Conceptualization and Characterization of the Start-up Phase of Business Ventures

Abstract

New business ventures have been classified as Marginal Businesses, Corporate Initiatives, Promising Startups (PSs), Revolutionary Ventures (RVs), and Venture Capital backed Startups (VCbSs), based on three criteria, viz., (a) Investments to be made, (b) Uncertainty, and (c) Profits likely to be generated (Bhide, 2000). Commonly, all PSs, RVs and VCbSs are popularly known as “Startup firms” (in short, Startups) in business; and this paper focuses on Indian Startups. Promising Startups (PSs) operate in a niche market and are those that either copy or slightly modify some idea for commencing their businesses and believe in extensive adaptation and less of prior planning and research. The founders of PSs do not have managerial or industrial experience. PSs require less investment. RVs are typically involved in creative new processes or technologies and provide unique and valuable products or services to their customers. In addition, RVs attempt to gain deep insights about their potential customers’ needs, especially those that are not well articulated by the latter themselves. RVs require high investment. VCbSs have unique ideas and transform them into action with the required planning. They are subjected to stringent checks by VCs who invest money into the VCbSs because of the credibility and experience of the founder. In addition, both, PSs and RVs gain venture funding as they grow and gain the status of becoming VCbSs. All these three types of Startups face a higher degree of survival risks and intense operational challenges, which need to be examined. Studying the lifecycles of PSs, RVs and VCbSs is essential for examining their risk profiles. Several lifecycle models proposed in the literature have been analysed and four typical distinct lifecycle phases of all organizations have been identified as: (a) Startup or Initial phase, (b) Growth phase, (c) Maturity phase, and (d) Decline phase. The last three phases are similar for all the above five types of business ventures. It is the Startup phase that distinguishes these ventures. In this paper, the Startup phase of Startups is analysed on the basis of the following: (a) literature review of Startups, (b) lifecycles of organizations, (c) identification of milestone events and their characteristics, and (d) gathering and collating expert views. This analysis has led us to identify and propose seven typical stages in the Startup phase, viz., (1) Ideation, (2) Incubation, (3) Founding, (4) Acceleration, (5) Diversification, (6) Crisis, and (7) Reorganisation. The resources utilization and organizational processes corresponding to each of these seven stages, along with the respective milestones, may or may not be independent depending upon the circumstances. A thorough understanding and characterization of each of these seven stages constituting the Startup phase is vital for effectively managing resources, identifying appropriate management styles, policies, infrastructure, resources, and avoiding or minimizing adverse risks.This work concerning PSs, RVs, and VCbSs will help founders/promoters, Investors, VCs, Regulators and other Stakeholders to understand and manage the risks faced during these seven stages. The proposed conceptual framework will also help policy makers to formulate policies and plan for appropriate interventions that would minimize the failures of Startups.