When to Broaden Product Offerings at Early Stage Companies
Note: This was originally published as a guest column in the August 5 issue of Venture Nashville Connections.
There are five instances in which leaders of an early-stage company should expand their product offerings:
When an outside factor produces a remarkable opportunity or threat to your business.
When you're not selling your core product.
When you've maxed-out the revenue you'll get from your core product.
When a competitor emerges that can kill your core product.
When you want to get more revenue from your existing customers.
When an outside factor emerges
The pandemic slowed a lot of sales cycles. People took this time to adjust their marketing, their product offerings, or both. I think this was a bad idea. The pandemic was a time to look hard at your value proposition, which is not your marketing or your product offerings. Are you a must have or a nice to have? Not everything can be a must have. If you created a new product or adjusted an existing product in a meaningful way to take advantage of the conditions COVID created, good for you. Most companies could not and wasted their resources trying. Products like Zoom that saw huge revenue increases during COVID were well positioned for the new reality long before COVID. Many organizations who aggressively pursued new product development or new marketing were avoiding a hard truth: their product or service is a nice to have, because when times get tough, their prospects could safely ignore them. That's a value proposition problem, and it requires a deep think to fix. New features and a new campaign are not enough.
When Your Core Product Is Not Selling
This is a lot like the COVID times, and it's also a bad time to expand product offerings unless you think you should kill your core product. If you do think you need to kill your core product, know why you think that and be sure you're right. A new product or feature will not solve a sales problem with your existing product. A new rudder would not have saved the Titanic. When your product is not selling, you either have a value proposition problem or you have a go-to-market organization problem. You don't have a feature or technology problem.
When you're getting close to maxing out the revenue you'll get from your core product
Think Amazon when it just sold books. Amazon could have been a profitable bookseller, but its ambitions were always much greater. Instead of maximizing profit selling books--not a bad decision if you want to be a bookseller--Amazon added more things to its product catalog. Make this decision deliberately; don't assume more is always better. Many great $10M business are ruined when they try to become a $100M business.
When a competitor emerges that can kill your core product
Sometimes someone enters your market that can kill your business. This happens a lot less than people think. A big player from an adjacent market may enter your market, but they may not even care about your market, or they may not be focused on it, or they may be so slow and unresponsive that they're easy to outrun and outmaneuver. Yet sometimes this threat is very real. When Microsoft offered Internet Explorer for free, Netscape was doomed with their existing business model. Had they invented a search engine that was exclusive to Netscape, they might have survived -- but they didn't.
When you want to get more revenue from existing customers
This is the best time. SaaS works when the renewal value of a client is larger than their original contract price. You need either new features or greater adoption of existing features for this to be possible. Be sure your core product is in order, and don't try to upsell people who hate your core product. It's possible, but it's a vicious cycle. Happy clients are easier to upsell and keep than unhappy clients who you've distracted with a shiny new object.
A Balancing Act
Though particulars vary, questions about when to invest are similar for both early-stage and mature companies.
Product investment always entails a balancing of resources, ambition, and urgency. Balancing such factors challenges every size company.
Initially, more investment always translates, at least short term, into less profit.
Conversely, too low investment means slow death. Every company has to face those realities.
Good luck.