3 phases of a business and how to thrive in each

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New CEOs, startup founders and solopreneurs hear this advice everyone the time: Start the day with a task which will make the biggest difference. Make the cash register ring. Expand your business. That’s all well and good – or it would be – if it was obvious what it was a task is.

The truth is, for those new to the business, it’s not obvious at all. A whole zoo of activities seems to stand between them and profit. It’s hardly surprising that many new entrepreneurs reach for and grab the activity closest to hand: registering a URL, creating an email address, building a basic website, ordering an explainer video on Fiverr, and so on. If they knock off enough small tasks, it must surely add up something over time, right? Error.

A new CEO needs to focus on the highest-margin tasks, the things that really move the needle for a business. 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 have as CEO one job which deserves most of your time. Here’s what they are: No dangling carrot, no cliffhangers, just straight on exactly what that one job should be.

Related: You need to rethink product-market fit to stand out

Phase 1: Adaptation between product and market

My students get sick of me talking about “product-market fit,” but I tell them that for a reason. In the early stages 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 sell a service? It is the state 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: to make a sale. You’ll know you have product-market fit when someone pulls out their credit card and asks for the privilege of buying what you’re offering them.

This next part is hard for many of my students to accept, but I encourage them until I’m blue in the face to sell the product before they build it. If you don’t fit a product market, you don’t have a business. You have no income potential. This means that possibly the effort spent on developing the product is a waste of time.

Don’t fall into that trap. Use the time instead to try to confirm product-market fit. Do what you need to do to get in front of your target audience and pitch your product. Tell them that if they buy now, they’ll be the first to access it when it’s ready in thirty days. If they agree, congratulations! If they don’t agree, ask them for feedback. What problems do they have that you can adapt your product to solve?

Even once you’ve made your first sale, product-market fit validation is an ongoing, iterative process. In phase one, 90% of your time should be spent improving your product, narrowing down your target market, defining your niche, and making your product market fit even better.

Related: 3 Marketing Dos and Don’ts to Maximize Profit on a Startup Budget

Phase 2: Distribution

Roughly between $100,000 and $3 million in sales, and when you think you’ve nailed down the product market for a razor, phase two can begin. Please note that validation of product-market fit does not end. We talk about what a 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’re not really doing it have a business until you nail your distribution. The more you refine your distribution, the more profit you will make.

Take the Standard Oil empire of John D. Rockefeller. He clashed with another titan of industry, railroad magnate Horace Vanderbilt. Vanderbilt knew that Rockefeller depended on the railroads to distribute his petroleum and resorted to charging exorbitant prices. Instead of acquiescing, Rockefeller took losses to bankrupt Vanderbilt, driving down railroad stock prices until he could buy the railroads. He also crisscrossed the country with pipelines to transport his oil without railways.

For modern businesses, as my students found, distribution usually means some kind of customer acquisition funnel. As a Phase Two CEO, 80% of your time should be focused on finding 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 attached 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 use anything the dollars.

Related: Avoiding the Sea of ​​Sameness: How Hiring for Culture Improves DEI

Phase 3: Talent and culture

Phase 3 may start at $3 million in sales, or it may take as long as $10 million in sales or more. Once you have your deployment in good shape, how and when you move on to phase three is largely up to you. phase three starts when 80% of your time as CEO is spent developing talent and culture in your organization. This phase will continue as long as you remain CEO. You can dedicate one a little 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 stop their business 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 isn’t really a good use of management time. But the entrepreneurs who really want to grow sustainably need to let go of the “in-the-dig” mentality and focus on building a motivated team united around organizational goals and burning to achieve them. With great talent and culture, you can hand over tasks for good and free up even more time for talent and culture.

All three of these activities – market fit, distribution, culture and talent – ​​are vast subjects worthy of entire books. At least with this breakdown, you’ll never have to be confused about the most efficient use of your time. Depending on what phase you are in, you will always know where your focus should be as a CEO.

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