Startup Stages Seven thru Nine

Quick Summary: Scaling operations, revenue increases, and operational problems are all part of success.

Abstract:

The last three stages mark the beginning of the ongoing growth and maturity of the company.  Scaling of operations and increases in revenue through market penetration have become the new way of life.  Along with these changes come operational issues and challenges that seem to occur daily.  All-in-all, they are worth it as the vision becomes a reality.  It has not been easy, but well worth the effort.

Script from BRIO Academy’s Entrepreneur’s Roadmap Chapter, Startup Stages Seven thru Nine Video

Slide 1: Introduction Stages 7 thru 9

Hi, my name is Tom Berger.  This is the seventh video in the Entrepreneur’s Roadmap chapter.  It discusses the last three of the nine sequential stages that an entrepreneur will experience on their journey.  Unlike the previous six stages, an entrepreneur never completes these stages.  Instead, they describe a continual cycle of events.

Slide 2: Starting Down the Road

From the slide, it appears that there is still a long way to the top.  That may be true, but after this video, the journey will become much clearer, and your confidence will significantly increase.

The last three stages are based on the significant efforts that have already taken place. The results are now becoming quite visible. 

Slide 3: Coming of Age

These stages can be thought of as ongoing operations.  They mark the “Coming of Age” of the entrepreneur and their company.  During this phase, the “Chief Everything Officer” transforms to becoming the Chief Executive Officer.  It may not be any easier for them, but the CEO can now rely on others to help the company grow and prosper.  Feelings of accomplishment will now occur quite often.  Everyone’s confidence will increase.

Although depicted as the end of the nine stages, it is better to think of this phase as a continuous cyclical journey.  The three stages repeat themselves over and over, with different variations regularly occurring.  The journey never gets old.  As time goes on, it does become far more predictable.

Slide 4: Result

Think of the transition as a youngster growing from a gawky teenager to a mature adult.  For them, the change is constant.  The Coming-of-Age phase is quite similar.  The vision has become a reality, and the ultimate goal is within reach.  All of the elements are being addressed, and the CEO no longer has to be the Chief Everything Officer.

The focus will have shifted from finding willing prospects to serving customers.  The need to selectively scale different business elements at different times and different levels will become daily issues.  And, while new customers will provide new revenue, the required cash to build scalable systems, inventory, and cover accounts receivable, generally requires more capital infusion, a task that will fall on the CEO's shoulders.  These factors, plus many more, are the reason that the sigh of relief quickly turns into a gasp for air.  Along with the added pressure comes greater satisfaction!  You have passed most others on your long journey.  If not downhill, the journey ahead will be on more level ground.

Slide 5: Ready to Expand

Stage 7: Ready to expand.

After “Having Some Customers,” as discussed in the previous stage, the company must find new ways of meeting increased customer demand.  In many parts of the business, “more of the same” will not be sufficient.  Also, the initial wave of customers that might have accepted the Minimum Viable Product will be replaced with customers that require more features and functionality.  Equally important, they will demand ongoing support.  More resources in multiple areas will be required.

Processes to ensure repeatability in order to provide consistent quality will also be required.  As these changes begin to be implemented, there will be new demands for investment and staff with the required expertise.  This expansion period is very fragile.  It is easy to misstep or fail to respond to customer issues promptly.

Knowing what to scale and when to do it is very difficult.  Some methods may scale easily.  Other activities will require past practices be discarded and new methods implemented.  Managing the various transitions can be difficult.  The introductory video to the chapter discussed the notion of moving out of the garage to a new facility.  It is not hard to visualize the changes required. Disruptions will occur while simultaneously pursuing expanded revenue opportunities.  These issues are discussed in the next two stages.

A simple method to quickly understand the scalability that will be required is to perform an “Add-a-Zero” analysis discussed earlier.  For every activity, imagine that you have to do ten times more of it.  For example, instead of one sales call per day, how would you make ten calls a day?  Or shipping two systems per week, how would you ship twenty per week.  You will quickly discover what can grow and what will require different approaches.

Delegation will replace doing for many activities as the team grows and begins working together.  The focus must now be on how to expand every aspect of the end-to-end prospect identification to ongoing customer support activities.

