The multi-product trap in SaaS

I had an epiphany while attending the SaaStr 2017 Conference in San Francisco earlier this month. The benefit it provides will offset the cost of the trip many times over.

It boils down to an idea that came up in multiple sessions during the conference…

It’s one thing to sell multiple products; it’s another to operate well as a multi-product company.

Why sell more than one product? The yardstick all SaaS companies use to measure themselves is revenue growth. One obvious way boost growth is to sell an additional product.

However, being a well-functioning, multi-product company is easier said than done. The biggest stumbling block is not discovering the new idea or finding the capital and resources to launch it. Rather, companies falter when they fail to consider how the new product will affect their existing operations.

There are three things to consider when contemplating the transition from a single-product to a multi-product company: the market potential of the new product, how it will be built, and how it will be sold.

The market potential. The new product must have a larger market potential than the first otherwise it can die on the vine.

Companies stumble here because they will eventually have trouble justifying the investment in a lower ROI product when times get tough. All companies need to tighten budgets at one point or another. And that’s typically when people and resources are diverted to the legacy product with a bigger market opportunity.

It’s a challenge for any new product to reach initial scale and find product/market fit. This is especially true if it will be ROI negative until the point it reaches scale. A large market opportunity should provide enough incentive to continue the investment necessary to achieve the bigger payoff.

How it will be built. Misalignment of product development teams can have a detrimental effect on a company’s entire product suite.

It’s critical for the new product to have a dedicated product and engineering team. This provides the focus and agility necessary to get initial traction in the market.

Shared teams that support multiple products will lead to slower release velocity across the entire product suite. It boils down to priorities for the shared team. All things being equal, the #1 priority of the legacy product will always be more important than the #1 priority of the new product given the ability to impact revenue today vs. in the future.

How it will be sold. Finally, companies underestimate the effect the new product will have on their existing go-to-market processes.

As Peter Gassner, CEO of Veeva Systems, pointed out during his conference keynote address…

“In a one product company the product processes are the company processes… they’re intertwined. It’s very hard to break these apart when you add a second product and that’s where most companies fail.”

In short, will the new product be sold in the same way and to the same customer segment as the existing one?

If not, organizational friction can quickly result from the need for an additional go-to-market strategy. Selling to multiple personas requires different customer language, marketing channels, and sales cycles. Companies will struggle through these issues if they don’t address them at the start.

In terms of customer support companies should consider having a dedicated team for each product. It can be difficult for a single support representative to gain the expert-level understanding needed to assist different customers across multiple products.

One tactic for this is to train support reps in a T-shaped manner. Each should have deep, vertical knowledge of the primary product he/she supports along with general, horizontal knowledge of the other products. This will allow the rep to answer questions about how the products differ and help cross-sell when appropriate.

In SaaS the popular narratives focus on the rocket-ship growth of companies like Slack, Dropbox, and Trello. In reality, success for most SaaS companies will be a long-term process resulting from acute focus, hard work, and the ability to serve customers’ needs.

New product offerings can be an area that help companies boost their growth when executed well. The key to this is identifying the potential issues early on and mitigating them accordingly.

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