6 Crucial Stages of Starting Up a Business

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Starting a business can feel like learning to swim in the deep end. It’s hard to know how to measure progress. Is it just keeping your head above water? Or, are you required to move? If so, in what direction and how elegantly?

Your average business school models of company life cycles that look from “cradle to grave” aren’t much use when you’re just starting. They use well-known, established enterprises to develop high-level views of major growth indicators. Their cycles will span decades of operations.

Even in the startup environment, success is often spoken about as though it happens instantaneously. Funders look for signs of “traction,” “take-off,” “potential to leverage,” and other growth-related buzzwords.

We’ve put together the crucial stages that relate to the early stages of starting a business. Read on to see how many boxes you tick.

#1 Failure

As bizarre as it may seem, failure is regarded by people in the know as a critical success factor. Most successful entrepreneurs have a series of failed businesses behind them before they make their big break. Look at the infographic below. It may surprise you to see how many times some famous people failed before they succeeded.

Failing is a crucial part of the learning process. Learning what doesn’t work is as important as knowing what does. The key to making the most of failure is recognizing it swiftly, learning from it, correcting it, and moving on.

Being scared of failing can stop you from making the decisions you need to move forward. If you identify with “analysis paralysis,” try reading John C Maxwell’s “Failing Forward.” Maxwell’s research led him to understand that achievers view and respond to failure very differently from the average person.

#2 All Talk no Action

We all know the type – the guy with a million ideas, all crazier than the one before. He’ll bend your ear at every chance.

Management guru, Ichak Adizes, calls this preliminary stage of starting a business “the courtship.” It may feel the founder is trying to coerce you to join him in his latest “infatuation.” And there is a degree to which this may be true.

This is the stage where superficial testing of the business concept takes place. Will there be clients for the product? Are there funders willing to invest in the idea?

Photo by John Schnobrich on Unsplash

However, this stage is mostly about the founder “falling in love” with his idea. Often entrepreneurs will proceed even if they get no positive feedback at this stage. Adizes notes that it is normal for there to be:

  • High, possibly unwarranted, excitement.
  • Lack of clarity in terms of details and purpose.
  • Fear and anxiety.

What shouldn’t be evident is; ambivalence, lack of fear, or an exclusive focus on making money.

#3 Commitment

The next stage in starting a business is “the point of no return.” It’s where the founder, or founders, commit to the business. This could mean they resign from their day jobs, spend their savings on setup costs, or accept third party funding conditions.

Whatever it is that signals their commitment; they are now answerable for their business idea. They have to put bread on the table or explain why they can’t. This aspect of accountability is vital in determining the success of a business. Research shows that entrepreneurs with an accountability framework are more likely to succeed than those who have only themselves to answer to.

Your accountability framework can be your funders, the staff who depend on the business for income, or your business partners. It can even be a spouse who regularly reminds you of their lifestyle expectations. For the entrepreneur that values autonomy, being held accountable in this way can be very frustrating. But it can also be the driver needed to succeed and rid yourself of interference.

#4 Validation (Refining the Offering)

Startups often find themselves trying to be ‘all things to everyone.’ In their attempt to make sales and pay the bills, they will find themselves easily swayed. They may too readily expand their offering and adjust their pricing.

Business coaches might push you to “niche” yourself but doing this too early can be a mistake. Learning as much as you can about the environment you work in is never a bad idea. Keep step #1 in mind and consider that your first business idea may not be the best one. There are several examples of successful products that were intended for another purpose entirely.

There must come a time, however, when you know what it is that you’re about. Validation is the stage where the initial product or service “testing” is complete. Your offering should be succinctly defined and priced at its real value. Key performance indicators (KPIs) for production, sales, and support should be reasonably understood. It is at this time when business has been properly set-up, secured and appropriately insured, and ready for the next stage –

#5 Delegation

Up to the validation stage, it is tough for the founder to delegate. He is still very attached to his “baby.” And correctly so, because he doesn’t know what it is or how to look after it yet.

The perceived lack of trust can make it very frustrating for those working alongside him. But the reality is that a founder that delegates too early in the startup cycle is really abdicating. As annoying as it can be, a founder's passion can hold the organization together. Partners and employees feel they are part of something great and strongly wish to see the founding figure rewarded.

But once the product is refined and basic KPIs are understood, a founder who won’t relinquish operational control will impede growth. The delegation stage is characterized by the establishment of systems and processes that allow the founder to keep on top of things without doing everything himself.

They can obtain additional comfort from precautions like comprehensive business insurance cover. (Now, there is a history of operations that make it easy to know what and how much cover is needed.)

It is also at this point that hierarchy develops, and middle management comes into play.

 

Source: Photo by airfocus on Unsplash

#6 Cashflow Problems

There are times in the business lifecycle where cashflow issues are a predictor of a company's demise. When a multinational, listed enterprise can’t pay salaries, there is something seriously wrong.

But in the startup world, restricted cashflow is a normal problem. It must be addressed, but it doesn’t mean the business is going under.

Very few organizations can self-fund growth from operating activities. The delegation stage can mean a preemptive increase in expenditure that will only be matched by growth down the line. Systems and people need to be in place; otherwise growth can hurt the business.

Poor service delivery can chase customers away and damage the reputation of the business. And employees who are placed under too much pressure will make mistakes, fall ill or leave.

This stage can be characterized by knee-jerk reactions like fire sales or incompatible partnerships that offer cash. But the “all hands on deck” environment can also be what cements the new hierarchy and allows new managers the opportunity to show their worth and develop loyalties with the staff.

Suppose the cash flow issues result in the founder switching back into autocrat mode (believing the problem to be the result of delegation gone wrong). In that case, it doesn't bode well for the organization.

Prepare for Success by Following a Start Up Roadmap

As with any journey, a roadmap helps get you to get where you're going. Anything worth doing isn't going to be easy. But being able to distinguish between normal or abnormal problems for your business stage can be a great help. Hopefully, you've been able to identify with some of these stages and now know what to expect going forward.