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July 12, 2013

Don’t Shortcut the Prove Stage

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Sometimes you need to run away from the money, even if it is $1 million.

 

If you’re in start-up phase, $1 million feels like the fast track to success. But in reality, it’s often the fast track to failure because you’re tempted to skip over the need to “prove” your business or organization.

The prove stage is that important.

What Is the Prove Stage?

Earlier this year, three friends and I published a book titled From Concept to Scale: Creating a Gospel-Minded Organization. The premise of the book is that every organization goes through four stages: 1) Concept; 2) Launch; 3) Prove; and 4) Scale.

Every organization starts as an idea (concept) that has made some sort of public liftoff (launch). Over time, you verify your model, customer, economics, and such (prove) before expanding to new areas or ideas (scale).

Of these four stages, the prove stage is the most difficult and the least glamorous.  You’ve moved past having the dream and selling the dream. You’ve woken from the dream, and it’s just the daily grind. You’re out of adrenaline and you’re running into obstacles left and right.

Yet this is such a key stage.

This is the stage when you show your funders that they made a really smart investment. This is the stage when you tell your customers, “We deliver on our promises.”  This is the stage when you tell yourself, “There’s a career here, not just a hobby or a pipe dream.”

In Concept to Scale, we talk with my friend Sajan George, who founded Matchbook Learning.  Sajan had a concept of a revolutionary approach to transforming education, and he launched the idea in Detroit a few years back. He quickly had opportunities to scale his idea and launch around the country.

Instead, he’s trying to prove his model first. Before he declares success, he wants to see a school district that is in the bottom 5% in the country become a top 20% school. Once that happens, he’s ready to scale on a big level.

What is Sajan trying to prove? He’s proving that his dream really works.

The Danger of Premature Scaling

If the prove stage is so crucial, why would anyone skip it? And what makes shortcutting so easy and attractive?

Here are three culprits:

  • Money: There is more investment money available than ever. Getting money has never been easier.
  • Information: A long night on Google can give you a MBA level of information to shove your business or enterprise forward. Getting a just-in-time education has never been easier.
  • Relationships: We all have some kind of network to lean on to help us fast- track our idea. Even though they are not all the same size and value, we all have one. Getting help from our friends has never been easier.

 

According to The Startup Genome Project premature scaling is the #1 cause of start-up failure. The Reuters report on the project also notes (and I love this phrase): “Founders are ridiculously over-optimistic.”

Premature scaling is often very tempting.  Sales are far beyond projections.  Your Twitter following has quadrupled, and your web marketing campaign has gone viral.  Why shouldn’t you take advantage of the momentum and go big? Why not launch a second, third, or fourth site? Why not partner with another non-profit to reach more people?

Because you might have some blind spots that are crucial for sustainability and real success.

Jim Collins wrote in How the Mighty Fall that hubris blinds people from reality.  We think our idea is bulletproof, and that we’re a step ahead of the customer and the competition.

In reality, though, we’re simply the beneficiary of a great month or a lack of competition or some other factor outside our control.  I often tell my friends to be careful of false positives. We still haven’t proven anything. Proof always takes two things: 1) time; 2) at least one or two mistakes.

How to Succeed at the Prove Stage

There are countless things to prove, but start with six key questions.  Don’t even think about scaling until you can answer “yes” to each of these questions.

 

  1. Did you create the right thing?  Business schools call this “product/market fit.” Tinker with your product (or change it entirely) until you know the market wants it.
  2. Does the message match the outcomes?  Most founders and leaders promise a lot when pitching their dream.  Are you backing it up?  If you say you have the best chicken wings in town, they’d better be good.
  3. Can you make it last?  Sustainability. Whether you’re for-profit or non-profit, you have to prove that you can bring in enough money to pay your costs. In addition, your social impact must be sustainable as well.
  4. Can you bounce back from a negative response?  If you get a negative response from the market, you need to pivot quickly and substantially. If you can’t, it’s probably a good idea to shut down. (Check out this Fortune article or Seth Godin’s The Dip  for tips on why it’s often smart to quit.)
  5. Are you ready for what’s coming?  Are you in a ready stance with the infrastructure, resources, capital, and personal fortitude needed to push through?
  6. Is your talent growing and happy?  Do you have the right board in place?  Are you attracting and retaining employees? Is your family behind you as you look to scale?

Check out pages 141-143 of From Concept to Scale for a list of about 30 items that your organization will have to prove. It is the most comprehensive pre-scale checklist I know of.

 

Here is the main thought: You don’t have to prove everything, just enough of the right things.

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