The guitars in the picture above from left to right cost ca: 3.500$, 1.200$, 500$. They serve completely different models of interaction between producer and consumer: Custom, Product and Commodity. The following article explains the difference and why it matters.
Warning. This is long. Hence a “TLDR” in the beginning and a “Bottom Line” at the end.
- Products have certain properties: Repeatable, generalized, the same for many people, helping to create value (aka solving problems).
- Not everything we work on are products. This can be confusing.
- Product Owners also work in an area we call Custom, although they manage a Product Backlog.
- Custom is very different.
- While products generalize, custom serves each customer individually.
That has huge consequences for the work we are doing and the thinking we use while working. This blog post is supposed to help you in clarifying these concepts and some consequences.
Phases In Product Evolution
A topic that comes up in my workshops and trainings all the time is: “What is our product?“ And more generally: “Do we actually work on a product?“
I think part of the confusion at least in Agile circles) comes from the Product Owner concept. The Product Owner is the only concept we know when it comes to managing the product backlog. And, as nearly all of us work with a backlog, everything we work on is a product? No? No!
Let me first tell you a story of a – not so – imaginary company. As that company you will go through phases:
- The company has a great idea. Let’s say, you are building guitars (or web apps). First, you check the market, if building guitars (or building web apps) still makes sense. As you are not yet well known, you will have to look for your first customers. And while you talk to those customers, you will realise that every one of them has really peculiar, individual ideas of his guitar (or … web app). These are your first customers and you are new to the market. So you will build the exact custom guitars (or …) that these customers talk about.
- You are now in the custom market. As you build more and more custom guitars, something happens: You realise that some things remain the same whatever guitar you are building. You start making these steps more repeatable. While talking to new customers, you have these repeatable steps in the back of your head. This will influence how you consult your clients. When this goes on for a long time, you will have to decide on something: Do you want to go on to serve every client with his individual wishes ? This is staying in Custom. We are luthiers, master luthiers potentially. We can only serve a few, but in high quality, to their exact specifications at potentially high prices and margin.
- Or do you want to give in to the temptation of doing something different, and come up with a few guitar models which you produce in bigger batches and then sell? This means entering the product market. In the product market, you generalize how guitars are made and what they do and create templates (models) of guitars and build them upfront. Then they are shipped to shops. There, customers are trying them in a competition of maybe hundreds of similar guitars and chose one of them. (For web apps, you would now enter a different market and produce shopping carts, search, etc. as a product).
- If you go even further, you will enter the market of commodity. A market which hardly find the love of enthusiasts. Niches despise them. Experts hate them. But they make really basic things accessible to everyone. (For web apps, you are now in the market of infrastructure: databases, tracking etc.)
This is a natural evolution from idea over custom to product to commodity. With all its advantages and disadvantages.
I would like to explain this based on this terrific map by Simon Wardley. Simon does all kinds of things with maps. He came up with the concept of Wardley Maps. He uses them to map contexts so that he can think in strategies. Using this map, let me explain the concept of a product on this map.
Image is the work of of Simon Wardley
From left to right, we have the maturity or certainty (are we sure this is needed & feasible?) of our market. From bottom to top, we map the ubiquity (how many people have access or can be served?) of the thing we make in the market. The phases I mentioned are:
- Genesis: We have an idea
- Custom: We work for specific customers. We give these specific customers exactly what they want.
- Product: In custom we learned what many customers want in the same way. And now we build something that many customers want. We found a repeatable pattern of something (e.g. of a guitar). I Custom we talked to every customer. Now we invent something, which we think many people will like.
- Commodity: Now we generalize the product so much that it is fungible, indistinguishable. It’s just any guitar. With all the pros and cons. It is indistinguishable. Think water. Think power. Think screws.
Many interesting things are happening here. And they have consequences. But first, let’s repeat:
Custom serves highly individual needs. Product serves scaling and thus requires generalization.
Generalization And Standards.
The journey from custom to product is a journey of generalization and standards. I emphasise this part of the journey, as it is most relevant to most of us.
We are drawn toward products, because products are like printing money. They are just so efficient. Working in Custom delivers insights into opportunities for generalization. That is great. and it also makes us greedy: „If we could only „automate“ X for every customer“. Well, we can. But most of the time we are now doing something different. Once we automate, we gain efficiency. But we lose individuality. Automating and standardising is heaven for product and poison for custom.
