0:00
Why are so many people bad at strategy?
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What's taught now in business schools generally sucks.
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People aren't prepared educationally, and they sure don't get prepared for it in companies.
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It's intellectually challenging and it's emotionally intimidating.
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You have something you call the strategy choice cascade.
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You have to have answers to five questions.
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What's your winning aspiration? Where to play? How can you win?
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What capabilities do you have to have that your competitors don't?
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And then, what enabling management systems do you have to put in place?
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For the most part, in the leading business schools, it's illegal to teach that.
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Playing to win, you talked about, and there's kind of these two routes.
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You have to be either differentiated or low cost, there's no way to protect yourself if you're not one of those two.
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Is there anything else you wanted to just leave listeners with?
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I have never met this mythical beast called a great natural strategist.
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Great strategists have all one thing in common, they just practice.
0:59
Today, my guest is Roger Martin.
0:59
Roger is one of the world's most trusted strategy advisors.
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He's professor emeritus at the Rotman School of Management, at the University of Toronto, where he served as dean for five years.
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In 2013, he was named Global Dean of the Year, and in 2017 he was named the world's number one management thinker by Thinkers50.
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He's also the author of what many listeners consider their favorite book on strategy, called, Playing to Win.
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I've gotten a lot of requests to get Roger on this podcast, and I can now see why.
1:25
This is the most tactical and fascinating conversation I've had on this podcast about developing a strategy, and that is a really high bar.
1:36
We delve into the five questions that you need to answer to help you craft your strategy.
1:40
How Hamilton Helmer, Michael Porter, and Richard Rumelt's work fits into his framework and worldview, what people most often get wrong when they're developing their own strategy, the two options you have for how to win with your strategy, a very tactical and simple trick for getting started, thinking through your strategy, and so much more.
2:00
This episode is for anyone who is trying to build their strategic thinking muscle.
2:05
If you enjoy this podcast, don't forget to subscribe and follow it in your favorite podcasting app, or YouTube, it's the best way to avoid missing future episodes, and it helps the podcast tremendously.
2:13
With that, I bring you Roger Martin.
2:21
Roger, thank you so much for being here, and welcome to the podcast.
2:24
It's great to be here, Lenny, thanks for having me.
2:27
What I want to try to do with our time together is to help people that are on the ground at a company, say, like the product manager, designer, engineer, data scientists, folks that aren't necessarily the CO, or the founder or exec at company get better at product strategy.
2:39
At crafting a strategy, evaluating strategy, developing a strategy.
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Because it feels like there's always tons of advice for the leaders of a company, but less for people on the ground doing the thing.
2:47
And I feel like, luckily, your stuff applies to everyone.
2:51
So, how does that sound as a lens for- That sounds great, and can I tell us a little story to that end? Please.
2:59
So, recently there was a newspaper article saying that, pointing out that 10% of the S&P 500 CEOs, 10% are ex Proctor and Gamble people.
3:08
It's an amazing number, like a stunningly high, high number.
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Why would that possibly be?
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high number. Why would that possibly be? I believe it's because at Procter and Gamble there is a view that people way down the organization, like let's just say the head and shoulders brand franchise leader, who reports to the head of shampoos and conditioners, who reports to the head of beauty
3:39
care, who reports to the CEO, so at least four levels down in the organization, in the guts of the organization, Proctor understands that that individual, not the CEO, not the global president
3:53
of beauty care, not the head of haircare, not the head of shampoos and conditioners, the brand manager makes super important strategic choices, and if they don't make them well, the brand does terribly. And so, I believe... And not many companies have enough of that attitude. And so, I believe...
4:04
And not many companies have enough of that attitude.
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So, I'm a big believer that people down organization have to make really important strategic choices or bad things are going to happen, if they make really great ones, good things are going to happen, and they get trained to be a CEO someday.
4:30
So, I'm with your thesis.
4:30
But yours is counter, what I would say is normal.
4:30
What is most normal is people at the top do strategy, and people down below do something, and it's usually called execution, and I hate that, I hate that term of art, for what it's worth.
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And so, I think you and I are singing from a bit of the same songbook, even if it's a minority songbook.
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7:01
I just want to ask this broad question about strategy, why is strategy so hard?
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Why are so many people bad at strategy?
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Perhaps the thing that makes it intellectually hardest is that it is an integrative activity.
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It answers to a bunch of questions that have to fit together and reinforce one another.
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So, that just makes it a little more complicated, it's not like saying, Lenny, what do you want for lunch?
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It's saying, Lenny, what kind of diet do you want that'll keep you healthy?
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And that includes breakfast, lunch, dinners, snacks, a whole bunch of other things that you got to fit together.
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So, it makes that harder to do intellectually.
7:47
Another aspect of it is, it is intimidating.
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Strategy involves making choices to do some things and not other things, and it is often intimidating to say, oh dear, I have to cut these things off, and not do them, and actually make a decision that I'll be held accountable for potentially, or I'll even hold myself accountable for.
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So, that's a second thing.
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It's harder emotionally, not harder intellectually.
8:30
And then, there's the training aspect of it, the knowledge aspect of it, which is, what's taught now in strategy in business schools generally sucks.
8:38
It's gone on a crazy theoretical bend, the strategy academy as a whole has fallen in love with a theory called the resource-based theory of the firm, that silly and nobody uses it out in the world.
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And so, students are no longer trained on useful strategy.
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And the other feeder into people learning strategy were the strategy consulting firms, but the strategy consulting firms, the so-called strategy consulting firms, do almost no strategy anymore because it's a little business compared to post-merger integration, digital transformation, and a bunch of other things.
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So, people aren't prepared educationally for it, and if they're not prepared educationally for it, then they sure don't get prepared for it in companies.
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It's intellectually challenging and it's emotionally intimidating.
9:40
On this point, you made about how schools are teaching strategy wrong, how do you describe what the wrong approach is?
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It's a theory that's sort of taken over, called the resource-based view of the firm, that was...
9:52
In the world of academics, there's a weird place where the number one emotion is jealousy, and people were massively jealous of Mike Porter, who created many of the most important concepts of strategy when he wrote a book, Competitive Strategy, in 1980.
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And so, they needed to counter him because they just didn't like the fact that he was so prominent, and they decided they would say he was about positioning.
10:19
So, they called his the positioning school, and they caricatured what he said, which he never did, but they said he said it's all about finding a place that is structurally attractive, and then milking it for everything you can.
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We at the resource-based view of the firm think that strategy is all about building resources.
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And if you build resources, it's almost like if you build it, they will come.
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And that's what you should pay attention to.
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Now, the problem is, any resource that may be useful somewhere is not necessarily useful elsewhere.
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So, it begs the question, how would you think through what resources to invest in building?
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What would be a way of doing that, investing here, versus here, versus here?
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It's silent on that because it's a dumb theory, and it doesn't have anything useful to say, in my view, about that.
11:33
And so, when the students go out and say to their company, I'm going to do a VRIO analysis, or a VRIN, some people just roll their eyes at them, and so it doesn't get used.
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I've only seen it used, I've been in consulting companies for 42 years, and I've seen it used once.
11:46
And the trust, as is usually the case, is that it's both.
11:54
And that's why the model I use for strategies says a lot about where you play is important, that's one of the key questions, and your capabilities are important, and you've got to link those things together.
