A startup is a young company established by entrepreneurs with the aim of developing a new product and bringing it to the market. In recent years, the startup ecosystem has been rising globally and startups constitute an important part of the economy. Thus, we will discuss important details about establishing a new startup.
Ingredients Of Building A Startup
According to Forbes, there are four main ingredients in the process of establishing a successful startup: access to great ideas, access to talent, access to capital, access to customers.1 First of all, a successful startup is built upon an innovative idea that has the potential of attracting investors and customers. The existence of such a great idea leads to building a promising startup. Then, talented entrepreneurs are needed to execute the ideas. These talented entrepreneurs will enable the startup to reach customers and investors, initiating a promising startup. Access to capital refers to getting investments. Without investments, a startup cannot grow. In each stage of development, investments will help the startup to reach its potential. Finally, access to customers is a fundamental factor. Customers drive revenues, which drives even more investors. Thus, a startup cannot grow without customers.
Startup Development Process
The first step of establishing a startup is usually evaluating the idea. The entrepreneur should think about which problem the startup addresses and what is the solution. An entrepreneur must ask: what is the benefit of the product to its customers? You should also think about what is the value that you promise to deliver to your customers if they choose to buy your product or service. After evaluating the idea of the startup in detail, it is time to take the first step. This first solid step is usually recruiting initial co-workers for specific duties and forming a team along with creating an initial business plan. During this step, you should think about the structure and goals of your startup along with the duties and responsibilities of your co-workers. It is then time to create a marketing strategy and look for potential investors.
It is also a good idea to identify initial key performance indicators (KPI) in order to measure the performance of the startup. KPIs may include revenue per client, profit margin, or client retention rate. These data would help an entrepreneur to look for ways of improving the initial marketing strategies.
Thus, overall the first steps during the startup development process include setting a vision/strategy, forming the initial team, evaluating the product and market fit, looking for investors, and developing a business plan. After these steps, depending on the mission, the startup analyzes the ways of growing into a bigger company.
Funding Stages of Startups
Even though there are many ways to categorize startups, funding stages is one of the useful ones. It is useful in the sense that it indicates in which development period a startup is in. (It is important to note that different sources may assign different attributes to the startup stages. There are no common or official funding stage attributes)
The first level is the concept stage. Startups in this period have an idea but they are still evaluating the feasibility of building the product or service. Having an innovative idea is not enough; you must also consider the feasibility along with exploring if the startup will be promising. The next step is the seeding stage. During this stage, usually, the startup surpasses the concept stage and starts to take initial solid steps. Such startups usually have an initial plan. Then, early-stage startups usually have a certain business plan and a clear startup structure. However, usually, they have not received any investments yet. Finally, the investment stage includes startups that have received investments. Depending on the investment, a startup may turn into a promising and growing company. The investment stage is a very broad term. It includes all startups that received any form of investment like angel investor funding.
Angel Investors And Venture Capital
Angel investors are individuals who invest and provide capital for startups at the very initial steps. During the early stages, not all investors are willing to support startups since it is a risky investment. Angel investors support early startups while most investors are not ready to support. Sometimes angel investors support the startup in exchange for ownership equity. Compared to loans, investments from angel investors are much better capital for entrepreneurs. Furthermore, even though it is a risky investment type, such investments may have positive outcomes for angel investors. Since early startups are not very valuable, if startups grow and become successful, angel investors considerably profit from these investments.
Venture capital is another type of financing for startups that have long-term growth potential. It should be noted that such investments are not necessarily in a monetary form all the time. Such investments are allocated for startups with exceptional growth potential. Venture Capitalists usually get equity in the startup.
During the last 15 years, sharing economy startups, which are built on the idea of collaborative consumption, grew into billion-dollar companies. Thus, sharing economy startups constitute a very important part of the startup ecosystem right now. Companies like Uber and Airbnb established platforms, where buyers and sellers of services and assets are connected for short-term peer-to-peer transactions. With convenience for the customers, variety of options, and transparency, such companies seriously challenged powerful sectors like the taxi and hotel industries. According to Statista “there were 44.8 million adults using the increasingly popular sharing economy services in the United States in 2016. This figure was forecast to increase to 86.5 million by 2021”2.
Suggestions on Startups
Establishing a new startup and executing your ideas is unarguably an exciting process. However, if you do not have any previous experience in startups or if you are not an expert in the field of your idea, it is a good idea to seek advice from experts. As an expert, an experienced mentor can provide honest feedback about your ideas and your business plan. Furthermore, a mentor would know the market, consumers, and investors in a better way. Hence, they can increase your chances of receiving investments and getting new consumers. Basically, experts and mentors can help your startup to succeed with their expertise. Thus, we believe, for establishing a startup, it is always a good idea to seek advice. The sooner you start seeking help from an expert in the field, the better.
Additionally, throughout the startup process, there may be legal procedures, which an expert attorney can help. As each startup is different, seeking legal assistance may also be crucial in the long run.
Special Considerations on Startups
According to Investopedia, there are three special considerations while establishing a startup: location, legal structure, funding3. Firstly, depending on the product or the service offered, the startup should decide on whether it will use an online platform, an office, or a store. Then, depending on the business idea, entrepreneurs should decide on the best fit legal structure. For example, Limited Liability Company and Partnership structures are two options that are commonly used as legal structures. Finally, funding is imperative for the growth of the startup. As previously mentioned, there are many funding opportunities such as investments and loans. In order to secure funding that will allow the startup to reach its potential, entrepreneurs must look for opportunities and present their startup with marketing strategies.
You can read a more detailed article about startups and sharing economy during COVID-19 Pandemic via this link