Companies go through stages as they grow. And the skills needed to manage them change at each stage.
Very few founders can excel at those skills and if they fail, they often quit or get kicked out of their companies by investors.
In my book, Hungry Startup Strategy, I highlighted four stages of startup growth and suggested that companies need different forms of capital for each.
But the book neglected to detail the different management skills required to excel at each stage.
Since the book came out, I have interviewed many entrepreneurs who shed light on this topic.
Read on if you care about what you need to be able to do at each stage and how you know you are doing it well enough to lead your company to the next stage.
In the beginning, a startup has an idea -- but needs a product and a customer.
This is the stage when the CEO needs to lead the prototyping process. This means the company should build an inexpensive version of the product, get feedback on the prototype from potential customers, and build a better prototype.
After repeating this cycle several times, the prototype should improve enough so that the company can get its first customer.
In general, companies ought to keep their costs low during the prototyping stage and try to fund the company from their own savings, borrowing on their credit cards, and possibly asking friends and family to chip in some cash.
But if possible, companies should avoid going to bigger investors at this stage so they can maintain control of the company and strengthen their bargaining position with such investors until their business is operating on a stronger footing.
The most important skill needed to excel at the prototyping stage is the ability to listen to potential customers, translate their pain into product features, and work with engineers to design and build prototypes with those features -- all while spending the minimum amount of money.
2. Customer Base
If a company can get its first customer, the next challenge it faces is going from one to 100 or 1,000 or more.
The goal at the customer base stage is to grow the company to, say, $25 million to $50 million in revenue by targeting a large market opportunity and gaining significant market share -- up to 10% is often thought of as reasonable.
At this stage, it often makes sense to seek out angel investors -- wealthy individuals who made their fortune in your industry who want to help you grow.
It is important in selecting such investors to make sure you share the same vision for the industry and that they can contribute to your company's growth by sharing their expertise and contacts along with providing cash.
Successful leadership at the customer base stage depends on your ability to hire and motivate an excellent team of functional leaders. This means you need to hire vice presidents for sales, engineering, product management, and operations who in turn can attract talented individual contributors and work well as a team.
3. Market Expansion
If you are better for wear after reaching $50 million in revenue, your next challenge is to grow the company to the point at which it could go public or be an attractive acquisition candidate.
To do that, it often helps to reach at least $100 million in revenue -- and the closer the company is to profitability at that stage, the better.
When a company reaches the market expansion stage, it is in a much stronger position to seek venture capital.
At this point, the CEO can make a compelling case that the business is operating well at its current size but by partnering with a venture capital firm it can grow to the point where the VCs and the original investors will be able to realize significant investment gains.
Once you've raised the capital needed to expand -- you ought to build a global sales and service organization so your company can add customers in many countries.
You'll have to evaluate the attractiveness of the various countries based on market size, your company's ability to gain market share, and whether you can earn a return on the investment required to compete there.
To build a global organization, decide whether to hire sales people to sell your product to customers directly in those countries or to find a distribution partner who already has those customer relationships.
Each option has benefits and costs. Hiring your own sales force means you can dedicate them to selling your product -- but they will cost you more in the short run until they bring in meaningful amounts of revenue.
Working with distributors will cost you less initially, but the distributors will probably not give your product as much attention as you might want unless your product can add meaningfully to their current profits.
If you're running a global organization, you'll have to find a way to communicate with people around the world to keep them motivated and informed about your company's performance and prospects.
If you get to this stage, ask yourself if you are ready to run a public company -- facing investors and financial regulators at least once every three months.
If that does not sound like an enticing prospect, you may want to find a company that is willing to pay what it takes to enrich you and your investors and take your company to the next level.
There are a few well-known leaders -- like Jeff Bezos -- who have stayed on as CEO long after going public. But if you want your company to go public and don't want to run it thereafter, you can try to hire a CEO with the desire and skill to do that well.
If you do stick around, maybe someday you will join the pantheon of icons of entrepreneurship.