The company must focus on making it easy for the customer to buy and implement their offering.  They have to consider each element in the overall end-to-end solution.  Think of the situation as links in a chain.  Every link must be strong enough to support the other links.

Slide 6: Ops Issues

Stage 8: Having operational issues.

People, process, product, and prospect issues will undoubtedly occur when the business begins to scale.  It is easy for everyone to become interrupt-driven, reacting to the newest issue that suddenly arises.  Personnel issues are the most serious issues that require immediate attention.  As a company goes through growing pains, employees will often be asked to work outside of their comfort zone.  Some will be asked to take on new responsibilities. Others will be asked to relinquish certain aspects of their jobs or change the methods they have successfully used.  Turnover of key employees can easily occur. With that turnover, valuable skills and know-how can be lost which puts additional strains on the organization.

During the rapid growth stage, everyone must never forget to 1) take time for people and 2) focus on responding and not reacting to situations.  Both of these areas seem obvious, but they can be easily forgotten in the midst of rapid growth and its chaos.  There is a commonly used adage that “The customer comes first.”  This is a noble saying but does not consider that customer issues and ongoing satisfaction are manifested through employees.  Perhaps a more appropriate notion is “The customer comes first after employee issues are resolved.”

Slide 7: Revenue

Stage 9: Pursuing Revenue

Instead of being a transient stage along an entrepreneur’s journey, the pursuit of revenue never ends.   Even the largest and most successful enterprises in the world are continually focused on this issue.  Competition appears, reaching new customers can become expensive and time-consuming, supporting existing customers as their numbers grow, all require increased resources, inventory and logistics issues appear.  Time remains as the most precious resource that is always in short supply.  Operating cash can also become a significant issue.

If there is one issue that should keep the CEO up at night, it is the challenge of increasing revenue.

Slide 8: Profit is Elusive

After operations have scaled, the pursuit of increased revenue takes on a new challenge. The focus shifts to the pursuit of revenue that will result in profitable operations.  Many early-stage companies focus on attaining high gross margins (sales minus product cost).  While positive gross margins are required, profitable operations are only meaningful after the company has achieved higher levels of sustainable and growing revenues.  Until that point is reached, the “below the gross margin line” costs can dwarf product costs resulting in significant operating losses that will drain capital resources. Some of these “below the line” costs include sales and marketing, finance, manufacturing, and customer service.

Early-stage companies commonly fall into the trap of only focusing on gross margins.  In one case, the entrepreneur may be acting as the sales rep, marketing expert, and even providing customer support to their first few customers.  In another case, a company may be creating a product through a 3D resin printer that takes nine hours to build.  In both cases, the approach, although successful, is not scalable, and any margin calculations are meaningless.

Therefore, the pursuing revenue stage involves scaling all aspects of the business. This is necessary to achieve “bottom line” profitability to fund future growth and provide an acceptable return to all investors.

Slide 9: All Nine Stages

You made it!  You probably have skinned knees, but the stumbles were worth it!  The journey is far from over, but you will be able to apply the many lessons you learned along the way.  When you started, you had no idea of what really lied ahead of you.  But you kept with it, and you have won.  Many try, but only a few succeed.  Why do the winners succeed?  It is simple:  Adaptive Execution.  They know when to push through and also when to pivot.  Equally important, they listen to others.  By taking this course, you are doing just that!

Slide 10: Two Down, Four to Go

Just when you thought your journey was over, new caution signs appeared!  Think of the last four signs as precautions or warning signs to help you stay on the road to success.  All of them have been briefly mentioned in previous videos.  They are, however, so important that they need special emphasis.  Once you are exposed to them, you will be able to avoid the dangerous issues that they represent and will be able to continue safely on your journey.

Slide 11: Take Action

The CxO-Atlas articles available in the Course Material contain more detailed descriptions of the last three stages.  Take a few minutes to review them and then, answer the simple Progress Activity questions.  If you have any trouble answering them, take a step back, do some research, and ask for help.  They will be your foundation for your entire business.

Above all, focus on how your company can reach and maintain profitable operations.

The next video, will describe the most important issue in this entire chapter.  It describes the number one reason for failure.  It is remarkably easy to avoid with a simple test that can be applied to virtually every business decision.  It needs to be embraced by everyone in the organization.

 

Article Number : 9.040107   

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