Lenny's Podcast: Product | Career | Growth - Good Strategy, Bad Strategy | Richard Rumelt

Starting point is 00:00:00 Don't call it a strategy. Call it an action agenda. It's huge numbers of people out there willing to sell you advice on mission and your vision and your values. All these things that have to be in place before you can have a strategy. That's not true. We begin to try to identify the one or two key challenges that can actually be addressed. And what are we going to do about it? One of the coherent actions we are not to take these on.

Starting point is 00:00:30 okay, we're going to go after this, and here's the action steps we're going to take to do that. That's essence of what you're doing when you're thinking strategically. Today, my guest is Richard Remelt. Richard is an absolute legend in the world of strategy. It was such an honor to have him come on the podcast. He's the author of Good Strategy, Bad Strategy, which I've gifted to countless people who wanted to become more strategic. He's been mentioned so many times on this podcast. He's also the author of The Crux, his most.

Starting point is 00:01:01 recent book, which some consider his best book, which jelves even further into his advice on how to craft a winning strategy. Richard was a longtime professor at UCLA Anderson School of Management, was on the faculty of Harvard Business School, and he's consulted on strategy with companies like Microsoft, Apple, and Intel, and also with government organizations like the U.S. Army Special Ops Command, and folks like Donald Rumsfeld. In our conversation, Richard shares the concrete elements that make a good strategy, why we'd be better off calling them action agendas rather than strategies, why every great strategy starts with a clear diagnosis of the biggest challenge that you face. Also, how to actually lay out a strategy, why organizational dynamics are often the biggest

Starting point is 00:01:42 hindrance to winning strategies, and so much more, I could keep going, but let me just say we cover a lot of ground in this episode, and Richard shares incredibly thoughtful and deep answers to each question. I am excited to bring you Richard Remelt after a short word from our sponsors. Let me tell you about Command Bar. If you're like me, and and most users I've built product for. You probably find those little in-product pop-ups really annoying. Want to take a tour? Check out this new feature.

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Starting point is 00:04:18 Find simplicity in your most complex projects with Miro. That's M-I-R-O-com slash Lenny. Richard, thank you so much for being here and welcome to the podcast. Thank you for having me, Lenny. It is such an honor to have you on this podcast. So many guests on the podcast have mentioned you and mentioned the book. I probably bought your book for, I don't know, dozens of people over the years. And it is just so cool to have you on it to get to delve into the stuff that you teach.

Starting point is 00:04:48 So thank you again for being here. Thank you. I thought we'd start at the beginning and then work our way up and kind of see where the conversation goes. what is the simplest way to understand a strategy? What is a strategy? And then what are the essential components of a good strategy? Well, a strategy is a design for overcoming a high-stakes challenge. It's a mixture of policy and action designed to deal with a challenge.

Starting point is 00:05:17 The challenge could have an upside. It could be, oh, geez, we were fooling around and back 40, and we discovered what we do. or it could be negative, could be that new innovation is driving us out of the market. But a challenge is just the hardest strategy. The work comes from Stratigos,

Starting point is 00:05:37 which is Greek for... The Greeks elected 10 Stratagoi to serve as strategic leaders at Athens, and they were elected. And they dealt with issues of the day. The Persians are... There's a plague in town. We need money for a new temple.

Starting point is 00:06:00 And that's where the word comes to us from. But it isn't just military. It wasn't it out. So strategy is always about dealing with an issue, a challenge, a problem. What are we going to do about global warming? What are we going to do about China or once you're reunify with Taiwan? You obviously have these very infamous, famous elements of a good strategy, something you call the colonel. Can you just talk through those pieces?

Starting point is 00:06:33 Right. Sure. So, you know, when I used to teach strategy for many years at Harvard and then UCLA and other places, there's lots of ways of looking at strategy. And so years and years ago, we thought that the Lidorn and Kerr and the Matrix and the Five Forces and all those kinds of analytical tools. And it began to don't want to let me. This is a strategy. These are analytical tools for analysis problem, for thinking about things, for looking at competition, but they're not strategy. Strategy is one. And I started to write a book. And the first chapter After the book was the first part I wrote, was David and Goliath, strategy story.

Starting point is 00:07:26 And my point in writing about David and Gleu was that the surprise that David is able to beat this giant warrior. And that's a strategy story. Strategy story is about discovered strength. It's about, oh, look at how they did that. Look at how he got, made in fire moves. Look at how. That's a strategy story. Look at how Steve Jobs changed the world when people couldn't expect it. That's the emotion of what strategy story is. So I want to write about

Starting point is 00:08:00 strategy. And my wife, Kate, asked me, well, do you defy strategy? I said, oh, it's really hard. I can't define it. And she said, well, you can't write a book about it. You can't defy it. because I have this other conceptual scheme on my head that the whole teachers and writers had, which is that there's a bunch of analytical tools. And, you know, this is back in 2005, 2004. And I gradually came to the realization all strategies problem's fault.

Starting point is 00:08:36 It's a form of dealing with challenges. And that was a basic idea going ahead and a book. So if that's the core of it, what's the basic activity? What are you doing when you create a strategy? While you're diagnosing the situation, you're trying to figure out what's going on here. What's the nature of reality that you do with? Now, humans can't understand all reality. No one can.

Starting point is 00:09:04 So part of what a diagnosis is is a decision about what you're going to pay attention to. and a hypothesis or several hypothesis, hypotheses about, well, it's going on, how do things connect together? And that's the beginning of the diagnosis. And so diagnosis is an understanding of the situation that you're in. Well, that's not. And you can use any of those tools that are famous for that,

Starting point is 00:09:36 and you can try and fortunately that you can do any one of a number of things to try to comprehend the situation. The world is more complicated than two by two, unfortunately. I was educated as an electrical engineer, and my early years were spent designing spacecraft for NASA. And when I got into looking at business and business strategy stuff, I was always amazed at how unintellectual was. You know, that here I was struggling to master's,

Starting point is 00:10:12 he transforms, and multiple, and yet these people are looking at two-by-toes and little vibrances out and say, oh, that's what the company's about. So a rich diagnosis of the situation, but then a guiding policy. The guiding policy is, what are we going to do? Now, it's a simple thing to say, a guiding policy, and the guiding policy is sort of the strategy. It's the core of it. Here's how we're dealing with the situation. And yet when I say that, it flies in the face of, as I was writing that, I had a client who had 17 priorities.

Starting point is 00:10:57 This is what we're doing. We have 17 priorities. And that's the opposite. That we think policy. That's a lottery list of all the things we wish would happen over the next year. We're going to gain market shit in China. We're going to cut our emissions. We're going to save energy.

Starting point is 00:11:16 We're going to be safer. We're going to cut costs. All these different things you're going to do. And they're all priorities. Now, lots of people misuse the word priority when they're trying to do all that. You wouldn't want to be in the commercial airplane. And hear the tower say to the pilot, I'm giving priority to the following three planes, long runway five.

Starting point is 00:11:47 You know, right? What do you know? There's something wrong. Well, that's the word priority. It means the first. That doesn't mean the grab bag of everything that you can think of that might matter. It means what's first. And so the guiding policy is sort of at that level of what do we really have to do here.

Starting point is 00:12:06 And how do we, what are we doing and what are we not doing to deal with the diagnosis? that we created. And then the most important part of a strategy, the part that it's so easy to leave out because people like to think of strategy as this high-level conceptual thing is a coherent action. You have to do something.

Starting point is 00:12:31 And what you do has to be coherent in several ways. The first way is it has to deal with the problem or the diagnosis and the guiding policy, it has to implement. It has to be coherent in that you shouldn't do things that fight each other. You shouldn't say, oh, we are going to burn less oil, and at the same time we're going to import more oil. It doesn't make any sense to do things that are self-contradictory. And yet, people do it.

Starting point is 00:13:11 Most companies have a strategic goals of increasing growth and increasing profit. Magically, that can happen in some cases. Growth and profit are they batten each other. Let's say we define profit as return on equity. Well, if you're going to increase growth and increase return on equity, I didn't do that because you're basically going to invest in us to get your return on equity yet. Or you're going to grow and get your profit margin up. Well, how are you going to do that?

