During its lifetime, a startup passes through several stages. And the most important one of them all is the early stage.
This is when the startup tries its hardest to establish itself in the market. And attracting investors is especially difficult during this time. This is because startups teem with countless risks that make them think twice before getting on board.
But what is considered an early-stage startup? And what does the startup lifecycle actually look like? In this article, we will show you what to expect from early-stage companies.
What does an early-stage startup look like?
An early-stage startup focuses mainly on company development. Before it enters the scaling phase, a startup must first conduct marketing research and brainstorm possible product ideas.
Once an idea is born, it’s time to transform it into a tangible product. This is often called the minimum viable product or MVP for short. Further tests and customer feedback then help startups improve this product.
Apart from all these processes, startups must also look for potential investors. Without acquiring funders, they won’t get very far. This is extremely difficult because early-stage startups have a high risk of failure.
Once they build a small team, they focus on coming up with an innovative yet stable business model.
You can identify this stage by most if not all of the following qualities:
The company is new to the market
These companies have often just set foot in the market. To succeed, their idea should either be unprecedented or feature an advantage over its competition. The startup is bound to find success if it manages to accomplish one of these two things.
Startups are usually small companies
Before the company expands, it often begins in a bedroom or a garage. But as it grows, it must be able to find more talented employees.
They are still solving some business irregularities
To ensure efficient growth, a startup must first deal with whatever small issues it faces. Once it clears these out, it will be ready to enter the growth stage.
Early-stage startups are rarely profitable
While investors won’t support a startup if they don’t believe in it, the company is never profitable right in the beginning.
Funding rounds
An early-stage startup hasn’t dealt with Series A funding yet.
Growth-phase vs late-phase startups
When you research startups, you’ll run into the phrase ‘early stage’ all the time. But what about its opposite?
There are 6 stages of a startup altogether:
The pre-seed stage
During this stage, startups focus on constructing a stable business model. They also seek to attract potential early-stage venture capitalists.
Seed/startup stage
This stage revolves around perfecting the business model
Series A funding
At this point, the startup is preparing for scaling.
Growth stage
Growth-stage startups finalized their product. They instead focus on reaching deeper into their market sector.
Maturing stage
This is when the startup builds greater customer loyalty and notices greater profits.
Expansion/Exit stage
During the expansion state, a startup arrives at a crossroads. It can either decide to scale further or establish long-term returns on investment.
A startup’s journey from a scalable idea to the first funding round
The early stage precedes the series A funding round and starts out as a scalable idea. The purpose of this idea is to fill in a market gap and eventually generate profits.
In the beginning, it’s often just you and a handful of business partners with a very loose business hierarchy.
Once your product gets in a few sales, you should look for an accelerator. This is most often a mentor-based program aimed to guide and structure your company. It usually lasts for three months.
You can define this stage by the following:
- You’re just building an MVP for early customers
- You’re evaluating the product-market fit
- You test sale dynamics to see if they can help you grow
- You’re filling in the gaps in your team
Before you enter the next stages, you should check off all the items on this list:
- You base your growth key-performance-indicator
- Your customer base is growing and you need to increase your production
- You have to expand your team to fill in specialized roles
- You’re building a Series A financing pitch
5 obstacles most early-stage startups face
An early-stage company encounters countless obstacles on its journey. To make matters worse, it has to work with limited resources. Because it isn’t profitable yet, it can’t turn to traditional forms of loans.
Obtaining capital
No company can function without capital and startups are no exceptions. And before it attracts investors, an early-stage startup will have to work with a tight budget.
Attracting skilled workers
Working at a startup can be very rigorous. You must therefore hire only the best of the best. Your ideal employee should be dedicated, communicative, and kind to customers. But above all else, they should embody what your brand stands for.
Establishing a customer base
They say that a customer is always right. This is a good principle for startups to adopt. When developing a product, you should always have your customers’ needs in mind.
