Lenny's Podcast: Product | Career | Growth - 5 essential questions to craft a winning strategy | Roger Martin (author, advisor, speaker)

Starting point is 00:00:00 Why are so many people bad at strategy? What's taught now in business schools generally sucks. People aren't prepared educationally. Then they sure don't get prepared for it in companies. It's intellectually challenging and it's emotionally intimidating. You have something you call the strategy choice cascade. You have to have answers to five questions. What's your winning aspiration?

Starting point is 00:00:22 Where to play? How can you win? What capabilities do you have to have that your competitors don't? And then what enabling management systems do you have? have to put in place for the most part in the leading business schools. It's illegal to teach that. Playing to win, you talked about it. There's kind of these two routes.

Starting point is 00:00:38 You have to be if they're differentiated or low cost. There's no way to protect yourself if you're not one of those two. Is there anything else you wanted to just leave listeners with? I have never met this mythical beast called a great natural strategist. Great strategists have all one thing in common. They just practice. Today, my guest is Roger Martin. Roger is one of the world's most trusted strategy advisors.

Starting point is 00:01:05 He's Professor Emeritus at the Rotman School of Management at the University of Toronto, where he served as dean for five years. In 2013, he was named Global Dean of the Year, and in 2017, he was named the world's number one management thinker by thinkers 50. He's also the author of what many listeners consider their favorite book on strategy called Playing to Win. I've gotten a lot of requests to get Roger on this podcast, and I can now see why. 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.

Starting point is 00:01:38 We delve into the five questions that you need to answer to help you craft your strategy, how Hamilton-Helmer, Michael Porter, and Richard Remelt's work fits into his framework and world view, 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. This episode is for anyone who is trying to build their strategic thinking muscle. If you enjoy this podcast, don't forget to subscribe and follow it in your favorite podcasting app or YouTube.

Starting point is 00:02:10 It's the best way to avoid missing future episodes and it helps the podcast tremendously. With that, I bring you Roger Martin. Roger, thank you so much for being here and welcome to the podcast. It's great to be here, Lenny. Thanks for having me. 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 CEO or the founder or executive company get better at product strategy, at crafting a strategy, valuating strategy, developing a strategy. Because it feels like there's always tons of advice for like the leaders of a company, but less for people on the ground doing the thing. And I feel like, luckily your stuff applies to everyone.

Starting point is 00:02:53 So how does that sound as a lens for? That sounds great. And can I tell us a little story to that end? Please. So recently there is a newspaper article saying that, pointing out that 10% of the S&P 500 CEOs, 10% are ex-Procter & Gamble people. It's an amazing number, like a stunningly high number. Why would that possibly be? I believe it's because at Procter & Gamble there is a view that people weigh down the organization, like let's just say the head and shoulders brand franchise leader who reports to the head of

Starting point is 00:03:35 shampoos and conditioners who reports to the head of beauty care who reports to the CEO so at least four levels down in the organization and the guts of the organization proctor understands that that individual not the CEO not the global president of beauty care not the head of hair care 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. 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,

Starting point is 00:04:26 and they get trained to be a CEO someday. So I'm with your thesis, but yours is counter what I would say is normal. 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 term of art for what it's worth. And so I think you and I are singing from a bit of the same

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Starting point is 00:06:45 you should consider WorkOS. It's a drop-in replacement for Auth0 and supports up to 1 million and monthly active users for free. Check it out at workos.com to learn more. That's workos.com. I just want to ask this broad question about strategy. Why is strategy so hard? Why are so many people bad at strategy? Perhaps the thing that makes it sort of intellectually hardest

Starting point is 00:07:13 is that it is an integrative activity. You've got answers to a bunch of questions that have to fit together and reinforce one another. So that just makes it a little more complicated. It's not like saying kind of Lenny, what do you want for lunch? It's saying, Lenny, what kind of diet do you want that will keep you healthy? And that includes breakfast, lunch, dinners, snacks, a whole bunch of other things that you've got to kind of fit together. So it makes that harder to do it.

Starting point is 00:07:50 intellectually. Another aspect of it is it is intimidating. Strategy involves making choices to do some things and not other things. And it is often intimidating to say, you know, oh dear, I have to 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. So that's a second thing. It's harder sort of emotionally, not harder intellectually. And then there's sort of the training aspect of it, the knowledge aspect of it, which is what's taught now in strategy in business schools generally sucks. It's gone on a crazy theoretical bent. The Strategy Academy as a whole has fallen in love with a theory called the resource-based theory of the firm that is silly and nobody uses it

Starting point is 00:08:56 out in the world. And so students are no longer trained on useful strategy. 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 other things. 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. It's intellectually challenging and it's emotionally intimidating. On this point you made about how schools are teaching strategy wrong, how do you describe what the wrong

Starting point is 00:09:45 approaching? It's a theory that's sort of taken over called the resource-based view of the firm that said, that was like in the world of academics is a weird place where the number one emotion is jealousy and people were massively jealous of Mike Porter, who sort of created many of the most important concepts of strategy when he wrote a book competitive strategy in 1980. And so they needed to sort of 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.

Starting point is 00:10:26 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. We, at the resource-based view of the firm, think that strategy is all about building resources. And if you build resources, it's almost like if you build it, they will come. And that's what you should pay attention to.

Starting point is 00:10:59 Now, the problem is any resource, right, that may be useful. somewhere is not necessarily useful elsewhere. So it sort of begs the question, how would you think through what resources to invest in building? What would be a way of doing that, investing here versus here versus here? It's silent on that because it's kind of a dumb theory and it doesn't have anything useful to say in my view about that.

Starting point is 00:11:33 And so when the students go out and say, their company, I'm going to do a V-R-I-O analysis or a V-R-I-N, some people just roll their eyes at them. And so it doesn't get used. I've only seen it used. I've been in consulting companies for 42 years, and I've seen it used once. And the truth, as is usually the case, is that it's both.

