The Four Stages of Entreprenuerial Growth – with Michael Masterson

In Ready, Fire, Aim, Michael Masterson details the process that he’s used to build many multi-million dollar businesses. And it’s one of the best books on entrepreneurial strategy I’ve found yet. You’re not going to find much in the way of tactics here. But you will get a complete framework for how to approach (and grow) different stages of your business.

According to Masterson, every business has four stages of growth. Here’s how they break down.

Stag One: Infancy ($0 to $1 Million in Revenue)

The vast majority of entrepreneurs are in stage one.

Your single overriding, all-encompassing, SOLE priority is to sell your product. Nothing else matters. Don’t get distracted with other product ideas, rigid management systems, or anything else. Spend your time figuring out how to sell to your target market.

Figure out what your target market REALLY cares about. This is not easy and requires countless hours of research. Find people in your target market, then get them on the phone or take them out to lunch. Get to know their fears, desires, and life perspective. Only when you completely understand them will you be able to develop the perfect sales pitch. Don’t think you can do this with surveys either. When you’re just starting, you need to actually talk to your customers.

Once you know who your customer is, you need to figure out the perfect way to get in front of them. It may be specific blogs, trade magazines, sales calls, or conferences. There is no easy way to go about this. Come up with a bunch of ideas that seem reasonable, figure out a way to test those ideas without committing too much time or money, then start at the top of your idea list and work your way down.

You’ll spend your days experimenting with different sales pitches, trying new marketing channels, and getting to know your customers.

If you play this game like a pro, you’ll grow faster than any of your competitors. And as you get some traction, you’ll work on improving your product. But you won’t create new products, that comes in…

Stage Two: Childhood ($1 million to $10 million)

When you start moving into stage two, you’ve become an expert in selling your one product. You know the industry better than anybody else. You’ve mastered the art of marketing and sales. If there’s a customer out there looking for your product, you have found them.

The good news is you’ve found all of your customers, the bad news is you’ve run out of customers. You’ve cornered the market and there’s no one left to sell to. So your growth stalls.

To break into the second stage, you need to transition from an organization that sells one product to one that can create, test, and grow new products as fast as possible. You’re going to diversify and expand your business into new categories. You’ll even create new brands.

You’ll need to figure out how to build new products and how to release them more frequently. Once again, the name of the game is testing. In Stage 1, you tested marketing ideas with a single product. Now you’re testing multiple marketing ideas and multiple products. You’ll need to build an organization that can handle this task.

Stage Three: Adolescence ($10 million to $50 million in revenue)

You’ve turned your business into a selling machine. Even better, you crank out new products at will. There’s just one problem, you’re moving too fast for your own good.

Your business has now grown to hundreds of employees and severely lacks any overall organization. And your customers are starting to notice. Not everything is as polished as it used to be, many details start slipping through the cracks. You’ll need to build the processes and procedures that will take you to the next level.

This is the realm of the MBA. You’ll be making your business more corporate.

The real trick here is balancing the assets you’ve already built (product development, marketing, and sales) with organizational processes. You definitely need more structure to support the size of your business but you don’t want to bury your growth teams with a mountain of paperwork or bureaucracy. You’ll have to keep a vigilant watch during this stage to strike a good balance between growth and structure.

Stage Four: Adulthood ($50 million in revenue and beyond)

You’re no longer a small business and you might actually get featured in Forbes or Fortune. You figured out how to sell beautifully, how to develop an endless stream of products, and to build enough structure to support your growth without crushing it.

This is the stage many entrepreneurs dream of but very few ever get the chance to experience.

It’s also the fun part with plenty of options. you can:

  • Sell to a larger company
  • Go for the IPO
  • Only work on the components of the business that you’re super passionate about
  • Assume the role of an advisor or consultant to the company
  • Continue to build the guiding vision of your business

Basically, you get to do whatever you want. You’ve built a business that operates and grows on it’s own. And now, your role will be closer to an investor than the CEO.

Are these hard numbers? Don’t some companies reach Stage 2 before they hit $1 million in annual revenue?

Absolutely. These numbers are very general benchmarks. If you have a super small niche market, you may hit Stage 2 at $100,000 in revenue. Other businesses may achieve several million in annual revenue before they hit that first ceiling. It completely depends on the size of your market.

Instead of focusing on revenue (which are super rough estimates of what you’ll actually face), figure out what stage you’re in by analyzing the skills and problems of your business. Have you become a sales superstar? If not, you’re in Stage 1. Do you know sales better than anyone in your industry but your growth has still stalled? You’re probably in Stage 2 so make new products. Then when you start to struggle to keep up with everything, build the structure to support Stage 3. You’ll be in Stage 4 when you’ve removed yourself from the process completely.

I highly recommend Ready, Fire, Aim, you can pick it up at here.

I’ll show you how to build an unstoppable growth machine. Don’t miss any of my new essays.

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