Unpacking Supply and Demand

Series 1: Episode 5 | 21 April 2022

Show notes | Transcript

We’re all familiar with the concepts of supply and demand, at least in the abstract. However, many of us fail to understand the differences between these concepts from a product development standpoint, as well as the ways they work together.

In today’s episode of the Re-Wired Show, we dive deep and offer some insights into the concepts of supply and demand.

  • You’ll discover how supply and demand differ when placed in a product development context.
  • You’ll learn how to determine whether you’re seeing the world through a supply or demand mindset, and how that can dictate the way you approach your work.
  • You’ll discover the importance of seeing supply and demand as an interdependent system and how that can affect product development.

Join us for this fascinating discussion around seemingly simple concepts that are in fact far more interesting and complex than you may have realized.

Enjoy!

What You’ll Learn in this Show:

  • The difference between supply and demand in terms of product development.
  • How you can determine whether you’re looking at the world through the less of supply or demand, and how the two can work together.
  • How supply and demand diverge from each other and what that means to the product development process.
  • And so much more…

Hosts

Unpacking Supply and demand – transcript

 

Greg Engle

Alright Bob, today’s topic. I know I spring these on you. So we don’t give you much prep time. And we do that for a reason. And as people get to know you, they’ll know why. But today, we want to talk about supply and demand and supply and demand from The Re-Wired Group view is two different views to look at product development. So look at your product, things like that. So we want to take a few minutes to talk about the difference between them. And then we’re gonna do a story later on. And then we might talk about some ways to figure out if you’re looking at the world through demand or supply and how they work together.

 

Greg Engle 

Let’s start with supply; when we say supply world view of product development, what do we mean?

 

Bob Moesta

The way I always like to serve as an engineer, I was taught basically to build it and they will come. So to me, the supply side is about building it. It is where the business sits, it’s where all the industry will sit, it’s everything around building the product or the service. The output in this case, is the product. Everybody will say we’re customer focused, but it’s always from the supply side. They look at the product, then ask ‘who would buy this product?’ which leads their focus to be around the product and the customer interaction. Therefore, the supply side is that language that you must have to understand how to make and build the product or service.

 

Greg Engle

To break it down, supply is what your company does, your business model, how you make your money and the resources you have in your business, it’s the way you look at the world. So, when we go into a company and we look around, this is a supply side development company. 

Bob Moesta

This comes from Clay, Deming, and Taguchi, which is around this notion of resources, processes, and values. You realize is when people are technology focused, they try to find application for that technology. That to me is a supply side company. Most people are trying to understand demand through the supply, and it’s inefficient. But most of the time when they’re talking about the product, they’re talking about the technology, when they talk about the roadmap of where the product can go, as opposed to when we talk about demand side what that looks like, but they’re always about that product, and always about basically the technology.

 

Greg Engle

I would say one tipping point is when they talk about their product, and what it does, instead of what the customer going to get out of it. The mentality of; we can make this; therefore, we will make it, and when we make it, everybody will want it. 

 

Bob Moesta

One of the ways that I like to think about it is supply side innovation and demand side innovation. Supply side innovation is about efficiency, it’s about scale, in most cases it’s all about sustaining type innovations that keep the business going. When we look back on the work we’ve done in different industries, the CPG industry is notorious for supply side thinking, though, they want to think they’re demand side thinking. The reality is they’re just trying to get the most out of the system they have. 

 

Greg Engle 

Let’s talk a little bit about demand. What do you mean when we talk about being on the demand side of the world?

Bob Moesta

For me, this is about almost disconnecting. From the supply side understanding, why do I do what I do? What in the output of this side is progress? It’s the notion of what causes me to say, Today’s the day I’m going to buy something new. How am I going to pull it into my life? What is it going to help me today. In most cases, it’s devoid of the solution. It’s about that context and the outcomes that I seek from the solution. Ultimately, demand is what I would say solution agnostic.

