Mastering company building — the final stage of the customer development model
April 26, 2023
The company building phase is the final step in the customer development model. Its purpose is to establish a business that not only survives in the present but also thrives in the long run.
Think of this phase as laying the foundation for a house. While it may not be the most glamorous or exciting part of the process, it is essential for the stability and longevity of the structure.
Without a strong foundation, a house (or a company) is likely to crumble and fail over time. That’s why the company building phase holds such significance. Dedicate time and effort now to constructing a solid foundation, and it will support growth for years to come.
What is the customer development model?
Developed by Steve Blank — an entrepreneur and author in Silicon Valley — the customer development model is a framework for building and growing a successful company by identifying and testing assumptions about your target customers.
Entrepreneurs often make assumptions about what customers want or need without fully understanding their problems or pain points. And this never ends up well.
The customer development model aims to help entrepreneurs validate their assumptions early in the process before channeling time and resources into building a product or service that may not meet customer needs.
The four phases of the customer development model
- Customer discovery: In this initial phase, you identify and engage with potential customers. The goal is to understand their needs, pain points, and behaviors by conducting market and user research.
- Customer validation: In the next phase, you test your assumptions with a solution. You do so by creating an MVP (minimum viable product) and introducing it to potential customers for feedback.
- Customer creation: After validation, you focus on acquiring and retaining actual customers. You must develop marketing strategies and build a customer acquisition process.
- Company building: This is the final phase, where you work on scaling your company and building a sustainable business model. Here, you’ll focus on developing a team, establishing processes and systems, and refining your product or service to meet changing requirements.
The customer development model helps entrepreneurs avoid the common pitfalls of building a company based on assumptions and guesswork. By engaging with customers early on and testing assumptions, entrepreneurs can guarantee they will meet real customer needs.
What is company building?
As the final phase of the customer development model, this stage focuses on sustainability.
In the company building phase, you focus on several key areas:
- Building a strong team: A successful company requires talented, dedicated individuals to work together to achieve its goals. You need to hire the right people, build a strong company culture, and create effective communication and collaboration processes.
- Establishing a mainstream customer base: You must build a large customer base representing the typical or average user of your product or service. Once you identify their needs, preferences, and behaviors, you can tailor your marketing and sales strategies to reach and engage with this audience. Your mainstream customer base should provide a stable and predictable revenue stream.
- Establishing processes and systems: The right processes and systems help you streamline operations, manage resources, and make data-driven decisions. You will need standard operating procedures, key performance indicators (KPIs), and tools and technologies that can support your business goals.
- Refining your product or service: You have to continuously delight your customers. To stay ahead of the competition, you need regular customer feedback and up-to-date analysis of market trends. That way, you can continue to refine your offering and deliver greater value.
- Scaling your business: Once you’ve built a solid foundation, you can start focusing on growth. Growth means scaling your operations, exploring new markets and opportunities, and building partnerships and collaborations.
The company lifecycle
The road from startup to industry giant is made via several smaller steps forming the company lifecycle. The company lifecycle, also known as the business lifecycle, describes the different stages that a business goes through over time.
The six stages of the company lifecycle
While the specific steps and timelines may vary depending on the industry, size, and nature of the business, the following are the commonly recognized stages:
- Development Stage: In this stage, the business is still in the ideation and planning phase. The focus is on developing a concept, researching the market, identifying target customers, and developing a business plan.
- Startup Stage: The startup stage begins once the business has officially launched. This stage focuses on establishing a customer base, developing a minimum viable product, and securing initial funding.
- Growth Stage: In the growth stage, the business is expanding and generating increased revenue. The focus is on scaling the business, improving operations, and developing new products or services.
- Maturity Stage: Once the business is well-established and is generating steady revenue, the focus is on maintaining the company’s operations, optimizing profitability, and expanding into new markets.
- Decline Stage: The business may experience a decrease in revenue and market share. This may be through market saturation, growing competition, or becoming obsolete. The focus now is on identifying the cause of the decline and implementing strategies to turn the business around. If these efforts are unsuccessful, the company may eventually cease operations.
- Renewal or Rebirth Stage: In some cases, businesses can revive and experience a new growth phase after the decline stage. This may involve a major restructuring, a company strategy pivot, or a merger or acquisition.
