If you are thinking about creating a business (or have recently started or formed one), then you’ve certainly already made a list of all the things that you must accomplish in order to do this – at the very least in your head. Although the list is long, it doesn’t scare you off, because:
Probably very excited. This idea that you have – it’s huge. It could be “the one.” You are absolutely buzzing and wondering when and you can get started taking action to make this happen. Although you know it’s going to be a challenge, you really want to get going – to dive right in and start learning and start doing.
But hold up a minute, pardner (just a minute, I promise). I know you’re excited, and that excitement is absolutely key to helping you succeed in this venture you’re about to undertake. But before you set out on a journey, don’t you usually like to take a look at a map? Otherwise you might end up wandering all over the place before you run out of gas and food in the wrong location. Not good.
Perhaps it’s because my original training was in botany, but I’ve come to notice that the growth of businesses, just like the growth of plants, follows a very distinct and well defined path. What is interesting about this path is that the challenges change along the way – significantly. What may be challenging to a plant (or business!) in one stage becomes an advantage in the next stage. I know it’s not just me who thinks this way – the language of botany and ecology has been borrowed by business (as well as other disciplines and fields). “Seed stage funding,” “branch,” and “ecosystem” are just some of the examples out there.
Growth and change are at the core of all business. Just like a seed, the growth and success of an idea follow a series of predictable phases. And also just like a seed, most die before they reach maturity! Before you dive in and start spending too much time and energy on your new venture, take some time to understand what will be important each stage, what challenges and opportunities are likely to be present, and how you might expect the growth of the business to look.
Plants go through four major life stages – Seed, Sprout, Sapling, and Tree. Let’s look at how these life stages relate to the life of a business, and how you can benefit from understanding where you are today and where you need to go.
Which one of these is your business right now?
Stage 1: Seed
You have unlimited potential, but… Only if the seed is in the right place at the right time. Most seeds, in nature, fall in the wrong place. Even in a carefully tended garden, not all seeds will make it out of the soil.
A seed is an absolute wonder of nature. It contains everything it needs to sprout – you just add water, soil, and warmth. It contains complete instructions on what to do next. It even already contains its very own first leaves. They don’t have to grow at all – they just unfold. It’s a miracle! But, once again, it’s a miracle of potential. It’s a miracle that is yet to unfold.
If you or your company are in the Seed Stage, you have a piece of software, an invention, or an idea for one that you want to create. You do not yet have a company. You may not even own the intellectual property that you created – it may be owned by the university or laboratory where you work, or it may be only an idea.
You should stay in the seed stage until you’re sure that the seed really is in the right place at the right time. This is a nice, safe place to be in. Be prepared before you make a move.
Your most likely challenges and goals in the seed stage are:
- Research and understand potential market and size
- Learn about business
- Assess your strengths and weaknesses – where do you need help if you do go forward?
- Create a prototype or testable copy
- Find the right legal and accounting assistance to get your business set up
- Create an entity (legal company) that can accept ownership of the IP
- Gain ownership of your IP, either through a licensing agreement or through a prototype or early working stage
- Possibly file a patent, trademark, or copyright
- Assess and meet capital needs, which are likely in the $10,000 to $100,000 range
- Develop 1-2 year business roadmap and financial plan
Stage 2: Sprout
When a seed first sprouts, it sends up its very first leaves from within (these are called “seed leaves”). The job of those leaves is to start collecting energy from light so that more leaves can grow. This is your company growing from within, probably using mostly its own resources.
This is the most delicate phase of the life cycle.
Although it’s true that more seeds “don’t make it” than any other phase, that’s because they never really get going. And a seed can sit dormant, and safe, for years – even centuries sometimes. But once they sprout – they are committed!
Your new company begins to grow, must grow. Now constant nurturing and care must be present in order to support growth. (Just try sprouting a few seeds and then leaving them without water for a few days. At that point, nothing you can do will resuscitate them.)
You have moved beyond the prototype phase. You own or have exclusive license to your IP. Your company begins with only a few people – the founder(s) and perhaps one to three others.
Your most likely challenges and goals in the sprout stage are:
- Decide who you are and what you stand for
- Develop and implement a business plan
- Develop and implement processes to move the company forward
- Identify and develop sales channels
- Enter the market and gain customers
- Grow team to support sales and future development
- Assess and meet your capital needs, which are likely in the $500,000 to $1,000,000 range.
Stage 3: Sapling
You made it through the challenging Sprout Stage. Now the fun begins, because you have some experience under your belt, and parts of your company begin to stand on their own.
You likely have customers and a small but growing team of about 10-50 people. The company has cash flowing through, and may even be profitable (although you are probably plowing any profits you make back into continuing growth). You may have even begun to create some secondary products, or changed the focus of your original idea a bit as you learned more.
The Sapling Stage can be a very creative time, as you gain momentum from your early growth and begin to function well as an organization. In the natural world, the perils of the sapling stage are primarily from “predators”. Saplings are tasty food!
In the business world, this “threat” can be turned into a positive thing. It may mean that the company gets acquired – that can be an exit for you. On the other hand, it may also mean that your idea is catching the eye of others who may not wish you well. So this is a time to be sure to keep your focus on the horizon as well as with whatever is happening inside your organization.
Your most likely challenges and goals in the sapling stage are:
- Examine and analyze markets to date and pivot or change focus based on new information
- Gain and maintain financial stability
- May need significant capital for future growth – $1,000,000 to $10,000,000 (or more)
- Shift operational culture and processes to prepare for long-term stability
- Continue to examine and analyze pricing structure, markets, and market penetration – this is the last chance for an easy pivot if needed
- If acquisition is a goal, develop relationships in preparation for this
Stage 4: Tree
At last, after years of creativity and growth, it has truly taken on a life of its own. This is a profitable, cash-flow positive business. It is ready for acquisition or transfer. Businesses at this stage may also reinvent themselves or grow new branches in order to stay in the rapid growth (and highly desirable) Sapling Stage.
The Tree Stage is hardly Cruise Control, however. Businesses are actually at their most profitable just before they reach full maturity. After that, they go into a decline. This can happen quickly for software and technology companies, because they exist in a rapidly moving, ever-changing landscape. The secret to staying profitable is to focus at the branch level, continuing to create new branches and retiring or pruning those that need it.
Your most likely challenges and goals in the tree stage are:
- Continue to grow and change – otherwise the company begins to move into the “Death Stage”, which you must avoid
- Maintain laser focus at what you are best at in the world
- Maximize profitability and manage cash
- Super-clean, auditable books and records
- Clear, efficient processes that remain up to date
- Always watch the horizon for new threats and opportunities
- Find an exit for the entrepreneur
Where is your company at? Are you meeting your challenges and ready to bust through to the next stage?