When Should You Add a Second Product?

At this year’s SaaStr Annual, I put back-to-back a seemingly very different set of speakers, Jeff Lawson CEO of Twilio (transcript here) and Peter Gassner of Veeva (transcript here).

Both are two of the most impressive and inspiring public SaaS CEOs, but their products and companies couldn’t be more different.  Veeva sells eight figure deals to a very small number of very sophisticated customers, while Twilio has a huge long tail and starts at $0.0085 a minute 🙂

But I wanted to pair them for several reasons.  One was to get a sense of what the bar was to pull off a successful SaaS IPO these days (answer = oh man, very high).  Another was to see examples of some relatively capital efficient companies (Veeva raised less than $10m in VC money on the way to $6 billion in value!).

And a third key point was to learn about something I think about a lot, which is when to add a Second Product.

Adding a new product line is incredibly distracting.  It’s not just building the 1.0, that’s the relatively easy part.  But it gets incredibly complicated after that.  Do you have two sales teams?  Who gets what part of the long-term development budget?  Where does marketing allocate its resources?  And most importantly, multiple products can be very distracting at the management team level.   The new product tends to dominate the discussions, yet by definition, is only a tiny percent of the revenues in the early days.

The answers from Twilio and Veeva were radically different 🙂

Jeff Lawson of Twilio’s answer, as you might expect from a B2D company, is basically — try it.  Especially if there appears to be demand.  If you can build it fairly easily, and the customers want it, try it.  You can always kill it later.   And clearly, this has worked very well for them.

Peter Gassner of Veeva’s answer was seemingly the opposite.  His point was first, don’t take the easy route.  Your customers will want things that are fairly easy to build, and you’ll understand those problems well, because they are adds-on to what you are already selling.  But his point was these rarely move the needle.  You don’t want a new product to add 10%-20% in revenue … you want a new product to be able to do 100%+ of your existing product.  Otherwise, it is too distracting and won’t ultimately move the needle.  So he challenged us to move out of our comfort zone in wanting to build the easier, but ultimately smaller add-on products, and take bolder steps.

Veeva did this, adding a second core product, its Vault to its Pharma CRM.  The overlap wasn’t huge, but the impact has been tremendous to the top line growth.

So what should you do here? 

I wish I had some magic answers.  I struggled with this a lot myself.  In my first startup, it was clear to me that nothwithstanding closing $6m in revenues our first year, that our TAM was likely less than $100m.  So we build a second product line our first year.  We knew we had to.

At EchoSign, I wanted to do this early, but it was just too distracting.  The product went from simple to very complex as we served more nuanced enterprise needs, and there was no way, at least until $15m in ARR at least, we could ever have launced a real second product.  Although I spec’d out several.

Most Big Companies end up solving this with M&A, at least in part.  Salesforce’s Marketing Cloud is a huge revenue driver, and almost all of it is from acquisitions, for example.

But a few learnings from companies I’ve worked with and observed:

  • Someday, almost everyone adds a second product.  The question is when.  Not everyone, but almost all of it.  So maybe even as early as a few million in ARR, once you start to really understand your market, start thinking about what you might do here.
  • Selling a second product is very hard.  If you are B2D and/or freemium, it can be easier.  But maintaining distinct sales and product teams is a huge resource conflict.  The prototype is just the very beginning of a journey.
  • Don’t let a second product be an excuse.  Let it be an enabler.  A second product can’t bail out your sales team.  Don’t let is become like a feature gap, an excuse to miss the plan.
  • It’s a good reason to raise a little extra money.  If your second product starts to work, you will need to staff it.  There are good and bad reasons to raise more money.  This is a good one.  At least after launch, you’ll need a dedicated team of at least some size.
  • Understand if you can co-sell the product, for real.  This is harder than it sounds, but if the products really are adjacent to each other, your sales team may be able to sell both.  This makes staffing sales much easier here.  But — it also makes the revenue side harder in many cases.  The sales team will want to throw the second product in for free, or at least very cheap, to get the deal closed.
  • Get on a jet 🙂  OK, this is the most broken record SaaStr advice.  But sometimes you can really only intuit when to go for it on a second product by having talked to 100 customers.  You — the founder.  Not just your VP of Product or your head of sales.  They will bring you back tons of feedback.  But it rarely will help you decide when to go for it on a second product.  But your customers are one of your very best sources of learnings here.  And you have to visit them to really learn.

Good luck.  This stuff is tough.  Just plan in the back of your mind on building a second product by $100m in ARR 🙂

 

(Cross-posted @ SaaStr)

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Co-Founder and CEO of EchoSign from inception through tens of millions in cash-flow positive SaaS revenue and acquisition by Adobe Systems Inc. Jason then served as Vice President, Web Services at Adobe, where EchoSign was named the most successful acquisition of 2011-12, posting 199% YoY growth.