An S-Curve Model of the
Start-Up Life Cycle Through the
It is illegal to make unauthorized copies of this article, forward to an unauthorized user or to post electronically without Publisher permission.
The Journal of Private Equity 2015.18.2:23-34. Downloaded from www.iijournals.com by NEW YORK UNIVERSITY on 02/23/16.
JEFFREY OVERALL
is an assistant professor at
Ryerson Universitys Ted
Rogers School of Manage-
ment in Toronto, ON,
Canada.
jsoveral@ryerson.ca
SEAN WISE
is an assistant professor at
Ryerson Universitys Ted
Rogers School of Manage-
ment in Toronto, ON,
Canada.
sean.wise@ryerson.ca
SPRING 2015
Lens of Customer Development
JEFFREY OVERALL AND SEAN WISE
T
o develop sustainable competi-
tive advantages, organizations,
young and old, strive for contin-
uous improvement (Thompson
et al. [2014]). At the very core of continuous
improvement is innovation (Christensen
[1992]; Schumpeter [1943]). Innovative
firms are at the cusp of new product, service,
and technological advancement (Koskinen
[2005]). These new offerings have a shelf life,
however, meaning that the glory associated
with the competitive advantage gained from
them does not last foreverthey are subject
to a life cycle.
Life cycle theory of products, innova-
tions, and businesses, from young start-ups to
well-established firms, is founded in biology
(Lichtenstein and Lyons [2008]; Jurgens-
Kowal [2012]). Just like animals, plants,
and all living organisms, in general, there
is a birth, growth, maturity, and eventually,
death of organizations, technologies, and
innovations. Based on the life cycle of living
organisms, the S-curve was developed to
capture the progressive destruction of tech-
nologies from nascence to death (Lichten-
stein and Lyons [2008]), which follows an
S trajectory with slow growth followed
by rapid financial gains that lead to maturity
and, eventually, decline.
In the innovation literature, the tech-
nology S-curve theory is based on the premise
that as technologies mature, they become
obsolete (Christensen [1992]). In the diffu-
sion of technology literature, the innovation
adoption curve is used to project the life cycle
stages of innovations (Rogers [2010]). To
prolong the life cycles of these innovations,
additional resources are required, but with
the additional effort at latter stages in the tra-
jectory, organizations are typically faced with
depreciating returns (Rif kin [1994]). How-
ever, if organizations can pivot at the right
time, by releasing new technologies into the
market, mortality can be avoided ( Jurgens-
Kowal [2012]). In this way, organizations
attempt to strive for continuous innovation
(Zawisklack et al. [2009]) to sustain long-
term performance goals (Aragon-Correa
[2007]; Christensen [1992]; Kaplan [1999];
Lyon and Ferrier [2002]).
Although perhaps easier said than done,
many organizations fall to the same fate
peddling obsolete technologies and failing
to jump the notorious S-curve onto the next
innovation (Rif kin [1994]). Companies
that fail to make this leap of faith often lose
their industry leading positions (Christensen
[1992]. It happens not only to mediocre com-
panies, but also to some of the most successful
companies (Rif kin [1994])Research in
Motion, the makers of the Blackberry Smart-
phone, is a case in point.
In the start-up life cycle literature, par-
ticularly the work of Han [2005], the S-curve
has been adopted to ref lect the life cycle
THE JOURNAL OF P RIVATE EQUITY 23
 phases of entrepreneurs as they progress through the
phases of start-up through to building a company. Put
differently, start-ups follow predictable stages of develop-
ment from nascence to growth, maturity, and decline
(Zahra [1996]). According to the customer development
research (Blank [2007]), start-up founders attempt to
attract customers at various stages of the life cycles of
their businesses. Specifically, in the first step, entrepre-
neurs are in the stage of customer discovery, which leads
It is illegal to make unauthorized copies of this article, forward to an unauthorized user or to post electronically without Publisher permission.
to the customer validation stage when the start-up begins
The Journal of Private Equity 2015.18.2:23-34. Downloaded from www.iijournals.com by NEW YORK UNIVERSITY on 02/23/16.
to break even. When the organization starts to grow,
customer creation occurs, and eventually, when maturity
sets in, company building ensues.
Considering that capital is vital to start-ups in their
early stages of developing innovations and technolo-
gies that provide them with competitive advantages, an
important resource within young start-up firms is access
to financing (Cassar [2004]). According to the start-up
funding research (e.g., Cassar [2004]), start-ups typi-
cally access funding in stagespreseed, seed, early stage,
expansion, and later stage. These stages often mirror
the phases in the life cycle framework and, in general,
financing decisions vary depending on their stage in the
life cycle (Cassar [2004]; Leach and Melicher [2011]).
These financing stages and the corresponding trajectory
of start-ups are depicted in the start-up funding frame-
work, which has proven to be invaluable to entrepre-
neurs as they attempt to grow their businesses (Davila
et al. [2003]).
Each aforementioned frameworknamely, the
entrepreneurial S-curve (Han [2005]), innovation
adoption model, customer development process (Blank
[2007]), and start-up funding frameworkexplains a
limited portion of the entrepreneurial process; however,
put together, they provide a more holistic explanation of
entrepreneurship. To fill this lacuna, our aim is to amal-
gamate these frameworks into a synthesized S-curve
model of entrepreneurship, start-up funding, and cus-
tomer development. With this framework, we contribute
to theory by outlining and synthesizing the stages that
entrepreneurs encounter through the life cycle of their
businesses. With this conceptual framework, we hope
to assist entrepreneurs in building and expanding their
businesses through a lean start-up methodology.