But that alone isn’t enough. Once you create an outstanding product, you must then market it well to introduce it to as many consumers as possible.
Matching or outperforming the rivals
Many startup founders believe they will succeed in their efforts. However, very few do. This is because the competition is very stiff in the startup world.
With so many startups and so few investors, securing early capital is a challenge in itself. Thus, you steel yourself and be ready to crush your opposition. Only then can you succeed.
Handling the rapid growth
Rapid scaling is every startup’s main objective. While achieving this rapid growth is already difficult, managing is no walk in the park either.
One way to handle this pressure is to focus on your own progress. It doesn’t matter how far or behind you are compared to other startups. Remember, mistakes and failures are great opportunities for learning.
To handle this rapid growth, you might have to reinvent your mindset.
Due to these obstacles, many startups rely on investors to grow. But these investors never help out just because of goodwill. They often ask for a large portion of business ownership in return.
What does a startup roadmap look like?
Although startup business models are rarely clearly defined, it is good to have a general sense of direction. Thus, entrepreneurs build so-called startup roadmaps. These templates can help them set realistic expectations for their business. Meeting them is a great way to measure your success.
Keep in mind that no two businesses are ever the same. Each roadmap is therefore different too.
Before you devise such a roadmap, you should first identify which stage you’re in. This allows you to build the appropriate strategy that will lead you to success.
FAQ about what is considered an early stage startup
What is an early stage startup?
Early-stage startups are growing companies. Its small team develops a product or service to sell. Pre-revenue startups may be developing a minimum viable product (MVP).
How do you define the early stage in a startup context?
The early stage in startup terms is the time between the idea and product-market fit. The startup is developing its product or service and validating its business model.
What are the characteristics of an early stage startup?
Early-stage startups are small, revenueless, and product-focused. As they test their business model and find their target market, they are often uncertain. A founder or founding team with a clear vision for the company leads them.
How long does a startup remain in the early stage?
The startup’s industry, product, and business model determine its early stage duration. Startups may stay in the early stage for months or years. A startup is considered past the early stage when it has a product-market fit and a clear revenue path.
What are the challenges that early stage startups typically face?
Early-stage startups struggle with funding, resources, and business model validation. They may also struggle to recruit and retain talent, compete with industry leaders, and adapt to market changes.
How much funding do early stage startups usually need?
Industry, business model, and growth plans determine how much funding an early-stage startup needs. Early-stage startups need funding to develop their product or service, validate their business model, and start acquiring customers. Early-stage startups may need $100,000–$2 million to launch.
What is the difference between an early stage startup and a growth-stage startup?
Growth-stage startups have product-market fit and are focused on scaling and growing their customer base. Growth-stage startups may have revenue streams and need funding.
How do investors evaluate early stage startups?
Early-stage startups are evaluated by investors based on the strength of the founding team, the market opportunity, the business model, and traction. They may consider the startup’s financial projections and growth potential.
What are the key metrics that early stage startups should focus on?
Early-stage startups should focus on metrics that validate their business model and show investors traction. CAC, CLTV, MRR, and DAU/WAU are examples.
How important is a strong founding team for early stage startups?
Early-stage startups need strong founding teams. This team should have a clear vision for the company’s future, the skills and experience to build a startup, and the ability to execute. Investors evaluate early-stage startups based on the strength of the founding team because the team’s leadership and expertise will determine the startup’s success.
What is considered an early-stage startup and how to grow past it?
To take your business off the ground, you’ll need to think strategically.
Firstly, you should always keep busy. Never put off things until tomorrow and be prepared for long hours. When you tackle as many tasks as you can in one day, your company will grow much faster.
Secondly, you must not only attract customers but also keep them. You can achieve this via seamless customer service and outstanding product quality.
Moreover, you must be careful with your spending. Since your budget will be very limited, you should try to avoid debts at all costs.
And lastly, you must inspire your employee. A startup workplace must be friendly and open to new ideas.
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