Product or Company
Building beyond a single product
Happy Thursday, 👋
Most businesses are born from the desire to solve a specific problem or to provide a unique solution. Consider user-friendly computing or the development of shoes specifically designed for runners; both these ideas found early adoption and revenue growth.
However, the reality for many such products is a lifecycle marked by a strong start, usually based on early customer adoption, but eventually plateauing over time. We have met several teams building exceptional products, only to vanish a few years later. Despite their remarkable talents, their primary focus was building a single product or service, rather than cultivating a growth-sustaining company.
Successful companies typically encompass several products or services, establishing multiple revenue streams to promote sustained growth. Consider Apple, rather than stopping at a user-friendly computer, they developed an entire technology ecosystem. Similarly, Nike evolved from running shoes to a comprehensive athletic clothing company. These corporations illustrate how a single product might catalyze the growth of a company.
Thinking Big Picture
Startups often risk developing tunnel vision when an initial product starts to gain market traction. Customer acquisition becomes the primary focus and for the moment it appears as if the team has achieved success. It's precisely at this juncture when we urge teams to build a list of additional services or ideas as potential revenue sources. Capturing ideas for new services or products maintains a team’s focus on long-term growth as eventually market interest in the initial product will begin to slow.
A behavioral economic study involved lottery tickets. Half of the participants were provided tickets with pre-selected numbers and the other half allowed to choose their own numbers. When asked to sell the tickets back, the group who picked their own numbers demanded a higher price than the group with the pre-selected numbers. Statistically the value of each ticket should be the same, but according to the Prospect Theory those with input into a decision have a higher degree of motivation.
As leaders, fostering an environment where new product or service ideas are frequently discussed is crucial. Involving the entire team in collective decisions helps small companies retain their motivation, even after the successful launch of an initial product. Without a clear roadmap, teams may become disillusioned once their initially successful product ceases to break growth records. When considering investing in a new company, we are interested in understanding the next few ideas on their agenda as it not only drives future valuation but motivates the team to continue growing the company.
Investment Perspective
Concentrating on the company's future trajectory and exploring alternative opportunities drives long term value creation for investors and potential acquirers.
The concept of stacking multiple product lifecycles might be an oversimplification, but it demonstrates the power of building a company rather than just a product. While some products may get acquired early in their lifecycle, we prefer investing in companies where stacking multiple products is an option, as it mitigates some of the risks associated with early stage investing.
Additional Thoughts
Developing a business often starts with solving a single problem or providing a particular service. As investors, we acknowledge the hurdles involved in earning that first dollar of revenue. Regardless of our hopes for a product or service to generate a consistent and growing revenue stream, navigating the product lifecycle remains a formidable challenge.
Apple and Nike demonstrate companies which started with a single product but did not stop there. Although their long-term plans were far from precise, both companies developed ambitious early visions. Illustrating how a company can evolve from a single product into a multifaceted business is an invaluable tool for engaging both investors and employees. The vision can fuel employee motivation during tough times, while offering investors reassurance there is a much greater plan beyond the current achievements.
Wishing everyone a weekend full of new ideas,
-The Caymont Ventures Team.