Custom is niche and loves individual decisions. Product is masses and templates and printing money and it hates individual. But it loves automation, standardisation, repetition and predictability.
Products are not a bad thing, though: They allow for democratization of goods. Standards make things cheaper and, in consequence, more accessible for the masses.
Standards also allow for scaling., whileCustom does not scale. Building double the amount of custom guitars takes double the time and people. The margin can be quite high, though! Think master luthier. Stradivari? Building guitars as products means lower price, repeatability, accessibility and scalability: We can now build double as much guitars with much less than doubling resources. Labor does not determine the cost of the guitar anymore. That’s why you get a Fender Stratocaster for little money these days. But there are also really expensive Stratocaster copies out there, made by famous master luthiers.
Scaling Requires Generalization
Since venture capital took over everyones imagination, scalability is everything people can think of. If you want to scale, you have to make a conscious effort to generalize. You can not simply do what people like to have. The trick is to find a common denominator. Otherwise you will still stay in custom. Generalizing „requirements“, „needs“ or „wants“ from customers in products sounds easier than it is, though.
Two Ways To Get To Product
Let’s say, you are operating in Custom. A good example would be that you are a software shop. You build a product for someone else. That means you are in the service sector. And that means you are by definition in custom. You do exactly what people ask from you. I know, this can sound confusing. But it is in the heart of this matter. Being a software shop means selling service in the custom market. (It doesn’t help that service as a technical term is different. And service as a product (SaaS) is still different. I’ll clarify that in a future post.)
So, you are professionally building products for others. After a while you realize that you are doing the same things over and over again. You build a role management „module“ for the umpteenth time. As well as a tracking tool, a validation service, a shopping cart, a what have you. You could now have several good ideas: A) You could build any of these as your main product and generalize it to the point of selling them. You could build THE shopping cart, THE validator. If you think software product, think SAP!
Now you would be selling shopping carts. A perfect product. Or a validation service with a huge data base in the background.
Another route B) might be to build all these things. And then, with a little service on top, build commence sites super quickly. You would have built a platform (which you could also monetise) and upset it through service.
There are two common ways to get to product.
The Traditional Way to Product
The traditional way to find a product is by generalization through experience and learning in Custom. It is the old, healthy, sustainable way of slowly finding ways to generalize through repetition. But repetition alone doesn’t cut it. Hard thinking and customer contact are also required. The good part is: You should still have customer contact through your Custom business. This is the long and honest way. Bootstrapping is forcing you to go this way: You simply don’t have the money to jump to product without paying customers. That’s also why bootstrapping is such a good way to find your ay to a product. You’ll sustainably earn money on your way to product and scalability. And you’ll always know when you are going wrong. Because: Customers.
Have a look at basecamp’s growth curve, it looks healthy and sustainable to me. (Note: It is not quite a hockey stick that so many are looking for. I tell you a little secret: Hockey sticks normally emerge later, when a company enters Commodity. That also explains, why you can not simply deliver hockey sticks growth to your boss.)
The Silicon Valley Way to Product
I don’t know if this term exists. It is not only done in the Silicon Valley. But the Silicon Valley is the epitome of this approach: Trying to just hop over Custom, hoping to have guessed right and cash in early. We replace the experience of Custom with
- hope for genius but mainly
- lots of VC capital that bridges the gap between users needs and our product by funding of sheer stamina, marketing and a little experimentation of the final product.
The options are mind boggling. But there is huge risk involved:
- The main risk is that a lot of jumping to conclusion and guessing is involved. Because: What do we know?
- The Silicon Valley model tries to optimize channels, marketing, product, organisation all the the same time, simply to find the market that fits the existing product. It does that because the sooner scaling begins, the better the pyramid effect of cashing in the upside of the deal is.
Two Different Ways, Two different sets of Risk
Both models have their risks:
Bootstrapping has the risks of
- missing the point in time to scale to product. It is socially hard to go to product. It feels like you throw our early clients under the bus. And this feels like losing your existing customer base. And it might be true. You can only hope you found something better to pursue.
