What we’re going to talk about today is how to build a product that scales into a company. It’s super common that when you start a company, you start with the product. For those of you starting companies, did you have a bolt of lightning where you thought, “I’ve got a product idea”? Or did you spend time deep in an industry, understanding a problem before exploring different product ideas? Many people start with a product rather than a market, and that’s not necessarily the wrong way to do it, but it doesn’t always scale into a company.
Today, we’re going to explore how to take that initial product idea and build in the elements necessary for growth right from the start. We’ll discuss how to design products to bridge what we call the “Company Gap,” addressing go-to-market strategies, pricing, and all the other essentials that turn a product into a scalable business.
The agenda today is to delve into what we call the “Company Gap” and explore how to design products from the outset to span this gap. This involves focusing not only on product-market fit but also on go-to-market fit. Designing a product to make it easier to sell is essential, and building a business model around it helps in scaling the company.
Most founders have heard terms like “minimum viable product” (MVP) and “product-market fit,” but achieving these doesn’t guarantee building a successful company. For venture capitalists (VCs), when assessing companies preparing to raise funds, one marker of readiness is product-market fit. However, while product-market fit is valuable, it’s only one step.
One of the biggest challenges is what we call the “Product-Company Gap.” To illustrate, I’ll share an example of a company I started called Padient, a mobile payments company focused on QR code payments before they were popular. We hired a satellite imagery engineer to create our own QR code reader from scratch, aiming to replace credit cards with QR codes for payments. We strategically targeted major retailers like Best Buy and Walmart, intending for them to integrate our technology into their apps.
However, we underestimated the complexity of working with IT departments at these large retailers. The industry’s hardware (like payment terminals) is on a lengthy replacement cycle, making it challenging to deploy new technology. Although we were acquired by PayPal, the company never scaled as expected. This example highlights that a great product alone doesn’t bridge the Product-Company Gap.
Not all stories are like Padient’s. For instance, YouTube, founded in 2005, was one of the fastest-growing websites with 20 million users a month before being acquired by Google for $1.65 billion in 2006. Despite initial technical and monetization challenges, YouTube’s integration with Google’s resources enabled it to scale into a profitable business with a robust advertising model. The lesson here is that success requires more than an excellent product; building a scalable company also demands a strong business model and go-to-market strategy.
Early in a company’s life, most of the budget is directed towards development. However, as the company scales, a shift occurs where more resources are allocated towards sales and marketing than product development. A common rule of thumb in the SaaS business is the “40-20-20” rule for mature businesses: 40% of revenue goes to sales and marketing, 20% to product and research, with the remainder to other expenses.
As companies grow, R&D spending tends to decrease as a percentage of revenue, though there are exceptions, such as Meta’s significant investment in the metaverse. For SaaS companies like Salesforce and LogMeIn, R&D costs as a percentage of revenue decreased over time as they matured, showing how expenditures shift as a product progresses through its lifecycle.
The purpose of this session is to highlight the importance of considering go-to-market fit from the design stage of the product. When creating an MVP, it’s crucial to validate the value proposition before committing resources. Ask yourself: Is this product solving an urgent problem or filling an underserved market need? We use the “Four Us” and the “3Ds” frameworks to ensure the product meets significant needs and stands out as discontinuous, defensible, or disruptive.
When designing a product, understanding where it fits in a matrix of “blatant” vs. “latent” needs and “critical” vs. “aspirational” desires helps clarify the value proposition. For instance, cell phones transitioned from being aspirational (luxury items) to critical (a necessity for daily communication).
A minimum viable segment (MVS) represents a focused portion of the market with consistent needs, making it possible to prove the product’s value through repeatable sales. Before expanding to broader markets, it’s essential to dominate an MVS. By repeatedly solving specific problems for a particular group, you can build a reliable customer base and prove the product’s worth.
For example, the company Deploy initially targeted various segments in healthcare but pivoted to focus solely on hiring nurses. This narrower focus helped the company achieve traction and paved the way for expansion.
