Startup Lifecycle

The journey of a startup typically encompass the phases right from the germination of an idea to product development, market launch, traction, scaling up, to an eventual exit. We shall discuss in detail about each stage of a startup recycle in the following paragraphs.

Look for Problems

Never look for startup ideas. When you do so, you might fail to add value from a market point of view. Rather than head-scratching for a startup idea, start spotting problems. Once you know the problem, you realize the need for a solution. And once you realize the need, you can think of a solution. Remember that it isn’t enough to innovate a solution that isn’t solving a problem. So, before starting, ask yourself what problem your idea can resolve.

New or Evolutionary? Define

Startup ideas could be segregated into two categories: New & Evolutionary. Define your startup idea. Is it a breakthrough innovation? Or an evolutionary one, a bettered version of the existing product/service?

Look up the internet to see if your idea has already been executed by someone else. If yes, don’t get disheartened. Work up your mind for ways to metamorphose the existing solution. You may come across startups who succeeded or failed with a startup idea similar to yours. Study their cases closely. Analyze the reasons for their success or failure. It shall help you in execution.

A startup idea is like one’s baby. You think it’s the best. Unfortunately, emotions don’t work in business. Be a tad more pedantic about your idea. Look for loopholes and improve.

Is there a Need?

While looking for a problem, make sure it isn’t your own bias-ridden problem, but rather a problem that infests a good number of people who shall constitute your chunk consumers. Do your research to confirm whether the problem in question is a problem the people are talking about too. According to the CBI insights, 42% startups fail because they try to ‘tackle a problem that’s interesting to resolve rather than those that serve a market need.’

Make sure your product has a need in the market. But before that, decide on the market and the probable customers you want to target. Conduct a field survey to understand if the probable customers are willing to accept a product/service like yours. Whether your innovation makes sense to them or not. If it does, define the category of those people and determine the segment size. And then try to develop a tentative idea of the amount they’d be willing to shell out for your product. Knowing your market holds the key.

Validate

So, you have done the homework and are fairly convinced about your startup idea. Why not validate the idea with the real world now? This is the time to expose your idea to a small group of potential customers. Make a list of 10-15 people in your surrounding who, you think, could be the potential customers for your startup. Sit for an informal interview with them without making them feel as if you are trying to sell anything to them. Refrain from using jargons. Keep your explanation sweet and simple. Don’t just seek unabashed reviews from your interviewees, but also take note of their gestures and expressions. Their validation, though informal, will give a fair idea about your startup’s position in the market.

Find a Co-Founder

Look for a compatible co-founder who can bring the kind of skills to the table that you might be lacking. For example, if you are into product development, find a co-founder who is adroit in marketing. Whereas, if you are better at handling the business nitty-gritty, you might want to find a co-founder with sound technological know-how. In order to avoid untoward clashes in the future, make sure to sign a Shareholders Agreement from the outset along with clear underlining of key roles and responsibilities.

Put in Commitment

It’s human to slow down unless one has something significant at stake. In this case, it should be your time and savings. Hallmark your commitment to your startup by investing a minimum 10% from your savings into it. This shall keep you on your toes for there’s no way you would want your hard-earned savings to get flushed into the ditch. You will also assuredly squeeze out hours to dedicate to your startup no matter how tied-up you may be with your other errands.

Determine the Business Structure

Conduct a research on the business structures to put your bet on the one most suitable for your business, resources, and legal needs. Open a business bank account and proceed to register the business. Apply for a trade license. Get registered with the DIPP (Department of Industrial Policy and Promotion). If your entity is registered in Assam, apply for MASI (My Assam ID).

Determine the Finances

Draft a business plan. Calculate the tentative wages, office space, marketing costs, product building costs, travel costs, etc. Make sure to plan a budget to meet the legal expenses.

List down the possible Investors

Now is the time to build the list of the first set of investors to pitch. The most feasible choices at idea stage are the 3 Fs – Family, Friends, and Fools.

Build a Prototype

A prototype is an early sample, model, or release of a product built to test a concept or process. It is a basic model to help you test the efficacy of an idea or concept.

Protect your Idea with IPR

Apply for IPR to protect your idea.

• Patents – For a unique innovation, register it as a patent.
• Trademark – Trademark company logo and name.
• Copyright – Any original or ingenious content qualifies for copyright.
• Design – Protect the design rights.

Launch the Minimum Viable Product (MVP)

A Minimum Viable Product is a basic and launchable version of the product with minimum, but key features. Launching an MVP helps gain early adopters who provide unbiased feedback, based on which the startup can fix the loopholes and introduce new features as reflected in the feedbacks. An MVP launch helps to gauge the market response and test the product-market fitness within a minimum budget so that the product can be tweaked accordingly. It’s easier to make changes based on feedback at a nascent stage than when the product has already hit the market.

