The 5 Stages of Business that Will Make Your Business Grow Bigger, Faster, Easier

THE 5 STAGES OF BUSINESS THAT WILL MAKE YOUR BUSINESS GROW BIGGER, FASTER, EASIER​​​​

play

Perhaps the first most important lesson to learn in growing a company is businesses grow through stages and what you need to do in one stage isn’t the same as the next stage.

“What got you here won’t get you there”

When you know these stages you learn to ignore the stages you’re not at yet, which brings clarity, focus, and consequently much faster results.

When you know these stages you can quickly jump from one to the next without getting stuck because you know what’s next and when to make the switch from one to another.

This all allows you to predictably grow businesses bigger faster with less resistance and more confidence.

Like everything in Richucation these are natural stages all businesses grow through them if they get big and successful whether they’ve labeled them or not.

As we progress you’ll see the very straight forward logic.

This analysis is part of the process we use to rapidly assess where clients are at and help them to identify what to do right now to get rapid results.

Ready to get started?


Stage 1 – Ideation & Validation

In order to start a new business what’s the first thing you need?

You need an idea of course.

Now, not all ideas are foundations for a solid business so specifically this idea needs to be an opportunity.

Your goal at the Ideation phase is therefore to identify possible opportunities.

What are opportunities?

Opportunities are cases of unmet or under met demand within the market.

In other words, there is something out there people want but are having a tough time meeting those desires or have a lot of frustrations with how they are meeting them.

Once you get going as an entrepreneur you’ll discover there are millions of opportunities like this but before you start finding an idea seems hard.

Probably you’ll come up with many ideas especially over your entrepreneurial career.

The mistake many people make and I made over and over was to attempt to skip the second part of this stage – validation.

Your idea will get validated one way or another the question is just much time, energy, and money you’ll spend validating it?

Great entrepreneurs learn to validate their ideas very quickly and inexpensively, which involves not starting a business, hiring people, etc. until they’ve proven the demand.

Often we fall in love with our idea but others don’t think it’s so great.

The worst example of this was probably Webvan where a company spent $380 million dollars building out a business concept only to discover people didn’t want it.

Don’t be like Webvan!

The ideal way to validate is to pre-sell your idea before you’ve built it then co-create it with your customers.

Failing this you want to build the absolute minimum required (what we call a Minimum Viable Product) to sell something and try selling it.

If it can’t be sold then the idea is no good. If it’s easy to sell this is a good sign of a good idea and you’re ready for stage 2.

As much as possible avoid spending money in Stage 1 or at least spend as little as possible, definitely don’t hire people, don’t form a company, don’t create partnership agreements, etc. that all comes later once you know you’ve got demand.

You also don’t raise any capital in this stage unless it’s crowd funding as a form of validation.


Stage 2 – Delivery & Establishment

Just because there’s demand doesn’t mean you’ve got a viable business.

You’ve now got to prove you can deliver on this demand in three important ways:

  1. Profitably – if you can’t make money at it you’re screwed
  2. Consistently – if you can only deliver intermittently you can’t build a business on that
  3. Scalably – is it dependent on you and your special skills and relationships or can it grow beyond you?

You immediate task is to prove you can do those things again as quickly and inexpensively as possible.

Why is it so important to be inexpensive at this stage?

There’s a concept called runway, think of a plane trying to take off. It needs a certain amount of space to get into the air. If it runs out of space before it takes off it crashes and burns.

Same concept for your business.

Because you aren’t making money you’ve got a very limited amount of money and you’re going to have a lot of learning to do. You’re not just how much runway it will take but if you take too much you’ll crash and burn.

By spending less you’re effectively extending your runway, which is very important to consistent business success.

Here you’ll practice fulfilling on customer orders at a very small scale not with the intention of making money or having a great business only proving those three things we mentioned before.

Here you still won’t get fancy about setting up a company with a website, an office, business cards, etc. You’ll go as simple as possible to prove the business is viable.

Once you’ve proven those things you’re ready to establish the company.

This is where you form the company, you create the partnership agreements, you open bank accounts, etc.

However, note you’re still wanting to keep your spending low. If you can get away with no office do it. If you can avoid printing business cards do it. Don’t spend money on expensive branding etc. super simple, cheap and fast is the name of the game because you still haven’t taken off.

When you’re in position to deliver consistently, profitably, and scalably with an actual company structure it’s time to move to stage 3.

Usually if you can you avoid raising capital at this stage but you might raise some equity financing here, no debt ideally.


Stage 3 – Monetization & Systemization

This is the first stage where you’ll start to make profit.

This is the stage where when it’s complete you’ve got a viable business.

Your objective now is to get customers.

Many new and naive entrepreneurs think their idea is good but underestimate how hard it is to get people to reach into their pocket, take their hard earned money out and give it to you. This is the stage where you’ll figure out how to crack the code.

Your objective at this stage is to build a Profitable Sales & Marketing Machine, which means you’re able to spend $1000 to get more than $1000 back preferably $2000+ back.

This is the number one most important inflection point for most entrepreneurs usually because for most it’s the hardest.

If you’ve done the first two well they will make this step easier but it’s likely still tough.

When you succeed though this paves the way for massive entrepreneurial success few ever realize.

