Non-fiction literature and films portray the creation and development of a startup as a fascinating journey to success. Reality is less colourful. It’s a well-known fact that 95% of startups fail. This is not a stereotype but a figure close to reality. Often the reason for the death of technology companies is not so much the significant miscalculations of the founders, but the lack of understanding of how the building process works.

In this article, we will talk about the seven cycles of startup development and the tasks involved in each. We will cover the different stages of the startup life cycle, including problem-solution fit, MVP, product-market fit, scale, and maturity, and discuss the continuous nature of this process.

Ideation in the Startup Life Cycle

Ideation is the first cycle in the development of a startup. During this period, the company does not actually exist. This is where the founders find a business idea and define the concept for its implementation.

The ideation cycle also includes the study of the target market and potential users. This is understandable, as the founder needs to identify who exactly needs the product or service and analyze their needs and competitive products — i.e. who is already solving this problem and how. Ideally, this step will provide valuable insights into market gaps that the startup can fill.

The pain point can be one of two types: a recognised difficulty or one that users didn’t even know they had. Either way, if enough people are experiencing it, the concern has market potential. Next, you require a well-formulated hypothesis — that is, to determine what product or service will be able to solve the problem.

This cycle is often misunderstood as being about coming up with a “brilliant idea that will change the world”. Mission and ambition are certainly important for a startup, but the focus is on the difficulty, the solution, and the customers. So instead of “coming up with something revolutionary in a garage”, funders should engage with potential users and listen to their opinions.

Another essential aspect of the idea cycle is the development of the first business plan. It is unlikely to be extremely detailed or elaborate but should outline the goals, strategies and operating procedures of the startup. The business plan should include a financial plan that defines the startup’s revenue streams, expenses, and profitability. Founders also need to define the business model along with identifying the target market and potential users.

Who invests in this cycle: FFF, angels, incubators. You can also use crowdfunding platforms.

Investment amount: $20,000 — $50,000.

MVP (Minimum Viable Product) Cycle

Moving on to the next cycle means you have a hypothesis, some understanding of the market and potential audience, a business plan and everything else that came with ideation. Now is the time to create an MVP also known as a prototype of your product or service. Its sole purpose is to test how the potential audience will react to what you are offering.

With an MVP cycle, founders need to find out:

• Does the product actually solve an important problem for your target audience?
• Is there enough interest and demand for it?
• Are people using your product? And how exactly are they doing it?
• Again, gather feedback from users to understand what they really need.

During the MVP cycle, it is worth trying not to make a very popular mistake (although everyone seems to know about it) by investing too much in the product to create its utopian version. That is, to throw a lot of money and time into a development that was conceived only as a test to verify a hypothesis.

In reality, what founders need to do is to use the money available in such a way that they get as many paying customers as possible. The latter is the goal of the MVP launch. The goal of the MVP cycle is to validate the hypothesis and establish a proven business model before scaling.

The logic behind the whole cycle goes something like this: identify what users are looking for, iterate or pivot to give them the solution they want. For example, Airbnb co-founders Brian Chesky and Joe Gebbia pivoted three times before disrupting the short-term rental market. In the end, they were able to build Airbnb as we know it.

Who invests in this cycle: FFF, angels, incubators. You can raise money through crowdfunding platforms. It’s also possible to raise money from early-stage venture capital funds, but this is the exception rather than the rule.

Investment amount: $100,000-150,000.

Launch Cycle

In this cycle, the founders finally take the product fully to the public. It’s important to remember that the product doesn’t have to be perfect — it just has to work well and solve the demand effectively.

Maintaining a positive brand image during the launch phase is crucial to ensure long-term success.

In the launch phase, the founders should be as prepared as possible. Firstly, they should build on previous cycles. Secondly, there should be a serious focus on marketing, promotion and sales. This means developing a marketing strategy that targets the right audience and communicates a unique proposition. This sounds easier than it is.

Also, it’s often said that you need proper legal paperwork, permits, licences, etc. It is advisable to start addressing the legal component, especially the distribution of shares and the structure of relationships between the founders, at the ideation-MVP stage. The earlier these issues are addressed, the lower the risks for the company and the investors.

Who invests in this cycle: Angels, incubators, accelerators and early-stage venture funds.

Investment amount: $150,000-250,000.

Product-Market Fit Cycle

Product-market fit (PMF) is when a product or service meets the needs of the market and therefore generates significant consumer demand. Reaching this cycle indicates that a company needs to start actively scaling its business. Achieving product-market fit is a critical milestone that significantly impacts the startup's growth trajectory.