Starting point is 00:13:46 You get your profit margin up and grow faster. These are, this is baby talk, but CEO after CEO will stand up and say, well, we're going to grow and we're going to grow. And so having a coherent actions that are, that dump null on one another is an important to our stride. He's all three of them have to be there. You have to be an understanding of the situation. There has to be a guiding call. See, how are we going to deal with it? And that can be a long-term sense of how we compete.

Starting point is 00:14:26 You don't have to change your strategy every five minutes for five years. If you're making almond joint candy bars or something, you don't really change your strategy. If you're in the tech business, of course, you have a short time. And then the coherence and action is critical. And so these are, these are the three, what I call basic elements, the coin, that if anyone in the three is missing something, it's not really a strategy. It's something else.

Starting point is 00:15:04 Awesome. Okay. Is there an example that you could give that kind of makes these even more concrete of just, I don't know, something that comes to mind. That's kind of a quick example of a strategy that it'll structure. these three components? If you're Microsoft right now and you're trying to adapt to AI, you have a diagnosis. Well, it's going to.

Starting point is 00:15:26 You see the challenge of how do we adapt to it. You create a guiding policy that you're going to invest in one of the major leaders, and then you're going to begin to incorporate that into your search engine. and then you have coherent actions. You know, you actually do some of these things, and, you know, it's not rocket science. The difficulty is that companies don't do that. There are companies that say, well,

Starting point is 00:15:57 our future is, let's say, something that's not in a software business, that's industry portfolio for you, for five, you know. We're going to have, we're investing in the future of robotics and AI and computer vision and all that. That's going to be our future. And then you see what they're doing. They've got this company. They bought this company.

Starting point is 00:16:23 They put this company. And that's it. It's strategic assembly without any synthesis. So, I mean, strategy's not mysterious. What's mysterious to me, what was mysterious to me, and what remains mysterious to me is how, So many organizational leaders don't do it. They create bad strategy.

Starting point is 00:16:50 They do something that they say as strategy, and then it's not. You have a whole chapter on this on what is a bad strategy. Can we just touch on a few of the things you see as signs that your strategy is bad? Or maybe it doesn't even exist? Sure. Well, good strategy, bad strategy, a lot of people, resonated with the bad strategy. Part of the book,

Starting point is 00:17:15 they wrote emails and said, oh, my God, thank goodness, someone just finally said that these rolling and terminal meetings I'd sit through are not actually strategy or these documents that the company produces are not actually a strategy. And they're not.

Starting point is 00:17:34 Bad strategy, the standard bad strategy for a corporation is a set of profit goals or performance goals. I should have goals. Now, goals are the engineering of how companies work to some extent. But abstract, high-level goals, they're not a strategy. There's something else.

Starting point is 00:18:00 They're ambitions. And ambitions are not strategist. A list of all the different things you wish would happen is not abstract. I was asked to help part of the U.S. Department of Defense create a strategy for all with 17 different intelligence agencies. Wow. How cool. Yeah, there's 17 different intelligence agencies. And the strategy, basically, that these people had written said the 17 agencies should work together, more effective. Now, you don't have to be a Russian spy to see that what they're really saying

Starting point is 00:18:50 is these guys aren't working together effectively and it's a problem. But they didn't check that. They said the strategy is they're going to work together more effectively, just like the RV which comes out with our strategy is joining us, meaning we're having a trouble with coordinating. But then there's nothing there about that other than this is what should have. happen. They should be more affected coordination. And, oh, I have an office of Corvish. I need to a person-in-chartered Corpnish. But there's no sensible, why is it hard for?

Starting point is 00:19:24 What are the barriers to this? This has been drawn all for 34 years now. What's not holding it back? What is the problem we have to solve? It's not there. And so, I was hired to do a foundry for a company. And they said, well, our diagnosis is never not growing faster. Okay. Oh, and whoops, let's get into that. Because that's not a diagnosis.

Starting point is 00:20:00 That's a statement. It's a statement of values you would like to grow faster than you are. I'd like to be taller than I am. I'd like to have more hair. Well, you want to grow faster, okay? So what's holding you back? and but you know

Starting point is 00:20:20 saying okay we're going to grow that's not a strategy bad strategy also is fluff people will use fancy words to describe their situation since I wrote that the term word salad has become

Starting point is 00:20:36 common and there's a lot of word salad writing that people try to use to describe their situation. It's a more abstract, perhaps more abstract, therefore it's more strategic, incoherent stuff. We're going to do A and we're going to be B and those two things. Obviously fight one another. All those things, part of bad strategy. Ben Strategy is a document or a set of intentions or a set of verbalizations where it's not a strategy.

Starting point is 00:21:18 There's no diagnosis. Of course, there's an old down there. Started out saying where the United States is falling behind in education. And he's looking at the PISA test scores, the 15-year-olds around the world. And it's true. The United States is down on November 30. countries in terms of the discourse of our 15-year-old in math and in general knowledge. So, okay, correct statement, we're falling behind.

Starting point is 00:21:55 A real diagnosis would say, because, because he jumped immediately to, therefore, we're going to have more people go to college than any other country. Well, having more people go to college doesn't solve the problem of 15-year-olds, nothing ever to do, elementary math. Hopefully it doesn't screw up colleges everywhere. So that kind of gap is there, where you don't do the diagnosis. Why do we have this?

Starting point is 00:22:29 We argue over diagnosis is part of politics and part of organizational politics. That's what we do, and that's important. To do a strategy, you have to resolve the argument of it. Why do we have a homeless explosion in Port or Seattle or an alternative. And people argue about that. Some people say, oh, it's strong.

Starting point is 00:22:52 So, oh, no, housing is too expensive. There are different diagnosis. But to deal with the issue, you have to decide on the diagnosis. The politicians right now sort of decided for a few years that the problem is housing is too expensive. and we're going to build housing at $700,000 a unit, then give it to the homes people. Okay, if she built it, they will go.

Starting point is 00:23:26 But then, you know, the next problem is, well, it can't seem to build a housing. And so again, you need any diagnosis. Why can't you build a housing? You're a rich, powerful country. Why can't you build some housing? So diagnosis is critical to understanding it. And in public policy, we argue with the diagnosis.

Starting point is 00:23:47 And in mobilizations, we argue. And unless you resolve it, you can't act. So lacking diagnosis is one of the key reasons for bad strategy. The other, the fluff and the incoherent actions are fun to describe, but they're less common. The second major source of a bad strategy is mistaking goals for strategy. these goals are our strategy. And that leaves out so many of the important aspects. Amazing. So just to summarize somewhat, if you're missing a diagnosis, trying to explain what exactly is wrong, it's a sign your strategy is incomplete or bad. If you're missing concrete

Starting point is 00:24:33 actions, it's a sign that your strategy is incomplete or bad. There's also, I think, an element of coherence. The actions have to connect, and there have to be a few, very few of them. I always like to think of three is like a good number. Is that something you think about? Like the rule of thirds for actions you want to take or even the guiding policy or is there like a number that you think about just like no more than this? A few, a few, not too bad. Not 17. It's hard. Number of numbers is we work best when we concentrate. We're more reflective when we concentrate on a few things, a few people, a few focus. It's the fundamental source of power. strategy. Yeah, trying to do too many different things is defocusing.

Starting point is 00:25:18 I think there's this quote in your book that I think is, and this may be paraphrasing, each time you say yes, you risk turning a nascent good strategy into a bad strategy. Yes. Focus is what I was nine years old. I was at summer camp, and I had my parents sent me a magnifying glass and I was out there using the sun to try to, cook a piece of wood. And I think I had a piece of cloth that I was trying to burn. Wasn't having much look. And the magnifying glass focuses the sun rays, sun's rays on the spot.

Starting point is 00:26:01 Counselor came up and he said, tried this. He pulled out a black thread from his t-shirt, put it down. And I focused the sun-raised hard. Pop-toe. So, stupid little story. But to burn that black thread, there has to be a source of power. The sum. There has to be a focus.

