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7 Stages of Growth: Stage 1

7 Stages of Growth: Stage 1

Start Up: 1 – 10 Employees

What does a Stage 1 company look like?

A Stage 1 company has 1-10 employees, and at this stage of growth, it’s all about survival.

A Stage 1 company is CEO-centric — meaning the CEO is likely the ‘specialist’ who has created a product or service and is now getting his/her idea to take shape. It’s the energy, passion and vision of the CEO that is the driving force behind the company’s success today. The CEO also makes all the decisions and brings in all the sales. Therefore, 50% of the CEO’s time should be spent as the technician, or the specialist, while only 10% of his/her time should be spent as a manager. The other 40% of the leader’s time should be in creating and fine-tuning the vision of the company.

A Stage 1 company is really designed to innovate very quickly; it is not designed to be locked into any one specific focus at the beginning. It is meant to quickly discover, explore, experiment and find the right product or service that the leader intends to bring out into the world.

A Stage 1 leader shouldn’t worry about hitting the precise target, just close enough to continue to move forward. The leader has to figure out how to generate income because cash flow generally is the number one challenge. At this stage of growth, trial and error should be expected. The risk is high because of so many unknowns.

As a company navigates through Stage 1, its primary goal is to develop a business model that is profitable and sustainable. A CEO should evaluate how the company will grow and think about the following:

  1. Value Proposition
  2. Customers/Channel
  3. Product/Service Features/Benefits
  4. Revenue Model
  5. Marketing and Sales Process
  6. Operations Process
  7. Profitability
  8. Cash Flow

In Stage 1, team selection is all about how a staff member ‘fits’ the culture and the ability to do whatever it takes to get the job done (specialized skills and experience are secondary.) The CEO’s staff needs to help facilitate how work gets done and how quickly it gets done. The staff also needs to be flexible and willing to embrace change because there are so many unknowns, and things can change quickly as the leader frequently makes adjustments to find what works best. Of the three Gates of Focus, The People Gate, The Process Gate and The Profit/Revenue Gate, the latter is the main gate of focus for Stage 1. It’s all about proving the business concept and getting traction by generating revenue. The second gate of focus is The People Gate because the company has experienced adding new people, bringing with them a whole new set of challenges for the leader.

Required Leadership Skill Base:

  • The ability to identify one or more market opportunities.
  • The ability to construct a skeletal business plan.
  • The ability to raise sufficient capital.
  • The ability to provide a product or service.
  • The ability to see what needs to be done and then do it.
  • The ability to serve in multiple roles at the same time.

Creating and maintaining focus is very difficult in Stage 1. The high degree of uncertainty affects the CEO’s ability to stay focused. Unless the business has outside funding, poor cash flow and limited capital can force leaders to prematurely stray from the original core business by chasing projects that might bring in money. A Stage 1 company needs to stay focused on the principal goals and objectives.

The top five challenges in Stage 1 are as follows:

  1. Cash Flow
  2. Destabilized by Chaos
  3. Slow Product Development and Getting to Market
  4. Limited Capital to Grow
  5. Improving Sales

Without a strong business model (big picture strategy and plan), the leader’s efforts to bring in capital, find markets for products/services and add new staff needed to help deliver the products/services can destabilize the work environment. The leader’s influence in the business must be dominant. Without a dominant influence (direct or indirect), the business will not move forward. The staff will look to the leader for direction, and even though the leader expects people to be capable of pulling their weight, it doesn’t mean expectations or performance plans aren’t important in this early stage of growth.

The CEO should primarily wear the hat of Visionary (50% of the time) and Specialist (40% of the time). As the Visionary, it is the CEO’s passion, energy and vision that will keep the business moving forward. As the Specialist, it is the leader’s expertise that creates and improves the new or better products/services and their delivery to the market. With a self-motivated team that is able to get things done, managing should not be a time consuming task, taking up only 10% of the CEO’s time.

The Builder/Protector Ratio (BPR) is a measurement of “confidence vs. caution.” It is a critical tool to gauge the business’ ability to accept change, respond with confidence to change, and successfully navigate the change.

Builders:

  1. Thrive on risk
  2. Are always looking for new opportunities
  3. Don’t back down from the everyday challenges

Protectors:

  1. Thrive on caution
  2. prefer to apply the brakes (and should be encouraged to do so when appropriate)

During Stage 1, the optimal Builder/Protector Ratio should be 4:1 four builders to one protector.

The CEO must not ponly be a builder, he/she must develop a team that, for the most part, is like-minded in order to preserve through the challenges of a start up. But, a bit of the protector mindset is helpful to counter the builders’ tendency to be eternal optimists with tunnel vision.

Foundation Building Blocks for Stage 1

Business Model

Refine a simple business model laying out the company’s:

  1. Value proposition
  2. Target customer/channel
  3. Product/service features and pricing
  4. Revenue streams
  5. Marketing and sales strategy
  6. Operations strategy
  7. Profitability
  8. Cash flow

Sales

Experiment until the company discovers its unique value proposition that resonates with target customers/clients. Develop a simple sales system that works and can be replicated and used by all salespeople.

Financial Systems

Financial systems should include:

  1. A simple financial model to understand what affects the bottom line
  2. Cash flow forecasting and tracking
  3. A simple managerial accounting system

Processes

Identify and document key processes. Train staff so they understand the processes.

The Non-Negotiable Leadership Rules for a Stage 1 Company

  • Generate, track and preserve cash.
  • Focus 80% of the company’s resources on selling the two to three offerings with the best margins.
  • Hire first for how the person fits in with the team and second for competence.
  • Waste no time trying to stabilize the company – embrace chaos. Command the team and inspire the employees.
  • Establish a company-wide performance mindset, feedback loop and employee development with regular one-on-one meetings.

 

What does a Stage 2 company look like?


Recent Press

EEOC and OFCCP-compliant assessment company distinguishes Mindy Bortness with Stages of Growth certification. Read more...

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