TL;DR: these are the seven stages of a startup with venture capital funding:
1. Ideation. Find what startup you should build by 1) identify your ideal customer, 2) finding what problem they're facing, 3) estimating its potential market, and 4) creating a hypothetical solution to that problem in the form of a product or service;
2. MVP. The minimum viable product is the way you'll test that hypothetical solution. The MVP's one and only objective is to try out how the market will receive your solution, and make you go through the build-measure-learn cycle;
3. Investment. A venture-backed startup will go through the investment stage over and over again, with different objectives each time. The most common rounds are pre-Seed, Seed, Series A, Series B, and so forth;
4. Product-market fit. Having PMF means being in a good market with a product that can satisfy that market;
5. Go-to-market. Find out the best tactic to convert as many people as possible from that potential market. Aim for a repeatable, scalable, and profitable revenue generation model;
6. Growth. Accelerate your successful sales formula and go from startup to scaleup. Some strategies for that are acquiring competitors or complimentary businesses and taking your company to other geographies;
7. Maturity. You most likely won't have to wait long for an exit opportunity to show up, like an M&A or an IPO. Keep listening to your customers, and help foster the next generation of startup founders.
The journey of a startup is not easy, especially in Latin America. Having one goal at a time is a way to bring more clarity into the chaos of tech entrepreneurship.
That's why we have stages of a startup. There are seven steps in total: ideation, minimum viable product (MVP), investment, product-market fit (PMF), go-to-market, growth, and maturity. Each of them has one objective and demands one focus from you, the founder.
We like to consider ourselves as part of your BFFs group chat, where straight tough love is around – but with the added benefit of knowing some tips and tricks about having a startup in LatAm. So we'll go through each startup stage with you, no time and money wasted.
Keep ticking the boxes all the way to your startup's exit – and invite us to the party once you've made it, okay? We're good Macarena dancers.
Ahhh, the sweet beginning. When you hear ideation, you're probably thinking of those famous stories of people having brilliant ideas while taking a shower or looking at the horizon.
But we like taking a more mundane approach to vision and mission here: be more empathetic and intentional with those around you every single day, and an opportunity will come to you.
Take it from our friend Sahil Lavingia (our Latitud Podcast's episode with him is a gem, btw):
"It's the community that leads you to the problem, which leads you to the product, which leads you to the business." (Sahil Lavingia)
So, begin ideating your startup by surrounding yourself with a community and actually listening to them. They will eventually lead you to a problem.
This problem could be something the community knows it's currently struggling with. Or maybe something people didn't even realize could be made easier before they talked to you.
Either way, it should be a problem that other companies are not covering and makes the community say, "OMG, I want a solution for that right now."
If enough people feel this way, drum roll, you have market potential. Then comes a hypothesis: "I think this product or service could be the right solution to this problem of Y market potential because of X."
Startup MVP stage checked? See if you're ready for the next stage of the startup journey:
Finally, you have to test this hypothesis. And that's what this stage of a startup is for.
A minimum viable product is a prototype of your product or service. The MVP's one and only objective is to test how the market will receive your solution. It should enable you to find as quickly and cheaply as possible if:
1) Customers find value in what you're offering;
2) If you're using the right channel to reach them.
Let's give you an example. Imagine hiring a bunch of engineers and spending hours developing an app that showcases 10 different services and automates just about everything.
One year later, you discover you got a basic premise wrong. You offered fancy chocolate when people actually wanted vanilla. And btw, they don't even like accessing your solution through an app, duh.
Instead, create the most basic version of the key feature you're offering. Also, do most of the work manually. It would have been so much better to discover how much your customers actually love vanilla if your app only had three screens and not a lot of time and money spent on automation.
You don't need a fancy backend to get into what Lean Startup's Eric Ries called a build-measure-learn cycle: create a prototype, gather feedback, and learn from what your community of potential customers has to say.
They can validate your business, and by that, we mean expressing interest in paying for your product or service with just one or two caveats.
