Note: The following essay is an excerpt from the upcoming new and revised edition of Ready, Fire, Aim. 

Don’t Get Stuck at a Measly Million Dollars in Revenues 

 “Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth.” – Peter Drucker

Businesses are often compared to machines, with structures and frameworks, designs and templates, and cogs and wheels. In my experience, they’re more like organisms that grow in organic ways.

In infancy and childhood, growth is fragile and must be both nurtured and protected. In adolescence, growth is rapid and must be guided and sometimes restrained. In maturity, growth slows and must again be stimulated to avoid senescence.

Today, let’s talk about how to “parent” your start-up through its childhood, as it moves from a solid mom-and-pop operation to a serious small business with big business potential. The key to doing that, as I said in my August 5 essay, is to develop a company culture of innovation and speed.

Innovation is about introducing new products to your market: both front-end (less expensive introductory products to attract new customers) and back-end (more expensive and more narrowly focused products to encourage existing customers to buy more).

But innovation is also about creating new and better levels of servicing your customers. And it’s about developing new internal systems and strategies to keep all the new products and services at pace with the ballooning production demand.

In Stage One (the infancy of your business), the primary goal is to sell a single product so successfully that it provides the cash flow you need to expand. This is done by constant testing in the most efficient ways possible until you can discover your optimum selling strategy (OSS) in the market you have chosen to compete in. To succeed in Stage One, the entrepreneur’s primary focus must be on testing and selling. The culture to support that needs to be relentless and myopic. Everything other than making that OSS work must be treated as a secondary task.

In Stage Two (childhood), your main goal is to dramatically increase cash flow by creating and selling more products. These include one or two more front-end products, plus six or eight back-end products.

That’s not easy to do. Getting a single lead product to work can take one or several years. Successfully developing and selling eight to ten more products in the same amount of time can be done, but it requires rethinking your business almost from scratch.

For one thing, you can’t do it alone.  You will need to surround yourself with a small team of very smart, very motivated, very hardworking people. You will have to work with them as a team. And you will have to persuade them to hire their own smart, motivated, and hardworking people to support them.

You’ll need brilliance too. You’ll need at least one person that is brilliant at conceiving of new products. You will need another who is brilliant at selling them, another that can intuit who should do what task and according to what time schedule, and someone else with a deep commitment to your customers who will constantly remind the team of the “why.” And you’ll need a drill sergeant that is not afraid to put lots of pressure on everyone to move things along at a breakneck pace.

Six brilliant teammates? Does that sound unreasonable?

It should, because it is. Taking a business from $1 million to more than $10 million in three to four years is an unreasonable goal. And yet, as a Stage Two business leader, it should be your goal. The opportunity to grow so much so fast isn’t always there in the lifespan of a business, but it is almost always there at Stage Two. So you have to seize the day. Unless you have that unreasonable goal – and make it everyone’s goal – the chances that your business will one day break through the $10 million barrier and into Stage Three become almost nonexistent.

So, you need a superstar team of six amazing people – each with a different skillset. What if you don’t have six superstars with those skills?

There is only one answer: You have to play those roles yourself.

Not to worry, though. If you led your business through Stage One, you’ve probably been plying several (or even all) of those roles already.

I’ve been involved in more start-ups than I can count. In almost every one, I was the SOB that pushed the team to work harder than the team members wanted to work. But I was also frequently the product developer, the marketer, and the customer ombudsman. Any entrepreneur or start-up CEO worth his salt can play two or three roles at a time. And do a good job with them. But you can’t do that forever. As the business grows and revenues double and then double again, you will need great people to take over some of those roles for you.

If, when you enter Stage Two, you realize that there is no one on your team that can rise to the level of taking over some of these roles for you, you’ve already made a terrible mistake. If you work 18 hours a day, you may be able to push your business to grow for a while. But that growth will be stunted compared to what your company could do with a superstar team to help you.

And it’s not just the superstar leaders that have to buy into the new culture of innovation and speed. It’s a job that the entire workforce must embrace. Make all of your employees understand that, from now on, change will be their constant companion. Every day, there will be new problems. Every week, new challenges. Every month, they will have to come up with new systems and solutions. And every six months to a year, you will all have to get together and change the way the business works in some fundamental way.

Be sure they understand that all of that change will bring stress – and that if they want to grow along with the business, they have to learn to tolerate stress and embrace change.

And don’t think that you can grow a culture of innovation and speed by making speeches and putting up signs and offering recognition to employees now and then. You have to lead by example. That means coming in earlier than anyone else and leaving later. It means openly encouraging new ideas and insisting on responsive and speedy execution of the objectives you agree on. And as problems mount, you must keep your cool. Identify mistakes quickly, but don’t berate mistake makers. Ask them for solutions. And hold them responsible for putting them into place immediately. Adopt the maxim of accelerated but intelligent failure.

A company in fast growth will make mistakes. The trick is to make them quickly, keep the damage minimal, and learn from them so they are not repeated.

Teach your employees to share what they have learned. Let them know that errors and failures are inevitable for a growing company. Challenge them to be open about problems and challenges and to communicate with one another.

When you come upon an employee that seems committed to second guessing every new idea and is reluctant to move forward, get rid of him or her as soon as you possibly can.

Being a leader of innovation means showing your employees that change is stressful, but it can be fun. Teach them the difference between stress that comes from self-imposed challenges and stress that comes from doubt and resentment. Make sure they understand that although they may not cause every problem they encounter, they are at least partially responsible for solving them.

And be respectful of the online workers that do not have the fun of choosing their own challenges. Insist that all your company managers respect the work that these implementers do. When something works well, be sure they share in the praise and the compensation, if there is any.

Never allow your business to become divided between innovators and implementers. (If you do, you may discover that too many good ideas are subverted by accidents, unexpected obstacles, and competing obligations.)

In short, take the lead in preaching and practicing innovation and speed, and make every employee a part of the company’s commitment to those values.

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