Starting point is 00:26:28 That's the magnifying. Focus the power. And it has to be a target that can be affected. It has to be a black thread, not a wind thread. And that sequence is part of strategic action. You need a source of power. I say power. I don't say advantage or efficiency.

Starting point is 00:26:53 I say power because there are different ways in which power is exhibited. And you have to focus power on a target that can actually be affected or achieved. This is real simple logic, but it's a discipline to focus power. on a target that you can affect to take American power and say we're going to change China's trajectory and Russia trajectory and our own. And, you know, and the name all the 30 countries around the world that we're trying to, we're diffusing our efforts because they're not the same. They're going in different directions. obvious when you say it, not so obvious as you live it, because like any organization, like any big organization, yes, government has different interests that are pursuing different

Starting point is 00:27:55 interests, funded for different purposes with different clientele, and so there's gradually a diffusion of effort. One of the big issues and strategy is simply the organization. complex organizations particularly have a hard time focusing energy because of all the different interests yeah i actually want to talk about both those things so i'm glad that you teed them up let's talk about power what is this idea of power and how does that play into strategy-wise it's so important and then what are some examples of power that people can think about when they're trying to think about implementing and adding a power to their strategy

Starting point is 00:28:38 Well, in a competitive situation, the fundamental aspect of power is something that's going to give you some sort of advantage. Usually it's in a symmetry of some kind. If two fighters are equally balanced or two horses are equally feds or two armies are equally, and they meet in competition, it's 50-50, who knows what will happen. For a strategy, you need to exploit an asymmetry of some kind. You're a little faster. Oh, if they're a little bit. Something has to be different between the different things.

Starting point is 00:29:27 So that's the beginning of power, is a symmetry. We can think of it as leverage. Sometimes being first is a sort of thing. source of power. Being first to recognize something can be a source of power. Having a reputation of a certain kind gives you some power that someone who doesn't have that reputation doesn't have. On the other hand, having a well-established reputation of a certain twig can be the opposite power because people don't expect you to be able to do something new. They expect you to be able to do this, but not that.

Starting point is 00:30:14 Having relationships can be a source of power. When Gertzner took over IBM, as it was failing in the face of the microprocession revolution, he recognized that their primary asset, their sorts of power, was that they were respected, and they had ultra into every large corporate. plan. No way of that. As an actual producing company. And so he said, we're going to embrace our customers, bear hung out customers, you're going to serve our customers.

Starting point is 00:30:57 Because that's our source of our power. That's our leverage. That's the assinatory. Now, the world begins to change. And computing begins to move to the cloud. and IBM's customers, the largest companies of the world, are the most hesitant to do that because they've got the big IT departments that don't want to move too close. And so small companies move too close. And the big companies are, well, I'd say insecure in the cloud.

Starting point is 00:31:33 We'd have to lay all people. And we have these big machines we'd like to run. And so IBM then becomes disadvantaged in the new world. because it inherits this big company orientation and that lighting line. So power, the opposite side of power is this, what you inherit from the penance can be the wrong thing. And so a source of power is that. The source of power can be an invention. The source of power can be a particular customer base that you have done

Starting point is 00:32:14 that it doesn't last forever power. But all the different sources of advantage that are sometimes transitory and sometimes permanent are sources of power that a company has to use to compete and survive. Imagine people listening are just like, oh, man, I got to figure out the power that the advantage that I have with my business. Is there any advice you could share by helping people figure out where their power might lying. Oh, that's a good question, Lenny.

Starting point is 00:32:48 So how do you, how do you figure it out? So I start, as I said earlier, with the symmetries. And what way is my company different than other companies? In what way is my team difference? What do we know that other people don't know? What are we possessed than other people don't possess? So there has to be soundless symmetry to create competitive power. There has to be something different.

Starting point is 00:33:17 So sometimes you have to redefine your space down, small enough, then you can actually see it. Because particularly a smaller company that doesn't have worldwide power, has power in a certain marketplace or a shipment set of customers, or sometimes it's not customers. Sometimes the power isn't who you can bring in and hire. So if you're invented chat, GPT, you can bring in, the smartest AI people for a year or two.

Starting point is 00:33:48 Because everybody wants a whole, whole, the smart AI people want to work at the cutting edge with the current winner. Then they'll start arguing each other in infight, and they'll be all sorts of embarrassing personnel, things going on, and someone else can grab that position if it's not well-managed. Businesses is exciting in that sense that it's not stable. It's not. It's not just as it was what I was first studying it.

Starting point is 00:34:21 It's not just IBM and Sears at AT&G forever. There's a constant on the corner changing of the guard. For better or? For better, because if you look at government, there is no changing of the guard. They get stultified. Makes sense. So in your book, you have this whole list of types of power. I'll just read them real quick.

Starting point is 00:34:43 Leverage, proximate objectives, chain link systems, design, focus, growth advantages, dynamics, inertia, entropy. There's also the book, obviously, the seven powers that a lot of people are aware of. I guess, how do you think about just like the spectrum of types of power you can have? Is this it? Are there others? I started to make a list there in the book, and I wrote a bit about chain league systems. And today, I mean, the power that new business models are exploiting is the power of the

Starting point is 00:35:17 user base, what we called years ago network effects, where the more users you have, the more useful product is. So the idea of network effects first arose with the telephone system, which the idea was that you don't want to be connected to a telephone system that only connects to a, it's not all that useful, to connect to the work, to be useful. and my colleague Marvin Lieberman was taking the economics course at Harvard University at the same time that Bill Gates was a student in that classroom. Professors going on network effects. And of course, that's what catapulted him and his software, MS DOS at the time.

Starting point is 00:36:07 Not MS. Dawes. He had something called Basic. That the network effect was huge. He got eight. about the network effect because if you go in painting, they kept stealing it and using it to pretty soon everybody in the micro-pricleger industry had embase. Then we get the network effects from not just software, but user basis now with the Internet. And so you get network effects with a big social media.

Starting point is 00:36:41 No one wants to be on a social medium. It asks only three other people. So you've got... having a large network, Amazon, get big fast, because the old, the economics are very amazing. So we used to say, well, in the department store, economics are that you're saving people the cost of going out of the store, mostly down the downstream to another store. For now, it's all in one place. And supermarkets, the same thing.

Starting point is 00:37:15 but they had a little bit of a thing like Amazon where they're the ease of shopping on Amazon keeps people from leaving it and going to another website. Now other websites have got better or better and some of that is less strong. It used to be and this is constant struggled with it. Nevertheless, the size of the user bench there is an important sort of symmetry of power for the people who have come out ahead and won that battle for this round, just five years, how long is it last before?

Starting point is 00:37:49 Some other thing begins to take precedence. And now we have two signing markets, whether it's credit cards or places where both buyers and sellers get together. And so here are these big forces that companies are playing with right now are these network effects. And when the new generative AI,

Starting point is 00:38:14 we have the possibility, of stronger effects than we've ever seen before. But we don't know yet. But the suspicion is that size is going to matter, that the size of the data that you could put into the learning algorithm is going to make your AI better. And so again, big is going to matter. Just think of Google.

Starting point is 00:38:44 And their ability to improve, search based upon all the searches that go on on their base every day, it's very hard for Bing to catch up because Bing doesn't have as much data to train on. And so, unless there's some new innovation there that isn't just the amount of data, you know, the leader, again, has this asymmetry working for it. Now, the way you get around all that is like the, specialized by holding a particular approach that isn't the market leader's and it's always been that way in business. But, you know, our attention is often attracted by these giants.

Starting point is 00:39:34 So, yeah, sources of power today where we look at it, there are no business models or part of the fabric are these network effects and things like that that are very strong. And people are trying to get those in startups and in small firms within a certain market space and build it as best as possible, to get ahead of others. There's been venture capital available to try those experiments. And some of them work and some of them don't. But that's this new age we're in now where the speed of building a market. position with network effects is a dominant game in the tech space.

Starting point is 00:40:25 I feel like Twitter is the ultimate example of the power of network effects, especially recently, where if you think about it, everything about Twitter has changed and it still continues to run. Like, he laid off 80% of people at the company. They changed the name, the change the domain, basically. The algorithms changed. Like, what is, I don't know what is still the same. How can you lay out of any consider the people that it still runs?