Starting point is 00:11:58 And that's why the model I use for strategies says a lot about where you play. that's one of the key questions and your capabilities are important and you've got to link those things things together but that's for the most part in the leading business schools it's illegal to teach that illegal to teach your approach yes i couldn't teach my approach at my own business school so when i was dean the most powerful person but the the 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, finance, et cetera. 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, powerful dean. And students would beg me,

Starting point is 00:12:55 they'd say, you know, Roger, you're this, you have this, you know, 20 years of experience. You're sort of a famous consultant in strategy. And you got to. these theories, please teach a course in it. I did do extracurricular stuff where I did, I had practice of, you know, one Saturday a year teaching everything I knew to anybody wanted to show up. But for credit, I was not allowed. And if you don't, if you try to get a job at any business, the only exception might be Harvard Business School, maybe.

Starting point is 00:13:32 but if you took the 49 other top business schools in America and and if asked the question, do you swear allegiance to the resource based view of the firm? If you don't answer an enthusiastic yes, you have no chance of being hired. Zero. Wow. This academia drama, I had no idea. The loyalty test. This is unreal.

Starting point is 00:13:56 Makes me even more excited to dive into your world and your ways of seeing things. Before we do that, just we've had a few other. strategy people on the podcast. It might be helpful to frame out where they fit in the spectrum that you're describing. Okay. I may not know all of them, but do you give me your... I imagine you do. So we've had a Hamilton Helmer on the podcast.

Starting point is 00:14:16 And then Richard Vermelt on the podcast. How do they relate just for people to get into your stuff versus this dogma? So one of them is, one of them is sort of an academic and one of them is a quasi-academic or non-academic like me. Like I was a tenured professor for many years, but don't consider myself. And I'm an academic, I don't think Hamilton does,

Starting point is 00:14:39 though I've never asked. He's an investor now. Yeah. So he's wrote, written a very, I think, useful book that would in some sense fit into my how to win box,

Starting point is 00:14:53 right? I say, I say strategies about where do I how to win? And he has a category, what I call a categorical model. Here are categories of things that you should think about. If you're trying to win, here are seven ways of winning. And I categorize him as a non-academic practical strategy guy.

Starting point is 00:15:16 Richard Rommelt is a now retired Tuck professor, and he is kind of this hyper-competition thing that he does. he also is of the of the I'm jealous of Mike Porter kind of thing so I've got to say Mike Porter is wrong and here's how I am so right and competition doesn't take place in the way Mike says where it's really stable and and whatever it's really hyper competition Mike Porter never in his entire life that's that competition is stable he's repeatedly said the opposite 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.

Starting point is 00:16:04 And so I don't know. He seems like a fine guy. I don't think that he, like most business academics, he doesn't know much about business, right? like he hadn't gone out and practiced a lot. He came to our school and gave a lecture because people love hypercompetition because he would blast Mike Porter and he gave a example of Procter & Gamble. I've been consulting at Procter & Gamble and know everything about Procter & Gamble basically.

Starting point is 00:16:41 And what he said about Procter & Gamble had zero to do with reality. zero. It was just completely, utterly, absolutely wrong. And I sort of asked him afterwards, it's sort of like, why do you say that? And he said, well, I think that's the way it worked. Are you kidding me? So I'm not, I'm not a, I'm not a fan of, of, of that piece of work. I would say it's, it's, it doesn't fit nicely into research, it's view of the firm versus, versus Mike Porter. It's sort of like, here's another, here's another, here's another, to take on the world and and I'm going to take that lens. Everything's hypercompetitive and and here's how you think about hypercompetition. This is fascinating. I love they were spending

Starting point is 00:17:34 some time on this. This is really helpful to hear the landscape of strategy minds. Okay, let's dive into your worldview and maybe the simplest way is just like how do you define strategy? What is a strategy? Strategy is an integrated set of choices that compels, desires, customer action. So the way I think about it is there's a whole bunch of things company controls, right? How many factories to build, how much

Starting point is 00:18:03 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. Those are all the things under our control. What, Lenny, is the thing we have almost no control over? What?

Starting point is 00:18:19 What the customers do? Yeah. Like, we would like to take some of these out of their pocket and give them to us. Can we make them? No, we can't. So essentially, the job of strategy, right, is to make decisions on the things we do control that will compel, right?

Starting point is 00:18:40 We can't force, but it'll compel them. 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. So the important pieces of it are is integrated, right? It's the whole set of choices that has that one outcome that it compels desired customer action. Amazing. Okay.

Starting point is 00:19:12 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 their strategy. Can you talk to this? Yeah. And this is, yeah, this is sort of the fruits of many, many years of doing strategy work and trying to figure out, like, how do you do this thing? Because the fun thing was, I was in the era, like 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. So it was still in the early days, and, you know, Bruce Henderson had a theory of how

Starting point is 00:20:02 strategy should, what result it should produce for you. 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, right? It has to. It has to It has to have this as its output. 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? So Mike Porter says you have to be either differentiated or low cost. Good.

Starting point is 00:20:38 And if you look through competitive strategy as landmark seminal book to say, how would you do that? There is no answer, right? And so, 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. You know, 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. how do we think through creating one of those? We didn't actually have an answer.