In the first section of this article, we outline the
theoretical frameworkthe S-curve theory, innovation
adoption, customer development process, and start-up
funding frameworkthat forms the foundation of this
24 A N S-CURVE MODEL OF THE START-UP LIFE C YCLE THROUGH THE LENS OF CUSTOMER DEVELOPMENT
research. Next, we present our conceptual model. Finally,
we outline the implications of this framework for entre-
preneurs and suggest future research directions.
THEORETICAL FRAMEWORK
S-Curve
S-curve theory predicts the growth and decline
of an organization over time. In other words, S-curve
theory explains the life cycle of an innovation, tech-
nology, or organization. This research has been validated
in various research contexts, namely, natural sciences
(Lichtenstein and Lyons [2008]), innovation (Christensen
[1992]), and entrepreneurship (Han [2005]). Graphically,
the S-curve trajectory provides a visual depiction of the
rate of adoption of a particular innovation, diffusion of
technology (Han [2005]), and growth of a company
(see Exhibit 1). Indeed, the life cycles of entrepreneurial
organizations, or in other words, those that start from
a single entrepreneur and grow to become companies,
as well as their products, are depicted through life cycle
trajectories (Han [2005]; Leach and Melicher [2011]).
Through the shape of an S-curve, technologies are
born, evolve quickly, and become obsolete, eventually
(Bollen [1999]; Hall and Khan [2003]). Obsolescence is
often the result of competing technologies entering the
marketplace, which leads to saturation (Bollen [1999]).
However, to avoid obsolescence, organizations strive to
develop new technologies and prolong their competi-
tive advantages.
Innovation Adoption Model
In the entrepreneurship literature, the focus had
strictly been on the entrepreneur with the creation of
new innovations (Schumpeter [1943] and how these
innovations affect the industry as a whole, which can
lead to successes and failures. According to the inno-
vation adoption life cycle model developed by Rogers
[2010], it is contended that technology is adopted by
divergent users through various stages1) innovators,
2) early adopters, 3) early majority, 4) late majority, and
5) laggards (see Exhibit 2). Although exposed to initial
resistance, the technology enthusiasts and visionaries
(i.e., innovators and early adopters) quickly adopt the
technology in the early stages (Polli and Cook [1969];
Zawislack et al. [2009]). If these early adopters do not
SPRING 2015
 The Journal of Private Equity 2015.18.2:23-34. Downloaded from www.iijournals.com by NEW YORK UNIVERSITY on 02/23/16.
It is illegal to make unauthorized copies of this article, forward to an unauthorized user or to post electronically without Publisher permission.

SPRING 2015
Source: Rogers [2010].
EXHIBIT 2
EXHIBIT 1

Innovation Adoption Model

S-Curve Model of Innovation Diffusion

THE JOURNAL OF P RIVATE EQUITY

25
 reject the product or service, it will enter into the main-
stream marketplace, also known as the inf lexion point
(Zawislack et al. [2009]), where growth and widespread
acceptance sets in (Blank [2007]; Cohen and Amoros
[2014]; Polli and Cook [1969]).
At this early majority stage, other competitors
enter the market, which tends to increase competition
and, simultaneously, adoption of the technology (Cohen
and Amoros [2014]). Eventually there is a plateau, with
It is illegal to make unauthorized copies of this article, forward to an unauthorized user or to post electronically without Publisher permission.
the late majority adopting the product (Zawislack et al.
The Journal of Private Equity 2015.18.2:23-34. Downloaded from www.iijournals.com by NEW YORK UNIVERSITY on 02/23/16.
[2009]), which tends to lead to a decrease in sales as a
result of the entrance of substitute products. Eventually,
the technology enters decline and disappears (Cohen
and Amoros [2014]; Polli and Cook [1969]).
As the technology moves through the life cycle,
the rate of progress tends to improve; however, as the
innovation matures and begins to decline, a greater
amount of resources are needed to achieve incremental
improvements (Christensen [1992]). At this point,
where the curve of the model shifts from concave to
convex (Asthana [1995]), new innovations are hope-
fully introduced to sustain the viability of the organiza-
tion ( Jurgens-Kowal [2012]). However, if this does not
occur, failure is likely to ensue. Indeed, throughout each
phase in the innovation adoption life cycle, organiza-
tions strive to cross the chasm by attempting to enter
the next stage of technology adoption. Put differently,
it is contended that technologies become obsolete, but
through continuous improvement, new innovations to
existing technologies can create a new S-curve that fol-
lows through the stages of nascence, general diffusion,
maturity, and decline (Christensen [1992]; Zawislack
et al. [2009]).
To transition to a new S-curve, entrepreneurs
need to have diverse projects in various stages of work-
in-progress to implement them successfully as the
original technology moves through the life cycle. To
jump the S-curve, organizations need: 1) to con-
stantly generate new ideas, 2) have a backlog of various
ideas, and; 3) develop a funnel where multiple ideas
enter the market consecutively (Bosch et al. [2013]).