The Silicon Valley or VC model has a totally different risk: The whole thing is easy to fall apart because of the required increased speed of learning. It is artificially imposed to the company. This possibly does not work. (he risk doesn’t matter that much for the VCs. They follow a portfolio approach: Many investments, all with little downside and lots of upside. That’s fine to divest your risk across your portfolio. If you are working in a start up, the start up is all you have and the risk analysis is quite different. If the start up fails, you are screwed. You should be aware of that asymmetry in interest between VC and the start up.
Risks of Product
The repeatability of product brings with it some risks. The main risk is that repeatable, general products are often not perceived as „my thing“. That potentially reduces loyalty and stickiness to the product. Also, the margin is in danger. You see that when markets end up in Commodity. Things lose their individual value to me. They are standard. Product is the first step in that direction. Remember the fate of Ed Hardy shirts from niche to hype to trash.
Here some examples to illustrate that:
- Books are by definition products. Possibly, the printing press is the epitome of the product ages. It was one of the first ways to productize and democratize knowledge and education. The downside is, that books could potentially be perceived as very anonymous and repeatable. Why pay 20$ for that is simply printed thousands of times? Signing a book is a perfect example of pulling a potential mass product back into Custom. Even to the point of the seemingly absurd act of signing an eBook. But it makes no sense to argue if eBook signatures make sense: The signature seems to create a special relationship between author and reader that helps to pull the book into or closer to Custom. And that makes it personal and valuable, unique.
- The similar effect can be observed in prints of art photographies. The art market has found a great way of multiplying the economic value of art photos. You can buy many prints. That threatens the uniqueness, authenticity and thus „customises“ of each print. But there is a simple way to make clear that you do not intend to flood the market and derive the art collector from her individual value: You number and sign the prints to make them unique.
- The iPhone his probably the economically most successful product of all times. It is now sold ca. 400 times per minute. That should be the definition of a commodity! The trick to keep the iPhone from becoming a commodity is to make it personal. And that works through late configuration by the owner: Which apps and configuration, keyboards, sticker sets in iMessage, do I use? In combination with all my private information and data, that makes the iPhone my very personal iPhone. And put the iPhone back into the Product market. (Fun fact: there is even a site for looking up home screens of more or less famous people and friends. Or an article on “creative“ home screen designs) Also, doing crazy things with it like the iPhone X at an enormous price saves the iPhone from being helps being distinguishable in the market and not drowning in commodity. Thus preserving margin of a product. Marketing further helps people to belong to a tribe (branding). Belonging always is a good way to remain distinguishable. There is no commodity product that makes people proud. But there is no debate, there will come a time in which the category smartphone will be commodity and there will only be branding to save certain makes from commoditization.
Why It Matters!
Why did I write ca. 200 words on this? Why does it matter to you? As I said in the beginning, I see lots of organisations and people struggle wit the thinking behind product or not.
We need to be clear about
- who our customers are,
- what our relationship to them is and
- what creates value to them.
In Custom we serve few individuals or organisations in a highly individual way and the trust we have to each other and the quality we provide in this relationship is the main selling point.
In Product, our ability to generalise and serve many people with the same thing in a good enough way is the main selling point.
A software shop might help build huge products, but their work is in Custom. This means that software shops don’t scale. What is the biggest software shop you know? In maintaining a product, we might (hopefully) have direct exposure to our end customers. But the task is not serve each of them, but to find the generalised recipe to serve them all. This leads to a counter intuitive consequence: Products serving many people need to be quite simple. They are a generalised compromise.
If you are not explicit about where you operate, you end up being misled. You will do user research in Product to do what customers want (which is not your task now). Or you try to strive for a product, where your market is trusting on you to deliver individuality. Both is deadly. It is helpful to get rid of confusion and gain clarity in this matter.
The Bottom Line
Custom requires you to work in close connection to your client and serve him exactly what she needs. Custom does not scale well but can have great margin. Custom is a great learning phase toward Product. Custom is not repeatable, niche and quality is in craftsmanship.
Product requires you to deliver on scale. It requires you to have a bullet proof delivery process. You need to provide a mental „I will buy“-button and then a repeatable process that takes care of the thing or service being delivered. As is. No changes are required for it to work. You generalize customer requirements and deliver good enough. You might be terrified to become undistinguishable and lose margin. Product is repeatable, operational excellence, and quality is built into the scaled process.
You really need to be clear on in which field you are working.
Oh, and thanks for reading until here!
Middle picture of Fender Stratocaster: By Steve Ford Elliott, CC BY 2.0,