Starting point is 00:40:47 I mean, you got to wonder. I love Twitter. I'm on there all the time. I feel like it's never been better, which is kind of wild. Twitter is fascinating. I mean, I tune into it every couple days and see what's going on. It is just an amazing rumble of opinions and statements. It's much more interesting that it was by using, though.

Starting point is 00:41:11 There's a lot of diagnosing and not a lot of concrete actions. But anyway, I wanted to come back to the element about power. I think when people are thinking about power, it may not be clear where that plugs into the diagnosis, the guiding policy, and the coherent actions. Where should you be thinking and implementing this idea where my power is when you're laying out your strategy? To undertake a strategy that you think will work, you've got to have a reason that it makes sense. and that reason is derived from some source of power, some source for advantage. Ultimately, your power or your advantage is something based in history that has the feel of reputation or institutional skill.

Starting point is 00:42:10 skill. Or it's some kind of asymmetry or knowledge that you have that others don't have. So it's a resource that you can use that your competitors or others don't have equal access to. Because you either have mastered it or you own it,

Starting point is 00:42:41 inherited from the past. All those things are sources of, the power that you used to make it not an even bet. So when you walk into a casino, there's, well, maybe if you play poker with skill, you can expect to make some money, but the general casino games, you go to expect to lose. And in business, statistically, if you come to me and you say, I'm going to open a new restaurant, which is my strategy be.

Starting point is 00:43:21 My answer would be, don't open a restaurant, invest in the S&P. I phoneer, because the statistics are that new restaurants fail. So what makes you think is that you can succeed. Oh, I really want to succeed. Not good enough. I trained under a chef who's been very successful. Oh, that's interesting. Tell me more.

Starting point is 00:43:48 So there, there. Where's the symmetry here? Where's the source of power where you go from the odds, the standard odds in this game are against people, where you think the odds are in your favor? That's a source of power looking for. We're looking for this information, this skill, this thing in the field,

Starting point is 00:44:17 the way the resources are arranged that's going to give you this edge. And some of that is sort of part of the situation, and some of it's how you shape and focus your actions. Strategy tends to be surprising when we see it, when you see it work. And surprising because we don't expect it. We expect people to bumble around. We expect Arby's to bungle around. We expect nation states to bundle around.

Starting point is 00:44:49 We don't expect them to execute coherent strategies. The United States went to Afghanistan and wanted to catch Osama bin Laden, but at the same time, they didn't want to put an army in the field to actually catching because it would be embarrassing to have that many Americans in the field. That's what happened in Toro Moro. The Secretary of Defense said, no, we don't want to make it look like we're taking over the country. So they didn't try to catch him as hard as they could. And we want to have the education of women, and we want to have the democracy, and we want to have a long list that we would have no opium production.

Starting point is 00:45:35 But at the same time, our allies are the opiate producers. It was the Taliban that got rid of opium. Americans couldn't do it. So we had all these different objectives. And it doesn't work. You need to have a focus on something. achievable. What's achievable on your nation building is hard stuff takes a century. You know, Afghanistan, I'm often attingent here with Afghanistan, but it's a really interesting subject.

Starting point is 00:46:15 Afghanistan was a war war war. A bunch of different war war. Running the place. Oh, well, what's a warlord society? Where else do we look for an out? Well, if we could scobble in in 1650. You could look at France in 1300. You could look at Japan before the modern era. These are war-in-lawed societies. Well, how did they go from that to being a coherent government that maybe wasn't democratic?

Starting point is 00:46:54 Still, there was a government instead of just as much war war. It took some to the conquer on the rest. And then it took a long time for them to put it in the structure of government. And then maybe it became a democracy, maybe not. But that that's the process. It's not like you just go in there and say, you're now no longer a war was to say because we've decreed it. I don't know.

Starting point is 00:47:23 You're going to ask me more questions about what it is people should know and how do you get these sorts of power, how do you get these insights? I'm a big fan of history. I'm a big fan of knowing things about what happened. Business history, biographies, worrying history. If you don't have access to other times and other places and other things that have happened, it's very hard to think strategically about the situation you're in. Because there isn't a science of strategy.

Starting point is 00:47:57 It's not like physics. It's not like engineering where we can write down the equations of, stress on a beam and say how thick does the beam have to be. It's not like that. It's a lot of it is based on analogy to previous human experience. That does an amazing insight. Is there anything you find most rich and valuable in terms of history, periods, empires, stories that you find most connects as an analogy. Is it like, is there anything you find consistently as useful? Or is it just read as much as you can and you'll often find something in there. You know, the further back we go in history, the leaner is less rich.

Starting point is 00:48:45 The best histories are written by the people at the moment it's happening or very soon after. You know, history books and things like that are someone's opinion. But, you know, our only history here and United States, we have pretty good documentation about what went on in the Indian War, if what I don't want, why we had these big cycles of economic growth and then depression. We had depressions in 1840 in 19, after the Civil War, and there was another huge panic depression in 1890s. A lot of people don't even know that these things happen.

Starting point is 00:49:29 How did they happen? And of course, everybody knows about the great to press you 192930s. But go back and ask, how did that happen? Why didn't they have? And you'll hear professors opine about why it happened. But there's no agreement. The biggest economic fact of the last hundred years, you don't know why I had. Go back and you go.

Starting point is 00:50:00 And you can go online and look at the Wall Street Journal of all the New York Times from that era and start in September of 1928. Just look at the front page every day. We check out. And you can see it on the fold. And it's a surprise to everyone. They're going to well. Forger's laid off the people, but it's temporary. They'll hire them back.

Starting point is 00:50:27 This economist says, well, it's a terrorist. or into this, it'll come back. And it gradually gets worse and worse and worse, and there's no understanding of it. There's not a lot of announces. And so you got mental treatment saying, oh, it's monetary. They didn't even send up the money supply. You got other people saying things. But put yourself back at that moment in time and see what people saw and realize

Starting point is 00:51:00 that no one understood what was happening and to form your own opinions, that's the diagnosis, skill, or that's the feeling. Now, let's suppose fall off a boat. You're on a cruise,

Starting point is 00:51:22 and you fall, and you're now in the ocean. It's terrible, and it's confusing. And there's weights and there's water in there. I don't want to drown. And you look around and you see, oh, here's a floating piece of wood. Let me grab it.

Starting point is 00:51:40 Wow, that feels a lot better. That's how it feels when you look at a confusing situation. And the first idea of how to understand it comes to mind, oh, yeah, I've got this piece of wood. Now I'm not drowning. But is it right? The most important intellectual tool we have is, is to think again, to say, okay, I came up with this diagnosis because I thought this and I thought this.

Starting point is 00:52:20 Is there another way to look at this situation? Is there a bigger piece of wood over there than I can dream on you? That's the hard thing. When I looked at the Great Depression, what I saw is the whole about it. So if you look at capital goods, all capital, most of the, capital that the public buy, the adoption curve goes up like this, it peaks, and it declines. And then it comes back up again. Because it comes to a point where everybody who can afford what has got.

Starting point is 00:52:58 And then the new sales drop off. And my mind, that's what I saw. 1929, everybody could afford a car, had a car, and the auto industry began. first science of the Great Depression were in the auto industry. So that was my plank that I drank. Now, I don't see anybody else writing about that. But that's the exercise. And to exercise your mind about trying to understand complex situations,

Starting point is 00:53:30 it's best to go back. You don't have to quit the Great Depression. But you can go and try to find situations that other people have to do with and look at as much data as you can. And to practice that, that's what education should be in a business school. It's not. They teach theories now because it's so much easier to teach a theory than intellectual structure. It's also a lot more work, reading a lot of books in history and studying and thinking.

Starting point is 00:54:04 I had a colleague at UCLA who assigned a book to MDA students and they went to the dean and kicked out of. Of course, it's not a book. He wants to read a book. No, man. Sounds like you have another book in you writing about the Great Depression and what really happened there. Maybe. Oh, man.

