Establishing your own business is incredibly exciting. You can finally achieve the dream of being your own boss while earning a living doing something you are truly passionate about. If you’ve taken the first step toward founding a business and making your entrepreneurial dream a reality, you’ve achieved a major milestone.
That said, the early stages of a business’s foundation can be just as nerve-wracking as they are exciting. Unfortunately, many startup owners fall into common traps that cost them time and money. New business owners are especially prone to errors in the early days of entrepreneurship. Educating yourself about these costly mistakes is the first step to helping you avoid them.
Whether you are starting your own plumbing business, trying to make it on your own as a consultant, or getting your start as a freelance makeup artist, the info below will show what’s advantageous and disadvantageous for early-stage startups.
What is an early-stage startup?
Most people agree that an early-stage startup is one that has yet to earn money. At this stage, you may still be fine-tuning your business concept and thinking about how to fund that concept (for example, by borrowing money from family, taking out a business loan, or dipping into your savings). The goal of a startup’s early stages is to create a concept with a good chance of succeeding on the market and crafting a business plan to support that product’s success.
Early-stage startups generally go through four steps of maturation: startup, seed, growth, and maturity. Each of these stages has its own challenges and advantages, discussed in further detail below. Keep these in mind: These life cycle stages apply to all types of businesses, whether you’re running a tech startup or a mom-and-pop-style restaurant.
Here’s an example to help you better understand what each of these phases looks like. Let’s look at Amy, who is starting her own catering business:
- Startup stage: Amy has researched her product market fit and identified a gap in the corporate catering niche in her home, Albemarle County, Virginia. She writes a business plan and files the Virginia Articles of Organization to establish her Virginia limited liability company (“Amy’s Catering, LLC”). With the legal paperwork completed, Amy starts building her brand, including creating a website, business cards, and more.
- Seed stage: After an entrepreneur is done bootstrapping their business’s product or service (defining what this will be), they need to get financing (seed money) to fund their business. Amy needs some basic money to cover startup costs, like cooking supplies. Luckily, she has a small nest egg saved for this purpose. However, if she didn’t, she’d have to look to external resources, like microloans or grant applications.
- Growth stage: Amy needs to get clients. She invests more money into her LLC, paying for pay-per-click advertising on Google, and starting a social media marketing strategy. She starts getting her first gigs, which is super exciting! However, she soon realizes that she needs more money to cover the cost of employees to staff the catering gigs she’s working. She takes out a small business loan to cover this, allowing her to grow her business.
- Maturity stage: Amy’s business is thriving. She has a consistent clientele, including returning customers, and is well on her way to paying off the business loan she took out. She no longer has to hustle as hard to get new clients as to when she started. At this point, Amy has to think about ways to expand her business further or resign herself to plateauing — and potentially declining. Ideally, she will reinvest in her business and grow it. One day, she might even sell it to a larger catering firm.
3 Things Advantageous to Early-Stage Startups
Being in the early stages of entrepreneurship is exciting and challenging at the same time. Leaning into the advantages of being in this stage of business will help you achieve maximum success.
Here are some benefits enjoyed by early-stage startups and ideas on how to leverage them:
- Building new, not relying on the old: Long-standing corporations often face limitations in terms of office culture and administrative red tape when it comes to innovating. As a startup, you don’t have these burdens. Make the most of it by remaining flexible and open-minded as you work on your service and product development (and as you write your business development plan). For example, invite feedback from your target customer base via surveys and use this information to tailor your strategy — quickly.
- Growth mindset: In business culture, a growth mindset is understood as an underlying belief in continual learning and improvement. It’s the opposite of a fixed mindset, in which you believe your potential is limited. Entrepreneurs are dreamers. You wouldn’t have started your business if you weren’t — now, tap into this power. If people like Bill Gates and Jeff Bezos had limited their visions, they likely wouldn’t have achieved such monumental levels of success. Set yourself three-, five-, and 10-year goals, inspiring yourself to look beyond the basics of startup life and at the big picture.
- Company passion: When you work for a company, you serve someone else’s agenda. When you are an entrepreneur, you work for your own vision. Use this fact to create the type of work culture you’ll thrive in, and you will attract like-minded people who are just as passionate about your vision as you are. In addition to taking care of technicalities like a business plan, write down what your values are as a business (even if that business is just you, for the time being).
3 Things Disadvantageous to Early-Stage Startups
As mentioned, the early stages of entrepreneurship also come with hurdles. Identifying these challenges and preparing for them will allow you to maintain momentum and growth.
Here are some drawbacks faced by early-stage startups and ideas on how to prepare for them:
- Lack of funding: As a fledgling business, lack of money is one of the biggest problems you will run into. Young companies simply don’t have the capital of long-standing corporations. Avoid trouble by making a realistic budget before you start operations. How much do you need to pay for startup costs, like founding your LLC? How much do you have to pay for equipment, employees, and administrative expenses once you start running your business? Educating yourself about fundraising options is also wise, ensuring you know where to turn if you need money. Budgets aren’t always exciting, but they will keep you in business.
- Smaller to no team: Many small businesses start with just one person. If you don’t have employees yet, you may find yourself struggling to stay on top of your day-to-day operations. Be realistic about your needs. Sometimes, investing in help (even if it’s hard to see payroll money eat away at your company’s profits) is better. This way, you maintain the quality you need to support growth. Additionally, you don’t have to hire full-time employees immediately. Freelancers can help with various tasks, from personal administration work to accounting, web design, and more.
- Knowing where to focus: A lack of focus can leave startup founders running in all directions — and leave them with a business model that lacks an easily identifiable value-added service or product. This is a recipe for disaster. It’s better to streamline your service or product offering and do one thing very well than to do many things poorly. Define your minimum viable product (MVP) concretely.
Start your business today
Early-stage companies face unique challenges — but they also have one-of-a-kind opportunities at their fingertips. The startup ecosystem can be intimidating when you’re just getting started. The more you know about what lies ahead, the better prepared you’ll be. There are many resources available to first-time entrepreneurs to help. Trust ZenBusiness for added tips on how to achieve success and help you start, run, and grow your small business.
Early-Stage Startup FAQs
What are the stages of a startup?
The stages of a startup can generally be classified into four main stages: startup, seed, growth, and maturity. In the startup stage, entrepreneurs still lay the groundwork for their business, for example, coming up with the concept and business plan — and formally establishing their entity as an LLC or similar legally recognized organization. This is followed by the seed and growth stage and, finally, maturation. Once the business reaches maturity, it can plateau — or you can reinvest in it and maintain growth.
What is an early-stage venture?
An early-stage venture is one that is still refining its business concept and funding model. At this point, entrepreneurs may seek investment from lenders like venture capital (VC) firms, private equity firms, banks, online loan providers, or nonprofit microloan organizations. They may also turn to more alternative sources, like crowdfunding. Other entrepreneurs may have money set aside to fund their early-stage venture themselves.
What does early-stage investment mean?
Early-stage investment refers to the first financial resources that a business relies on to kick-start operations. Early-stage investments could come from private investors, like angel investors. Alternatively, this funding can be secured via a loan, such as a microloan, bank loan, or online loan.