#025 - PM Lessons by Meituan Co-Founder - Pt 19: Needs - Characteristics of Needs
12 mins read - The unsatisfiability of needs; the time-variability of needs
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Needs in Product vs. Demand in Economics
Needs is an important topic that's difficult to talk about because it's very nuanced. The product manager job was born in the consumer goods industry. Although product managers have to think about users' needs every day, in tech, we don't really have a standard definition for Needs.
What's worse, the Chinese word for "needs" corresponds to several English vocabularies. As such, we frequently encounter the words "needs", "requirement", "demand" in our work. (Note: Conversely, it’s hard for us to distinguish the three and words like “want”, “desire”.)
In economics, there's a clear definition for demand:
during a given period of time, at various prices, the quantity of a good that consumers are willing and able to buy
Most of the time, when product managers talk about needs, they aren't referring to this definition. They just borrowed the word. It's just so that in Chinese, it's all the same word. Hence it leads to tons of confusion.
If we were to compare these three English words, it roughly goes like Needs > Requirement > Demand. Needs is the basic motivation of the users. Requirement is the product design considerations based on those needs. And Demand is the quantity demanded by the market once the product is made, and it's usually used in tandem with the quantity supplied. Here, we're talking about Needs. (Note: capitalized for specificity).
Even so, we still find it difficult to explain in one sentence the difference between Needs and the economic definition of demand. Why is there such a big divergence between Needs in product management and demand in economics?
In the last lesson, we've mentioned that to go to a place we could take a plane or a train. In the economic definition of demand, these two products already have established forms. However, in the product discussion about Needs, product managers have to figure out what the user is really trying to get at by offering multiple alternative solutions, and then give him the most optimal one.
(Note: The form vs. function distinction is important here. I recommend this talk, Position, Position, Position, by Ryan Singer, the former head of strategy of Basecamp, as well as his podcast series, Demand Thinking.
Clayton Christensen’s wording for users “hire” products to make progress in specific circumstances is also great. A lightweight JTBD Framework.)
Recently, air tickets have become much cheaper due to the COVID-19 pandemic. To go to Shanghai from Beijing, it's cheaper and faster to go by plane. If we don't emphasize the objective behind the user's action - to go to Shanghai from Beijing, then we won't be able to offer the appropriate solution. As such, the product that the user buys is a solution to his Needs. Using demand from economics to talk about Needs in product management makes things tricky.
“The product you’re selling is a utilities combination under a set of boundary conditions“ - Yu Jun, former product leader at Didi, Baidu
If you want to be a product manager, you must be wanting to make a product that a lot of people would use. A product that a lot of people would use must satisfy a lot of people's Needs. In other words, it serves a Big Need. Needs can be big or small. Our understanding and judgment about Needs then become critical. And we will need to try to understand Needs from multiple dimensions.
The Unsatisfiability of Needs
Rule 1
Out of all human needs, needs that can be satisfied are far less than needs that can't be satisfied.
Many needs can't be satisfied due to the current state of science and technology. For example, to live forever is a perfectly valid need, but it can't be satisfied. The first time I realized that I was depressed for half a year. Early on, we also realized that humans can't fly. The Wright brothers eventually succeeded to some degree, but many people who tried to fly died. In short, most needs are unsatisfiable.
If you become a product manager one day, and everyone tells you that you need to satisfy the user's needs, you may feel bad when you can't. However, if you had realized that most needs are unsatisfiable, you would be calm dealing with that guilt. What a powerful realization!
Rule 2
Within the set of needs that can be satisfied under our current state of technology, ROI-positive needs are far less than ROI-negative needs.
Humans have all sorts of needs. In economics, we have defined many needs with the production value and manufacturing cost unequal. (i.e. public goods, externalities). If you work on B2B products, such needs won't be unfamiliar to you. Clients have odd needs ("requests", "requirements") all the time.
Rule 3
Even for ROI-positive needs, can these needs support the scalable operation of a commercial entity? Needs that can support a scalable commercial operation are far less than needs that can't.
To satisfy a need, it's not enough that doing so is ROI-positive. The ROI has to be of a certain scale. Because you need to raise capital, and investors have requirements on the rate and the size of return on that capital. (Note: Debt or equity -> WACC, weighted average cost of capital). A scalable need may not have to be able to support a standalone company; it could just be enough to support a department within a company.
Rule 4
For needs that can support a scalable commercial entity (e.g. a business line), we need to consider whether they can allow a company to survive competitively in the marketplace.
