If you are building a product, it is important to have a conceptual framework (or mental model) to think about it. Whenever we hear people talk about a product, we hear them talk about features in a bundle. We rarely hear about steps that build a defensible product.
This post is my attempt to unbundle those steps. It will help us evaluate the stage of the product, trigger to ask the questions, allocate the right amount of resources at different stages, and offer to consultation to our clients to build successful and defensible products.
Let me first define what a defensible product means. A product that wins in the market segment or the category of the market segment and then becomes hard to replace by any other competing product is a defensible product.
There are six steps to building a defensible product. For each step, I will share a mental model, questions to ask, and illustrate with examples.
- Choose a small and growing market
- Build a hook to pull the users
- Have an instant gratification
- Focus on a strong single user utility
- Grow to multiple user utilities
- Think Network Effect
1. Choose a small and growing market
We are talking about building the defensible product. Figuring out the right market for a product is important. The question is, how do we know which is the right market.
There are four different types of market.
- Big and Mature
- Small and Mature
- Big and Growing
- Small and Growing
Big and Mature
Target this market only if your vision is to make the product 10x better or 10x cheaper or 10x faster than the existing solutions, and you have the resources to do so. But for the folks who are starting from the garage, trying to build an MVP, and scrapping resources to build the company, this market is the hard market to crack.
For example: Building a communication app. If we build a communication app, then, it will be very unlikely that we will succeed. Not because we can’t build a great app. But because people are already locked in the existing apps and doing 10x better is extremely hard. The competition is going to be tough. The users (even the innovators), who will use our app, will be very unforgiving about the mistakes we make while building and launching the app. There isn’t one company who didn’t make a mistake. We will have very small chance at building the next OS for PC, next OS for a mobile, project management tool, to-do app, CRM, etc. The market is already mature and crowded.
- Too many competitors
- Incumbents have already locked in the users
- The low margin of error because users will be unforgiving.
Some examples targeted big and mature market. For instance, Trello, Slack, ProsperWorks, Medium, etc. But all of these didn’t target everybody in the beginning. They targeted a small group of people and made it useful for them. They started with a small and growing market underserved segment within the big and mature market.
Small and Mature Market
Everything that holds true for a big and mature market holds true for small and mature market too. Plus, even in the best-case scenario, if we win 100% of the market, the return will be small and time required for the fruition of the investment will be long. Hence, the return will not justify the investment.
For example Point of Sales for Michelin star restaurants. The market size is already small, and there are only a few numbers of those restaurants. Even if someone builds a great product, it will be highly unlikely that product will be a huge success.
Big and Growing Market
There may be a chance for a niche player in a Big and Growing Market or serve the underserved market in different geography.
For example: In the ridesharing, Uber, and Lyft are big players. The market is still big. These two players already take the bigger pie. Now, niche players are coming in such as ridesharing for night times, car sharing for a few hours, etc. I am not saying it can’t be a viable business, but it will be difficult to position the product and differentiate it in the market.
Another example: There are generic email marketing tools such as MailChimp. But email marketing is still big. There are specific email marketing tools such as Klaviyo for e-commerce, Drip for drip email marketing, etc. However, we need to be clear at the macro level whether or not e-commerce is rising, email marketing is rising, or your target user base is growing, etc.
Another example: Smartphone market is still growing. We won’t hear someone launching a new mobile phone in the US. But we hear new smartphone companies launching products in the emerging markets such as in India, China, and Africa. Their segment is different, their pricing is different, and their distribution is different. Most important of all, their target customers don’t carry expensive iPhones or Samsung phones. Their customers are not locked in with the existing products.
Small and Growing Market
If we look at the history of successful products, all of them have started from a small and growing market. The question is how do you know whether it is a small market or not. You know it when people either ridicule the idea or get surprised that the problem exists when hearing the idea. Also, the product looks like a toy rather than a product for a small group. But you know that at the macro level that small group is growing and will grow exponentially in the future.
- Apple: A hobbyist project targeted for homebrew computers. It rode the technology wave.
- Microsoft: Built software for small personal computers. The market was really small at the beginning that’s why IBM ignored it.
- Youtube: Hosted videos created by a select few, but not many had high-speed broadband internet. But a number of people with bandwidth were rapidly rising.
- Airbnb: In 2008, people needed extra cash after the economic downturn and began to rent out their spare bedrooms.
- Facebook: Yes even Facebook— it was for Harvard University students only.
- Uber: It was a small black cab service in Silicon Valley.
- PayPal: It targeted eBay users in the early days.