Starting point is 00:21:22 And it turned out because I was sort of 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 sort of discovered, we really didn't know that. And clients really wanted us to tell them that. Between 1987 and 1995, I did all this work on. Well, how could you develop a process for,

Starting point is 00:21:46 getting yourself one of those, right? One of those excellent strategies. And I came to the view that you have to have answers to five questions. You have to have an answer to the question of what's your winning aspiration? Like, what are you trying to accomplish? Because it'll help contextualize the kinds of choices you could make. 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? You're not going to play everywhere in every product at every vertical stage around the world you're going to pick some place and in that place how can you be either better than competitors in terms of craving customer value or lower cost than those competitors to win there where you've chosen to play to meet

Starting point is 00:22:42 your winning aspirations. What capabilities do you have to have that your competitors don't that would enable you to win that way? And then what management systems enabling management systems 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? 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 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. 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 your book is called

Starting point is 00:23:27 playing to win. You talked about this idea you need to play to win and you kind of argue that a lot of people are just playing to play. They're playing to play the game. I'm guessing most people listening and most people developing a strategy don't think they're doing that. don't think they're just playing to play the game. They think they're playing to win. I'm curious what are signs that you're just not, you're not actually playing to win. It would be mainly signs given to you by customers. So if you say, we're the most innovative company in our industry. And customers, and let's say the industry distributes through a given a given channel and customers come into that channel and and they look at the two products and say

Starting point is 00:24:13 I could flip a coin on this one right you are not effectively playing to win maybe you thought you were winning but but customers don't think your your better or if your competitor lowers their price compared to 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,

Starting point is 00:24:48 but they do, and you have to give them whatever share they desire at that lower price because you can't compete there. So you'll know you're playing to play if you're not aiming to an accomplishing, having either an offer where Lenny walks into the store, whatever kind of store it is and says, and it says to the person in the store,

Starting point is 00:25:11 I want that brand. Right. This example, Lego, one of the companies I've worked with for a long time, great company. 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,

Starting point is 00:25:33 is not a toy store. They would define it as not a toy. They said, mom, why are we here? I wanted to go to a toy store. And she said, but it says toys on here. And the kid says, uh, uh, that's an insane brand. That's an insane, insane, insane brand. And, you know, it has a price premium for anything over any of its competitors by

Starting point is 00:26:01 by a long shot. It keeps growing. It actually, for most years in the last decade, it has had 80 or 90% of the entire category growth is the Lego. And so they're playing to win to be distinctive in the minds of consumers. But, you know, Vanguard, you know, has got $9 trillion of assets under management last time I checked. Does it do anything distinctive? not really the customer

Starting point is 00:26:31 but do they have the lowest cost position so they can charge the lowest AUMs? Absolutely. And so there's different kinds of ways but you'd know by the actions that customers take. So essentially, Timurback, what you're saying, to win, there's kind of these two routes you talk about. One is you're the lowest cost option.

Starting point is 00:26:55 The second is you're differentiated. You have a differentiated brand where it's not, of coin flip, it's like, oh, I really need that for this reason. Yes. Yeah, you got it. And if you don't, can't do that, then the advice you share is go find a different playing field. Well, or get out of business, whatever, like, you know, it's only a matter of time until you're dead, right? Is the sad kind of truth as a matter, which is the competitors in your industry who are either low cost or differentiated, can.

Starting point is 00:27:29 essentially jerk you around as much as they want. It's like Southwest Airlines, right? Like 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. They have good cycles and bad cycles. How did that happen?

Starting point is 00:27:57 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 you know welcome to town that's all they can do they just have to seed position and that's what happens if you play to play you will end up just being I mean, it's literally like having a bully who can just, you know, you 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.

Starting point is 00:28:33 There's no way to protect yourself if you're not one of those two. You cannot bully Vanguard. You cannot bully Southwest. You cannot bully Procter & Gamble. You cannot bully Lego. So that's the way the business world works. 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.

Starting point is 00:29:02 So they're like, all right, there's not that we can do. Yeah. Awesome. Right. 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 things. days like a thousand bucks for a round trip because it was a nice duopoly.

Starting point is 00:29:24 When it's 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 bucks. And they had great advertising. I always loved the advertising. They had when they entered, they did maps of Boston and said, if you live in either, 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 for to go to to Logan because at Logan right you're at a 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 and at Providence if you've ever flown out of

Starting point is 00:30:06 providence you can park about a hundred yards from the gates and so they just had to say we 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. What I love is we're already diving into these five questions. So we've been mostly talking about how we will win. Basically, here's your options to win. Low-cost provider or be differentiated or find a different place to win. Let me summarize the five again.

Starting point is 00:30:34 What is our winning aspiration? Where will we play? How will we win? What capabilities must we have in place to win? And what management systems are required to make sure the capabilities are in place. Right? You've got it. Okay.

Starting point is 00:30:45 You've got a very quick study, my friends. I've got some notes here. Coming back to the how will we win? 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. Okay, how do we differentiate?

Starting point is 00:30:57 Is there like a taxonomy of options that you think about or tell people like what are the ways and options for exploring? Here's how we will be different. It is mainly understanding customers kind of as well as you can. And then saying, is there a way to be distinctive against that? And there are lots of ways to do it, but it's tied very closely to the capabilities, right? Which is, if you have a way of winning, right, 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 kind of be the best. but it turns out that anybody you can build a website

Starting point is 00:31:46 can sell pet food on the internet and in fact 20 of them do it almost immediately and they all go bust you don't have the capability so you've got to ask yourself the question can I serve a particular customer need

Starting point is 00:32:02 with a set of capabilities that are going to be hard to replicate by my competitors they either can't do it or they won't do it. And both are important questions because sometimes it won't, right? Like, do you really think Walmart couldn't have built as good a website as as Amazon and at massive scale? I think they could have, right? Yeah, probably. Did they? They didn't. 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

Starting point is 00:32:41 we've got all that and that would be really that would be a bummer. And so they don't do anything for 10 years giving Amazon the scale. So the Amazon then has this huge scale advantage, kind of on this and network effects and voila. You've, you know, you've got a competitive advantage that you that you didn't necessarily kind of completely deserve. You needed the help of the player who stood to lose the most to hope that it wasn't going to happen. Same with Tesla. Tesla got a 10-year head start, not because the OEMs couldn't. They could have.