Understanding the company lifecycle can help business owners and managers make informed decisions about their operations, growth strategy, and long-term goals.
Where does company building fit into the company lifecycle?
Company building generally fits within the first three stages of the company lifecycle: development, startup, and growth. We’ll dig into each of these a little more.
In this stage, the company primarily focuses on research, planning, and ideation. The objective is to develop a solid business idea that will solve a problem or address a market need.
During the development stage, the following key activities typically occur:
The development stage typically starts with lots of ideas. Business owners and entrepreneurs brainstorm and evaluate multiple business concepts before settling on one that has the most potential.
Once the entrepreneur has identified a business idea, the next step is to conduct market research. This means collecting data on the target market, understanding consumer needs and preferences, analyzing industry trends, and assessing the competitive landscape.
The entrepreneur assesses the project’s feasibility, including evaluating the potential profitability of the business, assessing the resources needed to launch and operate the business, and determining whether the idea is worth pursuing.
Business case development
The entrepreneur develops a comprehensive business case based on research findings. This document outlines the company’s mission, vision, and goals. It includes a detailed analysis of the market, the target audience, the competition, and the financial projections. This is usually created with the goal of getting stakeholders on board.
The entrepreneur may create a prototype of the product or service to get a sense of how it will function in the real world. This may be a simple mock-up or wireframe, an interactive prototype, or a sample product. It may be all of the above!
In some cases, entrepreneurs may need to secure initial funding to support the development stage. Options include self-funding, seeking loans from family and friends, or securing seed funding from angel investors or venture capitalists. The business case very often makes a reappearance at this point.
The startup stage is an exciting time because the hard work during the development stage finally pays off. During this phase, entrepreneurs launch their businesses, develop and test their products or services, and attract early customers.
Establishing a team
To get the business off the ground, entrepreneurs need to gather their best and brightest together. This can mean hiring employees or partnering with contractors, freelancers, or other entrepreneurs.
Building the product
The next step after prototyping is to build the product or service. This is where the work from the development stage turns into a tangible product or service. The goal is to create a minimum viable product, or MVP, that can be launched and tested in the market.
Securing additional funding if needed
At this stage, startups often need funding to cover product development, marketing, and initial operations. Entrepreneurs may seek seed funding from angel investors or venture capitalists or obtain loans from banks or other financial institutions.
Once the MVP is ready, it’s time to launch the business officially! This involves setting up a website or physical location, creating a marketing strategy, and establishing a customer base. This is a critical time for startups because it’s the first opportunity to attract customers and generate revenue. Often, businesses launch a trial version among a small number of early adopters. This can drum up excitement and provide more feedback before committing to a bigger launch later on.
Testing and iterating
Entrepreneurs use feedback from early customers to improve the product or service. They can also refine the marketing strategy and adjust the business model as needed. Startups need to be agile and willing to iterate quickly based on customer feedback to increase their chances of success. Testing should happen from the initial launch through the product’s lifecycle.
Finally, once you’ve validated the business model and refined the product or service, the focus shifts toward scaling. This involves increasing production or service delivery, expanding the team, and establishing partnerships or collaborations with other businesses.
And that leads us to the next stage.
During this phase, businesses experience significant expansion and revenue growth. The focus shifts towards maximizing profitability and increasing market share. Here’s what typically happens.
Scaling people, infrastructure, and operations
This means the company is experiencing a surge in demand for its products or services. That means it needs to ramp up its production, hire more employees, and expand to new locations to keep up. It’s a thrilling time because it means the business is making a real impact and gaining recognition in the market.
Establishing a corporate structure
As the company grows, it becomes increasingly important to establish effective corporate management. This includes creating a clear organizational structure, defining roles and responsibilities, and establishing processes for decision-making and communication. As the company expands, it may need to hire new managers or executives to help oversee operations. It’s essential to create a culture of accountability and transparency to ensure that everyone is aligned toward the same goals. But a warning: don’t implement this too quickly when you’re still small. Often smaller businesses benefit from a more egalitarian way of running. Adding hierarchies and bureaucracy slows things down and hinders innovation.
Increasing market share
Branch out into new markets or niches, target new customer segments, or develop new products or services that complement the existing offerings. The goal is to keep growing and expanding the company’s reach.
