Invest Profits, Not People: The Core Expansion Test
Fund new bets from the core's profits — never by moving engineers off the core.
- Difficulty
- Moderate
- Time to result
- ~ongoing to results
- Steps
- 5
- Confidence
- 94%
Mixpanel's expansion into messaging and data infrastructure looked natural — the same SDK, the same event pipeline — but it was funded by moving people off the core product, which opened the door for competitors to out-invest them there. Iyengar's rule: if you lead a category, keep out-investing everyone else in that core, and fund the next bet from the profits it throws off, not from its headcount. Paired with a hard test for whether an adjacent product deserves to exist at all.
Origin
Vijay Iyengar's stated takeaway from Mixpanel's 2010s expansion into adjacent products (targeted messaging, data infrastructure/single-source-of-truth) and the painful 2018 retrenchment back to a single core analytics product.
Core principles
- 01Adjacency is a trap: technical leverage (an installed SDK, an event pipeline) makes an expansion look cheap when its true cost is core-team attention.
- 02Taking people from the core leaves you open to disruption in the core by whoever is willing to out-invest you there.
- 03Fund adjacency with the profits from the core — or with venture capital, which Iyengar frames as roughly the net present value of future profit — but not with core headcount.
- 04Nobody needs the sixth-best product in a category. Bolt-on products that are not best in class contribute little revenue and never accelerate the growth rate.
- 05Cutting a mild success is roughly 10x more painful than you imagine — think hard before you start one.
How to run it
- 1
Ask what currency funds the expansion
Before greenlighting an adjacent product, identify the funding source. If the answer is 'we'll move some engineers over from the core', stop — that is the disruption trap.
Pro tip Acceptable currencies: profits from the core, or capital raised against those future profits. Unacceptable currency: the core team's attention.
- 2
Confirm you are still out-investing everyone in the core
If you lead a category, the baseline commitment is to continue out-investing every competitor in that core. Any expansion that breaches this baseline is disqualified.
Watch out Competitors do not need to be better than you overall — only better than the diminished attention you left behind.
- 3
Apply the best-in-class test to the adjacency
The adjacent categories are real categories with real incumbents (for analytics: CDPs, message targeting, feature flagging). Ask honestly whether you can be best in class there. There is no market for the sixth-best CDP or the eighth-best feature-flagging tool.
Pro tip Iyengar's anchor-tenant framing: a bundle of good-enough products works only if one of them is something the customer refuses to give up. Without that anchor, you are competing against the best in every single category.
Watch out Bolt-on products typically contribute 5–10% of revenue in aggregate — never enough to accelerate the growth rate, but plenty to distract the core team.
- 4
Run the retrenchment trigger
If you are seeing churn to a competitor on your core product and you are not best in class on any of your other products, it is time to re-evaluate and cut back.
- 5
Price in the pain of cutting a mild success
Cutting a product that is doing okay — not failing, not thriving — is 10x more painful than you expect and organisationally brutal: whole teams have roadmaps and identities attached. Factor that exit cost into the decision to launch.
Pro tip The cheapest way to avoid the cut is to be far more sceptical at kickoff.
In the wild
With an SDK installed in a huge number of apps and a scalable event-collection pipeline, expanding into targeted messaging and into being a single source of truth for company data seemed natural. But it split a ~50-person engineering team across three domains, leaving them too thin to close core product-analytics gaps.
→ By 2018, ~40% revenue churn on the core — customers still needed product analytics, they were simply buying it from competitors. Mixpanel killed both adjacent categories and refocused the entire engineering team on the core.
Lenny's synthesis, which Iyengar endorses: a bundle of good-enough solutions works only when there's an anchored tenant the customer will not give up — they will tolerate the third-best version of the other things to keep it.
→ If you are not that indispensable anchor, you cannot persuade anyone to adopt your bundle, because they are comparing each component against the best in its category.
Common mistakes
Reading technical leverage as strategic permission
A shared SDK or event pipeline makes an adjacency look nearly free. It isn't — the real cost is the engineering attention pulled off the core, and that is exactly the resource a competitor will attack.
Accidentally entering someone else's category
You get dragged into building a bolt-on that is nowhere near best in class in a category with real, focused incumbents — and end up shipping the eighth-best product in a market that only rewards the top few.
Underestimating the exit cost of a mild success
Mild successes are the hardest things to kill: 10x more painful than expected, because they have real customers, real teams, and real roadmaps — but not enough revenue to matter.
Is it for you?
Best for
Founders and product leaders at a category-leading company weighing a second or third product line in an adjacent category
Not ideal for
Companies whose core category is genuinely saturated or declining, where finding a new S-curve is the actual job
From the transcript
“you should continue to out invest everyone else in that core and then invest you know the profits that come out of that core into…”
“but you know there's not that many people that need the sixth best CDP or the eighth best feature flagging or the 10th best message…”
“if you're seeing turn to your competitor on your core product and you're not Best in Class on any of the other ones then maybe…”
“it's also 10x more painful than you think to cut mild successes”
From the episode
An inside look at Mixpanel’s product journey
Vijay Iyengar (Head of Product)