The lifecycle of a company

There are many frameworks that describe the lifecycle of a company. The startup-growth-maturity-decline lifecycle is one that many people are familiar with.

I'd like to go over each and describe what the key goal a company (or product) has in each phase. Pretty much all of this is common knowledge, but covering it here sets the stage better for concepts I'd like to explore further down the line. Most of this will focus on the early stages of a company: startup and growth.

It's important to remember that this generally assumes that the company is operating with little to no direct competition. Looking at the extent of competition in a market that the company is in can dramatically affect what its goals are and how it should achieve them.

Startup

Broadly speaking a startup is a company that has not achieved product-market fit, and therefore cannot effectively scale.

This phase encompasses the earliest stages of a company from inception and R&D all the way to sales.

The key goal of any company in this stage is to find that product-market fit ASAP and move onto scaling. The reason most startups fail is because they never find product-market fit and/or attempt to scale prematurely, ultimately collapsing in a heap of broken dreams.

This stage is all about determining the market and validating assumptions. Once these key questions have been answered, and only then is a company ready to consider how to scale.

In order to find that product-market fit companies in this stage need to do a few things: define their market, find the core problem that their market has, scope an MVP, deliver the solution, and prove market adoption is possible. Essentially this is what is encompassed in 'proof-of-concept'.

This is typically where a company should be bootstrapping. It's before they've got any tangible proof of their value and when they have the least bargaining power vis-a-vis fundraising. Most resources at this point should go towards proving product-market fit.

Growth

Once the market has been defined, and a solution that solves the market's problem proven, then the company needs to consider how to scale.

This phase is all about growing as quickly as possible and earning market share.

At this stage, a company is concerned about getting their product out to as many people as possible. It's figuring out what marketing channels work the best, understanding why they work the best, and then pouring resources into those channels to grow a userbase.

As part of that, the company needs to be optimised for growth here too. That means removing bottlenecks to growth - both the product and operations must be scalable to match the growth. Failure to do so can result in critical outages and errors that can prove fatal.

This is the stage where most companies should be looking for capital to grow. Being able to prove growth in key metrics puts the company in a far more advantageous position than when they were a startup. The business model is already proven and everybody understands how and why the engine runs - all it needs is fuel to rev up.

Maturity

When a company begins saturating its market and growth begins to slow it is becoming mature.

Mature companies typically are facing stiffer competition. As the market is proven and competition intensifies, often the product tends towards commoditisation. Differentiation in such a market is characterised either by cost or a differentiation premium. In any case, the company's goal is to opmtimise their product to maximise their margins.

Decline

When systemic changes in a market cause a company's market to shrink, then a company must adapt to the new economy or die.

Often as the market shrinks the industry must begin consolidating to reduce supply as demand dries up.

Summary

  • Startup: Finding product/market fit
  • Growth: Scaling ASAP to dominate the market
  • Maturity: Optimisation (Cost & Differentiation)
  • Decline: Reinvention