The 4 Stages of Enterprise Maturity: From Startup to Self-Sustaining
Entrepreneur's New Year’s Guide
“What do I do next?”
That’s the question I get asked repeatedly by students and entrepreneurs. They may have an idea for a startup or have already started a fledgling enterprise, but the quandary is the same: how do I take my business to the next level?
These advice seekers have instinctively realized that their enterprises demand very different things of them at different times. But they don’t know what those things are. What an entrepreneur was doing well in one phase to grow the enterprise may be the wrong thing to do just a few weeks later once that phase ends.
What they need to understand is how an enterprise grows and matures and how to nurture it accordingly. Ideas grow into startups, which grow into mature enterprises, in four distinct stages, with a distinctive task to be accomplished in each: customer validation, operational validation, financial validation and self-sustainability. Further, the enterprise must proceed through these stages in sequence. Attempting to jump over a stage results in a shaky foundation, which leads to financial trouble and cultural dysfunction.
As the enterprise matures, so must the leader. At each stage, you must undertake specific tasks, acquire new organizational skills and expand your leadership competencies to meet the demands of a changing and growing business. Neophytes may find this prospect daunting, and every entrepreneur strains to make each transition. But, in fact, these things can be mastered, if you know what to expect and you are willing to put in the time to prepare.
1. Getting the idea right
A seed can’t grow into a tree unless it starts to germinate. Similarly, even the best startup idea cannot begin to be turned into a tangible enterprise unless it is first transformed into something customers want to buy. The fuel for the transformation is provided by your passion and your small dedicated team along with whatever money is available.
Your chief focus during this stage is to validate your idea with potential customers, investors, employees and others. As you conduct this customer validation you may find that you have to change your idea on the fly. This is entirely normal, but many entrepreneurs in this stage cling stubbornly to their original idea even when potential customers reject it.
At the end of the germination process the entrepreneurial idea has been transformed into a product or service that some actual customers commit to buy. But as soon as you have a product that customers are truly interested in buying, the nature of the work and the leadership required shift dramatically.
2. Establishing product viability
Now that you have some committed customers, you have to figure out how to deliver the product reliably, not just a couple of times. Simultaneously, you will need to find new customers. This phase requires putting into place capabilities to produce and deliver your product and to find and satisfy customers.
This task -- operational validation -- gets screwed up often because entrepreneurs do not understand the basics of how enterprises work and they do the wrong things to set up their rudimentary capabilities.
3. Growing strong
Stage three starts when the value proposition has been confirmed and basic processes are reliably in place to deliver the product, capture and satisfy customers and run the enterprise. The objective of stage three, financial validation, is to make the enterprise financially secure by making sure it can consistently produce value under changing market and competitive conditions. To complete this stage, you must put in place a new set of processes that are flexible enough to handle significant growth and changes in demand, while not depending on any particular individuals.
Many entrepreneurs feel disoriented and demoralized by the time they enter stage three. They’ve had initial success in stage two, satisfying real customers with real products. But the needs of the enterprise become overwhelming as customers demand that you become more effective in delivering what they want. What the enterprise did to find and deliver its product crudely but reliably to its first wave of customers must be rethought, redesigned and rebuilt to meet the demands of new customers with higher expectations.
Many entrepreneurs stunt the growth of their enterprises at this point because they do not want to give up being involved in some of the routine activities. This stunting weakens the enterprise, making it vulnerable to being preyed upon by competitors. In venture-backed companies, founding entrepreneurs are often replaced as CEO in stage three -- if they are still around.
4. Staying healthy
Just as a tree will die unless it can replace the branches, leaves and bark that fall off, so will any enterprise that cannot develop new types of products and capture new customers to replace customers and products that no longer generate any business. For an enterprise to achieve such self-sustainability, it must create a successful process of innovation. Founding entrepreneurs who are still around will find this challenge reinvigorating. After all, innovation is fun.
Creating a process of innovation is nonetheless tricky and many otherwise successful entrepreneurs and leaders fail here. They fail because they cannot resolve the inherent conflicts between making something efficiently, as required in stage three, and accepting the inherently inefficient and risky experimentation required to be innovative.
Once an enterprise has completed stage four, it is a fully mature enterprise, effectively marking the end of the entrepreneurial journey. Many entrepreneurs never complete that journey. They are astonished to find that the power of an idea, by itself, is overrated. They find it difficult to pivot from pursuing their beloved project to creating the processes necessary to run a business. And they are blindsided by the new organizational and leadership demands that come with each new stage of enterprise maturity.
You might find these challenges overwhelming. You shouldn’t.
Related: 3 Signs You Are Becoming Successful