Stages of Development: Stage 1

Cole Abbott (00:00:00 -> 00:00:14)

Uh, right. We did the, we finally covered all of the nine core competencies. Yay. And so now we're moving into stages of development, right? Yeah. So starting with stage one. Yep.

Mark Abbott (00:00:15 -> 00:00:18)

Do we start with stage one or do we do a quick overview and then

Cole Abbott (00:00:19 -> 00:00:26)

We've talked about it before. Okay. But I don't think we did. We haven't, right. We haven't done a whole episode dedicated to each stage yet.

Mark Abbott (00:00:26 -> 00:00:28)

Right. But we have done something on stage of development.

Cole Abbott (00:00:28 -> 00:00:33)

I know we've covered it. I don't know if it was an explicit episode on it. I think it was, though. Okay. All right. So if not,

Mark Abbott (00:00:34 -> 00:00:35)

I'll do a really quick overview

Cole Abbott (00:00:35 -> 00:00:38)

Really quick. Yeah, yeah. Get everyone up to speed.

Mark Abbott (00:00:38 -> 00:06:16)

Everyone up to speed. Alright. So, um, So there's a, a framework that we have called stages of Development that we believe is pretty useful in terms of literally understanding how companies evolve, sort of how a business evolves from an idea all the way to something that someone would be able to happily sell or happily pass on to the next generation, to someone who they think would be a great steward for the company. Um, and the stages of development model really actually has seven stages of development. And it's based upon, um, my version of it takes into consideration Elliot Jack's work on time span of responsibilities. Right? Um, and basically at the core, each of the stages has to do with the time span of the vision that the company has, which obviously is basically the time span of the vision that the founder and or CEO has that the company is marching, um, behind. So, uh, stage one is basically when a company is just true proving product market fit, it's very short term oriented. We gotta figure out whether anybody's gonna buy what we wanna sell. Stage two is where you evolve from day to day, week to week to sort of quarter to quarter. So it's anywhere up to a year's perspective. Stage three is we're looking out, we've gotten to the position where we can look out one to two years. Stage four is, we can look out two to five years. We've got strong points of view of where we're gonna be in two to five years. Stage five is five to 10, stage six is 10 to 20. Stage seven is 20 to 50. And there are no real businesses out there that go all the way to e Elliot's stage eight, which is 50 to a hundred years out. So, stage one is literally day to day, week to week, month to month. We're just trying to prove product market fit. So that's what the focus is, that's what the founder's focus is. That's what everybody who's working in that business, that company, it's not really a company yet because you can't sell it to someone. Um, but that's what they're all focused on. So it's a very short time span of focus. Um, and the goals during stage one is typically just approved product market fit. Now, product market fit. Um, I like to think of product market fit in terms of two different dimensions. The dimension that almost everybody thinks about is, are people gonna buy what you're selling? Are they gonna pay money for your product and or service? The other one is frankly, is can you raise capital? Right? So have you done enough to explain what it is you are going to do so that someone's willing to invest? So instead of buying your products or service, they're buying your stock. Right? They're, they're, they think of good enough, they think it's a strong enough idea to invest in it. So stage one is product market fit, right? Um, and, and, and, and the time span of goals, as I said, typically less than three months. Um, you typically in a stage one company, you have just a few people. Could be the founder, plus a few other people. It could be co-founders, but, you know, everybody is just basically working on figuring out how to get product market fit. Um, and, uh, there's really not a lot of structure in a stage one company. It's just everybody's working on stuff. We're trying to figure it out. You're gonna work on stuff, I'm gonna work on stuff. Maybe I'm an engineer. Maybe you're marketing, you know, maybe the founder's, you know, working on all this stuff, including fundraising, putting together a, a, um, you know, sort of a, an information or fundraising memo or something like that. Uh, so like I said, there's no real structure. There's no real reason to be worrying about, you know, a lot of, you know, uh, putting like an org chart or an accountability chart together just doesn't, it's not, it's not a good use of time. Um, so, you know, usually because there's not a lot of need for structure, you know, someone may be just focused on marketing, someone else may be focused on i on engineering. Um, someone may be focused on fundraising. Um, but there's no real core centers of excellence or, or, you know, or functional areas. It's just we're dividing and conquering based upon our areas of expertise. Does that make some sense? That does make sense. Okay. Um, and then, you know, typically maybe there's, you know, junior and senior people, but once again, it's just everybody knows they're junior and senior people. We're not like putting some org chart up. Um, and at the risk of stating the obvious, you know, if the founder gives up, the business is gone, or the co-founders give up, it's gone. Right? Um, and so there's no, there, sometimes there's no money invested at all. It's just everybody's doing, you know, sweat equity. They're, there's, it is not even paying salaries or anything. And, uh, the whole focus is just right to, to prove some form of viability. It's to, it's to be able to continue to play the game. So, um, you know, in short, that's a, those are the characteristics of a, of a, of, of, of a stage one company. And if you look at those characteristics, time span of a founder's focus or time span of the goals, right? Roles of leaders, structure, uh, centers of excellence, uh, layers of complexity, the, the nature of the business in terms of the criticality of the founder, um, the financial status, the founder's focus as the businesses evolved from stage one to stage two, to stage three, to stage four, to stage five, and beyond. Every one of those categories changes, but today's focus on stage one. So where would you like to drill into?

