As Airbnb, Uber and Snap gear up for potential, and actual, IPOs, public investors are asking a key question: Can these former startups build more than one breakout product?
It’s easy to see why. While building just one successful consumer product is hugely valuable — evidenced by Twitter ($12 billion market cap), Pinterest ($11 billion), Dropbox ($10 billion) and Square ($5 billion) — when a company creates two or more breakout hits, the rewards are staggering. Consider the market caps of the few companies that have released more than one successful consumer product at scale: Google ($550 billion+), Apple ($626 billion+), Amazon ($367 billion) and even Facebook ($342 billion), albeit largely through M&A.
Uber, Snap and Airbnb fall, interestingly, into an unusually valuable middle category, valued between $30 billion and $70 billion. These companies have created massively delightful first products, but in far larger markets and with stronger strategic advantages than the aforementioned single-product companies. Furthermore, each has experimented with new products in the hopes of achieving Google-level greatness.
What will determine whether Uber, Airbnb and Snap truly become long-term franchises versus single-product companies? The answer lies in how they handle certain key operational challenges as they scale.
When consumer companies like Dropbox, Airbnb and others set out to make their next hit, new challenges present themselves, many of which I’ve witnessed firsthand:
Do note that we’re talking about consumer products here, not enterprise products, where providing a “whole product solution” and capitalizing on existing sales channels often makes building product extensions an excellent strategy.
An overly simple but useful way to characterize how great second products are made is to think about them along these two axes: Delightful and Strategic.
The Delightful axis captures all the things that attract tens of millions of users to a great consumer product: The sense of magic on first use; the careful and systematic re-evaluation of the entire user experience that enables that magic; the attention to design and detail that supports the feeling that the user can do something previously never possible.
The Strategic axis includes all the business stuff: Network effects that underlie unusually low customer acquisition costs and winner-take-all dynamics; the ability of a product to monetize via sales, subscription and advertising, among other means; the leveraging of an existing brand to win new users, or the logic behind extending a product portfolio to maintain a longer-term customer relationship.
Let’s explore the four quadrants:
Most companies end up in the Valley of Meh. That is, they fail at creating a second great product because during the product design and planning process, the natural desire to leverage the first product’s strengths, justify a project’s resources and manage risk lead to those factors seeping into decision-making. Hence, the products are either watered down to become merely modular extensions of the main product (example: Dropbox photos and music) or are not evaluated with the same rigor in terms of user experience and impact.
How do founders in the growth stage avoid the Valley of Meh? One of the best methods is to approach new products with a clean sheet of paper. Ideas will come from everywhere (especially once initial success and growth attracts tons of smart young employees who want to make their mark). When evaluating new ideas, leaders should aim to achieve both delightfulness and strategic value. Some questions to ask:
Delightful
Strategic
There’s nothing wrong with adding great features to help a product better serve customers, or trying out interesting standalone ideas. But product extensions rarely catapult a great consumer business into the valuation stratosphere. Only capturing value on both dimensions achieves this level of success.
Sometimes this process shows that the mission of the startup was too narrow. Note how well-stated, aspirational company missions such as “Connect the World” or “Organize the world’s information” have inspired a wide array of projects that can fit under a pithy umbrella.
At Square, Jack Dorsey expanded the mission of the company from a payments focus to “Make Commerce Easy,” a move that allowed for such delightful/strategic products as Square Cash and Square Capital, both of which are now taking off and could generate multiples of the current valuation.
Leadership at the emerging crop of consumer IPOs shows that they take these realities seriously. Airbnb’s Trips and Uber Eats are both ideas that on their own could create standalone businesses at scale, and could have such potential. However, because they rely on existing capabilities, without a clean-sheet-of-paper approach to ongoing product innovation, there’s a danger that they’ll achieve only add-on status.
Snap’s Spectacles, on the other hand, is more of a fundamental consumer product innovation in its own right, and the creative rollout and move into hardware suggests that leadership seeks to make every new consumer product sing for its own supper. Spectacles is, in fact, a prime example of a second-generation consumer product that is both delightful and strategic. No one would mistake it for a mere extension, and it’s quickly set a new standard for how startups with one hit swing mightily for a second.
This post originally appeared on TechCrunch.