What is Stage Two?
Sand Hill Partners defines Stage Two as the period in which a start-up company develops and locks down the repeatable business model required to successfully scale the business. It is essential for an emerging business to recognize and set this time apart as a distinct state of existence.
The traditional tech start-up growth plan is to parlay an early success into a financing round and then race off to hire people and spend money, thereby fueling the promised frenetic growth. This move almost always turns out be an expensive mistake in an emerging market unless the requisite elements of a scalable model are first determined and put in place. This determination usually takes some iteration and data-gathering about the product, user experience, customers, and the selling process (note the implied good news: determining the repeatable business model doesn’t have to require a lot of money.) The key elements include:
- A stable “Stage Two Product” focused on simple usability and offering only what customers really need, without a trace of feature clutter.
- A solid, but still minimal, team - with the right people in the right seats.
- A sales process sufficiently built and proven to the level in which regular sales people can be inserted with the confidence they can hit their numbers. (hint: the sufficiently built process would not hinge on the CEO coming in as Chief Closer for every deal.)
- Scalable and predictable product delivery including services, integration, implementation and post-sales support.
Critical Success Factors
Most importantly, the Stage Two transition point is carefully chosen so that no matter what you have accomplished to date, all citizens of Stage Two state share the same critical success factors.
1. Define and ship the “Stage Two Product”
A common start-up struggle is to land a few exciting customer deals and then mysteriously hit a plateau. The reason for this is an important Stage Two step was missed. The coveted breakthrough to market leadership happens on the back of a special type of product model we call the “Stage Two Product”. This product is carefully defined and designed to package up the company’s initial technology innovation into a straightforward and “minimum viable” solution to the chosen customer problem. The Stage Two Product is ruthlessly focused on minimizing its capabilities to only those essential in fulfilling a well-targeted need. While this product model can also be viable beyond Stage Two, it is essential to success in the early stages. Many start-ups make the mistake of trying to do too much with their initial offering, largely because they don’t understand the best way to go in and surgically identify what is needed for success. Missing the Stage Two Product step is perhaps the most common mistake underlying venture backed start-ups that can’t seem to uncork its revenue.
Sand Hill Partners works with its clients through a carefully designed (but at times unconventional) process that works with customers in isolating the real Stage Two Product that will break out in sales. When done right, the product not only gives the target customer exactly what they really need, it also gives the start-up something they can really design, develop, ship and support. This step is such a critical success factor because early-stage companies are vulnerable to a particularly virulent strain of product development disease commonly known as “feature creep.” Feature creep abounds when the start-up’s distinctive competence, or the product’s goals, or the customer’s pain are unclear or defined too broadly. The Stage Two Product breaks through the noise of feature creep with a clear definition of what is vital to delivering a solution that will be purchased.
The Sand Hill Partners process is at times unconventional because customers are often themselves unable to reveal exactly what capabilities will be vital, and thus a careful understanding and dialog is required to tease out the real data necessary to build the compelling product. It is an art that Sand Hill Partners is experienced with. Contact us to learn more about the Stage Two Product and how we can get you there.
2. Isolate the target market and its optimal selling process
An emerging market is like an alternative universe in which prospective customers all behave the same as ever, but you must now see them and profile them in unique new ways. It can require keying in on factors that may never have been considered before.
For example, an enterprise software solution that allows field service technicians to manage service requests, optimize their route, manage inventory and eliminate paperwork using a simple smartphone sounds like something that could be used by all service organizations. However, only a field service operation that will be able to leverage this technology to deliver a major breakthrough in their business is likely to expend the time, money and effort to invest in it. Perhaps only those servicing the most time-sensitive equipment, with service technicians that are always traveling and must re-prioritize on the fly, will make the type of investment that can support your business model. The rest are more likely to find it interesting enough to look at, and spend (waste) your sales people’s time, but never quite get around to having the budget for it.