 

Greg Engle 

Yeah, I think demand and the way we think about it is, what the person is going to do with the product or service they buy, and how does it make their life better? They have a lot of things going on. We also know, what makes us a little different than most people are we also know people are dynamic.

Bob Moesta

What do you mean by dynamic?

 

Greg Engle 

They’re not steady state, for example, I don’t always act the same way all the time. 

 

Bob Moesta

Because I’m 56 and I live in this zip code; it doesn’t cause me to behave that way. It might correlate to some of my behaviors, but the reality is, it doesn’t cause me to.

Greg Engle
Even on a more frequent basis. Just because I normally drink coffee in the morning, doesn’t mean I’m always going to drink coffee in the morning. Because if something happened, where the coffee isn’t right for me that morning, I’m going to skip the coffee. 

 

Bob Moesta

This isn’t about what demand side is, it’s about who, when, where and why. The supply side is about what, how and how much. So to me, it’s the separation when you distill it down to what I would say is Demings terms, which is, who, what, when, where, why. Whereas how and how much, is like splitting the world into two sides and being able to understand how our products end up fitting into people’s lives, but we need to understand their lives first, and then understand how they would pull our solution or other solutions into their life.

Greg Engle  

I want to talk about that a little bit. Because when you hear us talk about it, a lot of people will say you’re just saying I always have to be on demand side. But we see supply and demand as an interdependent system.

Bob Moesta
It’s how progress, even though the demand is there, if there’s nothing to fill it, there’s no progress to be made. You need both sides to make progress.

Greg Engle  

We say a lot that there are economics people out there that will say, supply creates demand. What we say is no, demand is always out there, regardless of whether supply reacts to it or not. We know that from different things. We might talk about it a little bit with the milkshake story because it talks about understanding that we had what people wanted. But even when you found that demand or supply didn’t react to it, it was only when other people started doing it. Then smoothies became popular that even the people you were talking with dove into that market. Therefore, the demand was always there.

Bob Moesta

This is where Clay would call that non consumption, or we would call that non consumption where people want to make progress, but they can. Paula Blanc is another good example of where people want to go back to school but couldn’t figure out how to make it work. Over the last 10 years, he’s positioned to have over 200, these largest university in the world. Part of this is realized as demand has been there all along, we just have never catered to that demand.

Greg Engle 

So, where do you start? Do you start with supply or demand?

Bob Moesta

My aspect is that as an engineer and a builder, I think you can start on either side. But you must disconnect yourself from the technology as you’re trying to look for places it’s going to fit. You can always make rational arguments of why people will buy your product. And you can always get somebody yesterday who had 20,000 people sign up, 150 people bought. The notion is, just because there is intent, it doesn’t mean that there’s progress to be made. 

Greg Engle

I always want to start with demand because it’s a new set. It’s too hard to divorce everything, I or anybody can lead a customer to say whatever we want them to say. It gives us a false sense of security when we do that. So, if we take ourselves out of the supply side, and say, we’re going to look for pure demand, and then bring the supply in after we understand that. We can work out where are the tradeoffs we will need to make from both sides to make a mutual beneficial product. That’s where we really win. Whenever one side gets off kilter, we always lose.

Bob Moesta
When it’s too far demand or supply, because there’s no ideal customer experience. This is where people are trying to say we need to have a goal to hit, my thing is if you understand five or six important things around the progress somebody’s trying to make, not the 100%. You know, Jason says that a kick ass half is better than a half asshole. So part of this is to realize, starting with demand, in my experience we can develop products and services in half the time by starting with demand. Because when we start with supply, it’s as if everything is possible, and everything must happen. So, part of it is to realize how that works.

Greg Engle  

We talked about that a lot. I think what will bring some of this to bear is if we tell a story, one in the blog

that we wrote. We tell the story of Bird and Segway, and how each looks at the world or how we think each looked at the world because we didn’t do work for either one of them. But I’d like you to pick a story from your bank, it doesn’t matter what the story is to me, because we want to just talk about what does product development look like from a demand side? And what does product development look like from a supply side? What are the differences?