- Whatsapp: It was an iPhone app when Apple opened its app ecosystem.
I can go on and on with this list. It appeared like a toy to a small group who tried the first versions of work in progress products. However, they appealed to a small group of people, and market dynamics led the small group to grow.
These defensible companies surfed on the growing market tide.
Would Apple be successful had it targeted mainframe computers? Would Microsoft still be the Microsoft had it targeted OS for mainframes?
It is important to remember that not everybody will be the users of the product. The product has to appeal to the innovative users, then inspire early adopters, and then grow to the mainstream audience. There are many reasons why products succeed and fail. Great projects fail all the time because they are focused on the wrong market.
Therefore, if our product targets small and growing markets:
- We will add a lot of value to small numbers of people instead of providing small value to a lot of people.
- Users will be forgiving because we solve their huge problem so they will be willing to use work in progress product.
- The market grows at the macro level. If the product is early in the market, the tide of market growth will catapult the product to success.
There is another way to look at the product in terms of technology: whether we are building the product using technology at the beginning or tail end of the S-curve. A Small and Growing market represents the beginning of the S curve. A Big and Mature market signifies the end of the S-curve. No matter how great the product is, it will be hard to change the macro-level market reality. The product can surf on the market wave but not against the market wave. Hence, it is prudent to build products for Small and Growing market than another market.
Questions: Is the product targeted at a small and growing market? What are the indicators that prove it is targeting small and growing market? If the product tends to target other markets, how can we pivot the idea to a small and growing market? Etc.
Reference: To explore more on this read zero to one by Peter Thiel
2. Build a hook to pull the users
Go where users are, throw a hook at them, and pull them to the product.
Imagine that our product is a ship that is sailing on the ocean. Our ship finds someone drowning in the ocean. How will we rescue the drowning person? We take our ship closer to the drowning person. We throw the lifebuoy at the person, and we pull the person up. How will we save the person without the lifebuoy? We won’t be able to save the person even if we have the greatest ship in the world because the ship is too big for the person to climb.
Similarly, we need to think about a smaller product, a hook (like lifebuoy for a ship), that goes to where users are, that is small enough for users to climb, and using that hook we pull them up the main product.
For example, I use Hubspot’s email tracking chrome plug-in. But I don’t use it’s CRM yet. Chrome plug is a small product. I use chrome all day. It’s a small commitment for me to use the plugin and I use that for a specific use case. Eventually, it will lead me to use the main product because I get more value using the main product.
The hook doesn’t have to be a product. It can be an ad campaign on Facebook or Google, a name that sticks with the users that inspires discussion (like twitter), or a language that can define the product.
In short, it can be a small product, or it can be a name, or it can be an ad campaign. It has to be something that goes where users are and bridges users to get to the product.
Questions: Where our users spend their most of the time? What is that smaller product that will be useful for them? Is the name of the company sticky enough? Is the language that defines the value to the users clear and resonates with the users? Etc.
3. Provide instant gratification
After stage 1 and 2, users come to the product. The users must find the product use without investing anything in the product. It should provide instant gratification.
In the ship analogy, we rescued the person from the cold water in winter. We pulled the person to the ship. But, if we didn’t give the person the blanket immediately, then the person would die because of hypothermia. Our ship might be the greatest ship we ever built, but it was useless for that person because the person didn’t live long enough in the ship to take a benefit out of it.
For example, Grammarly gives instant red or green marks for the sentences we have written. We see its value instantly. Slack gives amazing onboarding. Instagram makes us feel like an expert photo editor. Evernote gives you a super easy note-taking experience. Airbnb made it easy to post on Craigslist when it started. Gmail gave 1 GB memory free when it started, and many people signed up for that instant value.
Questions: How to create instant gratification for the user? Is the onboarding easy? How are we delivering and demonstrating value to the user without any input?
4. Have a single user utility
Now, it’s time for the product to show its usefulness. There is a mental model to think about creating a single user utility. It’s called the habit loop. The habit loop has a trigger, action, and reward.
Even if our goal is to build a product that will have multiple users (i.e. collaborative tool, the marketplace, or platform), we need to think strongly about single-user utility first because if it’s not useful for one person then it won’t be useful for 2 or 10 or a million people.
Here are some of the questions we can ask to identify the habit loop.
- Trigger: What triggers the need for the product? When does the user need the product? What was the user doing before using the product? The product can be entirely different based on this. For example: If we are building a product for an Uber driver, the product will be entirely different if the trigger occurs while driving the car vs. while reconciling earnings for filing taxes. Users are the same, but how they use the product will be different based on the triggers.
