This was originally a twitter thread, but I thought to publish it because nothing has been up on here for a while, and the insights from the tweet are too valuable to be buried in the Twitter abyss.
A few things in this world excite me as much as product, innovation, distribution, and business models.
When building a company, founders, software engineers, product managers, and startup marketers often get caught in these problems when looking for growth
- To optimize an existing product to unlock more growth
- To build a new product to unlock new growth
Luckily for you, many people before you have figured out the answer.
I have been here before and I was the guy that always chose option 1.
The thinking was flawed. Optimizations are good, but they only bring incremental value to the company. Product innovation takes time, but if done well, it brings 3X – 10X value for a company once released.
Consistently selecting optimizations is only a good idea if you are past product-market fit and you need to find enough optimizations to deliver a compounding 3% – 8% growth every week. Even then there is a limit to how much growth you can gain from optimizations. So you really want to spend time on building new products too.
All companies start from product innovation, and many quickly forget that they acquired growth via product innovation and get stuck on optimizations just like many big companies, ergo why big companies acquire instead of build. Your startup is just a big company with no M&A budget or enough revenue if you do not invest in product innovation.
The most relevant big companies today, GOOG, AMZN, and FB have a culture of product innovation. The promising startups that never became as big as you thought they would abandonned product innovation for optimizations.
I have seen companies experience more growth (personal experience & anecdotes) when they released new products.
However, releasing new products comes at high risk. The assumptions you made when building this new product could be wrong and you might lock up scarce engineering resources in this product for 3 – 6 months.
When releasing new products, the product has to improve on the experience of your acquired users or potential users. If your guts and research do not demonstrate you are improving the experience of your users, then you might be wasting resources.
Example: When we released places at hotels.ng, it was not a well-built product, but we began to acquire users immediately. These were people that were in the market for interesting places to visit and we could cross-sell hotels to them.
I have not seen the numbers of PiggyVest (formerly Piggybank) or Carbon (formerly Paylater). But both companies tried product innovation recently. But from the outside looking inward, this is what I see:
PiggyVest, a savings app, released a managed investment marketplace for its users. I do not know any user of PiggyVest that was not excited by the improved experience.
Carbon, a loan app, released a savings product for its users. People that use loan apps often do not have money to save so the savings app is hardly an improvement of the experience of their users.
Carbon has other products, especially around utility payments and bank transfers that make their product innovation useful for its users. This is just to show that not every product innovation will bang especially when it does not improve user experience.
The point. In the pursuit of growth for your product, you have to be aware of your options and know the opportunity costs of picking between product innovation or product optimization.
If you pick product optimization, make sure you can compound growth at 3% – 8% every week. If you pick product innovation, make sure the product improves the experience of the user.