Production systems vs. demand-response systems

A simple concept that renders most business "best practices" useless

This is a work-in-progress concept - feedback greatly appreciated.

Imagine a factory. The factory’s purpose is to produce a product, as efficiently as possible.

The factory is a production system: Do work, produce output.

We view every department in business as a production system:

• Marketing is a production system (content + ads, etc.) that produces leads.

• Sales is a production system (calls + emails + demos, etc.) that produces customers.

• Product / engineering is a production system (designs + code, etc.) that produces product.

You get the point. Every department works like a little factory.

This “production-system model” is the framework that underlies all current business thinking. The only problem with that is that it is wrong; it was never right, not even in the age of mass production & stable demand. It by design generates compounding waste and is impossible to manage.

This is a fucking insane claim. I get it. I often doubt myself on it - but I have enough firsthand experience in the trenches with this concept to know that it must be true.

Here’s why.

Which is better?

Consider two factories:

• Factory A is highly efficient - and produces something nobody wants.

• Factory B is wildly inefficient - and is overrun with demand.

Which is the better production system? In “production-system” terms, it’s Factory A; in “what actually matters to a person with common sense” terms, it’s clearly Factory B.

And how do you “fix” factory A? The answer isn’t inside the factory.

My point: The value of any production system is entirely reliant on some outside force that the production system does not control.

An analogous system is the hedge fund. They can work 90-hour weeks, collect all the right data, do extremely rigorous analysis, have a great investment committee process… and still lose everything. Their “investment decision production system” ONLY works if it incorporates what they don’t control; you can’t tell based on looking at the production system alone if they’re LARPing or not. The hedge fund’s purpose is not to make investments; it’s to make money. The difference matters.

A business is NOT a production system, or worse - a set of functions that each operate as their own production systems. This foundational mental model ignores what we don’t control, and what we don’t control is what actually matters.

The lazy answer to this is to ignore the outside force and “focus on what we can control” - resign yourself to hearing things like:

• “We’re doing all the right things… it’s just not working.”

• “We did our part; throw it over to sales to figure out how to sell it.”

• “We hit our sales goals, it’s a shame CS couldn’t retain them.”

• “We wrote a great homepage… strange that nobody’s converting.”

Or worse, you can spend your life whining about demand validation, customer centricity, alignment, voice-of-the-customer research, the customer journey, metrics, targets, hand-offs, roles & responsibilities, “customer research,” “mission-vision-values,” communication, management, etc. This is just theater as long as you’re running production systems.

Either path - ignoring it or surface-level alignment exercises - leads to an insane amount of waste. As a new founder friend told me: “I’ve never seen a startup die because they didn’t work hard enough. They all die working their assess off, because most of the stuff they did wasn’t worth doing.”

The brutal truth: If you don’t have the right mental model about what matters, you don’t know what’s waste.

Instead, the answer is to change our way of thinking about the business system to incorporate what we DON’T control.

Incorporating demand

Bob Moesta calls the stuff we don’t control (aka: what customers need to achieve), “the demand side.” This contrasts the “supply” side - the stuff we DO control.

These two things aren’t equal. Supply, when you think about it, SERVES demand. It is downstream of demand. Whether we have a good product or not is dependent on its relation to the demand side - “value” is only relevant from the customer’s point of view.

So business is actually a demand-response system. A system that is designed around demand, to serve demand. (No production system, designed as a production system, can do this.)

But this brings out the most important question: What is the essence of demand that we can design our business around?

When you ask this question, you realize what the answer obviously ISN’T:

• It’s not something that can be articulated in a single “north star” metric.

• It’s DEFINITELY not one of our departments’ current targets (e.g., # of SQLs)

• It can’t possibly even be a single slice of the customer’s experience either - it’s got to be the whole thing, doesn’t it?

It has to be the customer case study: A replicable, end-to-end customer journey that starts when the customer needs to accomplish something and ends when the customer achieves success (with your help, such that they will renew, upgrade, refer others, etc.)

The case study is central, the global optimizing function for a business… and also the minimum, irreducible unit of analysis.

How do we think about our businesses differently with this frame?

More to come.

-Rob, PMF Camp

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PS:

• PMF Camp 3 Registration is now live (starts April 1, limited seats available)! Watch this video for more info.

• I recorded a free, 45-minute video masterclass on product-market fit (access here). It goes through everything I’ve learned about PMF + $0-$1M ARR that I wish someone had told me years ago. What matters & doesn’t, how to execute, and where founders get lost. Watch it, share it, send feedback!