The answer to this question isn’t a simple one and the conclusion of when a company has outgrown its startup status is based on many factors. Generally speaking, the rapid growth rate and availability of capital (or lack thereof) to a company act as key triggers for the maturity and evolution of the organization. In this article, we will go deeper into these topics to help explain what differentiates a startup from a more mature business.
Understanding the Basics of Startups
A startup is loosely defined as a business venture initiated to serve a need with the potential for growth. It’s an organization that is typically formed through strong dedication, ambition, and a risk-taking spirit termed “entrepreneurship.” Usually, the goal of the startup is to take advantage of the opportunity in the marketplace and create a valuable product or service.
Due to the high risk they undertake and their lack of existing capital, most startups go through several stages of funding. This makes it possible to develop their product, hire a team to build the company, and attract customers while they remain as a young organization. In return, investors usually require a piece of the profits or a majority of ownership when the company sees success.
When Do Companies Begin to Grow Up?
In an ideal world (for entrepreneurs, anyway), the startup would continue with accelerated growth and become a major player in its market. However, this doesn’t always happen. Many companies, despite their ambition and hard work, discover that their once new and innovative product falls short. In such cases, the startup may be forced to shut down, with the investors taking a loss for their investment.
Other companies don’t fail, but rather reach the point of maturity where rapid growth slows down and the organization’s size stabilizes. This stage is reached when the company has attracted enough customers and carved a serious foothold in the market. It is at this stage that the company needs to create long-term financial stability while maintaining their current customers.
Signs That A Company Has Matured and Evolved
To help companies determine whether they still qualify as a startup, here are some common indicators that a business has achieved maturity:
● Loss of originality: When the startup’s edge has been lost due to a crowded market and the need to compete, it usually means that the business has outgrown its startup phase.
● Capital: When a single source is required to meet the company’s needs and the organization no longer requires outside sources to function.
â—Ź Business structure: By this point, the company typically has a more solid and structured corporate culture in place which includes recognizable roles, responsibilities, and staff sizes.
● Reaching profitability: Most startups won’t achieve profitability until after the initial growth phase.
â—Ź Growth rate: This may slow or become stagnant, or even decline in a mature business.
â—Ź Financial stability: A successful startup graduates and become a mature business when it begins taking the necessary steps to become financially stable while growing the company.
When determining the point when a company stops being a startup, timing is of course important. However, it’s important to remember that the transition from a risky new venture to a corporate power takes years to fully develop.
At its maturity and peak, the business should be financially secure, with a well-structured corporate culture populated by a competitively-paid team, and a product that’s firmly entrenched in its market. The new business model requires focused effort to maintain momentum and continue to be profitable.
Though each company’s progression from startup to maturity is unique, with the help of the indicators discussed above, businesses can assess their current status to determine where they are in the cycle. Knowing when a company has graduated and become a mature business is key to its future success.