Cole Abbott (00:06:17 -> 00:06:24)

I think Right. Stage one's a crucial survival Yeah. Type stage. Yeah. Right. It's like when you're starting a fire and you ready prove, prove

Mark Abbott (00:06:24 -> 00:06:25)

There's a reason for you to

Cole Abbott (00:06:25 -> 00:06:36)

Exist. Yeah. You fire, you get kindling going. You gotta be very, very careful with it. Right? Yeah. But also it's unstructured. Yeah. Right. Winds a different game, blow

Mark Abbott (00:06:36 -> 00:06:39)

It out, little rain comes, it's all gone.

Cole Abbott (00:06:40 -> 00:07:12)

Yeah. Yeah. But it's just kind of a mess of dry things. <laugh> Yeah. You're putting in there. Yeah. Right. We're not getting air flow all, all weird out with that one. Yeah. Um, but when you're, so when you're stage one right. And it's unstructured, it's kind of chaotic. Yeah. Right. You're doing a lot of things. Yeah. Right. You're, you have someone's doing everything and Yeah. Every, when you bring on more people, they have a lot of different roles that they're doing and they're running around trying to make it work, trying to keep the, the boat afloat. Yes. What do you focus on, right. From a founder's perspective, what are the things you have to make sure that you're executing on?

Mark Abbott (00:07:12 -> 00:08:26)

Well, ultimately it's making progress towards, you know, whatever's essential for you to be able to prove product market fit. Whether it's to be able to go out and raise capital, or it's just to start getting people to buy what it is you're selling. Um, or, you know, sometimes it's just going around and saying, Hey, I've got this idea, right. If I can make this, this, this, and this happen, would you be interested in buying it? Right. So, you know, so, so sometimes you don't even need to literally create the product in stage one. You just need to have confidence. You just need to get to the place where, you know, you're willing to, um, you know, put a lot of resources into, um, in, in, in, in, in, into creating the company. You're willing to put real resources into, um, finding customers, finding potential investors. You know, you're, you're willing to dedicate some resources towards these activities because you know, you have this vision and, and you're driven by it and you think it could really make sense. So, you know, at some point, at some point or another in, in stage one, you know, you're just looking for confidence that you can do it.

Cole Abbott (00:08:28 -> 00:08:29)

You just need that evidence that it works.

Mark Abbott (00:08:29 -> 00:08:40)

Yeah. You need some evidence. Right. That'll, that, that, you know, and that, 'cause you need that evidence, not just for you and your psyche. Right. Um, but you need that evidence to get some other people to help you.

