Lifecycle of a Startup: The 5 Stages of Growth

Wendy’s founder Dave Thomas once said you need just three simple things to grow a business: To know your product better than anyone, to know your customer, and to have a burning desire to succeed. While that motto sounds great in theory, anyone who’s attempted to throw their hat in the startup ring knows firsthand that it’s not relatively that easy.

Even with all the passion in the world, a lack of understanding of your product or customer can quickly sink your startup before it even lifts off the ground. This explains why startups’ recent failure rate is a shocking 90%, with nearly a quarter of startups failing in the first year alone.

For a startup to be successful, there must be a clear framework for growth that begins and ends with thoughtful consideration of the end consumer. Consider these five stages of growth in the lifecycle of a startup to prepare your business for success.

The 5 Stages of Growth

By definition, startups are known as “fledgling business enterprises” or “a business or undertaking that has recently begun operation.” It’s to be anticipated that each startup will enter various stages of growth as the company progresses and that, more often than not, growth will not be linear. There are thousands of variations on how these developmental stages can be timed, inter-mixed, and repeated before a startup reaches maturity.

Though you can never precisely plan how your startup story will unfold, the five stages of this framework should become familiar as your company grows.

Stage 1: Ideation and Conception

In any successful business, the fruits of your labor are born from one seed: Your big idea. This big idea typically arises from a personal need, a third-party problem you’ve observed, or a gap in the market. Ideation can stem from just one or two people — like yourself and a partner — or spearheaded by a team with a united vision.

The basis of ideation should always be the problem your product or service will solve. By presenting the problem first, all stakeholders remain on the same page to brainstorm possible solutions. The secondary component of ideation should be your mission, values, and vision. Anything you create should align with your personal ethics.

Remember, there’s no such thing as a “too out there” or “impossible” idea, so long as you feel confident the proposed solution solves your problem effectively and ethically. You must create a safe space to explore new angles to old approaches. Once you have a viable hypothesis that corroborates your values and vision and tackles the problem at hand, it’s time to turn that concept into a tangible product.

Stage 2: Discovery Interviews & Minimum Viable Product

With the concept in hand, the next stage of growth for startups is to begin discovery interviews and create a minimum viable product (MVP). Discovery is a critical step. It allows entrepreneurs to gain insight into consumer pain points, perspectives, and purchasing habits better to understand the consumer’s market need and underlying psychology.

Discovery can be completed through:

• Demographic research
• Environmental observation (immersion)
• Expert interviews
• Consumer interviews

The purpose of the discovery process is to understand what the client experiences, so it’s essential to maintain an open mind about actual consumer needs — if you don’t, you risk creating a product no one needs. Wise entrepreneurs use this stage as an opportunity to deconstruct their concept into key assumptions about the consumer, tweak ideas, and pivot where necessary. From here, a minimum viable product (MVP) is created.

An MVP is a method to test your updated product hypothesis with the least possible time and capital investment. It’s a product with just enough features to generate early-adopter interest, receive user feedback, and validate a product concept. Some startups choose to raise funds for this process, but bear in mind; an MVP focuses on minimal investment. Once your MVP is complete, you can test the product-market fit.

Stage 3: Product-Market Fit

Entrepreneur and investor Marc Andreessen has defined product-market fit as “being in a good market with a product that can satisfy that market.” In other words, consumers recognize the value of your product to the point that it can scale. Without product-market fit, consumers fail to see your product’s use — and your sales cycle will suffer.

To achieve the best possible product-market fit, a growing startup should constantly analyze its hypothesis about consumer needs, target audience, and value proposition. Likewise, they should ensure their target market is not small, cheap, or shrinking: There should be room for high growth. In this same vein, startups should never be afraid to alter their product, from the name and target consumer to the development team, to pursue product-market fit.

Bear in mind, the team powering the product must align with the startup’s original values and mission. They also must feel comfortable changing direction when necessary. As Hamptons Group chairman and managing director Jeff Bartel of Miami has advised: “Good, smart, values-based people doing commerce together can do wonderful things. Forge your path and surround yourself with great people who do the right things, and do things right.”

Stage 4: Sustainable Growth & Expansion

By the time a startup has reached stage four of its lifecycle, everything from its original MVP to its development team may have changed. However, this is the stage in which sustainable growth can begin. To achieve sustainable growth, you must keep your customers at the forefront of consideration.

Utilize Customer Relationship Management (CRM) software to organize customer data and uphold customer service. Similarly, be sure to maintain strong communication to keep your finger on the pulse of general product satisfaction. To ensure your startup keeps to its same standards, monitor the people you hire and your sales numbers. Hire specialists with solid expertise in your primary channels to expand your growth team.

Items to be cautious of as you expand include:

• Entrepreneur or team member burnout
• Not hitting goals for funding or investors
• Your bottom line exceeding your sales growth
• No longer operating as efficiently or cost-effectively
• Expanding too quickly, either in new hires or product production
• Failing to please stakeholders with the final interaction of the product
• Fostering an unhealthy team culture that’s not reflective of your values

Stage 5: Maturity & Exit

Once a startup reaches stage five, growth may slow — but it surely never stops. Mature startups continue to invest in their growth-team and often expand through mergers and acquisitions (M&As), localization, and internationalization. Consider a SaaS startup behemoth like Salesforce, which recently acquired chat platform Slack, as an example of a company that continues to expand its share of the market through acquisitions.

However, mature startups are not exempt from changing markets. Think about retail giant Blockbuster, which went from the top movie-rental business in the US to filing for bankruptcy and closing nearly all its stores. Jeff Bartel, chairman and managing director of alternative investment and strategic advisory firm Hamptons Group, advises that mature startups continue to find methods to remain fluid, allow for growth, and permit a clean exit should the market turn.

This Isn’t Your Final Stage — Keep Going

Startup growth is never linear. Regardless of which stage of the growth lifecycle you’re in now, keep learning, keep pivoting, and most importantly, keep going.