When Should Your Startup Go Multi-Product?

Michael Seibel 0:00 Is the reason why you're doing this second product because you've lost all faith in the first product?

Dalton Caldwell 0:05 I think that happens a lot, and you call it a second product, but that's more of just, like, a cover story to tell your investors or to tell the world that you're abandoning your initial business. If a cover story is helpful to you, you know, use the cover story, but you should at least be honest with yourself. What is actually happening here? Like, don't lie to yourself.

Michael Seibel 0:20 Are we a multi-product company? Yeah. [laughs] This is Dalton + Michael, and today we're gonna talk about should I build a second product? What do you think, Dalton? I'm a startup founder.

Dalton Caldwell 0:33 Yeah, so-

Michael Seibel 0:34 I'm giving you no more context than that. [laughs]

Dalton Caldwell 0:36 Yeah. Well, the answer is yes. Uh, end of video.

Michael Seibel 0:38 Done. Done.

Dalton Caldwell 0:39 Um, um, [laughs] look, this is a very common topic, um, br- that, that founders ask for advice on, where they have one thing-

Michael Seibel 0:47 Mm-hmm

Dalton Caldwell 0:47 ... their MVP that does, like, one thing.

Michael Seibel 0:49 Mm-hmm.

Dalton Caldwell 0:49 You know, it's widgets. They're like, "Should we sell this other thing in addition to widgets? And here's all the reasons why it's a good idea."

Michael Seibel 0:56 Yes.

Dalton Caldwell 0:56 And in the abstract, um, I think I would need more information, but maybe just to open up the thinking, if your first product is failing, adding another failing product is usually not the thing, and maybe you should just pivot the whole company. And on the flip side, if your first product is a smash hit growing exponentially-

Michael Seibel 1:14 Yes

Dalton Caldwell 1:15 ... and you have a really good story on why you might wanna add a second product, yeah, the answer is maybe. So that's just my very quick start. What do you, what do you think?

Michael Seibel 1:21 On this point, I'm more Negative Nancy. I think there's two failure modes, and I think you described them perfectly. And I think what's not talked about probably enough is the failure mode of things are going well and you don't build the second product fast enough. That is a failure mode. Because I think fundamentally, startups try to basically compare themselves against their peers instead of comparing themselves against, like, the incumbents. And often when you look at the incumbent, the incumbent has a suite of products, and often if you're ever gonna compete with them, you must have a

Michael Seibel 1:51 competing suite. And so, you know, let's look at, like, an example of, like, Slack versus Notion, right? I think Slack never really figured out how to get this competing suite. Microsoft Teams comes, the enterprise value of Slack goes way down. Notion, on the other hand, I think sees the game and they're like... And another probably classic example would be Google Docs.

Dalton Caldwell 2:11 Yeah.

Michael Seibel 2:12 And they're just like, "If we don't have every Office product, we're probably screwed," and that's exactly-

Dalton Caldwell 2:17 Well-

Michael Seibel 2:17 ... correct.

Dalton Caldwell 2:18 And it's funny to even bring up Microsoft, 'cause Microsoft was obviously a one product company for many years.

Michael Seibel 2:22 Yes.

Dalton Caldwell 2:23 [laughs] And then they started adding more, and now you don't think of it as a single product company. And Google was obviously a single product company for many years until our, our friend Paul, uh, created Gmail.

Michael Seibel 2:33 Yep.

Dalton Caldwell 2:33 Um, but it was a single product company for what? Six years? And so it's kinda funny if you're a one-year-old startup copying the playbook of a-

Michael Seibel 2:41 Yeah

Dalton Caldwell 2:41 ... company that's been around for a very long time.

Michael Seibel 2:43 Yes.

Dalton Caldwell 2:43 It's like, yeah, th- they didn't even do the thing you're trying to do.

Michael Seibel 2:45 No.

Dalton Caldwell 2:45 Why would you do it?

Michael Seibel 2:46 No.

Dalton Caldwell 2:46 Right?

Michael Seibel 2:47 So it's weird. That failure mode is so weird when it's kind of like, "Oh, we're winning," and then you realize, "Oh, no, we're competing against an incumbent and we're, like, 1% of the incumbent. We're maybe way further behind than we ever imagined, because we never let, let ourselves think that high." But I also think there's this thing that I see, especially in VCDM, where you basically have this product that's in this weird product market fit space. Like, you see descriptions like, "We have product market fit in a small market," or, "We have product market fit amongst the customers who like us."

Dalton Caldwell 3:17 There's, like, asterisks on it.

Michael Seibel 3:18 Exactly.

Dalton Caldwell 3:18 Yeah.