12:07
But that's, for the most part in the leading business schools, it's illegal to teach that.
12:20
Illegal to teach your approach. Yes.
12:23
I couldn't teach my approach at my own business school. What?
12:26
But when I was dean, the most powerful person, the departments, or areas as we call it, like strategic management is an area, they have 100% control over what's taught in strategic management, in finance, et cetera.
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The dean may be the most powerful person in the school, and I happened to be a super successful dean, so if anything, I was a super powerful dean, and students would beg me, they'd say, "Roger, you have 20 years of experience, you're sort of a famous consultant in strategy, and you've got these theories, please teach a course in it." Nope.
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I did do extracurricular stuff, where I had practice of one Saturday a year, teaching everything I knew to anybody who wanted to show up.
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But for credit, I was not allowed.
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And if you try to get a job at any business...
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The only exception might be Harvard Business School, maybe.
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But if you took the 49 other top business schools in America, and if asked the question, do you swear allegiance to the resource-based view of the firm?
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If you don't answer an enthusiastic yes, you have no chance of being hired, zero. Wow.
13:50
This academia drama, I had no idea. A loyalty test. This is unreal.
13:55
Makes me even more excited to dive into your world, and your ways of seeing things.
14:00
Before we do that, just we've had a few other strategy people on the podcast, it might be helpful to frame where they fit in the spectrum that you're describing. So- Oh, okay.
14:09
I may not know all of them, but you give me- I imagine you do.
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So, we've had a Hamilton Helmer on the podcast, and then Richard Rumelt on the podcast.
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How do they relate, just for people to get into your stuff versus this dogma?
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So, one of them is an academic, and one of them is a quasi-academic, or non-academic, like me.
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I was a tenured professor for many years, but don't consider myself an academic guy.
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I don't think Hamilton does, though I've never asked him- He's an investor now. ... that question. Yeah.
14:41
So, he's written a very, I think, useful book that would in some sense fit into my how to win box, right?
14:51
I say strategies about how to win, and he has a, what I call, a categorical model.
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Here are categories of things that you should think about.
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If you're trying to win, here are seven ways of winning, and I categorize him as a non-academic practical strategy guy.
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Richard Rumelt is a now retired Tuck professor, and he is this hyper competition thing that he does.
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He also is of the, I'm jealous of Mike Porter kind of thing.
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So, I've got to say, Mike Porter is wrong, and here's how I am so right, and the competition doesn't take place in the way Mike says, where it's really stable, and whatever, it's really hyper competition, Mike Porter never in his entire life has said competition is stable, he's repeatedly said the opposite.
15:51
But in order to say I'm not like Mike Porter, and in fact, I distinguish myself by saying he's wrong, and I'm right, and so... I don't know.
16:04
He seemed like a fine guy.
16:04
I don't think that he, like most business academics, he doesn't know much about business.
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He hasn't gone out and practiced a lot.
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He came to our school, and gave a lecture because people loved hyper competition because he would blast Mike Porter, and he gave a example of Proctor and Gamble, I've been consulting at Proctor and Gamble, and know everything about Procter and Gamble, basically.
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And what he said about Proctor and Gamble had zero to do with reality, like zero.
16:42
It was just completely, utterly, absolutely wrong.
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And I asked him afterwards, just sort of like, "Why do you say that?"
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And he said, "Well, I think that's the way it worked." Are you kidding me?
17:00
So, I'm not a fan of that piece of work.
17:13
I would say it doesn't fit nicely into research-based view of the firm versus Mike Porter, it's sort of like, here's another lens to take on the world, and I'm going to take that lens, everything's hyper-competitive, and here's how you think about hyper-competition. This is fascinating.
17:32
I love that we're spending some time on this, this is really helpful to hear the landscape of strategy minds.
17:36
Okay, let's dive into your worldview, and maybe the simplest way is just, how do you define strategy? What is a strategy?
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Strategy is an integrated set of choices that compels desired customer action.
17:48
So, the way I think about it is, there's a whole bunch of things a company controls, how many factories to build, how much R&D to do, in what areas, and how much advertising to do, how many people to hire, what to pay them, blah, blah, blah...
18:09
Those are all the things under our control.
18:09
What, Lenny, is the thing we have almost no control over?
18:13
What, if we're a company? What customers do. Yeah.
18:21
We would like them to take some of these out of their pocket and give them to us, can we make them? No, we can't.
18:26
So, essentially, the job of strategy is to make decisions on the things we do control that will compel, we can't force, but it'll compel them.
18:35
They'll say, gosh, I should take my hard-earned cash, and whether it's a company or an individual, I should take my hard-earned cash and give it to you, rather than give it to nobody, if there's no product now, or give it to a competitive product.
18:56
So, the important pieces of it is integrated, it's the whole set of choices that has that one outcome, that it compels desired customer action. Amazing. Okay.
19:11
And to help people define their strategy, you have something you call the strategy choice cascade, which is basically five questions that you need to answer to help you think trough strategy.
19:20
Can you talk through this? Yeah.
19:23
And this is the fruits of many, many years of doing strategy work, and trying to figure out, how do you do this thing?
19:33
Because the fun thing was, I was in the era, I started in strategy in 1981, and that was early in the era, strategy was born in 1963 with the founding of Boston Consulting Group by Bruce Henderson, who was the father of strategy in my view, of practical commercial strategy.
19:51
So, it was still in the early days, and Bruce Henderson had a theory of how strategy should...
20:02
What result it should produce for you.
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Mike Porter then came along in 1980, so '63 Bruce Anderson, and '80 Porter, the two most important figures in the history of strategy, came along and said, a strategy has to look like this.
20:16
It has to have this as its output.
20:16
But neither of them was very good on, because again, it was early, they can't do everything right away, of, well, how would you get one of those?
20:31
So, Mike Porter says you have to be either differentiated or low cost. Good.
20:35
And if you look through competitive strategy as landmark seminal book, to say, how would you do that? There is no answer.
20:42
And because Monitor Company, the firm I was one of the leaders of for a decade and a half, was founded essentially to commercialize Mike Porter's work, customers would ask us, they'd say, well, we like Mike Porter, and we'd like to have one of those.
21:05
We can look at ourselves under his framework, and we can say we're stuck in the middle, and he said, that's bad, and he said, good is this or this.
21:12
How do we think through creating one of those?
21:19
We didn't actually have an answer.
21:19
And it turned out, because I was the most, I don't know, intellectually engaged on this, and didn't mind the hard work of product development from about 1987, when we discovered we really didn't know that, and clients really wanted us to tell them that.
21:38
Between 1987 and 1995, I did all this work on, well, how could you develop a process for getting yourself one of those, one of those excellent strategies?
21:46
And I came to the view that you have to have answers to five questions.
21:53
You have to have an answer to the question of, what's your winning aspiration?
21:58
What are you trying to accomplish?
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Because it'll help contextualize the kinds of choices you could make.
22:06
Then there's a where to play, on what playing field, or if you're like military stuff, battlefield, are you going to plop yourself down on?
22:11
You're not going to play everywhere, in every product, at every vertical stage around the world, you're going to pick someplace, and in that place, how can you be either better than competitors, in terms of creating customer value, or lower cost than those competitors?