I get asked all the time why Meituan doesn't do X that's quite suitable for our business. What this means is that, for some needs, they are only suited for companies of a certain scale, but you can't create a company serving those needs.
The needs that can support you to create a company are indeed very few. A lot of product managers manage but a small function. This set of needs are not enough to support an independent company.
In conclusion, when we sit down and think about whether there are big, valid business opportunities in our society at any point in time, the default answer should be no. There are so many people, so many entrepreneurial talents in the world, if there are very good opportunities, why hasn't someone done it already?
For any Big Need, at any point in time, the default is there is no opportunity. Having this realization would make you a strong critical thinker, but it would also cause you to miss a lot of opportunities. However, big, valid needs are indeed extremely rare.
The Time-Variability of Needs
The other question is - are Needs everlasting or changing?
From the standpoint of an individual, needs are perhaps always changing. For example, at this point in time, do you want to have kids? That’s part of the reason why I retired.
Are needs changing for the collective group?
To answer this, we have to find out how needs come about. The mechanism through which needs come about is complicated. Under a specific circumstance, a specific need arises for that specific person. When a myriad of prerequisites coalesces, the needs of people are produced as a result.
As described in Maslow's Hierarchy of Needs, for most people, the desire to satisfy the higher tier needs arises when the lower tier is satisfied first. Conversely, if the lower tier needs are suddenly taken away, the higher tier needs would also collapse. The film, Back to 1942, illustrates this.
One of the human values is altruism, which is the opposite of egoism. A group of altruistic individuals appears when the wealth level is high in society. But even when everyone was poor, this altruistic gene is expressed in a small group of people. When societal wealth reaches a certain level, this group of individuals becomes larger.
(Related reading: The Selfish Gene)
Therefore, for the whole human species, needs are everlasting. But the quantity is changing, and it’s closely related to the overall societal conditions.
We need to be objective when analyzing needs. Most of the time, when people talk about needs, it's usually centered around "I", and not considering the societal infrastructure, wealth level, education level, cultural zeitgeist, etc. Changes in the macro conditions bring changes to Needs. These macro markers are more related to the broad needs of the population.
Toshifumi Suzuki (former CEO of 7-Eleven) said the key is to read the world's changes. If we cannot understand the changes in fundamentals, we cannot seize the industry opportunities brought about by them.
Among the schools of thought on history, one is called materialism. The materialistic historical view believes that the emergence of heroes is caused by changes in environmental factors and that the environments shape heroes. For example, without Einstein, others would have come up with the theory of relativity, because people had already observed scientific phenomena which cannot be explained by existing theories. Similarly, we have to go back to the most basic theory to look at Needs.
The needs that we can observe of course are Needs. But the changes in these needs are driven by many underlying factors. The manifested needs may not have changed, but due to the changes in deterministic factors such as new technology, the feasibility of satisfying those needs has changed. There are also some needs that may be amplified by the changes in the social environment, wealth level, and human knowledge, etc.
On a human desire level, needs are already written - the need either exists or it doesn't. But the intensity, prevalence, and feasibility are affected by many factors.
Only by understanding why a solution is appropriate for this exact need, can we satisfy needs in an effective manner. A product manager has to consider a lot of needs. A reasonably large company has a variety of specially developed tools to manage the needs (“requests”, “requirements”), so the product manager will be buried in the countless needs. Only by grasping the causes of major and critical needs can we know what the higher ROI needs are. Therefore, we must always evaluate the prevalence, the intensity of the needs, and the ROI to realize the needs.
The window of opportunity for the great needs is like lightning in the sky. It is the moment when the positively and negatively charged clusters penetrate the air. At least one of the charged clusters needs to be in motion - either the need itself or the feasibility to satisfy it.
A/B Sides of the Internet and Needs
In the last class, we talked about the A/B sides of the Internet. Now let’s talk about why the division, why Meituan emerged at that point in time, and why Wang Xing and I chose this direction.
A very important reason was that most of these B2 companies appeared after 2010. Before, it was very difficult to obtain the user's location. After the rapid development of the mobile Internet at that time and everyone had a smartphone, the location data in the smartphones made it possible to realize many things that could not before.
In the early days of food delivery, Daojia could only serve customers with an AOV of ¥80. It was because there was no smartphone that could locate the delivery person in his delivery route, so when the delivery person was dispatched, he could deliver a single order. Without knowing the real-time location of the delivery person and the direction of his future movements, which are data needed for a dispatch system to allocate orders, the delivery efficiency and costs couldn't be improved much.
