Business Life Path
Which Stage and What Phase?
Every business that aims to become a big company has three stages. The first stage, the value stage, is where the business starts. It's a crucial phase where the business's value is proven and accepted by the customers, making them an integral part of its growth. Once this acceptance is achieved, the business enters the second (sprout) stage, telling more people that doing business with us is a good choice. When they succeed in attracting many people, they are in the root stage. They must keep providing the same value to the masses as they efficiently offer to a few customers in stage 1.?
?Exploration and exploitation phases mean that how you are going focus your business and how you are going to spend your resources in each stage. For example, exploration of value proving means that you spend all of your resources to discover the compelling value, and exploitation of value proving means that you spend all of your resources to adding new features and benefits to the core value of the product.
?The common mistake that is done by the business people, they focus on the wrong stage and phase. Especially, the pressure on the entrepreneurs to generate income is one of the factors that made the entrepreneurs to focus on the wrong stage and phase.
?Consider Airbnb, which started as a simple idea to rent air mattresses in a living room. Over time, it evolved through distinct stages: initially planting the idea (seeds), gaining traction and early adopters (sprouts), and finally becoming a dominant player in the global accommodation market (roots).
?Navigating the world of startups can be challenging, and understanding what stages your business in is the key to long-term success. This article offers entrepreneurs and product managers a clear guide, outlining the journey from an initial idea to a stable, established business.
By the end of this article, you'll have practical advice and actionable strategies to help you navigate each stage of your business journey, from seeds to roots. Whether you're just starting or looking to grow, this guide will help you focus on the right stage and phase.
Before diving into the subject, I would like to share a method of effective business management that has yet to be discovered by many business people. This approach will help you save lots of money, time, and effort.?
Exploration and Exploitation Phases
Doing business is not a straightforward or uniform job. For example, promoting your business differs from industry to industry. Even in the same industry, promoting 2 companies might vary. Or expanding to one country differs from the other country. Any business adventure consists of exploration and exploitation;
There are business management concepts;
Doing business is a multi-discipline task comprising sociology, human buying psychology, human decision-making, etc. Since doing business is a multi-discipline task, we need to discover the optimum level of doing business that scrutinizes goals, results, limits, obstacles, challenges, etc. This process requires a lot of work. We can multiply what works after we discover what works and what doesn’t.
Exploration involves discovering what works and what doesn't, while exploitation entails making more of what works. For example, we should discover what advertising message/hook works, and then we should create many ad campaigns.
?For instance, entrepreneurs first explore a compelling value proposition and then, upon finding one, add more benefits and features. Twitter, for example, initially had limited benefits and features upon its debut. Still, once it proved the compelling value proposition, it began adding new features and tweaking existing ones to align with user demands.
This concept applies to marketing, sales, and operations as well. Once we discover the right marketing channel and persuasive ad messages that attract customers at a low acquisition cost, we can initiate more marketing campaigns to onboard customers.
?The most common mistake is that business people apply exploitation strategies when they need exploration strategies. This is among the big mistakes made by the business people. The reasons for that;
?Many businesspeople don't know or don’t apply the three stages correctly. Each stage has two substages: exploration and exploitation. They mainly apply exploitation strategies for the exploration substage. That is why many failed business attempts exist, even in well-established entities.?
Value Proving
People buy a product for its value. A compelling value is not just a necessity; it's a must. As entrepreneurs, we believe our product has a compelling value because we have an emotional attachment. But most of the time, what we think is a compelling value isn't accepted as compelling by potential customers. That is why there are too many failed startups and products worldwide.?
?Your product must offer a value that catches potential customers' attention, which is the biggest challenge for new products. As an entrepreneur or product owner, you may believe your product has a compelling value, but most of the time, it does not. When developing a new product, you must be mindful of two potential problems: either the value is too superficial, the product flames out, or the startup spends too much time and resources, and the startup team burns out. Understanding the essential value that needs to be created is critical for the success of the product and startup.
?Consider Dropbox as an example of value proving. Initially, Dropbox demonstrated its value by offering a seamless file-sharing experience, which quickly resonated with users frustrated by the limitations of traditional methods.
?While the product leader may not know the precise value potential customers require, they must be familiar with frameworks and techniques for discovering valuable products. Instead of focusing on the solution, focus on the problem. This approach will make you more adaptable when identifying the correct value. First, use the 'exploration' concept, which involves experimenting and learning about potential values, to find a compelling value. Only after a value has been proven through exploration should you use the 'exploitation' concept, which involves fully utilizing the proven value.?
?Once you've proven your product's value is compelling, the next step is to ensure your marketing and sales strategies are aligned. This alignment is crucial as it allows you to effectively communicate your product's value to your target audience, guiding them toward understanding and appreciating it.
?(For frameworks and techniques for discovering a compelling value, please read the Digital Product Value Discovery article for more about creating value. This article provides in-depth insights and practical tips on discovering and proving your digital product's value.)
Marketing and Sales Success
Entrepreneurs often believe that once they put their product on the market, people will automatically flock to it. However, this has only happened to a few companies in the history of digital products. Therefore, it's essential to find ways to capture the attention of potential customers and persuade them to use your product.
