Lesson 4: Building an Investable Product

Building an Investable Product

Crafting an Investable Product: Unveiling the Path to Start-up Success

When we talk about investable companies, we often conjure visions of businesses that attract investment due to their potential for growth and profitability. But have you ever considered the notion of an investable product? Surprisingly, a product can indeed possess the qualities that make it attractive to investors and create avenues for financial backing.

In the realm of venture capital (VC) and angel investments, the journey towards securing funding hinges on the creation of an investable product. Such a product embodies four crucial characteristics that signal its potential for growth and eventual returns:

Scalability:

An investable product possesses the inherent ability to scale exponentially as demand surges. It can accommodate a growing number of users without proportional increases in operational costs, making it an attractive prospect for investors. The concept of scalability extends beyond mere user count to encompass the product's adaptability to meet a burgeoning market's needs.

Positioned for a Growth Market:

An investable product isn't limited to a niche audience or a stagnant market. Instead, it finds its sweet spot within a growth market, where opportunities for market share expansion are abundant. This positioning capitalizes on the potential for rapid market adoption and a subsequent surge in demand.

Built with a Recurring Revenue Model:

Investable products are constructed with a strategic business model that incorporates recurring revenue streams. This model goes beyond one-time transactions, ensuring that the product generates a consistent flow of income over time. This subscription-based approach not only fosters financial stability but also appeals to investors seeking predictable returns.

Profit-Friendly Pricing:

An investable product is priced thoughtfully to allow for healthy profit margins as it matures. While initial price points might be geared towards attracting users and establishing a foothold in the market, the product's trajectory should be oriented towards generating sustainable profits down the line.

To illustrate the concept further, consider the difference between a traditional legal service offered by a law firm and an automated legal service provided by a software company. The former lacks scalability, recurring revenue potential, and significant growth prospects, making it unattractive from an investment standpoint. In contrast, the latter addresses legal needs at scale, offers a recurring revenue model, and taps into a growing market frustrated by conventional legal services. This automated legal service emerges as a prime example of an investable product.

Integral to an investable product is a viable business model that sustains revenue generation and paves the way for profitability. A fundamental measure of profitability lies in the cost of acquiring customers (marketing and sales expenses) being lower than the cost of producing the product or delivering the service.

Moreover, the promise of scalability and growth differentiates investable products from limited-scale offerings. Products that can cater to thousands or even millions of users, like social platforms or mobile apps, hold the promise of substantial market impact. A key aspect here is the potential to capture a substantial user base, ultimately contributing to revenue growth.

Investors are driven by a relentless pursuit of products that embody these traits. Another element they seek is speed – the agility of a start-up to become fully operational within a short time frame and attain profitability within a few years. Even for companies that may not yet be profitable, investors anticipate that a shift towards profitability-oriented strategies will swiftly yield returns.

In the grand scheme of things, the pursuit of an investable product aligns with your start-up’s overarching goal: sustainability and long-term growth. By channelling your efforts into developing products that align with growth markets, are aptly priced, boast scalability, and are anchored in viable business models, you set the stage for attracting investors who see the potential for substantial returns.

It's worth reiterating investors are seeking precisely what investable products offer. Don't lose sight of the significance of building products that not only address market needs but also promise scalability, profitability, and sustainable growth. In a world where competition is fierce and opportunities are vast, focusing on creating investable products ensures that your start-up is well-positioned for success. So, if you find your product doesn't align with these criteria, go back to the drawing board, and recalibrate your product development strategy. Remember, every tweak brings you closer to a product that's not just innovative, but investable.