Jogging the memory: life stages of a startup or technology company

You have an idea, you know it can work, but how do you translate the idea into a viable business model? Well, if your project is part of the technology field, the Internet, TIC… You are already in the first phase of your Startup.

Before we dive into how to cope with costs and what the evolution of your startup will be according to a positive projection, we clarify certain issues:

Do you have an Idea? Dare and hit the market!

First, it is important to note that these types of young companies associated to new technologies have lower development costs than companies of any other area. Starting the project is feasible through financing without big budgets, which facilitates one of the key aspects: medium-/long-term growth. Moreover, more and more accelerators exist such as Wayra (Telefónica) that financially support and sponsor projects of young entrepreneurs who decide to pitch their idea to the world.

A Startup, an adventure

The issue at hand is to analyze the lifecycle of a startup, its phases and funding models. It's true that every startup has its own characteristics and its intrinsic medium- and long-term funding and projection models, but the steps are always linear: Seed Stage, Early Stage, Growth Stage, Expansion Stage and Exit.

Our mission is to establish a set of guidelines or guide in order that any entrepreneur has a rough idea of the level the project is at. It is extremely important to do this introspection to assess what the near future might be and set goals to strengthen growth.

Step 1: Seed Stage

With an idea, we find the origin of every business. At this starting point the team develops the product or service and raises the line of business. There is no need for the plan to be fully defined but it is essential to establish a series of goals, routes and targets.

Funding is not decisive at this stage as large amounts of money are not needed at the outset: usually all startups survive with contributions from friends, family and former partners.

It is a time when finding complementary profiles that contribute new visions to the main idea can be an interesting strategy. Expanding the idea and sharing it with a co-founder and making him/her a 50% shareholder of the capital that can be received in exchange for collaboration is a common choice.

Step 2: Early Stage

Here we can say that there is already a product on the market and customers who purchase or consume it. The company begins to take its first steps. The business model should already be structured and the first revenues can be received. With the project already launched, it is time to analyze reactions to study the impact, how the competition acts and evaluate feasibility on the ground. Investment is starting to be necessary, therefore, the need for the financial boost is vital. Most companies use specialized funds and investors.

Step 3: Gowth Stage

Our company is now established and settled. At this point it is expected that the startup is positioned or at least starts to be relevant within the sector. The key in this step is optimizing the products and services, i.e. recycling and improving what the experience has shown us in this adventure.

What determines this level? The injection of capital. How? Through so-called Business Angels or accelerators (if this option had not been contemplated at first).

A Business Angel is an investor that provides capital in exchange for equity interest. The funds are unique, unlike Venture Capitalists, i.e. private equity companies.

Another alternative, as discussed above, is to sign up to acceleration programs of projects and technological ideas. We have talked about Wayra, Telefónica accelerator, but there are many others such as Incube. These programs develop the project in the short and medium term and receive training, mentoring and investment to carry out the business project successfully.

Step 4: Expansion Stage

The title is significant: Getting to other markets and segments. The expansion lines and specific guidelines of the strategy should be very clear in order to avoid any possibility of error. Thus, safety should take precedence over a risky strategy. It is appropriate to establish an expansion project that includes a wide margin of error. Venture Capitals (professional managers of third-party capital through an investment fund) are necessary at this mature point of the business. Funding through venture capital simplifies expansion.

Step 5: Exit

The life cycle of the startup starts to come to end for it to become a fully-fledged company/business. It is time to make decisions with a view to sale: Merger or Sale but maintaining independence. There are two types of routes, selling the startup to a large firm or IPO.

The need for expansion is motivated by these points:

• Demanding liquidity 
• Increasing profitability
• Aligning strategies
• Optimizing resources
• Improving corporate governance
• Searching for complementary services

Self Analysis

If your startup is located in one of these phases, we recommend that you analyze what is missing in order to be able to achieve your goals.  It is time to direct or redirect your idea/project/business and establish strengths and needs. The ICT environment is constantly changing and the projection is highly optimistic. So, get to work and remember that every startup is different and the practical application of the business model is very personal.