Bob Moesta

Can we focus on product development, or can we talk about it just as a consumer? This is the difference between the supply side and demand side.

Greg Engle 

I think it’s both. Our audience is going to be a lot of developers or entrepreneurs or people like that. So, I want to talk about the pitfalls. Being too far supply side or starting supply side first. Then how do we understand what pure demand is saying, and then flip it back to supply side to make the right product.

Bob Moesta

To me a good example of that is Scott Cook and what he did, and QuickBooks. At the time they were into it, it was basically personal finance. It was mostly around a product called Quicken. One of the things they found as an anomaly was these people who basically use QuickBooks or Quicken to run their business. It made no sense, it wasn’t set up that way, it wasn’t double entry accounting. We kept finding more and more people using it. One of the things is, is that this is where a dividing line happens in the product development side. You can say, ‘let’s go to accountants, and figure out the best accounting package to build for small business’. So, you go to experts to figure out what the best package is.

What happens is, you end up building a product that is like the oracle, it’s got every single detail, every single report, everything that accountant would want. But the reality is the people who are buying it are not accountants, they’re small business owners. And when you go and interview them and talk about the progress that they want to make, they just don’t want to hire a bookkeeper, they want to be able to do it themselves. If they’re going to hire somebody, they want to hire another baker, another painter, another person, they don’t want the back-office piece. What we realized is this wasn’t competing with software; it was competing with people. As they ended up designing it, the whole aspect was to make it easy enough for the small business owner, but at the same time, just the minimum to help the accountant do the taxes.

Small business owner, get paid, pay bills and understand how to make sure my taxes are okay. At the same time, there’s nobody who says they love it. Nobody who says they love QuickBooks, but the reality is, it’s got the largest market share in the industry. From a supply side perspective, it’s 13%. The next closest one is at six, it’s $8 billion in revenue. And it’s one of those things that by understanding the demand side, you don’t end up over engineering the product to what you think is the best or the ideal, and it takes off and has traction.

Greg Engle  

What I think I hear you saying is, in that case, the core customer that was being left out of the picture in the old way, was the small businessperson trying to do it all themselves. They were forced to use somebody to do it for them, because of the systems they had to put in place were too rigorous, 

Bob Moesta

It would go from a shoebox of receipts to ‘we need to do something online or on the computer, I’m going to hire somebody.

Greg Engle 

They found, if we segmented and we talked to people that were small businesses and didn’t have accounting offices, there were certain things they needed, but certain things they didn’t need. They didn’t need to have all the correct language from an accounting perspective. They needed language, they understood.

Bob Moesta

That the small business owner understood…

Greg Engle 

Yet they needed integrations to an accountant, but I didn’t need to get an accounting degree to use it. If we look at some of the bigger accounting software’s at the time, it was geared towards the professional doing that job. It had all the rules based on that and not the understanding of what the business was trying to do.

Bob Moesta 

Your earlier point, that demand and that struggling was around for hundreds of years. People have been doing that on paper, on ledger’s and at some point, the business gets large enough, there’s enough people to make you say ‘now I get to spend my attention somewhere else.’ But the reality is, the whole notion of the low end of the market being able to understand the man there is very different in understanding what their true struggling moments are. What are the true competitive set, what are the tradeoffs they’re willing to make to do it, this is essential to figure out how to design and develop that product. When you think about it, it puts great boundaries around it, that makes it so much easier to make the tradeoffs and the things we should add, what we shouldn’t add. I always think of jobs greatest benefits, it helps you understand what not to do.

 

Greg Engle 

To wrap up our conversation and figure this out, I’ll start and then let you chime in. There are some pitfalls, we talked about it being an interdependent system, and that you must work together. We have a notion of three circles, right of development (your business strategy), the customer (customer insights), and your capabilities and the business strategy. The capabilities are supply side of things, then the consumer insight are the demand side of things, they come together to make something. But there are pitfalls if too far one side or the other. One of the pitfalls we have when we are on the supply side too far is we hear things like ‘Well, I can convince them that they all need it.’ Or ‘Once they see it, they’ll want it’. Those are signs that you’re probably too far on the supply side because you’re looking at your product before you look at demand. 

