Understanding how you lead from an idea to a fully mature enterprise
The growth of an idea into a value-producing and self-sustaining enterprise occurs in four distinct stages. These stages manifest themselves because the projects, processes, and cultures we described in sprint 14 do not just materialize; they must be created in a certain order subject to highly constrained resources.
If they are created in the wrong order and the wrong times then the entire enterprise is stunted, unproductive, and culturally problematic. This is 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
Customer Validation: This Stage starts when someone commits to forming an enterprise around an idea and ends when a customer commits to using the product or service.
Operational Validation: Stage two starts with a customer committing to use the product or service. The stage progresses as the team confirms through a series of projects that customers find happiness in the product or service and the team can deliver it reliably and thereby determine exactly how much money customers will gladly pay in return. This stage ends when basic processes are used to 1) deliver the product, 2) ensure that customers are satisfied, 3) capture new customers, and 4) simply administrate the enterprise (in other words, pay employees, pay bills, inventory and purchase supplies, keep basic accounting records, among other tasks).
Financial Validation: Stage three starts when the value proposition has been confirmed and basic processes are reliably in place to deliver the product, capture and satisfy customers, and administrate the enterprise. This stage ends when the company is able to produce consistent value under stressful competitive and economic conditions. This requires it operates with scalable processes that manage all aspects of the enterprise, and with no process relying on any single individual.
Self-sustainability: Stage four starts when the leader of a stable and highly competitive enterprise initiates a project to create an innovative new product or service that captures new customers. Stage four does not start automatically when stage three ends. For many enterprises it starts years after stage three has ended or never starts at all. Stage four ends when the new product or service produces consistent value for the enterprise and a process has been established to produce more innovative products. Once stage four is completed, the startup leader has successfully created a self-sustaining value producing enterprise.
Every enterprise must go through each stage to progress to the next. Attempting to jump past any stage results in an unstable 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 by the stage of maturity or by wanting to leap over stages to work on innovative ideas that should necessarily wait for the final stage.
Here are other things leaders must understand about each stage of enterprise maturity.
Stage One: Customer Validation
All activities in this stage are organized as a master project focused on developing a specific product or service an actual customer is willing to use and pay for. If the product or service is complicated, then there may be several different teams working on different aspects of the product design and how it is actually produced and delivered. The founder must also focus on finding and working with potential customers until one customer commits.
A nascent culture, as described in sprint 14, forms during this stage based on how the team perceives the founder makes decisions and rewards independent actions. People are easily motivated to help create a new enterprise. The finances of the enterprise are controlled simply with the equivalent of a checkbook.
The work done in completing sprints 2 through 6 results in moving through the first parts of this stage by thinking through possible answers to 5 key questions around how to find and get your first customer:
Who will want to buy your product?
Why will they want to buy your product?
How can they know they want to buy your product?
Where will they want to buy your product?
How much will they be willing to pay?
Completing Stage 1 requires you move beyond just thinking whether your idea could work and sustain a real business; it requires that you create an actual prototype of your product or service that is compelling enough to get a customer to commit to using it and then to pay for it. We can soon lead you through this process as we are creating a series of sprints on the subject.
Stage Two: Operational Validation
The activities of this stage are organized as at least three projects with a mission to establish processes for: (1) delivery of the product, (2) finding and satisfying customers, and (3) administrating the enterprise. Another project may be necessary to set up a process to deal with special regulatory requirements.
The entrepreneur can only know how to design and implement the three core processes after they have actual customers from whom they can understand exactly what about the product or service and how it is delivered is making them happy and how to use that understanding to find more customers. Sprints 2 through 6 were an educated guess, and you got more information with prototyping, but before you go investing time and money into creating productive and reliable delivery and sales processes you need to deeply understand the nature of the value you are delivering.
Leading through stage 2 is tricky, because it starts out by creating and leading projects and in the middle requires a transition to value being created by processes. It is during stage 2 that founders are at greatest risk of being fired by their VCs. Successful leaders cannot mess this transition up. We plan to create a sprint dedicated to how to lead through it, but you can access this Harvard Business Review article in the meantime: https://hbr.org/2014/03/surviving-a-start-ups-transition-from-projects-to-processes .
Stage Three: Financial Validation
In Stage 3, all the stage 2 processes must be redesigned to be more productive, more robust, and more flexible. This stage is about positioning the company to be able to produce consistent value under stressful competitive and economic conditions by operating with scalable processes that manage all aspects of the enterprise, with no process relying on any individual. The enterprise is led based on continual review of operational, customer, and financial metrics and a forecast of operational, customer, and financial performance. The enterprise is controlled based on a forecast of profits or fiscal surpluses.
The strategic imperative of stage three is to create a sustainable balance in the enterprise’s processes between effectively generating significant value and being flexible enough to meet the expectations of existing and potential customers. Finding the proper balance requires making forecasts on how revenues and costs can change with time, economic conditions, added investment, and competitive pressure, under any number of other conditions that may be specific to the marketplace or regulatory environment.
The company culture solidifies during this stage around how processes are managed and how rewards are distributed throughout the enterprise. In stage three it is particularly important for the startup leader to create opportunities and support for career advancement.
A final tricky aspect of stage 3 is that the enterprise must be able to operate without the specific involvement of any one person. Founders sometime do not want to give up control of a specific operation, which stunts the growth and adds great risk to the enterprise ever being self-sustaining. Restaurants, fashion houses, art galleries and businesses based upon scientific discoveries of a founder often face this challenge. Growth is stunted and the enterprise is only valuable after the founder dies and only if all the other processes are in place and work without the founder’s direct involvement.
Stage Four: Self-Sustainability
Stage four starts when the leader initiates a project to create an innovative new product or service that captures new customers. It doesn’t end until some new product or service produces consistent value for the enterprise using a process that creates and produces more innovative products.
The strategic imperative of stage four is for the enterprise to implement a process that enables itself to be renewed. This renewal can come in the form of introducing significant new types of products, making major leaps in existing capabilities that set new product or service benchmarks, creating new business models, or opening entirely new markets. Innovation can also come through acquiring innovative enterprises and preserving their innovative culture. Without renewal, the customer base will atrophy, and the enterprise will lose its relevance and therefore its ability to sustain itself.
The startup leader’s biggest challenge in stage four is to ensure that the enterprise's culture is equally supportive of innovators and those who want to improve efficiency. Culture change is hard; ideally the startup leader has nurtured key innovative individuals in being successful in creating processes that were efficient who can now be given the opportunity to be more broadly innovative. In stage four, career tracks must be modified to provide equally motivating autonomy and mastery opportunities for those innovative individuals who want to change everything and those enormously productive people who want to continue improving what they already do.
Once an enterprise has completed stage four, it is a fully mature and very valuable enterprise.
Next steps
You now have an overview of how to pilot a startup from takeoff, climb, cruise and landing. There are countless changes to be implemented at specific times in specific ways to do this successfully. Over the course of 2026, we will be creating stage specific series of sprints to help you to collect and assess the data critical to deciding on what to do next. The next sprints are focused on helping prepare you to go forward with confidence in assembling a team and creating a commercially viable prototype to get you through stage 1 and into stage 2.