When you’re in the driver’s seat of a startup, it can seem like you’re driving at night with headlights only giving you a few meters of vision. A recent Startup Genome report found that 11 in 12 startups fail. So, how do you convert a good idea into a successful business?
In this guide, you’ll learn about the different startup stages, how you can master each stage, who can help you and some real-life examples of startups in each stage.
You’ll find on this page:
1. Pre-Seed stage.
Think of pre-seed as laying the foundation for your company.
This stage is all about fueling ideation. It’s about testing and analyzing your startup’s opportunities. Your goal is to determine if your product or service can be a viable solution to a real market problem.
In the pre-seed phase, founders should:
- Validate hypotheses for customers, demand and offering
- Bring in key stakeholders (i.e. CTO, CFO, CMO, etc.) to convert funding on the idea
- Register key patents and trademarks
A startup example in the pre-seed stage: AERA Health.
Founded in 2022, AERA Health is a Swiss startup in preventive health technology. Its mission is to motivate the next generation of healthcare professionals to tap into their full potential and make a positive impact on the world.
In March 2023, the startup received €4,000,000 in pre-seed funding from five investors.
How to master the pre-seed stage and who can help.
According to a CB Insights report, 35% of startups fail because there’s no market need for their offer.
Talking with and listening to your target audience is a crucial step to determine if there’s a real pain you’re alleviating. Conduct market research, surveys and interviews to thoroughly understand your audience.
Accurate, thorough market research isn’t cheap. You need to go beyond your personal investments to make it worthwhile. This means seeking out funding from initial investors. While you may be gung-ho to start hunting down VCs, it’ll be nearly impossible to convince them with the paper napkin business idea you have at this point.
Instead, your best bet is to pitch your business plan to your personal network. Just remember, you should still get everything down in writing. This goes for any contracts, funding and partnership agreements, copyrights and any other legal documents. If you wait until later stages to get official documents signed up, you could be dealing with headaches, paperwork and potentially lawsuits down the road.
2. Seed stage.
In the seed stage, you completed initial product and market research and it has shown viable demand for your solution. You’ve got more than an idea. You’ve got the data to back up that your offer can be a real solution in the marketplace.
Now, it’s time to gain early financial support to turn your idea into a functioning business. This is where seed funding comes in. In this stage, you validate your entire business model.
You conduct experiments and carry out market testing to make your product and operations more tangible. Just keep in mind, the goal here is to validate your initial value hypothesis with a working prototype.
While the pre-seed phase is known as the “idea phase,” the seed phase is known as the “prototype phase” as you do need to have a prototype to test. This doesn’t mean you have to have a minimum viable product (MVP) yet—that will come in the early stage.
A startup example in the seed stage: KetoSwiss.
Founded in 2017, KetoSwiss is a Swiss-based BioTech startup whose mission is to leverage ketone bodies to combat diseases.
In October 2022, the startup raised $4 million in seed funding from five investors, led by The William K. Warren Foundation.
How to master the seed stage and who can help.
According to a 2022 Skynova survey, 47% of startups failed due to a lack of financing. This is perhaps the toughest stage to master. It’s one thing to convince your mom or best friend to give you a few thousand dollars for your idea. It’s an entirely different challenge to convince investors to trust you with millions of dollars.
To master the seed stage, you need to make multiple iterations of your product to create the right market solution.
Think of it as chiseling a basic stone statue down to form a masterpiece. This means even more experimenting, market testing and adjustments to your marketing strategy.
In terms of financing, you need to begin connecting with the right people. To succeed in the seed stage, you best rely on multiple funding sources. These include your revenue, angel investors, crowdfunding and accelerators. Since your business is still in its initial stages, it’s a major risk for investors. This usually means you have to hand over an equity stake in your business in return.
3. Early stage.
The early stage is also known as “Series A.”
If you’ve got this far, hats off to you! According to VentureBeat, only 7.5% of seed-stage startups advance into an early-stage startup.
An early-stage startup, or Series A, is typically defined by having achieved a first round of venture capital financing.
Succeeding in this stage is only possible once your company has crafted a minimum viable product (MVP), established a sizable customer base and has a steady stream of monthly revenue.
A startup example in the early stage: Lyfegen.
Founded in 2018, Lyfegen is a global software analytics startup that provides an outcome and value-based agreement platform for pharmaceutical companies, health insurance companies, medtech companies and hospitals around the world.
