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3 Steps to Strategically Execute Product Expansion

As companies think about market and product expansion, there is a structured process they can follow to maximize their success.

TripAdvisor expanded their product from reviews to hotel booking to vacation planning with rentals, restaurants, activities, and more. Microsoft started out as an operating system and now spans across computer hardware, gaming, and of course, the Microsoft Office suite of tools.

But exploring or adding a new product is not always a success story. For instance, Amazon launched a social network product called Spark that encouraged photo and video sharing, with the ability to tag products available on Amazon. Just two years later, they shut it down.

DropBox is another. They acquired a new product, Mailbox, with the intent of improving mobile email, and launched a new product, Carousel, to share photos. Those products were in highly competitive markets that were already dominated by Google, and they both ended up shutting down.

“Many companies believe going from one to many products is a definite milestone on their growth lifecycle. But expansion is one of the many paths for growth. Its timing and motivation determine the likelihood to succeed.”

– Irem Metin, former VP of Product Expansion & Growth at Upwork

Meet The Contributor

Irem Metin

Irem Metin

Irem is a product leader focused on strategy, marketplaces, and growth. Most recently, she was the VP of Product Expansion at Upwork. Previously, she led product at Shiftgig, an hourly work marketplace in Chicago. She was on the founding team of TripAdvisor’s Experiences Group, which scaled to $200mm in revenue in 3 years.

How to guide your product expansion in 3 steps

To minimize the risk of expansion, we teamed up with Irem Metin, former VP of Product Expansion & Growth at Upwork, to bring you a three-step process for successful product expansion:

  1. Focus on the why
  2. Check the health of your core
  3. Adjust investment to maximize success

1. Focus on the why

The first step of product expansion is for the product team to deeply understand why it is being considered.

There are several reasons a company looks to expand through new products. Ideally, product expansion is guided by the company’s internal strategy. But oftentimes, product expansion is also prioritized due to an external influence or market pressure. Although they’re not ideal, the external reasons can still be valid. The red flag to be aware of is when new product expansion is driven by problems with a company’s core product.

3 Steps to Strategically Execute Product Expansion - Should You Expand A Product?

Ideal Circumstances

When product expansion is part of the internal company strategy, alignment and probability of success are maximized. Imagine the case when customers are turning to you to solve a new but related problem.

This was the case at Stripe when customers were increasingly turning to the company for “how to understand and keep up with their tax obligations.” Such high demand and a highly validated retention opportunity gave teams the confidence to explore how to build a tax product.

Most product expansion decisions, however, are not as clear as Stripe Tax. A company may be successfully executing a clear strategy when a large customer applies pressure to consider new product expansion or an unplanned M&A opportunity arises.

For example, TripAdvisor was focused on building new restaurant and attraction booking capabilities when an opportunity to partner with the social dining site EatWith came about. The product team at TripAdvisor made the decision to invest in this innovative service and take advantage of a unique opportunity that differentiated them from other restaurant booking sites. Product teams should feel confident evaluating external opportunities and suggesting potential expansion.

Good Reasons to Pushback on Expansion

But there is also a good reason for product teams to push back against expansion. Different from the examples above, it is alarming when a company is seeing conversion or engagement problems with its core product and turning to expansion to hit its growth objectives.

If the core product is not acquiring or retaining customers effectively, the solution is not expansion. Ignoring that problem comes at a big risk: not having enough people focused on solving it. The best path forward for product teams in this situation is to make a data-backed argument highlighting the issues with the core product and asking for the reprioritization of these issues.

“Instead of splitting attention, a company can make more progress by allocating most resources to the core product, and expediting a decision to exit, pivot, or fix the core before expanding to new use cases.”

— Irem Metin

If the reason to explore product expansion is valid, product teams can then move forward with assessing readiness and calibrating the right level of investment.

2. Check the health of your core product

Once the product team confirms the why is a healthy one, how do we assess whether our core product and team is ready to take on the load of expansion?

