I have been consulting recently with some start ups that have all at different stages in their development cycle. Something that I have found some business founders overlook is that your strategy, approach and focus need to change depending on the phase your business is in.

Typically you would classify your business into the following:

1. Conception or Early Stage
2. Seed Stage
3. Series A (or Funded) Stage

You need to know which stage your business is and align your operations and strategy to your phase.

Stage 1: Conception or Early Stage

Funding: Usually from savings or friends and family
Revenue: None / very little
Team: 1-3 people (founders)
Financials: Keep cash burn low as possible

Objective: Build the product

In this bootstrapping phase you are mainly focused on building the first version or prototype of your product. It is a lot easier to test your concept and raise seed funding if you have a tangible product. This is why I think it is essential that the founding team have at least one or two people who can build the product themselves; you cannot have founders who are all ideas people at this stage everyone needs to contribute to the product.

Quite often in this stage you will be working in small home office, bedroom or out of your garage.

This stage is about also about finding your working styles with your co-founders as usually you will not have employees apart from the founding team. After this stage you will really know if you can work together and you may find that you have to make the tough decision to remove one or more of the founders.

This stage is all about doing and action, there should not be lengthy debates or lots of planning, you need to build your product and build it fast. Think about the features you want to have in your beta version and then cut the feature list in half, you want to have the minimum viable product for your launch.

Stage 2: Seed Stage

Funding: Friends, family, angel investors or seed capital
Revenue: None / very little
Team: 2-7 people (mostly engineers)
Financials: Prove revenue model

Objective: Prove the concept

Now you have a working prototype you need to take your product to market and test your proposition. The whole approach is build, test, refine and build again in short cycles. You need to really communicate and listen to your early users and offer incentives for feedback.

At this stage you may have taken on seed funding so you can grow your team, most of your team will consist of software developers and designers as your focus is on developing and refining your product. I have seen some venture capitalists that value your business on the number of developers you have and then reduce that value for every person in a suit on your team!

This is a testing and feedback phase that applies to the whole of your business. You will want to test your marketing messages, marketing channels, operations practices and revenue model. You should start building your revenues and work on how you are going to refine your revenue model in later stages of business growth. This stage will prove if you have a viable business to grow in the future.

If you need to you should be looking at raising Series A funding, this can take several months so you need to start early before you run out of cash.

Stage 1: Series A (or Funded) Stage

Funding: Operating profit/ venture capital
Revenue: Moderate
Team: 7+ people (balanced team of engineers and business people)
Financials: Break even and move towards operating profit

Objective: Grow the business

Now you should have some real momentum behind you. Your product should be polished and you will have gone through several iterations using customer feedback. Your objective now should be to grow your customer base and grow your revenues (and operating profit).

Your team should start to become more balanced as well with a better mix of business people and engineers. You will need some people to deal with the sales, marketing and commercial side of the business as well as the technology side. Do not fall into the trap of growing your team too quickly as you may find that you run out of cash sooner that you think.

At this stage you should start to become self sufficient (if you haven’t already done so) and move from break even to profit. You need to generate enough profit to make your business viable. This is the really exciting phase where you really prove your worth and build a business for the long-term.

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Tags: phases, start up

This entry was posted on Wednesday, March 10th, 2010 at 8:04 pm and is filed under General.
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