What Is Startup Aging? The Startup's Secret to Eternal Youth & Success

He once valued Zomato’s shares at ₹42, and now they’ve soared beyond ₹250. On the surface, this may seem unimpressive, but there’s a deeper lesson in his valuation that I’ll share with you at the end of this article. The man behind this calculation is none other than Aswath Damodaran, the celebrated professor of finance at NYU’s Stern School of Business. His latest book, The Corporate Life Cycle, has made waves. As I’m always on the lookout for pieces that spark ideas—and this one certainly did. Though his thoughts were centred around corporate aging, I believe they hold a vital message for every startup entrepreneur striving for sustainable growth.

Beyond Innovation: The Key to Startup Success

We’ve all heard the saying, “Necessity is the mother of invention.” But in today’s world, innovation is the only true necessity. No one understands this better than an entrepreneur, constantly solving present and future problems. But have you ever considered that your innovation could eventually become a problem for your startup? Damodaran’s insights remind us that innovation alone isn’t enough for long-term survival.

Why Your Startup Might Age Faster Than You Think?

Corporate Aging vs. Startup Aging: In The Corporate Life Cycle, Damodaran explains how companies, much like humans, age. Corporations that have been around for decades eventually find it harder to innovate and grow, leading to their decline or acquisition. Big names like Philips, Intel, Yahoo, and even Sony have felt this aging process. They haven’t necessarily failed, but competing with younger, more dynamic companies is increasingly difficult. And here’s the real twist: startups are just as susceptible to aging—but at a much faster rate.

Take Zomato, for instance. A few years ago, it was a fledgling startup, and today, it’s a giant. But its rapid growth may also accelerate its aging. The lesson? As a startup, you must manage growth and expansion carefully to slow down the aging process. Or, you might need to pivot into complementary areas with a bright future—just like Ola, which transformed from a cab aggregator to an Ola Electric (Electric Vehicle) and battery manufacturer. The faster you grow, the faster you might age, and the more challenging it will be to stay in the game.

How to Extend Your Startup's Life Cycle?

Extending Your Startup’s Middle Age! There’s no miracle cream to prevent aging—neither for humans nor businesses. But you can extend your middle age with good habits. The same applies to startups. Damodaran points to companies like Apple and Microsoft, which have kept themselves young by continually innovating. Apple’s introduction of the iPhone and Microsoft’s forays into AI are perfect examples. These companies reinvented themselves and emerged younger than ever.

Family-run businesses often achieve this by diversifying. They maintain portfolios that include both established cash cows and fast-growing ventures. Similarly, successful startups must innovate and explore new markets or invest in promising startups with strategic value. This diversification helps balance the risk of aging with the promise of growth.

Identifying Your Startup’s Life Cycle Stage

Pinpointing where your startup stands in its life cycle can be tricky—it’s subjective and depends on several factors. Are you in a growth phase, or have you hit a plateau? Are you making profits or burning through cash? More importantly, how do you perceive competition and business potential over the next five years?

Globally, a startup’s life cycle typically spans five years. If you make it through that, there’s a good chance you’ll become sustainable. One rule of thumb is to look at profit margins. Experts suggest that if your startup is pulling in a 25% profit, you’re probably in your mid-life phase. At 10% or lower, you’re still in your youth and have room to grow. Recognizing this stage is critical for planning your next move.

The Corporate Life Cycle: A Guide for Startup Entrepreneurs

Valuation-Based Exit or IPO: What’s Best? The startup journey is often driven by the goal of creating a sustainable business, followed by a lucrative exit. But when should you exit? The right time comes when you realise that your startup’s life cycle may not be long, or its business model has limited scalability. Many entrepreneurs opt for mergers, acquisitions, or exits at this point—and it’s usually a wise decision. They’ve completed the startup life cycle and can move on.

On the other hand, startups with sustainable models might opt for further funding rounds, aiming to become unicorns before going public. With an IPO, they gain more capital to expand and extend their life cycle, eventually joining the ranks of larger corporations. Entrepreneurs must carefully assess their options, especially as large corporations invest in startups through family offices and corporate venture funds. Sometimes, it’s better to stick to a stable course rather than venturing into risky, uncharted waters.

And Finally, the Zomato Valuation…

So, why did Damodaran value Zomato at ₹42 just before its listing? The truth is, no expert or investor can perfectly evaluate a startup’s worth. No one truly understands your future plans, your vision for growth, or how you navigate your startup’s life cycle. That’s something only you can assess. So, take all the opinions and advice you can, but make sure to trust your instincts. At the end of your startup journey, you’ll want an exciting story to tell—not necessarily a long one.