Startup Lifecycle & Challenges!
Startup companies are newly born companies that struggle for existence. These entities are mostly formed based on brilliant ideas and grow to succeed. These phenomena are mentioned in the literature of management, organization, and entrepreneurship theories. However, a clear picture of these entities is not available.
The lifecycle of start-ups However, start-ups are diversified and complex, these entities have their lifecycle. Hopefully, research on start-ups’ lifecycle is well-developed in the last few years Since the sequence of activities and stages might vary among different start-ups, a holistic perspective is presented in this paper to offer a better understanding of the lifecycle of start-ups.
(i) Bootstrapping stage In this very early stage, the entrepreneur himself/herself initiates a set of activities to turn his/her idea into a profitable business. However, he/she considers a higher risk or even uncertainty level, continues working on the new venture idea, makes a team, uses personal funds, and asks family members and friends for their investment in the idea. Bootstrapping, which is sometimes defined as highly creative ways of acquiring the use of resources without borrowing, is considered to be one of the areas of entrepreneurship research that most need to be addressed. The purpose of this stage is to position the venture for growth by demonstrating product feasibility, cash management capability, team building, and management, and customer acceptance Moreover, angel investors are more likely to invest in this stage. In sum, as Harrison et al. (2004) argue: “bootstrapping is a way of life in entrepreneurial companies”.
(ii) Seed stage After the bootstrapping stage, the founder enters into a new stage, which is the seed stage. This stage is characterized by teamwork, prototype development, entry into the market, valuation of the venture, seeking support mechanisms such as accelerators and incubators, and average investments to grow the start-up.
(iii) Creation stage The creation stage occurs when the company sells its products, enters into the market, and hires first employees Some scholars believe that entrepreneurship stops when the creation stage is ended. This supports the argument that most of the theories which cover start-ups are borrowed from entrepreneurship theories and not management and organization theories.
Challenges of start-ups
Some scholars consider the pre-seed stage between bootstrapping and seed stage. Moreover, to some scholars bootstrapping is the pre-seed stage. Also, some scholars consider bootstrapping as a start-up stage. Some other scholars believe that the creation stage is identified as the period between the nascence of a business idea until the moment of sustainable profits.
(i) Financial challenges As mentioned earlier, finance is an integral part of the startup process. Any startup would face financial issues and problems for several reasons and in different stages For instance while bootstrapping the founder negotiates with family members and friends to convince them to invest in his/her idea.
(ii) Human resources Start-ups normally start with one founder and/or some cofounders. As time goes by, the founder needs more experts to develop the prototype, MVP, etc. Then, he/she has to negotiate with people, make a team and finally hire employees.
(iii) Support mechanisms Several support mechanisms play a significant role in the lifecycle of start-ups. These support mechanisms include angel investors, hatcheries, incubators, science and technology parks, accelerators, small business development centres, venture capitals, etc. Lack of access to such support mechanisms increases the risk of failure.
(iv) Environmental elements Last but not least is the effect of environmental elements. Many start-ups fail due to a lack of attention to environmental elements, such as the existing trends, limitations in the markets, legal issues, etc. While a supportive facilitates the success of start-ups a maleficent one could result in a failure the environment for a start-up is even more difficult and critical than for an established firm.