When to Add New Products
When to Add New Products
How to determine when a startup or corporate innovation team should build new products.
Founders, Chief Product Officers, and innovation teams alike need to have a philosophy about when they will build new product lines. Without a set of principles to guide these decisions, the pressure to divert resources to pay homage to the next great idea becomes overwhelming. Before long, teams have a half dozen disparate but spiritually related efforts afoot, most of which don’t deserve to exist, and they drain scarce resources away from the most important product. Based on numerous experiences operationally and as an advisor, I argue that the bar is simple and ought to be quite high for adding new products—teams shouldn’t launch new product lines until they achieve product-market-fit on their existing lines—conversely, they can and should launch complimentary products if existing product lines have product-market-fit AND if marginal dollars invested have a plausible chance of returning EQUAL OR MORE value.
If we only launch first product lines after going through rigorous external market validation, fundraising, and/or corporate budgeting cycles designed to protect against bad investments, why should the bar be any lower for a second or third product line that will cost just as much and carry the same or higher risk? It sounds easy enough to agree with, but there is something about the momentum a company has once it begins hiring or growing a team at a great clip, and once the market starts to recognize the worth of our products, that makes us feel that opportunities are everywhere. These opportunities feel easier to capture than the business in front of us. I contend that this is a psychological fallacy—we know the specifics of our current situation well, and we know what stands in the way, and conquering those challenges feels hard, but new ideas aren’t as well understood so they feel like pure upside without the trench warfare required to bring an idea to life in the market. Of course, this perception is false—the follow-on idea is JUST AS HARD; we just don’t realize it yet. The perception of ease and the excitement for what’s new distracts us, and causes us to burn cash faster while multiplexing and distracting our teammates. In short…
DON’T BRANCH INTO NEW AREAS IF…
Your main, existing product has not achieved product-market-fit.
Do continue testing adjustments to your product to achieve product-market-fit
Do periodically consider if you’re on the right path strategically
DO BRANCH INTO NEW AREAS IF…
You’ve built a quickly growing business for your first product AND
You have strong reason to believe that lighting a new fire will grow the business as fast or faster than pouring gasoline on the existing momentum, or you have sufficient funding to justify pushing two initiatives simultaneously with autonomous teams that won’t distract each other.
OR, if you’ve decided, per above, to abandon the first focus in favor of aligning the whole team on a new one
What we want to avoid is the painful position so many startups and innovation teams end up in. Here are the hallmarks:
You’re actively building multiple separate products for multiple separate audiences
There are multiple development teams with multiple sets of stakeholders, often with entangled dependencies
Disciplines like product, marketing, and sales are splitting their time across these initiatives even though none is clearly working
There are as many discussions of new ideas as there are for improving the existing central product line
It’s easy for us to confuse action (generally, a good thing) on a new product as good energy but what it’s really doing is numbing us as founders or executives to the lack of traction we’re experiencing on the main product line. Resolving that challenge should be the top goal of everyone who can help, not launching another product to rescue the first one. As obvious as this might sound, I’ve never encountered a startup or innovative team pre-product-market-fit that was too focused. Let’s give that a moment to sink in. To the contrary, the opposite is endemic in medium successful ventures. But the mantra of small team productivity, which is great in so many ways, isn’t true in these situations. A group of 50 people working toward one great vision is far more powerful than two teams of 20 people working toward mediocre ones while simultaneously driving 10 people common to both projects nuts and draining their energy.
A Simple Way To Manage The New Bets
Once the product has proven itself and we’re ready to launch a follow-on, how do we manage the new bet? Similar to my guidance above, I don’t see a strong reason to re-invent the wheel—pretend your new initiative is a brand new baby startup and put it through the same tests that a founder would face when approaching the investor community. A sample set of stages could look like:
Invest $10K-$50K to validate if there is a sufficient market and demand for the product and whether you can build the right team
If so, invest $100-$250K to build a working version and seek traction
If significant traction is achieved, invest $1-2.5M to scale and grow
If scaling and growth works well beyond the early adopters, invest $8-$12M to build a first class team and scale
Etc, etc.
Please consider the monetary values above as rough guideposts—different organizations will have different resources and different costs, but the point is to roughly 5-10X investment each time the product can prove itself ready for the next phase. For venture-backed companies, this model is obvious because the founders went through it for the first product line, so it’s simply a matter of reminding everyone who is new about these criteria. In a corporate innovation setting, the challenge generally is to get an annual budgeting cycle to line up with these needs. There’s nothing worse than generating $10M of demand six months into a budgeting cycle with only $2M invested. In these settings, I recommend pre-negotiating a set of bespoke milestones and rough investment levels so product teams don’t get stuck waiting for bureaucracy when they have succeeded in finding early indications of product-market-fit.
The other advantage to this model is that it empowers us to test more bets each time we’re ready to add a new product line. Instead of putting $5M blindly into the second line, for example, we can put smaller amounts into multiple options and see which ones advance before making a big decision that is hard to roll back structurally or financially.
But This Guidance Doesn’t Always Apply
There are always exceptions to any guiding principles, and I’ll briefly call out five:
Organizations beyond the smallest startups should always have some people/time/budget set aside for experimentation (often labeled R&D, although I dislike this term and the structure it implies because it makes it sound like it’s supposed to be isolated from the rest of the business). Further, if a team member discovers something great on the frontlines, it should be incorporated into the existing product.
We should always be testing our existing product and new ways to improve it or expand its reach and desirability—this article isn’t about those tests, it’s about establishing entirely new product lines altogether
For many products, the achievement of product-market-fit for the foundational technology dramatically simplifies finding it again for the follow-on products. This was certainly true at Palantir where it was a lot less than 2X the work to serve two different markets in their similar data integration needs. In situations like these, the above framework is too rigorous and will limit growth that ought to be claimed sooner/faster.
We have multiple well-vetted ideas showing about equal promise to be the next product line. When this happens, see if you can justify investment for both! Don’t force a false tradeoff.
Sometimes we’re lucky enough to have an incredible team that cannot be stopped and has an amazing track record. We need to empower A+ teams like these and encourage them to skip a few stages, give them the investment they need, and trust their instincts. VCs do this all the time when they write checks for multi-exit founders with little regard for what they are going to build. We can do this internally inside a growth-stage startup or corporate innovation team too.
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