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Starting point is 00:54:59 to their businesses, and build trust with external stakeholders. Over 5,000 fast-growing companies use Vanta to automate up to 90% of the work involved with SOC2 and these other frameworks. For a limited time, Lenny's podcast listeners get $1,000 off Vanta. Go to Vanta.com slash Lenny. That's V-A-N-T-A-com slash Lenny to learn more and to claim your discounts. Get started today. I wanted to zoom back in on something very tactical. So say you're a product manager listening to this that is thinking about writing or has

Starting point is 00:55:31 to write a strategy for their team. Say it's like they're working on the onboarding experience of their product and they're about to sit down and start to write out the strategy for their team. team. And say they have like a general idea what they want to do. Do you have any advice for just like how to lay out a strategy? As you talk, I think of there's a section, diagnosis, a section, guiding principle, section actions, and then there's power in there in the guiding policy. Is that how you laid out? Do you have any advice for how to write this out? So I wrote the crux because I felt that that kernel was not sufficiently sharp enough for

Starting point is 00:56:07 repeat. And even in the crux, I could, if I could rewrite the crux book, I would maybe write it a little differently today. A whole couple things I would change. First, it's really important to understand the challenge, the problem. Diagnosis is not merely understanding the world. It's understanding the challenge you face. What makes it hard? So the question I ask, a client, is exactly that. What makes it hard? A client will tell me, oh, we want to open up business in Australia. It's a market we haven't tapped. And I'll say, okay, so why are you and I talking about that? You're the CEO to tell somebody to do it. But, makes it hard. Oh, well, we don't know anybody in Australia and they kick us out.

Starting point is 00:57:12 If he'll tell me, if you push, he'll tell you why it's hard. But that understanding hasn't been percolated into a strategy. Part of the problem is that the concept of strategy has been so beaten up by thousands, hundreds of books and thousands of Webmore website that people have a hard time trying to figure out how to create a strategy because they're drawn up, down, left, right. So my two pieces of advice, anybody that's actually trying to do this is A, state the problem, and B, don't call it a strategy. Call it an action agenda, that you're not creating a strategy.

Starting point is 00:58:18 You're creating an action agenda. Where are we going to do about this problem? That's essence of what you're doing when you're thinking strategically. You're recognizing the problem and you have an action agenda to deal with it. It's not five years out, 10 years out. It's not your general mission to build a better world. It's none of that. All of that is a different literature form.

Starting point is 00:58:49 It's huge numbers of people out there willing to sell you advice on how your mission and your vision, and your values, and all these things that have to be replaced before you can have a strategy. And that's not true. It's a different model. I start now with ambitions because people want to put ambitions in place.

Starting point is 00:59:18 They get anger with me. I don't allow them to talk about their ambitions. So we start with ambitions. And, okay, you have all these ambitions. And I write in the crux that when I was 25, I wanted to be a top business school professor. I wanted to be on Fortune directors. I wanted to drive a Morgan, drophead plus four.

Starting point is 00:59:44 I wanted to climb on the great mountains of the world. I wanted to learn a flying aircraft. I wanted to marry a beautiful woman and have successful children. I wanted to have a townhouse on the Yosongahui in Paris. I had a lot of ambitions. That's not strategy. We all have ambitions. And every company should have ambitions.

Starting point is 01:00:12 If we look at all those ambitions, and let's say I'm 25 years old, well, what's keeping me from reaching them all? Well, I'm not ready to join board to directors. I'm not experienced enough. Oh, okay, so I put that over here. I can't afford to 10. So I cut it over here. How about the ambitions that you have any chance of,

Starting point is 01:00:41 making progress on now. Well, beautiful woman, yeah. I don't know anyone. I mean, maybe out of me if you can do something about that. So which of your ambitions can you begin to make progress towards reaching? And what's holding you about? What are the barriers? What are the problems? I approach the question of the problem now through the filter of the ambitions. But these exhibitions, fine, let's accept them all. And which one can you actually make some progress on today? And what's making that harm? What are the challenges?

Starting point is 01:01:27 So you're choosing a challenge. You're choosing of the possible challenges you could face up to. You can't do them all. So there's a focus thing. You're choosing which challenge to focus on. And that challenge has to be, A, important, and be, it has to be achievable. You have to be something that you can address.

Starting point is 01:01:50 It has to be an addressable child. And so the search for an action agenda, is this balance between problems that are important because they're close to your ambition and problems that you can actually address and do something about. And that overlap then become the choice you make. Okay, we're going to go after this, and here's the action steps we're going to take to do that.

Starting point is 01:02:25 And if it's a big company, the action steps may extend over two or three years. Smaller company, you've been playing six months, three years. These are things we're going to do. Not goals we're going to achieve. These are things we're going to do, action steps. that's sort of the way I put it together today, which is slightly different than the way it's put together in the crox. Yeah, I love this advice.

Starting point is 01:02:50 That's such a simpler way of thinking about strategy. It's an action agenda. Here's the things we're actually going to do, and then it starts with the challenge. And just to talk about the crux briefly, the crux is named after this concept in mountain climbing of the hardest point of the mountain climb where people, if they get past that, it's all downhill.

Starting point is 01:03:09 And I think basically the point there is focus on the most challenging, like the biggest challenge that you need to overcome to achieve these ambitions you're describing. Is that roughly the way to think about it? Yeah. Yeah. And the idea comes from a design. And it comes from climbing. I used to be a climber, a rock climber, and a snow climber. And a crux and a climb is the hardest part.

Starting point is 01:03:37 the hardest pitch or a pitch, the hardest move is the crux of that piece. And then the basic advice to a climber is if you can't do the crux, don't do the climb, because you're going to fall off there. Now, that's not exactly true because you can try it over and over again, you get it. But in general, particularly if you're looking at alpine climb, you better not take it on a climb where you can't handle the crux. That's why people go boulder in.

Starting point is 01:04:06 The builder is still up to him. of the crutch. And so that's what the concept of the cracks found. Now, in business, the crux is the hardest part of a problem. And from the design point of view, the skill designers, whether they're an engineer or an architect or someone else, there's usually a challenge.

Starting point is 01:04:37 I mean, pay was hired to take a look at Lube in Paris. And they had a dusty parking lot in the center of this giant palace that had become a museum. And they wanted an interest to Lube there. And the problem is they didn't, he didn't want it. They didn't want like the new building that would obscure Boulouk. The Lube itself, the building itself is part of the storage part of the scene. And yet at the same time, they needed to have an entrance because the entrance at that time was all from the side or sidewalk.

Starting point is 01:05:23 And you looked at the situation and the competing needs and the problems. And he had an insight into, well, build a transparent building, build a building out glass. So that you see through to the loop, doesn't obscure. And, of course, you can build a rectangular building out of glass that top will get the term. So it'll be a show them in a glass. Now, that design insight is something that software engineers, hardware engineers, mechanical engineers, space science engineers, like I was experienced. When we look at a dilemma, and we try to,

Starting point is 01:06:17 focus on what makes this hard and then by focusing on the difficulty, we see a way around. Elon Musk focused on, why is it so hard to use a rocket? And it's so hard because as it comes back into the planet at 18,000 miles an hour, it burns up in the atmosphere or we have to spend a lot of value on each year. And at some instant he said to himself, well, why not like science fiction just turn it around and have a land on its rocket? It's not enough fuel. Well, why don't we carry fuel fuel?

Starting point is 01:07:01 So, SpaceX. When there was designing, I was a conceptual designer of a machine that became Voyager. And went out past the planets into into space space where it's floating around right now. Well, one of the problems is, how do you know where Jupiter is? It's right there.

Starting point is 01:07:31 Okay, but how do you know where it is? Plus or miners and a hundred miles? How do you know exactly where it is? When we set the mission to Mars, we were off by 500 miles. So Jupiter, how do we know exactly where it is? Because we can look at it through our telescope,

Starting point is 01:07:50 so we can look at it. from the right side of our orbit and the other side of our orbit, but still there's a couple thousand miles there in that. That's too much. And then studying that problem, the simple solution suddenly flashed. I wish I could claim it was mine. It wasn't. Which is, oh, take a picture of it once we're heavily there. We'll send that picture back and we'll see it against the distant stars.