However, the transition to the new technology does
not come easy and it must be planned carefully, and,
typically it is constrained by the stage in the S-curve
the existing technology currently resides (Carayannis
et al. [1999]). Importantly, incremental innovations are
vital to achieving short-term successes, if organizations
wish to be successful in the long-term; it is believed
26 A N S-CURVE MODEL OF THE START-UP LIFE C YCLE THROUGH THE LENS OF CUSTOMER DEVELOPMENT
that discontinuous innovationsthose that are involved
with creating new industries through new products and
servicesare needed (Kaplan [1999]).
Even though S-curves are useful for managers in
planning their new product developments and helping
them understand why certain technologies fail while
others succeed (Christensen [1992]), several limita-
tions are associated with the theory. First, S-curves
are unable to assist managers with understanding
the directions that R&D programs should be taking
toward existing or future technologies (Christensen
[1992]). Second, the S-curve theory, in general, does
not seem to take into account the inf luence of internal
factors (i.e., strengths and weaknesses of an organiza-
tion) on organizational performance. In his critique
of population ecology, Donaldson [1995] notes that
the theory overemphasizes births and deaths at the
population level while ignoring the internal structure
of the organization itself. Importantly, Saad [2013])
contended that entrepreneurs should not look at orga-
nizations through only one life cycle perspective, such
as technology, but rather through variousfinancial,
strategic, customer, organizational, and technological.
By looking at the organization through various per-
spectives, a more holistic perspective of the context
should be gained.
Customer Development Process
There has been a shift in the way that start-ups
are conceptualized and developed. Originally, start-ups
were often mistaken for immature companies seeking
growth; however, this definition has evolved. From
Blank [2013], p. 64), a start-up is defined as an orga-
nization formed to search for a repeatable and scalable
business model. Importantly, start-up firms are con-
textualized around the concept of exploration. Indeed,
through their start-ups, entrepreneurs are constantly
seeking a sustainable business model and, in parallel,
customers. However, they might not necessarily be
concerned with efficient execution, which companies
later on in their life cycle might be focusing on. To
address this concern and refocus entrepreneurs on cost
efficiencies, the lean start-up method was developed by
Ries [2011] as a means to further develop the process
of building a venture. Riess [2011] contribution lies
in advancing the method to test start-up assumptions
through his build, test, and learn philosophy.
SPRING 2015
 In the framework, customer development is a key
underpinning of the lean start-up movement (Bhakdi
[2013]; Dunn [2012]; Lemminger et al. [2014]). Vali-
dated learning is the cornerstone of both the customer
development framework (Blank [2007]) and the lean
start-up method (Ries [2011]). Both approaches define
a start-up as an institution whose purpose is to create
a viable business by learning within a chaotic environ-
ment. A start-up iterates the various parts of its business
It is illegal to make unauthorized copies of this article, forward to an unauthorized user or to post electronically without Publisher permission.
model on its way to success through the customer devel-
The Journal of Private Equity 2015.18.2:23-34. Downloaded from www.iijournals.com by NEW YORK UNIVERSITY on 02/23/16.
opment process by tracking meaningful metrics and
creating testable hypotheses about growth and value.
In the customer development process, there are
four generic phases: 1) customer discovery, 2) cus-
tomer validation, 3) customer creation, and 4) com-
pany building, and entrepreneurs attempt to meet
customer needs through each phase (Blank [2007]).
In the f irst phase, entrepreneurs attempt to under-
stand who their potential customers are and if their
suggested product or service can solve their needs.
Considering that customer preferences are not well
established at this point (Werker [2003]), entrepre-
neurs want to understand if their product or service
offering is at least important to consumers. Central to
this stage are the resource decisionshiring, sourcing,
and product development.
In Phase 1, customer discovery, start-up founders
create a rough prototype, which is called a minimum
viable product (MVP), and use it to solicit feedback
from potential customers. This phase continues until the
problemsolution fit is found. The problemsolution fit
occurs when the entrepreneur confirms not only that
the potential market has an unmet need worth solving,
but also that they can confirm that the proposed solution
(e.g., features, approach, and value) meets the needs of
potential customers. The most efficient way of doing
this is by formulating a set of hypotheses and then
testing them through marketing research (i.e., speaking
to customers). Once a problemsolution fit is found,
the entrepreneurs move to the next phase of customer
developmentcustomer validation.
In the second stage, the needs of customers become
more salient (Werker [2003]). This is where entrepre-
neurs attempt to develop a business model that can be
used to solve the needs of customers on a large scale.
At this point, the founders attempt to understand if the
existing organizational members are capable of bringing
the company into the next stage of growth. In this stage,
SPRING 2015
the vision, mission, and culture of the organization
become clear. During customer validation, founders
know that they have discovered a problem worth solving
and test, on a larger scale, a sales process for engaging
with customers and proving that they will pay for the
solution, in both its proposed form and through its pro-
posed channel. While marketing research (i.e., customer
interviews) is the hallmark of the customer development
phase, pilot sales and early adoption are at the heart
of the customer validation phase. When a significant
number of pilot customers (e.g., 40%) adopt the solu-
tion, then the start-up is seen to have reached product
market fit.
