David Cox Second Product Syndrome Lead
David Cox
David Cox Principal Consultant - Product Strategy

Our Thinking Tue 3rd November, 2020

How do animated ants explain the ‘Second Product Syndrome’?

In the documentary The Pixar Story, Steve Jobs posits the “Second Product Syndrome” (or SPS) as the reason why second products tend towards failure.

To cut a long story short, second products fail because organisations do not adequately understand the reasons why the first product was a success. 

Jobs mentions SPS in relation to Pixar’s second film, A Bug’s Life. Sandwiched between the groundbreaking Toy Story and its sequel, this film is considered to be an example of how Pixar had triumphantly bucked the trend of failed second products.

This blog post examines the truth of that position in particular (A Bug’s Life defied the SPS) and argues that, in general, the SPS can be explained by the fact that the risks which are inherent in launching new products are the same each time.

The Hippo with a hunch

As a fact, the successful launch of a first product can be used to challenge the need for tediously meticulous processes on the launch of a second. The leadership with deep industry knowledge and a survivorship bias can allow themselves to indulge in “magical thinking” – eschewing scientific rigour in favour of inadequate, unsystematic analysis (what may be termed as “a Hippo with a hunch”). In this context, teams are pressed to spend less time on exploring, testing and verifying assumptions and to trade rigorousness for speed. Research – if performed at all – typically involves a smaller number of potential users from the wrong segments.

Picture of Hippo

Figure 1: Not that kind of hippo

Other factors come into play: Since the launching of the first product, the organisation’s cost base will have grown, which, in turn, encourages a cost minimisation mindset. This leads to the pressure to reuse the infrastructure, channels and people who were created and hired, respectively, to launch the first product, regardless of their fit. The overconfidence that comes from success breeds a proliferation of assumptions regarding what the customer actually wants while committing less time and fewer resources to validating this thinking. All in all, it is a powerful, toxic mix.

Between the first and second steps

Unique aspects of first product launches that are too often overlooked include 

  • the benefits of a singular focus on the same outcome, without distractions
  • the free spirit of experimentation which comes from a lack of fixed and sunk costs 
  • the fact that customers are more forgiving of flaws in first product launches

Following this thread, I’ve found it instructive to list how the key factors change during the move between the first and second product:

 

Constant Decreases Increases
  • Risk
  • Time spent validating assumptions
  • Confidence
  • Scrutiny of costs 
  • Customer expectations
  • Investor expectations
  • Business expectations
  • Risk of brand damage
  • Unvalidated assumptions of leadership
  • Pressure to reuse resources

 

Seen in this light, it’s no wonder so many second products tend to fail!

Tell me more about the ants you mentioned

OK, OK. If you remember, when Jobs originated the concept of SPS, Pixar had just released its first film (Toy Story) and was about to release its second (A Bug’s Life). So, how did Pixar actually do when trying to avoid the SPS trap?

Let’s take a look at some statistics relating to the first ten Pixar full-length film releases:

 

Year of release Film Budget ($m) World-wide Box Office revenue ($m) Revenue as multiple of budget Oscars* Golden Globes BAFTA
1995 Toy Story 30 404.2 13.5 1 0 0
1998 A Bug’s Life 120 363.3 3 0 0 0
1999 Toy Story 2 90 497.4 5.5 0 1 0
2001 Monsters, Inc 115 632.3 5.4 1 0 1
2003 Finding Nemo 94 871.0 9.2 1 0 0
2004 The Incredibles 92 631.6 6.8 2 0 1
2006 Cars 120 461.9 3.8 0 1 0
2007 Ratatouille 150 623.7 4.2 1 1 0
2008 WALL-E 180 521.3 2.9 1 1 1
2009 Up 175 735.1 4.2 2 2 2

* The Academy Award for Best Animated Feature was introduced in 2002

According to my analysis, A Bug’s Life – rather than avoiding SPS – actually epitomises “second product syndrome”. Of the first ten Pixar films, it took the longest to release, grossed the least at the global box office, and won no major awards. Its “revenue as multiple of budget” number is marginally better than the worst performer on the list – WALL-E (by 0.1) – but that fails to take into account the home entertainment and merchandising revenues that Pixar films typically generate. 

Although the exact numbers are impossible to come by, it has been estimated that the Toy Story franchise, for example, is worth over $10bn in merchandising (unsurprisingly, toys). The Cars franchise, which looks, at a first glance, like a poor bet for a sequel, is also worth over $10bn in merchandise. However, the stubbornly “untoyetic” ants in A Bug’s Life did not create the same commercial opportunities. Indeed, when the first Home Entertainment and merchandising projections for A Bug’s Life came out, Pixar’s shares decreased by 21%.

How can I avoid the SPS trap?

At this point, you may be thinking, “If the person who coined the phrase ‘Second Product Syndrome’ fell into the same trap as everyone else, what hope have I got of avoiding the same fate?”

Firstly, it’s vital that you maintain a rigorous, scientific mindset – whether releasing your second or 22nd product. Remember: Launching a new product is not an extension but a reinvention. Each idea must be judged on its own merit, from a fresh perspective – meaning those who were responsible for the first success need to be doubly mindful of pattern recognition and biases when working on the second project. The need to test and validate ideas is crucial for any product – be it the tenth or the fiftieth – but as argued above, it’s most important between the first and second products. 

Update your Priors

In my experience, the single most useful tool to help you avoid the dangers of SPS is Bayesian analysis. Named after Thomas Bayes, who embodied the unlikely combination of a philosopher, a statistician and a Presbyterian minister from the mid-18th century, the Bayesian analysis, in essence, boils down to a simple phrase: “Update your priors.”

Thomas Bayes

Figure 2: Thomas Bayes – great thinker, great cloak wearer

Priors are your pre-existing beliefs and uncertainties – in other words, what you think you know. Whenever individuals or teams gather new evidence through observation, priors need to be updated. At one end of the Bayesian spectrum are those who are impervious to new information and will never change their mind; at the other end are those who are forever changing their position based on the latest thing they hear. 

When applied correctly, Bayesian analysis is a reliable, structured way of integrating what you previously thought with the new things you’ve learned. You give each piece of information a weight so that you can draw a conclusion that incorporates all sources appropriately. It is not about fixing numbers or eliminating uncertainty but rather defining parameters and acknowledging assumptions. Over time, running more tests and gathering more evidence will allow you to iterate towards greater (but never complete) certainty. Ultimately, we have to make peace with the fact that we’ll never find a single “truth”, but we can aim to define a reasonable range. 

“Think it possible you might be mistaken”

To conclude, I wanted to briefly mention Cromwell’s Law. It refers to a speech made by Oliver Cromwell, the English Civil War leader, to the Church of Scotland in 1650. To that toughest of crowds, he pleaded: “Think it possible you may be mistaken.” I like the quote for a number of reasons – principally for what it says about the power of accepting that we might be wrong. If we can do that, then we’re much more able to accept new evidence, and thereafter update our priors. Keeping an open mind is, in fact, a superpower – and an essential part of creating and launching successful products – be it your first, second or fiftieth.

Are you interested in discussing these ideas further? Do you have something to add, and/or a contrary position you’d like to argue? In any and all cases, it’d be great to hear from you. Start the conversation by dropping us a line at hello@equalexperts.com. It would be great to hear from you!

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