For a commercial company, microcode is tested and debugged on software simulators before the hardware is even completed. Once the architecture is defined, software is developed in parallel with the hardware to simulate the components. Microcode is tested on the simulator, much easier than using a scope and analyzer. Course, the component descriptions given to the simulator programmers (these are usually programmers with a good EE background who understand boards at the chip level) had better be accurate. And in parallel to that, an emulator is also done for the target instruction set. This allows systems programmers to develop the initial assembler, compiler and operating system for the new CPU. That's how a completely new CPU design, with no backward compatibility, can appear all at once. By the time the hardware prototype is ready, there is a complete set of diagnostics and an OS to boot up. In theory that is ... Tracey Kidder's book, The Soul Of a New Machine, detailed some of that process when Data General switched from the 16-bit Nova to the 32-bit Eclipse. Jack Peacock