How discrete stages of development can help entrepreneurs answer the “what’s next?” question

How discrete stages of development can help entrepreneurs answer the “what’s next?” question

My role as an Associate at MaRS gives me the unique opportunity to meet literally hundreds of entrepreneurs and learn about their business. The “what’s next” question is possibly one of the most important questions faced by them all.

Entrepreneurship is essentially a giant juggling act, your small team—or maybe even just you—are refining your product, seeking investment, heading up sales and marketing, managing accounting, keeping track of research and development tax credits, networking, refining your value proposition, and the list goes on. Prioritizing these different and competing tasks can be a complex and challenging responsibility in and of itself.

New research such as the Startup Genome Report is emphasizing that startups go through different stages of development and growth, and that during each of these stages focus should be given to different aspects of building a business. The report is based on a survey of 650+ startups who were asked to detail their experiences with building a business.

Three key ideas from the Startup Genome Report are:

1. Startups evolve through discrete stages of development, with each stage characterized by specific milestones.

The stages discussed in the report include discovery (where the value of the innovation is assessed), validation (where first customers are acquired), efficiency (where the business model is refined) and scale (where growth is aggressive). In the graphic to the right, I’ve added a stage at the beginning of the process in which the idea or technology is being conceived—at MaRS, we refer to it as ideation.

Each of these stages can be further broken down into a number of milestones and thresholds that need to be achieved before focus can be shifted to other things. Refining your value proposition and determining your business model, for example, need to be competed before you can move on to securing your first customer or further refining that business model.

The report found that companies that skipped stages or milestones underperformed when compared to their peers that achieved each milestone.

One aspect I found particularly interesting is that during the efficiency stage, companies should not be looking to raise capital but should rather be focused on building a sales funnel and hiring the appropriate team in anticipation of the scaling stage. This means that during validation, companies need to plan out and raise enough capital to get to the scaling phase.

2. There are different types of startups, each evolving differently through the stages.

I find this part of the report the most intriguing, especially since I work primarily with cleantech companies.  While the report looks specifically at different types of Internet-based startups and how various business models progressed through the stages, I strongly feel that this logic and learnings can be extended to other companies.

For example, energy storage companies will likely have a longer ideation stage where they are experimenting and calibrating their technology compared to a software-based social networking application. The key milestones such as exploring the market, creating an elevator pitch, determining market size, isolating intellectual property and securing initial funding, however, are applicable to both. In fact, they’re applicable to all startups.

3. Learning is a fundamental unit of progress for startups.  More learning should increase chances of success.

To help articulate just how important this concept is, I want to highlight some facts from the report.

  • First, it found that startups that took advantage of mentors, thought leaders and tracked metrics effectively raised seven times more money.
  • Second, startups that pivoted once or twice—that is, changed the direction of their business after learning from past experiences—raised more than two times more money and were 52% less likely to scale prematurely.
  • Additionally, startups usually needed two to three times longer to validate their market than originally expected by founders, which speaks to the learning curve that entrepreneurs go through when launching their business.

The Startup Genome report is a good starting point for startups looking to answer the notorious “what’s next?” question and to take their companies to the next level. See the full report here.