 

Bob Moesta 

Another aspect here is when you have to educate the consumer about the language. For example, I always think of the camera industry and all the stuff I have to learn in order to take a good picture. It just highlights the fact that somebody can come in and figure out how to make that easier for the consumer and kill you like Apple did. So, it’s that aspect of lots of jargon, lots of you know, understanding your capabilities and then trying to desperately find people to buy it or to use it. 

 

Greg Engle 

Can you think of any pitfalls for the demand side? 

 

Bob Moesta 

Yeah, so I think there’s a couple of things that are too far in the demand side, one is to not see the patterns, pathways, or jobs where you find it too niche. The other problem on the demand side is where people aggregate everything together, they make everything one, and they look for the themes across a lot of people as opposed to the progress that people are trying to make. You end up thinking if you make it fast, easy, fun, and cheap, I’ll buy it. So, it’s taking it down to the actions that people are willing to take. This, I always call it in chemistry, they talk about titration, it’s at this right level, where we have to be able to look at the product and look at the customer that allows us to see how the two interact perfectly.

 

Greg Engle  

We often talk about that as being level of abstraction, if you’re too high in your abstraction, you think it applies to everybody. Then when it’s out in the marketplace, nobody knows what to make of it.

 

Bob Moesta 

It’s a thesaurus, to me is where everybody’s trying to say we’re all saying the same words, everybody wants to be healthy, let’s put healthy out there. This is a healthy product,

Greg Engle  

Then health means 15 different things, you buy and it’s great for you, but I buy it and it’s not great for me. Because we have different meanings. If we go too high, we run into that problem, if we go too low, then I have to make 150,000 products.

 

Bob Moesta 

If there’s 18 dimensions of healthy and I can’t hit all 18 dimensions. Well, that’s where you end up with disaster because at some point when you can’t do it well, you need to understand what are the 20% that gets you 80% of the way there. Part of it is how we ended up figuring out that right level of abstraction, that gives us a large enough market, but also understands that it’s not people, it’s not companies, but it’s the who, when, where and why that we’re actually targeting.

 

Greg Engle  

I want to just close it with some questions I generally ask people are things like;
Are you truly looking through demand before you look through supply? Or are you looking at your product first, and then trying to figure out who will buy it? That’s a question to ask yourself? And if your answer is I’m looking at my product and saying who will buy it? You’re probably a little bit too far on the supply side.

 

Bob Moesta 

Yeah, if you’re looking for who, when and where that is, or you have a target market, but it’s so abstract, you’re so focused on the product. That’s correct.

 

Greg Engle 

The other question I often ask is, what is the progress, both functionally, socially, and emotionally, the customers going to get when they use this product? That will also help us understand the understanding of the demand side.

 

Bob Moesta 

I think the other thing, the other question I always ask is, what are the dominoes that have to fall in people’s lives? To say, Today’s the day they’re going to buy your product? 

 

Greg Engle  

I often hear you say things like, what are they going to fire? And I was yelling, if you can understand what they’re going to fire, you have a pretty good idea of where your product is fitting.

 

Bob Moesta 

It gets to one of our underlying philosophies or principles, that this aspect is that there are really no new jobs. And the fact is, is that we can end up at some point, the competition we’re talking about. Nobody has any more time in the world. Everybody has 24 hours so at some point, time is one of the three resources that you can use, and ultimately, what are they going to not do, because they’re going to do this.

 

Greg Engle  

I think we’ll stop it there. Thank you everybody for listening again and look for our next couple of podcasts. And hopefully, in the next couple, we’ll jump more into jobs done as a specific tool so we can get into some of those principles.

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