Starting point is 00:33:22 And of course, GM did many, many years ago, right? Great a fully functioning electric vehicle. But they couldn't figure out how the hell you make. make a buck on it. And so they didn't, they didn't do it, giving Tesla the ability to establish a brand that the people associate with that electric vehicle equals a Tesla and get them, you know, allow them to jump way ahead and then have the scale that is hard to, hard for others to match. 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, not a solution.

Starting point is 00:34:00 you could have a better pet food. You imply that's not going to get you there. Can you talk a bit about that? Yeah, 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, right? Like one of my favorite businesses,

Starting point is 00:34:21 because I was on the board of, I was on the board of Thompson Reuters for 14 years. It was Thompson first, and then he bought Reuters at Thompson Reuters. Best business is a business called Westlaw. And it's the dominant provider of online legal searches. So if you're a litigator and you're getting ready for a case and you need to know what are the important precedents for this case,

Starting point is 00:34:47 you go on to Westlaw and put in some search terms using a Westlaw keyword system to help, help with it and you get the five cases that really matter. You can Google it and do the same thing, and you'll get the 500 cases that might matter. So how does Westlaw do that? Well, for now over 100 years, they've taken every case that's come out of the U.S. legal system, had a lawyer, a Westlaw lawyer,

Starting point is 00:35:26 write a headnote that summarizes what's in the case using these key words so that they are searchable. And today, to do 2024, takes 1,500 full-time lawyers. Right? So if somebody else said, you know, this Westlaw business is incredibly profitable and it keeps growing and it's, you know, it's awesome. I'd like to be in that business. 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 Westlaws and then you'd have to do what Westlaw has done for the past 50 years, which is

Starting point is 00:36:07 give it free to law schools so that they teach their students before they even get out how to use Westlaw and all, you know, no probes. It'll be easy, right? You know, nobody's even tried. Why bother? Life's too short. And that's the kind of, that kind of capabilities you need. need to be able to say we'll win by having the searches that make the lawyer's job the most effective. And if it saves them time, it saves them money, right? And you don't need a huge law library. Like law firms used to have these huge law libraries, right? You don't need one. You need a terminal where actually now it's on everybody's PC. And you don't need a bunch of librarians to go and find the cases that you need,

Starting point is 00:36:55 they pop up on your screen. That's a great case of competitive advantage. Today's episode is brought to you by Cycle, the AI-powered feedback platform for product teams. Is your customer feedback a tangled mess of Slack threads, survey responses, and overflowing inboxes? Wish that you could know what your customers really need.

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Starting point is 00:37:46 across your entire feedback repository. What makes Cycle different is the way that it lets you close feedback loops in each release. Feedback is not used just as a way to prioritize what to build, but also as a tool that creates trust with all stakeholders. Sign up for a free cycle trial today at cycle.app slash Lenny and put your feedback on autopilot. That's CY-C-C-L-E dot app slash Lenny. So essentially, we're talking about moats. What are some moat that you can create where people can't just copy what you're doing? Warren Buffett likes that terminology, right?

Starting point is 00:38:21 that's what he says he invests he invests in moats yeah i'll find the quote we used we did in a recent podcast episode but he's like yes castles with moats like and maybe along those lines is there is there kind of a way you think about types of barriers to recreate capabilities is like here's the options we have is it like like essentially the seven powers i think talks about this yeah yeah i mean that that's that's why i kind of like helmer like because he he categorizes them and i and i've got and i've got to look into look into it some more because I mean I haven't studied it to say whether I would whether I would concur that there are just seven or there are more my suspicion might be that there are more but

Starting point is 00:39:03 there may there may not be they may be all clustered there may be variants that cluster behind those but I don't myself have a categorization scheme that says here's how you search for the the moat great that would be nice So here's the quote from Buffett, by the way. I look for economic castles protected by unbreechable months. Yes. I like that. I like that.

Starting point is 00:39:29 And he's smart. He's consistent. Though, you know, everybody makes mistakes, right? You know, and he did too, right? Solomon Brothers, U.S. air. It's, you know, anybody who thinks they can be perfect on strategy is delusional. And so even the very, very best, like a Warren Buffett who's outstanding, arguable, genius is going to sort of think.

Starting point is 00:39:54 I think this, I think this is a moat and it's going to be ephemeral. 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. We talked about that Hamilton Lhammer that every start of deck has like, here's our moats, here's how we're going to have barriers to entry. And they're all delusional, like rarely is there ever actual moat, especially in the early stages. Yes. Let's go back to the five questions again, because that's so core to the way you think about strategy. What do you think about using, say, this fig jam is an example as a hypothetical, just to think through questions that they might ask to think about strategy.

Starting point is 00:40:36 And I can describe what fig jam is. Sure, sure. I do not know that product. 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 cursors. And so it's for like brainstorming and ideation. and laying out concept. Gotcha. Okay, that would make sense for thing.

Starting point is 00:40:54 Yeah, exactly. Yeah, right. Okay, so you'd ask the question, sort of, kind of what are we trying to accomplish, right? Are we attempting to create something where nothing sort of digital exists? People do this in pen and paper, or are we, and so we're trying to invent a category,

Starting point is 00:41:19 and then, you know, be transformative by making the user experience better? Is that what we're trying to do? Or are they, or their players are already doing this and they're just not doing it very well? You know, you'd want to sort of say, well, what are we trying to accomplish? And I don't spend a whole lot of time on that because you've 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. And so what do you think their reason for FIG jam is worth investing in this?

Starting point is 00:41:54 What do you think it is? Is it white space or is it crummy offerings in the market currently? Like 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 is this adjacent market for product teams broadly to be using Figma more. and there are existing tools similar to that that are good. So I don't love it to start. I had to say more. So there's a big market over there.

