Stages of a company

As MIT mentors we usually see very early stage companies, in contrast to the mature organizations at the Social Innovation Forum. Here’s a rough guide to a startup’s life stages. In startups many things go on in parallel, not serially – such as product development and customer development. So this list is fluid, your MVP might get you paying customers. Companies have been bought before even releasing an MVP! So keep in mind that this is just a list of phases and the order may well not apply to you as listed.

The Business idea

Typically ideas are either how to solve a problem or how to create an opportunity. Google solved the problem of finding stuff you were looking for on the ever growing Internet, quickly and accurately. Facebook created the opportunity to connect with friends, former classmates, acquaintances, friends of friends and keep up on their activities.

As Bill Gates and others have said, “ideas are cheap, it’s all about execution.” I tend to agree with that, though occasionally I do see an idea that looks valuable and the execution straightforward.  The canonical example of this was Hotmail, the idea being creating a
web-based email system. The founders knew they had a hot idea, kept in total stealth mode, and coded like madmen to get to market before anyone else. Evidently in a matter of days it was up, went viral and then was bought by Microsoft for $4oo million if I recall correctly.

Entrepreneurs tend to worry too much about others stealing their ideas and far too little about finding customers. While big companies do steal ideas, it’s much more common that they wait until the idea becomes successful, then build it into their products. The classic example of this are operating system vendors like Microsoft and Apple that spot useful utilities and then build them into their OS.

So get out and develop customers and worry less about your protecting idea, unless you’ve truly got an invention, in which case you should probably consult a patent attorney.

The Presentation and Executive Summary

While you are developing your product, and I hope testing the idea with potential customers to validate your idea, it’s common practice to produce a slide deck and a
one-page executive summary. I’m not a fan of decks – people have seen far too many of them, most cram too much information into every slide – and take up valuable time, time better used to create products and customers. What I do recommend, and I just did this myself, is to create a one-page process flow diagram of how your business works and how it delivers benefits and makes money. You can print this out on a extra large piece of paper at Staples or elsewhere, then talk you way through the diagram with your prospective customer, partner or whomever is sitting beside you. I promise they won’t fall asleep while you do this as they might during your slide show.

I do recommend a leave-behind one-page executive summary with the standard elements of a business plan. It should be terse, clear, and preferably illustrated. The exec sum and flow diagram can serve as pass alongs within your target company, acting as information emissaries on your behalf. Your goal is to arm anyone who likes your product with the tools to champion it within their organization, as your initial contact will rarely be the decision maker.

The Demo

I have a simple definition of a demo: it’s a simulation of your product that usually requires you to present it, as it will have bugs, missing features etc. that only you or one of your colleagues know how to navigate around. The sooner you can show, rather than tell, how you solve a customer problem or create a great opportunity the better. Video demos have pros and cons. The pro is you know there won’t be any glitches in the demo, the con is that the audience will probably assumed you just did it all through clever editing. But if you have a complex and dynamic process to demonstrate, like some new type of water filtration system, a video demo may well be the way to go.

The Prototype

Unlike a demo, a prototype is a functioning version of your product that a prospect can test drive for themselves. That does NOT mean it’s feature/function complete NOR free from bugs, cosmetic and/or functional. The idea is to have the prospective customer experience your product for themselves.

The sequence through these phases so far is tell, show, experience. If you’ve validated your idea to the extent you and your colleagues and backers feel confident in continuing to invest in product development, then do.  But sometimes at this stage it may be time to pivot, e.g. change direction, or even fold your cards.

Testing

Back in the old days of assembly language, then C and C++, when the cornucopia of tools and open software that exist to day weren’t even a glimmer in the eye of the most farsighted software seer, beta testing was a very distinct phase. I believe Netscape pioneered today’s mode of a constant stream of releases, letting the customers act as the QA department.

Of course, with products like medical devices the testing, validation and acceptance phase is vitally important and may even be government regulated. So how much you test, how and how long, are largely determined by the type of product you are producing.

The MVP

Whether or not you’ve done beta testing, by this stage your customer development process should give you the confidence to create what is called the Minimal Viable Product. The MVP includes only enough features to be a useful product and to test the market, with your constant aim being market validation and customer acceptance. The MVP is showtime!

Product Launch 

Assuming your MVP meets with success, you’ve gotten feedback from your early adopters about what is lacking or flawed in the MVP and have used your customer base to help your prioritize your feature list, your bug list, optimizations, extensions, etc. Once you have added your top priorities to the MVP you are ready for your full product launch, which means a go-to-market strategy. That usually means social media, PR, trade shows, analyst meetings, Facebook ads, etc. Obviously your go-to-market strategy has to be developed in parallel with product development and take into account what’s been learned about customers during the MVP phase.

First Customer

No one likes to go first! So getting that first customer is orders of magnitude harder than 2 through N. You should bend over as far backwards as you can without injuring yourself to make that first customer happy. Especially now in the heyday of social media, there’s nothing better than a satisfied customer and nothing more deadly than a dissatisfied one – never has it been easier to complain about a product or service to thousands or even millions of people. So under promise and over deliver. Double and triple check your product or service. Provide the highest level of support you can. As you grow you’ll probably have to move from, say phone support to email or forum support, but you won’t have a chance to grow without getting that vital first customer.

First Revenue

There’s a reason you see those dollar bills framed in old mom and pop shops. No bigger milestone than first customer revenue! Just be careful about payment terms and cash flow. The bigger the company, the slower they pay. 90 or even 120 days is not uncommon. So remember that booking, billing, and receiving cash in the door are three different things. And as the saying goes, “in startups, cash is king.” It sure does help to meet payroll!

Scaling

Ok. so you have your first customer and your first revenue. You just made it through spring training and now the real season begins. If you have investor money they are interested in two things: growth, then a liquidity event. So figuring out how to scale your business, get economies of scale, drive down customer acquisition costs, optimize your supply chain, get volume discounts and more are the new challenges once you have a product that sells.Not to speak of the need for customer support and the rise of competition.

Profitability

Profitability hasn’t been in vogue since Netscape went public as a money-losing company decades ago. But with the recent tech bubble seeming to be deflating it may come back into vogue. Knowing when to take a profit and when to re-invest it into the company’s growth is a complex topic for another day. Suffice to say, generating a real – not an accounting-generated – profit, is perhaps the ultimate milestone short of a liquidity event.

Liquidity

Liquidity refers to turning the company’s assets – products, customers, IP, etc. – into a form that can be easily transferred. That usually means cash, but it could mean stock in a publicly traded company. If you have taken investment from angels, VCs or other investors they expect and deserve a return on their investment. Depending on investor patience you’ll have roughly five to seven years to return their investment with interest, either by selling all or part of the company to another party, or by going public.

Check out the book Nail It then Scale It: The Entrepreneur’s Guide to Creating and Managing Breakthrough Innovation by Nathan R. Furr and Paul Ahlstrom for help in finding your product/market fit, then growing profitably. Highly recommended by my serial entrepreneur friend, Giuseppe Taibi.

 

 

Author: Mentorphile

Mentor, coach, and advisor to entrepreneurs, small businesses, and non-profit organizations. General manager with significant experience in both for-profit and non-profit organizations. Focus on media and information. On founding team of four venture-backed companies. Currently Chairman of Popsleuth, Inc., maker of the Endorfyn app for keeping fans updated on new stuff from their favorite artists.

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