We leverage the Core Product Health Checklist to determine if the company is ready to explore a new product:

  • Is your product technically ready?
  • Can you allocate a dedicated team?
  • Do you have the right data capabilities?

You should be able to say “yes” to all before moving to the exploration phase of a new product.

Is your product technically ready?

This first question is absolutely critical because moving to a multiple-product architecture requires shared resources and capacity. If a company's core product has reliability, performance, or capacity issues, moving to a more complex and often modular architecture will strain the core performance further.

To determine if your product is technically ready, you need to assess your ability to address current site performance, reliability issues, or key bugs. If you are operating with significant technical debt or maintaining your core product takes up a significant percentage of your available resources, planning for expansion would cause a risk to the core product.

A common mistake to avoid is ignoring the service or operational elements of your product. If delivering your product requires other teams, you should ensure those teams have the bandwidth for expansion or have a plan in place to increase capacity if needed.

While there is no magic number for how much resource capacity is enough, the key is to consider the foundational commitments of the teams involved and to plan for at least 20-30% capacity to support new product needs.

Can you allocate a dedicated team?

Just because a team has 20% or more capacity that is not spent on building and maintaining the core product doesn’t mean the team is ready to dedicate the required resources to a new product fully. Being intentional about this step is critical to success; deeply exploring a new product cannot be a partial role given to members of the core product team.

The mindset, skills, and goals of exploring a new product versus improving a core product are fundamentally different. The new product team needs to be able to focus heavily on customer-centricity, product vision, and product strategy. Doing this requires an independent, dedicated team with minimal dependencies on the core product and processes.

The required roles for this dedicated product team vary by type of product.

For example, new enterprise companies need to allocate sales and support team members to product exploration at the earliest stage. For new products that require a go-to-market motion, marketing should be included in the exploration. In most cases, however, to answer “yes” to this question, you need to be able to hire or re-allocate 100% of at least:

  • 1 product leader or general manager
  • 1-2 product managers
  • 1 product designer
  • 4-6 engineers

While a team can technically start exploration in a mock-up or prototype phase after two yeses, a third is needed to fully enter exploration.

Do you have the right data capabilities?

Serving a new product to new customers requires advanced data capabilities. Even in the exploratory phase, you will need to market and serve the right product to new customers or identify which current customers can benefit from new products.

Success in the exploratory phase also depends on rapid experimentation to measure if the new product is adding value to customers, leading to incremental growth, and if it can scale with the right unit economics. Therefore, it is critical to have the right tracking, needs-based segmentation, and experimentation capabilities in place at the beginning.

There are three things you want to be able to do with data today to feel confident about having the right data capabilities required for product expansion:

  • Gather and warehouse customer data from multiple sources, to effectively track data about customers on the new product.
  • Track and understand customer behavior through different parts of their journey, to effectively market the new product to existing customers.
  • Leverage efficient A/B testing capabilities, to guide decisions in the exploration phase.

If any of the answers to these data questions are “no”, you need to ensure that you have a plan in place to address that before fully exploring a new product.

When you answer “yes” to all three questions of the Core Product Health Checklist – Is your product technically ready? Can you allocate a dedicated team? Do you have the right data capabilities? — you can enter the exploratory phase knowing you have limited risk to your core product. The next stage is to figure out how to invest in the new product idea in a way that sets you up for success.

3. Adjust investment to maximize success

While assessing the health of your core product mitigates risk to your core business, determining the right investment for the new product is the next step in increasing the chances of success.

The Opportunity/Capability Overlap Matrix helps by suggesting the best way to move forward with a new product based on:

  • Level of overlap between the required capabilities for the new product and your core
  • Confidence you have in-demand/opportunity size

How to determine capability overlap and opportunity

The idea behind capability overlap is that some new products will be easier or harder for your company to build or integrate.

There are at least six types of capabilities you want to consider when determining if you have high or low overlap with a potential new product idea.