Starting point is 00:42:29 We'd like to get some is a terrible reason in my view. The reason should be customers are bereft. Customers are lacking something that we can provide. this is why I hate most and most entries by foreign companies into China they get their faces shot off and the reason is the rationale

Starting point is 00:42:54 is it's big we could get some of that so I don't love it for for starters and I'm not saying that that will guarantee failure but it's it's if somebody gave me

Starting point is 00:43:10 review with a pitch deck for that I would I would not admit 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. So that would be, that would be a better one. And you're speculating. I've asked you to speculate so we don't know, but I like that one better, right?

Starting point is 00:43:31 Which is, what's our aspiration is to satisfy 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. And so you want to frame it in the words of how customers would benefit, essentially. I just think those tend to be stronger, strongest, if there's a link. Because remember, what is strategy about compelling desired customer action, right? So everything sort of ties back to that.

Starting point is 00:44:05 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 kind of what product is it, you know, is it a finished product? Is it a component of, you know, kind of product through what distribution channel would we sell this? This is another self-serve type product because I think Figma is mainly self-serve, right?

Starting point is 00:44:34 And so you choose that where and then say, how can we solve before we get to that before we get to that right? Yeah, yeah, yeah, please. So the things you mentioned there is like who specifically

Starting point is 00:44:47 are the customers in this case would be like product managers, engineers and other functions and then there's the distribution channels like how we'd actually get to them. Get to them, yeah. And then what else was, what other questions are there within this

Starting point is 00:44:59 where we will place? Is sort of to what extent is it a finished product or a component because sometimes it could be, you know, we'd like to supply this component that could be integrated into other people's products. I mean, that's what Apple apps are, right?

Starting point is 00:45:16 Got it. We don't sell them an iPhone. We sell them a component within the iPhone. The customer's iPhone. Is that what we're doing here? Because then you have to ask questions about, well, how does it fit in with the rest? So the wear also implies, like, where in the product it kind of lives, like where?

Starting point is 00:45:36 At what vertical stage? Is it like, is it an individual? grid product where the whole thing from soup to nuts is some upstream pieces that some people downstream do we take pieces from other people and assemble them so we're the we're the integrator those are all those are all important where to play choices from from from from my view because those those make them you know kind of a big a big different like four seasons chose a four seasons the hotel company luxury hotel chose a completely different choice on the vertical stage where to play.

Starting point is 00:46:13 Back in the 80s, they said, we're going to get out of real estate development. So buying land and getting it zoned for hotels. We're going to get out of construction, building hotels. 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. rich people like, you know, 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. That is a where to play choice, right? Even though somebody could say, well, you're just your luxury hotel.

Starting point is 00:46:56 You're like the other luxury hotels who serve luxury customers at a high high price. Oh, no, no, no, no. They do it with a stack this thick. We do it with a stack this thin. It's like a value chain question. Like where in the value chain you're going to play? Yeah. Where in the value chain?

Starting point is 00:47:12 That's exactly, that's exactly right. And everybody has value chain questions. 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. 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. You can complain like crazy that they're taking so much of it and this is unfair and they've got a duopoly.

Starting point is 00:47:44 Yeah, but you guys, you guys cooperated 100% in building that, 100%. Never complained about it until you wanted a bigger piece of the pie. That was a vertical stage, a value change stage that you chose willing, Nobody forced you to do it. And Apple's not playing ball giving it back. No. No. And do I love just how controlling and everything Apple is?

Starting point is 00:48:14 Do I? No, no. But would I say, oh, those poor apps, right? Yeah, no. Get your own distribution channel, buddy. Cold-blooded. Yeah. Okay. So we've talked about the winning aspiration.

Starting point is 00:48:31 So for FIG Jam and B, satisfy customers that are trying to work with their team in these different ways and make sure they are staying, make sure they get what they need out of Figma versus going to maybe to other tools. And then where will we play? 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. Yep. And then it's how will we win? How do you think about that? Yeah.

Starting point is 00:48:57 Yeah. Well, you ask the question, how can we solve? Well, how can we either solve that problem at a much lower cost? So we can always be a sharper price point than them. So if they exist, there are solutions, but they cost 50,000 a user because their costs are 30,000 a user. We can do this for 15 bucks a user. And so we can charge 100 bucks per seat and absolutely annihilate the competitor by

Starting point is 00:49:30 figuring out a less costly way to do it. Or there are other selections, but they make the, the user do all these things and it's ponderous and it takes a long time. 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, in the workflow or we're more integrated. Like Thompson Reiter, the company I was on the board of, you know, our advantage with we were better integrated into the workflow.

Starting point is 00:50:02 You didn't have to sort of 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. Is it better integrated into their workflow that makes their life easier? It would be questions, you know, possibilities like that that I would be asking. Essentially, you've got a theory there of how you're going to be. Are you going to be better or lower cost?

Starting point is 00:50:34 On the lower cost front, I think generally the advice is you don't want to go that route. That's all very difficult route. What's your thinking of just like when to go that route that you might actually win at lowest lower costs? That's not advice I give. I think they're both completely legitimate strategies. They have implications, right? 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. So if you want to be a niche cost leader, you know, good luck to you.

Starting point is 00:51:11 That's almost never going to happen. So Vanguard had to make a race to, you know, 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. And so they are the world's biggest mutual fund company. And you sort of have to do that. And same with Southwest to really make that model work there

Starting point is 00:51:42 to keep expanding and expanding to get bigger M&M Mars. 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, whereas in differentiation, I think you can differentiate sometimes at lower scale and build yourself slowly towards higher scale. But the world, the business world is just getting so much more scale sensitive. Like when you think about the costs of differentiation, it's often spending on branding, spending on R&D, R&D sort of innovation.

