Does the Product Get Better Over Time? (And How to Assess That)
Welcome to issue #53 of next big thing.
A question I find myself asking founders, often in first meetings with them, but sometimes even after working together for a while, is some version of: “is the product or service actually getting better over time?”
What do I mean by this question, and why do I feel it is so crucial to ask?
If the product’s actually getting better over time, the implication is that users find it more valuable and more useful the more they use the product.
If the product’s actually getting better over time, there’s probably a network effect or a data moat being developed. This can lead to a natural compounding in the product’s usefulness, which in turn can lead to compounding growth, and to defensibility.
If the product’s actually getting better over time, it should show up in quantitative data, such as newer cohorts retaining better than older cohorts, and, in general, net retention growing over time.
If the product’s actually getting better over time, the team is likely doing a few things right in how it’s executing. Perhaps it’s prioritizing and sequencing well, or iterating quickly.
If the product’s actually getting better over time, it’s an outlier from most products and services which tend to degrade in value and usefulness over time. Many businesses deliver a great product to their first few customers, but struggle to deliver such a great product at scale. Many products wane or degrade in value after their initial usefulness and novelty. This product is bucking those trends.
If the product’s actually getting better over time, when you take the decades-long view, which is necessary for us to do as early-stage investors with a long-term horizon, the business has a higher chance at powers such as scale economies, network economies, and process power. These powers can yield a large, valuable, N of 1 company, with the potential to go public or be a big acquisition.
So that’s why I love asking this question, and thinking through the answers together with founders and their teams. In my mind, a product that’s demonstrably getting better over time, bringing more and more value to its users, and therefore compounding value to the company, is a critical input to building the next big thing.
I started next big thing to share unfiltered thoughts. I’d love your feedback, questions, and comments!
👇🏽 please hit the ♥️ button below if you enjoyed this post.
Thanks for reading next big thing! Subscribe for free to receive new posts and support my work.