Cole Abbott (00:08:41 -> 00:08:43)

Yeah. Whether

Mark Abbott (00:08:43 -> 00:09:30)

It's marketing or engineering or even design or presentations. But, um, yeah, you can't, you know, in, in, you know, stage one is more than just, I've got an idea, right? Stage one is I've got an idea, me and other people are working it, we're figuring out how to, you know, sell it. Whether it's sell it so that we can raise capital, or whether it's literally to sell it so that people buy it. Um, we're figuring out, you know, crawl, walk, run, whether or not, um, you know, the idea is even, you know, got some people who's, who's interested in it, even before you start manufacturing or doing the engineering. Right. You should find out whether or not, you know, this idea is gonna resonate with someone, the product under earth, the service, right? Yeah.

Cole Abbott (00:09:31 -> 00:09:40)

'cause sometimes you don't actually put the product out for a while. Right? Right. If you look at like an open AI or something. Yeah. Right. Yeah. It's like we're gonna, we're gonna advance a lot before we actually put anything out. Well, but

Mark Abbott (00:09:40 -> 00:09:46)

Their product market fit was, they brought in, obviously they got a bunch of people and they raised capital. Yes. Right.

Cole Abbott (00:09:48 -> 00:09:51)

Or they didn't actually. Right. But they didn't sell the

Mark Abbott (00:09:51 -> 00:09:56)

Thing. They didn't sell a product. No. They didn't have any revenue. No. But they did raise money. Yes. Right. So they attracted capital, they sold

Cole Abbott (00:09:57 -> 00:10:05)

The idea of the product and the execution of it. Exactly. And the progress of it, right. 'cause they had the evidence Yeah. That it's working, it's coming along. Yeah. Even though there was no Right. Revenue.

Mark Abbott (00:10:05 -> 00:10:32)

And then, and then so, you know, because I think this probably is part of how we should do this, right? And so at some point, obviously they raised enough capital to start make where it started to make sense for them to actually have dividing and concrete and start to have some structure, right. And have sort of individual contributors and some team leaders and some experts. Right. And so sometimes you can go from stage one to stage three very, very swiftly because you raise the capital. Yeah.

Cole Abbott (00:10:32 -> 00:10:53)

Yeah. So, right. If you wanna move through those stages, obviously some situations and industries, it's gonna be way swifter Yeah. Than others. Yeah. Right. If, if you want to move from stage one to stage two, right? What, what are those things? What are those rites of passage where you have to, what do you have to do to get, to advance the next stage?

Mark Abbott (00:10:54 -> 00:11:29)

Well, in theory, right? If you are a, a wealthy individual, right? And you've bootstrapped it, right? Um, you know, you can get to stage three without generating any revenue, right? Um, you can probably get to stage, I mean, if you've got a lot of money, you can get to stage four without any revenue. But most companies, right, they start to generate revenue either in stage one or stage two most businesses. Does that make sense? Yeah. Yeah.

Cole Abbott (00:11:32 -> 00:11:41)

So what are the, I guess in stage one, what are the challenges that you're gonna be facing? More so than stage two or, or so on?

Mark Abbott (00:11:42 -> 00:13:11)

Um, it, once again, it's, it's just product market fit, right? Yeah. I mean, 'cause it's, it is to, unless you have enough capital as a, as an individual, the founders have enough capital, right? Then, you know, they can go from, um, they can go to stage three without really having product market fit because they just have the capital to go and, and, um, and hire people and create structure and, and dividing and conquering. Um, that's the, that means they have a lot of conviction around what they're doing. But, um, I don't think that's particularly normal. No. Yeah. I think, you know, clearly you have some founders out there who can, you know, who've had a track record of success and could, you know, basically, uh, raise capital, um, and swiftly go to stage three because, you know, because they're investors who believe in them. So they can go out and, and, uh, and put, explain their idea, and then raise some money. And now all of a sudden go hire people and go hire really good people in marketing, or really good people in engineering and really good people and, you know, recruiting or, you know, or finance or whatever it is that they feel like they need to hire in order to be positioned for the next stage.

Cole Abbott (00:13:11 -> 00:13:30)

So if you want Right. If you are one of those, if you are someone able to bootstrap it Yes. Right? And you're like, I want to, right. Start stage two basically. Mm-Hmm. <affirmative> what experiences, what wisdom, what skills do you need to have to basically run through stage one and get to stage two?