Starting point is 00:52:20 Those two are of the most scale sensitive elements of anybody's cost structure. structure. I, you know, and so being a nichey differentiator is getting harder and harder in my view. I think it's also important to say, either path is very hard. Like, it's very hard to build a business that makes money and is profitable and survives just broadly. Yes, yes. You're not going to have this formula of like how to win. Okay, maybe we got it. We got a big business. I agree. I agree. And that's why, you know, if I if I looked at a hundred strategies, of major companies, I'd say I didn't like 90 of them very much. And then like the other nine out of 10 probably look good, but also don't work out. Yes. Yeah. Oh, that's true. There's lots of, lots of spaghetti thrown at lots of walls in the world of business.

Starting point is 00:53:13 Yeah. Capitalism. Yes. Okay. So now we're at the capability step of trying to figure out what capabilities you need to win. Can you talk about, say, with Fig Jam, how do you, what are the sorts of things you think about here? Well, I guess I'd ask myself a question, kind of like, do, is there, is there kind of a learning curve to this where we could have better capabilities because we started earlier than anybody else, right, and have more essentially a cumulative experience? Is there kind of a way that we've figured out how to serve customers that make them. feel tended to better by by us. So we've got we've got helpline. We figured out how to do sort of the helpline because if it's sort of self-serve and that's how they get the product and then they've got they got issues with how to use it. They feel that we're just better. We're the best of all their providers at that. How to win is a theory of how customers are going to perceive us better if we're differentiated.

Starting point is 00:54:25 And then it's what capabilities would we have to have to have to make that theory come true rather than just be just be a kind of a wish. So if we want them to feel like we're the easiest to deal with, we have to have capabilities to do that. It's just like again, four seasons said the reason they're there by far in a way the most successful, profitable, best on all fronts, luxury hotel chain in the world. Biggest, best, most profitable, best employee, ranking, best guest rankings, all of those. 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. You'd say, wow, they're in the lap of luxury. Why would that be? Where do you think they'd prefer to be, Lenny? At home. Yeah. Dominantly at home for their segment.

Starting point is 00:55:24 which was high-end business travelers. They've traveled. They've stayed in one luxury hotel too many 20 years ago. And so we're going to have luxury defined as not grand architecture and decor and obsequious 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. If 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. So we need capabilities. we need staff, right, that can deliver on that capability.

Starting point is 00:55:59 What's the problem for that? 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 and the average hotel is on their way to a 16-month career at that hotel chain. So how do you deliver that really cool, special kind of service with that? The answer is, and now I'm skipping ahead to enabling management systems. You have to have a different way of recruiting, a different way of onboarding, a different way of career development.

Starting point is 00:56:31 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. So that's the capability that you build in 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, for my guess. It's interesting that these capabilities and even the management systems, which is step five, relate to your moat, which is sometimes the thing you need to achieve. Also, ideally is the thing that other people, it'll make it hard for them to do.

Starting point is 00:57:14 So you're exactly right. You can call if you want how to win moat, right, definition of your mode. 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. But here's where there's this modern sort of unfortunately bullshit thing that says, oh, competitive advantage is fleeting in this modern hyper-competitive world and you can't have long-term advantage anymore. And I just say, oh, oh, I see so four seasons. I guess, yeah, I guess that isn't very long term. That has only been 45 years now since they, no, 35 years, I should say, don't exaggerate, since they went to that straight.

Starting point is 00:58:03 Oh, and Tide. So 77 years isn't a long time, I guess, either because they've been the number one detergent for 77 consecutive years. I guess you're right. It's fleeting. It's not. but what makes it fleeting is when you have one thing and one thing only. So let's say you build the biggest polyethylene plant in the world near a good feedstock source

Starting point is 00:58:29 and you have a low-cost position. What's somebody else going to do when they see how much money you make doing that? Build a polyethylene plant beside yours twice the size. And then then you're toast. Why? Because 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 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. Competitors basically say life's too short.

Starting point is 00:59:30 Do they give up and die? No, there are other great chains, Mandarin Oriental. My wife, I love staying in Mandarin Oriental even more than Four Seasons often. And, and, 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 is rather than complete overlap, right, where you've got concentric circles of people picking the same where, you convince people to pick different wares.

Starting point is 01:00:02 That's why people sort of say, Roger, how to win, that's so in politic, you know, because you're producing losers and then there's victims and all that. there's oppressor and oppressive it fits in the modern dialogue and I say no what I want to do is encourage them to find some place else to prosper rather than smack on top of us 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 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? 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 for both of you. That's what you don't want. And the more sort of complicated in some sense, not I shouldn't use complicated.

Starting point is 01:01:02 The more nuanced and multifaceted your capabilities and management systems are, the more likely they're going to say lights too short. Right. That's what everybody says about Southwest. So if you're the only airline in the United States that's earning its cost of capital for 50 years, wouldn't you kind of say, gee, I'd love to be like that. But what does it mean? Well, it means selling off most of your aircraft so that you can have only one kind of aircraft, 737s,

Starting point is 01:01:36 tearing up your entire root structure, your entire hub and spoke structure and make it point to point, kind of changing your complete labor relations strategy from fighting the unions to paying them a lot as long as they're highly flexible. People think Southwest is non-union. It's not unionizes it, but they do different. You have to essentially fire all your travel agents and convince your customers to book online by themselves

Starting point is 01:02:03 to save more money. Life's too short. It's just too short. 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, you know. So to be that's the ultimate. The ultimate is it's like the ultimate weapon is the one you never use.

Starting point is 01:02:30 The ultimate way to compete to win is to never actually be forced to compete. Wow. That's a great quote. This story about Southwest makes me think about Hamilton Helmer's power of 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. Sounds right, but the can't. Yeah, the can't thing. Awesome.

Starting point is 01:03:01 Yeah. And Mike Porter, and he probably made quote Mike on that. Mike was very big on that. He said it's fault lines. You're trying to find fault line where it is so painful for your competitor to come across that fault line into your side. And so a great example of that would be OLE when at P&G and it's in the book when we did the repositioning of that. The competitor that could have killed us, absolutely killed us was Estee Lauder. with Klinique.

