During the last month I have spent more time looking at Angel investments as I believe it is a great time to start a business. However, one key question I keep asking myself after meeting with entrepreneur after entrepreneur is whether or not what they have is just a feature of a larger product offering, a standalone product in and of itself, or a business for the long term with multiple products. Each path provides a unique risk reward perspective for both investors and entrepreneurs.
To be honest with you, many of the companies I have met with seem like features of a broader product offering. That is not bad in and of itself as focus is key when starting a company and going to market. As a start-up, you always want to be the innovative player with the new easy to use technology. However, just being the mobile version of what is already existing in the market is a cause for concern as it doesn't take much for a larger competitor to replicate that effort and use its marketing muscle and existing customer base to freeze a start-up out. Sure, you may get some customers early on as you are the only one, but in the long run you need to think about what broader feature set you will offer to be a true standalone product.
A product is typically a couple key features tied together to solve a problem for a customer. This means that you can provide more value to your customer and consequently extract more dollars from your end-user. The opportunity for many companies that are just features is a quick flip, but the risk is if that doesn't happen the large player may just develop the feature in-house leaving no exit for you. The more seasoned entrepreneurs know that starting out with a killer feature is just a launching pad to bigger and greater things. They know it is just a go-to-market strategy that is part of a larger vision and a step towards a broader offering down the line. These entrepreneurs know that they may never get there, but also understand that without this they have a limited market and return opportunity. yes, I know start-ups are inherently uncertain and many times it is difficult to even calibrate how big the market is, but don't forget to lay out the broader vision beyond the initial killer feature when building your company.
On the flip side, what I don't advocate is coming out of the gate as a complete and whole product solution. This brings you right into the crosshairs of large, incumbent players and makes your life much more difficult as you have to sell against a much larger salesforce with significant marketing muscle. While your goal may be to grow to that kind of solution, start highly focused, features are ok, but have a broader vision to show a path towards building a great company.