Early Stage Startups vs. Growth Stage Companies: What’s the Difference?

Early Stage Startups vs Growth Stage Companies

As the name suggests, startups are small companies that develop unique products or services. However, despite their size, they play a crucial role in the economic process. They create jobs, highlight innovation, and encourage competition.

For instance, Airbnb, Instagram, and Uber began their journey as startups, and look at how they transformed their respective industries.

If you’re interested in learning how these organizations work, it’s essential to understand that they fit into different categories, like stages and funding rounds. Two examples that fall under this category are early-stage startups and growth-stage companies.

If you’re looking to learn more about these, read on to learn their definitions and the core differences between them.

What Are Early-Stage Startups?

Early-stage startups are organizations that are still in the development phase. They are in the early stages and have their work cut out for them to succeed. Below are some of the components that define these companies.

They’re New to the Market

Early-stage startups are firms that have just entered the market. Their names seem brand new to their target consumers, so they need relevant marketing and advertising efforts to introduce themselves. Should their strategies work as planned, they can eventually increase their market share.

One of the top reasons that startups fail is not having enough demand for their products and services, which makes addressing their audience’s pain points one of the core components of these companies’ success.

They’re a Small Company

You won’t come across early-stage startups with thousands of employees and massive offices. Instead, these companies may have as few as ten people on their team. This means that they can operate in unconventional spaces like someone’s garage, much like Microsoft during their early days. Once these enterprises grow, you might see them hire more people and move into proper offices.

They Face Operational Challenges

Early-stage startups still have several kinks to work out in their operations. Some might face challenges regarding their production, marketing, or accounting efforts. After some time, they will gain enough experience to smooth out their practices.

They Aren’t Yet Profitable

In most cases, these organizations are still not profitable. They usually survive on investor funds in the beginning. Investors believe in their business concept and trust that they can make money out of their idea in time.

Companies should eventually begin to make more money and progress beyond series A funding to exit the early stage, but this process may take years.

What Are Growth-Stage Companies?

When early-stage startups move out of their unconventional workspaces and into spacious offices, they usually transform into growth-stage companies. By this time, these organizations are able to bring their vision to life.

They’ve discovered the products, services, and strategies that work for them and have achieved an impressive product-market fit. You will often find these organizations hiring additional team members as they expand.

Below are some factors that define such companies.

They Show Impressive Growth

Industry growth averages are good indicators of how well an organization is doing. In most cases, growth-stage companies outpace industry averages to achieve impressive growth figures.

They Have Bigger Teams

You won’t often find growth-stage companies in someone’s garage or coworking spaces, because they typically employ 50 to 100 people. They need more employees to address the demands of their growing market.

They’re Beyond Series A Growth Capital

Series A financing is a critical stage in a startup’s journey. It’s the second stage of startup funding and the first of venture capital financing. It proves that a company has sold enough shares and secured enough capital from investors.

Once a company grows beyond series A funding, it can join the other growth-stage companies on their way to the big leagues.

How Are They Different From Each Other?

Experts use the word “startup” as a generic term for growing companies. However, there are several factors that can be used to tell them apart. If you’re not sure which category your business falls under, here are a few considerations you can make to figure it out:

Their Product-Market Fit

Have you tested how the market will receive your new product or service? In most cases, early-stage startups have not. They’re still testing the waters to see if their idea has a profit potential.

Meanwhile, growth-stage companies have already validated their ideas and can prove their sustainability. In most cases, such organizations aim for growth and try to keep their sales from plateauing.

The Complexity of Their Work

Being an entrepreneur is not a walk in the park. However, running an early-stage startup is much simpler than overseeing a growth-stage company. The former deals with operational challenges, but also has fewer employees and smaller workspaces to handle.

On the other hand, growth-stage decision-makers need to constantly consider investor return on investment (ROI) and market demands. The pressure to succeed is greater for these organizations.

Their Risks

Every business faces risks daily, including early-stage startups and growth-stage companies. However, early-stage startups are far more flexible when it comes to risks. They often have ten or fewer people on their team and can take chances on ideas that have the chance to lead to massive payoffs. If they fail, investors can still bounce back because these brands typically haven’t grown enough to leave them bankrupt.

However, it’s a very different scenario for growth-stage companies. They usually have at least 50 employees and high-profile investors. Apart from a stricter approval process, they also have a lower tolerance for risk because they have more to lose than their smaller counterparts.

Grow Your Business Today

Can you now distinguish between early-stage startups and growth-stage companies? While these organizations have distinct differences, they also have similar goals. No matter the company type, investors and employees want to do their best to grow their businesses.

If you’re a startup owner looking for ways to propel your company’s growth, we want to talk to you. We have years of digital marketing and web development experience from working with early-stage startups and high-growth companies. Our work has resulted in companies achieving successful exits. In addition, we are highly focused on designing and implementing ROI centric campaigns to demonstrate positive returns to shareholders.