Understanding the 5 Phase of a Startup

The life of a startup can be a wild, complex, and intimidating thing. What you need on day one is not the same as what you need on day 1000. When you’re new to the scene and haven’t found your roadmap, your focus should not be building systems and processes yet. However, when you are trying to scale, not having those systems can be deadly for an organization trying to move forward quickly while maintaining quality. For burgeoning companies, having a vision for your next steps is still important. And even for mature companies with years of success, actions and resources must go into maintaining and expanding on that success while focusing on the right actions for where your company is and where it wants to go. Balancing these things is made easier when you are in the evolving phases of the startup lifecycle.

The framework I used to think through the needs of a start comes primarily from Lauren Bass’s article based on a conversation with Morgan Brown, 5 Phases of the Startup Lifecycle: Morgan Brown on What it Takes to Grow a Startup, which lays out the fundamental model for startup growth and will serve as a framework for this article.

They name the 5 phases of the Startup Lifecycle:

1. Search for Problem/Solution Fit. Goal: Minimum Viable Product (MVP)
2. Search for Product and Language fit. Goal: Product & Market fit
3. Optimizing for channel and funnel fit. Goal: Channel & Product fit
4. Pour on resources for growth. Goal: Scale
5. Growth through acquisition and international expansions. Goal: Maturity

It is critical for leaders to know what the company needs. Those needs affect every choice you make, balancing your company's present and future. From how to hire to product development to company culture, an awareness of what your company needs at its present phase and how to evolve with those needs is critical. The first step in improving your situation is recognizing where you are right now — your starting point. This is true for any person or entity in almost any scenario you can imagine. A small business struggling to find its niche must first assess its product, strategy, and the market before it can take the proper next steps. When you know where you’re starting from, it becomes a lot easier to forge the path to where you want to be tomorrow, next quarter, or five years from now.

Being realistic and self-aware of your current standing is especially important when you’re leading a brand-new startup. When you’re just starting out, there’s a good chance your operation is running on very minimal resources, making it imperative that you allocate your precious resources to your immediate needs. Of course, your company’s needs and priorities will grow and change over time, but without a strong, deliberate, and comprehensive starting foundation, you may face greater uncertainty and tenuity down the line.?

If your startup is in Phase 1 (Problem/Solution Fit), for example, the vast majority of your time and capital should be going into solidifying your product theory in interviews and narrowing down your target audience. Every day spent in the office is a day wasted. Essentially, you’re gathering as much perspective as possible in order to adequately fine-tune your product to your first potential customers, before moving to the production stage.

Once getting early customer traction, it can be tempting to bring on a senior leader to your team who has had success running a large business from other phases (typically Phase 5). They’ve had success in that area, so they must know what that origination needs. If you are in Phase 1 trying to move forward and that person may not have the flexibility to adapt, they could end up steering you wrong by trying to run an agile company like a large corporation. You should also base your hiring around people with passion, creativity, and resilience.?

On the flip side, after growing your company, it’s important to be clear when priorities and focus need to change. Once you are ready for Phase 4 (Scale), it can be difficult to let go of some of the early attitudes in favor of adapting. What got you here will not always get you to the next level. Leaders need to understand what those things are and make sure the company moves together to achieve the new goals with the new strategies. Regardless of the phase, the company and the leadership must remain growth-oriented and always be willing to inspect and adapt to the new situation or phase.

It’s only natural to look forward to the future of your company. In many cases, it can be a great way to set goals, plan, and prepare. Where startups can go wrong, however, is when they’re thinking and operating as if they’re in a phase they have not yet reached. For example, many companies want to focus prematurely on geographical growth when they have not yet fully established themselves within their target channels at home. In terms of the 5 phases, a company in Phase 2 (Product/Market Fit) should focus on optimizing customer retention, fine-tuning language, analyzing demographic factors, and generally “listening” to the market. For this same company, the benefits of channeling its resources into international markets, mergers, or finding and infiltrating small, untapped pockets of customers are sub-optimal — all are endeavors better suited for an organization in Phase 5 (Maturity).

Indeed, these two phases advise different priorities concerning how and where companies devote resources and their immediate goals. It’s just as important to note that all 5 phases have something in common: the importance of consistent and purposeful “listening.” This word can (and should) take multiple forms for businesses, all with the ultimate goal of maintaining awareness of and responding to the relevant market as it relates to their product or service. Adding the right people to your organization at this phase is an easy pitfall for the startups; they hire someone with experience who has had success in the past. Experience is great, assuming they didn’t lose a critical piece of successfully working in a startup — curiosity. Without curiosity, the wrong kind of experience can lead people to stop listening because they think they already have all the right answers, the same ones that made them successful in a mature calcified company.

Listening is necessarily more central to Phases 1 through 3 than the later phases, in the forms of interviews, testing and research, channel monitoring, and customer reviews and surveys, to name a few. Though it can appear as though listening takes on a back seat role in Phases 4 and 5, it’s important to remember that it is still absolutely essential for maintenance and growth. A good way to frame this is to consider each phase an imperative precursor to the next. In other words, Phase 1 is both the foundation and the doorway for achieving Phase 2, and so on. Complete one phase before moving on to the next.

While listening is critical to know your product is what the market needs, FOCUS is just as vital to ensuring you spend your time on the most impactful work. Know what you’re creating and what you aren’t. Focus on how your product and your company can do better than anyone. Without listening, you won’t know what’s needed, you can’t understand the problem, and therefore could focus on the wrong things. However, without focus, you could get sidetracked, spending resources incorrectly and inefficiently. Balancing your narrow focus while listening to the market can be tricky, but it’s in that balance that you’ll find the space for your company to succeed.?

Resources, skills, knowledge, manpower, and market fit all accumulate over time, as a company builds upon each previous phase. So, while the dynamics will always change (both between and within these phases), your success depends upon your commitment to listening and responding, and narrowing the focus based on what you learned, even after your enterprise reaches maturity and you feel like you’ve “made it.”?

If you want to grow and lead a successful business, you need to understand the phases of a startup, where you are now, and what that means for your organization's needs. It can be easy to get drawn into work that your business is not ready for, and it can be difficult to let go of habits that served you in the past working for Phase 5 companies (calcified) and no longer do. As a leader, it’s your job to push everyone to focus on the most impactful actions for your company's needs today and build into the future.