22:38
To win there, where you've chosen to play to meet your winning aspirations, what capabilities do you have to have that your competitors don't, that would enable you to win that way?
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And then, what management systems, enabling management systems, do you have to put in place to make sure you build and maintain those must have capabilities to win, where you've chosen to play, to meet your winning aspiration?
23:00
And so, I came to the conclusion, actually it was in 1995, the end of an eight-year journey, I came to the conclusion those were the five, and you had to do them together, and that is the essence of producing a strategy that compels desired customer action.
23:20
I want to go through an example of a company, but before we do that, something I think that's important to talk about is, if your book is called Playing to Win, you talked about this idea of you need to play to win, and you argue that a lot of people are just playing to play, they're playing to play the game.
23:33
I'm guessing most people listening, and most people developing a strategy, don't think they're doing that, they don't think they're just playing to play the game.
23:39
They think they're playing to win.
23:42
I'm curious what are signs that you're not actually playing to win?
23:49
It would be mainly signs given to you by customers.
23:49
So, if you say, we're the most innovative company in our industry, and customers...
23:55
And let's say the industry distributes through a given channel, and customers come into that channel and they look at the two products and say, I could flip a coin on this one, you are not effectively playing to win.
24:13
Maybe you thought you were winning, but customers don't think you are better.
24:21
Or if your competitor lowers their price compared to your price, and you say to yourself, oh my God, if we lowered our price, we would make no money, but your competitor keeps on pricing there, you may think you have the low cost position, but they do, and you have to give them whatever share they desire at that lower price because you can't compete there.
24:54
So, you'll know you're playing to play if you're not aiming to, and accomplishing, having either an offer where Lenny walks into the store, whatever kind of store it is, and says to the person in the store, I want that brand.
25:07
An example, Lego, one of the companies I've worked with for a long time, great company.
25:18
It turns out that if you do market research on kids, a store that purports to be a toy store but that doesn't have Lego is not a toy store.
25:32
They would define it as not a toy. Mom, why are we here?
25:32
I wanted to go to a toy store.
25:40
And she said, but it says toys on here.
25:40
And the kids said, uh-huh. That's an insane brand.
25:48
That's an insane, insane, insane brand.
25:48
And it has a price premium for anything, over any of its competitors by a long shot.
25:59
It keeps growing, it actually for most years in the last decade it has had 80 or 90% of the entire category growth is Lego.
26:06
And so, they're playing to win, to be distinctive in the minds of consumers.
26:14
But Vanguard has got $9 trillion of assets under management last time I checked.
26:24
Does it do anything distinctive? Not really.
26:24
The customer bought, do they have the lowest cost position so they can charge the lowest AUMs? Absolutely.
26:40
And so, there's different kinds of ways, but you'd know by the actions that customers take.
26:48
So, essentially, to mirror back what you're saying, to win, there's kind of these two routes you talk about.
26:51
One is you're the lowest cost option, the second is you're differentiated.
26:54
You have a differentiated brand, where it's not a coin flip, it's like, oh, I really need that for this reason. Yes. Yeah, you got it.
27:03
And if you can't do that, then the advice you share is go find a different playing field.
27:11
Well, or get out of business, whatever...
27:11
It's only a matter of time until you're dead, is the sad truth of the matter, which is the competitors in your industry, who are either low cost or differentiated, can essentially jerk you around as much as they want.
27:27
It's like Southwest Airlines, right?
27:33
Southwest Airlines was just a tiny little airline that flew Austin, Houston, Dallas, and now it's number one in passenger seat miles in America, and the only airline that's earned its cost of capital over the last half century, all the rest are losing money for their shareholders over time.
27:52
They have good cycles and bad cycles. How did that happen?
27:52
Well, it's just the other airlines had to step aside whenever Southwest came into a route, the other airlines just had to say, well, I guess you're going to get your 30 share, or 35 share of passengers on this route, welcome to town. That's all they can do.
28:11
They just have to seed position.
28:11
And that's what happens, if you play to play, you'll end up just being...
28:19
It's literally like having a bully who can just shove you, and you take one step back, then they shove you, and you take another step back, and they shove you, and you take another step back.
28:31
There's no way to protect yourself if you're not one of those two.
28:37
You cannot bully Vanguard, you cannot bully Southwest, you cannot bully Proctor and Gamble, you cannot bully Lego.
28:46
That's the way the business world works.
28:54
And in the case of Southwest, the reason they couldn't be bullied is they were the low cost provider and the other airlines couldn't meet their prices.
28:58
So, they're like, all right, there's nothing we can do. Yep, yep. Awesome.
29:05
So, while I was living in Boston, they entered the Boston to Chicago route, which was a duopoly of American and United at the time, and the price was about, in those days, a $1000 for a round trip because it was a nice duopoly.
29:20
When Southwest come in, they say, we're going to fly Providence to Midway, not Logan to O'Hare, and it's going to be $200.
29:34
And they had great advertising, I always loved the advertising that they had when they entered the, they did maps of Boston, and said, if you live in any of these places, kind of the south, the west of Boston, it takes you less time to get from your house to the gate than it does to go to Logan.
29:56
Because at Logan, you park in a parking garage, and then walk a half an hour, and then when you get through security, you still have to walk 20 minutes... Blah, blah, blah.
30:04
And at Providence, if you've ever flown out of Providence, you can park about 100 yards from the gates.
30:09
And so, they just had to say, we can't stop that, not everybody's going to do it, but a whole bunch of people are, and there's nothing we can do to stop that.
30:23
What I love is we're already diving into these five questions.
30:23
So we've been mostly talking about how we will win, basically, here's your options to win.
30:27
Low cost provider, or be differentiated, or find a different place to win.
30:30
Let me summarize the five again.
30:30
What is our winning aspiration? Where will we play? How will we win?
30:34
What capabilities must we have in place to win?
30:40
And what management systems are required to make sure the capabilities are in place? Right. You've got it. Okay, cool.
30:45
You're a very quick study my friend. I got some notes here.
30:48
So, coming back to the how will we win?
30:48
Because I think everyone's listening to this, okay, cool, we got two ways to win, we're going to be the cheapest or we're going to differentiate, okay.
30:53
Okay, how do we differentiate?
30:56
Is there a taxonomy of options that you think about or tell people, what are the ways and options for exploring, here's how we will be different?
31:04
It is mainly understanding customers, as well as you can, and then saying, is there a way to be distinctive against that?
31:13
And there are lots of ways to do it, but it's tied very closely to the capabilities, which is, if you have a way of winning, you say, my where to play is I'm going to sell pet food on the internet, and my how to win is I'm going to be the best.
31:41
But it turns out that anybody who can build a website can sell pet food on the internet, and in fact, 20 of them do it almost immediately, and they all go bust.
31:47
You don't have the capability, so you've got to ask yourself the question, can I serve a particular customer need with a set of capabilities that are going to be hard to replicate by my competitors?
32:03
They either can't do it, or they won't do it.
32:11
And both are important questions because sometimes it won't.
32:20
Do you really think Walmart couldn't have built as good a website as Amazon, and at massive scale?
32:28
I think they could have, right? Yeah, probably. I don't know. Did they? They didn't.
32:32
They said, I hope this online thing doesn't really take off because that would be a pisser because we've got 5,000 stores across America, and we've got all that, and that would be a bummer.
