The Information Technology Startup's Lifecycle & When Mentors First Get Involved

Steve Blank's Perspective:
In The Four Steps to the Epiphany, Steve Blank identifies four major stages for a startup, and they all revolve around how well the startup knows the customer. The four stages he discusses are customer discovery, customer validation, customer creation, and company building (1). Each of these stages are nonlinear. They are iterative, and are used to make sure the startup doesn't overextend itself.  Blank is teaching that it's most important to know the customer, their needs and wants, and finally developing a product or service that doesn't outpace the learning that's associated with knowing the customer.

“The goal of customer discovery is just what the name implies: finding out who the customers for your product are and whether the problem you believe you are solving is important to them” (1).

Customer validation is the stage where the startup builds “a repeatable sales road map for the sales and marketing teams … customer validation proves that you have found a set of customers and a market who react positively to the product: By relieving those customers of some of their money” (1).

Customer creation is the step where the company is building on previous successes of acquiring its first few customers. The goal of customer creation “is to create end-user demand and drive that demand into the company's sales channel” (1).

“Company building is where the company transitions from its informal, learning and discovery-oriented Customer Development team into formal departments with Vps of Sales, Marketing and Business Development” (1).

The Startup Genome's Perspective:
The startup genome defines the startup's life cycle in a similar fashion to Steve Blank. There are two major subdivisions: early and late stage. Early stage is the period of startup life where the team is working on figuring out how their product or service may best solve the problem of their target audience. A phrase often used to describe the product or service solving the problem is product-market fit. It means exactly what it says, product-market fit is the point where the startup has discovered how their product best meets the needs of their target audience. Product-market fit seems to be the same term as Blank's customer validation. Late stage is the period of startup life where the team is focused on making their early stage successes repeatable and scalable (2). From early to late stage, the startup life cycle is more nuanced, and the Startup Genome mentions six stages. Their report provides data and analysis on four of the stages: discovery, validation, efficiency, and scale. These stages are similar to Blanks definitions, and relate to the four types of information technology (IT) startups they discovered: the automator, the social transformer, the integrator, and the challenger.

During the discovery stage, the purpose of the startup is to figure out whether or not they're solving a problem that anyone is interested in. There are some key events that are typical for this stage, but not all have to occur: “founding team is formed, many customer interviews are conducted, value proposition is found, minimally viable products are created, team joins an accelerator or incubator, Friends and Family financing round, first mentors & advisors come on board” (2). For all four types of IT startups, the average amount of time to push through the discovery stage is between five to seven months.

During the validation stage, the startup is getting feedback on their product or service by means of money or attention. Essentially, they have proof that people are interested in their product or service. Some of the key events that are typical for this stage: “refinement of core features, initial user growth, metrics and analytics implementation, seed funding, first key hires, pivots (if necessary), first paying customers, product market fit” (2). For all four types of IT startups, the average amount of time to push through the validation stage is between three to five months.

During the efficiency stage, the startup is focused on making sure the business model works like a well oiled machine and they're efficiently acquiring customers based upon the research and customer knowledge they've built up during the previous two stages. Some of the key events typical for this stage include: “value proposition refined, user experience overhauled, conversion funnel optimized, viral growth achieved, repeatable sales process and/or scalable customer acquisition channels found” (2). For all four types of IT startups, the average amount of time to push through the efficiency stage is between 5 and 6 months.

During the scale stage, the startup is focused on aggressively growing the company and is typically defined by: “Large A Round, massive customer acquisition, back-end scalability improvements, first executive hires, process implementation, establishment of departments” (2). For all four types of IT startups, the average amount of time to push through the scale stage is seven to nine months.

Each of the four types of startups identified in the previous section all go through the same startup life cycle. However, the amount of time on average based upon the type of startup can vary significantly and can also vary based upon the size of the founding team. The automater takes an average of about 21 months to reach scale stage. The social transformer takes an average of 32 months to reach scale stage. The integrator takes an average of 16 months to reach scale stage. The challenger takes an average of 64 months to reach scale stage.

Application of this lifecycle discussion on mentorship:
This discussion on the lifecycle of the startup applies to this thesis in the context of when mentors become involved in the startup's life. The Startup Genome report has shown that mentors and advisers first come on board at the discovery stage, which is the first few months of a startup's life. So in the context of this thesis, it is most valuable to the startup if a mentor is involved in the discovery stage because "the right mentors influence a company's performance and ability to raise money" (2).

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Sources:

  1. The Four Steps to the Epiphany by Steve Blank
  2. Startup Genome Report Extra on Premature Scaling, August 29th, 2011