Improving your organization’s processes is essential during growth. The company needs to maintain efficiency and maximize profitability to keep up with the expansion. Fall behind and your competitors will swoop in and steal your customers. Improving ops typically involves implementing new technology and streamlining processes.
Managing cash flow
Cash flow is critical. The company needs to have enough working capital to fund its expansion while also maintaining healthy margins and profitability. It can be challenging to balance the need for investment with the need for profitability, but it’s necessary.
Building the brand
As the company expands, it must continue strengthening its brand identity to maintain a competitive edge. Do this through marketing and advertising campaigns, developing a robust online presence, and building solid relationships with customers and partners. Establishing partnerships can be a good way to expand and grow. Collaborating with other businesses can help you tap new markets, access new technologies, and leverage new expertise to push the business forward.
Growing your customer base
It’s important to continue growing your customer base. This means investing in marketing and advertising campaigns to reach new customers, building relationships with existing customers to ensure repeat business, and continually gathering feedback and insights to improve the customer experience. Additionally, expanding into new customer segments can help to broaden the company’s reach.
Life after growth: How to maintain momentum
So, you’ve made it through the growth phase, and your company is thriving. Congratulations! But how do you keep up the momentum and ensure continued success? One effective strategy is to adopt a decentralized management style.
What does that mean, exactly? Well, decentralized management empowers your employees and teams to make decisions and take ownership of their work. It encourages collaboration, creativity, and innovation and can help drive growth and maintain momentum.
Instead of micromanaging every aspect of your company, you delegate decision-making power to your employees and encourage individual initiative. This approach helps to tap into the skills and expertise of your entire workforce, creating a culture of entrepreneurship and ownership. It can also reduce bottlenecks and delays that slow decision-making and stifle innovation.
Decentralized management also fosters a sense of accountability among your employees. When they take ownership of their work, they feel a greater sense of responsibility for the outcomes. Trust can lead to a more engaged and motivated workforce, which can help drive growth and success.
Of course, decentralized management isn’t a one-size-fits-all solution. It requires a significant shift in mindset and culture, and it’s essential to have suitable systems and processes to support it. But for companies looking to maintain their momentum after the growth phase, it can be an effective strategy for driving innovation, empowering employees, and staying ahead of the curve.
In addition to decentralized management, it’s important to focus on continuous improvement. Your teams must regularly review performance metrics, gather feedback from customers and employees, and stay up-to-date on industry trends and best practices. Maintaining a culture of innovation, agility, and accountability can keep your company on the path to long-term success.
Company building best practices
Company building can be challenging and complex, but several best practices can help ensure success. These include:
Establishing a clear vision and mission
A clear vision and product mission statement help to guide decision-making, inspire employees, and create a sense of purpose and direction for the company. It also creates a sense of cohesion, making it easier for your customers to ‘get’ what you’re all about.
Focusing on building a strong team
A company is only as strong as its team. So it’s crucial to invest in recruiting, training, and retaining top talent. This means creating a positive and inclusive work environment, offering competitive compensation and benefits, and providing opportunities for professional growth and development.
Developing a culture of innovation and agility
You snooze, you lose, as the saying goes. The business world moves fast, and companies must adapt quickly to changes in the market and industry. By fostering a culture of innovation and agility, companies can stay ahead of the curve and identify new growth opportunities.
Prioritizing customer satisfaction
Customers are the lifeblood of any business. It’s essential to prioritize their satisfaction and build strong relationships with them. This means gathering feedback and insights, addressing concerns and complaints quickly and effectively, and consistently delivering high-quality products and services. Plus, you can’t afford angry 1-star ratings in the modern world of online reviews.
Maintaining financial discipline
Finally, ensuring the company operates within its means is important. This means developing a solid business plan, monitoring cash flow and expenses, and making smart investments in areas that will drive long-term growth and success. It’s all about balance and knowing what brings value to your business.
Technology moves fast, and companies that fail to adapt and adopt risk falling behind. By embracing new tech and tools, businesses can streamline operations, improve productivity, and create new opportunities for growth and innovation.
Collaboration tools are a great start — and they’re an easy, affordable way to boost productivity in your team.
In summary, the company building stage is essential for establishing a strong foundation, ensuring stability and longevity, and supporting future growth. So, embrace this phase with enthusiasm and commitment, knowing that you are setting the stage for a thriving and prosperous future.