This is where all the skills of Profitable Marketing show themselves as the most important skills for the small business owner.

You know you’ve succeeded at this stage when you can spend money to make more money in return than what you originally put in.

This means sales aren’t dependent on you but on a structure you’ve built outside yourself and that structure is profitable.

When you reach this point you can put a lot of energy into systemizing to crystalize what works.

Notice you didn’t invest heavily (you might have minor systems in place) in systemization until this point why?

Because at this stage you’re going to start throwing volume at your systems stress testing them and how you did things at low volume is likely to change at higher volume so you didn’t want to invest too much time into something you were going to change anyway.

Now you’ll need them to grow though so get them in there.

You’ll almost certainly have at least a few employees at this stage in fact usually you should have your first employees or partners in Stage 2 but only a small team.

In Stage 3 you’ve essentially got two divisions working on the two core problems in business: supply problems and demand problems; but it shouldn’t be a large team and not overly complex.

This is also the optimal stage to raise equity financing (maybe debt once you’ve cracked the monetization code but usually not).

The reason is it’s easier to get money now, the cost of the money will be lower and you’ve got a clear path to use it to help you grow fast.


Stage 4 – Optimize & Scale

This is the stage where you make all the profit, where you can get rich.

Up till this point in time most of the profit coming in was consumed acquiring customers.

This is where you’ve got the customers and you’re leveraging them to create real ongoing profit.

Whereas the primary skill in Stage 3 was marketing the primary skills in Stage 5 are management and strategy (Leverage Team & Grow Impact).

Your first objective is to optimize everything you’ve built up to this point in time so it runs like a highly efficient well oiled machine.

This process of optimization will never stop but here it’s a big focus.

Why do you optimize before you scale?

Because otherwise you’re scaling an inefficiency and those inefficiencies are going to get in the way of you scaling.

This is where you put proper branding into place.

You’ll definitely be hiring and training great people here as well as getting rid of any bad apples.

Your team is about to grow A LOT in fact one of the biggest gaps we see in businesses who nail Stage 3 is they get stuck because they don’t understand how to systemize and build a team. They are dependent on themselves or key people rather than on processes. At this stage you need process oriented thinking.

When the foundation is raised with boosted profit margins, efficiency, etc. it’s time to scale.

Scale is all about taking what you’ve got that works:

  • Products/Services
  • Customers/Markets
  • Systems/Technology

And figuring out how else to use it so the value grows.

For example, you’ve got existing customers what more can you sell them?

You’ve got products and services what new markets and market segments can you introduce them to? This might include franchising.

You’ve got technology or systems that work where else can you utilize them?

This is a phase of aggressive reinvestment of substantial internal profits.

This is the stage where you’ll really be looking to debt financing to grow because there’s no real reason to raise equity, which will cost you a lot more long term when things are working so well unless for some reason you can’t tap the debt markets.

Franchising would be an example of tapping equity without giving up a share of your company.

This is the longest and most significant stage of most businesses. Most even very big companies never fully transition to stage 5.

You know you’re ready for Stage 5 when profits are adding up faster than you’re able to allocate them internally.


Stage 5 – Protect and Compound

The big focus here is realizing you’ve got a great money machine and you need to protect it.

Here the risk of loss of what you’ve got is greater than the benefit of finding something new.

As a result, a huge focus at this stage is risk mitigation and risk management to protect against threats, which might come after your core cashflow machine.

These are going to include litigation, competition, serious systemic risks, over-extending, etc.

After ensuring you’re protecting what you’ve got you need to start looking outside for places to deploy capital.

In this phase you’ve mostly gone from seeking investment to being the investor (though you might still utilize debt markets to boost returns).

Warren Buffett likes to buy Stage 5 businesses and your job is now to become Warren Buffett.

Whereas the main skillsets in Stage 4 were management and strategy your primary skillset in Stage 5 is capital allocation.

Assets, growing assets, and ownership are everything here. (The skills of Multiply Ownership).

In a sense you’ve moved from CEO to Chairman.

With a huge war chest, you’re looking to mergers and acquisitions as well as other investments potentially outside your normal line of business.

This is for example what Google recognized in creating the Alphabet parent company to fund other investments.

This is the highest level of business.

You may never want to go here and certainly you don’t have to.

While it’s great to buy businesses in Stage 3 it’s great to sell them at Stage 4 and many people do.

If you choose to hang on and build a lasting empire this is where Stage 5 and Stage 5 skills come in.


Conclusion

These are obviously the high level skills and stages of building a company.

In practice each has deep core pieces and understandings to transition through, which is why Richucation exists to support and accelerate you in going through this process.

If you’re interested in the next step for you and how to accelerate your business growth contact us.

If you liked this article and would like to receive more like this each time we post, enter your name and email address:

Readers like you were interested in these programs:

Your Breakthrough Marketing Review
Profitable Sales and Marketing Machine
Facebook Ad ROI Training
Campaign ROI

We offer personalized one on one assistance.
Want help?

I want help with marketing
I want help with team
I want general business help
I want help with investing
I want help with money management

Other Popular Programs:

The Greatest Business Course Ever
Scale ROI
Team ROI
How To Become Rich Mini Series