'What do you think? Is this a product or a feature?' I can't recall a question, besides perhaps 'how big is this market?', that VCs have asked me more often over the years.
To be fair, it is a tough one. Some of the best product people in the world get it wrong. Steve Jobs is famously quoted as having said that Dropbox was a feature and not a product. Today, Dropbox has a market cap of $12B... What Steve didn't think of was what was behind Dropbox's atomic unit of backing up files. Dropbox created a platform that makes all of your digital content (images, videos, documents, etc.) easily accessible across different situations spanning different people (sharing, collaborating, etc.) to various places and technologies (Mac, Android mobile, etc.). To give you an example: I just worked with multiple stakeholders on the asset creation for our virtual shareholder meeting this year, and there is simply no other platform out there that everyone could access and collaborate well on. Google drive is the other popular option. But its UX is just less suited to collaborate in a professional media setting. The key is that Google Drive is just one feature of the Google platform while this is the feature of the dropbox platform. By the way, here is a sneak peek from one of our test runs. Pretty cool, hein? 🙃
Let's take a step back. What are the definitions of a product and a feature?
What is the difference between a feature, a shortcut, and a product?To use an analogy, features are the 'verbs' of a product, while products are the 'nouns' that can be used with multiple verbs.
A feature is a characteristic or function of a product that adds value, but only incrementally. It isn't something many people would buy on its own. The reason is simple. The problem it solves on a stand-alone basis is just not significant enough for many people, or the target customer of that specific product, to pay for it or use it frequently enough. It is more a nice-to-have. A feature may be added to a product to make it more valuable. A feature can also be offered to promote the product. Here are some examples:
- Wix blog comments: I run this blog on Wix. I need Wix to host, create, and edit my website (this is the atomic unit of Wix. More on this term below). A few months ago, I also added a commenting feature for my blog posts so guests can add their thoughts. I even pay a small subscription for it. But there are very few businesses that are interested in such a feature for their website. Mostly bloggers, and there aren't many of them. So you can build a business that offers this feature, but it will stay small.
- Calendar invite: I love the example of this popular cloud-based service that people use to set up and confirm meeting times with others. At first, Calendly feels like a feature on top of our digital calendars. But there are so many people out there who find use in such a feature that it was a great wedge to build a larger independent company. Currently, some 10 million people are using Calendly every month. And, with the pandemic, the number of meetings we now need to set up has gone up. All of the serendipitous and impromptu encounters we used to have around an office, or a neighborhood coffee shop? Many of those are now scheduled. The startup is now valued at $3B. It will be interesting to see how big this can become. Will they be able to build a larger platform around this feature?
- Spotify playlists: In its early days, Spotify launched a killer feature that lets users share songs and playlists without worrying about who is and isn't currently a member. The atomic unit of Spotify was and is allowing users listen to any song they want without having to buy it, of course. So, playlists were only a social feature, but a brilliant one that made the platform attractive against competitors such as Apple. Features can make products great and get them ahead of rivals.
- Instagram filter: The platform had two killer features: the filters (mobile cameras were terrible back then, so filters were a huge plus) and the ability to have a profile to be shared with friends in a slick way. Both features would have become popular on a stand-alone basis, but it is really a product based on the combo of the two that made it a wildly successful company (and investment). The atomic unit is the sharing of nice pictures.
- Telco service options: The atomic unit of telecommunication companies is their network infrastructure. All the rest they offer, such as cheaper service or product options on top of their data plans, are just features. This is the dilemma of these companies. Their core business is widely profitable, but it is challenging to build robust products on top that are not just irrelevant features in the long term.
So, a product is a tool or environment composed of multiple features but with one core functionality, the most fundamental object of all in your service. It has enough value in the opinion of many consumers that they may buy it. Coming back to the Dropbox example: While Dropbox is a product to many, for Steve Jobs, it was indeed just a feature. This is because Steve Jobs sought to package Dropbox into another product, the Apple product suite, as a feature, the iCloud. Obviously, Apple's storage offering is limited to Apple customers, has fewer features, and the core product they are selling is not storage. Nobody would buy a Mac just because of its storage feature; it is just an additional feature that will increase customer satisfaction and retention for Apple. Let's look at this non-tech example that illustrates this well: Egg fried rice is a product sold in many restaurants. The eggs in the fried rice are a feature of that product. You don't go to a restaurant to buy eggs. The same eggs are the product of a poultry farm. They sell them, usually in large quantities without additional features.
It is essential to differentiate shortcuts from features, though. Type meet.new in your browser, and a google meet call will open. How cool is that, right? It actually happened to me that I used now google meet instead of zoom a few times because of this shortcut to easier launch calls for spontaneous catch-ups. But I still prefer the zoom product and will stick to it. The difference between features and shortcuts is that the incremental value of the latter is much less. You need many more of them to have the same impact as a great feature.
Focus on your 'atomic unit', the core of your product.One way to think about it is to ask what is the most fundamental object of all, the 'noun' in your service. I like to call this the 'atomic unit.'
In Wix, the atomic unit is the website.
