I’ve come across some very successful companies that have had a tough time coming up with a second successful product.
Steve Jobs talked about this problem in the documentary The Pixar Story. He called it the “second product syndrome“.
The Second Product Problem
Their story typically goes something like this. A founder was working in an industry (or science or whatever) and came across a problem. Focused on their day to day jobs, the founder looked for an off-the-shelf solution so they could move on and get their job done. But after much searching, they discovered that no suitable solution existed. So they created one, and this was the start of their success story.
Everything went swimmingly well, so well that after a few years of thundering success, they released a second product. But it didn’t succeed. And a third. Still nothing. And so on. Meanwhile, the growth of the first product is slowing, and overall profitability is declining because the company tries hard to sell the second and third products, by dedicating a sales force or giving all quotas to every salesperson.
What went wrong?
“Gut feeling” doesn’t work for a second product.
Before founding the company, as a soon-to-be entrepreneur sitting in the shoes of a target customer, following instinct can work well. There isn’t much guesswork. You know from the day to day experience of doing your job that you and thousands of people like you would benefit significantly from a technology solution if only someone would go ahead and create it.
Five years later, the founder is a successful CEO running a company with dozens or hundreds of employees, an executive team, investors, and many day-to-day challenges. For the second product, gut feeling is less likely to work. Memories of the days before founding the company can help to drive continual improvement and innovation in the first product. Still, there is no analog experience to innovate a subsequent product.
You need to apply an innovation process
It doesn’t matter if you prefer to follow the lean startup method, design thinking, or structured idea management from the 1990s. They all take into account the fundamental fact that to maximize your likelihood of success, you should consider and evaluate multiple courses of action and pursue the most promising.
One way that I have been explaining this to people over the years is to breakdown the cost of creating and selling a software product. If thoroughly thinking about a concept, conducting a market validation of an idea costs $1, then building the product will cost $10 and selling it will cost $100. The least sensible approach to add a second product to a portfolio then is to take one idea, build it, and try to sell it. Rather than spend $1 on market validation, you have spent $100 or more if you don’t kill the product quickly.
Creating the second product in an established business should be more straightforward than a startup trying to build a business from scratch. But it isn’t.
In The Lean Startup, Eric Ries suggests a memorable definition of a Startup. A startup he says is not a business; it is an experiment. Similarly, ideas that you have for the second product in an established company are experiments. You must have hypotheses and test them in the most efficient possible way, evolving the concepts, and pivoting if needed until you have shown that they make sense. And if they don’t work out, never mind. Abandon them and move on. You can do all of this before even developing the products, never mind trying to sell them.
Unlike startups, established companies are not running out of money. Financial strength allows you to go through as many cycles as needed to find the best product to take to market as your #2 big bet. But it also enables you to repeatedly fail, designing, building, and selling products that should never have existed.
Innovation writers and speakers these days often discuss unknowable and intractable systems. The ability to explore complex problem spaces and iterate solutions is powerful and exciting. However, when searching for a successful second product, at least one thing is well known and controlled: your company.
For a second product, it is essential to be mindful of the capabilities of the organization you have already created. Your company is not a blank sheet of paper. You have customers, salespeople, marketers, data. The question is not could some to-be-created venture make money from this concept, but could your company do so. Moreover, of the available paths forward, is this the one that leads to the most meaningful results.
If your goal in adding a second product is to create more value for your customers and yourself, then the closer the fit, the better. A close fit reduces additional expense and management headaches as you take the product to market and lets more of your existing customers benefit. Designers like to say that constraints spark creativity.
Fit is about business, not technology
A sensible way to think about innovation leading to a second product is to tightly constrain the criteria around fit with your existing business, considering concepts that can quickly be taken to market by your current organization as being much more attractive than others.
Fit is about business, not technology. I have had some fascinating debates with a military contractor who decided to release a first-person shooter game. Their military training solutions contained much of the required technology. But there isn’t much overlap between selling to armies and selling to gamers. In another instance, a product manager came to see me excited about a consumer password management solution. His idea wasn’t bad and leveraged the company’s expertise in security. But the company we worked for didn’t have any consumer customers. He could quickly build the product but selling it was a different matter altogether. In both of these instances, technology fit was high, business fit low.
It is critical to understand that the only point in the innovation process where you have any ability to control the fit with your business is at the concept stage. Fit is not like a product defect that you can fix later. It is inherent to the idea itself. If you decide that you care about fit and use it as a creative constraint, you can filter out ideas that don’t fit well before spending any serious effort on them. However, if you do move ahead with an idea and it is not a fit, you cannot fix this later. Your only option is to kill the product or accept the impact on your business.
From what I have seen, second product problems are not the exception; they are the rule. In some cases, it may merely be success breeding failure. The more successful a first product, the more likely the founding team will remain in place and understandably believe that they are the last people to need an innovation process.
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This article addresses the question of getting a second product out of the door that has the potential to be successful. Unfortunately, that isn’t even half the battle. The next article will look at the painful changes a company needs to undergo to transition from a single product to a multiple product company.
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