.
Beyond that, there are specific areas of validation an entrepreneur can follow. The first is “problem-solution fit,” which determines if there is a demonstrated need on behalf of a particular customer segment. Simply put, is there really a pain point?
Second, “product-market fit” is whether or not a specific, proposed solution would be adopted by your customer. It is important to remember that you have NOT built a product yet, you are simply probing to learn whether or not your imagined solution – which does x, y, z – will actually be purchased by your potential customer.
Last, “scale” validation evaluates whether or not you can actually engage your customers on a mass level. Kunal Punjabi also defines this as validating the demand or market potential of your business idea (Validate or Die: Using Validation to Build the Right Product). Is there enough interest or is this an omnipresent problem that facilitates the need for a viable business solution?
What validation tools and techniques are available?
There are numerous validation tools available. The overarching framework is, of course, the lean canvas business model. It helps entrepreneurs conceptualize their customer segments and those corresponding problem(s) before then on to solution development, engagement, etc.
One of the most common (and frequently overused) validation techniques is a survey. Hart explains that, while not a bad option, they should be used more to supplement quantitative data by offering qualifying findings that offer a deeper understanding of the business proposition.
Interviews are a great way to gain insight into your customers. Whether it is problem based or solution based, open-ended questions that probe customer behavior will help you identify key patterns and findings.
Landing pages, A/B testing, and paper-sketched prototypes can gauge purchasing interest in your solution as well as the effectiveness of specific messaging and feature sets. For additional tools, innovationgames.com has numerous options for tackling business problems.
Stage 2: Product Development
Whether you are building a software, hardware or even non-product solution, a key component of this stage is to apply lean principles to the development of a minimum viable product or MVP. Eric Miller, Principal of Phoenix Analysis & Design Technologies (PADT), shares his top-10 principles for lean product development.
- Clearly define requirements and design to them
- Requirements should be focused on customer value
- Front-load the process with exploration and iterations
- Create a level product development process
- Balance expertise and cross-function integration
- Design quality in to the product
- Involve suppliers in the process
- Develop expertise in your technical staff
- Build in a culture of excellence and relentless pursuit of continuous improvement
- Use standardization when possible, without blocking flexibility
Here are some additional tips from Eric:
Avoid feature bloat
Entrepreneurs often become concerned with loss avoidance – or the inability to penetrate certain markets or reach certain customer segments if a product feature is not included. This is a dangerous misstep as it can incite the addition of unnecessary features into a product, taking it further from the true requirements of the customer.
Accept that your MVP will not be perfect
Identify the key requirements of your customers and include only those features that solve for those needs. The purpose of an MVP is to save time and money while gaining valuable feedback, not to have a flawless product on the first try.
Design, document and improve upon the process
Product development requires focus and structure. Document each step of the process to not only incorporate it for future iterations but also to instill a culture of quality in the people who implement it.
Stage 3: Commercialization
Now that you (in theory) have a validated problem and minimum viable product solution, the question becomes: How does my business make money? Welcome to the third stage of the startup lifecycle: commercialization. In the latest post of our blog series, we touch on how to develop an effective Go-to-Market strategy in order to become a viable, profitable, and sustainable business.
What is a Go-To-Market Strategy?
Nate Curran, Entrepreneur-in-Residence at the Center for Entrepreneurial Innovation (CEI), defines a Go-to-Market strategy as the business model for your company. In effect, it is the pre-defined business processes a company deploys or plans to deploy in order to bring its product and/or service to the marketplace and ultimately begin making sales and generating revenue. He also notes that it is key to remember that commercialization is ongoing as market conditions change, product innovation happens, and other situations arise which all demand an evolving action plan.
What should you include in your Go-to-Market strategy?
Murray McCaig of MaRS Discovery District, as part of an Entrepreneurship 101 lecture, cites four main questions that an effective go-to-market strategy must answer:
What are you selling?
The real question is: What is your value proposition? This section of the strategy addresses those unique differentiators and benefits that you're offering gives to your target customers. It is your power statement. Ideally, you deduce the singular reason / benefit for why a prospective consumer would choose you over your competitors.
To whom are you selling?
Who is/are your target customer(s)? These are the segments of the market that you have identified as being primary consumers of your product or service, NOT the market size or share. Much of this information should have come from your initial market research and testing in the idea/problem validation stage. Regardless, according to McCaig, you should first align customer segments with your value proposition and then expand your market opportunity to address auxiliary segments that possess other characteristics such as ease of selling.