32:42
And so, they don't do anything for 10 years, giving Amazon the scale, so that Amazon then has this huge scale advantage on this, and network effects, and voila, you've got a competitive advantage that you didn't necessarily completely deserve.
33:01
You needed the help of the player who stood to lose the most to hope that it wasn't going to happen.
33:15
Same with Tesla, Tesla got a 10 year headstart, not because the OEMs couldn't, they could have, and of course GM did many, many years ago, create a fully functioning electric vehicle.
33:22
But they couldn't figure out how the hell you make a buck on it, and so they didn't do it, giving Tesla the ability to establish a brand that people associate with that, electric vehicle equals Tesla, and allow them to jump way ahead, and then have the scale that is hard to hard for others to match.
33:54
You said something that's really interesting that I think is also really important, which is, you said that just being the best or better is not a solution.
33:57
You can have a better pet food, you implied that's not going to get you there.
34:02
Can you talk a bit about that? Yeah.
34:06
You have to answer a second question I guess, which is, here's the way I'm going to be better, and here's the way somebody else isn't going to be able to simply replicate that quickly.
34:17
One of my favorite businesses, because I was on the board of Thomson Reuters for 14 years, it was Thomson first and then they bought Reuters, so Thomson Reuters.
34:25
Best business is a business called Westlaw, and it's the dominant provider of online legal searches.
34:29
So, if you're a litigator, and you're trying to, you're getting ready for a case, and you need to know what are the important precedents for this case, you go on to Westlaw, and put in some search terms using a Westlaw keyword system to help with it, and you get the five cases that really matter.
34:54
You can Google it, and do the same thing, and you'll get the 500 cases that might matter.
35:11
How does Westlaw do that?
35:11
Well, for now over 100 years, they've taken every case that's come out of the US legal system, had a lawyer, a Westlaw lawyer, write a head note that summarizes what's in the case, using these keywords so that they were searchable, and today, to do 2024, takes 1500 full-time lawyers.
35:39
So, if somebody else said, this Westlaw business is incredibly profitable, and it keeps growing, and it's awesome, I'd like to be in that business...
35:46
All they'd have to do is hire 150,000 lawyers full time, and you'd have to create a numbering system and a keyword system that's different than Westlaw's, and then you'd have to do what Westlaw has done for the past 50 years, which is give it free to law schools so that they teach their students before they even get out how to use Westlaw, and all... No probs. That'll be easy, right? Nobody's even tried. Why bother? Life's too short.
36:18
And that's the kind of capabilities you need to be able to say we'll win by having the searches that make the lawyer's job the most effective.
36:27
And if it saves them time, it saves them money.
36:35
And you don't need a huge law library.
36:35
Law firms used to have these huge law libraries, you don't need one, you need a terminal, or actually, now it's on everybody's PC.
36:49
And you don't need a bunch of librarians to go and find the cases that you need, they pop up on your screen.
36:55
That's a great case of competitive advantage.
37:02
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38:06
So, essentially, we're talking about moats.
38:14
What are some moat that you can create where people can't just copy what you're doing?
38:18
And Warren Buffett likes that terminology, right?
38:18
That's what he says, he invests in moats. Yeah. Yes, yes.
38:25
I'll find the quote we used in a recent podcast episode, but he's like, castles with moats.
38:29
And maybe along those lines, is there a way you think about types of barriers to recreate capabilities?
38:34
It's like, here's the options we have, is it like...
38:39
Essentially, the seven powers I think talks about this. Yeah. Yeah.
38:43
That's why I like Helmer, because he categorizes them.
38:43
And I've got to look into it some more because I haven't studied it to say whether I would concur that there are just seven, or there are more.
39:00
My suspicion might be that there are more, but there may not be.
39:00
They may be all clustered, there may be variants that cluster behind those.
39:05
But I don't, myself, have a categorization scheme that says, here's how you search for the moat. Great. That would be nice.
39:20
So, here's the quote from Buffet, by the way, "I look for economic castles protected by unbreachable moats." Yes, I like that. There we go. I like that.
39:28
And he's smart, he's consistent.
39:28
Though, everybody makes mistakes, right? And he did too.
39:36
Solomon Brothers, US Air...
39:36
Anybody who thinks they can be perfect on strategy is delusional.
39:43
And so, even the very, very best, like a Warren Buffet, who's outstanding, arguable genius, is going to sort of think, I think this is a moat, and it's going to be ephemeral.
39:57
But any of us should be pleased to have a track record that would be anywhere close to that, on really identifying moats, because he has.
40:11
We talked about that with Hamilton Helmer, that every startup deck has, here's our moats, here's how we're going to have barriers to entry, and they're all delusional, rarely is there ever an actual moat, especially in the early stages. Yes. Yes.
40:23
Let's go back to the five questions again, because that's so core to the way you think about strategy.
40:27
What do you think about using, say this FigJam as an example, as a hypothetical, just to think through questions that they might ask to think about strategy, and I can describe what FigJam is so you [inaudible 00:40:38]- Sure, sure.
40:38
I do not know that product- Okay.
40:39
It's basically a visual whiteboard collaboration tool, where people can put in sticky notes, and put little mocks, and kind of play around with all the cursors. Oh, okay.
40:47
And so, it's for brainstorming, and ideation, and things like that, and laying out concept. Gotcha.
40:52
Okay, that would make sense for Figma. Figma. Yeah, exactly. Right. Okay.
40:56
So, you'd asked the question, what are we trying to accomplish?
40:56
Are we attempting to create something where nothing digital exists, people do this in pen and paper, and so we're trying to invent a category and then be transformative by making the user experience better?
41:23
Is that what we're trying to do?
41:23
Or are there players already doing this and they're just not doing it very well?
41:28
You'd want to say, well, what are we trying to accomplish?
41:28
And I don't spend a whole lot of time on that because you got to toggle back and forth between those five questions, but you have to have a reason for searching in a given space for where to play, how to win.
41:46
What do you think their reason for thinking FigJam is worth investing in is? What do you think it is?
41:54
Is it white space, or is it crummy offerings in the market currently?
42:03
If I had to get to it, I think they're trying to expand their market and they have a stronghold in design tooling, and there's this adjacent market for product teams broadly to be using Figma more.
42:13
And there are existing tools similar to that, that are good. Okay.
42:20
So, I don't love it to start. Say more.
42:26
So, there's a big market over there, we'd like to get some, is a terrible reason in my view.
42:35
The reason should be, customers are bereft, customers are lacking something that we can provide. This is why I hate...
42:44
And most entries by foreign companies into China, they get their faces shot off.
42:50
And the reason is the rationale is, it's big, we could get some of that.
42:57
So, I don't love it, for starters.
42:57
And I'm not saying that that'll guarantee failure, but if somebody gave me a review of a pitch deck for that, I would not invest [inaudible 00:43:14].
43:13
Well, I imagine you can also frame it in other terms, like our customers are demanding more ways to work within Figma with their teams, and there's these- Yeah.
43:22
So, that would be a better one.
43:22
And you're speculating, I've asked you to speculate, so we don't know.
43:27
But I like that one better, which is, what's our aspiration?
43:33
It's to satisfied core customers, who love what we do, but think it's too narrow, that if we could broaden that for them, into this market, our customers would be very happy. That is really cool.