PMF is often described as an almost esoteric experience. Marc Andreessen, founder of a16z, defines it this way: “You feel it when it happens. Customers will buy the product as fast as you make it — or usage will grow as fast as you can add more servers. Customers’ money will start to accumulate in the company’s bank account. You’ll hire sales and support staff as fast as you can”.

Key attributes of product-market fit include:

• High demand. The company’s solution is needed by the audience, and they are looking for ways to buy it.
• Positive feedback. Customers are happy with the product, it meets their expectations and solves their troubles.
• Recommendations. Customers actively spread the word about the product. This reduces the cost of acquiring new customers and drives organic growth.
• Financial performance. Of course, once PMF is achieved, financial results will actively improve.

If there is no PMF, it means you have not created a product that the market needs, or you have not been able to communicate (sell) it. Sales will take too long, deals will fall through and investors will ignore you. In short, a startup without a PMF is unlikely to survive long because it is unable to achieve the purpose for which it was created.

Ultimately, the life of a startup can be divided into two parts: before PMF and after. If the after has not come, then we have bad news for the founders.

By the way, PMF is a good time to start automating and simplifying all processes. No matter how well a startup is doing, it will not be able to keep growing its support team, for example. You need to find a solution that allows one person to efficiently complete tasks for ten people. All these are additional but pleasant challenges if the startup finds a product-market fit.

Who invests in this cycle: Angels and venture funds.

Investment amount: from $500,000 to $10 million.

Go-to-market Cycle

Achieving PMF is a clear sign that you have a product that your target market wants. After that, it’s time to determine the best approach to convince as many people as possible to become your customers. This means coming up with a go-to-market strategy: identifying marketing and sales channels, pricing, and customer retention strategies.

The list of things you need to do will look something like this:

• Product positioning. Create a unique selling proposition and identify the key benefits that differentiate it from the competition. Plus clear messaging for each segment of the target audience.
• Marketing strategy. This includes identifying effective promotional channels (from social media to mailing lists), as well as planning, creating and implementing marketing activities to attract and retain customers.
• Sales strategy. How exactly the founders will sell the product should have been determined in the previous cycles. Now it’s time to develop and implement steps to close deals effectively.
• Pricing. Defining approaches to pricing, discounting and monetisation.
• Customer support. Although already in place, it needs to be constantly improved, because it is also a competitive advantage that affects customer satisfaction. You also need mechanisms for collecting and analysing the feedback.
• Metrics and their alignment. Define and track clear KPIs that indicate the success of the go-to-market strategy: sales volume, audience growth, and acquisition costs.

In the early cycles, the founders were just looking for a way to reach their first customers. Now it’s time to conquer the market. The go-to-market strategy should differentiate the startup from other companies and be based on a scalable business model to ensure sustainable growth.

Who invests in this cycle: Venture capital funds and super angels.

Investment amount: from $10 million.

Growth Cycle

In this growth phase, the startup is focused on expanding its business and increasing revenue and market share. Investors will need to rethink strategies and approaches. This will now include acquiring competitors and actively entering new markets and regions.

Another important aspect of this phase is the recruitment of talented professionals and managers. These will be the backbone of the company’s continued rapid growth and dominance. The word startup should be abandoned for good at this stage. The founders are building a sustainable and scalable business.

Also, at this point, the company will probably need to raise another round of funding. Money is needed to expand the team, increase competition and enter new segments and geographies.

Who invests in this cycle: late-stage venture capital funds and private equity funds. Selling or merging with another company may also be an option for raising additional funds.

Investment amount: From $30 million.

Maturity Cycle

The company is no longer a startup but a sustainable business. Its management is focused on establishing itself as a market leader and maintaining a competitive advantage. This requires a clear vision, strategic planning and innovation.

Private equity firms often invest in mature companies to drive further growth or prepare for an exit.

The product or service should be constantly improved to avoid being overtaken by competitors and to retain and grow the audience. Expanding the product range and entering new markets will also serve this purpose.

Maturity is also a cycle when founders often (but not always) step back. For example, becoming an angel investor, starting a new business, and the like. In short, maturity is an ideal time for exit — for founders and late-stage investors. This can be done in several ways:

• Go public. Float the company on the stock market and take it public.
• Sell a stake in the company through a merger, acquisition or similar.