Not every product needs to generate profit

By 20VC

Categories: VC, Startup

Summary

Not every product in your portfolio needs to be profitable—some exist purely for retention and customer stickiness. Square Capital exemplifies this: it generated minimal direct revenue but dramatically improved retention rates. The critical mistake founders make is confusing profit-generating products with retention products, leading teams to optimize for the wrong metrics.

Key Takeaways

Categorize your multi-product portfolio into two distinct types: profit pool products (revenue drivers) and retention products (customer stickiness enablers). Square Capital generated minimal profit but excelled at retention.
Misalignment between product purpose and team incentives creates failure. Teams built around retention-focused products will underperform if measured on profitability metrics, and vice versa.
Multi-product portfolios allow strategic flexibility: certain products can be loss leaders or low-margin offerings that strengthen ecosystem stickiness and customer lifetime value without direct profit contribution.
Set explicit outcome metrics aligned with product strategy. Retention products should be measured on engagement and churn reduction, while profit products need revenue and margin targets to prevent misaligned execution.

Related topics

Transcript Excerpt

The interesting thing about having a multi-product portfolio is that not every product needs to generate profit. People always like, "Oh, it's not making money." Square Capital didn't make much money, but it was very good for retention. Some products are good for making money. They're part of the profit pool and some are good for retention. Companies need to be very clear which are the profit pool products and which are the retentive products. If you confuse the two, your teams don't know and they're built for the wrong outcomes. But the power of a multi-product portfolio and being able to have products with different goals, retention versus profits,…

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