Demand Vs Supply

The movie Field of Dreams made the expression, “If you build it, they will come.” become world-famous. However, it later became a bit of a joke to describe many new products and companies.

The implication seemed to be that if you built the thing you dreamed about, others would want it too. It is easy to understand this thinking. After all, The Law of Supply and Demand seems to imply that supply comes first. Created in the 1890s by Alfred Marshall, the Law of Supply and Demand explains pricing in a free market. If supply exceeds demand, then prices will drop. If demand exceeds supply, then prices rise.

The Law of Supply and Demand worked very well to describe the price of commodities. The kinds of products that are widely available, like fruits and vegetables, or raw materials like lumber and iron ore. However, the law does not always explain the price of everything. As many business owners painfully discovered, if you build it, no one may come. A good friend of mine and successful entrepreneur put it better. “The Law of Supply and demand is wrong. It’s not supply and demand. It’s demand, then supply. Demand is more important than supply.” Specifically, he was saying that understanding demand is more important than supply is critical for a business owner.

Why? Because of the word order. In his book, The Infinite Game, Simon Sinek noticed that people expose their true priorities when they speak. We do this unconsciously. Even CEOs with their meticulously curated conference calls and press releases do this. Sinek noticed that if a CEO talked about (1) profits, (2) shareholders, (3) staff, and (4) customers, in that order – her later behavior would put profits ahead of everything else. And guess who was the lowest priority? That’s right, the customers. Sinek shares multiple examples to make his case. CEO actions align with their spoken word order priorities. Regardless of what they print in pamphlets or marketing material, people talk as they think. When a business leader prioritizes supply over demand, they can shift the company’s attention away from the customer and onto the product and how it is delivered. One consequence of this shift in focus is that operations can become more important than sales or marketing. This makes the attention of the organization inward-focused instead of outward-focused.

As an entrepreneur, I want to own a profitable business. Focusing on the operations of my business ahead of the demand can become a dangerous attention trap. How so? With supply, you control most of the variables. When people focus on what they control it is easy to become lazy and complacent. Prioritizing demand, however, makes you think about how you can influence others to act. Convincing someone who doesn’t work for you (as a customer) to take action is a much harder problem to solve than telling your people what to do. Inspiring customer action, therefore, is where more value is created. My goal in my company is to make sure customer desire drives our business, not our own supply. I have watched this play out over the last 16 years in the mobile video game industry. Most independent mobile video game operators focus on the trailer. Video game trailers are cool! Imagine a living room on wheels filled with flat panel displays and loaded with every kind of video game console.

If you haven’t seen one you can go to gametruck.com to check them out. The concept is simple. It is easy to imagine towing a trailer to someone’s house for kids to play video games inside. And many owners focus on doing exactly that. Towing a trailer to someone’s house to host a party. As if that is what customers want; a trailer parked in front of their house. I contend that people do not want trailers. Customers want a celebration. In addition, they want a party that is easy, low stress, and most of all fun for their child. Parents are trying to create feelings of belonging, joy, and recognition for their children. The box on wheels is almost immaterial. I noticed that when we started to offer laser tag.

For a few years, we did not offer laser tag, yet people would call up and ask for it. When our sales team told them, “We do not offer laser tag.” The customers would go ahead and book a GameTruck Party with a mobile video game theater. Two thoughts crossed my mind. One, why were we not selling people things they wanted to buy from us? Second, what were they actually buying from us? I mean, we just told them we didn’t have what they were looking for, yet they continued to reserve a trailer with us. It was a clear sign the equipment was not as important as the experience they wanted their child to have.

From that time, we focused on delivering celebrations (instead of renting trailers). As a result, GameTruck owners have vastly outpaced their competitors in terms of consumer interest. The GameTruck system generates more than 10,000 inbound leads a month. These are calls and form fills from people looking to book a party for their child. Creating demand like this is not easy but has allowed us to become the price leader in every market where we operate. More revenue ensures we can hire the best staff, maintain our equipment, and follow through on our promises. Our dependability may be more valuable than any piece of equipment we use to deliver a party.

By focusing on parent demand, we can align our work to meet it. We created communication systems to increase parental confidence in the GameTruck brand. We train our Game Coaches to understand the parents’ expectations so they can manage them. Finally making sure the party guests have fun, benefits the coaches because of the higher tips they receive.

Understanding demand first, made every aspect of our supply better. I am convinced if GameTruck had only been about renting video game equipment, we would not deliver 30,000 parties a year. Understanding our client’s demands has allowed our owners to scale their vision. More than half of GameTruck owners operate multiple units. GameTruck owners lead the industry in full-time managers, a sign of the size teams they employ. Focusing on customer demand not only made our business better but also created more opportunities for the people who run the franchises. It has become clear to me that a thorough understanding of demand is vastly more important than an understanding of supply.