- Action: What do the users do with the product? How is the user solving the problem before the current product exist? What is this product replacing?
- Reward: What do users get from using the product?
- Investment: The investment is what makes the user return. The more investment in the app, the more useful it becomes. Storing data is an investment. For example, we build a camera app. It takes beautiful photos, but it doesn’t store them. The users don’t invest in the product. The images users take are the investment in the product, and if those are stored, then they act as collateral to get them back into the app. Without that collateral, the camera app is easily replaceable by the other camera app.
For example: If we build a note-taking app, the app replaces a tangible pen and paper, but they trigger and don’t benefit change. The act of taking the note changes from paper to an app. The user experience of the app changes depending on when and how users take notes. The most important part is the app is useful for a single user. The user invests time taking notes and app stores use them. The app gets more useful because it stores the note. After that, the features such as sharing, collaborating, commenting etc can come. I will talk about that in multiple user utilities.
Questions: What are the triggers for the product? What actions are you replacing? What are the benefits? What investments do users make in the product? How can we make users invest in the app so that it becomes useful in the long run? How can we make this loop run better and faster?
To summarize until now, have a strong loop of a hook, an instant gratification, and a single user utility. After we have a strong single utility product, then we can think about the fifth step.
5. Grow to multiple user utilities
The next step is to add more users and build collaborative features. Many of the products will have multiple users. Before we think about multiple users, we have to think if the product will be useful for a single user.
The prerequisite for the multiple user utility products is to have a strong single user utility. Many people make mistakes by thinking that the product will be magically useful when more people use it. There is no magic. There is only design. The product should be designed so that each user becomes a champion of the product.The user should be able to teach and evangelize others about the product. That can only happen when there is a strong single user utility.
For example, Gmail is useful even if only one person uses it. They maneuvered into multiple user utilities by building Google Docs into the system which allows multiple people to collaborate on documents at once. Before Google Documents existed, Gmail acquired users by having a great platform and offering 1 GB free storage. Only then Google moved the virtuous loop faster and better.
Questions: Does the product have a strong single user utility? How can we make the product more collaborative? How can the investment of one user enhance the single user utility of others? How can we create the virtuous loop?
6. Think Network Effect
Lastly, what is the network effect? It means that the product becomes more useful as you gain more users.
The prerequisite for this is to have strong multiple user utilities. Most of the enterprise products we build don’t need to have a network effect. We build the product a defensible product if it has a strong network effect and will reduce customer acquisition cost.
It is important to think about network effect because it makes the virtuous cycle of instant gratification, single-user utility, multiple user utilities stronger and faster. It locks the users because it’s too costly for them to leave the product.
For example: Though I hate Facebook and I don’t use the app, I use Facebook messenger. I wouldn’t mind deleting my account, but I would not because I will love the Messenger capabilities to talk to friends.
Gmail becomes more useful, more the people use it. That’s why companies build instant values such as inviting your friends. LinkedIn has contact importing; Facebook encourages you to invite more friends, Whatsapp auto-syncs your contacts and tells you who use the app, etc.
There are different types of network effects. Some are strong and some are weak. It will take a different post to discuss all the possibilities. For this post, let us retain the idea that network effect creates a stronger product. Most of the products we think about can have that but only after we go through steps 1 to 5.
Questions: Will the product be useful if we have more users? Will the product be useful if we have more data? Given that we have strong multiple user utilities how can we orchestrate network effect?
Reference: Network Effect Manual by James Currier
Hopefully, after reading this we can reflect on times when we have built unsuccessful products and where we missed out.
- Did we build the product for the small and growing market?
- Did we build the hook?
- Did we build the instant gratification?
- Did we build strong single user utility?
- Did we build strong multiple user utilities?
- Did we build a network effect in the product?
For the products we are building right now, where are we putting our maximum effort?
If we are putting 90% of our effort on building the product that is not focused on the hook and instant gratification, then we are on the wrong path. If our product stakeholders are unaware, then we must educate them. If they are closed-minded to listen and learn about unbundling, then we have a problem that no amount of great wizardry of the product development can help them build the winning product.
I know that I have just scratched the surface of a vast topic. Perhaps in the following post, I will write in detail for each of the points I made above. For now, I love to hear your thoughts, comments, and feedback
Thanks a lot for taking the time to read this. Love what you read? You can learn more about product management here!
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About the Author
Bimal Maharjan is a Principal Product Manager at Leapfrog Technology, Inc. His playbook for building products both stand out and stand the test of time.