43:47
And so, you want to frame it in the words of how customers would benefit, essentially.
43:52
I just think those tend to be stronger, strongest, if there's a link.
43:52
Because remember, what is strategy about?
43:59
Compelling desired customer action.
43:59
So, everything ties back to that.
43:59
So, then the where to play would be, you just want to say, okay, what customers are we talking about, or what parts of our current customers that we don't serve are we attempting to serve with that? And with what product?
44:17
Is it a finished product?
44:17
Is it a component of a product?
44:17
Through what distribution channel would we sell this?
44:24
This is another self-serve type product.
44:24
I think Figma is mainly self-serve, right?
44:30
And so, you choose that where, and then say, how can we solve the problem?
44:42
Before we get to that, before we get to that real quick- Oh yeah, yeah, yeah, please. Please.
44:45
So, the things you mentioned there is who specifically are the customers?
44:45
So, in this case it'd be like product managers, engineers, and other functions, and then there's the distribution channels, how we'd actually get to them? Get to them, yeah.
44:56
And then, what other questions are there within this where we will play?
45:01
To what extent is it a finished product or a component?
45:01
Because sometimes it could be, we'd like to supply this component that could be integrated into other people's products.
45:11
That's what Apple apps are, right? Got it.
45:16
We don't sell them an iPhone, we sell them a component within the iPhone, a customer's iPhone, is that what we're doing here?
45:23
Because then you have to ask questions about, well, how does it fit in with the rest?
45:31
So, the where also implies where in the product it lives?
45:31
Where- At what vertical stage?
45:37
Is it an integrated product, where it's the whole thing from soup to nuts?
45:41
Is it some upstream pieces that some people downstream?
45:41
Do we take pieces from other people and assemble them?
45:47
So, we're the integrator?
45:47
Those are all important where to play choices, from my view, because those make a big difference.
45:53
Like Four Seasons chose...
45:53
Four Seasons the hotel company, luxury hotel, chose a completely different choice on the vertical stage where to play, back in the 80s, they said we're going to get out of real estate development...
46:12
So buying land and getting it zoned for hotels.
46:20
We're going to get out of construction, building hotels.
46:27
We're even going to get out of the business of owning the land or the hotel, so that we can be awesome at hotel management.
46:32
Rich people, like Michael Dell, and David Thompson, and Bill Gates will own the hotels, as an investment, and they will be happy to have Four Seasons brand on their hotel, and we will charge a management fee.
46:49
That is a where to play choice.
46:49
Even though somebody could say, well, you're a luxury hotel, you're like the other luxury hotels who serve luxury customers at a high price.
46:56
Oh no, no, no, no, no, they do it with a stack this thick, we do it with a stack this thin.
47:07
So, it's like a value chain question.
47:07
Where in the value chain are you going to play? Value chain. Yeah.
47:11
Where in the value chain? That's exactly right.
47:11
And everybody has value chain questions.
47:16
They often complain, after the fact, like all the apps complain about what cut Apple is taking, but they made a choice, a value chain choice.
47:23
We are going to design something that will appear on an iPhone, or an Android device, if it's that case, and then good luck to you.
47:36
You can complain like crazy that they're taking so much of it, and this is unfair, and they've got to duopoly...
47:41
Yeah, but you guys cooperated 100% in building that.
47:50
100%, never complained about it, until you wanted a bigger piece of the pie.
47:50
That was a vertical stage, a value chain stage, that you chose, willingly.
47:57
Nobody forced you to do it.
48:05
And Apple's not playing ball, giving it back too easily. No. No.
48:10
And do I love just how controlling and everything Apple is? Do I?
48:10
No, but would I say, oh, those poor apps, right?
48:19
Yeah, no, get your own distribution channel, buddy. Cold blooded. Yeah.
48:28
Okay, so we've talked about the winning aspirations, so for FigJam, it would be satisfy customers that are trying to work with their team in these different ways, and make sure they're staying, make sure they get what they need out of Figma, versus go maybe to other tools.
48:40
And then, where will we play?
48:40
Let's say, engineers, product managers is trying to target them, distribution through the existing product, and so it's like a feature of the existing product.
48:52
And then, it's how will we win?
48:52
How do you think about that? Yeah, yeah.
48:57
Well, you ask the question, how can we solve...
48:57
Well, how can we either solve that problem at a much lower cost, so we can always be a sharper price point than them?
49:03
So, if there are solutions, but they cost 50,000 a user because their costs are 30,000 a user, we can do this for $15 a user, and so we can charge $100 per seat, and absolutely annihilate the competitor by figuring out a less costly way to do it.
49:27
Or there are other selections, but they make the user do all these things, and it's ponderous, and it takes a long time...
49:41
We have shortcuts, we use AI to, you just say a few words into it, and they say, oh yeah, I know what you mean, and here it goes in the workflow.
49:54
Or we're more integrated, like Thomson Reuters, the company I was on the board of, our advantage was we were better integrated into the workflow.
49:59
You didn't have to get out of your workflow to go use this product, and then you get back in, we just said, what's your workflow? Oh, well, integrated.
50:09
Is it better integrated into their workflow that makes their life easier?
50:17
It would be questions, possibilities like that that I would be asking.
50:17
Essentially, you've got to have a theory there, of how are you going to be better or lower cost.
50:34
On the lower cost front, I think generally the advice is you don't want to go that route, that's a very difficult route.
50:38
What's your thinking of just when to go that route that you might actually win at lower costs?
50:45
That's not advice I give.
50:45
I think they're both completely legitimate strategies. They have implications.
50:54
So, if you want to be the cost leader, it is rare that you can be the cost leader without having dominant scale in the territory in which you're operating.
51:01
So, if you want to be a niche cost leader, good luck to you, that's almost never going to happen.
51:08
So, Vanguard had to make a race to, we're going to do index mutual funds, and it doesn't exist now, we're going to do it and we're going to get gigantic, and we can't let anybody get close to us in size because we want to have the lowest cost position.
51:26
And so, they are the world's biggest mutual fund company, and you have to do that, and same with Southwest, to really make that model work, they had to keep expanding and expanding to get bigger. M&M Mars...
51:45
It takes an enormous amount of commitment to say, we're going to go, and we're just going to keep charging ahead on this.
51:52
Whereas, in differentiation, I think you can differentiate sometimes at lower scale, and build yourself slowly towards higher scale.
52:05
But the business world is just getting so much more scale sensitive.
52:05
When you think about the costs of differentiation, it's often spending on branding, spending on R&D, R&D innovation.
52:18
Those two are of the most scale sensitive elements of anybody's cost structure.
52:27
And so, being a niche-y differentiator is getting harder and harder in my view.
52:35
I think it's also important to say, either path is very hard, it's very hard to build a business that makes money and is profitable and survives just broadly. Yes, yes, I agree.
52:44
And you're not going to have this formula of how to win, okay, we got it. We got a big business. I agree. I agree.
52:49
And that's why, if I looked at 100 strategies of major companies, I'd say I didn't like 90 of them very much.
53:01
And then, the other nine out of 10 probably look good, but also don't work out. Yes. Yeah, no, that's true.
53:06
There's lots of spaghetti thrown at lots of walls in the world of business. Yeah, capitalism. Yes. Okay.