Michael Seibel 3:19 And so I see this kind of game where sometimes a VC will tell a founder, like, "Well, okay, we have this $20 million business. Let's stack another 20 million revenue and another 20 mil- And then, like, somehow if we stack enough $20 million revenue businesses together, you can IPO one day." I don't think I've ever seen that work.

Dalton Caldwell 3:39 Well, with hindsight, um, you can tell stories that that worked, but generally the main product is a hit. Otherwise it's not-

Michael Seibel 3:49 [laughs]

Dalton Caldwell 3:49 ... a second product, it's a pivot. Like-

Michael Seibel 3:51 Yes. [laughs]

Dalton Caldwell 3:51 ... it's, it's kind of like-

Michael Seibel 3:52 Yes

Dalton Caldwell 3:52 ... we can, we can use whatever words we want to-

Michael Seibel 3:54 [laughs]

Dalton Caldwell 3:54 ... for, with hindsight.

Michael Seibel 3:56 Would you ever see a situation where you've stacked 10 mediocre products together-

Dalton Caldwell 4:00 Negative

Michael Seibel 4:00 ... versus-

Dalton Caldwell 4:01 [laughs]

Michael Seibel 4:02 There are definitely situations where one of the second or third or fourth things-

Dalton Caldwell 4:06 Yeah

Michael Seibel 4:06 ... blows up.

Dalton Caldwell 4:06 I mean, the, the, the example top of mind for me is, like, PostHog is a multi-product company.

Michael Seibel 4:10 Yes.

Dalton Caldwell 4:10 They launched multiple products pretty quick, but it actually makes sense that that's a product suite. Their initial analytics product was a hit. It worked.

Michael Seibel 4:16 Yeah.

Dalton Caldwell 4:17 And so, and it made sense. Okay, you're using PostHog for analytics. Let's do session replay.

Michael Seibel 4:20 Boom, boom, boom.

Dalton Caldwell 4:21 Like that-

Michael Seibel 4:21 Yes, yes, yes

Dalton Caldwell 4:22 ... I think that's a great-

Michael Seibel 4:23 Yes

Dalton Caldwell 4:23 ... textbook study of, like, a good multi-product setup. I'm not gonna name any names for negative stories, but we've seen a lot of those.

Michael Seibel 4:28 We've seen a lot of those. If you're DoorDash and you're doing food delivery well, maybe you can do store delivery. Maybe you can do grocery delivery.

Dalton Caldwell 4:35 Right?

Michael Seibel 4:35 Yes, yes, yes, yes. And almost if you don't, someone else will, so you have to do it. So there are probably a lot more examples of companies that had an advantage and didn't go full force, right?

Dalton Caldwell 4:49 Yeah.

Michael Seibel 4:49 And maybe a classic one was, I think the entire world got on Zoom during COVID.

Dalton Caldwell 4:55 Yeah, Lord knows we did.

Michael Seibel 4:56 Yeah, yeah. Fuck.

Dalton Caldwell 4:58 [laughs]

Michael Seibel 4:58 Yeah. Um-

Dalton Caldwell 4:59 We talk on Zoom all day, every day now.

Michael Seibel 5:00 Exactly. And like, I mean, I think it was damn near subsidized, right? Like, the, the government was-

Dalton Caldwell 5:05 Yeah

Michael Seibel 5:05 ... telling the schools to get on Zoom, and the da, da... And so as a startup founder, that's a situation where you'd just be like, "Man, like..." I don't wanna frame it that way, but, like, how lucky in a negative-

Dalton Caldwell 5:18 How can we parlay this into, like, an enduring business that when the lockdowns are over we still have a business?

Michael Seibel 5:23 Yes.

Dalton Caldwell 5:24 I think they tried, but as a still Zoom user, I don't think they succeeded-

Michael Seibel 5:28 No

Dalton Caldwell 5:28 ... in getting people to adopt Zoom for non-Zoom use cases-

Michael Seibel 5:32 No

Dalton Caldwell 5:32 ... I think is a fair way to put it.

Michael Seibel 5:34 And I think what's tricky is, like, as a founder, it's so hard, 'cause this thing's working so well, to say, "I gotta move my attention to something else." And actually, I think it's really, what's really scary is, like, unfortunately Zoom is a classic office suite product, and we've encountered this so many times. When you're building an office suite product, you're competing with Microsoft Office and Google S- Like, even if you don't think you are.

Dalton Caldwell 5:59 Yep.

Michael Seibel 6:00 If your ambition isn't to go try to become the next office suite...

Dalton Caldwell 6:03 I think my other example of that one real quick is Peloton, where they had- Face-melting growth

Michael Seibel 6:09 Yes

Dalton Caldwell 6:09 And they tried a bunch of stuff. I don't think any of that stuff worked, and their stock price is not doing great. But it was like, you know, they, they realized they needed to sell more things. Um

Michael Seibel 6:17 Yeah

Dalton Caldwell 6:17 But ultimately, it was sort of a one-trick pony type deal.