Once a venture has reached productmarket fit, it
is no longer called a start-up under both Blanks [2007]
customer development process and Riess [2011] lean
start-up methodology. At this point, as Phase 3 begins,
entrepreneurs attempt to create the demand for a product
by building on the success of initial sales. At this stage,
it is the hope of the entrepreneur that the customer base
will grow exponentially along a continuous curve. In
the customer creation phase, self-ref lection occurs that
often leads to the realignment of goals and the devel-
opment of functional-level strategies that are useful in
building a sustainable organization (Blank [2007]). The
venture is now a company looking to scale and the focus
shifts to rapid, efficient, and repeatable execution. This is
known as customer creation, as the entrepreneurs spend
their time on not only developing the solution, but also
selling it in the market.
Once a venture has scaled into a market, growth
may start to plateau. At this point, Phase 4 of the cus-
tomer developmentcompany buildingbegins.
During company building, entrepreneurs begin to shift
their focus to growing the operations of the business in
the most cost-efficient manner possible (Blank [2010]).
In other words, the founders attempt to shift their focus
from the demand of the product to growing the business
by specifically focusing on validating the model (Blank
[2010]; Bosch et al. [2013]). As a whole, the customer
development model is useful for entrepreneurs, as it
enables them to realize what is needed not only at each
stage in product development, but also when to expand a
company (Blank [2007]; Marmer et al. [2012]). Indeed,
it has entrepreneurs focus on the needs of customers
at the beginning of company building as opposed to
focusing strictly on product development (Bosch et al.
[2013]).
THE JOURNAL OF P RIVATE EQUITY 27
 Start-Up Funding Framework
In the industrial organization research, organiza-
tional successes and failures are argued to be the result of
internal factorsnamely, leadership, capital, and organi-
zational resources. The industrial organization literature
in economics addresses the linkages between internal
assets of the firm and behavioral outcomes, including
market failure and performance (Debreu [1959]). In the
It is illegal to make unauthorized copies of this article, forward to an unauthorized user or to post electronically without Publisher permission.
microeconomic models, failures and successes are the
The Journal of Private Equity 2015.18.2:23-34. Downloaded from www.iijournals.com by NEW YORK UNIVERSITY on 02/23/16.
result of the underlying impediments of a firms ability
to recognize, understand, and compete in the market.
The ability to recognize and react to market forces often
lands squarely on the ability of managers to access finan-
cial resources to capitalize on market opportunities.
When making financing decisions, entrepreneurs
might have access to various types of funding sources,
which can assist them in taking their innovations forward.
Start-ups typically rely on internal financing, whether
personal funds or resources from friends and family, in
the very early stages of development for product and
customer development (Leach and Melicher [2011];
Saad [2013]). Access to this bootstrapping funding
can assist entrepreneurs with taking the initial steps of
moving their innovations forward with the hopes of
ultimately scaling the company (Saad [2013]).
In the latter stages of growth, however, the
financing gained from personal savings and debt, friends,
and family might become exhausted, and to progress the
entity, access to external sources of funding are needed.
These may include government grants, angel investors,
and venture capitalists. Indeed, access to certain funds
might be appropriate at specific stages of development of
the organization, but not in others. From this, it appears
that financing decisions and the type of finances sought
by organizations varies depending on their stage in the
life cycle (Cassar [2004]; Leach and Melicher [2011]).
CONCEPTUAL FRAMEWORK
Entrepreneurial S-Curve
Built on Robertss [1999] framework, in her entre-
preneurial S-curve model, Han [2005] describes the tra-
jectory of the entrepreneurial process from nascence to
sustainability. The entrepreneurial process is graphed
using a single S-curve through three main levels: a)
start-up, which involves the introduction of a new
28 A N S-CURVE MODEL OF THE START-UP LIFE C YCLE THROUGH THE LENS OF CUSTOMER DEVELOPMENT
product or service, b) growth, and c) sustainability and
company growth (see Exhibit 3). In the start-up stage,
entrepreneurs begin in a negative trajectory, as they are
investing resources toward developing the technology
and establishing the organization (Cohen and Amoros
[2014]; Han [2005]). At this point, entrepreneurs are
creating opportunities, which follow with the start-up
stage that involves gathering resources.
In this early stage of the development of a start-up,
revenues are typically low, but over time, they begin to
grow through an S-curve trajectory (Saad [2013]). This
is identical to the traditional S-curve whereby organi-
zations expend increasing amounts of resources at the
early stages of technological development (Christensen
[1992]). In the high-growth stage, the organization
breaks even and quickly gains economic profits through
a steep-rise in the trajectory. At this point, profits are at
their highest levels, and if managed correctly, knowledge
within the organization can be harnessed and used for
future growth.
Consistent with the maturity stage of the tradi-
tional S-curve, the sustainability stage involves slower
growth, which tends to challenge the survival of the
organization. Put differently, the organization has come
to a crossroad where either success or failure lies ahead.
To achieve success, entrepreneurs attempt to jump the
S-curve through new products, services, and busi-
ness processes that can lead to continued growth (Han
[2005]). If organizations fail to jump the curve, they
can easily fall victim to the decline of the organization
(Lichtenstein and Lyons [2008]).
