I've found the following priorities heuristic broadly helpful in everything related to business and product management.

Your priorities should be ordered:

  • Customers (or users) first.
  • Business requirements second.
  • Operational efficiency third.
  • Technology fourth.

It is very straightforward and can be used in almost every situation. Let me explain:

Customers and Users First

Without customers and users,1 your business will not exist. Period, end of story. So, "customers and users first" reflects both a) creating things that other people find value in, and b) being able to reach and communicate that value to them.

Both parts are equally important. There's a great line from Rory Sutherland on this: "If you've built a great product and no one knows about it, you've not built a great product". The truth of this statement is twofold: First, value is externally validated -- your customers are the judges of what you offer.  Second is that in today's age, marketing and customer-reaching activity is an inherent part of creating value for customers... because if no one knows about what you offer, it has created no value. 2

There are a surprising number of people who get this wrong and start by prioritizing something else. But unless whatever it is that you’re offering creates value for customers, you can forget about success. Customers don't buy business models, supply chains, or innovations. They buy things that solve their problems. If a user doesn’t like or need what you offer, you will not succeed.

Business Requirements Second

As soon as you have customers and users, you need to make sure that you have a viable business model that allows you to a) continue supporting those users (operational expenses), b) supporting yourself and your team (payroll), and c) sets you up with a surplus revenue that you can use to grow and experiment with (profit). All three points are important.

While venture capital has somewhat perverted this model, but I don’t think it is any less true despite that. Venture funding today has encouraged companies to grow and acquire users at unsustainable costs and without solid business models, which hurts the businesses later. That’s why you see some many ‘free’ companies bolting on advertising or data voyeurism as a business model afterwards... their pivot to a business model means that you’re no longer the customer... whoever is trying to reach you is the new customer. 3

Operations Efficiency Third

By operational efficiency, I mean figuring out to deliver, optimize, or scale up your service offering. In the beginning, might ‘do things that don’t scale’ like personally reaching out and speaking with each customer. As the business grows, you’ll need to figure out how to translate that to things that do scale.

This supports building a sustainable business model over a longer period of time. If you optimize your operations too early, you end up optimizing for the wrong thing or missing real but experimental opportunities. Operational needs and patterns change as the business scales; you need relative flexibility to first address customer and business needs before figuring out how to lock it in place and make it more efficient.

Essentially - once you’ve got customers and a viable business model, figure out how to do it faster, cheaper, and in larger volume without losing quality. 4

Technology Last

Implementing ‘technology’ in the broadest sense means codifying your operational practices into something semipermanent. Your decisions here will lock you in to a certain way of doing business for a significant period of time. Whether this means investing in machinery and infrastructure, implementing tools and services, or writing a post-MVP code base, the logic is the same: technology is a long term commitment to behaving in a certain way.

It is an externalized commitment, meaning it is hard to change at whim. Well thought-through technology implementations will bring lots of benefits to a business and help scale operational efficiency (think of it as meta optimization). But it should be reserved for a period of some maturity in a business; overcommitting to technology too early will make later change painful and uncomfortable.

What About Product?

Product is inherent in point 1: put the customer first. What you’re building should be first and foremost determined by customer needs, and once you’ve MVP-Ed your way to success there, you can continue going down the priority steps.

I Run a Tech Company. This doesn’t apply?

Nah son, it still applies. Tech companies, DTC companies, B2B, services companies... it applies to all of them. Even if “technology” is simultaneously your product, your distribution channel, sales force, and operations, then you still need to recognize that “technology” is not some monolith and when you prioritize what to work on, the same priority order should guide your decisions. But if it helps, you can think of “technology last” as referring specifically to the internal non-customer-facing technology that is introduced to support operations... things like Git workflows, the SaaS tools you implement, perhaps even the languages you choose to code in (don’t choose something just because it’s hot, choose the best language to support the service you’re offering to the customer).

The Real World

The priorities in this order have served me well as guideposts for all the work I’ve done so far. But they’re guideposts, not absolute rules.

