How do you know when to invest in a second product and become a multi-product company vs innovating on your existing product?

I don't think I have a great answer for this; I think there are a few possible points to consider though, and I think it ultimately comes down to how you understand the user/market problem your company is positioned to solve with its product(s).

1. Is that problem best solved by a single product, or does a group of products better address the problem or need? If so, how and why?
2. Is your product not serving the needs of your customers, and if not, why? Does the product have meaningful shortcomings affecting product-market fit, or is the market changing? (The latter was something we experienced directly at Abstract and caused us to explore a new product offering.)
3. What are other companies in the space shipping, and what does it say about their framing of the problem they're trying to solve?
4. Does your company feel you've delivered a mature, successful product to solve that main problem and you are eager to grow into a new market, solving a new and different problem?

I hope this is a little bit helpful!

Great question that goes beyond product strategy and into larger company strategy. Every product serves a given user job or jobs. When you have product market fit and things are going well, you then have a choice: 

1. Continue investing in serving the original job to gain a larger piece of the total addressable market for that job or:
2. Think about a new product offering that could either serve your existing customer in new ways or create a new adjacent customer segement to your original one. 

I don't believe there's a hard and fast rule here, but speaking with users can help shed light on whether your current product is "good enough" or if it still needs work. With every product, your users or customers will have feedback, and the question you need to answer as a PM is "Is addressing this feedback going to drive more adoption or usage, or is it a nice to have?" 

Frameworks like the RICE framework developed out of Intercom (or even an Impact/Effort 2x2 matrix) can help answer this question. From there, you can ID if the feedback you're hearing is feedback that will unlock growth in your current product... and if you don't think it will, you can look to build something new. 

This can be tricky! It will depend on a triangulation across a number of factors including:

1. The room to grow in your existing product (both in terms of TAM, the competitive dynamics and your current position in the market) -- this will help determine how much headroom you have to innovate on the existing product vs launch new ones. If you have some obvious "low hanging fruit" on the existing product it's usually a sign that there's more work to be done there before launching into new product lines (unless the competitive dynamics push you to do so). 

2. The market demand: Most often the demand for a second product will come as a pull from the market vs a push from the company. Look for signs that your buyers are asking for a naturally adjacent solution or expressing a related unmet need that your sales team can't fulfill today. Look for signs that your users expect / are seeking an extension of your capabilities possibly by hacking together a solution themselves, using developers, or seeking solutions through asks to customer support. Look for signs that competitors are bundling a new offering or building partnerships in an adjacent space. These are tell tale signals that the unmet need is larger than you anticipated and the company needs to expand into a new product or service line.

3. The vision of the company and founders (and related funding): Product expansions are usually only possible if these align with the vision of the founding team. What is the business that they set out to build? How has that vision adapted over time? What do your investors expect you to build (a product, a service, a platform, a ...)? This is the less organic, less talked-about, side of product development that does impact how and when a company decides to innovate.

I would consider the following factors:

• What are the goals at that time? How best are the goals served? e.g need a product-2 to monetize and sustain product-1, which is growing but no line of sight to monetization 
• Competitive value - What is the best way to build or defend moat? Is the sum going to be greater than parts? Vertical or horizontal integration? Solution offering rather than piecemeal feature offering?
• Execution confidence- Are we in the position to take on a second product? Can we deliver, maintain and do justice to both?

The decision to invest in a second product versus innovating on an existing product depends on a variety of factors, including market demand, core competencies, competitive landscape, resource allocation, strategic goals, and financial viability. By carefully considering these factors, a company can make an informed decision that aligns with its overall vision and mission.

• Market demand: Is there a clear need and demand for a second product? Are there opportunities to address new market segments or expand into new geographies?

• Core competencies: Does the company have the core competencies and resources necessary to develop and launch a second product? Does the company have the necessary talent, technology, and infrastructure to support multiple products?

• Competitive landscape: What is the competitive landscape like for the existing product and potential second product? Are there established competitors that will make it difficult to launch a second product, or is there a clear opportunity to gain market share?

• Resource allocation: Can the company allocate the necessary resources to develop and launch a second product without detracting from the existing product? Are there opportunities to leverage existing resources, such as technology or talent, for the second product?

• Strategic goals: How does a second product align with the company's overall strategic goals? Will a second product help the company achieve its long-term vision and mission?