?If your product's value is well-known or easily discovered, the success of your marketing efforts depends on the budget you can allocate. On the other hand, if your product's value needs to be discovered or not easily understood, you need effective persuasion. In this case, you should focus on crafting marketing messages that resonate with your potential customers (message-market fit).
?For example, Dollar Shave Club changed customer behavior with its viral marketing campaign, which persuaded customers to switch from traditional razor brands by emphasizing convenience and cost savings.
?Additionally, suppose you have a limited marketing budget. In that case, it's crucial to identify the most effective channels to promote your product (channel-market fit), such as search engines, social media, affiliates, etc. Many entrepreneurs underestimate the impact of marketing on a company's success, assuming that a great product will sell itself. In reality, successful marketing is essential for driving sales and growth. And remember, if you don't have a great product, no marketing activities can help you.?
After establishing effective marketing and sales strategies, it is vital to focus on operational efficiency. Ensuring smooth operations and excellent customer support will solidify your startup's foundation and support its growth.
(For more information on applying good marketing and sales strategies, please read New Types of Sales Funnel and Audience Temperature articles.)
Operational Efficiency
?For products requiring consultation, support, or operations, it is crucial to have a growing team while keeping customer satisfaction high. Consumers evaluate your product based on their total experience with it. Therefore, if customer support is crucial before and after the customers use your product, you need smooth operations to enhance the customer experience significantly. For example, an e-commerce site where people might need help with their purchases can only be successful with customer support. Having a customer support team is more than answering calls because people will talk about their experiences when their problems are solved.?
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?Zappos built its reputation on exceptional customer service. Investing heavily in customer support ensured high satisfaction and loyalty, leading to word-of-mouth marketing and operational success.?
?Understanding and leveraging key performance indicators (KPIs) is crucial for startups aiming for long-term success. These KPIs serve as a roadmap, guiding your decisions and actions at each stage of your startup's development. They measure your progress and help you stay on track toward your goals.
Success Indicators for Each Stage of the Business Life Path
As a business owner or manager, your responsibility is to develop a product and ensure its success. Each stage has key performance indicators, which you must focus on to guide your decisions and actions.
?Let's delve into the specific success indicators for each stage: Seed, Sprout, and Root. Let's start with the Seed stage, where proving the value of your product is paramount.
?Succeeding in Seed Stage: Value Proving
?Value is the driving force behind consumer purchases. While it's easy to articulate value, creating a product that truly resonates with consumers and meets their needs is challenging. Before we delve into the concept of value proving, it's crucial to distinguish between disruptive and sustaining products.
?Many startup co-founders mistakenly believe their product is disruptive when it is a sustaining one. A product is not disruptive if it does not create a new behavior, a new industry, or change the value chain. A startup may build its product on existing value (such as an online newspaper) or create new value (like selling the first newspaper). Audiences easily understand some products' value, while it takes time and advertising for others to be understood. For example, internet users can quickly grasp the value of an e-commerce platform upon seeing it. However, the value of a SaaS product may take time to become apparent. Consumers typically need to utilize or acquire a significant amount of information to understand the value of SaaS.
?In the initial phase, if you build a B2B (business-to-business) product, having at least six customers means your product has enough value. This is because B2B products usually have a smaller customer base, and each customer represents a significant portion of the market. On the other hand, if you are building a B2C (Business-to-consumer) product, having 10-50 customers (depending on the industry) in the initial phase means your product has enough value. B2C products usually have a more extensive customer base, so more customers are required to demonstrate value.
?Regardless of what you are building, you must rely on more than just advertising for each sale. You need retention or word of mouth to be financially successful. As a B2B product, you might think your value is enough for mass marketing because you have six customers, but not exactly. Having six customers means that your product is worth investing more in the value of the product. Therefore, you must invest in the product to have a word-of-mouth effect and a retention rate higher than 75% (the ratio depends on your customer acquisition cost). This number can change depending on your industry. ?
Attempting to sell your product to the masses without a high enough retention rate or strong word of mouth can be risky. If you do this, you may lose more customers than you gain and spend a lot of money for little return.
?With value proving in place, the next focus should be on achieving marketing and sales success during the Sprout stage, where you can scale your efforts.
?Advice for startups: Staying lean and flexible in the early stages is essential. Wait to move to the second stage until your product is a must-have. When discovering a must-have product, remember to keep your costs as low as possible, as this is a key factor in your success.
?(For more about creating value, please read “The Formula for Successful Digital Product” and?“Digital Product Value Discovery” articles.)
?Succeeding in Sprout Stage: Marketing and Sales Success
?Before exploring marketing and sales in-depth, you must distinguish between cognitive and behavioral change.
?After testing your product in the market and confirming its retention rate and word-of-mouth potential, you can start mass marketing and advertising. One common mistake startups and product owners/managers make is assuming that simply talking about their product will attract customers. Many advertising campaigns focus on bragging about the product rather than explaining why potential customers should buy it.