Mark Abbott (00:13:30 -> 00:14:46)

Well, um, there's always exceptions to all the rules, obviously. Right? But you know, you're, it depends on the nature of the company, right? So if it's a, if it's an engineering company, you're gonna need sooner or later engineers, right? Um, and then now the question is how long are we going to be just working on the product? Let's open AI is a great example, right? Um, you know, they probably could have been predominantly product and engineering for the first three or four stages, just product and engineers, right? We're just gonna work on this and we're confident that ultimately, you know, we're gonna get to a place where we need marketing, right? Or, and it's e even, you know, I would submit that they probably, as soon as they raise capital, right, they need to have someone who oversees accounting and payroll and things like that. So you got some person needed to do that, but you could be, you know, an accountant, you know, fractional, even CFO and then you know, someone to help you hire people. And then maybe there's a, you know, there's engineers and there's product people, and that's the team for several years.

Cole Abbott (00:14:47 -> 00:14:48)

They don't need sales and

Mark Abbott (00:14:48 -> 00:14:51)

No revenue don't need sales, don't need marketing. Mm-Hmm.

Cole Abbott (00:14:52 -> 00:14:56)

Yeah. You still need like a CFO if I need HR or something if you're Yeah.

Mark Abbott (00:14:57 -> 00:15:44)

Point you're recruiting people. Yeah. So you, some, someone needs to be, take responsibility for that. And then you have capital. So you need to be, you know, obviously setting bank accounts and things like that. And you could obviously leverage out outside resources for legal and things like that. But, you know, you could, you know, in my opinion, you don't get to stage five until, you know, stage five basically means that I am the company could live, survive, and, and prosper without the founder. Right? That's the big idea there. Um, and so, uh, in theory, you know, could you get to stage five, uh, without any revenue in theory because Right. Because you've built an amazing product. You haven't sold it yet, but someone would, someone would buy it.

Cole Abbott (00:15:45 -> 00:16:04)

Buy the product. Yeah. Yeah. But, but then when you open up those flood gates and then Right. That becomes a dynamic, it's a different game. Yeah. Enough, right? Not a wholly different game where you're completely changing the nature of things. Yeah. But you still want that founder, that visionary, and that seat to make sure that we're keeping that thread the same throughout that journey.

Mark Abbott (00:16:04 -> 00:16:08)

Well, what happens if come if companies, 'cause this is, you know, we're, we're talking the

Cole Abbott (00:16:08 -> 00:16:09)

Exceptions.

Mark Abbott (00:16:10 -> 00:16:42)

So someone, um, and I'm not, you know, I'm, I'm not steeped in, in, in, in, in, in sort of bring, bringing drugs to market, but, but someone came up with an amazing idea around to, to bring a drug and you go through all these phases, clinical phases, right? You're not getting any revenue for years and years and years. Yeah. Right. Um, but it could, but the, but the, but the product could be far enough along where, you know, you've done all the work that someone's willing to buy the product. Now are they buying the company, they're buying the product? I would argue they're buying the product

Cole Abbott (00:16:43 -> 00:16:45)

In that case, a hundred percent in

Mark Abbott (00:16:45 -> 00:16:54)

That case, right? So you really haven't built a stage five company. You've built a valuable product, but from my definition, it's not a stage five company at this point.

Cole Abbott (00:16:54 -> 00:17:10)

Yeah. Well, and in that example too, you're, it's already probably gonna be stage five, but if you're in the realm of like, we're putting drugs, right? We're doing all the research there, going through trials, testing Yeah. And then putting it out to market, right? It's like, this is not gonna be your first time doing that. Right?

Mark Abbott (00:17:10 -> 00:17:10)

No,

Cole Abbott (00:17:10 -> 00:17:13)

It's very, it's a high barrier that Yeah. Very much so.

Mark Abbott (00:17:14 -> 00:17:14)

Industry.

Cole Abbott (00:17:14 -> 00:17:15)

Yeah. And obviously, which changes things too.

Mark Abbott (00:17:16 -> 00:17:20)

And obviously they, in order to make that happen, you have to raise a fair bit of capital.

Cole Abbott (00:17:20 -> 00:17:20)

Yes.