One of the key questions when bringing an MVP to market is how to determine its price. Pricing can be tricky, especially in the early stages, and it often involves trial and error. While some products lend themselves to a low entry cost or freemium model, others benefit from offering a short, low-cost trial. Keep in mind that free offerings can sometimes lead customers to undervalue the product, so it’s generally better to have a limited free trial rather than a fully free product.
The freemium model, where basic features are offered for free with options to upgrade, is widely used in SaaS (software as a service) and even by airlines with tiered services. This model allows users to try the product at little or no cost and then move up to paid tiers as they see more value in advanced features. HubSpot, Slack, and LinkedIn are prime examples of companies that leveraged the freemium model effectively.
To create products that can be widely adopted, we use the mnemonic “SLIP,” which outlines four essential attributes for product distribution:
1. Simple to Install and Use
A great product should be easy to install and straightforward to use. If it’s software, think about the onboarding experience—how simple is it for users to get started? For physical products, the “out of the box” experience should be as seamless as possible. A simple, intuitive onboarding experience is key to reducing friction in the early stages.
2. Low Initial Cost
Products that offer a low or free trial have a higher chance of adoption. Be careful with fully free models, as these can sometimes undermine perceived value. Instead, consider a free trial that allows users to experience initial value without long-term commitment.
3.Instant and Ongoing Value
Customers need to experience tangible benefits quickly to keep using the product. In SaaS, this is known as “time to value.” Shortening this time frame and providing continual benefits—whether through time savings, revenue growth, or increased convenience—can create a strong gain-to-pain ratio.
4.Plays Well in the Ecosystem
Integration with other products and platforms is critical. By collaborating with other systems, you can make your product easier to adopt and extend its value to users who may already be using related tools.
This SLIP framework ensures that your product not only attracts initial users but also retains them by consistently delivering value.
Building partnerships is crucial for many startups, as it provides both credibility and increased access to customers. For instance, Tetrascience, a cloud platform for life sciences, integrated with various research devices to streamline data collection, making it indispensable in the scientific research ecosystem.
Another example is Klaviyo, an SMS marketing tool for e-commerce. While initially a feature on Shopify’s platform, Klaviyo eventually became the preferred marketing tool, leading to its unicorn status. The right partnerships can significantly accelerate growth by expanding your product’s reach and establishing its value in a larger ecosystem.
If your business is in e-commerce or similar fields, strategic partnerships can drive success. For example, consulting groups and third-party integrations help amplify your product’s use by combining forces with complementary brands. Partnering directly with key platforms in your industry can create opportunities to grow while leveraging the trust and reach of established names.
To minimize friction and maximize adoption, consider pricing and distribution from the outset. A lower entry price or trial period often encourages initial adoption, but creating ongoing value is essential to retain users and grow your customer base.
For example, LinkedIn started as a free platform, gradually introducing premium services like Sales Navigator and InMail as it grew. This approach allowed LinkedIn to scale while providing users the option to upgrade based on their needs. Building with a tiered pricing model can enable your product to start as an accessible option for users and grow with them as their needs evolve.
The journey from a product idea to a scalable company involves more than achieving product-market fit. Founders must bridge the Product-Company Gap by creating a strong value proposition, focusing on a minimum viable segment, and planning an effective go-to-market strategy.
By using the SLIP framework—ensuring that your product is simple to install, low-cost to start, delivers immediate value, and integrates well within its ecosystem—you can build a foundation that supports growth and scalability. And remember, partnerships can play a pivotal role in accelerating your business, whether they help with distribution or position your product as an industry-standard.
By integrating these strategies, founders can bridge the gap from product to scalable business, positioning their company for sustained growth in the competitive market of web development services.
In conclusion, building a product that scales into a successful company requires a strategic blend of innovation, user-focused design, and a robust technical foundation. With expert app developers and comprehensive web development services, aTeam Soft Solutions is dedicated to helping businesses transform visionary ideas into scalable, market-ready solutions. Partner with us to create a product that not only meets current demands but also sets the stage for sustainable growth and success.