Starting point is 01:08:19 And now we'll have a triangle. they lower it is. So designers experience this sense of focusing on the crux of the problem, the heart part, and then seeing away true. And that's strategy. Strategy isn't picky strategy out of a list of common strategies. It's looking at the problem. What makes that problem hard?

Starting point is 01:08:49 and seeing a way to solve it. Now it's called insight, and insight is scary. It's scary because it's not guaranteed to happen. We want to innovate, but we're scared of insight. We want to be the first, but we'd like to pick our strategy of a list of common strategies for being first. We want to beat the market,

Starting point is 01:09:15 but we don't want to study enough to have an insight. So insight is critical. Insight is not magical. It comes from immersing yourself in the nature of the problem, and you will have, at some point, an insight about how to do with it. It doesn't always come when we want to. It can come while you're driving in a car. It can come the next day.

Starting point is 01:09:44 It can come in the channel. Charles Dorbury reports that his insight into the nature of revolution came as he stepped off a carriage into the village reading somewhere. Suddenly he said, oh, yeah, I thought it's obvious. It's like how we raise owls. We read the strongest. Sure. Why was that so hard for me to see?

Starting point is 01:10:13 So I think one of the big takeaways here is that if you want to get better at strategy or be more successful with how you think about strategy, you spend a lot more time on diagnosing the problem and finding the, the biggest challenge that is keeping you from what you're trying to achieve. And your insight might come, the more you're immersed. And call it an action agenda. Here's what we're going to do. Not here's all the things we wish would happen.

Starting point is 01:10:39 I love it. You mentioned this point that some of the biggest challenges to executing a strategy is organizational dynamics and politics is a part of that. Is there anything you could share for folks to help them through that? You talked about one of the biggest challenges. people just want to keep adding more priorities. There's all these needs. Everyone wants to include their thing in the strategy.

Starting point is 01:11:00 Is there anything people can do to improve how this works? Typically, I'll say typically we need hierarchy of power. Because there has to be some mechanism for deciding what we're going to do. And there's people with different interests and different private interests and public interests. and somehow there has to be a choice about putting some of these aside and doing this. That you can't say our strategy is to do everything that everybody wants to do. That's what happens when you form a committee in a city. And you say, what's our city strategy?

Starting point is 01:11:43 They say, oh, we're going to paint the park benches. We're going to clean up the grass. We're going to build on this. They have a wall of that stuff, everything they're going to do with that. And anybody who raised their hand and says, well, what about the burnage? Can we, you know, oh, yeah, let's put that into. That doesn't go anywhere. So we inside organizations, people have different opinions.

Starting point is 01:12:11 So that's part of it. They have interests that they may not stay, clearly. I interviewed Secretary of Defense Donald Rumsfeld while we were invading Errolick second time. And I was actually interviewing about budget matters. But he asked me, well, what do you do, professor? And I said, well, I do strategy. And he said, well, strategy, that's a hard subject. He said, you know, I've got people here in the defense.

Starting point is 01:12:53 department who have an expert on anything. You want to know the Klan structure in Iraq. We've got people to know. You want to know the weather. We got people to know. You want to know how many sort of teams we can fly in 24 hours. People will know. I got anything you want to know. We got someone who knows that. But they all disagree. And each have their own private agenda. They have a contract they want to get. They have a company they want to support. They have a conceptual idea. They want to push. So every little bit of information comes with an agenda, sometimes obvious, sometimes it. And how do you put all this stuff together to come up with a strategy? It says, do you academics have a solution to this?

Starting point is 01:13:40 And I said, no, we don't know much more than, you know, what you were two, three thousand years ago, which is you should put five to eight smart people in a room, and you tell them the company. mold with something. But his question is at the heart of what I call a founder, which is how do you get a group of people to coalesce around an action agenda? And what process would you use? How do you do that? So it's a different question than what should our strategy be? The question is, well, how should you go about creating a strategy? Should you ask the product, manager to ride a town. Should you ask the CEO to come up with that?

Starting point is 01:14:30 Should you hire a consultant? How do you do this? In my experience, working with companies, is that the senior executives have to do this. And my experience is that the senior executives know pretty much everything you need to know to do this, that you don't need consulting firms. to come in and analyze everything and to do. Yes, you'll gain some insight if they come in and do a competitive analysis and a customer analysis and all of that.

Starting point is 01:15:07 But the basic issues, the challenges you're facing, they know that. It's not mysterious. They know all that stuff. But they disagree about the importance of different things. And more importantly, they occupy positions of power. that if we go this way, this is going to be hurt. And if we go this way, they're building more money for that. And so they're not, their interests are not only,

Starting point is 01:15:41 which is part of what Phil is referring to. And so the problem of strategy inside an organization is diversity of interest and fear of action. because action, when you do something in a organization of any size, it involves people changing what they do. It involves changing power relationships, someone humans in some way. That someone who's been the alpha maybe is not the alpha anymore. Someone else is the alpha. This is heavy stuff.

Starting point is 01:16:21 And this is why we have a hierarchy because someone in the end has to say, it's going to be this way. And that's, people are hesitant to do that. CEOs are hesitant to do that. More so today than when I was a young man. It's become hard for people to do this. If you go to the bookstore and look at the management section in the bookstore, most of it's about leadership. And the leadership is mostly about perfecting yourself.

Starting point is 01:16:59 It's not about leading anybody. The theory is that if you perfect yourself and somehow rays come out of your head, and people will follow you because you're so magnetic and you're so perfect and you're so wonderful and you're so insightful at that. People will follow you. You won't ever have to say, Figgis, do that. It's so embarrassing to tell somebody what to do. And so this is the world we live in today, where

Starting point is 01:17:27 one of the problems in doing strategy is that it's to somehow been displaced by this literary form about mission and management is being displaced by leadership, which is the idea that the leader has a vision and people, it happened in the eight. There's a whole literature there about transformational leadership that is percolated through the system. And those, I'm not against leadership. But you have to tell people at some point, we're going to do this and we're going to do it this way. And Bob's going to be in charge of this aspect. And Jones going to be in charge of that aspect. And there's a hesitancy to do, to make those choices.

Starting point is 01:18:19 Because that's part of the action agenda. So the takeaway there is essentially have a decider. It makes me think of actually of George Bush. You talked about Rumsfeld, but George Bush's famous quote, I'm the decider. I don't know if you remember that. Yeah, that's true. One of the things we see in government particularly is presidents have a hard time getting advice because they surround ourselves with people who want to please them, number one.

Starting point is 01:18:47 We rarely, you know, it used to be. I remember during Woodrow Wilson's administration when he decided to take some hard action The Lusitania sank, and he had to do something vis-a-vis Germany. And the Secretary of State disagreed, and quick, back, that was it, quick. I disagree. I don't see that so much anymore. The people, organizations get frozen because of the difficulty of the difficulty of changing positions, of interest in power in China.

Starting point is 01:19:30 Humans are complicated. Well, if you look at Nokia, you know, one of the big examples of the strategic errors of Nokia was the leading smart phone maker in the world. And then somehow I lost it to building to compete. And, you know, an interesting question. It's a big, fair amount of research on this, is how did that happen?

Starting point is 01:19:53 one way it happened was they replaced the engineers who used to run the company with lawyers and accounts. Nothing wrong with lawyers and accounts, but they didn't have a feel for this hardware, software set of issues. And another was they put in a matrix organization that so diffused power inside the organization that nobody was actually in charge of a particular. I'm exaggerating, but, you know, the CEO kept pounding the desk and saying, you know, Apple's coming out with his smart phone and you have a touchscreen and now, somebody here should make one of those. There was no one in the authority to do such a.

Starting point is 01:20:40 Maybe a final question on the other end of the spectrum from a Nokia from a startup founder's perspective. What is a strategy and what should a strategy look like if you're just a founder, pre-product market fit, just trying to figure out where you want to go. What should a strategy look like there? Do you even need a strategy? Well, you're dealing a lot of uncertainty. When you're a founder and a startup, you're making a bet. You're making a bet. Like an oil well wildcatter would say, I bet there's oil under this ground. We're going to drill and we're going to find it.