Through this model, entrepreneurs are capable of
understanding the resources and the strategies that are
needed at each stage while protecting the firm from
the potential pathologies that may arise. Specifically,
in the early stages of the business, entrepreneurs can
focus on expanding through a lean start-up approach and
growing only when the stages in the model necessitate
it. Entrepreneurs can thus avoid squandering their much
needed capital and, as a result, should be in an improved
position to plan the resources needed to combat the risks
at each stage in the model.
When start-ups are founded, they are essentially
solving a problem that no one else in the marketplace
is addressing. This is often through new product or
service development involving technological innova-
tions. Through discontinuous innovation, entrepre-
SPRING 2015
 EXHIBIT 3
The Entrepreneurial S-Curve
It is illegal to make unauthorized copies of this article, forward to an unauthorized user or to post electronically without Publisher permission.
The Journal of Private Equity 2015.18.2:23-34. Downloaded from www.iijournals.com by NEW YORK UNIVERSITY on 02/23/16.
Source: Han [2005].
neurs create customer value through their start-up
enterprises. Put differently, they create new industries
and displace existing organizations (Kaplan [1999]). In
this way, the S-curve is at the nascent level where both
the organization and the technology are born, which
causes both the organization and the technology to
follow through the life cycle together. However, in
order for the organization to remain viable in the long
term and not eventually decline like the technology,
the entity must jump the S-curve to reach sustainability
(Han [2005]).
Consistent with (Han [2005]), in their research,
Lichtenstein and (Lyons [2008]) combined product life
cycle frameworks with that of business development life
cycles and created a six-stage model. In the pre-venture
stage, entrepreneurs develop an idea for a business and
establish the entity. In the infancy stage, organizations
launch their business with a new product or service
offering. This stage ends when the firm breaks even. In
the early growth stage, organizations become profitable
with marginal profits. In the expansion stage, the orga-
nization begins to achieve healthy profits and expands
its resource base to reach the next level of growth. This
SPRING 2015
is typically achieved through external financing. In the
maturity stage, the organization has grown to a siz-
able level and is in a strong position to reap the rewards
of profitability. In the decline stage, the organization
becomes complacent and eventually loses its position
through competent competitors or new technologies.
Although not specifically mentioned, this complacency
is often the result of internal factorsnamely, employees
and their lack of motivation.
Start-Up Finance and Entrepreneurial
Life Cycle
In his research, (Cassar [2004]) argued that
financing decisions vary depending on the stage that the
start-up falls within the entrepreneurial S-curve. In the
nascent stages of the entrepreneurial S-curve, there are
virtually no revenues and very limited resources available
within the organization (Leach and Melicher [2011]).
To grow their businesses, entrepreneurs need access to
seed financing (Leach and Melicher [2011]). The limited
funds that are available are predominantly used during
customer discovery by attempting to develop and test
THE JOURNAL OF P RIVATE EQUITY 29
 the assumptions of the business model. At this point,
the funds within the organization have been generated
through the personal finances, whether saving accounts
or credit, of the start-up founders (Cassar [2004]; Leach
and Melicher [2011]; Saad [2013]). In the latter stages of
the entrepreneurial S-curve, funds are attainable from
external sources, such as governmental grants, crowd-
funding, and friends and family. Once the start-up moves
to customer validation and a MVP has been developed,
It is illegal to make unauthorized copies of this article, forward to an unauthorized user or to post electronically without Publisher permission.
pilot products are launched, and at this point, funds can
The Journal of Private Equity 2015.18.2:23-34. Downloaded from www.iijournals.com by NEW YORK UNIVERSITY on 02/23/16.
come from the early adopters.
Although many companies fail in the early stages
of development, often within the 75% range (Grieco and
Hogarth [2004]), the remaining firms will need access to
external financing to grow their businesses through the
life cycle. Beyond these sources of financing, start-ups
typically rely on angel investors or seed VC funds, which
are those investors that offer funding within the range
of $25,000 to $500,000 in exchange for a small equity
stake in the start-up (Leach and Melicher [2011]; Saad
[2013]).
Once the organization has made it through to the
growth stage and productmarket fit has been reached,
the founders are aware of key data points, or put differ-
ently, profitability metrics, and can seek financing from
venture capitalists (Cassar [2004]). Venture capitalists are
typically professional investors and provide larger loans
to entrepreneurs (Alperovych and Hubner [2011]), typi-
cally in the $1 million range, which are used to further
scale the firm. Expansion of the organization continues,
and more senior forms of private equity, such as subor-
dinated debt and venture debt, may be useful sources of
financing. As the start-up transitions to a company from
growth to maturity and, eventually, sustainability, ini-
tial public offerings (IPOs) are often sought for further
development (Saad [2013]). As a potential alternative to
this, the founders (and funders) may decide to harvest
the value of the firm by selling the company. Impor-
tantly, organizations can either be bought or fail at any
stage in the life cycle (Saad [2013]).
In the entrepreneurial finance literature, it is con-
tended that entrepreneurs need to carefully manage their
financing decisions throughout the entrepreneurial life
cycle (Leach and Melicher [2011]). However, in general,
many founders have difficulties in knowing when to ask
for capital and how much. This is a result of the fact that
the characteristics of financing needs are very different
30 A N S-CURVE MODEL OF THE START-UP LIFE C YCLE THROUGH THE LENS OF CUSTOMER DEVELOPMENT
at each stage in the life cycle of the start-up (Eckhardt
et al. [2006]). They specifically encounter challenges
in understanding that start-ups typically require at least
12 to 18 months of capital, also known as a runway,
to reach the next milestone or, put differently, the next
stage in the life cycle.
