3 Layers of Successful Products

When I started building products, I only cared about "cool ideas". In college, I built a movie player app, GPSFilm, that'd play scenes of the movie based on where you are (shot as flashback so sequence didn't matter). Later, I built an app, Friend Central, to quiz you on friends through attributes like college, likes, location, etc. I built browser extensions to show your lifetime left and another, Nuggets, to record and remember things you learn based on spaced repetition. 

Creating is an incredibly fun and engaging activity. I would spend days and nights working on products, engrossed in a flow state, and excitedly show it off to friends and family. Having end-to-end control, from idea to shipping, gave me a broad scope and satisfaction. It exposed me to way more product development experience and learning than university or in my day job as a software engineer. 

However, when I "launched" these products, usually announcing on my FB profile or on online forums, very few people signed up, very few of those people continued to use the app, and there were no significant financial outcomes. So I learned the importance and concepts of the 3 layers - product, distribution, and business model in a tough but enduring way - by building blindly and failing to get traction multiple times. 

You become better at product development and as a business leader when you think and execute creatively and effectively across these different layers. 

1) Product

There are 3 parts to this: 

  • What is the problem? Who is the target customer segment? Is this an aspirin or a vitamin? What is the TAM?
  • What are the current solutions? Why is your solution better? What is your secret sauce?
  • What is the MVP version of your solution? How will your solution get better and more defensible over time? What are the network effects, loops, building blocks, and moats? How will you expand to adjacent problems and/or user segments?
The most common mistake I see product managers and founders make is being very vague about the problem and customers and jumping to the most expensive part too quickly - developing a solution. More senior product people make the mistake of only being incremental with their solution and not taking creative and big swings. 

2) Distribution 

Build it and they will come is a good joke. No, they won't if you don't thoughtfully execute on the distribution and growth as well. 

  • How are you going to sign up new users from your target segment? How will you get your first 10, 100, 1000, 10000 users? Which channels will you start with and expand to?
  • What's the sign-up flow? What's the 'aha' moment?
  • How will you engage and retain users and/or convert them to paying?
  • How does your product integrate with the rest of the ecosystem and customer lifecycle?
  • Is there a viable path for the long-term value (LTV) to be higher than customer acquisition cost (CAC)? Is there a chance that your channel partners can commoditize you?

Figuring out and executing a distribution strategy can take time, influence the direction of your product or even deem it unviable. A common mistake PMs and founders make is not thinking about distribution or partnering closely with marketing early on. Even at large companies, when developing a product or feature, distribution is still a key consideration as you have to figure out how to promote to existing users and acquire new ones. 

3) Business 

A successful business has to return eventually value to shareholders. I prefer mission-driven and interest-driven product development - you and your teams work on it because the problem is interesting and resonates with you. However, for products to scale, improve, and sustain, you need capital, cashflow, and a working business model. Let's take Uber or Lyft as an example - they are clearly solving a high TAM problem well - a seamless and affordable way to get from point a to point b. They have gained a massive user base, brand awareness, and a variety of channels like Google Maps, referrals, and partnerships. But the key question now is whether they can become profitable while maintaining the product experience and growth.  
  • What is your business model? What is your pricing structure?
  • What are your revenue and growth rates? 
  • What are your gross and net margins? How can you improve them? 
  • Are you investing in a portfolio of product lines for future growth?
  • Are you developing a strong brand and strategic partnerships? 
  • Are you developing strong leadership, talent, organization, and culture? 

Further reading

Brian Balfour has written about this topic in his seminal "Product-Market-Channel-Model" fit framework
  • Product layer = Product-Market Fit
  • Distribution = Product-Channel Fit 
  • Business = Model-Market Fit and Model-Channel fit