In Dropbox, the atomic unit is the storage.
In LinkedIn, the atomic unit is the resume.
In Twitter, the atomic unit is the tweet.
In Netflix, the atomic unit is the non-linear content.
In Salesforce, the atomic unit are the customer records.
When you think about an early product, it's really important to identify the atomic unit and make sure you focus the product crisply and cleanly on that object. Fred puts it well: 'If you think you have three or four atomic units, you will end up with a clunky and bloated experience. That is what you want to avoid at all costs with your MVP.' You will end with very different customer groups, use cases, marketing messages, and, most importantly, a suboptimal experience for everyone using your product. Can you identify the atomic unit of your product or service? If not, then you might want to sit down with your team and think about why you can't and how to tackle that. Feel free to drop your thoughts in the comment section below this post.
The challenge for VCs: Products that look much like features in their early days...The key question for VCs is if a startup team can build and capture the atomic unit of value they have created and translate their early foothold into a dominant position. My friends at Tribe articulate this well: 'The product needs to be so good that they can acquire a big piece of the market for their atomic unit and rapidly extend their family of features and products over the coming years. It is this dominance over the atomic unit which enables these companies to build category-defining businesses' in the long term. As a result, incumbents and newcomers should quickly face difficult-to-cross moats in their attempts to compete.
This is already an incredibly difficult task, and a big bet for investors to take. The task is even more difficult if there is uncertainty around the 'feature vs. atomic unit' question. As a founder, it is crucial to make investors understand the size of the market they are tackling and why a product focusing on this challenge alone is creating asymmetric value. Here are some ideas to do so.
Are you building a product?Here are some thoughts that could help you articulate the feature vs. product question.
Do you create asymmetric value? Asymmetric value is value that exceeds the cost of using the product and that scales tremendously with more use. Good features add to the value of a product but don’t create enough value on their own. Every product has a cost to use it. Money spent on buying it, time spent to learn how to use it, one-time setup fees etc. And, of course, the product gives back some amount of value in return. I think about it like an airplane trying to take off. The cost of using the product will pull the plane down, like mass. The value created by the product gives the aircraft a lifting force. Your lift has to exceed the forces pulling the plane down, or you’ll never take off. Now imagine that we fill the plane with more people. Does it still take off...? This is the magic of great tech products. As we use the product more, with more people, it gets more valuable. Only great products, not features, create this kind of asymmetric, exponential value as the product is used more. If the value created by what you’re developing is only slightly higher or symmetric to the cost, it is probably just a feature.
Is your feature combo a product? While the storage abilities of Dropbox alone are a feature, it is the combo of this feature with a few key collaboration features that make it a great product that no one else is offering or can offer. It is important to articulate the differentiating mass user experience that results from such a combo. One feature that is often cited is the multi-platform approach. This could be integrations with other products and/or the independence of your platform vs. similar (potential) offerings from existing players. While everyone can use Dropbox, not everyone can or wants to use iCloud if they are not Apple customers.
My product set is unique. It is tough to copy, even if someone wanted to. Features are so weak also because they’re so easy for competitors to copy. It is important to help people understand why your product or feature set is so unique. Very often bigger players have strong limitations that don't allow them to offer the same value prop at scale as you do. Try not to use the argument that they don't do it because it is not their focus right now. Because once you become bigger, they will realize and seize the opportunity eventually, if they can...
Do you have power users? Will you or do you have a paying market? Every successful product must have a group of people who use and care about it. Products are sold and used on their own, but features aren’t. Features are a reason customers care about a product because they create value, but they’re not the only reason. In the early days, it is often smarter to offer your product for free. In that case, look at engagement. Do you have a relevant group of power users that are heavily engaged with your product? These people will pay for your service.
If you have other ideas, please drop them in the comments below.
I was in Istanbul two weeks ago. One of the best places in Europe to visit for history lovers. During breakfast with a fellow VC based in the city, we started talking about the story of the famous Hagia Sophia, and he said something that stuck with me: 'If you think about it, despite all the changes, good or bad, that happened to this place, the Hagia Sophia always stands. It makes you realize that we are part of something so much bigger...'
Life is awesome,
Yannick
Other content I've found useful- Here a great read on the strategy behind Facebook's metaverse announcement last week. “The Metaverse is ours to lose,” reads one of the first section heads in Rubin’s paper. He went on to say that Facebook started thinking about the concept of the metaverse as a way to appeal to general consumers, because VR wasn’t broadly popular. 'I might check in to Facebook multiple times a day, but I will live in the Metaverse, work in the Metaverse, and potentially prefer my time in the Metaverse to my day-to-day grind,' the document says.
- A great podcast with the CEO of Opensea on the history and current state of his company and the NFT market in general.
- A brilliant thread on what LPs are looking for in VCs: One word, repeatability. 'One LP said they’re studying the top 20-30 IPOs and SPACs of the past 12 months to see who owns what with an eye forwards determining which managers got lucky and which ones repeatably have been able to find winners. Consistency trumps incremental returns.'
- VC funding per capita: There is still so much upside potential in European Venture, incredible...