  • Product: Can you leverage your existing technology?
  • Channels: Are you able to reach your target audience with existing channels?
  • Geography: Are you targeting the same geography or at least the same language?
  • Operations / Service Delivery: Is the mechanism of delivering value the same, such as digitally or manually with services involved?
  • Brand: Will your brand association and image extend to the new product/market or do you need to create a new brand?
  • Industry Expertise: Do you have a thorough understanding and the required relationships in the new industry?

Many product teams forget that it’s not just about the product, and the biggest mistake Irem sees is around Operations / Service Delivery. It is common for digital product companies to prioritize product fundamentals and engagement, overlooking the importance of the new operational capabilities in creating customer value and retention. For example, a company with a digital core product expanding to hardware has to develop new operational capabilities around manufacturing, service, sales, and support.

In addition to assessing the overlap in capabilities, opportunity validation is also important because how much and how you invest depends on the new product’s expected impact. There are different ways to build your confidence in the opportunity size, such as the size of the market, growth trends, and capital investments into businesses in the space already.

Different ways to invest in a new product idea

How you invest in the new product — whether you build it internally, partner, or acquire a solution — is driven by capability overlap, and the level of investment is driven by how validated the opportunity is.

If you have high confidence that there is a meaningful opportunity for the new product, you should be comfortable investing more.

If you have a high overlap of capabilities and a highly validated opportunity, it makes sense to go ahead and build that product internally. We could consider what Uber, a ride-sharing platform, was considering when expanding to Uber Eats, a food delivery product. Market research would quickly confirm that food delivery had a proven opportunity, even if Uber did not know how many of their own existing customers were interested. Uber and Uber Eats would have high overlap, driven by product, channel, geography, and often the most complicated one: operations/service delivery. In this case, the likelihood of success from building the product internally is high.

If you have a low overlap of capabilities and a highly validated opportunity, it makes the most sense to buy the new product rather than try to build it. Google has done an excellent job leveraging this type of strategy. For example, consider Google’s acquisition of Android. The mobile space had a lot of opportunities, and there was an opportunity to leverage Google’s core search capabilities. However, Google did not know how to build a mobile phone operating system - so, they bought one.

If you have low confidence in the opportunity, you want to limit investment and find creative ways to fund the effort.

If you have a high overlap of capabilities and an unvalidated opportunity, look for external funding to build the product. We can hypothesize about OpenAI’s investment from Microsoft. Microsoft invested over $10 billion in OpenAI to combine Azure’s toolchain, models, and infrastructure with OpenAI’s cutting-edge research capabilities. It is possible that Microsoft was a key customer for OpenAI and wanted new functionality such as integration capabilities, and OpenAI used Microsoft investing to fund that development.

If you have a low overlap of capabilities and an unvalidated opportunity, you’re in the riskiest category: either avoid the new product if possible or try to come up with a partnership to limit risk and investment. For example, Avalanche and Shopify have partnered to allow merchants to sell non-fungible tokens (NFTs). The opportunity in crypto-currency has been extremely volatile, and so can be considered invalidated. There was likely overlap in target delivery, as Shopify has a core product capability of enabling sales, but not a strong overlap in product, channels, brand, operations, and industry expertise for Shopify to invest heavily in crypto-currency offerings directly.

Each type of new product opportunity will come with different risks and chances of success, and adapting your expansion strategy to meet the opportunity where it is can help mitigate the risk.

New product expansion is exciting, but stay vigilant

New product expansion requires both mitigating risks and increasing chances of success. Product teams should not skip to implementation, but pause all the way at the beginning: is there a good motivation for exploring a new product right now?

“Get honest with “the why.” And if the why isn’t right, then don’t do it. But if it is, then maximize your chances of success by ensuring your core is ready and you are investing the right amount.”

— Irem Metin

From there, product teams can move through reducing risk by ensuring the core product is ready and maximizing success by adjusting investment according to the certainty of the opportunity. While not every new product always takes off, systematically and strategically approaching the decision to explore a new product sets you up to be successful.

For more resources on product strategy and expansion, become a Reforge member to take our Product Strategy program.

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Irem Metin