(Yes, think about forms of monetizing your solution from day zero. When you have your first cohorts of paying customers, you're officially in early traction mode.)
Or these potential customers can show that you need to start from scratch and pivot your hypothesis. Well, better sooner than later, right?
If your minimum viable product (MVP) really done? See if you're ready for the next startup stage:
Venture-backed startups go through a stage when they get… You guessed it! Venture capital from angel investors and VC firms.
While we put this between MVP and product-market-fit to illustrate when you'll need to prepare for your first round of external money, the reality is that a venture-backed startup will go through the investment stage over and over again after the first fundraising.
Here are the most common investment stages in a venture-backed startup:
Is your fundraising game really on? Can you go to the next startup stage?
Among all the stages of a startup, achieving this one is such a relief.
Everybody in the startup world has "reaching product-market fit" on their goal board – but few know what exactly that means. After reading this, you can sit with us in the club 💅.
Product-market fit sounds pretty technical – but it’s something that every founder knows deep down.
You can have an amazing product or service, maybe even the best one around the block. Guess what? That's not enough. You have to find people who actually need that solution in their lives.
Our friend Marc Andreessen, from a16z, has a simple definition for product-market fit: being in a good market with a product that can satisfy that market.
Product-market fit is happening: customers are buying as fast as you provide products, expand services, and hire salespeople. Reporters are sending you emails because they hear the buzz. Investors want to know more about your solution. Life is good.
Product-market fit is not happening: customers aren't getting the value they expected, so word of mouth is kinda meh. The sales cycles take too long and deals often end up not happening. Press and investors are as silent as dead. The growth numbers go a little bit up or a little bit down. Knock knock, is anybody there?
Don't lie to Marc, us, and yourself here: you can feel if your startup has what it takes or not. You’re starting to see consistent and predictable user and revenue growth, as well as good customer retention. If you're not, it's time to go back to the drawing board ASAP.
PMF is so important that the life of any startup can be divided into two parts: before product-market fit and after product-market fit. If there's one important stage of a startup, it's this one right here.
Are you really ready to go from product-market fit (PMF) to the next startup stage?
If you've nailed product-market fit, that means your solution is just what the target market needs. Your next step is finding out what is the best tactic to convert as many people as possible from that potential market – a.k.a developing a go-to-market strategy. Your objective is to define marketing and sales channels, pricing, and customer retention strategies.
If done right, your go-to-market strategy will differentiate you from your competitors while leading your startup to have a repeatable, scalable, and profitable revenue generation model.
That's the time to compare your customer acquisition cost (CAC) and the revenue each of them generates over time (LTV). Your objective is to have good unit economics, and ultimately a startup that makes a profit. Prove that you can deliver at scale while generating a positive cash flow.
Are you ready to go from go-to-market to the next startup stage?
So you have product-market fit and go-to-market validated, not to mention good financials. Now's the time to accelerate your successful formula and live the growth stage in its full glory.
Your business will go from startup to scaleup. Some strategies for that are acquiring competitors or complimentary businesses and taking your company to other geographies.
At this point, you might need another financing round to blow the competition out of the water and enter new segments and geographies. These rounds can not only include venture capital firms, but also growth equity and private equity firms. They'll help you with the fine-tuning you need for your startup's maturity.
Are you ready to go from growth to the next startup stage?
Hooray! You're probably reaching the top of the mountain. There's not much space for big growth jumps now – at least not in your original hypothesis. You most likely won't have to wait long for an exit opportunity to show up, like an M&A or an IPO (if you're going the public route, learn from Nubank's experience).
You're officially old, and that brings experience. It's time to do what you do best: listen to your customers and see what else they want from you. You're in the best position to anticipate their needs before the competition does.
Another important task here: give back to the startup ecosystem. Foster the next generation of tech entrepreneurs in Latin America – we just happen to have the right community for you to do that.
We hope to see your startup featured in the next Latin American soonicorns or unicorns list! And hey, we didn't forget that invite to your exit party.