?Once startups are confident about the value of their product, they often think they should aggressively promote it. However, this belief can lead to a failure. Having a high-value product doesn't guarantee that potential customers will make a purchase. The first step to a successful marketing campaign is understanding your potential customers' buying psychology to create compelling marketing materials. The second step is to find the right marketing channel. Not every channel suits every product, so it's essential to identify the best marketing channel with a high conversion rate. Once the right marketing channel is found, you can allocate your advertising budget to that channel and launch your advertising campaigns.
?Without these two steps, you will waste your valuable money and, in the end, close down your business. Marketing activities are expensive. You need to conduct many marketing campaign experiments until you earn $1.1 while spending $1 on a marketing campaign (this number is symbolic and could change according to your industry). For example, according to the generally accepted paradigm, if you are in a SaaS business, it is acceptable to have the marketing cost be 1/3 of the lifetime customer value.
After reducing your marketing budget to an acceptable level, you can accelerate your marketing campaigns. For digital products with low marketing costs, focus on attracting new customers and engaging and retaining them. Implement behavior-changing methods described in the New Sales Funnel article to decrease your marketing costs for selling digital offers or physical products.
?Disruptive products are new, and consumers are usually resistant to change. Therefore, disruptive products must demonstrate value and provide credible proof of the benefits. Consequently, marketing campaigns for disruptive products should focus on changing consumers' perceptions (why they need to use the product).
?Sustaining products need to keep marketing costs in check. Since potential customers understand the product's value, the challenge for marketing sustaining products is finding customers within an acceptable marketing cost. If you have a sustaining product, you might utilize various marketing automation techniques (such as email automation, remarketing, retargeting, long-tail strategies, SEO, content etc.) to reduce your marketing costs and to influence potential customers throughout their buying journey (providing incentives, presenting different options, limited-time offers, and more). Among competitors with similar sustainable products, the one with the highest marketing budget will likely emerge as the winner.
?Research and find the best marketing activities and reduce your marketing costs thoroughly. Otherwise, companies like Alphabet, Meta, TikTok, Twitter, etc., will burn your valuable money.
?Advice for startups: After establishing effective marketing and sales strategies, the next step is to focus on operational efficiency. This is not just a suggestion but a necessity. Ensuring smooth operations and excellent customer support will solidify your startup's foundation and support its growth.
?(For more information on applying effective marketing and sales strategies, please read the "New Types of Sales Funnel" and "Audience Temperature" articles.)
?Succeeding in Roots Stage: Operational Efficiency
?After achieving a good value proposition and optimal marketing costs, you now attract many customers, so you need to hire more people to grow. Many startups and companies struggle to build effective teams for growth. In today's information age, having efficient product, marketing, and software teams is essential for long-term success. These teams are responsible for developing and delivering high-quality products, creating effective marketing strategies, and maintaining and improving software systems. While your initial product value may be attractive to early adopters and innovators in the market life cycle (please look up the technology adoption life cycle), you need to provide more value for the pragmatists and conservatives in the technology adoption life cycle and the changing expectation of the current customers.
?As your customers' needs, wants, and expectations change, you'll need a creative and cohesive team that enjoys working together and being part of the company. It's a common practice for managers to add more team members when work is delayed and the team is not functioning well. However, this knee-jerk reaction often causes more trouble than it solves. Adding more team members doesn't necessarily lead to increased output or better outcomes. Instead, generate more work with the same team by creating trusting and functioning team members.
?An effective team should ideally have between 4 and 8 members. Having less than 4 team members can burden the team and require individuals to have excessive skills. Conversely, having more than eight members can lead to bureaucracy, politics, and delays. The crucial role of a manager is to achieve maximum productivity with the right team size. This requires effective leadership and the ability to foster a cohesive team. There are two types of management styles: diminisher and multiplier. Diminisher managers tend to expend more resources to achieve results, while multiplier managers build cohesive teams that generate greater output with the same resources.
?Conclusion
?Launching a business is significant, so entrepreneurs must focus on creating value, marketing, and business growth complexities. Understanding your business's orientation (based on the Business Life Path and the Fluid Mechanics of an Industry) is crucial to focusing on the right areas. Failing to do so may result in directing attention to the wrong aspects of your Business Life Path. For instance, some startups prioritize marketing and sales over proving the value of their offerings, believing they can sway potential customers through these activities. However, it's crucial to remember that healthy growth, not just growth for growth's sake, is the key to long-term success. Additionally, some startups in the growth stage focus on acquiring more customers instead of concentrating on healthy growth, leading to chaos.?
?Therefore, it's crucial to understand your business's stage and the corresponding key performance indicators (KPIs) for each stage while avoiding misdirecting your focus towards the wrong stage.?
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Founder @ fof | Author The Founder Mode
6 个月It's inspiring to see a clear roadmap for startups and how focusing on each stage can fuel success! ?? In my journey with 99tests, we learned that small adjustments in the exploration phase made a big difference in our approach to market fit. ?? What’s been your experience in balancing exploration and exploitation?
SaaS SEO & Organic Growth Strategist ?? | Inbound GTM
6 个月Balancing exploration and exploitation is like walking a tightrope; too much of one can throw off your startup's growth.