In the months since I published my summary of The Heart of Innovation, I’ve talked to author Merrick Furst a few more times, debated the ideas in Commoncog’s members forum, and attempted to apply the ideas in a couple of businesses. To be absolutely honest I wasn’t 100% satisfied with my summary — the ideas still felt remarkably slippery despite the months of work. But I persisted; I continue to believe that HOI’s ideas are the best thing we have for ex-ante demand. (I’ll explain what this means in a bit).
In the most recently concluded cohort of Speedrunning the Idea Maze, I was forced to synthesise the book once more, to compress it to fit into a single presentation. As a result, I think I’ve come to a more satisfying, actionable summary of the book’s ideas.
This essay will lay out HOI’s ideas in the simplest form possible. It assumes you’ve read three essays:
If you only have time to read one essay, make it the first one. The ideas are slippery enough that reading all three pieces is ideal, though — they’ll prepare you for this summary.
First, let’s take a step back. At this point in the Demand series, we’ve looked at three frameworks of demand:
It’s important to note that the three frameworks play different roles in the practice of seeking demand. Sales Safari and JTBD are fundamentally ‘post-facto’ demand frameworks: that is, these are frameworks for demand when you’ve already found it: say you have several early customers and you want to figure out why they’re buying from you. Using these frameworks will enable you to find more customers like them and grow.
Sales Safari tells you why customers are buying from you. JTBD explains how they come to the decision of buying. If you pair both of them with something like April Dunford’s positioning manual Obviously Awesome, you’d have covered most of the fundamentals of marketing.
Post-facto demand (‘post-facto’ here meaning ‘after the fact’, or after you’ve found demand) is much easier to reason about. If you are studying customers who have already made a purchase, then the purchasing decision is by itself the proof of demand. And so conditioned on that purchase happening, it is perfectly alright to study demand in terms of customer pain or customer desire.
The challenge we face is not with post-facto demand — we have plenty of frameworks for this. The problem is with ex-ante demand. Ex-ante here means ‘before the fact’. What do you do when you have no customers? Imagine that you’re creating a new product from scratch. Or that you’ve just quit your job and you’re trying to start a new company. You have zero customers, no direction, 100% optionality. You can build anything you want. This is a common scenario. How are you going to find demand?
This is the context that HOI addresses. In this context, every other framework for demand we have is somewhat useless here:
It’s not that any of these ideas are wrong, per se. It’s that — as anyone who has ever built an early stage startup would tell you — these recommendations can lead you astray. Worse, they allow you to lie to yourself. Despite the plethora of demand frameworks, ex-ante demand continues to be mysterious and difficult.
HOI’s ideas are not a panacea. They cannot guarantee that we will find demand. But HOI’s ideas are useful because they give us two things: first, a more accurate conception of where demand lives. Second, it gives us a set of heuristics that prevent us from lying to ourselves as we fumble around in the dark. As I’ve argued before, I believe these ideas represent the first genuine advance in our understanding of demand since the JTBD framework of the 2000s.
We shall go through these ideas in logical order.
The first big idea of HOI is to point out that existing conceptions of demand as ‘pain’ or ‘desire’ is not useful because it’s not predictive. There are plenty of things that you want that you don’t buy, and plenty of pains you have that you don’t act on. So finding a customer pain or desire by itself isn’t enough for you to build a company around. It has to be a ‘pain’ or ‘desire’ that a customer is willing to act on. This makes things considerably more complicated.
A common way of talking about this is that you want to look for ‘urgency’. But this is also not accurate. It is possible to find powerful, lucrative demand in situations where there is no prior urgency to solve the problem. An example is the rise of passive index funds. As mentioned earlier in the series, there was no strong urgency to switch to passive index funds for the first decade of index pioneer Vanguard’s life; today Vanguard’s assets under management is larger than the entire global venture capital industry combined.
A few years ago I was talking to a friend who used to run sales for a major SaaS company. He insisted that all companies bought things for one two reasons: “either it helps them make more money, or it helps them save money.” I felt this was wrong, though I couldn’t articulate why. It is true that if you look at everything that a business purchases, it all maps to some kind of “make more money” or “save money” function. (Sometimes you need to squint a lot … but one can usually construct such a narrative). But this analysis doesn’t take into account the number of ‘make more money’ and ‘save more money’ solutions that the company was exposed to but did not buy. Anyway this friend quit to start a martech startup. He never found demand.
Another misconception about demand is that demand exists for a product. We fixate on products because it is intuitive: we say that demand exists for a painkiller because the painkiller kills pain, or that demand exists for a Birkin bag because people desire Hermès-tier leather craftsmanship. A product focus is tempting: novices, in particular, tend to obsess over the product (what features it has, how it looks etc) to the exclusion of the customer.
It is not too difficult to see why this might be wrong. A more correct formulation would be to say that people want certain outcomes, and products help them get to those outcome. It is therefore more important to focus on the customer and what they want to get done than on the product. So, for instance, some people want to signal wealth and status, and they may reach for a Birkin bag … or they may reach for something else to do the same job, depending on the context. Product features should always be considered with the context of their customers in mind.
This is not anything new: experienced marketers and salespeople understand this intuitively. It is this formulation of demand that underpins the Jobs to be Done theory, for instance (people buy a product to make some progress in their lives). I’ve found that that JTBD is relatively easy to understand when explained, so let’s move on.
If demand cannot be detected from desire or pain ex-ante, and demand is not about products, then what is it?