Starting point is 01:21:13 There's a certain amount of bet that's going on. And you should be clear about the nature of the bet. The reality is going to be revealed to you in bits and pieces as time passes. whether a certain approach is going to work or not. What we find doing research on Starks, Silicon Valley startups, is they start out typically aiming at a particular product market solution. And the idea that you have in your head is there's a set of customers who want A, would like to have A, or being denied A, but we have a,

Starting point is 01:21:56 we have a way of giving them a product or service. Now, some people, they aren't that even advanced. They basically say, I know how to make something, and I'm going to try to sell. You know, last trap, ever. Well, if you have any chance of succeeding, you have in since you have a target market and you have a solution to the target market's problem in mind. And now you're going to go after it. And the research that we have done on these startups is that generally does all.

Starting point is 01:22:33 But the ones that survive and prosper switch. They say, well, it isn't that customer, it's a different customer. You go off from that customer. Oh, and that customer wants to slide you different product. And they switch over a period of a year or two, period, bang, back, until something begins to click and then begin to grow. and we're going to add functions and assets. So there's a search.

Starting point is 01:23:01 There's a search like a truffle hound, searching with a truffle that's going on. And you've got to be, I think, you've got to be at two minds, like so many things in business. When you're doing this, you've got to be two minds. You've got to be convinced of the certainty that you're going to win. And you've got to be willing to shift when things aren't working. And that's a double-jointed exercise that some people can do and some people can't. It's almost a human skill to both commit and to be willing to put it to bet. You should be clear in your own mind about the nature of the situation, the technology that you're betting on.

Starting point is 01:23:51 Now, sometimes it's evolving so fast, like generative AI is right now. that you can't be sure, that you're going to take a position where you think things are going to be in a year. And that's very, very entrepreneurial, very edgy stuff. But it's not. They can go back and read about the beginnings of the electrical industry or the beginnings of aviation or the beginnings of motorized this and beginnings of cars. I mean, people had to bet about what this industry would look like. The first cars were electric cars. The first car sold in quantity in the United States were electric delivery vehicles used downtown in cities.

Starting point is 01:24:48 Delivery routes were electric. Rano batteries. That was the bet. All that changed with the First World War. The United States built thousands and thousands of gasoline power trucks to go to Europe and rustling through the mud. And people came back knowing how to fix those engines and those trucks got sold off its wholesale to farmers. She used them on here. Fields and we had the gasoline to take off like a rocket.

Starting point is 01:25:17 So you cannot predict the future. There's an Arab saying that I like that says, he who forecast the future lies even if we're telling the truth. We're making bets. That's what business is. We're making a bet. And if we're a rich company, we can make a bed and a fork to get wrong. But if we're a startup, we have to be fast.

Starting point is 01:25:49 We have to adapt as the information comes in. And that's the nature of the story. The action agenda has to be quick adaptation to changing conditions. I feel like you have another book here where you could adapt a lot of this wisdom to startups. I'm looking at my notes from when we were talking about earlier and you have this point of when you're trying to write out a, you call it an action agenda, not a strategy. You're basically on the hunt for a big problem and an important problem and an achievable problem. And essentially you can boil that down to that is the job of a founder

Starting point is 01:26:27 to find an important problem and achievable problem and then solve it for a lot of people. Yeah, yeah, I like that. I like the other exercise I used to take my students through was what I called value denies. And what is it that you should be able to buy, but you can't? And as a time I taught this stuff, I was upset because they would lose my baggage and a nonstop flight from Los Angeles to Paris. So I'd like to buy baggage.

Starting point is 01:27:07 Sure. So I'd like to buy a state, you know, how do you get your baggages? not to be lost. Now with security systems in place, it's less, let's call it. Can I find someone to help me remodel my home? It's going to be on time and I'll put you. Not available. Can't buy it in price. If I live in Hong Kong and I'm going to the airport, I can drop my luggage off downtown and it arrives at the airport check. I don't have to let it. Why can't I do that in the U.S.? values, value that I.

Starting point is 01:27:44 And then engineering, you know, thinking about how something ought to be. You know, that's how Salesforce.com got started was, well, how should this be? It shouldn't be a computer. It should be a web page. It should be like that was a brand, hence books. And so that was the beginning of Salesforce.com. I asked a group of students wants to think about the perfect window

Starting point is 01:28:19 because it's physically something we could think about in the classroom without doing a lot of research. Well, what's the perfect window? Oh, perfect window should be transparent, should let the sun in. All right, so it should let in the light, but not all the time. Sometimes you want to want to touch the toilet.

Starting point is 01:28:37 So it should also dark drapes or four shades. It should let in the air. Good, but not the bugs. It should let in the air, but not the noise. That's a little harder. So you go down the list of things that a window should do. It should let in light, but not light.

Starting point is 01:29:01 It should let in the air, but not the noise. It should not let in the air. We don't want it. It should not let in the bugs. It should maybe have shutters or not shutters. And so I said, well, how could you design the perfect window, what would it look like? And there are some kids at MIT that had developed this thing that lets in here but keeps out the noise.

Starting point is 01:29:22 There's these little auditory filters, keep out noises on certain frequencies. Well, we don't have a perfect one, but, you know, think about it. Windows could be better than they are. And that's a real simple device that we're all familiar. and look around you, look at everything you've got and say, well, how shouldn't be? And there's opportunities there. Now, a lot of the times the opportunities are blocked by the lack of certain materials, regulation.

Starting point is 01:30:01 Regulators have decided that you can't sell a car in the United States unless it goes through a deal. So that holds back innovation in that business. And so, you know, plumbing, how should plumbing actually work? Well, there's a little search of rules about how plumbing works and electrical things work. You can't innovate there very easily because of the underwriters' labs and the unions and a lot of the stuff that's done in home construction is there to create jobs, not to be able to just calls. So how do you get around that? You know, so you have to look at places where it's possible to innovate, first of all. But, yeah, the idea of how do you make something better, how you make it perfect?

Starting point is 01:30:51 What would the perfect lights which you like and so on? These are real simple, silly questions, but they lead to new businesses and new firms if you pursue them. I love how full of startup ideas you are. I also think we came up at least two new books that you can write. I think you're going to have a lot of work to do after this conversation. Final question. Is there anything you want to leave listeners with or take away? Is there a final nugget you just want to share for folks? I want to share with you that strategy is not mysterious, that I've spent my life studying strategy, pursuing it, consulting on it, writing about it. It's not mysterious. It's about solving the most important problem you're facing that you actually do something about. You don't have to be some two, to call off the strategy.

Starting point is 01:31:44 But you need to be focused on something doable and be consistent about it. I have a long list of things not to do. There's a fourth book for a thing about writing called, Don't do that. I would read that. I love that title. Can I tell you a story? Yeah, absolutely.

Starting point is 01:32:04 My wife Kate took up skiing when we got married 24, 25 years ago. And she had this step that she couldn't get rid of. When you make a turn, you know, turn like that, you put the ski out and stuff. Right. Made her ski on ski. I did all sorts of things to her app. She couldn't fix it. And finally, we signed up with an illustrious ski teacher in Aspen, three-day intense program,

Starting point is 01:32:38 guaranteed that she would lose your step. She'd see them all. And so we went there. On the second day, I followed behind the instructor and her to see what was going on. And they had been through some exercises on day one. But in day two, they were focusing on this. And she had put out her ski like that. And he'd yell at her.

Starting point is 01:33:00 He'd say, don't do that. And after a day of being yelled at, don't do that, she didn't do it anymore. She was fixed. So the secret technique that they had in this program for, Kuringershton was to yell at you, I'm telling you, don't do that. And so I'm thinking about a book called Don't Do You know, about a business thing, where I'm not sure it makes sense,

Starting point is 01:33:27 but you have to noodle these things for well before they begin to jail. Yeah, I love this idea. It reminds me one of my friends as a therapist, and there's this video by Bob Newhart where he's a therapist. And someone comes to him and they've got all these problems. Like, I get really sad when I think about my mom and I have this chronic pain and his advice. Just stop it. Just stop it.

Starting point is 01:33:51 Stop, quick and bridge or mom. Just stop it. That's the advice. And so I feel like there's a lot of synergy there. All right. Well, with that, we reached our very exciting lightning round. Are you ready? I guess so.

