Growth Stages – Concept Stage Part II
Last month we discussed the business characteristics of an emerging company during its initial “concept” stage. Today we’ll look at some of the management-related issues that the founders must confront during the sensitive period before the company is truly launched. In most cases, the problems are directed related to either the lack of a completed prototype for the product or service that the company will be marketing and selling or the lack of financial resources and other important assets.
First of all, this is the time when cash is almost always extremely tight unless one or more of the founders has a deep reservoir of capital that can be used to hire personnel, lease an office and buy or lease equipment. The founders will be watching every outlay of cash carefully and will literally be “managing by checkbook.” Preliminary inquiries may be made within angel investor networks and the founders may sometimes be distracted by the need to focus on a mini-business plan or at least a short 10-minute explanation of what they propose to do and why an investor should be interested. If investors show a serious interest the founders must attempt to place a “value” on their concept, often extremely difficult or impossible at such an early stage, in order to determine how much equity should be surrendered to outside investors.
A second issue, directly related to the lack of capital discussed above, is creating a plan to manage the meager assets that the founders do have under their control. Actual design and development work on the new product or service will generally be done without expectation of salaries and the founders will usually earmark whatever cash is available for networking, and perhaps some travel, to spread the word about their new venture and identify prospective investors and other business partners (e.g., suppliers and customers). This type of activity should be part of the company’s initial marketing efforts; however, the founders will generally encounter difficulties at this point in time due to the fact that they have yet to establish a unique identity and brand awareness. Moreover, unless and until the founders have a prototype of the first product or service available for presentation to interested parties it is tough for the founders to establish credibility regarding any claims of unique attributes or performance characteristics. One limited, and admittedly rare, exception to all this is the situation where the founders have a recognized track record with respect to innovation and investors are willing to trust their ability to identify the “next big thing” and complete all the steps necessary to bring the promised product or service to market in a timely fashion.
A third set of issues concerns the organizational structure, or rather the lack thereof, during the concept stage. Since the form of the initial product or service remains fluid, and the relationships between the company and outsiders are also in a state of flux, the founders must constantly evaluate their business and technological environment and aggressively seek additional information and intelligence that they can immediately factor into their activities. Important decisions must be made and executed quickly, often without taking any time to lay out even the most rudimentary flow chart of next actions and responsibilities. The sense of urgency is heightened when the founders know that others may be working on new products or services that are similar or which will offer alternative solutions to the need that the founders are attempting to satisfy. Management reporting systems and other internal communications are almost totally informal and much of the interaction is “virtual” as the founders and contractors toil away in widely dispersed locations—coming together for face-to-face meetings only as needed since the company usually does not yet have its own office. Company-specific information systems, including e-mail and software applications, are rare at this point unless absolutely needed for specific design projects and the founders typically rely on what they already have available on their own PCs.
Food for thought . . . Taken together, the management concerns during the concept stage are formidable and it is easy for the founders to become disoriented and lose focus on what is absolutely essential to moving the business to the next level. At this point, access to an experienced and dispassionate mentor can be an invaluable business and psychological advantage for the founder. A mentor can be used as an outlet for explaining frustrations and can assist the founder in seeing the one or two next “best actions” that must be completed.