Seed Money

This is the right time to look for seed investment. The money is typically utilised to conduct market research, complete product development, and build a team. A startup may look for government funding schemes and Angel Networks at this stage.

Hire a Team

Next comes one of the most important, yet one of the most slackened steps: appointing the right set of employees. A startup environment demands multi-skilled employees who are ready to work an extra hour or an extra day for a not-so-handsome remuneration in the beginning. The right set of employees at the early startup stage can be crucial to a startup’s fate. Decide on the key skills required and hire accordingly.

Focus on Traction

Chart out a set of standard terms of business to start selling the products/services to the public. Finalise the Go-To-Market strategy and go guns blazing to reach the target customers and gain desirable traction.

Series A Funding

Once the product/service starts gaining decent traction, a startup can target at raising Series A funding to optimise the product and user base. Typically, venture capitalists and angel networks are the ones to be targeted for funding at this stage.

Series B funding

B, meaning Building, the Series B is typically meant for startups ready for the development stage. Companies generating stable revenues and earning profits are usually appropriate for Series B funding. The capital is meant to take the company to the next level and can be utilised for sales and marketing, talent acquisition, and building new technologies.

Scale Up

A startup may now look at scaling up in terms of product expansion, internationalisation, infrastructure scaling, and workforce optimisation. This is also the right time to look for Series C funding, which is typically the final stage of venture capital financing. Startups looking for Series C funding are typically on the brink of becoming full-fledged successful companies in the late development stage, consolidated with solid revenues and profits.

Exit

This is the final stage of a startup lifecycle, which is discussed in the following section.

Exit Strategy

Defining an exit strategy is as important as building the roadmap for a startup. Unlike what many might perceive, it is useful to start chalking out the exit strategy early in a company’s life. Whether a company should be passed down to the next generation as family business or be sold off to a giant, or aim for an IPO must be worked out early on. Ideally, the ultimate goal of a company must drive the founders to structure it in a certain way towards the desired outcome.

In a case where the founders harbour no plans of exiting the company, having an exit strategy in place would still make a smart move, because:

• Increases chance of externa investment since adefinite exit plan lets the external investors make an accurate calculation of the rate of ROI.
• Helps the company structure its business better for optimal returns in case the founders decide to exit.

There are 5 commonly considered exit strategies which is discussed below.

Initial Public Offering (IPO)

An initial public offering refers to the process of offering shares of a private corporation to the public in a new stock issuance. Issuing public shares enables a company to raise investment from public investors. The founders can sell their equity to the public and subsequently exit the company. A company must mandatorily meet a set of requirements in order to go for IPO, viz.

• The company’s pre-issue net worth must be above Rs. 1 crore in the last 3 years out of the 5 years.
• The company must have distributable profits for at least 3 out of the preceding 5 years.

Acquisition/Merger

Mergers and acquisitions make for the most popular exit strategy among the startups. It allows an existing company to either get merged or acquired by another company. The latest example of this is the ed-tech unicorn, BYJU’s acquiring after-school learning app Toppr and upskilling platform Great Learning, in a cash and stock deal.

While mergers with a suitable company with aligned skills and capacities can bring economies of scale to the newly-formed business,in case of an acquisition, the existing company founders’ equity is acquired by the new company, thus providing the former with an exit.

Handing down to Friends or Family

The third exit option would be selling the company to a family, a very close friend, or an office employee. Selling off to a close acquaintance comes with the convenience of familiarity and an already built trust, ensuing in the lesser hassles of due diligence and transition, and reduction in legal fees. Nevertheless, one must be wary of the nasty disputes and curdled personal relationships that might follow in the long run.

Retreat without Selling

One may want to explore the possibility of retreating from active business without selling by passing the management of the business. In this case, the company founder continues to remain a shareholder without getting involved in running day-to-day operations. It could be a good option for the ones planning a retirement as well as for securing funds to start a new business.

In order to ensure the success of this strategy, one must ensure having a trusted team in charge as well as fool-proof and clearly documented processes so that the operations can continue without one’s frequent involvement.

Liquidation

Liquidation is the process of bringing a business to an end and distributing its assets to claimants. Usually, this is the final resort for a company dealing with insolvency. As the company operations are terminated, the proceeds are used to pay shareholders and creditors and shareholders depending on the priority of their claims. This, however, is the least rewarding option, leading to a loss of clients, business relationships, and reputation.