The two necessary evils - Quality and Quantity

As an entrepreneur, all you are looking for is variables to optimize. The dream then becomes the returns made on such optimizations, and maybe finding the right combination of them to achieve the best of the returns. What I spent time thinking on is the connection behind finding such variables, and understanding the macro effects of tuning them.

If you are a product-based business, the main two variables become quality and quantity. In other words, this translates to the vertical and horizontal scalability respectively. The interesting insight is that if you work on one variable ceteris paribus, it is a linear growth story that you are building. The kicker is once you start focusing on one more variable. That’s when things get out of hand, by which I mean exponential :)

In other words, if you improve on the quality of the product to a certain level, upon each level of improvement, you are going to see a linear increase in the demand. There are several reasons for a linear and not an exponential increase: a more expensive supply chain, R&D, increased price etc. Now, one you have attained a certain level of quality that is not making the wallet burn, you should focus on quantity. This can be done by working with better and wider distribution channels, opening more branches, establishing a network around the product. Now, this is where you are going to witness exponential growth. Now I have given this example with quality first, and then quantity. But, the same growth can be achieved other way round. The actual costs in businesses might vary depending on the nature of the product.

Major firms have mastered this craft of focusing on such two sided skews which have made them successful. For example, franchising models focus on quality first, which becomes their moat for higher prices, a fraction of which is then spent to improve and strengthen the distribution network. Again, this is very broad of a perspective. The reason why I found this interesting was that I tried to understand what’s going on in the consumer’s mind when purchasing a particular product. Two things: one, if the average consumer is able to see the product on the supermarket/shop shelves, you got the quantity variable right, and two, if the same consumer is able to justify his/her purchase based on his/her comparison to a similar product, you got the quality right.

Again, this is one possible scenario that might not fit every thing that is available in the market, and this model of thinking might need some revision. But yeah, that was my two cents after a trip to the supermarket down the street.