We talk to approximately twenty entrepreneurs a month. We wish we had bandwidth to engage more deeply with all of them, but our resources are limited; we must filter through our possible opportunities in order to determine where to invest our time and money. There are several criteria we use to help us make investment decisions. One of the most important and challenging is what the entrepreneurs identify as their product strategy. We do not take a traditional approach to evaluating, creating, or operationalizing product strategy. Our evaluation is rarely based on features, a roadmap, or a piece of intellectual property or a critical innovation. In fact, more often than not, these things are less important than people expect. We believe the most important part of a product strategy is for the business to have a clear understanding of what assets they are accumulating, that the market will want to pay for.
A great product strategy places asset accumulation ahead of all else, including methodology, features, and platform decisions.
Most early stage businesses will drastically shift their strategy, frequently more than once. Often times it’s not because the entrepreneur’s original idea was flawed. Instead, additional learnings have produced a better idea, or a bigger idea. Frequently, the crux of the change is based on an asset the company has collected; they’ve decided they need to build “new features on a new platform” to take advantage of their opportunity.
When businesses layer advertising strategies into their products, they’re taking advantage of the user base asset they’ve accumulated. When businesses build APIs to expose their social graphs, they’re taking advantage of the dense consumer relationships they’ve accumulated. The modern day definition of a mashup is a business that takes multiple pieces of data (assets) and combines them in a unique way to create a new service. Mashups are most frequently one business realizing a way to exploit the assets, not the features, of others.
The culture of the ‘Hacker CEO’ is not a culture of “CEOs that aren’t great coders but can do enough to deploy a website.” It’s a culture of individuals that is more heavily saturated than average with people that recognize the opportunity to accumulate an asset through a product that can be cost-effectively and quickly deployed. Consider these examples from recent history:
• What is valuable about Facebook Connect? The most valuable parts of Facebook’s APIs are the assets made available through it: friends, connections and photos. If Facebook didn’t have Facebook Connect, they would invent other ways for the world to consume these wonderful assets. But if they didn’t have these assets, would Facebook Connect be useful – would anyone use the API if there were 10,000 registered users? Would anyone upload photos if they had only a few friends on Facebook?
• Why did Google buy YouTube for $1.65B in 2006? Do we believe Google bought YouTube for $1.65B in 2006 for its features – or was it the huge library of videos that was nearly unreplicable? This is the asset of worth.
Features and roadmaps are important and do have their place, and from time to time, a killer feature does launch a business independent of all else. However, for us, features are not as important as a clear understanding of what asset you are trying to accumulate and how the market you are entering will pay you for your asset. It’s much easier to course-correct a feature set that is pointed at a valuable asset with multiple monetization ideas, than to pivot upon a lack of real assets. We’re very comfortable with entrepreneurs that have a strong point of view on what asset they want to collect, but may not have a clear understanding of the product package that’s going to make them money. More often than not, we can correct that, but if we can’t – the market certainly will. Just ask De.li.cious.
I should note that this addresses a particular segment of the market. Earlier stage businesses working on v1.0 – 2.0 of their software products, or making a shift in product-market strategy (commonly referred to as the semi-dreaded “pivot.”).