3 phases of a business and how to thrive in each
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New CEOs, startup founders and solopreneurs hear this advice everything Time: Start your day with the a spot which will make the most difference. Ring the cash register. Grow the business. It is fine – or it would be – if it were patently obvious what this a spot is.
The truth is, for business newbies, it’s not at all obvious. A whole zoo of activities seems to stand between them and profit. It’s no surprise that many new entrepreneurs reach out and grab the closest thing to business: registering a URL, creating an email address, building a basic website, ordering an explainer video on Fiverr, and more. If they remove enough small tasks, it must surely add up to Something over time, right? Bad.
A new CEO needs to focus on the most profitable jobs, the things that really move the needle for a company. If it’s not obvious what these things are, today is your lucky day — I’ll tell you. I will divide the life cycle of a business into three phases. In each phase, you as CEO have a work which deserves most of your time. Here’s what they are: No carrots, no cliffhangers, just the straight-forward on what exactly that job should be.
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Phase 1: product-market fit
My students are tired of me talking about “product-market fit,” but I tell them for a reason. In the first phase of a business – between $0 and $100,000 or even $1 million in sales, more or less – validating product-market fit should take 90% of your time as CEO or founder of your company.
What is “product-market fit” – or “service market fit”, if you are 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 you are a product market fit? There’s only one way to find out: make a sale. You’ll know you’re product-market fit when someone pulls out their credit card and asks for the privilege of buying what you’re offering.
This next part is hard for many of my students to accept, but I urge them until I’m blue in the face to sell the product before they build it.. If you’re not product-market fit, you don’t have a business. You have no earning potential. This means that everything the effort spent on product development is a waste of time.
Don’t fall into this trap. Instead, spend time trying to confirm the product’s suitability for the market. Do what you need to do to get in front of your target audience and showcase the product. Tell them that if they buy now, they’ll be the first to have access to it when it’s ready in thirty days. If they agree, congratulations! If they disagree, ask them for their opinion. What problems do they have that you could adapt your product for?
Even after you’ve made your first sale, validating product-market fit is an ongoing, iterative process. In the first phase, 90% of your time should be spent improving the product, refining your target market, defining your niche, and improving the product-market fit. .
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Phase 2: Dissemination
Roughly between $100,000 and $3 million in sales, and once you think you’ve narrowed your product market down to the razor’s edge, phase two can begin. Note that product-market fit validation does not stop. What are we talking about a spot will take up most of your time as CEO. In the second phase, product-market fit validation drops from 90% of your time to 20% of your time. What will occupy the remaining 80% of your time? Distribution. Validation of product-market fit is important, but it’s not really have a business until you fix your distribution. The more you refine your distribution, the more profit you will make.
Take John D. Rockefeller’s Standard Oil empire. He ran into another titan of industry, railroad magnate Horace Vanderbilt. Vanderbilt knew that Rockefeller depended on the railroads to distribute his oil and proceeded to charge him exorbitant prices. Instead of acquiescing, Rockefeller took losses to put Vanderbilt out of business, driving down the stock price of the railroads until he could buy the railroads. He also criss-crossed the country with pipelines to transport his oil without railroads.
For modern businesses, as my students discovered, distribution usually means some sort of customer acquisition funnel. As a Stage 2 CEO, 80% of your time should be spent designing a way to earn more than $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, homing pigeons or a banner attached to the back of a biplane – once you know costs less to acquire a customer than that customer is worth to you in revenue, game over you win. If you can spend $1 to earn $2, you have a business you can scale. You can spend it all the dollars.
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Phase 3: Talents and culture
Phase 3 could start at $3 million in sales, or it could take up to $10 million in sales or more. Once you have your cast in great shape, how and when you move into phase three is largely up to you. the third phase begins when 80% of your time as CEO is spent developing talent and culture within your organization. This phase will continue for as long as you remain CEO. You can dedicate a little it’s time to improve product market fit and distribution, but hiring, firing, and building culture will occupy the vast majority of your management’s attention.
Many entrepreneurs block their business because they are afraid to take the plunge in this phase. They’re trying to operate like a solopreneur – outsource, automate, and stay in the trenches with heavy work that’s really not a good use of management’s time. But entrepreneurs who really want to grow sustainably need to abandon that “in the trenches” mentality and focus on building a motivated team unified around organizational goals and ready to achieve them. With great talent and culture, you can shift tasks for good and free up even more of your time for talent and culture.
These three activities – market fit, distribution, culture and talent – are huge topics worthy of entire books. At least with this allocation, you should never be confused about the most efficient use of your time. Depending on what phase you find your business in, you will always know where to focus as CEO.