Startup Stages: from Ideation to Scale

published on 23 May 2024

Building a startup is like strapping into a crazy roller coaster. 

It can be daunting for new founders, full of ups and downs and unexpected curves. For serial entrepreneurs, the challenge is always to turn the cart in the most viable direction and use all your experience to have a journey that is a little more fun.

Startup playbooks are well-known, widely disseminated and renewed every year. The way founders apply those playbooks will directly impact how the startup navigates its journey from idea to scale... and the roller coaster analogy allows us to better visualize its large parts.

Some say a startup starts in the Ideation phase, but this is just the waiting line for the tour. While they don't take action, founders-to-be will research, sketch and discuss the potentially innovative company they want to create. Eager with anticipation, they strongly believe their idea can turn into a big business. The best decision at this time is to get out of the building and get the idea off the ground: learn all the concepts about startups, get in touch with the customers and start validating the project.

Starting the tour…

No matter how creative and innovative they may seem, ideas won't go anywhere just by themselves. A startup will only come to life when it begins the Validation stage.

From now on, founders will go through a sequence of loops when applying the fundamental startup playbook: testing their ideas in the real world with people they believe will be potential customers. This phase seeks to create and evolve an MVP (Minimum Viable Product) through consecutive cycles, learning from each test, each hypothesis validation and customer feedback.

Validation is a phase of resilience and adaptability where failure must be embraced as a teacher, not an adversary. If ridden the right way, each loop in this stage takes founders towards Problem/Solution Fit. Data and evidence will be their compass, guiding each pivot and adjustment towards the evolution of a potential final product.

After validating the problem, the customer, the solution and achieving initial sales, the startup will be ready for the next stage. Until then, it needs to rely on financial resources from grants or from the founders themselves... given that angel investors will only be interested if they are very confident in the project's future potential.

Monetize or die

Traction arrives with the unexpected drops and curves of a roller coaster, often in complete darkness. At this point, founders realize they need a lot of work to build the rest of the route. The response from customers can be surprising, often requiring quick reflexes and a steady nerve. Each new user, each sales spike, each new track laid feels like a breath of wind in the face, tangible proof that the journey is moving forward.

This phase is about channeling the project towards sustained growth. It's where founders envision the shape of their business emerging from chaos, as validation loops begin to pay off in the form of a growing, engaged customer base. It gradually becomes easier to see ahead on the roller coaster and know which track to place where.

The key to getting out of the Traction phase is to establish a repeatable business model, increase sales and adjust the operation for predictable growth of at least 10% per month. Positive signs like these are an incentive to seek seed capital investment.

Even so, a big unexpected hole may appear… And if that happens, the startup will die. This is the constant, relentless truth of the Traction stage.

Pushing uphill

If the ride balance is positive so far, founders will be in high spirits after the long and bumpy Traction stage. If they achieve a concrete proof that their product services a large market demand, they will begin to climb the dimly lit slope of Growth.

At this point, founders need to literally push the cart uphill. Their success depends on how much fuel and power they have accumulated in the Traction stage (or how much capital they can raise at this point). The startup results will interest investment funds, from whom a potential series A or B investment can be useful... this helps accelerate the journey towards the end of the roller coaster, if the startup has already proven itself capable of completing it.

This is where adrenaline meets strategy, as initial traction now needs to be channeled into sustainable growth. Founders are no longer simply reacting to the market, they are anticipating it: shaping the product, scaling operations while meeting growing demand.

The Growth phase is the test track for the processes and assumptions that were established in the previous phases. Product/Market Fit (PMF) has been established, and now it is time to optimize, expand the customer base and improve operational efficiency to support greater scale. It's about maintaining the delicate balance between expanding rapidly and maintaining the quality, culture and vision that have brought your startup to this point.

More market, faster

Finally – and for very few founders – the transition to the Scale stage can take place. This phase is about multiplication and scaling, taking everything that works and making it bigger, better and more robust. Marked by significant growth – expected around 100%, 200% per year – this is where the business model is definitively proven, a large market is established, and the focus shifts to diversification and competitor consolidation.

Scaling is about understanding the nuances of the business at a granular level and making strategic decisions that will multiply these aspects into new markets and demographics. The unit economics will be adjusted to go from PMF to GTMF (Go To Market Fit), where the complexity of the business increases exponentially. The startup will require highly experienced C-Levels, automated systems and continually improved processes to support expanding operations.

At the peak of the ride, startups transform into full-fledged companies and their impact can be profound. Many become much more complex structures by employing thousands of people, but some manage to maintain ambidextrous management and still preserve that innovative startup spirit.

To support the Scale stage, venture rounds such as series C, D, and so on begin (if necessary). The objective is to grow the business to the point of acquiring complementary companies, seeking international markets and perhaps going public... or selling the business to a large competitor and multiplying the capital invested by funds and the founders themselves.

What does all this mean?

CxO uses Lean VC's staged maturity framework as a reference for co-execution since it depends on the precise and agile identification of a startup at each stage. This is the only way to create a proper improvement roadmap for founders.

However, the real world presents a complicated challenge: at a particular moment in time, almost every startup manifests symptoms of different stages in its operation. In other words, it is as if the founders were in the same cart that has wheels in different, distant places on the same roller coaster.

The secret to execution in startups is precisely to identify these gaps and adapt management in each area to the most appropriate stage, while planning the next one.