If entrepreneurs borrow too little at the begin-
ning, they might run out of money prior to reaching
the next milestone, which can prove to be disastrous
when attempting to raise additional financing, as the
company may have lost its appeal (Dixon [2009]). If
entrepreneurs do not preserve capital and do not have
the necessary resources to reach the next milestone in
the life cycle, they will likely encounter financial distress
(Leach and Melicher [2011]), which can severely hamper
the viability of the start-up.
When this occurs, entrepreneurs might have
to restructure the organization (Leach and Melicher
[2011]), secure additional financing, or cease opera-
tions. To avoid these challenging situations, it is advis-
able to entrepreneurs to plan their financing needs
effectively for each stage of the process (Leach and
Melicher [2011]). On the contrary, if entrepreneurs
borrow too much in the preliminary stages, they could
be diluting the value of their shares (Dixon [2009]),
which can be problematic for entrepreneurs in the sub-
sequent rounds of investing, as their ownership could
be further diluted, often leaving them with limited
ownership and, as a result, limited incentive to progress
the firm.
Importantly, venture capitalists often fund enter-
prises in phases (Dahiya and Ray [2012]), meaning ven-
ture capitalists will forecast the likely amount that the
enterprise will need to get to the next milestone and
will provide only that amount. Once the milestone has
been reached, additional rounds of financing are likely
to take place (Denis [2004]). This approach is followed
for two main reasons: 1) to protect the venture capital-
ists by providing them with the right to abandon the
venture if it appears to go awry (Dahiya and Ray [2012])
and 2) to motivate the entrepreneur to preserve capital
(Denis [2004]). Using this approach, venture capitalists
are able to appraise the progress of the enterprise, and if
successful, additional investment occurs at later rounds.
Not only that, but financing through stages also assists
entrepreneurs with understanding exactly when they
will require financing.
SPRING 2015
 S-Curve Model of Entrepreneurship,
Start-Up Funding, and Customer
Development
Building on Lichtenstein and (Lyons [2008]) and
(Hans [2005]) entrepreneurial S-curve model, we
develop a conceptual framework by including the inno-
vation life cycle model, customer development frame-
work, and framework for start-up funding stages. This
It is illegal to make unauthorized copies of this article, forward to an unauthorized user or to post electronically without Publisher permission.
model provides entrepreneurs with an explicit roadmap
The Journal of Private Equity 2015.18.2:23-34. Downloaded from www.iijournals.com by NEW YORK UNIVERSITY on 02/23/16.
for the early stages of start-up life.
As depicted in Exhibit 4 and outlined in Exhibit 5,
customer discovery occurs from Point 0 to Point 1, at
which time the problemsolution fit has been found.
Until that time, founders, friends, and family are often
the most likely sources of capital (Leach and Melicher
[2011]). From Point 1 to Point 2, the founders engage
in customer validation and the company breaks even.
EXHIBIT 4
S-Curve Model of Entrepreneurship, Start-Up Funding, and Customer Development
SPRING 2015
During this phase, seed VCs, crowd-funding, and angel
investors may provide capital to support start-up prog-
ress. This second phase ends when the productmarket
fit is found (Point 2). Crowd-funding can be beneficial
during Stage 2, as this provides both necessary capital
and customer validation.
After productmarket fit, the company creation
phase begins and the focus shifts to expanding sales.
Today, most venture capitalists seek to invest millions of
dollars to facilitate expansion. As a result, most venture
capitalists will not invest until Point 2, when product
market fit occurs, since there is often too much risk from
uncertainty. Expansion will continue past Phase 3, at
which time customer development moves into the final
phasecompany building. At this stage, private equity,
venture debt, and subordinated debt may be the ideal
sources of growth capital (Leach and Melicher [2011]).
THE JOURNAL OF P RIVATE EQUITY 31
 EXHIBIT 5
Stages of the S-Curve Model of Entrepreneurship, Start-Up Funding, and Customer Development
It is illegal to make unauthorized copies of this article, forward to an unauthorized user or to post electronically without Publisher permission.
The Journal of Private Equity 2015.18.2:23-34. Downloaded from www.iijournals.com by NEW YORK UNIVERSITY on 02/23/16.
IMPLICATIONS AND FUTURE DIRECTIONS
As outlined, each model discussed in this
researchthe entrepreneurial S-curve, innovation
adoption model, customer development process, and
start-up funding frameworkexplains a portion of the
entrepreneurial start-up process. On their own, how-
ever, they are incapable of outlining the important stages
that entrepreneurs encounter throughout the life cycles
of their businesses. To address this gap, we synthesize
each model into a single framework and, as a result, pro-
vide a more holistic explanation of entrepreneurship.
Indeed, through the S-curve model of entre-
preneurship, start-up funding, and customer develop-
ment, entrepreneurs will hopefully become aware of
the strategies that are needed, not only from an internal
perspective with technological development, but also
from an external perspective with customer develop-
ment, to scale the company (Werker [2003]). Put dif-
ferently, the model developed in this research addresses
a significant limitation of S-curve theory, namely, that
it is primarily based on studying the external factors
that lead to pathology. Through the framework devel-
oped in this research, entrepreneurs should be capable
of predicting the likely stages that growth and maturity
of an innovation will set in and how this will impact
consumer demand.