How will you reach your target market?
This is an incredibly important component of your commercialization plan and is often the most misunderstood. Curran explains that many entrepreneurs mistake this with their marketing strategy, when in fact it is your sales channel strategy. Distributing your software app through an online e-commerce platform such as iTunes is an example of one distribution channel. Other options include: direct personal selling, retail distribution, or indirect selling. McCaig acknowledges that you need to consider various factors such as sales margin, brand credibility, and time to market when considering you're channels.
How/where will you promote your product?
Now is the time to determine how you will ENGAGE your customers. There are inbound and outbound approaches to a marketing plan; the inbound methodology relies on converting strangers into leads and nurturing them through the buyer’s journey until you have closed the deal. It is more passive and typically less expensive but also requires significant work in the lead nurturing process. Conversely, outbound takes a more direct and interruptive approach by pushing your marketing message through paid advertisements, billboards, trade shows, direct mail, etc. It is traditionally more expensive. Both approaches have benefits and a solid marketing plan will oftentimes deploy both to generate qualified leads.
Once you have identified the marketing outlets through which you plan to engage your target market, Curran delineates that telling your story is the next step. Here is his shortcut for synthesizing the key messaging of your product or service:
Who: your target persona
What: the problem you are solving as it relates to your persona
Why: the benefits of your solution
How: the specific features that derive those benefits
Where: your engagement channel
An effective commercialization plan will address these questions clearly and with purpose. Good luck in developing your business strategy!
Stage 4: Growth and Scale
Your business is expanding, you are attracting and converting more customers and hiring employees to meet that growth. The fact is: you are no longer a startup. Now the question becomes how do you manage that growth?
It Starts with a Culture Centered around People and Accountability
“It’s never to early to start thinking about your culture.” - Russ Yelton
Russ Yelton experienced first-hand the challenges of rapid growth when he assumed the CEO role of Arizona-based tissue bank and medical device company Pinnacle Transplant Technologies. He quickly realized that the challenges didn’t stem from revenues or customers, but rather with the overall culture of the company.
Consequently, Yelton pioneered new initiatives like company-wide retreats, the creation of internal communication outlets, and the hiring of mid-level management to oversee the various departments. He recognized the value of every employee but still acknowledged that a culture of accountability is the only way you are going to be able to manage the growth and development of the company consistent with the high-level vision set by the leadership team.
Ari Weinzweig of Zingerman’s adds that building a successful organizational culture is a 5-step process: Teach it through empathetic communication and storytelling; Define it with a strong corporate vision, mission and values; Live it with actions that match your words; Measure it to understand what is working and what needs to be changed; and reward it often and diversely to reinforce positive behaviors.
Understand your Smallest Customer
“It was not easy sending business down the road to a competitor, but we knew it was right for us.” – Darren Wilson
We previously offered insight into the growth story of Bluemedia. Co-founder Darren Wilson knew that that the large-format print and signage company had reached a watershed moment in its lifecycle when they had to better align their customer segments with their newfound growth. For Darren and the Bluemedia leadership team, this meant giving up tangible revenue, from customers they may have even served previously, to another vendor; however, the cost of doing business was more than the revenue they would have earned in those instances and was therefore a necessary maneuver. This also emphasizes the importance of a strong company culture to be able to make those hard decisions.
A recent article published online in the First Round Review reinforces this “subtract as you add” mentality during a startup’s scaling phase because it can streamline processes and add new levels of efficiency. Too often entrepreneurs are focused on adding – customers, employees, revenue, etc. – that they lose sight of the opportunities where they can cut out the excess.
Continue to Test, Measure and Learn
“Never protect the past. If you never protect the past, you will be willing to never love [it] so much [that] you wont let it go, either.” – Ginni Rometty
Ginni Rometty, Chairman, President and CEO of IBM, gives perhaps one of the best pieces of executive advice for a startup in the growth phase. As she points out, you never want to fall too much in love with the way things were done or are currently done because markets change, people change, times change. She adds: “Never define yourself as a product…if you live and define yourself by your product or competition, you will lose sight of who your customer is.” Companies need to evolve and continue to develop new solutions to meet the problems of their customers, who are evolving and changing themselves.
And with that you are right back to the validation stage of the startup cycle – testing new ideas with an evolving customer base, but THIS TIME you are driven by a robust corporate culture and vision that is setting a path of quality and success.