Mark Abbott (00:17:21 -> 00:17:25)

Right. To play that long game. 'cause some drugs take, once again, this is not my area of expertise.

Cole Abbott (00:17:26 -> 00:17:27)

A little disclaimer at the bottom, big,

Mark Abbott (00:17:27 -> 00:17:37)

Big disclaimer, right? But I, five to 10 years sometimes to go through all of the trials and everything before you can start making money off the, off the drug.

Cole Abbott (00:17:38 -> 00:17:41)

Yeah. A lot of hours. A lot of people involved in that. Yeah.

Mark Abbott (00:17:41 -> 00:17:41)

A lot of capital,

Cole Abbott (00:17:41 -> 00:17:44)

Right. And if it doesn't go through, yeah,

Mark Abbott (00:17:45 -> 00:17:45)

Yeah.

Cole Abbott (00:17:45 -> 00:17:46)

Right.

Mark Abbott (00:17:46 -> 00:17:55)

But that's, you know, I, I'm, I, I don't know what percentage of the startups was, we're, we're probably talking about a very small percentage,

Cole Abbott (00:17:55 -> 00:17:57)

Very, very, uh, very small of

Mark Abbott (00:17:58 -> 00:17:58)

Businesses.

Cole Abbott (00:17:58 -> 00:18:18)

Open AI is like <laugh> one of them where Yeah. And then the people involved in that, right? You're, those are power players where Yeah. You expect something like that. Yeah. Right. It's not the same thing as, uh, right. Yeah. You know, Elon starting SpaceX is not the same thing as Elon doing PayPal. Those are very Right. Those are completely different,

Mark Abbott (00:18:18 -> 00:18:20)

Very different moments in time. Yeah.

Cole Abbott (00:18:20 -> 00:18:21)

Yeah. And that matters different

Mark Abbott (00:18:21 -> 00:18:22)

Stories. Yeah. Yeah.

Cole Abbott (00:18:22 -> 00:18:58)

Um, and it's Right, one of those things where if you are stage five versus stage one, your ability to take on risk right. Is huge. It's very different. Yes. Right. You can take it, we can do 10 years dedicated to something, and if it doesn't pass trial, it's like, well, that wasn't, that's not fun, but you move on and it's fine. Right? Usually, right? Yeah. Uh, but obviously stage one, you can't do that. So how, what, what would you say is a appropriate level of risk for most stage one companies out there?

Mark Abbott (00:19:00 -> 00:19:57)

I'd love to do the research on this, right? Yeah. But I think, I think it's, you know, sometimes it's people who, this is their, this is their night job, right? And so they're, you know, they have a day job and they're, they've got an idea and they're going around and socializing it, and maybe they can get two or three people to help them. Maybe they can, they have enough money to actually buy a couple buy right. To, to hire a couple people to help them, you know, get something to the place where they can go out and, and prove the concept. Whether, once again, whether it's selling the product and or getting people to sign up. If you do this, I will buy it. Or whether or not it's raising capital. But, um, but, you know, stage one is, is is definitely where you're just figuring it all out. Right? Um, and, uh, and, and you have not done enough work really to raise the capital that comes in stage two,

Cole Abbott (00:19:59 -> 00:20:03)

So Right. Raising capital, is that usually stage two, or is that pretty much, well,

Mark Abbott (00:20:03 -> 00:20:05)

Once again, gets back to product

Cole Abbott (00:20:05 -> 00:20:06)

Market, is that part stage right?

Mark Abbott (00:20:06 -> 00:20:20)

Yeah. So I, I would, I would submit to you that, that, whether it's people are buying your product or they're investing in you, that's the big event that enables you to move from stage one to stage two.

Cole Abbott (00:20:24 -> 00:20:25)

Makes sense. Makes sense.

Mark Abbott (00:20:26 -> 00:20:26)

<laugh>, yeah,

Cole Abbott (00:20:26 -> 00:20:27)

That's a good way to put it. Yeah.

Mark Abbott (00:20:28 -> 00:20:28)

Yeah.