In most cases, there is no previously existing and well-researched market segment that perfectly fits the stage two repeatable business model. And that is at it should be, because if there were, it likely means you are too late. This critical success factor is all about sculpting a new target market segment with a customer pain that until now, has not been effectively addressed.
Perhaps the best definition of a repeatable business model is an alignment of a Stage Two Product with a crisp target customer profile and a selling process that is perfectly tailored for both. The key point is that the right selling model is not one that worked “elsewhere” but is carefully derived for this product and its target customer. This derivation is essential work in Stage Two. The selling process includes an understanding of the buying process at the target customer, effective messaging at each stage, effective pricing strategy, structure of initial sale versus follow-on sale, services requirements, pre and post sales technical support, optimal sales channels, and the staffing requirements for scaling the business. Getting all the elements of the ecosystem correct, and aligned, is an iterative process with a velocity paced by the quality of your team. If the right people are in the right seats, it will happen faster than anyone can catch you.
3. Right people in the right seats
Stage Two is not yet the time for ramping up the hires in the sales and marketing group, rounding out the executive team, or taking other quantum leaps into a high monthly burn rate. It is a time to iterate and arrive at a solid, repeatable model – work that is done best with a small team working closely with customers and making quick decisions. Assuring you have the right people in the right seats, all working well together, requires the use of three important tools from Sand Hill Partners:
Early Stage Selection Process
Culled from time-tested principles and best practices learned and applied over 30 years in the selection of employees for new organizations (and key executives in large companies), Sand Hill Partners’Early Stage Selection Process balances a start-up’s need for speed and simplicity with proven methods for determining what someone will really do on the job. It shows you how to separate the start-up “pioneers” from the big-company “settlers”, and determine who will be an outstanding contributor and fit into your culture.
A performance model is a detailed description of the performance required for success in a specific position; it is a description of how a job SHOULD be performed. The truly great companies in this world use performance models for selecting and developing key execs because the wrong person in a key position can kill an organization. A Stage Two start-up needs to think of all its initial hires with a similar sensitivity. It’s not that the hires are necessarily expected to be executives, it’s because in a small team with everyone working hard, fast and closely together, the wrong person will, at best, create tremendous misery and, at worst, kill the company. Sand Hill Partners offers expertise in how to make performance models work well in a Stage Two start-up. Performance models:
- Structure and design the role as it needs to be performed.
- Identify selection criteria that feeds into the Early Stage Selection Process
- Clarify performance expectations to all involved.
- Assure appraisal and reward systems (e.g comp plans) are aligned and encourage target performance.
- Determine actions that will remove work environment barriers to high performance.
Speaking of culture, the early employees in Stage Two collectively form a canvas upon which the company culture is painted. This painting can either be done intentionally, or you can simply whistle past this canvas everyday and hope whatever splatters on it will work well. Either way, something will be painted and a culture will be formed. While the “whistle method” is often the approach taken by the typical technology start-up, Sand Hill Partners is a big believer in the intentional method. We show you how to create a great culture around attributes like speed, communication, customer focus and commitment. These attributes are essential to a Stage Two team that is attempting to isolate the repeatable business model for the next big thing.
It all starts with establishing and developing important areas of shared mindsets among the employees. As soon as a company grows beyond one person, it is assured there will be differences in how employees perceive the vision, strategy, reward systems and even their role in contributing to it all. Sand Hill Partners believes "organizations are perfectly designed to get the results that they get", therefore, we have found over time that business success comes from deliberate choices about the cultural attributes and intangibles which will differentiate an organization. Outstanding companies consciously design and plan activities to reinforce these choices.
A critical area of shared mindset is around the notion of distinctive competence. Successful start-ups and great companies all possess a deep cultural awareness of a company’s distinctive competence. Sand Hill Partners considers itself leading experts in how to create powerful shared mindsets and leverage them to focus productivity and improve the business.
Contact us to schedule a more detailed discussion of how Sand Hill Partners can help you create a successful start-up and a great company.
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