It’s amazing how often I ask an entrepreneur to tell me about the business they are building only to get a response that goes on and on about the product they’re building. They talk about how it works, the various cool features they’ve planned, how hard it was to implement a particular feature, how it’s going to be far better than some competitor’s product, etc. I sometimes shock them by saying “I hope you’re building a company, not just a product”. Fifty percent of the time they get a puzzled look on their face, so I decided to write an article to explain what I mean.
What is a Company?
Think about a hardware or software company that is generating $10M in annual revenue. What is that company made up of? Below is a partial list:
- Functional organizations – sales, marketing, business development, strategy, finance, R&D, support, HR and more
- Employees and various layers of management
- Processes, strategies and methodologies – for each function
- Company policies
- Company vision and culture
- Systems and tools – for each function
- Physical office space
- Assets of all types
- Third party service providers for all types of services
- Product(s) with underlying intellectual property
I purposely put “Product(s)” at the end of the list but notice how the products a company sells is just one item in the list? It’s a very important item but so are most of the other items in the list. You’re going to need to build all of that and in a manner that yields efficiency, effectiveness and scalability. And that’s just a $10M company. If you plan to reach that milestone within a few years of gaining your first paying customer, you will need at least a strategy and associated plans for each of the items in the list.
“Build a company, not just a product” doesn’t mean that you should put all of the things in place for a $10M company before you’ve gained that first paying customer. Instead, it means that you should engage in some planning to envision the evolution of the company over some horizon of time. If you haven’t yet launched your product, perhaps the planning horizon is 1 year. If you’re at $1-2M in ARR and just raised a Series A, the planning horizon is more like 2-3 years.
For insights into this early planning and a tool to use, read my article titled “Your Initial Business Plan is a Huge List of Assumptions”.
The Penalty for Just Building a Product
Successfully building a product that performs the desired functions to solve an identified problem only validates one phase of the New Business Viability Lifecycle: FEASIBILITY. Of the various causes of startup death, feasibility-related issues are definitely not the most common. Not being able to prove DESIRABILITY or VIABILITY are much more common causes of startup death. And if you want to build a great company that eventually has a hugely rewarding exit, you’ll need to further prove SCALABILITY and SUSTAINABILITY. It’s the non-product related aspects of the Company you’re building that will enable viability, scalability and sustainability. Remember the long list above that defines a “company”?
Where to Start?
Hopefully I’ve opened the aperture for the amount of strategy and planning that will be needed along your journey of building a great company. But that doesn’t mean you have to figure it all out at the beginning. Start by simply incorporating some planning into your management system and company culture. This starts with developing your initial business plan (see related article titled “Your Initial Business Plan is a Huge List of Assumptions”). From there you’ll need to develop some methods of maintaining focus and staying on track. Here are some additional articles to consider:
- “Tools for Maintaining Focus”
- “Establishing a Management System”
- “The Difference Between Growth and Scalability”
I find that strong advisors and board members are invaluable resources for figuring all of this out and at the right pace and scope. And because of your evolving business and different needs over time, your advisory board will also likely change over time. For more information on building a world-class advisory board, see my 3-part article series that starts with “Selecting an Advisor”.
Hopefully this article has broadened your thoughts about what it takes to build a great company that both scales and sustains until reaching a hugely rewarding exit. Your product is your baby and also an extremely important asset. Surround it with the other attributes and capabilities of a great company and everything will work out just great.