Startup, what is it and how does it work?

A startup is a company in its own right, but it has some specific characteristics that allow it to be classified as such. First and foremost is its recent incorporation; in fact, startups are in the initial stage of business life and have not been established for more than 5 years. 

Another aspect of fundamental importance for the definition of startup is the innovativeness of the company. This may lie in the type of services or product offered, the type of production, or the application of a renewed business model aimed at faster growth.

Innovative startups differ from innovative SMEs in certain requirements, such as business size, age, or possession of innovativeness requirements.

Startup: stages

1. Pre-Seed
   The idea stage, in which the founder still has to plant the seed of his innovative solution and validate it. During this first phase the project is funded by the founders and people close to them who believe in the project, the so-called “family, friends and fools” precisely because of the nature of the high-risk investment.
2. Seed
   After validating the idea, there follows the phase of developing the business model, prototype or MVP (Minimum Viable Product) and Business Plan. This is a very resource-intensive phase, so raising investment is essential. Given the early stage of business development, investment will probably not be able to come from banks or crowfunding, but more often through business angels and accelerators.
3. Early Stage
   It corresponds to the launch of the prototype in the market. Feedback from the public is collected and product market fit, (level of satisfaction of the market segment) is identified. Early stage is a decisive phase, which can confirm the value of the proposed solution, twist the project to adapt it to new needs that have emerged, or even lead to the death of the startup in case of “no market need.” Funders who intervene at this stage (obviously in the proven case of product market fit, are generally Venture Capital)
4. Early Growth
   Literally the beginning of growth, sustained, through increased catchment area and revenues. At this stage there is a special focus in sales & marketing strategies and expansion plan.
5. Growth
   Having passed the riskier stage comes the time for growth. Usually startups that reach the growth stage have fairly high probability of survival. The product is on the market, the customer base grows, and sales and revenue increase exponentially. Funding is critical to reach the highest possible market value before Exit. This phase generally takes years of development and represents the majority of a startup’s life.
6. Exit
   After expansion, here is the fateful transition from startup to company status, longed for by so many founders. This phase is very delicate, which is why it is necessary to have a solid “Exit Strategy” that defines the entire exit path from startup in a clear and planned way.

With exit comes the change of ownership of the company, usually through 3 methodologies: IPO, acquisition by a larger company, liquidation of investors’ shares by the founders who regain full control of the company (buyback).

Startup: what it’s for

The main goal of a startup is to bring innovativeness to the market, and to do this they must necessarily create a business model that is unique but scalable and repeatable in other entities. 

This will give them great potential for growth, thanks in part to the support of incubators and accelerators that help the new entity move beyond the startup stage to become a full-fledged enterprise.

Do you want to grow your startup?