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Definition of Early Stage Startup

11/24/2021
Early Stage Startup

Definition of Early Stage Startup

Nov 24, 2021

The definition of startup company refers to a business venture that looks to monetize its product or service, either with its capital or with the support or investment of a third party. Over the last decade, the startup investment ecosystem has grown. Despite the industry’s hard time innovating and low margins of startup investments, 2020 saw new business models in the industry invest over $1.3 billion.

What is an Early Stage Startup?

Startups in the early stages tend to focus on product development, customer acquisition, and cash flow generation. According to the definition of early stage startup, it is one that is at the beginning of its operations. As the name suggests, it usually refers to the startup phase before rapid growth. During the early stage, businesses conduct research, marketing research, and develop new products.

The startup lifecycle is considered to be the riskiest stage by entrepreneurs, investors, and researchers. Actions taken at this stage significantly affect a venture’s chances of success. Consumers will evaluate and compare the price, quality, and feasibility of the business’ value proposition at this phase.

Comparing the product or service with existing products in the market may also be included. The process is called a beta test. In this way, a minimum viable product or service is introduced to the market.

How to Assess an Early Stage Startup

As already stated, entrepreneurs often view the startup phase as the riskiest. Namely, half of the startups fail because their products or services have no market demand. If you’re unsure of where to start, consider the following questions to gain more focus and understanding:

● Is the product I’m selling going to solve a problem for potential customers?
● How do I identify my target market?
● Why will my startup be unique among its competitors?
● Precisely what type of financing am I looking for?
● What steps will I take to test my product idea?
● Is my startup going to need people with particular skill sets?
● What are my short-term and long-term business goals?
● Is there a tax I have to pay for my company?
● How do I promote my brand as a startup?
● How much time can I dedicate to the startup?

Fundraising for Early Stage Startups

Your business needs steady cash flow when it is first starting out. It will keep your company competitive, fund innovative ideas, and finalize your products. Keep in mind that you will have different expenses for office space, equipment, employees, marketing, utilities, inventory, taxes and even insurance.

Here are some ways to get the funding you need:

● Bank loans or SBA loans
● Use investment products such as STO (security token definition: digital securities or representations of an asset traded and held on a blockchain).
● Become a member of a startup incubator, which gives resources to budding entrepreneurs
● Partnering with venture capital firms or investors who look for profitable business models
● Locating angel investors who can provide capital for startups with strong business plans
● Borrowing from friends and family

What Are the Stages of a Startup?

Six phases define how advanced startups are on their way to monetization or becoming a market essential. As a startup, you only exist and make sense if you address at least one pain point in the industry in which you operate, and despite the high failure rate, success can be measured at any of the following six stages:

1. Pre-Seed Stage
2. Seed Stage
3. Early Stage
4. Growth Stage
5. Expansion Phase
6. Exit Phase

Pre-Seed Stage

An analysis of the niche market in which a startup wants to operate is crucial to determining whether there is a real problem there. The solution’s success or failure will likely depend upon how well it solves the problem in the industry.

Entrepreneurs should also ask themselves the following questions:

1. Does my solution actually solve the problem?
2. Is it possible for my solution to aggravate other pain points in the industry and reduce the market’s acceptance of it?
3. Does my solution already exist?

Seed Stage

During the seed phase, validation of the business model is the primary objective. As a startup emerges, critical decisions will have to be made, such as conducting itself. It is at this point that the startup takes shape. A prototype is a set of small experiments conducted to validate the idea on which a startup is based.

The goal is to verify the initial value hypothesis. Early prototypes of development do not need to be functional, nor should they be viable products. There is a difference between it and a Minimum Viable Product, which must be both functional and viable.

Early Stage

In the early phase, the idea is left for further development until it is turned into a product or service. The next step is to test your product. A Minimum Viable Product (MVP) will be created, but it is unlikely to be the final product.

It is best to have a minimal viable product, which is one that does not have all of its features, which makes testing easier. As a first version, it is released for evaluation and information gathering. A product should be reviewed after it is launched to evaluate whether it meets customers’ needs; if not, improvements can be made with new versions to satisfy the user.

Growth Stage

At this stage, a startup’s product or service is in great demand. As a result, new customers, recurring customers, and billing will increase. Profitability here is paramount. At this point, people are recruited, and the team becomes larger.

A high percentage of failures occur during this phase. As a result, it does not mean that the product or service stays unchanged because you will probably have to adjust it to cater to a new audience segment, meet new demands, or occupy spaces that weren’t planned.

A substantial amount of funding is also necessary at this stage, either to cover the necessary changes or to move forward.

Expansion Phase

According to an expanded definition of a startup, a scaleup demonstrates a proven business model that enables it to consider more ambitious goals, such as international expansion or expansion into other sectors.

For a company to be considered a scaleup, it must have experienced annual growth of 20% or more – either in the number of employees or revenue.

Business continuity depends on finding new markets during expansion. As a general rule, more ambitious markets are sought, resulting in global expansion.

Exit Phase

Startups do not have to participate in this phase. A good business model seeks to build a high-value and long-term company. However, few reach this level, and those who do are characterized by their strength, high potential, and ability to continue growing.

Founders can exit their company for a variety of reasons, most commonly through the sale of their shares to another company, an acquisition by a different company or a public offering.

The Difference Between Early-Stage Startups and Growth-Stage Companies

● Complexity of work
● Culture
● Product-market fit
● Risk
● Hierarchy

Complexity of Work

Whether you’re in the early-stage or growth stage, the complexity of running a business will be different. Startups in the early stages have simpler tasks.

While starting a business is easy, the startup phase requires that you become an all-arounder, often working long hours to bootstrap the company. During this stage, you will learn how to DIY essential processes and become resourceful.

Culture

Early-stage startups have an easy time maintaining a fun and productive culture, and this is mostly due to their size. Having a company with 2 to 10 employees isn’t managing employees. Choosing people with a similar background at this stage means the culture will remain consistent.

Product-market Fit

During the early stages of startups, they are still trying to establish themselves in the market. The startup is still in the midst of developing its minimum viable product, which means they are experimenting with their customer base as they try to improve their sales strategy. Those in the growth stage have already validated their products in the market and can demonstrate it’s sustainability.

Risk

During the early stages of a startup, there is more room for risk-taking. By having fewer people relying on results from the startup, the brand can take more risks and reap the rewards. It is not a disaster if a startup fails because the company hasn’t grown big enough to experience a real catastrophe.

Hierarchy

Startups in their infancy are all about the hustle. You should try to complete as many tasks as you can on your own so that you do not have to outsource them, thereby saving capital.

Fortunately, growth-stage companies can now afford to hire team members who have specialized skills. The company is now creating departments and establishing hierarchy within its skeleton staff. Therefore, founders can focus on their vision, while employees can handle more specialized tasks.

The Bottom Line

Whether you’re starting out as a startup or seeing growth in your business, it can be hard to know where to turn. Bootstrapping everything yourself is viable, but you need to avoid the delays, nasty fines, and lost earnings that come with it. Start by preparing yourself and getting informed about all the little details that can affect the success of your startup.

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