Starting point is 01:03:38 If they would have brought Klinique into the mass channels, because we were doing a Klinique kind of thing in the mass channels rather than the prestige. Prestige is like the first four of the department stores, right, which is all, which I'll, or Sephora or Alta, if Estee Lauder would have taken their Klinique brand and brought it into mass, they would have, they would have killed what we were doing.

Starting point is 01:04:03 Simple as that. And in fact, Klinik 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? No, they're not. S. D. Lodder's super smart, but S. D. Lodder also has Bobby Brown and Mac and the S.D. Lodder, it's Lodder, it's Lund and a half a dozen more, all in prestige. And the prestige channel, if they'd have taken Klinique and taken it over in the mass, would have done what? Shot them in the face.

Starting point is 01:04:42 Killed them. Right? They would have been just apoplectic. And so S.D. Latter had to stay, if that's counter-positioning by Helmer's terms, they had to stay there. Was that stupid? No, they're still, with all of their brands combined, the biggest in skincare, but Klinik has, you know, lost leadership to, you know, our brand that they would have

Starting point is 01:05:07 considered kind of nothing. Oil of Olay became OLA, OLA Prove, regenerous, all of these higher-priced products than they could ever imagine being sold in the mass channel. But our biggest friend

Starting point is 01:05:21 was, in some sense, their distribution channel, which would have killed them if we literally. They would have just punished them so, so, so bad that they didn't do it. I love that I'm learning all this information, all the strategic thinking about makeup and skincare. I also love just the idea of you leading

Starting point is 01:05:43 strategy for skincare makeup brands. Yeah, I know. I got Frottery Gamble into Color Cosmetic. It's so funny. I love that. I don't know if you're following the AI Google stuff that's happening where there's search engines competing with Google

Starting point is 01:05:59 by just answering the question versus giving you a bunch of blue links. And there's this question of will 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 like super innovators dilemma position they're in yeah no no i i i'm very interested in in what's going on in in i i'm writing some stuff on on on on that but i mean it's hard like i've seen i've seen the inside of this for many of my my clients it is super hard when the the guts of how you make money

Starting point is 01:06:35 is under threat. And you just don't want that thing to go away. You know, the big auto OEMs make money selling cars with ice engines. That's simple as that. And there's no surprise. They've been doing it for 100 years. They're way down the learning curve. They have scale.

Starting point is 01:06:53 Blah, blah, blah, blah, blah. And so these damn electric vehicles are kind of no fun. And so the Google situation you've described, I think, is similar. But my general, my general advice is always, the same, which is, you know, it can take a while, but in the end, the customers will triumph. And A.G. Laughley, my friend who I co-wrote the book with, great, great CEO, was very good on this. And one of his big customers, big ass customers came to him and said, if you don't stop cooperating with Amazon, we're going to delist all your products. Big threat.

Starting point is 01:07:36 right big threat and AG just said if customers want to shop there we can't we just can't not be where our customers want to shop and so if you feel you need to do that you're you're going to have to because customers want to shop there and we're not we're not doing that but what are you offended by that we're doing there and they said well you're allowing them to ship products to their customers from your from your distribution centers and AG just said yeah do you want it to and they were like and he just said we 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 their business

Starting point is 01:08:36 model but but we're you know if you come to us with ideas of how we can help you serve our joint customers better, we're all in, but we're not, we're not boycotting a place that customers have shown they want to shop. As long as sort of an honest like, you know, you know, if Amazon was sleazy and dishonest or whatever, but you know, an honest upstanding place where customers can get our products. And so I'm that's, that's where I'm at, which is, which is You may have to scramble like hell. You may have to suffer from kind of economic downturn. But if you think you can, you can, like I always think of it.

Starting point is 01:09:25 Like we, I don't know if you did this as a kid, Lenny, but when we went to the beach on family trips, you know, we would, four brothers. We would build, plus than a baby girl later, but we would build sand castles and try to hold back the tide. Like this is being Florida or California, we'd try and hold back the tide and we'd come the next morning to see if our castle is, and it was always gone. Like, it's like gone. But we keep trying doing it. And it's sort of like you can't hold back the tide. Maybe it can for a while, but you can't, you can't forever. So you just have to figure out where are the customers going, right?

Starting point is 01:10:05 And if they're going someplace. And Vanguard did this, right? Jack Bogle, the late Jack Bogle, he died now a couple of years ago now, he did not like ETFs. He said, ETFs are not as good for customers as mutual funds. And he had all sorts of good reasons for that. But the index ETF business started to kind of 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, you know, they went whole hog into it and are the least. leading index ETF provider as well as the index mutual fund provider.

Starting point is 01:10:44 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. Good luck to you on that. So to me, if Google thinks they can, because of their power and the fact they're got a multi-trillion dollar market cap and they've got a near monopoly position on something they can hold back the tide. you see the water finds a way to flow right like think about Microsoft and its monopoly on PC operating systems or it's near monopoly on PC operating systems and I would argue that they abused that kind of monopoly right like I have to ask people when's the last Windows update that got you as a customer excited

Starting point is 01:11:37 Yeah, Windows 95. The answer, I think it's really clear, Windows 95, right? Because that's when he took the graphical user interface that he bought the rights to receive jobs and put it on. So you didn't have to do backslash, backslash, you know, you could actually point and click. That's a long time ago. Last time I checked, that's now almost 30 years. Right. And so they just abused their cost.

Starting point is 01:12:01 is there their share of PC operating systems much lower than it was then? No. But that's not the right measure of share. The right measure of share, in my view, in that industry, is your share of minutes spend staring at a smart screen. Right? Like that's what the share of operating systems that you should care about. And so what kind of smart.

Starting point is 01:12:31 smart screens do people now stare at most right right most and what other one do they do a lot of people stare at who really like them pads right um and so if you added up all those and they said what you think so what's their share of of smartphone operating systems microsoft last time i checked it was point four of one percent yeah so effectively zero how about pads Apparently it's 4% there. So their share of people staring at a smart screen has plummeted. Plummeted. Why?

