The startup lifecycle

One of the most asking questions in my entrepreneurship class is: “How long will it take to make a startup successful?” I often tell them: “Starting a company is easy, surviving requires a lot of efforts, but making it into a real successful business would take several years or more.”

Some students argue that it only took Uber, Airbnb, and even Facebook a few years to be successful. I explained: “Do not look at the exception and believe that you could do the same. Most start-ups did not even last a year when the money ran out or when founders realize that they are chasing after an illusion.”

To illustrate my view, I explain to students the “typical life cycle” of a startup: The first six months is a “Honeymoon.” All members believe in the vision and founders think they could become the next “Steve Jobs.” Then the next six months, when they launch their website and start announcing to everybody that they have a company, members are full of enthusiasm and believe that their startup could be the next “Facebook.” The “victory” comes when they rent a beautiful office with new furniture, instead of working in the apartment of the founders. They believe that they had made significant progress when their parents or relatives begin to give them money.”

Then come next six months when the money is spent, but no revenue comes. Some members start to ask: “Where is the money?” and realize that starting a company is not that easy. Getting a few customers, many are friends and relatives, is not enough to pay for what they spent. By this time, some members begin to doubt whether they have made the right decision or not, but the founders are still determined to move ahead with additional money borrow from relatives to survive.

By the end of the second year, all the enthusiasm are gone. The initial excitement has turned into worrying and anxiety about the vision and the product. Members begin to talk about leaving the company, and company meetings are full of arguments and anger. The notion of starting the business is fading quick, and it is hard for them to accept. This is also the time that many members understand that it may take much longer than they had hoped, and some begin to quit. The end of the second year is considered the “Divorce time” where most startup companies failed and shut down.

The main reason most startups did not do well because it takes a long time to get customers and building the brand that people trust. The startup is a risky business, NOT something simple where students believe that if they have an idea, create a product ,start a company, get investment, then get rich.

In my class, before starting to develop anything, all students must go out and interview, at least, one hundred customers to validate their idea before they can plan their startup. Only when they can verify that their concept is good and there are many customers who are willing to buy their product, then they can begin to develop the prototype. After having the prototype to validate their concept, they must go out again and meet with customers to confirm their commitment to purchase as well as asking them for additional feedback so they can improve the product. Only having positive confirmation from the customers, they can start their company. I often remind them: “No customer, No start-up.”

Sources

  • Blogs of Prof. John Vu, Carnegie Mellon University
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