Supply and demand isn’t just an abstract economic idea. It’s the lens you’re using when your numbers start telling you something is wrong. When usage isn’t sticking, when revenue stalls, and when people sign up and don’t come back.
Here’s the thing – most of the time, it traces back to which side of the world you’ve been building from.
Let me unpack what we mean.
Build it and they will come – is it a supply-side trap?
I was trained as an engineer, so I was basically taught that you build it and they will come. The supply side is about building it. It’s where the business sits, it’s where the industry sits – it’s everything around building the product or the service. 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?” That question alone tells you where their head is. The focus stays on the product and the customer interaction, not on the customer’s life.
What is supply and demand?
In its most simplest of terms, supply is the world of what, how and how much.
Demand is the world of who, when, where and why.
When you’re stuck on the what – the technology, the roadmap, the features – you start trying to understand demand through the supply, and it’s inefficient. CPG is notorious for this, 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.
Let’s look at how it could show itself by looking at some numbers.
Let’s say, 20,000 people sign up and 150 people buy.
The notion is, just because there is intent, it doesn’t mean that there’s progress to be made.
If you ever hear yourself, or your team, saying “I can convince them they all need it” or “once they see it, they’ll want it,” you’re probably too far on the supply side. You’re looking at your product before you look at demand.
Read more about the difference between supply and demand with Greg’s article.
Demand is solution agnostic
For me, demand is almost a disconnect from the supply side. It’s asking: why do I do what I do? What in this is progress? 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? In most cases, it’s devoid of the solution. It’s about the context and the outcomes I seek.
Demand is solution agnostic.
People are also dynamic. 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 behaviours, but it doesn’t cause me to. 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. If something happens where the coffee isn’t right for me that morning, I skip it. If your model assumes a steady-state customer, your usage data is going to keep surprising you.
The biggest thing demand picks up that supply misses is non-consumption. People want to make progress, but they can’t. Demand has been there all along, we just have never catered to it.
A good example is QuickBooks. They were originally a personal finance product called Quicken. One of the things they found as an anomaly was these people who basically used Quicken to run their business. It made no sense. It wasn’t set up that way. It wasn’t double entry accounting. But they kept finding more and more people doing it. That anomaly is a demand signal, and it’s the kind of signal a supply-side company misses, or explains away.
Here’s where the dividing line happens.
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. What happens is, you end up building a product that is like the oracle – every single detail, every single report, everything an accountant would want.
But the people buying it are not accountants. They’re small business owners. And when you go and interview them about the progress 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 – they don’t want the back-office piece. We realised this wasn’t competing with software; it was competing with people.
So they ended up making it easy enough for the small business owner, but at the same time, just the minimum to help the accountant do the taxes. Get paid, pay bills, make sure my taxes are okay.
Nobody says they love QuickBooks but it’s got the largest market share in the industry – 13%, the next closest is 6%, and it’s $8 billion in revenue. 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.
How to tell which side you’re on
Greg and I see supply and demand as an interdependent system.
Demand is always out there, regardless of whether supply reacts to it or not. But progress can’t be made if there’s nothing to fill it. You need both sides to make progress. Whenever one side gets off kilter, we lose, because there’s no ideal customer experience.
When your usage, revenue or consumption is telling you something’s off, the questions to ask yourself are pretty simple:
- 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? If it’s the latter, you’re probably a little bit too far on the supply side.
- What is the progress, functionally, socially and emotionally, the customer is going to get when they use this product?
- 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?
- And the one I always come back to – what are they going to fire?
There are really no new Jobs. Nobody has any more time in the world. Everybody has 24 hours, so at some point, time is one of the three resources you can use, and ultimately, what are they going to not do, because they’re going to do this?
In my experience, when you start with demand, you can develop products and services in half the time. When you start with supply, it’s as if everything is possible, and everything must happen.
That’s usually when the numbers start telling you something is off.