Starting point is 01:13:12 Because water finds its own level. People said there are these other ways of getting around this. And I'm going to take those ways. And I think the degree to which people use their smartphone for more things as a function of that smartphone is a different phone. advanced so much faster than your PC operating system because more people are using it. So that's what I'd say to Google. I don't care how painful it is.

Starting point is 01:13:46 It is water flows downhill. The tide comes in. And you know, you cannot stop that even if you're one of the most powerful three firms on the face of the planet. And it may take time, but eventually. customer tied pulls. That's a thing that's really important. Yeah, but start now. Yeah. If you don't start now, it's too late.

Starting point is 01:14:10 Yeah. I want to end with one very tactical question for people that may feel overwhelmed. There's like, oh my God, I don't know what we're going to do. This is so hard, all strategy stuff. You have this really cool idea called betterment. I think you wrote a media post about it, thinking betterment over perfection. And it gives you kind of like a first step of like, okay, here's a way to move forward can you just talk about that approach?

Starting point is 01:14:32 So for me, strategy, this thing called strategy with, yeah, with people like, oh, my God, oh, my God, I can do strategy, whatever. I just think about it as a problem solving tool, right? And what problem should you attempt to solve? You should attempt to solve something where your current outcomes that you're getting are lower than the outcomes you wish you were getting. That's what I call a gap. there's a gap between those two.

Starting point is 01:15:01 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. Right. 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. Right. So you're going to need to make a different set of choices to make that gap go away. that's what I would work on. I would just ask the question, what is the single most painful gap currently that I'm facing?

Starting point is 01:15:37 Customers used to do this and they're doing this. I can't find this kind of resources or distribution channel has abandoned us. And whatever is the most painful thing. And then just tackle that and say, what different choices could I make? And I'd say use my cascade. What could I change where I'm playing?

Starting point is 01:15:59 Could I change how I'm winning? Could I change my capabilities? Could I change my management systems in order to achieve a different aspiration? And so don't try to solve the problems of the world or even all the problems of your company. That's perfection. Betterment is making that gap go away. And guess what happens if you make that gap go away? You can turn your attention to the next gap and the next gap and the next gap.

Starting point is 01:16:27 And the next gap. And if you do that all the time, right, you're always working on the next gap, they'll get smaller and smaller over time. I mean, I don't know if this is a great analogy, but, you know, I was a 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. right, which is he taught second year courses, and second year courses would happen to be 13, two-hour, the kind of lectures for sessions of one sort of another. He just pulled the students on what they thought of each session as they went along, and regardless of the reason, regardless of anything else,

Starting point is 01:17:21 simply chopped number 13 every year. because in some sense it's the biggest gap the gap between what what the customers students wished for and were getting and he would just replace it with something he would try something else and replace it with that and you'd say and that gets you like professor of the year every year and the answer is yes betterment because if you're teaching for 25 years right 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 and better. So betterment, you know, it doesn't make purists feel awesome,

Starting point is 01:18:12 but I'm not here to make purists feel awesome. I'm here to help people get better. This makes me think about your water metaphor too, of just water eventually finding a way through a little bit of iterating. Yeah, yeah. Yeah, lots of what I think about in strategy is sort of natural, if you will. I try to ask, how does the world generally operate? And is what we're doing kind of consistent with the way the world generally operates or not?

Starting point is 01:18:42 Roger, this was so much fun. We covered everything I was hoping we'd get through. I think we're going to help a lot of people with the way they think about strategy. Is there anything else you wanted to just leave listeners with or say or before we wrap up and let you go. And we did a, we covered a lot, so there may not be anything left. Well, on strategy, there's one piece of advice I'd say, people often ask me about, about, about, 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. And what I tell them is, I have never met this mythical beast called

Starting point is 01:19:19 a great natural strategist. And they often throw back in my, face Laughley. They say, look, Laffley, he was he was known as a strategy genius, right? And I say, yeah. But when I interviewed him in depth about his background for a, for a paper I was, I was, 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. And then I realized that he had been practicing strategy for decades before he became the CEO. Decades. And so he just had more reps when he became CEO than almost anybody else that that that that that I've ever met. There's another guy here in Vic Dostrup CEO,

Starting point is 01:20:13 or ex-CEO now he's gone on to a higher level Lego brand group, would be would be similar. So Great strategists that I have met have all one thing in common. They just practice. And anybody, there's no such thing as a person who is willing to practice strategy who will end up saying, I'm kind of operational. I don't do strategy well, which links to our last thing about betterment. Just work on making different choices to solve problems. Not problems that I say.

Starting point is 01:20:53 I'm not going to define your gap. It's one that you feel in your heart. I wish this were better. Work on it. If you do that, you'll be a great strategist. So be encouraged. Don't be, don't be discouraged. And the worst thing to do is to wait.

Starting point is 01:21:11 People say, well, I've got all these operational concerns right now. And then I'll get to strategy later. You'll never amount to anything. Nobody says that ever amounts to anything. Wow. I love this. I love how empowering it is. I love the real talk. Roger, you're awesome. Thank you so much for being here. You're most welcome. Thank you for making it a fun journey for me. I learned a ton and that's always a good sign and it was a lot of fun. Well, thanks for Roger. Good. All right. Bye everyone. Thank you so much for listening. If you found this valuable, you can subscribe to the show on Apple Podcasts, Spotify or your favorite podcast app.

Starting point is 01:21:47 Also, please consider giving us a rating or leaving a review as that really helps other listeners find the podcast. You can find all past episodes or learn more about the show at lenniespodcast.com. See you in the next episode.

Lenny's Podcast: Product | Career | Growth - 5 essential questions to craft a winning strategy | Roger Martin (author, advisor, speaker)

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