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As you exit Phase I and enter Phase II, consequential change awaits. To get out ahead of that change, you must step back and take stock. That’s the “heads up” motion.

How different the world now looks! With value breakthrough in hand, customers gather at your doorstep. As the customer count rises, investors invest. New resources follow, prompting a division of labor. Once a single-cell organism, your company now divides and subdivides into an ever more complex system. The product itself rises in complexity, as new features address more use case scenarios and segments. Technical infrastructure begins to matter; now you must attend to uptime, latency, scalability and resilience. Once, only value creation mattered. …

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The “heads down” motion in Phase I is action-packed. It’s where the rubber hits the road. Now that you have sorted out your reason for being, you shift to the doing. You face many unknowns; you can claim few settled assumptions. And so you must test, test and test again — in a constant (and desperate) search for truth. Testing takes more time than just winging it. But it saves time in the long run. It is better to crawl, then walk, then run than it is to run and crawl back.

Said another way, your job is to fail fast. Most of your early claims will be somewhat or very wrong. The faster you know they’re wrong, the cheaper the mistake will be. Speed to failure saves you time and money. The worst, company-killing thing you could do would be to build out a product based on a heap of flawed assumptions. If you were to do so — if you were to realize too late that you were wrong about gaping problems and screaming needs, or the product features that solve for them, or the degree of value those features deliver — then your fledgling startup would go kaput. …

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If you are a startup CEO in search of a value breakthrough, you know the challenge: find one before the money runs out. It’s a Catch 22. To achieve a true breakthrough requires you to understand gaping problems and screaming needs at a deeper level than any other actor in the space. And your solution to these problems and needs must radically improve upon anything that currently exists. How is that possible with so few resources?

The only way to accomplish this feat is to learn more than all others about your chosen market and top priority segment, as cheaply as you can. Within your segment of interest, what are its jobs to be done? Who are its key personas, and what gaping problems and screaming needs do they face as they seek to complete these jobs? As you pit problems and needs against your own capabilities, you wrestle to find some unique innovation that defeats them. In Phase I, your path to a better, faster, cheaper breakthrough progresses through four stages: Immerse and Ideate, Minimum Viable Concept, Initial Product Release and Minimum Viable Product. …

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The Four-Way Fit model is composed of a framework and a method. For the past five chapters we have explored the framework, as it is expressed in its canvas and spreadsheet forms. The framework is static: a strategic snapshot. When complete, it presents an integrated set of claims in the domains of Market, Product, Model and Team that, if proved true, will lead you to your next value inflection point.

Now it’s time to turn to the Four-Way Fit method. The method is the dynamic process by which you grow your company. It is here that you complete the framework, turn it into plans and tests, align it with other companywide plans, and then execute, learn and iterate. …

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The Team domain is the final domain in the Four-Way Fit for a reason. Your value breakthrough will be achieved by your team. Your team will optimize that value. Your team will build sustainable competitive advantage. It takes people to design an intelligent, efficient scaling path. The more capable your people are to address the task at hand, the better your outcomes will be.

If you are the CEO, as you move from phase to phase it’s on you to bring together a team stocked with all requisite competencies, arranged into right roles, placed within a serviceable organization structure and empowered to pursue sound business outcome objectives. Team, the fourth and final domain in the Four-Way Fit framework, is the key that unlocks the potential hiding in the recesses of the other three domains. …

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The Four-Way Fit framework places unique importance on the third domain: Model. To build an iconic enterprise, it’s not enough to achieve a value breakthrough. You must also discover a business model breakthrough, one that enables you to profitably scale while keeping cash flows manageable and building sustainable competitive advantage.

The Model domain is made up of five subdomains:

  • Pricing claims
  • Unit economics claims
  • Customer acquisition method claims
  • Cash flow claims
  • Competitive moat claims

These five subdomains interact with each other in important ways. Pricing shapes unit economics. Unit economics shape your customer acquisition method. Pricing and unit economics also impact cash flows. All of these impact your sources of competitive advantage — your competitive moat. …

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— — — — —

Have you reached a value breakthrough? Until you do, your existence is threatened. Once you have discovered that breakthrough, the world opens up. You earn the right to embark on the scaling path. Yet even then, the work has only just begun. Now you must extend and optimize that value. Now you must find a path to sustainable competitive advantage.

This is the innovation journey. It’s hard. Markets and customers evolve; competitors rise. Value has a half life. To keep ahead, you are challenged to build rising customer-defined value — day by day, brick by brick — while avoiding the waste of money and time in the process. But how? The only way is to first conceive of creative innovations, and then put them to the test to confirm their breakthrough impact. In this chapter, we focus on the first thing — conceiving of creative innovations. …

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The first of the four domains in the Four-Way Fit is Market. If you are to become an iconic global enterprise, you must achieve a value breakthrough, expand upon that breakthrough by optimizing it, and then make it sustainable — in a large and ready market. But how do you confirm that the market is large and ready? How do you confirm that there are customer segments within this market that have gaping problems and screaming needs, ones you can address with a valued product and viable business model? You do so by confirming your assumptions in three subdomains:

  • Market Viability…

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___________

To advance on the journey of company-building, you begin with a look outward from your current stage to the next. What performance outcomes, once achieved, will prove that you have reached the next stage? Since progression from one stage to the next makes a company more valuable to investors, these performance milestones are key. Each is a value inflection point.

As you ponder what it will take to reach this value inflection point, you will quickly realize there are things you “think”, and there are things you “know”. You think that your customer’s greatest problem is “x”, but you don’t know. You think that if you build product feature “y” your customer churn will drop, but you don’t know. You think that if you increase your price by 10% you will only lose 2% of your customers, but you don’t know. Then there are the things you’re pretty sure you know. You know the most important segment for your product is North American furniture stores with > 5 locations. You know from past experience that a newly hired salesperson should be able to close, on average, three deals per month after a three-month ramp-up period. To think a thing is true is different than to know something is true. …

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___________

Has your company achieved such a big value breakthrough in such a big market that you are on a growth rocket ship? As you zoom up towards the stars, have you figured out how to steadily add to your value, widening your advantage over all competitors? Or have you found a way to shut these competitors out entirely, freeing you to dominate your market for many years? If so, you don’t need to read this book.

All others should keep reading.

Seventy-five percent of all VC-backed startups fail to return investor capital.¹ Of all small businesses launched in the United States, half are gone within five years.² And the odds of iconic success are witheringly small. …

About

Tom Mohr

Founder and CEO, CEO Quest

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