This information is vital for entrepreneurs when
attempting to make financing decisions and planning
the need for capital, human resources, and marketing
(Nicholls [1986]). With this knowledge, entrepreneurs
will be capable of removing much of the uncertainty of
the marketplace. By doing this, entrepreneurs will be
capable of minimizing the potential errors that could
32 A N S-CURVE MODEL OF THE START-UP LIFE C YCLE THROUGH THE LENS OF CUSTOMER DEVELOPMENT
lead to the relinquishment of competitive advantages and
the onset of early organizational decline, while maxi-
mizing their resources by growing the company through
a lean start-up approach.
Using the S-curve model of entrepreneurship,
start-up funding, and customer development as a the-
oretical foundation, there are several directions that
researchers can take. First, researchers can take a case
study approach by investigating young start-ups within
a business incubation center or escalator. Specifically,
researchers can collect data related to the financial state-
ments of these entities and plot their performance on the
curve, longitudinally. With this information, researchers
can then conduct qualitative assessments to better under-
stand the potential risks and likely pitfalls that occur at
each phase on the trajectory.
Once this knowledge has been gained, researchers
could endeavour to develop a greater understanding of
the antecedents of early problems and what corrective
actions can be implemented to curb the onset of trouble.
Finally, large-scale quantitative assessments could be
conducted to understand if certain control variables,
such as industry, culture, level of industrial develop-
ment of the country, and experience of the entrepre-
neurs, can inf luence the stages in the S-curve model
of entrepreneurship, start-up funding, and customer
development.
REFERENCES
Alperovych, Y.M., and G. Hubner. Explaining Returns
on Venture Capital Backed Companies: Evidence from Bel-
gium. Unpublished Manuscript, 2011, pp. 1-36.
SPRING 2015
 Aragon-Correa, J.A., V.J. Garca-Morales, and E. Cordon-
Pozo. Leadership and Organizational Learnings Role on
Innovation and Performance: Lessons from Spain. Industrial
Marketing Management, 36, (2007), pp. 349-359.
Asthana, P. Jumping the Technology S-Curve. IEEE Spec-
trum, 1995, pp. 49-55.
Bhakdi, J. Quantitative VC: A New Way to Growth. The
Journal of Private Equity, Vol. 17, No. 1 (2013), pp. 14-28.
It is illegal to make unauthorized copies of this article, forward to an unauthorized user or to post electronically without Publisher permission.
The Journal of Private Equity 2015.18.2:23-34. Downloaded from www.iijournals.com by NEW YORK UNIVERSITY on 02/23/16.
Blank, S. The Four Steps to the Epiphany. Successful Strategies
for Products that Win, 3rd Ed. New York, NY: K&S Ranch,
2007.
. Why Startups Are Agile and OpportunisticPivoting
the Business Model. From his blog, www. steveblank.com,
April, 12, 2010.
. Why the Lean Start-Up Changes Everything. Har-
vard Business Review, Vol. 91, No. 5 (2013), pp. 63-72.
Bollen, N.P.B., Real Options and Product Life Cycles.
Management Science, 45 (1999), pp. 670-684.
Bosch, J., H.H. Olsson, J. Bjork, and J. Ljungblad. The Early
Stage Software Startup Development Model: A Framework
for Operationalizing Lean Principles in Software Startups.
In Lean Enterprise Software and Systems, B. Fitzgerald et al. eds.
Springer, 2013, pp. 1-15.
Carayannis, E.G., R.I.W. Roy, and J. Alexander. The
Speed and Acceleration of Technological Innovation: A
Co-opetitive Dynamics Perspective of the Small Satellites
Industry. Management of Engineering and Technology, 1999.
Technology and Innovation Management. PICMET 1999,
pp. 149-158.
Cassar, G. The Financing of Business Start-ups. Journal of
Business Venturing, 19 (2004), pp. 261-283.
Christensen, C.M. Exploring the Limits of the Technology
S-Curve. Part I: Component Technologies. Production and
Operations Management, Vol. 1, No. 4 (1992), pp. 334-358.
Cohen, B., and J.E. Amoros. Municipal Demand-Side
Policy Tools and the Strategic Management of Technology
Life Cycles. Technovation, 2014, pp. 1-10.
Dahiya, S., and Ray, K., Staged Investments in Entrepre-
neurial Financing. Journal of Corporate Finance, 18 (2012),
pp. 1193-1216.
SPRING 2015
Davila, A., G. Foster, and M. Gupta. Venture Capital
Financing and the Growth of Startup Firms. Journal of Busi-
ness Venturing, 18 (2003), pp. 689-708.
Debreu, G. Theory of Value. New York, NY: Wiley, 1959.
Denis, D.J. Entrepreneurial Finance: An Overview of the
Issues and Evidence. Journal of Corporate Finance, 10 (2004),
pp. 301-326.
Dixon, J. Whats the Right Amount of Seed Money to
Raise? 2009, cdixon.org/2009/12/28/whats-the-right-
amount-of-seed-money-to-raise/.
Donaldson, L. American Anti-Management Theories of Organiza-
tions. Cambridge, MA: Cambridge University Press, 1995.
