Enterprises are needy
Children are needy, and so are enterprises. Needs shift as the child or enterprise grows. If parents treat their teenager like an infant, trouble ensues. If an entrepreneur attempts to lead his growing enterprise the same way he did when the first prototype was built, trouble also ensues.
A fledgling enterprise needs different things from its leader as it matures from an interesting idea into a value-producing, self-sustaining enterprise. Entrepreneurs are often insensitive to the trouble that comes from giving the wrong sort of attention and leadership to their enterprises.
Once entrepreneurs are armed with some understanding about the basics of how their enterprises work and mature, they can avoid these troubles. Most founders come by this knowledge the hard way, as they naïvely lead their enterprises into crises that could have been anticipated and avoided if they had only known about what their enterprises needed to mature properly. Some entrepreneurs are lucky enough to survive these crises and to learn from them; most are not.
Immature enterprises have only three parts that matter: projects, processes, and culture (these are essential to mature enterprises as well, but at different levels of scale and complexity). Everything an enterprise creates is the result of its projects, processes, and culture. This applies to all types of enterprises, regardless of whether their mission is to make money or create social good.
It is surprising, but even experienced business people can confuse projects and processes. Projects are a set of tasks performed by a team of people to create something new or to make something better. Projects have a finite existence; they start with some goal, and they end when the goal has been satisfactorily completed or when the team has been disbanded because of failure or because the project's objectives are no longer considered important. Processes are a set of tasks people repetitively perform to transform materials and information into something more valuable. Projects and processes are completely different, and understanding their differences—and how they interrelate—is crucial to startup leadership.
“Projects and processes must be used in balance in order for an enterprise to mature properly, and that balance shifts as the enterprise matures. Confusion between projects and processes stifles growth and destroys value, causing great frustration among many entrepreneurs.
All organizations have a culture, which is a shared understanding of how contributions are valued and rewards are given. The culture of an enterprise plays a critical role in its success, and once created it is extremely difficult to change. All groups of people who stay together for any period of time develop understandings about how they should behave in order to be tangibly or intangibly rewarded (for example, with improved status or special recognition such as bonuses).
Culture exists irrespective of whether an organizational leader tried to consciously create it or not. It exists even in the least-mature enterprises—a culture is created as soon as founders start to make decisions that affect the status of their team. Each enterprise's culture develops through the reaction of people to the actions of managers and leaders with status high enough that they can give meaningful recognition and rewards. Founders have very high status and therefore have a disproportionate impact on how a culture develops.
The growth of an idea into a value-producing and self-sustaining enterprise occurs in four distinct stages. These stages manifest themselves because projects, processes, and cultures do not just materialize; they must be created in a certain order subject to highly constrained resources. If they are not, a stunted, unproductive, and culturally problematic enterprise will ensue—analogous to what would happen if you were to raise an infant, child, or adolescent without sensitivity for the needs of each particular stage of the young person's life.
The four stages of enterprise maturity are:
Customer validation
Operational validation
Financial validation
Self-sustainability
Every enterprise must go through each stage in order to progress to the next. Attempting to jump past any stage results in an insecure foundation of projects, processes, and culture, which in turn leads to financial and cultural dysfunction. Enterprises cannot mature from one stage to another without their leadership maturing as well: entrepreneurs often stunt the growth and maturity of their enterprise by selfishly refusing to change their leadership style as required and wanting to leap over stages to work on innovative ideas that should necessarily wait for the final stage.