• Financial viability: Can the company afford to invest in a second product, and what is the potential return on investment? Are there other revenue streams or financing options that can support a second product?

Phenomenal question, I recently gave a full talk on this topic. 

I think about going multi-product as a way to transform your company for the long run and to expand companies life cycle. 

Every company has a cycle of life - Companies are in startup mode, growth phase, and peak before start declining. Hence, best time to innovate is during the upward trajectory in the growth phase. Read more about it in this article: https://www.gsb.stanford.edu/insights/mark-leslie-key-enduring-growth-strategic-transformation

This is based on a few things:

• Your strategy - are your customers going with integrated solutions? If yes your hand may be forced

• Market needs - sometimes the opportunity has a timing and you need to ride that curve otherwise you will be left behind

• Your existing product maturity curve - how much investment do you need to make in your existing product to grow it at the pace you want

• Your internal capabilities - do you have the people/cash flow to invest in this

Assuming you are past your 1st product (and you feel you have a good handle on it), my general recommendation is to have a resource allocation portfolio where you always have space for new business initiatives. Could be low % to start with but it helps you contain your costs while shielding that team and builds a new muscle.

This is a fairly complex decision and depends upon various factors such as: competitive landscape, organizational vision/strategy, development effort, rollout strategy and most importantly end customer needs.

1. Customer Feedback: There is ongoing feedback from customers that point to a need for an adjacent product. e.g. Jira is for project management use cases but there is an indication from customers to bring in a wiki/documentation tool such as Confluence.

2. Competitive landscape: if the competition is indicating or building adjacent products, it might be a good idea to consider areas they are looking into

3. Organization vision/strategy: important to understand if a totally new product would make most sense or just a feature on top of existing product.

4. Engineering and other costs: Does the company have the resources to build 2 separate products and maintain them over the long run?

5. Marketing and launch strategy: Does the company intend to market 2 separate products to the customer base?

Some ways to test this out:

1. Build a quick MVP and test it with the customers as a free offering. This will provide valuable learnings.

2. Offer this as a feature on existing product: See if users like the overall idea of this by offering it as a feature rather than investing in splitting the products upfront

3. Financial analysis to see if the 2 products would be successful at the same time

4. Market reception of 2 products needs to be evaluated as well. They might end up cannibalizing each other.

This is a decision with many variables and needs to be evaluated alongside all of the above points.

Deciding to launch a second product and transform into a multi-product company isn't just about diversifying your portfolio—it's a strategic choice that should be deeply aligned with your long-term vision and the realities of the market. It's crucial you base this decision on solid evidence and careful analysis, ensuring that expanding your product lineup truly benefits your core mission, business and customer needs.

Here’s the approach I take:

1. Assess Market Saturation and Growth Potential:

   • Check if your current product is maxing out its market potential, limiting growth from both new and existing customers.

   • Explore emerging market trends or needs that your current product setup might not address effectively.

2. Leverage Customer Feedback:

   • Consistently collect and scrutinize customer feedback to pinpoint recurring demands or issues not currently met by your product.

   • Be on the lookout for unconventional ways customers use your product, which could signal opportunities for a new offering.

3. Evaluate Financial and Strategic Readiness:

   • Review your company’s financial stability to gauge if it can support the risks associated with developing and launching a new product.

   • Consider whether your team possesses the necessary skills or if you need to bring in new talent or expertise.

4. Consider Synergies and Risks of Cannibalization:

   • Analyze the potential of a new product to either complement or undermine your existing products.

   • Assess if the new product could increase overall customer retention or create additional sales opportunities through upselling.

From my experience, you should never invest in another product unless your first product has achieved PM-fit because you dont want to kill the momentum and growth youre already seeing by splitting your customer's attention in two different directions (unless your new product is serving another ICP and totally different GTM). Otherwise, Id introduce another product if:

1. Your current product’s growth is plateauing and you dont have any more innovative ideas to add to the product.

2. Pay attention to what your customers are saying. Are they showing signs that there is a demand for a specific feature (maybe you can make it as a standalone product or reflect it in the first one). Anything youre missing solving? These signals can be helpful to consider.

3. Be honest about 4 main things here because they form the backbone of this new product (do you have enough resources? team that is ready for this? are you sure its adding up to your product vision or market share? are you able to get buy-in by proving the impact this new product will have on business OKRs?

Id focus on these key areas first to make sure nothing is lost in the cracks.