Ready to Scale Your Business? An Industry Expert Reveals The 3 Critical Phases of Your Company's Lifecycle and How to Thrive in Each
No more guesswork — here's where your focus should be at each stage in your business.
New CEOs, startup founders and solopreneurs hear this piece of advice all the time: Start your day with the one task that will make the most difference. Make the cash register ring. Grow the business. That's all well and good — or it would be — if it were patently obvious what that one task is.
The truth is, for newbies in business, it isn't obvious at all. A whole zoo of activities seems to stand between them and profit. It's hardly surprising that many new entrepreneurs reach and grab the activity closest at hand: registering a URL, creating an email address, building a basic website, commissioning an explainer video on Fiverr and so on. If they knock down enough little tasks, surely it must add up to something over time, right? Wrong.
A new CEO must focus on the highest-margin tasks, the things that really move the needle for a business. If it's not obvious what those things are, today is your lucky day — I'm going to tell you. I'm going to divide the lifecycle of a business into three phases. At each phase, you, as the CEO, have one job that deserves most of your time. Here's what they are: No dangling the carrot, no cliffhangers, just the straight dish on exactly what that one job should be.
Phase 1: Product-market fit
My students get sick of me talking about "product-market fit," but I tell it to them for a reason. In the first phase of a business — anywhere from $0 to $100,000 or even $1 million in sales, give or take — validating product-market fit should take up 90% of your time as the CEO or founder of your business.
What is "product-market fit" — or "service-market fit," if you're selling a service? It is the condition that exists when your target market actually wants your product or service and is willing to pay you money for it. How do you know when you have product-market fit? There's only one way to know: making a sale. You will know you have product-market fit when someone pulls out their credit card and asks for the privilege of buying what you offer them.
This next part is hard for many of my students to accept, but I urge them until I am blue in the face to sell the product before they build it. If you don't have product-market fit, you don't have a business. You have no revenue potential. That means that any effort expended in developing the product is a waste of time.
Don't fall into that trap. Spend the time instead trying to confirm product-market fit. Do what you need to do to get in front of your target audience and pitch the product. Tell them if they buy now, they will be the first to have access to it when it is ready in thirty days. If they agree, congratulations! If they don't agree, ask them for feedback. What problems do they have that you could adapt your product to solve?
Even once you make your first sale, validating product-market fit is an ongoing, iterative process. In phase one, 90% of your time should be spent improving the product, refining your target market, defining your niche and making the product-market fit even better.
Phase 2: Distribution
Roughly between $100,000 and $3 million in sales, and once you believe you have sharpened your product-market fit to a razor's edge, phase two can begin. Note that product-market fit validation doesn't end. We're talking about what one task will take up most of your time as CEO. In phase two, product-market fit validation drops from 90% of your time to 20% of your time. What will take up the other 80% of your time? Distribution. Validating product-market fit is important, but you don't really have a business until you nail down your distribution. The more you refine your distribution, the more profit you will make.
Take the Standard Oil empire of John D. Rockefeller. He ran afoul of another titan of industry, railroad tycoon Horace Vanderbilt. Vanderbilt knew Rockefeller depended on the railroads to distribute his petroleum and took to charging him exorbitant prices. Instead of acquiescing, Rockefeller took losses to bankrupt Vanderbilt, driving down the railroad stock prices until he could buy the railroads. He also crisscrossed the country with pipelines to transport his oil without railroads.
For modern businesses, as my students found, distribution usually means some sort of customer acquisition funnel. As a phase two CEO, 80% of your time should be focused on devising a way to earn over $2 in revenue for every $1 you spend acquiring a customer. It doesn't matter if it's Google Ads, Facebook Ads, YouTube, direct mail, SEO, carrier pigeons or a banner tied to the back of a biplane — once it costs you less to acquire a customer than that customer is worth to you in revenue, game over you win. If you can spend $1 to make $2, you have a business you can scale. You can spend all the dollars.
Phase 3: Talent and culture
Phase 3 might kick in at $3 million in sales, or it could take as long as $10 million in sales or more. Once you have your distribution in great shape, how and when you move on to phase three depends largely on you. phase three starts when 80% of your time as CEO shifts to developing talent and culture within your organization. This phase will continue for as long as you remain CEO. You may devote a little time to improving product-market fit and distribution, but hiring, firing and building culture will occupy the vast majority of your executive attention.
Many entrepreneurs stall their businesses because they are afraid to take the leap into this phase. They try to operate as a solopreneur — outsourcing, automating and staying in the trenches with busy work that really isn't a good use of executive time. But the entrepreneurs who truly want to grow sustainably need to let go of that "in-the-trenches" mentality and focus on building a motivated team unified around organizational goals and on fire to achieve them. With great talent and culture, you can hand off tasks for good and free up even more of your time on talent and culture.
All three of these activities — market fit, distribution, culture and talent - are huge subjects worthy of whole books. At least with this breakdown, you never have to be confused about the highest-leverage use of your time. Depending on the phase you find your business in, you will always know where your focus should be as CEO.
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