Cole Abbott (00:20:29 -> 00:20:31)

Anything else that you wanna throw on for stage one?

Mark Abbott (00:20:32 -> 00:20:32)

Um,

Cole Abbott (00:20:35 -> 00:20:35)

<affirmative>,

Mark Abbott (00:20:37 -> 00:21:45)

You know, I, I think every single Company goes through stage one, right? It's just a question of how fast and, um, and for some businesses, for some teams, right? It, it could take months and months and months. For others, it's like that because, you know, you, you, you've got an idea and you've got the network and people are willing to invest in bacu. Um, and then, you know, for others it's gonna take a while just to create a proof of concept and, and bring it, take it out there and put in front of enough people that you're willing to actually turn the proof of concept into an actual thing, right? And software, right. Something that'll actually start to work and people will bang on and they're paid for, right? So, um, uh, you know, the, the amount of time you spend in, in stage one, um, can vary significantly. Some people, if it's their night job, could, they could be in stage one for literally years. I've got this idea, I'm writing about it. And, uh,

Cole Abbott (00:21:45 -> 00:21:59)

Or it's just something that's not right. Something very niche. Yeah. Right? Where it's like, we're only gonna sell a hundred widgets a year, and I wanna do it 'cause it's solves one of my needs or something like that. And,

Mark Abbott (00:22:00 -> 00:22:01)

But, but even then

Cole Abbott (00:22:01 -> 00:22:04)

I'm dealing a lot of spearfishing companies, right? Yeah.

Mark Abbott (00:22:04 -> 00:22:07)

But stuff like that. But, but you're making revenue already. Yes. So then you've moved into stage two.

Cole Abbott (00:22:07 -> 00:22:08)

Okay.

Mark Abbott (00:22:08 -> 00:22:29)

Right? Yeah. Yeah. So I, I think when, I think stage two is when capital comes in, whether it's through investors or when it comes through selling, selling your product, but it's not just a one sale. Right. It's enough. It's you've got enough evidence that you can move and start hiring people and start creating some structure and dividing and conquering.

Cole Abbott (00:22:29 -> 00:22:34)

Yeah. And having that be those roles and responsibilities be explicit. Yeah. Yeah. Yeah.

Mark Abbott (00:22:34 -> 00:23:16)

I mean, 'cause you know, there are a lot of stage two businesses that are out there that, you know, if, if I started a lawn lawn care company right? And I've just got some people working for me, right. I'm knocking on doors. Right. And then if I get the, if I get the, if I get the, you know, the house, right? I've got some, some, I, you know, I've got a couple people who will push the lawnmowers around. That's a stage two business, right. And I own, if I'm doing everything and I've just got, and I've got some workers working for me, it's a stage two. Now, obviously, if I go away, if I'm stopped doing sales, if I stop doing marketing, if I stop Right. You know, sending out invoices, you know, business goes away.

Cole Abbott (00:23:16 -> 00:23:19)

Yeah. Well, and then they'll go find other jobs. Exactly.

Mark Abbott (00:23:19 -> 00:23:20)

Yeah. Yeah.

Cole Abbott (00:23:21 -> 00:23:29)

So that's a good way to transition into the stage two. Stage two next time. All right. And, uh, yeah, we'll put all the, we'll put the link to the stages guide.

Mark Abbott (00:23:29 -> 00:23:33)

Mm-Hmm? <affirmative>. Yes. The guide. I think there's maybe even a brief as well. I think we have both. Whatever we

Cole Abbott (00:23:34 -> 00:23:36)

Have. Yeah. It will be in the description below,

Mark Abbott (00:23:36 -> 00:23:39)

Plus probably a link if we have talked about stages before.

Cole Abbott (00:23:39 -> 00:24:04)

Yes. A link to that podcast, we can link to that one. Put it, I don't know, I feel like you're just like one, those YouTubers like, yeah, it's gonna be in the top left corner. <laugh>, click on, click on it. If it's there, give it a thumbs up. Yeah. I have no idea if it's gonna be there, <laugh>, but Yeah. Well, we're in the early stages. Yes. This is like a stage two podcast, <laugh>. All right. All right. Thank you. You're welcome.