53:16
So, now we're at the capability step of trying to figure out what capabilities you need to win.
53:21
Can you talk about, say with FigJam, what are the sorts of things you think about here?
53:26
Well, I guess I'd ask myself questions, like, is there a learning curve to this, where we could have better capabilities because we started earlier than anybody else, and have more essentially cumulative experience?
53:44
Is there a way that we've figured out how to serve customers that make them feel tended to better by us?
53:54
So, we've got helpline...
53:54
We figured out how to do the helpline, because if it's self-serve and that's how they get the product, and then they've got issues with how to use it, they feel that we're just better.
54:07
We're the best of all their providers at that.
54:14
How to win is a theory of how customers are going to perceive us better, if we're differentiated.
54:22
And then, it's what capabilities would we have to have to make that theory come true, rather than just be a wish.
54:29
So, if we want them to feel like we're the easiest to deal with, we have to have capabilities to do that.
54:47
It's just like again, Four Seasons said the reason they're by far and away the most successful, profitable, best in all fronts, luxury hotel chain in the world...
54:52
Biggest, best, most profitable, best employee rankings, best guest rankings, all of those.
54:58
Well, their how to win was they said, people, if you talk to people who are in luxury hotels, they'd rather not be there.
55:07
You'd say, wow, they're in the lap of luxury, why would that be?
55:14
Where do you think they'd prefer to be, Lenny? At home. Yeah.
55:21
Dominantly at home, for their segment, which was high-end business travelers.
55:21
They've traveled, they've stayed in one luxury hotel too many 20 years ago.
55:28
And so, we're going to have luxury defined as not grand architecture and decor and [inaudible 00:55:38] service, but rather, we're going to define it as a service that makes up for what you left at home or at the office.
55:43
Because people would rather be, if they have to not be at home, they'd rather be at the office than in a hotel because they can be more productive.
55:46
So, we need capabilities, we need staff that can deliver on that capability.
55:51
What's the problem, for that?
56:01
The problem is turnover in the hotel industry globally is 80% a year, which means that the average person you meet, the average staff person you meet in the average hotel, is on their way to a 16-month career at that hotel chain.
56:10
So, how do you deliver that really cool special kind of service with that? The answer is...
56:16
And now I'm skipping ahead to enabling management systems.
56:24
You have to have a different way of recruiting, a different way of onboarding, a different way of career development.
56:28
And if you do all of those things, you end up with a 10% turnover rate, so that your people are there 10 years on average, and you can then get them trained up to deliver that kind of service.
56:40
So, that's the capability that you build, and the people, to be able to take more decision-making at a lower level, and treat the guests in a customized way that makes them feel that this wasn't by the book, some rule book, that this person just said, no, this is a good solution for my guest.
57:01
It's interesting that these capabilities and even the management systems, which is step five, relate to your moat.
57:05
Which is the thing you need to achieve, also, ideally is the thing that other people, it'll make it hard for them to do. Yep.
57:14
So, you're exactly right.
57:14
You can call if you want, how to win, moat, right? Definition of your moat.
57:19
And so, capabilities and management systems are what both build and maintain the moat, and the maintaining is an important part because if you are the most successful, people are going to say, I want to do that too.
57:32
But here's where there's this modern, unfortunately, bull shitty thing that says, oh, competitive advantage is fleeting in this modern hyper-competitive world, and you can't have long-term advantage anymore.
57:46
And I just say, oh, I see.
57:46
So, Four Seasons, I guess that isn't very long-term, that has only been 45 years now, since they...
57:53
No, 35 years I should say. Don't exaggerate.
58:01
Since they went to that strategy. Oh, and Tide.
58:01
So, 77 years isn't a long time, I guess either, because they've been the number one detergent for 77 consecutive years.
58:12
I guess you're right, it's fleeting. It's not.
58:12
But what makes it fleeting is when you have one thing, and one thing only.
58:19
So, let's say you build the biggest polyethylene plant in the world, near a good feedstock source, and you have the low cost position, what's somebody else going to do when they see how much money you make doing that?
58:38
Build a polyethylene plant beside yours, twice the size, and then you're toast. Why?
58:38
Because the competitive advantage was too simple.
58:46
the competitive advantage was too simple. But at Four Seasons, you got to sell off all your hotels, you got to fire all the people involved in hotel development and everything, and actually, the people in the business like doing that, you have to essentially get rid of your entire staff, start
59:06
from scratch, paying them more than you do now by far, giving them more career security, giving them more training, giving them better uniforms, whatever, spending 10 times as much hiring them, with the hopes that maybe someday you'll be able to produce the kind of services Four Seasons does. The competitors basically say, life's too short. Do they give up and die? No,
59:25
The competitors basically say, life's too short. Do they give up and die?
59:25
No, there are other great chains, Mandarin Oriental, my wife loves staying in Mandarin Oriental, even more than Four Seasons often.
59:37
But they've not said, we will replicate Four Seasons, they've said, we'll pick a different where, and a different how, and that's, in the end, what you want.
59:51
Is rather than complete overlap, where you've got concentric circles of people picking the same where, you convince people to pick different wheres.
59:57
That's why people sort of say, Roger, how to win, that's so impolitic, because you're producing losers, and then there's victims, and all that.
1:00:11
There's oppressor and oppressive.
1:00:11
It fits in the modern dialogue.
1:00:11
And I say, no, what I want to do is encourage them to find someplace else to prosper, rather than smash on top of us.
1:00:28
And so, if you have completely different capabilities and management systems, it'll encourage people to choose a different where to play, how to win.
1:00:35
If your capabilities and management systems are very similar to your competitors, and you're succeeding with your chosen where to play, how to win, what are they going to do?
1:00:44
They're going to drive straight to your where to play and try to win exactly the same place and wreck your market for both of you.
1:00:54
That's what you don't want.
1:00:54
And the more complicated, in some sense...
1:00:54
I shouldn't use complicated.
1:01:01
The more nuanced and multifaceted your capabilities and management systems are, the more likely they're going to say life's too short.
1:01:09
That's what everybody says about Southwest.
1:01:09
So, if you're the only airline in the United States that's earning its cost of capital for 50 years, wouldn't you say, gee, I'd love to be like that? But what does it mean?
1:01:29
Well, it means selling off most of your aircraft, so that you can have only one kind of aircraft, 737.
1:01:34
Tearing up your entire root structure, your entire hub and spoke structure, and make it point to point.
1:01:39
Changing your complete labor relations strategy, from fighting the unions to paying them a lot, as long as they're highly flexible.
1:01:46
People think Southwest is non-union, it's not unionized [inaudible 01:01:55], but they do different...
1:01:53
You have to essentially fire all your travel agents, and convince your customers to book online, by themselves, to save more money.
1:02:04
Life's too short, it's just too short.
1:02:04
So, they try things like Continental Light, or Ted, that do half the things that Southwest does, and then you're what? A crappy Southwest.
1:02:14
So, to me, that's the ultimate.
1:02:25
The ultimate is, it's like the ultimate weapon is the one you never use.
1:02:29
The ultimate way to compete to win is to never actually be forced to compete.
1:02:38
Wow, that's a great quote.