A critical function at Meituan is the dispatch team. The main job of this dispatch team is to make good use of the real-time location data of the delivery riders and put the infrastructure to work. A delivery rider empowered with real-time dispatch has a far greater delivery capability than one without.
When I went to Europe for business exchanges, I learned that because the population of Europe is sparser, the delivery riders can only deliver 8 to 10 orders a day. A delivery rider of Meituan can deliver 20 to 30 orders a day due to the central dispatch system. Real-time location data also play a part here.
Meituan has a bike-sharing business, and we also started e-bikes this year. At present, e-bikes seem to be doing pretty well. As such, Meituan internally has been discussing whether they should expand e-bikes overseas.
After studying the market, they discovered the costs of e-bikes in China are very low. The supply chains of other countries do not have such a low-cost structure. Furthermore, the penetration rates of mobile payments in other countries are relatively low.
E-bikes depend heavily on mobile payments, so e-bikes can only be realized after the mobile payments infrastructure become highly developed. Listing down the mobile payment penetration rates of the major countries in the world, you’d find that China is at over 30%, while the others are all at 2% - 3%. Therefore, it’d be tough to do e-bikes in other countries.
Now, they are discussing whether they can use e-bikes as a way to build mobile payments. So the idea is totally flipped, and the strategic decision has changed - it has become whether to expand mobile payments overseas.
This demonstrates that infrastructure is very important. The reason why many things become feasible is that there have been breakthroughs in infrastructure, and infrastructure has reduced the cost of implementing this feature [to satisfy this need].
The Heart of A Child
We humans will learn a lot in the process of growing up, but we will also realize that many things are unachievable, and gradually we start to manage our expectations. This leads to even if something is possible to achieve, we may not be able to realize it and still thinks it's impossible.
Therefore, there are two types of needs. One is that the needs have always been strong and prevalent but it is difficult to realize them. The other is that although the needs have always existed, their intensity and prevalence have become greater in recent times.
To have ”the heart of a child“ (赤子之心) is the first type of Needs. Examples include immortality, flying, and every wish coming true.
The mission of Meituan Delivery is to "put the world in your hands". The ideas that really move people's hearts are some of the most prevalent needs. It's just that they are managed as we grow up. So the first type of needs are the greatest needs, and they gradually become achievable.
However, breakthroughs are hard, so it is very important to maintain a heart of a child. Otherwise, you will let yourself give up thinking about these ideas and pushing them forward.
(Note: Recent Virgin Galactic and Blue Origin’s successful launches are very good examples of this type of Needs.)
Innovator’s Dilemma - Why now?
There is another question here - why this need is achievable now?
If you make a product one day, you will face a dilemma. When something has been realized, everyone will think that's how it should be. But before it's realized, there would always be people questioning why would anybody use this thing.
For example, when I was working on Xiaonei, when the site was already up and there were hundreds of users, a friend came over and questioned why would anybody use this thing. He also spewed out plausible-sounding theories. Social networks are popular in the United States but they won't work in China because Americans and Chinese are very different. Chinese women are very conservative. American women are very open. It won’t do for Chinese women to upload photos on social networking sites and be commented on by others.
At that time, Wang Xing and I didn't have a strong grasp of human nature. We just thought the Six Degrees of Separation theory was cool, and that's why we made the site. Anyway, when you talk about your idea with anyone, you can always find all kinds of theories that oppose it.
All great needs have two very important characteristics: 1. "great idea, but not possible" and 2. "no one wants that".
We've mentioned earlier in this course that Thomas J. Watson allegedly famously denied the public's need for computers - "I think there is a world market for maybe five computers". I'm 42 years old this year. But I still dream several times a year that I fly over the campus of Tsinghua University, flapping my wings, and seeing the young students running in the field. And I'm acrophobic in real life! So great needs will always face these two questions at the beginning.
If you meet someone who is more sensible, he will ask you the third question - why now? why no one has tried it or succeeded before?
As mentioned before, all great needs must have been tried in the wrong way at the wrong time by the predecessors. If not, then it’s not a great need.
A recent great need that's being attempted is self-driving cars. Of course, I don’t know if it'll succeed this time around. According to reports, one of Larry Page’s research ideas, when he arrived on Standford's computer science doctorate program in 1995, was self-driving cars. From this perspective, this great need has been in existence for at least more than 20 years.
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