Stages of startup development

A star­tup is like a new­born baby. The deve­lop­ment of a baby always fol­lows a cer­tain sequence: learn to eat, get the diges­tion sys­tem going, then craw­ling, wal­king, tal­king, run­ning, rea­ding, wri­ting etc. The first clo­se to 20 years of a human life are spent on just lear­ning the skills nee­ded to be a real, adult human being. And it always hap­pens in a cer­tain sequence.

You don’t expect a 2 year old to be able to run a marat­hon, nor a 2nd gra­der to apply for a uni­ver­si­ty.

Star­tups do fol­low a simi­lar kind of a deve­lop­ment. But that is poor­ly unders­tood (or accep­ted), resul­ting in “2nd gra­ders trying to get into a Uni­ver­si­ty, with the help of a rich dad” – in star­tup par­lance known as “pre­ma­tu­re sca­ling” (usual­ly fuel­led by foie gras fun­ding).

Human babies and star­tups ali­ke should focus on deve­lo­ping skills that kids of their age are meant to. Even Wun­der­kinds who have special skills and are fas­ter lear­ners than most have to fol­low the same sequence, they may just advance fas­ter.

The Star­tup J Cur­ve” by Howard Love defi­nes a 6 sta­ge deve­lop­ment process a star­tup has to go through, in sequence, to make it to the finish line. A brief sum­ma­ry of the sta­ges can be found here

Eve­ry star­tup should iden­ti­fy their place on that cur­ve, and unders­tand what should and SHOULD NOT be on their agen­da whi­le at that sta­ge. And when are they rea­dy to move to the next sta­ge.

What sta­ge are you at? Are you doing a) all the things and b) only the things that belong to that sta­ge?

How can I make sure I am ready to move to the scaling phase, to avoid the perils of premature scaling?

You must have a pro­duct that does the job – i.e. you must have found product/market fit (see a sepa­ra­te article on product/market fit).

You must have a busi­ness model that works – i.e. you have unit eco­no­mics that pro­duce a posi­ti­ve result, so that for eve­ry cycle the engi­ne of your busi­ness turns you earn money, rat­her than lose it. Only then does it make sen­se to rev up the engi­ne. (see a sepa­ra­te article on Busi­ness Model)

Some acid test type of ques­tions to veri­fy you real­ly are rea­dy to focus on just sca­ling your busi­ness:

  • You can make your busi­ness cashflow posi­ti­ve wit­hin the next 3 months
  • At least 1 of the 5 big­gest cus­to­mer deals have been comple­ted success­ful­ly wit­hout any invol­ve­ment of any of the foun­ders.
  • You must have at least two non-foun­der team mem­bers gene­ra­ting more annual reve­nue than their all-in cost is to the com­pa­ny.
  • You must have at least one non-foun­der team mem­ber who is brin­ging in more reve­nue than the cus­to­mer-facing foun­der.
  • The Foun­der can switch her email off for 2 weeks and it causes no dent in reve­nue

Doing it in big scale or scaling ?

Sca­ling is a star­tup mant­ra and obses­sion. Financiers and inves­tors - public and pri­va­te ali­ke - push star­tups to sca­le.

New­born star­tups talk about sca­ling and mea­su­re them­sel­ves on sca­le sta­ge quan­ti­ta­ti­ve met­rics, like growth, MRR etc.

But doing things in a big sca­le is not sca­ling. Trying to force busi­ness by spen­ding money, hiring more sales­people and inc­rea­sing num­ber both inbound and out­bound actions is not sca­ling.

Sca­ling means clo­ning a concept that has been pro­ven to work, both tech­nical­ly and com­mercial­ly, in volu­me.

If your com­pa­ny does not have a concept that can be clo­ned, igno­re this at your peril.

Searching or scaling ?

Is you star­tup still in search mode or are you trying to sca­le ?

Too often star­tup ent­repre­neurs mix searc­hing and sca­ling - which in rea­li­ty are two impor­tant but total­ly dif­fe­rent things. Searc­hing is somet­hing each star­tup has to go through and make own disco­ve­ries. It is typical­ly rela­ted to 1-3 first years of the com­pa­ny, whi­le eit­her in fin­ding problem/solution fit or product/market fit.

Sca­ling only comes and should be done when tho­se both have been found. The big­gest rea­son why star­tups fail is pre­ma­tu­re sca­ling !

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