Stages of Company Maturity 1: Concept

"Evaluating a Company" series continues!

Happy New Year!  With a new year comes a new series. To start, let’s pick up where we left off (in 2022!) with Evaluating a Company.  While that series was originally aimed at job hunters, I’ve used the same concepts with my advisory clients at Schutzworks.  In this series, we will move from the people side to the strategic side of business evaluation, starting with Stage of Company Maturity. From there, we will work through Strategic Preparation: aligning organizations to solve complex problems together, repeatedly over time. Here we go…    

Companies, like people, develop in stages over time, transitioning from one to the next based on significant milestones.  Nothing is more exciting than your little one’s first crawl or your company’s first customer, but staying at a crawl or with one customer is always cause for concern. Therefore, when evaluating an organization you must do through the lens of their current stage, otherwise you are wasting your time and potentially damaging the company through irrational expectations.  

There are (currently) four stages, each with an initiating event, key focus and risks which should guide expectations and activity, ending with a defined transition point to the next stage.  Let’s let the table below do the work for a moment as we dive into the Concept stage.  Over the next few posts I’ll reuse this graphic and explain the subsequent stages.  Please share any feedback or resonant experiences you have in the comments!  

The Concept Stage

There is plenty written on where great companies come from (other companies), so let’s presume that your business likely started as your brilliantly conceived answer to a problem you noticed in your daily life and/or work.  Maybe you started with a strategic analysis of the white space in a sector, maybe someone gave you the idea, maybe it was a flash of brilliance.  Whatever it was, hopefully you can answer the most important question: What is the problem you are trying to solve (and for whom!).  This initial idea begins the Concept stage.   

The Concept stage is intoxicating– anything is possible, nothing is broken yet, and the unwritten future is more appealing that whatever drudgery currently occupies your day as a potential founder.  Remember though, that despite anything being possible, most concepts go nowhere.  More businesses die (or fail to launch) at this stage than any other. And that’s ok, because exploration and validation is the hallmark of the Concept stage with quitting the biggest risk.

The goal of the Concept stage is to get to a Prototype, defined as a working product or service for which a customer is paying you.  Contracts are awesome (but not enough) and products or services that exist uncompensated are nice, but similarly insufficient.  Somewhat counterintuitively, it is better to have a contract without product (revenue + scramble) than a product without a contract (costs + desperation). 

Your time is in the Concept stage is spent refining your opportunity: defined as a problem for which you can both create value AND capture some of that value created.  Problems only become opportunities once you have figured out how to both create and capture value. Unfortunately, Healthcare is notoriously tricky because most of the value creation accrues to incumbent parties (read: insurers) while it is the value creation part that motivates everyone to get involved in the first place.  As a caution, do NOT launch your concept until you’ve validated your opportunity. This can be demotivating, but remember, no margin, no mission.  

Opportunity refinement requires spending time with the outside world, specifically potential customers for whom you will be creating value.  Finding those customers requires using your network, asking for help while putting yourself in situations where you may look silly.  Therefore, finding customers requires courage and humility. Fully listening to those you meet requires your empathy for their problems, so that you can be creative in their solutions.  Obtaining feedback on those solutions requires further humility and on the cycle goes. If a potential customer offers to pay you for a product/service, especially one you dismissed because it was too simple, PAY ATTENTION. Nobody wants to pay for anything.  

During this process you want to keep your team small and your costs low.  Ideally you already know if you prefer to work solo, duo or in a small team. I prefer duos.  Since your time is spent meeting with potential customers and learning their problems, your costs should only be travel and entertainment, even easier with virtual meetings.  When you need help, use cash to pay when favors fail, rather than giving out equity.  You don’t want to muddy your cap table, give up control or your upside for hundreds or thousands of dollars. 

Controlling your costs allows you more time before you have to sell any of your company (also known as raising money) when you don’t really have one, because whoever buys it will own a huge chunk just for taking the risk of you needing to eat while you figure this out.  Furthermore, raising on an unverified idea will painfully increase expectations of your investors while hampering your ability to refine. 

The less obvious risks of the Concept stage are variations of an unvalidated concept leading to a mediocre prototype.  This comes in two forms– the endowment effect and N of 1 Customer.  The endowment effect happens when you fall in love with your idea even though nobody else does and defend it rather than obtain real feedback. Let go of the lone genius proving the world wrong, those stories are at best unhelpful to actual progress.  

The N of 1 Customer is a bit trickier, assuming you do not want to build a consultancy.  Your first customer is almost certainly someone you already know, that trusts you enough to fumble around for a bit.  In your race to a prototype, you run the risk of solving problems idiosyncratic to that customer that do not exist elsewhere in the marketplace.  The risk comes from incurring costs and falling prey to path dependence while you build to suit your customer.  The antidote here is to continue external facing opportunity refinement while building your solution so that you can validate your market. 

Time in the Concept stage is exploratory by nature and will not have strict time bounds.  There will be false alleys, wrong turns, concepts that do not pan out and “wasted” time.  You need enough flexibility to go deep in topics, read things that may lead you astray and take meetings that might not be valuable.  As you make progress toward an opportunity and a paying customer, it will become more clear that it is time to commit full time as conflicts arise and you keep choosing the concept.  So enjoy the madness!  

Once you have both customer and offering, then you are ready to search for true Product/Market fit, which I’ll cover in the next post.