1.3. Building Foundations: The Phases of Growth
To successfully grow a startup, entrepreneurs must navigate through various phases, each with its unique challenges and requirements. Building the right foundation at each stage is crucial for ensuring long-term success. This section introduces the five phases of growth and the importance of progressing through them in a structured manner.
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Phase 5: The Shed – This phase involves creating a minimal viable product (MVP) or a minimum remarkable product to test market demand. Entrepreneurs must sell their product to at least 10 paying customers who genuinely need the solution, not just those who are supporting the entrepreneur out of personal relationships. This phase lays the groundwork for validating the product-market fit.
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Phase 4: The Tiny House – At this stage, entrepreneurs focus on building a more refined product for their first 100-300 customers. The aim is to create something that a smaller group of people love, rather than trying to cater to a larger audience. Key performance indicators (KPIs) for this phase include a 6-month cohort retention rate above 40% and a weekly growth rate above 5%. This phase is characterized by organic growth, servant leadership, and constant iteration.
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Phase 3: The Suburban Residence – This phase requires entrepreneurs to delve deeper into their foundations, much like excavating and pouring cement for a residential home. The focus is on maintaining KPIs from previous phases while scaling the business further. The team size may grow, and organizational structures begin to emerge. This phase is about navigating the long, challenging journey of growing a business and maintaining team morale.
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Phase 2: The Commercial Residential – In this phase, businesses need even stronger foundations, similar to those required for apartment buildings. Entrepreneurs must transition from servant leadership to high-output management, focusing on legal, financial, and marketing aspects. Delegation and benchmarking against industry peers become critical to success.
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Phase 1: The Skyscraper – This phase represents a highly successful, potentially public company with over $100 million in annual revenue. The business has a strong, positive culture and attracts top talent. However, competition becomes fierce, and the company must transition from a startup mindset to corporate thinking to stay ahead.
Entrepreneurs can only move to the next phase for three reasons: they have already successfully completed that phase in a founder role in another business, they have met the "good" KPI thresholds for the required time, or they have exceeded the "good" KPI thresholds and met the "great" KPI thresholds for the required time. Understanding and adhering to these growth phases can significantly improve the chances of a startup's success.
