The "demand-driven startup"
The biggest source of leverage for startups is one that nobody talks about
Hi all -
A reader challenged me to define a demand-driven startup. Here is my attempt.
Demand is found in the customer’s context
Demand-side thinking roots everything we do in the customer’s context. Which sounds like LinkedIn-influencer-babble, but let me explain.
I am planning a wedding. And so, I am actually considering spending thousands of dollars to rent a hipster wedding barn. If you own a hipster wedding barn, I am coming to you; if you had cold emailed me a year ago selling me a $5k hipster barn rental, I would have laughed in your face.
The point? My life circumstances make this (ridiculous) product relevant. Nothing else does.
Demand is generated by the circumstances that potential customers find themselves in; the trends that force them into new circumstances; whether they perceive a need to change; what they perceive their alternatives are; what they perceive a solution to be. Demand happens out there, it is almost entirely out of your control.
Your company exists within that world, and only in the most fleeting way.
Customers are in motion, and you might be able to benefit from their motion. If you catch a customer’s attention at the right point, you have the ability to influence their thinking about their situation, alternatives, and ultimate solution. You can magnify the pain, shape their opinion of their situation, give them a lens through which they can describe and solve their problem, and fit your solution into their “new normal.”
But customers are easily spooked, confused, overwhelmed, annoyed, distracted. They can’t explain their pains; they can’t explain their ideal future-state; they don’t know their options. And so all of the complexity of your business, all the cool things you do, all your sweet features become paper-thin; your business flattens into, at best, a Tweet-sized sentence in their minds. If that Tweet-sized sentence doesn’t instantly make sense, if it doesn’t fit into their perspective, you disappear instantly. If another company’s Tweet-sized sentence makes more sense, you lose.
Understanding this context is demand-thinking: It puts your business in its rightful place, rooted in what’s actually going on for a would-be customer. Their context, their alternatives, how they think about making a decision - these are the most important forces that impact your business. Your business exists as a response to this context.
Supply thinking is the default state
You can nod at everything I’ve written above, then go back to building your business from the supply perspective.
And that’s natural. Supply-thinking focuses on the things that we control: Our OKRs, our product, our brand, our roadmap, our processes, our organization structure.
Here is the problem: We focus on these things as if they exist independently from demand; as if they can possibly make sense in isolation.
Worse, we believe the things under our control are more important than demand, or that we can create demand.
And this is where the wheels come off. We get locked in supply-thinking, obsessed with our own ideas, envisioning a future-state that’s totally divorced from today’s context, thinking from a perspective that doesn’t start from the customer’s reality.
It is the same problem that plagues dictatorships, socialists, central planners, suburb designers, enterprise software, and the Boston city hall building. Supply-thinking creates a dystopic alternative reality that only makes sense in theory. This alternative reality crumbles when a demand-thinking competitor emerges that fits reality.
So what is a demand-driven startup?
I have previously described demand-harnessing as river engineering, and I believe it is still a fitting metaphor. You want to redirect a river using its own power; you don’t want to spend your years engineering a river basin in the Sahara then go searching for water.
Another way to look at a demand-driven startup is one that views the customer’s context as its biggest source of leverage.
The primary points of leverage in a demand-driven startup are:
The trends that cause more potential customers to experience triggers
The triggers that cause potential customers to need to change
The alternatives that potential customers consider when they need to change
These things shape the opportunity space. This is your starting point. You understand these constraints and operate within them, leveraging these constraints to create a unique solution in the customer’s eyes.
Your strategy focuses on the trends and alternatives that shape the opportunity space. For example, as there are increasingly more hourly jobs than people willing to work them and most hiring systems currently focus on screening a deluge of applicants, there is an opportunity to build a system that helps employers “market” why candidates should work for them.
Your go-to-market focuses on triggers as the “on-ramps” to purchasing your product. You understand that these triggers exist in the customer’s world and you have little influence over them. But you try to OWN the triggers such that IF the customer experiences a trigger, they find you / you find them.
Your sales efforts / conversion events focus on helping customers understand their alternatives and why you might be the right fit, instead of hard-selling them on features and benefits. (April Dunford’s point-of-view pitch is great.)
Your business cascades from these things, responding to the opportunity space that exists and the customer’s reality rather than trying to create something that only makes sense in the founder’s mind.
To say it again: A demand-driven startup views its customers’ context as its biggest source of leverage. When you build a demand-driven startup, you spend your time figuring out how to tap into this source of leverage - your product is a response to your customer’s context that makes sense to them and works for them.
Demand-driven startups require intense discipline; we naturally think inside-out. We have product ideas rather than opportunity space ideas, we think in features rather than customer value, we focus on things we control and forget that the forces we can’t control make 99%+ of the difference.
Remember that: The forces you don’t control make 99%+ of the difference. Leverage these forces, don’t ignore them.