Startups begin with someone identifying a demand, analyzing competition, addressing funding needs and sources, gathering a management team and if all makes sense, starting the execution. First stage is Ideating, in which founders will determine what, to whom, why and how to deliver value, followed by Concepting stage, when founders must define their strategy, business plan and resources needed to implement it. Then comes Validation stage, the MVP is created and tested, usually with seed money from family, friends and angel investors. In this stage, product and market fit are tested, and initial revenues take place, the business model is also validated and can be pivoted. After Validation, the startup must Scale up, building management team, growing revenues and market presence, gaining traction and attracting larger funding usually venture capitalists. Final stage in Establishment of the startup as a stable business, with reduced risk, aiming at solid growth, funded by private equities. In this stage, founders usually are very diluted and may leave the company to start other endeavors.
The transition from startup to mature company is challenging. Ranjay Gulati from Harvard identified four key doings to effectively scale up: (i) hire hands-on specialists, allowing to drive the business to next level; (ii) implement organization structures, to deal with more employees but keeping informality required to maintain speed and flexibility; (iii) invest in planning and forecasting, to be able to set strategy and adjust it; (iv) spread across the organization its cultural values, for it will be mandatory to sustain the founder’s visions. From Ranjay pilars for growth we infer that the startup needs strategic resources (ability to foresee the future and predict customers behavior and to disseminate founder’s vision), human resources (having the right people, preferably doers, in the right positions), organizational resources (creating an environment that is prepared enough to conduct the growth in an arranged manner but without capping the innovation spirit).
Another interesting perspective on growth is given by McKinsey’s Ted Callahan: “Staying in the high-growth club appears to depend on a company’s ability to create new markets with hundreds of millions of users (think Facebook, Google, or Microsoft), disrupt existing markets through new business models (eBay or salesforce.com), set new and revenue-rich technology standards (Adobe Systems), or develop truly innovative products (Citrix Systems or Electronic Arts)“. (Callahan, 2014, paragraph 2).
Lastly, financial resources are essential to scale up. This is the reason most founders raise money for equity in this stage. Capture and retain clients, heavily investing in marketing and media, whilst building a strong team, improving the product and service, incrementing business model trying to disrupt, and investing in technology, all concurrently with a yet low revenue, unknown company requires lots of cash.
However, as resources are finite, vital factor for success is combining them in an optimized manner, to boost odds for success, combining intelligent strategy with lean execution. “Knowing how growth happens, and the best ways to focus your organization’s efforts to grow, is as critical as allocating investments across the innovation risk-reward spectrum for maximum returns. Doing so works better than placing random bets on the latest startup in the hopes of getting lucky. Or worse, betting on one silver bullet that misfires”. (Chirio, 2018, paragraph 17).
References:
1. Callahan, Ted. Breaking through the start-up stall zone. Mckinsey Quaterly 2014. https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/breaking-through-the-start-up-stall-zone
2. Gulati, Ranjay. Start-Ups That Last. Harvard Business Review. March 2016.
3. Chirio, Gino. The 6 Ways to Grow a Company. Harvard Business Review. June 2018.
