Startups: The Growth Stage

This is the fourth in a series of articles that discusses the stages of a startup. Previously the concept stage, seed stage, and early stage were covered.  Today the growth stage is addressed. 

Scale.  The growth stage is all about scale.  Scaling the business.  Becoming a real business.  Creating real value for stockholders.  Perhaps no longer really a startup at all.

The core product is completely built and being sold.  Product development is based on new features, extensions, and add on products come into play.

The business focus is on accelerating market adoption and scaling infrastructure to support continued growth.  The company may be entering new verticals or closely aligned markets.  Selling more products to already established customers. Perhaps geographic expansion.  Traditional marketing comes into play.  Public relations.  Building repeatability not only in getting and keeping customers but in internal processes.

The team continues to grow.  Growing so much that middle management appears.  Yeah middle managers.  An experienced well rounded management team often times has joined the founders. But not always.  There are 30, 80, 100 employees or more.  Maybe much more. People that can’t scale get submarined, moving down the org structure as the tide raises.  Keeping these folks on board and motivated is important and takes effort.  Real HR policies come.  Employee reviews, salary scales, and the like. Obviously a company in the growth stage is growing revenues.  Revenues are more than $1 million.  The key characteristic is that revenue growth is accelerating.  Or to get a little mathematical on you, the revenue curve has both positive first and second derivatives.  Which means the curve is getting steeper.  The hockey stick.  This can only happen for so long.  Say to the point of $60 million in revenue.  The growth rate slows. Then the company is really not a startup at all.

Growth stage financing can span a very broad range from as low as $5 million to $50 million or more. The funds are provided by a range of equity sources, regional and national venture capital firms and private equity funds. Profits can also be a funding mechanism.

The two startups that I was involved with that made it to the growth stage both stayed in it for about five years.  One had an IPO and continued like gang busters after the fact.  The other was acquired for $300.  Would love to hear timing from others that have been involved with growth stages companies.

Get to here and the company, yes company has two large options, get liquidity through an acquisition or IPO (very, very few IPO) or manage the business for cash flow.

At this point and the entrepreneur has two options as well. Return to concept stage or enjoy what you have built and continue to make it even better.

July 21, 2009  |  Comments  |  Tweet  |  Posted in Entrepreneurship, Startups