For Love of The Product

Although it’s rather topical to mock Silicon Valley for its “elevated” housing pricesshortage of UHaul vans, and celebrity investors, there are some things that the Valley undeniably does better than anyone else. One of those unique traits is to emphasize – almost to the point of idolatry – a focus on expertly designed and thoughtful products. One of the common mistakes I continue to see in secondary and tertiary markets is a tendency for startups, in an effort to tell their Company’s narrative, to prioritize (both financially and with human capital) artificial growth and vanity metrics instead of the product itself*. I suspect that this tendency has evolved as a function of less experienced investors with shallower pockets pushing founders towards quantifiable (and therefore, assessable) metrics instead of trying to build demonstrable product/market fit alongside a long term vision. It’s not surprising to me that the Country’s leading advocate towards bootstrapping emerged from my own secondary market of Chicago and co-founded an iconic product in Basecamp (likely in reaction to these observations).

Prioritizing growth metrics above all else does ostensibly makes sense; they are the lifeblood of any startup. Acquiring a customer for $1, and earning $3 from her yields a wholly profitable business. But the truth is that metrics are merely one reflection of product/market fit, and not vice-versa. Metrics may explain the what of a business, but they alone rarely explain the how or the why.



Six of the last seven investments I’ve made were able to achieve substantial growth/revenues while spending almost zero on marketing or “customer acquisition.” In these companies, the founders focused almost exclusively on incrementally improving customer experience for their early adopters – and not actively on growth. But these compounding improvements had a logical consequence: the platform grew organically with velocity. The common denominator in those cases was that deep engagement yielded retention, which in turn, spurred growth. (tl;dr = Engagement -> Retention -> Growth).

I spoke to an entrepreneur recently whose startup, in spite of operating in an extraordinarily competitive market, doubled in size – on a customer and revenue basis – in the past 2.5 months. In discussing that growth with a few friends, the question kept coming up: to what is that growth attributable? My answer was simple; a wholly differentiated design and engaging product that has cultivated a viral flow of word of mouth. Of course – if you build it, they will come – is by no means ever a given. But they will never come if they can’t quickly fall in love with a product.

There are some nuances to this. In many marketplace businesses for example, liquidity itself, not any specific design element, is the “product.” I learned this firsthand through my involvement with DraftDay. Although our product was regarded as “better” from a design and UX perspective, it lacked the large multi-million dollar Sunday prize pools that our competitors offered. It didn’t take long until the customers flocked to the platform with the most liquidity. (I authored an extended analysis of those learnings: here.)

And the quintessential example of liquidity as product? Craigslist.

I head to the Valley about once a month to spend time with my friends there and try to learn as much as I can about how smart VC money identifies, analyzes, and selects which startups to back. I actually ask so many questions that I apologized to a friend recently for “interrogating” them over a coffee. But what I hear repeatedly from multiple angles is a laser focus on organic growth far and above any specific metric, revenue threshold or channel partnership. This is because organic growth is reflective of one of the few startup truths that cannot be manipulated: product/market fit.

Like everything else about startups, generating organic growth is not easy. Nor do all founding teams have the luxury of iterating on product for extended periods while servicing a small group of early adopters. But no matter where one fits on the spectrum pragmatically, the point remains: the majority of enduring businesses are not built exclusively on top of A/B testing or “growth hacking,**” but rather on the back of products that generate authentic and viral relationships with ones customers.

*Startups in Silicon Valley are certainly not exempt from this either. But there has been a significant correction in primary markets over the past 18 months to re-calibrate away from a reliance on paid marketing which has not filtered down to secondary markets.

**These efforts are of course one element of a more holistic marketing department. But only in rare cases will they, in and of themselves, provide a business with the opportunity to be successful.