Product Vectors of Value

VCs seek outliers: companies with the potential to deliver highly defensible cash flows, define industries and establish category leadership. At early stages, they look for the characteristics that will transform the business into an outlier. Investors use different phrases for this rare occurrence — defensibility, secret sauce, unfair edge. What they’re really asking is: what’s your competitive advantage and how does it become even more powerful as you scale?

At Connect, we back potential outliers that are product-led. We invest in companies very early — often pre-product, pre-launch and always pre-PMF. We assess the same aspects as other VCs — team, market size, business model, go to market strategy, etc. But, due to our product focus, we also deeply consider your product potential. Using our?thesis,?we aim to figure out whether your?product?will have a competitive advantage and how that advantage will compound at scale.

In the past decade of meeting seed stage companies, we found ourselves evaluating products based on a range of different vectors including engagement, retention, growth, technology advantage and commercial velocity. Over time a clear framework emerged — one that allows us to categorise how a product can accrue value as it scales. We call it Product Vectors of Value (PVV).

What are the Product Vectors of Value?

At a particularly productive partner offsite, we developed both our product-focused thesis and the PVV framework. We did this by analysing our portfolio companies for the factors that made their products valuable as they scaled. We then ran the same analysis on the most legendary product companies on the planet. This led us to identify nine product-driven vectors of value. The table below shows all nine, along with a definition for each and examples from our portfolio we believe are exemplary of that vector. (N.B.?There are several non-product vectors such as brand, community, marketplace liquidity or technology IP, but for our purposes, we’re focused on?product.)

Different vectors impact different KPIs. PLG positively affects distribution and activation. Land and expand enables revenue expansion. Network effects impact engagement, growth and retention. A system of intelligence can accelerate the gap between your product’s value and your competitors. Which industry or sector you operate in will also play a role — for example if you are building HR software, a product that becomes the system of record has a powerful position that’s hard to displace.

PVV should be a key part of your product strategy. Wherever you are in your startup journey, think through which vectors of value are encapsulated in your product. Are there possible vectors you could capture that your current product strategy doesn’t support? What are the insights and opinions you have that could translate into potential product vectors?

In our experience, multiple product vectors = more product value, strength and love. It’s a self reinforcing loop. And when you combine different vectors, you drive business excellence with a superior user experience and better business KPIs (growth, retention, engagement etc): the core ingredients to building an outlier company.