Michael Seibel 6:21 And I think that's so sad because I think a lot of founders are like, "Those are success cases."

Dalton Caldwell 6:26 Yeah. Well, and again, they are, and, like, kudos to the founders, like, hooray, but they didn't parlay the, the hockey stick into, like-

Michael Seibel 6:34 Yes

Dalton Caldwell 6:34 ... an enduring, continuing hockey stick. They, they unfortunately had a crash. On the other hand, though, um, Gmail, obviously created by our, our friend Paul, um, that worked, and he actually faced a lot of internal bullshit of not, people not wanting to release it. It would be a distraction and, you know, you should listen to the story from him.

Michael Seibel 6:53 Mm-hmm.

Dalton Caldwell 6:53 Um, that's probably a different video, but they got it out, and that was a hit s- second product, and is still, like, the dominant email client, and I think is, like, one of the most popular products in the world to this day.

Michael Seibel 7:06 Yes.

Dalton Caldwell 7:06 Google Docs is a monster.

Michael Seibel 7:08 Yes.

Dalton Caldwell 7:08 YouTube is a monster. Hey, welcome to YouTube, right?

Michael Seibel 7:10 Yes.

Dalton Caldwell 7:10 That's a Google product. Like, holy cow, did Google succeed at going multi-product.

Michael Seibel 7:15 Well, and think about this 'cause, 'cause I've heard PB's story, and there was definitely this resistance, but once they figured out Gmail was working, it felt like the rest of their office suite happened-

Dalton Caldwell 7:27 Yeah

Michael Seibel 7:27 ... overnight. Like, I remember in my early startup days just switching from Office to Goo- And it was just like, I remember before Sheets came out, and it was like, "Thank God there's Sheets." Like, "Thank God there's presentations." And-

Dalton Caldwell 7:37 And a couple of those came from acquisitions.

Michael Seibel 7:39 Yes.

Dalton Caldwell 7:39 Like, everyone forgets this, but it wasn't, that wasn't all in-house stuff.

Michael Seibel 7:41 No.

Dalton Caldwell 7:41 I believe Sheets was an acquisition, right?

Michael Seibel 7:44 I think Presentations and-

Dalton Caldwell 7:45 Yeah

Michael Seibel 7:45 ... I think Docs were. Google understood that email is part of the suite.

Dalton Caldwell 7:50 Yeah.

Michael Seibel 7:50 And, like, I mean, my co-founders back in the day were building the calendar, right?

Dalton Caldwell 7:55 Yeah.

Michael Seibel 7:55 'Cause Gmail came out, and it was like, I think they realized very quickly, [laughs] it's part of the suite. It's impressive how good Google was at even resisting that move and then taking advantage of it when it worked. The last thing I will say, though, which I think we wanna really highlight, is this, should you be pivoting instead, right?

Dalton Caldwell 8:16 [laughs]

Michael Seibel 8:16 Like, is the reason why you're doing the second product because you've lost all faith in the first product?

Dalton Caldwell 8:22 I think that happens a lot, and you call it a second product, but that's more of just, like, a cover story to tell your investors or to tell the world that you're, that you're-

Michael Seibel 8:29 Yeah

Dalton Caldwell 8:29 ... abandoning your initial business. And again, if that, if a cover story is helpful to you, you know, use the cover story. But you should at least be honest with yourself. What is actually happening here? Like, don't lie to yourself.

Michael Seibel 8:39 Are we a multi-product company?

Dalton Caldwell 8:40 You know, you wanna, you can-

Michael Seibel 8:41 Yeah. [laughs]

Dalton Caldwell 8:42 You can, you can tell the story to whoever you want.

Michael Seibel 8:43 Yes.

Dalton Caldwell 8:43 You know, it's your-

Michael Seibel 8:44 Yes

Dalton Caldwell 8:44 ... it's your, it's your life, founder, but-

Michael Seibel 8:45 Yes

Dalton Caldwell 8:46 ... don't lie to yourself.

Michael Seibel 8:47 Yeah. No, I mean, and, and we have this example at Twitch where, you know, our old Justin TV product was helping to fund Twitch, but I wouldn't say that we were a two-product company. [laughs]

Dalton Caldwell 8:57 [laughs]

Michael Seibel 8:57 Like, that would be many steps too far. There was one primary product. So yeah, I agree. That's the kinda awkward thing that's not talked about enough, is that sometimes things get to 20 million in revenue and stop growing.

Dalton Caldwell 9:11 Stop.

Michael Seibel 9:11 And so, um, just be honest about that. All right. Great chat. [upbeat music]