3 Phases of a Business and How to Thrive in Each

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New CEOs, startup founders and solopreneurs are listening to this advice all the time: Start your day with a play that will make the biggest difference. Make the cash register ring. Grow the business. This is all good – or would be – if it were obvious what it is a play 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 no surprise that many new entrepreneurs reach out and grab the nearest activity: registering a URL, creating an email address, creating a basic website, commissioning an explainer video on Fiverr, and so on. If they knock down enough small tasks, they should definitely add up something over time, right? Wrong.

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 those things are, today is your lucky day — I’ll tell you. I will divide the life cycle of a business into three phases. At each stage, you, as the CEO, have a job which is worth most of your time. Here’s what they are: No dangling the carrot, no creams, just the straight dish on exactly what this one job should be.

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Phase 1: Product-Market Matching

My students are sick of me talking about “product-market fit,” but I tell them 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 – product-market fit validation 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’s the situation that exists when your target market really 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 find out: make a sale. You’ll know you have a product match in the market 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 encourage them until I’m 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. This means that any The effort put into product development is a waste of time.

Don’t fall into this trap. Instead, spend time trying to confirm product-market fit. Do whatever you need to do to get in front of your target audience and promote the product. Tell them 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 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 the first phase, 90% of your time should be spent improving the product, improving your target market, defining your position, and fine-tuning the product market even better.

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Phase 2: Distribution

Roughly between $100,000 and $3 million in sales, and once you believe you’ve honed your product-market fit to a razor’s edge, phase two can begin. Please note that product-market fit validation does not end. What are we talking about? a play it will take up most of your time as a CEO. In the second phase, product-market fit validation is reduced 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 you have a business until you reach your distribution. The more you perfect your distribution, the more profit you will make.

Take John D. Rockefeller’s Standard Oil empire. He ran afoul of another titan of industry, railroad magnate Horace Vanderbilt. Vanderbilt knew that Rockefeller depended on the railroads to distribute his oil and had to charge them 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 figuring out a way to earn more than $2 in revenue for every $1 you spend on customer acquisition. 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 an airplane — as soon as it costs you less to acquire a customer than that customer is worth in revenue, the game’s on you you win. If you can spend $1 to make $2, you have a business that you can scale. You can spend it all the dollars.

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Phase 3: Talent and culture

Phase 3 can reach $3 million in sales, or it can last up to $10 million in sales or more. Once you have your distribution in great shape, how and when you proceed to the third phase is largely up to you. The third phase begins when 80% of your time as a CEO shifts to developing talent and culture in your organization. This phase will continue for as long as you remain CEO. You can dedicate one a little bit time to improve product fit and market distribution, but hiring, firing, and building culture will occupy the vast majority of your executives’ attention.

Many entrepreneurs stop their businesses because they are afraid to take the leap at this stage. They try to function as a solopreneur – they outsource, automate and stay in the trenches with busy work that really isn’t a good use of executive time. But entrepreneurs who really want to grow sustainably need to abandon this “in the trenches” mentality and focus on building a motivated team, united around organizational goals and fired up to achieve them. With great talent and culture, you can hand off work outright and free up even more time for talent and culture.

All three of these activities — market fit, distribution, culture and talent — are huge topics that deserve entire books. At least with this analysis, you never have to be confused about the most leveraged use of your time. Depending on the phase you find your business in, you will always know where you need to focus as a CEO.

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