Some Sunday morning clarity built upon a couple of decades of ignoring the obvious … revealed while sewing.
“Master of the Obvious with an MBA” says….
- When demand exceeds supply, you’re in business.
- When demand significantly exceeds supply, you control the price.
- When supply exceeds demand, you’re in trouble.
When supply significantly exceeds demand, you’re in a price war of selling at discounts and margin losses that can run you into the ground if your competitors beat you at this game.
When demand significantly exceeds supply, if you can bring down the marginal cost you then have the ability to scale your business abnormally fast. An individual craftsperson who makes the best XYZ in the world runs into this problem because it’s hard to crank out a whopping supply of XYZs.
Kardashev 4 And Digging For Gold
Software was able to eat the world because if you had the right product with significant demand than marginal cost was negligible and close to zero. It was a mythical business dream that could become true.
The promise of the early California gold rush was similar in the sense that to discover gold was an exponential return on the capital if you could invest. It made the marginal cost of your time as a prospector equal to zero if and only if you discover the gold.
When the cost of increasing demand for your supply is low, then you’re in luck. This is why when customer acquisition costs are low, you can scale demand for the supply you hold onto easily. For that reason, late stage tech companies will invest in marketing because it is a rational approach to consuming the supply that is almost infinitely available.
Product Is A Point Of View
“If your product requires advertising or sales people to sell it, it’s not good enough: technology is primarily about product development, not distribution. Bubble-era advertising was obviously wasteful, so the only sustainable growth is viral growth.”Peter Thiel in Zero To One
When your product market fit is only built upon marketing programs, then you’re vulnerable. This is the scenario that startups and VCs should naturally fear. Often times, a famous CEO will bring their brand and enable the actual product quality to be distorted. Which makes the product weaker because it isn’t standing on its own.
This phenomenon where a product matures and needs the Botox injection of marketing results in the classical clash between marketing and product. It also results and schizophrenia of the kinds of design that engages internal to the work at hand. Marketing creative fuels demand. Product solving fuels the reason why a brand can stand for anything. Product creative gets confused as to where it needs to sit in the organization. It’s a small thing, but it’s sews the seeds of organizational dissonance. When a company is scaling or trying to survive, dissonance isn’t helpful.
Conclusion (Sort Of)
What’s the conclusion? Supply, demand, price, employee experience, the brand as the product itself, the rationality of marketing as a means to generate the man, the ability for designers to know how they engage best, and all and all teamwork and facilitating camaraderie are so important. Supply chain of customer insights, useful tools, great people, and a commitment to work culture makes everything head in the right direction. Oh yes, luck and copious capital help too.
And that old saying how profitability solves all organizational ailments is especially profound when you consider how it simply states that when demand significantly exceeds supply, you have enough cash available to run your business with a happier work culture because there are less trade-offs to face. You only need to make trade-offs when you need to account for not being able to reduce marginal cost or when supply starts to outweigh demand. Therefore when things are going well, that is the best time to invest in how to prepare a company for greater resilience. Anti-fragile companies are actively looking for how to disrupt themselves for this very purpose.
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