1:02:38
This story about Southwest makes me think about Hamilton Helmer's counter-positioning, I don't know if you've heard that term, but basically, you position yourself in a way where the competitor can't do the thing that you're doing because of the way their business is already structured. Ah, that's sounds right. The can't. Yeah, can't. The can't thing. Awesome.
1:03:00
Yeah, and Mike Porter, and he may quote Mike on that, Mike was very big on that.
1:03:05
He said, it's fault lines.
1:03:05
You're trying to find fault line, where it is so painful for your competitor to come across that fault line, into your side.
1:03:10
And so, a great example of that would be Olay, at P&G, and it's in the book, when we did the repositioning of that.
1:03:26
The competitor that could have killed us, absolutely killed us, was Estée Lauder with Clinique.
1:03:35
If they would've brought Clinique into the mass channels...
1:03:35
Because we were doing a Clinique kind of thing, in the mass channels, rather than the prestige.
1:03:43
Prestige is like the first four of the department stores, which [inaudible 01:03:51] or Sephora, or Ulta.
1:03:53
If Estée Lauder would've taken their Clinique brand and brought it into mass, they would've killed what we were doing. Simple as that.
1:04:00
And in fact, Clinique was the biggest brand in all of skincare, we became the biggest brand in all of skincare, and they didn't do it. Why? Are they idiots?
1:04:19
No, they're not, Estée Lauder's super smart.
1:04:19
But Estée Lauder also has Bobby Brown, and Mac, and the Estée Lauder, its own brand, and a half a dozen more, all in prestige, and the prestige channel, if they'd have taken Clinique, and taken it over into mass, would've done what? Shot them in the face. Killed them, right?
1:04:37
They would've been just apoplectic.
1:04:48
And so, Estée Lauder had to stay...
1:04:48
If that's counter-positioning by Helmer's terms. They had to stay there. Was that stupid?
1:04:55
No, they're still, with all of their brands combined, the biggest in skincare.
1:05:00
But Clinique has lost leadership to our brand that they would've considered kind of nothing.
1:05:07
Oil of Olay became Olay Olay ProV, Regenerist, all of these higher priced products than they could ever imagine being sold in the mass channel.
1:05:20
But our biggest friend was, in some sense, their distribution channel, which would've killed them if we... Literally.
1:05:31
They would've just punished them so, so, so bad that they didn't do it.
1:05:38
I love that I'm learning all this strategic thinking about makeup and skincare, I also love just the idea of you leading strategy for skincare and makeup brands.
1:05:46
Yeah, no, I got Proctor & Gamble into color cosmetics. So funny.
1:05:51
[inaudible 01:05:51] love that.
1:05:51
I don't know if you're following the AI Google stuff that's happening, where there's search engines competing with Google by just answering the question versus giving you a bunch of blue links? Yes.
1:06:02
And there's this question of, we'll Google Shift because people seem to really like it, versus they're making trillions of dollars running ads when they share blue links, and it's this super innovator's dilemma position they're in.
1:06:14
Yeah, no, no, I am very interested in what's going on in AI, and I'm writing some stuff on that. But it's hard.
1:06:24
I've seen the inside of this for many of my clients, it is super hard when the guts of how you make money is under threat, and you just don't want that thing to go away.
1:06:33
The big auto OEMs make money selling cars with ice engines, it's simple as that.
1:06:44
And there's no surprise, they've been doing it for 100 years, they're way down the learning curve, they have scale, blah, blah, blah, blah, blah.
1:06:53
And so, these damn electric vehicles are kind of no fun.
1:06:53
And so, the Google situation you've described, I think it's similar.
1:06:58
But my general advice is always the same, which is, it can take a while, but in the end the customers will triumph. And A. G.
1:07:05
Lafley, my friend who I co-wrote the book with, great CEO, was very good on this.
1:07:18
And one of his big customers, big [inaudible 01:07:27] customers came to him and said, if you don't stop cooperating with Amazon, we're going to de-list all your products. Big threat. Big threat. And A. G.
1:07:31
just said, "If customers want to shop there, we just can't not be where our customers want to shop.
1:07:42
And so, if you feel you need to do that, you're going to have to, because customers want to shop there, and we are not doing that.
1:07:57
But what are you offended by, that we're doing there?"
1:07:57
And they said, "Well, you are allowing them to ship products to their customers from your distribution centers." And A. G. just said, "Yeah? Do you want to too?" And they were like...
1:08:16
And he just said, "We don't do anything special for them that we wouldn't do for you, they ask for things that you don't ask for because of their business model.
1:08:33
But if you come to us with ideas of how we can help you serve our joint customers better, we're all in.
1:08:40
But we're not boycotting a place that customers have shown they want to shop," as long as it's an honest, if Amazon was sleazy and dishonest or whatever, but an honest, upstanding place where customers can get our products.
1:09:06
And so, that's where I'm at, which is, you may have to scramble like hell, you may have to suffer from economic downturn, but if you think you can...
1:09:15
I always think of it, I don't know if you did this as a kid, Lenny, but when we went to the beach on family trips, we would, I have four brothers, we would build...
1:09:31
Plus then a baby girl later.
1:09:31
But we would build sand castles and try to hold back the tide, this would be in Florida or California, and we'd try and hold back the tide, and we'd come the next morning to see if our castle... And it was always gone. It's gone.
1:09:49
But we'd keep trying doing it, and it's sort of like, you can't hold back the tide.
1:09:49
Maybe you can for a while, but you can't forever.
1:09:55
So, you just have to figure out where are the customers going.
1:10:03
And if they're going someplace...
1:10:03
And Vanguard did this, Jack Bogle, the late Jack Bogle, he died now, a couple of years ago now, he did not like ETFs.
1:10:10
He said ETFs are not as good for customers as mutual funds.
1:10:17
And he had all sorts of good reasons for that, but the index ETF business started to grow like crazy, and Jack had to relent and say, I don't think it's good for them, but they want it, and so they went whole hog into it, and are the leading index ETF provider, as well as the index mutual fund provider.
1:10:39
But for a while they weren't, but he realized it was the tide, and he was attempting to hold back the tide. So, good luck.
1:10:52
Good luck to you on that.
1:10:52
So, to me, if Google thinks they can, because of their power and the fact they've got a multi-trillion dollar market cap, and they've got a near monopoly position on something, they can hold back the tide.
1:11:05
You see, the water finds a way to flow.
1:11:14
Think about Microsoft and its monopoly on PC operating systems, or it's near monopoly on PC operating systems.
1:11:22
And I would argue that they abuse that kind of monopoly.
1:11:22
I often asked people, when's the last Windows update that got you as a customer excited? Yeah, Windows 95.
1:11:39
The answer, I think is really clear, Windows 95, right? Yeah.
1:11:43
Because that's when he took the graphical user interface that he bought rights to from Steve Jobs and put it on, so you didn't have to do backslash backslash...
1:11:48
You could actually point and click.
1:11:52
That's a long time ago, last time I checked, that's now almost 30 years.
1:11:52
And so, they just abused their customer.
1:12:00
Is their share of PC operating systems much lower than it was then? No.
1:12:08
But that's not the right measure of share.
1:12:08
The right measure of share in my view in that industry is your share of minutes spent staring at a smart screen.
1:12:26
That's what the share of operating systems that you should care about.
1:12:26
And so, what kind of smart screens do people now stare at most? Most?