Dunn, K.R. Business Planning for High-Tech Entrepre-
neurship through the Customer Development Process and
Business Model Iteration, 2012.
Eckhardt, J.T., S. Shane, S., and F. Delmar, F. Multistage
Selection and the Financing of New Ventures. Management
Science, Vol. 52, No. 2 (2006), pp. 220-232.
Grieco, D., and R.M. Hogarth. Excess Entry, Ambiguity
Seeking, and Competence: An Experimental Investigation.
Unpublished manuscript, 2004, cbdr.cmu.edu/papers/pdfs/
cdr_028.pdf.
Hall, B.H., and B. Khan. Adoption of New Technology.
Working Paper No. E03-330, 2003, pp. 1-21.
Han, M. The Entrepreneurial S-curve: A Conceptual Model
for Entrepreneurial Lifecycle. Unpublished manuscript,
2005, pp. 1-14.
Jurgens-Kowal, T. Book Reviews. Serial Innovators: Firms
that Change the World. Journal of Product Innovation Manage-
ment, (2012), pp. 1-5.
Kaplan, S.M. Discontinuous Innovation and the Growth
Paradox. Strategy and Leadership, Vol. 27 No. 2 (1999), pp.
16-22.
Koskinen, K. Metaphoric Boundary Objects as Coordi-
nating Mechanisms in the Knowledge Sharing of Innovation
Processes. European Journal of Innovation Management, Vol. 8
No. 3 (2005), pp. 323-335.
Leach, C.J., and R.W. Melicher. Entrepreneurial Finance, 4th
ed. Mason, OH: Cengage Learning, 2011.
THE JOURNAL OF P RIVATE EQUITY 33
 Lemminger, R., L.L. Svendsen, and E. Zijdemans, Lean
and Global Technology Start-ups: Linking the Two Research
Streams. The ISPIM Americas Innovation Forum, 2014,
pp. 1-13.
Lichtenstein, G.A., and T.S. Lyons. Revisiting the Business
Life-cycle. Proposing an Actionable Model for Assessing and
Fostering Entrepreneurship. Entrepreneurship and Innovation,
Vol. 9 No. 4 (2008), pp. 241-250.
It is illegal to make unauthorized copies of this article, forward to an unauthorized user or to post electronically without Publisher permission.
Lyon, D.W., and W.J. Ferrier. Enhancing Performance with
The Journal of Private Equity 2015.18.2:23-34. Downloaded from www.iijournals.com by NEW YORK UNIVERSITY on 02/23/16.
Product-Market Innovation: The Inf luence of the Top Man-
agement Team. Journal of Managerial Issues, Vol. 14, No. 4
(2002), pp. 452-469.
Marmer, M., B. Herrmann, E. Dogrultan, R. Berman, C.
Eesley, S. Blank. Startup Genome Report Extra Premature
Scaling, 2012.
Nicholls, J.A.F. The S-Curve: An Aid to Strategic Mar-
keting. Journal of Consumer Marketing, Vol. 3, No. 2 (1986),
pp. 53-64.
Polli, R., and V. Cook. Validity of the Product Life Cycle.
The Journal of Business, Vol. 42, No. 4 (1969), pp. 385-402.
Ries, E. The Lean Startup. Crown Business, 2011.
Roberts, E.M. The Challenge of Growth. In The Entrepre-
neurial Venture, W. Sahlman, H. Stevenson, M. Roberts, and
A. Bhide, eds. Boston, MA: Harvard Business School Press,
1999, pp. 395-423.
Rogers, E.M. Diffusion of Innovations. Journal of Consumer
Research, 2010, pp. 290-301.
34 A N S-CURVE MODEL OF THE START-UP LIFE C YCLE THROUGH THE LENS OF CUSTOMER DEVELOPMENT
Rif kin, G. Technology. Wrestling with the S-Curve. Har-
vard Business Review, JanuaryFebruary, (1994), pp. 10-11.
Saad, F.M. Modeling and Comparing a Startup Dynamics
in the U.S. and Egypt. Massachusetts Institute of Technology,
June 2013, pp. 1-76.
Schumpeter, J. Capitalism, Socialism and Democracy. New York,
NY: Harper and Roe Publishers, 1943.
Thompson, A.A., M.A. Peteraf, J.E. Gamble, A.J. Strickland,
ed. Crafting and Executing Strategy, 19th ed. New York, NY:
McGraw-Hill Irwin, 2014.
Werker, C. Innovation, Market Performance, and Competi-
tion: Lessons from a Product Life Cycle Model. Technovation,
23 (2003), pp. 281-290.
Zahra, S.A. Technology Strategy and New Venture Perfor-
mance: A Study of Corporate-Sponsored and Independent
Biotechnology Ventures. Journal of Business Venturing, 11
(1996), pp. 289-321.
Zawislak, P.A., F. Larentis, C.B. Machado, and A.M. Andrade.
Firms Innovation Expectation, Potential and Actions:
Impressions on the Japanese Videogame Console Market.
Journal of Technology Management and Innovation, Vol. 4, No. 4,
(2009), pp. 69-82.
To order reprints of this article, please contact Dewey Palmieri
at dpalmieri@ iijournals.com or 212-224-3675.
SPRING 2015