In September 2022, Lyfegen raised $8 million in Series A funding from two investors, led by aMoon Fund.
How to master the early stage and who can help.
You have the first version of your product on the market, but it’s not fully refined. Think about the stone state mentioned earlier. It’s not David’s Michaelangelo yet, but it’s almost there.
One of the biggest challenges is proving your offer can generate revenue beyond the short term. You need to perfect your pitch deck and begin focusing heavily on venture capital (VC) firms. If you get one of them to invest, they’ll serve as an “anchor”, making it easier to attract additional investors.
Investors want to know what return on investment (ROI) they get with your startup. Incubators and accelerators such as BaseLaunch are helpful to get you investment-ready.
4. Growth stage.
If you’ve made it past the early stage, chances are, your business is going to make it.
You’ve likely raised millions in capital, proven that your offer has market demand, got a great customer base and received offers to purchase your business.
It’s time to focus on growing your startup. To do that, you secure Series B and C investments.
A startup example in the growth stage: Alentis Therapeutics.
Founded in 2019, Alentis Therapeutics is a Swiss-French biotech startup developing novel therapeutics in cancer and liver disease.
In April 2023, the startup received $105 million in Series C funding from six companies, led by Jeito Capital.
How to master the growth stage and who can help.
More funding than before is essential to scale your business to a wider market and maintain long-term profitability.
Venture capitalist firms are still at the forefront of your growth-fueling funding. Investment banks, private equity firms and hedge funds might start to take interest in your company, too.
One major part of the growth stage is scaling your team. You need the right people in the right place.
Scaling a company is a highly strategic endeavor. Scaling up too quickly could mean burning through your resources faster than revenue comes in. If you scale too slowly, you risk not being able to supply growing demand or fail to meet deadlines.
As a founder, you can’t wear all the hats anymore. You have to lean on the right people, including startup mentors, to reach the next stage.
5. Expansion stage.
The next stage (and final stage for many founders), is the expansion stage. You’re already profitable and self-sufficient. Many people will no longer consider your business a startup. With the greater market in mind, your goal is to expand further.
A key indicator that you’re in the expansion stage is if you’ve managed to grow more than 20% annually for three consecutive years (in billing or employee count). At this point, your startup becomes a “scaleup,” according to the Scaleup Institute.
A startup example in the expansion stage: Acrotec.
Founded in 2013, Acrotec is an innovative group of companies based out of Develier, Switzerland. Acrotec’s Medtech division is one of the leading European Medtech subcontractors that primarily develops implants and instruments for spine surgery, extremities and maxillo-facial procedures as well as dental applications with implants.
In February 2023, Acrotec acquired its first U.S. company Axial Medical, a precision medtech manufacturer based in Warminster, Pennsylvania.
How to master the expansion stage and who can help.
In the expansion stage, you likely venture into the global market or expand by offering different products or services in other market segments.
You can also start considering acquisitions to accelerate expansion and take up a greater market share.
To tap into expansion, startup founders and executives typically seek outside counsel such as startup mentors and other founders who have gone through the expansion phase themselves. The further you go through each stage, the more you must rely on help, guidance and strategic partnerships to fuel business growth.
6. Exit stage.
We’ve heard of the final startup stage many times before: “The Exit.”
This stage is optional and is oftentimes presented to founders naturally. The further your startup lives and grows through each phase, the more people will offer to purchase it.
You can continue expansion, typically done by acquiring new companies or you exit the company and get acquired. If you’re unsure whether you have what it takes to sustain more growth and gain new funds, you may decide to plan an exit strategy.
The three main ways to exit is by:
- Sell founder’s shares to another company
- Get acquired by another company
- Initial Public Offering (IPO)
A startup example in the exit stage: Actelion.
Founded in 1997, Actelion is a leading Basel-based biotech company focused on discovering, developing and commercializing innovative pharmaceuticals for high-need diseases.
In 2017, Johnson & Johnson acquired Actelion for $30 billion as an all-cash offer.
How to master the exit stage and who can help.
Mastering “The Exit” depends on your goals. First, you have to decide not to continue your business venture.
Many founders exiting their startup businesses don’t plan on retiring to a beach in the tropics but dive into a new venture instead. To get the most out of your exit deal, you’ll want to hire a team of lawyers to help you through the process.
”Startup mentors work closely with entrepreneurs to help them develop their ideas. They help to validate their business models, navigate challenges and make informed decisions.Adrian SprengerManager Entrepreneurship at Basel Area Business & Innovation