Customer-vendor loops and their setting

The notion of a setting for a customer-vendor loop is fairly intuitive. A loop doesn’t exist in its own, insulated bubble. Taking that ice cream shop I use as my go-to example, where do its customers come from? They don’t just magically appear in the air. Instead, they walk up to the shop, traveling down a crowded street or perhaps a shopping center. This street is part of the store’s setting. Similarly, where does the milk to make ice cream come from? More than likely, the owner of the store buys it regularly from a vendor. That vendor is also part of the setting. For an ice cream store, the setting may also include chocolate and other flavor vendors, and of course all of the equipment that is necessary to make and serve delicious ice cream. Put simply, the setting of a customer-vendor loop is everything that’s necessary to make the loop go.

I would go a step further and claim that the process of constructing a customer-vendor loop is first and foremost a process of finding a setting that results in that special kind of feedback loop I’ve been going on about. The key shift for me here is away from the mental image of drawing a feedback loop from scratch, dot by dot, and toward the mental model of spotting a few unconnected dots that are really close together, and linking them together. It seems obvious that if I choose my ice cream shop’s setting as the middle of the Arctic tundra, I will first need to invest into first erecting a city that attracts people to live in it. I can’t remember any city being built for the purpose of setting up an ice cream shop.

It is probably not surprising that this kind of setting-spotting is largely about discerning existing customer-vendor loops that already exist. To drive this point more precisely, a setting of a customer-vendor loop is composed of other customer-vendor loops. As I write this, I imagine a densely connected network of loops, each reinforcing and weakening each other in various ways. The capacity to establish my own customer-vendor loops stems from my ability to understand the strengths, weaknesses, opportunities, and strengths within stocks and flows of customer-vendor loops of others that are adjacent to me.

The discipline of business strategy dwells in this area and I’ve benefited greatly from the wisdom of its purveyors. As one pointer, Hamilton Helmer’s 7 Powers is a rather beautiful capture of various setting configurations. There’s also a pretty comprehensive framework called “Business Model Canvas” that is described in the Business Model Generation book (thank you for introducing me to it, Ujval). If I tilt my head a little bit and squint, at the core is the process of defining a setting for a customer-vendor loop.  Finally, a thorough five-force analysis of a setting can do wonders for opening that strategic third eye. For instance, the setting defines how unique and differentiated our product can be. Borrowing Michael Porter’s example, to start an airline, you and I can just rent a plane and lease a gate at the airport – but so can everyone else.

More generally, when I hear the words “product market fit”, I hear “choosing a setting for our customer-vendor loop”. In software engineering, we usually use the word “dependencies” to talk about our team’s setting – though limiting our understanding of a setting to project dependencies can be fraught with peril. In my experience, one of the key challenges that software teams run into is not being deliberate about understanding their setting. I’ve been there myself, swept  off the ground by a fascination with some cool bit of technology. When we say “solution in search of a problem”, we usually talk about a customer-vendor loop that doesn’t actually close onto itself – and more often than not, it’s a result of plowing forth with developing a product without considering a setting to which it is born.

To emphasize the necessity of being intentional about the setting, I’ll close with this anecdote. I once had an enlightening conversation with a pastor of a small-town church in Central California. Their attendance was down year over year, and with the onset of the pandemic and ensuing isolation (remember 2020?), there was quite a bit of worry about whether the congregation is still, in fact, a functioning church. I immediately launched into the fixing mode and suggested reexamining the setting: embracing the momentum of moving the services online could possibly mean the expansion of the audience, opening up all kinds of new opportunities. Kindly, the pastor noted that the story of that particular church is deeply intertwined with and is inseparable from the story of its town. No matter how appealing the growth potential might be, the “small-town” bit was an immutable, foundational part of the setting. 

So yes, beliefs and principles are also part of the setting and they play a large role in defining what’s possible. It seems like a good idea for a leader to understand what those beliefs and principles are — both theirs and of their team, and how they influence the configuration of the setting.

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