The Strategist

From startup to corporation: Three stages of company development

02/28/2020 - 10:07

There are three conventional stages of company development in the technological world: a startup, a growing company and a corporation. In this article, we will consider how each of them is characterized, as well as what difficulties and problems a company may encounter at these stages.

1. Startup

In general, a startup can be defined as a company that is very young and its product does not yet meet market expectations. This is a company that is just trying to come up with a product that can start a viable business. As a rule, no more than twenty-five software engineers work in a startup.

These young companies constantly strive to achieve compliance of their product with market expectations - until the money runs out.

Until a strong product is found and developed, nothing else matters, so the product is always in the focus of the startup’s attention. Usually, at an early stage, financing there is limited, since the company’s goal is to determine whether the company will successfully pass the stage of product research and its introduction to the market. And the less money the startup has, the crazier the pace of work becomes, and the more desperate the team and management grow.

However, they are short of money and time, good startups provide an optimal environment for quickly acquiring the necessary knowledge and skills; bureaucracy that impedes progress is extremely rare there. Nevertheless, these companies are characterized by a very high level of setbacks and failures, which, of course, is no secret to anyone. But the few who succeed are truly masters in identifying user needs and product development. Work in a startup, in the conditions of an indefatigable pursuit of a “product-market” correspondence, is usually stressful, debilitating and risky. But such an experience can be extremely positive and, if everything goes well, well paid.

2. Growing company

Having turned out to be sufficiently competent and successful, startup starts to solve another equally difficult task - to grow effectively - in order to ensure the conformity of the “product - market”. Many serious problems are associated with the growth and transformation into a large and successful business.

And although this is a difficult challenge, it is still better to face it than to miss.

Not only you need to hire new people, but also to figure out how to repeat the success achieved at an early stage, working with new, related products. At the same time, you need to develop your core business as quickly as possible. At the growth stage, the company usually employs from twenty-five to several hundred employees, and therefore, there are now many more people who are ready to help you in this task. At the same time, signs of organizational stress are everywhere.

Product teams complain that they don’t see the big picture, that they don’t understand whether their work (and how) helps them achieve big goals and what it means to be a self-governing team with wide powers. Sales and marketing departments often complain that market entry strategies that have proven effective in launching the initial product are not suitable for some of the new products in the company's portfolio.

This stage is also difficult for managers, because the style and mechanisms of leadership that worked perfectly when the company was a startup do not scale as it grows. Leaders are forced to change their roles and functions, and in many cases behavior patterns. But this stage is characterized by a very high motivation to overcome such problems. No less motivating factor, of course, is a very real opportunity to have a positive impact on the world.

3. Corporation

Companies that have successfully passed the stage of scaling up and have begun building a stable long-term business are still facing difficulties. Strong technology companies know that in order to continuously create new value for consumers and their own business, they need to constantly innovate. It is not just about the additions or optimization of existing products (experts call this the interception of growth in value), but rather about developing each new product in a way that allows it to fully reveal its potential.

Meanwhile, by this time, many large corporations are already beginning to slowly collapse. They are only interested in the further exploitation of value and brand, created many years or even decades ago. I must say, corporations rarely die overnight, and large companies at this stage of development can remain afloat for a long time. 

As soon as the company reaches a significant size and level of complexity - and often becomes public - a huge number of interested parties from various business divisions start struggling to defend the already present achievements. Unfortunately, this usually leads to strangulation of new initiatives and risky enterprises that could breathe new life into the company (since they really put the main business at serious risk), or in so many obstacles and barriers to new ideas that few can and will want to carry the company in a new direction.

It is very difficult not to notice the symptoms of such a development of events, because this is a weakening of the morale of employees, a lack of innovation, and even the fact that new products fall into the hands of consumers much more slowly than before. The young company had a clear and very attractive vision of its future. However, having reached the stage of the corporation, it basically implements it, and people do not know what to do next.

Product teams complain about a lack of purpose and authority; the fact that it often takes forever to get the right decisions and that work on creating a new product turns into running around cabinets. Management is also not satisfied that product teams do not offer innovations, and in order to solve this problem, they often resort to acquiring or creating autonomous “innovation centers”, trying to “incubate” innovation in a protected environment. However, such a step rarely leads to stable and productive innovations, which the company urgently needs.

Based on "INSPIRED. How to Create Tech Products Customers Love" by Marty Cagan

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