In reality, there will be some interplay at all times:

  • A company might need to reach operational scale to be profitable (Early Amazon).
  • Another might make great advances in the technology which will open up potential business models and new customers on top of it (Technology platforms like DeepMind, IBM’s Watson, machine learning today, but also people who offer technology-powered services... such as factories, presses, coffee shops).
  • Technology might be the operations, and operational efficiency might be the core customer offering (Upwork, Fiver, but also any logistics company i.e. UPS)
  • A platform company might have two different customers, only one of which is the profit generating base (Facebook: users, advertisers. Uber: drivers, passengers.)
  • Something created as internal technology to support operations might end up being spun off as a profit center and customer tool in its own right (Amazon Web Services).

Yet success in each of those cases (and likely many more) can be reformulated along the priority order I propose. Again:

  • If you don’t prioritize making something of value to enough people, then people won’t use your product or service. If you don’t figure out how to reach the people for whom you’ve created value, they’ll never know to choose you. If you don’t have customers, then you’ll never make money.
  • If you do have customers, you need to have a business model that tends towards profit, not loss. Otherwise you’ll run out of money eventually.
  • If you have customers and profit, then you want to focus on scale, efficiency, and cost reduction.
  • Once you’ve figured enough of that out, you need to start thinking about the long term plan and making investment in the technology to support that.

Roman K, 12.2019


Footnotes

1 - In most businesses, user and customers are usually the same people. In a few cases, they are not and a meaningful distinction should be made. That is gift giving and enterprise sales.

2 - Many different paths get to the same conclusion: In philosophy, Wittgenstein formulated that a private language understood by only one person is ultimately incoherent. Which means that you need to either speak the language of other people, or train them to speak your language. The marketing version is: speak the language of the people! Offer them value in the terms on which they calculate things, or invest the time to teach them new ways of thinking about things (an uphill battle, TBH). In technology and manufacturing, you've got the relationship between Work in Progress (WIP) and Shipping the Product. WIP has no value until it is completed and shipped. So, focus on getting that product out the door and into people's hands!

3 - The opposite of this is also true: the MBA-way of building businesses with a business model first relies too much on a Field of Dreams strategy, anticipating a surge of “if you build it they will come” success... and most new businesses fail because they haven’t adequately addressed customer acquisition and retention. I think of these as paper businesses, as in they only work on paper.

In both instances, the person making the purchase is different from the person who is actively engaging with your offering. You can build a business around either endpoint, but my recommendation is to pursue users first. Here's why:

Lots of enterprise organizations make a sales pitch to the purchaser, which is perfectly logical as far as business goes - sell to the one with the credit card. That’s why you see enterprise-“we can do everything”-solution bundles that do nothing well and are unliked by users... but loved and continually purchased by acquisition teams. If your mandate is to reduce costs and simplify vendor management, then why not go for the all in one? But as soon as those buyers are out, users will lobby to replace the systems with better tools designed for specific workflows. I’ve been on the receiving end of this multiple times and thankfully only once gripped by some delirium that almost made me curse an 'all-in-one' solution upon my team.

But when you pursue the end user, you build up the sort of support that lends itself to continual positive engagement with your product and internal champions within an organization. If your business model allows for those people to get engaged with your product and make the case internally, you won’t need to make the sale... they’ll make it for you, which is a lot more convincing than whatever your pitch is. Lots of SAAS services work this way: a free trial for a small team to sign up, and then selling it within the organization. It's a trojan horse of sales.

4 - Operational efficiency can sometimes mask issues in the business model, and sometimes operational efficiencies are the business model. If you look at early Amazon as a case study, operational efficiency was one of the reasons why it became as successful as it was - the scale, reach and logistics it demanded and which powered its rise are nothing to scoff at. The margins for the core business are razor thin and sustainable only through operational scale. But! The core focus — indeed, Bezo’s famous “Day 1” memo — has been customer focus and customer value.

Another natural question coming out of this is, what if I’m not a business that needs to scale? Or what if I can’t figure out how to scale? Well, that’s okay. If you can’t figure out how to repeatedly and consistently deliver the same quality of service to customers over a period of time at the same price and cost, you can still be a perfectly vibrant bespoke vendor or a consultant. It’s just a different type of business, which is why operational needs are third as priority order.