Thread by @buccocapital

(1/12) Every software company wants to go from single point solution to multi-product suite

Survivor bias blinds companies + investors to the execution risk. They pencil our crazy expectations

Don't be blinded by the TAM. Here's how Act 2 can derail, and even kill, a business

(2/12) Going multi-product too early

The goal is to stack S-Curves, so when core product matures, you have a new leg of growth

Essentially, the core business must "fund" the new venture. But companies launch Prod 2 before their core is stable, and end up with 2 bad products

(3/12) Disjointed Pricing Strategy

Each product usually has unique pricing b/c unit economics AND axes of value are different

In multi-product, pricing axes can break. # of users, contacts, API calls etc. can blow out pricing as customers start using both products together

(4/12) Different Unit Economics

Things that change unit economics: different price point, sales motion, complexity, market maturity, technical sophistication, end user expectations, back-end infrastructure required, there's more

You can end up running 2 different businesses

(5/12) Different End User

Easier to use examples. Twilio used bottoms-up sales motion thru dev adoption

Bought Segment, needed top-down exec convos w/ different demands, expectations, etc

Marketing, sales, partners need to support both motions. Super hard.

(6/12) Different Markets

Sometimes the second product is: First Product for X industry.

But X industry has different regulations, adoption lifecycle, technology penetration, end user sophistication, complexity of integration required, extensibility needed etc. etc.

Whoops!

(7/12) Inflexible Management

Companies apply big-co operating metrics/targets to 2nd product start-up

Underfund it b/c "it's a small part of the top line"

They'll set aggressive expectations hurting iteration

Two management styles needed. Managers are not flexible by default.

(8/12) Ignore Partner Channel

Companies will ignore partner channel. They'll neglect to "bring their partners along" for the multi-product transformation.

Suddenly the channel, which was a force multiplier for distribution and service delivery, is now a scaled liability.

(9/12) Degraded Service From Larger Product Footprint

Companies struggle w/ cust. experience for 1 product. Imagine 2

Support reps need double the knowledge Maybe Support is bundled/accessible/delivered differently per product

Machine breaks. Trust is lost. Customers are lost.

(10/12) Bad Incentives for Product Team

We're multi-product! We'll use a GM model! They're CEO of their product line!

Surprise, customer doesn't give a fuck. Both apps must work together

Who owns the horizontal cuts (mid-market customers, X use case, Y industry)? No one. Dead

(11/12) Different cultures

Mostly relevant if you buy your second company, but it's under-appreciated how much culture drives execution.

If you mash together 2 different prod dev and go-to-market cultures, often a recipe for a very bad time. The "host" rejects the transplant

(12/12) TL;DR

There are so many more ways to fuck up becoming a multi-product company than there are to succeed.

But everyone immediately pumps valuations for TAM expansion when it should probably be an immediate discount

Cash flow risk to the core business just went up

Thanks @viggy_krishnan for calling me out for shitposting too much and telling me to get back to my roots