There are four periods in the life of a startup, from the initial idea to long-term financial sustainability. Each one requires a distinct leadership attitude and set of leadership skills. The first phase is customer validation, where you go from having an idea to finding a customer willing to pay for your product or service. The second is operational validation. This is the phase where you deliver to the satisfaction of that customer and find more customers. The third phase is financial validation. Here you must demonstrate that the firm can create value in changing market and competitive conditions. In the fourth and final phase, the firm must be proficient in an innovation process through which it can acquire new customers as fast as or faster than they depart. By stage four, the firm should not be dependent upon the founder.
One of the big changes in the business as it evolves is the move from project-based work to process-based work. In the first stage, you are iterating a lot as you try to figure out exactly how your product or service can thrive in the market. Few ideas survive intact after contact with the customer or the supply chain. You are revising and refining. You are creating change. This is a project-driven stage because you expect a high degree of variability as you try to get things right. As your business matures from serving one customer to serving many, you need to adopt processes that decrease variability and increase efficiency. Processes, by their very nature, resist change. From Stage Three on, running the business isn’t as sexy as it once was. The same entrepreneur who was taking chances and making it up as he went along now has to shift gears and reward structure and predictability. It takes a discipline that many entrepreneurs lack, particularly those attracted to start a business as an escape from big companies with their strict hierarchies and processes. Other entrepreneurs feel that they won’t be needed anymore. The transition to Stage Three can be scary, but it is absolutely essential if you ever want to get to Stage Four.