Early in a venture, a great deal can feel like progress. A prospective customer says the problem sounds familiar. A demo draws nods around the table. A pilot user logs in a few times. Each moment is encouraging, and each is easy to over-read. The difficulty is rarely a lack of signals; it is knowing what a particular signal actually demonstrates.
Stage gates address that difficulty. A venture develops in stages, each stage asks a specific question, and each ends with an explicit decision about what happens next. The value lies less in the stages themselves than in the discipline of matching each question with evidence that can answer it.
Different questions, different evidence
The first question concerns the problem. Is it relevant to an identifiable group of customers, who would buy a solution and what do they use today? Conversations are the right evidence here, provided they go beyond politeness: how the problem shows up in daily work, what it costs, who holds the budget and which alternatives have been tried. A positive conversation shows that someone recognises the problem. It does not show that they would pay to solve it.
The second concerns the solution. Do conversations and tests support the proposed proposition? Prototypes and structured tests with users and buyers provide the evidence. A promising demo shows that an approach is understandable and appealing. It does not yet show that people would use it in their real work.
The third concerns use. Does the solution work in the intended setting, and what does its use reveal? Here observation replaces opinion: whether people return to the product unprompted, which tasks they complete with it and where they give up. Actual usage shows that something has practical value for those users. On its own, it does not show that a business can be built around it.
The fourth concerns commercial development. What evidence is there of willingness to pay, of customer relationships beyond the first users and of a sales approach that can be repeated? A commercial commitment, such as a paid pilot, a signed order or a renewal, says more than any amount of interest. Repeatability matters as much as the first sale: whether the next customer can be won in a comparable way, and whether delivery can keep pace.
An illustrative example
The following situation is hypothetical. A team demonstrates a reporting tool to finance managers at several mid-sized companies. The response is enthusiastic, and two managers ask when they can start. It is tempting to treat this as validation.
A short pilot tells a more nuanced story. Both managers use the tool in the first week, then largely stop. Asked why, they explain that the monthly report it simplifies is produced by a colleague who was not at the demo and prefers the existing spreadsheet. Neither company has budget set aside for this type of tool. The demo was genuinely well received, but it established interest, not recurring use or willingness to pay. The sensible next step is not to build more features, but to find out who actually owns the task and the budget.
A useful decision dossier
At the end of a stage, the evidence has to be brought together in a form that supports a decision. One useful way to structure such a dossier is around five elements:
Recording the limitations and risks matters as much as presenting the evidence. A dossier that lists only encouraging signals makes a decision look easier than it is.
Who does what
The responsibilities are distinct. Xablu Venture Studio carries out the venture work and prepares the supporting documentation. Venture Partners contribute relevant expertise and judgement, for instance by challenging how the evidence is being interpreted. The fund’s Investment Committee reviews and approves subsequent funding, and the Manager executes approved investments.
A subsequent investment tranche from the fund requires prior review and approval. Reaching a milestone does not automatically release capital. A possible spin-out, growth and follow-on funding are assessed separately.
What stage gates do not do
Stage gates do not make outcomes predictable, and they do not mean that a venture will succeed or become independent. What they can do is make each decision better informed and more explicit: what was tested, what was learned and why the next step is justified, or why it is not. A well-founded decision to stop is a legitimate outcome of the process, not a failure of it.
Are you developing a venture or a new business opportunity and weighing what it needs to establish next? We would be glad to discuss which evidence could answer that question.
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