Where are we? The 4 Stages of Business EvolutionMay 17, 2022
Engineer and management consultant W. Edwards Deming was famous for saying, “Every system is perfectly designed to get the results it gets.”
Often when we work with teams that are spinning their wheels, or struggling to choose the right Objectives or accomplish their Bets, they want to talk about it like it’s a problem with their ability to do the work or focus.
It might be… but… it could be that there is an inherent problem in the system they are building. Or, it might be that they are building the wrong system at the wrong stage in their journey.
In this article, you’ll discover the stage of business you're in. Creating this awareness will allow you and your team to better define the right design, the right objectives, and the right actions to continue moving forward toward maturity and breakthrough.
All businesses go through four basic stages of evolution: Innovation, Control, Profitability, and Growth.
These stages are most easily seen from the outset of a business. Think about the story of the business you represent. Where did it start? In someone’s basement? A coffee shop and a laptop? At some point there is an inception point—you had a big, bold idea. And then, there is a challenging climb to get that wild idea under control, make it profitable, and then iterate on that original idea to grow it into something bigger.
No matter how stable the business is though, these stages will recycle and continue to transform the business on the macro and the micro-level. We’ll walk through the four stages and present the core function and areas of focus in that stage.
This is the "barbarian" stage. We call it the barbarian stage because it looks and feels uncivilized. There are no or few systems in place. Decisions are made more often on instinct. Existing resources might feel scarce. The pace is rapid and the direction changes constantly.
The Innovation stage looks and feels this way because the aim is to take what was a unique, interesting, clever idea and turn it into a minimum viable product with a true product-market fit. There is no skipping this phase. Whether it’s opening a restaurant or establishing a new product or service line in a business, Innovation is necessary and usually very difficult. Your one true goal here is to survive until you find product-market-fit.
Focus in the Innovation Phase is…
- Failing and learning… quickly
- Finding a pathway to recurring revenue, revenue levers, cashflow
- Naming who we are, who we want to be (culture)
- Getting a minimum viable product in service to continue testing and improving
- Product-market fit, go-to-market fit
At the Control Stage, the once barbaric business becomes more sophisticated, polished, and stable. The business knows what it delivers and delivers on it consistently. Resources are more available and processes are repeatable. Businesses in the Control Stage have people and assets aligned around the core functions and are ready to compete for customers’ needs. The business is not beset with surprises. Instead, things flow smoothly and purposefully.
The goal in the Control Stage is to reach predictability and profitability. The business does not have to do everything well, but it must be delivered reliably and in a way that differentiates them from the competition on its core value proposition to the customer.
Focus in the Control Phase is…
- Systematizing the most valuable functions in the business
- Proving your go-to-market strategy
- Staying true to who we are
- Creating consistency and reliability
The Profitability Stage means sustainability for the business. Profitability is the outcome of driving consistent value to the customer in excess of the cost to produce and deliver your product or service.
It’s fashionable to delay profitability while the company establishes its brand in the market. This only makes sense when there is a huge addressable market that can be dominated for a long time and you have an abundant and patient supply of capital.
Neither of which is common.
Businesses are taught to be profitable; it does not happen by accident. The need for profit demands hard choices be made which are usually good for the short- and long-term of the enterprise.
Let that sink in. The demand for profitability is good for the short- and long-term of the business.
Profit is not an irritating demand of the accountants or the greedy capitalists. It is the signal that a company is creating meaningful value and is ready to grow. Growing an unprofitable business requires immense amounts of cash needlessly ratcheting up risk. Anyone can create demand by selling a dollar for ninety cents. Finding out that you have created a large unprofitable business is a bitter pill.
Focus at the Profitability Stage is…
- Driving efficiencies in systems and processes
- Creating margin
- Growing audience segments
- Building lifetime value with the customers you have
Once the Control and Profitability Stages are in place, it’s time to scale. Everyone likes the Growth Stage. Because executing a proven, profitable value proposition is a dream assignment. But, make no mistake, the Growth Stage is still about focus and discipline.
Lou Platt the CEO of Hewlett Packard said, “The only thing worse than a crappy little business is a crappy big one.” Good businesses know what they are doing, have discipline in execution, and show consistent strong profits. Bad businesses limp along with damaged value propositions and low profitability, sucking up attention and cash.
Focus in the Growth Stage is…
- Using cash on the right things to grow
- Pick the markets
- Establish a presence on a confined front
- Then, expand into adjacent areas
As business leaders—and even as customers outside of the work we do in the industries we serve—this evolution can be seen and applied everywhere. No matter if you’re the owner of an accounting firm or a popsicle stand, the stages hold true. You can’t shortcut them. You can’t be in more than one stage. And you can’t go out of order.
Following this simple model is really a gift to unload unnecessary burdens you’re carrying and release things that are holding your focus prematurely. The stages are as much a reality check as they are permission to focus your attention, activity, and outcomes only on what’s important in that phase. It gives you time. It gives you space. It gives you a bigger picture perspective and the opportunity for renewing not only your objectives as a business owner over time but also your mind.
Take time now to really think critically about the stage of business you are in and the focus that will serve you and the business best at this time.
As you know, a TON of challenges exist in leadership. Whether you're looking for solutions, or just want reminders, join The 261 newsletter for thoughts, actions, and tips on how to lead and manage well – 261 business days a year.
We hate SPAM. We will never sell your information, for any reason.