1:12:31
And what other one do a lot of people stare at who really like them? Pads.
1:12:41
And so, if you added up all those and said, what do you think...
1:12:49
So, what's their share of smartphone operating systems? Microsoft?
1:12:55
Last time I checked it was 0. 4 of 1%.
1:12:55
Yeah, so effectively zero. How about pads?
1:12:55
Apparently it's 4% there.
1:13:02
So, their share of people staring at a smart screen has plummeted. Plummeted. Why?
1:13:12
Because water finds its own level.
1:13:12
People said, there are these other ways of getting around this, and I'm going to take those ways.
1:13:22
And I think the degree to which people use their smartphone for more things, as the function of that smartphone is advanced so much faster than your PC operating system, because more people are using it.
1:13:36
So, that's what I'd say to Google.
1:13:36
I don't care how painful it is, water flows downhill, the tide comes in, and you cannot stop that, even if you're one of the most powerful three firms on the face of the planet.
1:13:59
And it may take time, but eventually the customer tide pulls, that's a, I think that's really important. But yeah, start now.
1:14:04
If you don't start now, it's too late. Yeah.
1:14:11
I want to end with one very tactical question for people, that may feel overwhelmed, they're just like, oh my God, I don't know what we're going to do, this is so hard, all strategy stuff.
1:14:20
You have this really cool idea called betterment, I think you wrote a media post about it, thinking betterment over perfection.
1:14:24
And it gives you a first step of like, okay, here's a way to move forward.
1:14:28
Can you just talk about that approach?
1:14:32
So, for me, strategy, this thing called strategy, with people, oh my God, oh my God, how am I going to do strategy? Whatever.
1:14:37
I just think of it as a problem solving tool.
1:14:37
And what problem should you attempt to solve?
1:14:44
You should attempt to solve something where your current outcomes that you're getting are lower than the outcomes you wish you were getting.
1:14:51
That's what I call a gap.
1:14:58
There's a gap between those two.
1:14:58
And you should just conceptualize it as, your current outcomes are a natural result of all the choices you've made interacting with the competitive environment.
1:15:11
And so, you should reasonably assume that probably those outcomes aren't going to get a whole lot better, because they are the way they are for a good reason.
1:15:18
So, you're going to need to make a different set of choices to make that gap go away.
1:15:25
That's what I would work on.
1:15:31
I would just ask the question, what is the single most painful gap currently that I'm facing?
1:15:35
Customers used to do this, and they're doing this, I can't find this kind of resources, our distribution channel has abandoned us...
1:15:42
Whatever is the most painful thing, and then just tackle that.
1:15:49
And say, what different choices could I make?
1:15:49
And I'd say, use my cascade.
1:15:55
Could I change where I'm playing?
1:15:55
Could I change how I'm winning?
1:15:55
Could I change my capabilities?
1:16:01
Could I change my manage systems, in order to achieve a different aspiration?
1:16:01
And so, don't try to solve the problems of the world, or even all the problems of your company, that's perfection.
1:16:16
Betterment is making that gap go away.
1:16:16
And guess what happens if you make that gap go away?
1:16:21
You can turn your attention to the next gap, and the next gap, and the next gap.
1:16:28
And if you do that all the time, you're always working on the next gap, the next...
1:16:28
They'll get smaller and smaller over time.
1:16:35
I don't know if this is a great analogy, but I was dean of a business school for 15 years, the guy who won the professor of the year award more times than anybody else, and did it sort of teaching tough courses, often executive MBA courses, and the like, had a simple formula for doing it.
1:16:52
Which is, he taught second-year courses, and second-year courses happened to be 13 two hour lectures, or sessions, [inaudible 01:17:10] or another.
1:17:10
He just polled the students on what they thought of each session as they went along, and regardless of the reason, regardless of anything else, simply chopped number 13 every year.
1:17:26
Because in some sense, it's the biggest gap, the gap between what the customers, students, wished for, and were getting.
1:17:33
And he would just replace it with something.
1:17:33
He would try something else, and replace it with that.
1:17:40
And you'd say, and that gets you professor of the year every year?
1:17:46
And the answer is yes, betterment.
1:17:46
Because if you're teaching for 25 years and you just keep doing that every year, every year, the course keeps getting better and better and better and better and better and better.
1:18:02
So, betterment, it doesn't make purists feel awesome, but I'm not here to make purists feel awesome, I'm here to help people get better.
1:18:21
This makes me think about your water metaphor too, of just water eventually finding a way through.
1:18:24
[inaudible 01:18:26] iterating, [inaudible 01:18:27] things better.
1:18:27
Yeah, lots of what I think about in strategy is natural, if you will.
1:18:31
I try to ask, how does the world generally operate, and is what we're doing consistent with the way the world generally operates or not?
1:18:42
Roger, this was so much fun, we covered everything I was hoping we'd get through.
1:18:46
I think we're going to help a lot of people with the way they think about strategy.
1:18:49
Is there anything else you wanted to just leave listeners with, or say before we wrap up and let you go?
1:18:51
We covered a lot, so there may not be anything left.
1:18:58
Well, on strategy, there's one piece of advice I'd say.
1:18:58
People often ask me about people who are natural strategists, or they say, I'm not naturally good at that, I'm more of an operational guy or gal.
1:19:10
And what I tell them is, I have never met this mythical beast called a great natural strategist.
1:19:18
And they often throw back in my face, Lafley.
1:19:18
They say, look, Lafley, he was known as a strategy genius.
1:19:25
And I say, yeah, but when I interviewed him in depth about his background, for a paper I was writing, what I discovered was when he was in the Navy, as a whatever, I don't know, probably 25-year-old in the Navy, he had a job where he had to think about strategy, and was testing things out, and doing things, and the like.
1:19:49
And then, I realized that he had been practicing strategy for decades before he became the CEO, decades.
1:20:04
And so, he just had more reps when he became CEO than almost anybody else that I've ever met.
1:20:11
There's another guy, [inaudible 01:20:15], ex-CEO, now he's gone on to a higher level of Lego brand group, would be similar.
1:20:18
So, great strategists that I have met have all one thing in common. They just practice.
1:20:29
And anybody, there's no such thing as a person who is willing to practice strategy, who will end up saying, I'm operational, I don't do strategy well.
1:20:38
Which links to our last thing about betterment.
1:20:45
Just work on making different choices to solve problems.
1:20:52
Not problems that I say, I'm not going to define your gap, it's one that you feel in your heart, I wish this were better.
1:20:57
Work on it, if you do that, you'll be a great strategist.
1:20:57
So, be encouraged, don't be discouraged.
1:21:03
And the worst thing to do is to wait.
1:21:03
People say, well, I've got all these operational concerns right now, and then I'll get to strategy later.
1:21:18
You'll never amount to anything.
1:21:18
Nobody who says that ever amounts to anything. Wow.
1:21:22
I love this, I love how empowering it is, I love the real talk. Roger, you're awesome.
1:21:24
Thank you so much for being here. You're most welcome.
1:21:28
Thank you for making it a fun journey for me.
1:21:32
I learned a ton, and that's always a good sign, and it was a lot of fun. Well- Thanks, Roger. Good. All right. Bye everyone.
1:21:39
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1:21:43
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1:21:49
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1:21:54
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