Starting point is 01:34:06 First question, what are two or three books you've recommended most to other people? I feel like this is going to be a challenging question, but what comes to mind? Sort of is. Yeah, I mean, the books, I'm putting questions on stuff about the innovator's dilemma is always solid. Books on strategy that I recommend to other people. There aren't that many. So I like Playing to Win by Roger Martin. I really recommend other kinds of books.

Starting point is 01:34:41 Strategy books, I mean, it's easy to get a list of strategy books. But I think you should read biographies and histories. I think, you know, the book about Steve Jobs is brilliant. I like books about business leaders. I recommend Andy Gross book, only the time. paranoid survive and a few others, but I recommend that people read more broadly about people. Rockefeller's history is fantastic.

Starting point is 01:35:20 The guy and the stuff about Rockefeller and how he put together, I mean, Rockefeller was a robber baron and he built an empire and all that. You learn that in school, but what you don't learn in school is he dropped the cost of a gallon of kerosene from a dollar to 10 cents. Okay, that's the laborer. He made kerosene so inexpensive that he drove all the little mom and pop providers out of business, which is why they hated it.

Starting point is 01:35:54 So, you know, he was still a vicious competitor, but he dropped the price of something by an order of magnitude. Fascinating. So, yeah, I mean, it's important to understand stories, not just theories, but stories. Yeah, I love how this always comes back to just being steeped in history, and the specific point about biographies is really interesting. And we'll link to all these books that you're mentioning in the show notes. Is there a favorite recent movie or TV show that you've really enjoyed? Oh, yeah, sure.

Starting point is 01:36:37 Well, I like the whole stone, like everybody else. fascinated by recent movies other than yolles. I'm not sure. We don't have a TV in the house right now, so I'm sort of not connected. That's amazing. That's the dream. I wish I could do that.

Starting point is 01:36:57 There will be a TV, but that room is being remodeled. Okay. I see. Just a matter of time. Okay. Is there a favorite interview question you like to ask people? you interview us maybe specifically around helping you get a sense of are they good at strategic thinking?

Starting point is 01:37:14 Yeah, I like to ask people about what had you done that was hard, that you're proud of. What have you done that that was difficult? And what was it? And why was it difficult? How did you get it done? I like to ask people about what they think, what? was an interesting strategy from any time in the past they want to call out. Depending on the person's background, I might ask about a particular company or situation.

Starting point is 01:37:55 Let's say, you know, why do you think this worked or why didn't it work? So I don't tend to ask questions about theory. they have questions about things that happened and part of me I'm looking to you know, does this person have any knowledge about the world or they just they just know what the professor said last year so that kind of thing

Starting point is 01:38:26 is there a favorite product you've recently discovered that you really like whether it's a app some you bought some in the house some on the road Well, we've got this new memory bone bed that we like. It's pretty amazing. Innovation is pretty. I didn't think we like that, but we do.

Starting point is 01:38:46 I really am fascinated by, and I'm about to pull the trigger on buying one of these new smart telescopes. Smart telescopes. I haven't heard of that. Yeah, I don't make them so smart. It's a 12-inch reflected telescope, and it's too heavy to look around. It's too difficult to set up.

Starting point is 01:39:04 But there are a sort of new smart telescopes that run on a battery, and you can put them outside. And the way they work is, first of all, they know where everything is in the sky, which has been around for a long time. Well, the new thing is they, it's like astrophotography. They'll look at something for a minute, two minutes, ten minutes an hour and form an image. You don't look through the telescope. You look out of your phone or your computer. But you can see now the nebula that maybe the web telescope can see it now. You can see stuff out there that you couldn't before.

Starting point is 01:39:47 These are new things for, you know, $1,000 or $2,000 that are remarkable in what they can do. Excellent choice. Next question. Do you have a favorite life motto that you often find yourself coming back to sharing with friends, either in your work or in your life. I used to have a final lecture I give to my MBA students about little pieces of wisdom, things not to do, things that offend people in other cultures.

Starting point is 01:40:21 Don't do this. If you're a turkey, it means something else there. But I'd also say at some point, your spouse or your partner will ask you, do you still love me? And there's only one correct answer to that question, which is more than ever. And my wedding ring says that inside it more than ever.

Starting point is 01:40:52 So I don't know if that's what you're looking for, but that's kind of a white sense piece of wisdom. That is really good advice. Give me tingles. I'm going to use that 100%. Thank you for some marriage advice. Final question. Your daughter, Cassandra, is a writer as well.

Starting point is 01:41:12 In fiction, she writes fiction. Is there anything that she taught you about writing that's helped you become a better writer? Yeah, Cassandra is, oh my God, she's got like 25 books on the Air Times bestseller list for teen fiction now. She started writing when she was 12 or 13. She got a talent for it. She's told me about the tension. that you have to create, you know, and she writes novels. And that, you know, it's not interesting unless there's, well, she started, we started

Starting point is 01:41:53 talking about this when she was young. She was 14. And she asked me about what is romance? And I said, well, romance is a barrier. Her wences where there's a difficulty, you know, back to a couple. And, you know, there's some kind of, and she said, oh, like he's rich. she's poor. I said, yeah, like that. Or he comes from the north side of town, she comes from the south. I said, like, that. Yes. And she said, oh, like, he's a vampire and she's not. Yeah, okay. But so, yeah, yeah, she has alerted me and talked me about that ways of creating that kind of tension in writing. It doesn't work as much in business writing as I'd like, but I try to create this sense.

Starting point is 01:42:49 That's a good strategy back strategy. It's a sense that there's a tension between the right way and wrong way, or if not right and wrong way, at least there's a tension between should we go left or should we go right. It makes it interesting. Otherwise, it doesn't catch people's emotional. core. Amazing. Richard,

Starting point is 01:43:15 thank you so much for being here. I think we're going to help a lot more people face bigger challenges and face them head on and put together their action agendas

Starting point is 01:43:25 and overcome the crux. Thank you so much for being here. Two final questions. Where can folks find you if they ever want to try to reach out or learn more

Starting point is 01:43:33 about the work you're doing these days? And then how can listeners be useful to you? I have a little website called the cruxbook. dot com. That has information about me

Starting point is 01:43:44 and about the books. So there. Or don't write to me at UCLA. I don't pay attention to the UCLA website anymore, but if you go to the cruxbook.com, there's an email addresses where I can be reached. My little company is called General Imagination. It's like General Moor for a lot smaller.

Starting point is 01:44:08 It's just me. And you can reach me at Richard at general imagination.com. You know, you can help me out. Oh, call me stories. Stories about your experiences, trying to create strategies, particularly inside organizations. You know, that how does it work for you trying to get something done inside organizations? I'm happy to add more stories to my repertoire. Oh, and I don't know.

Starting point is 01:44:46 Wait, say more on that. What is it that people would hire you for? At this point, my life, I do public speaking. I speak on strategy and growth. And that just got back from Korea doing it. I talk there. I do a little bit of teaching, not much. Maybe for the military people, they want me to come in and do a day on strategy.

Starting point is 01:45:15 And I do foundries. A foundry is where you commit to a problem-oriented approach to strategy, where the organizational leader, the CEO usually, plus another seven or eight people take two to three or four days off and we meet. And we try to come up with, in the end of an action agenda. And it's an interpersonal exercise. I mean, the facilitator. I don't tell them what to do.

Starting point is 01:45:57 But I urge them to look more deeply and to understand what these problems actually are. It's interesting to do a family. You've got a focus on problems as I do at the beginning. I often get 25, 30 problems out, off on the board or post-it notes around. And when people look at that, because they haven't ever done this before, when they see the 25 different problems or challenges, they realize you can't do them all. And so they begin to get this sense. Well, geez, we better focus.

Starting point is 01:46:33 We better focus on something. We better do something about some of these. And so then we begin to, you know, go through this thing. I don't know, which ones are really important and which ones are really addressable. Well, sometimes we don't know if you're a customer or not. Oh, well, is there anybody in the organization who does know? So, Sean, we can fly in here. We have some perspective on this.

Starting point is 01:46:56 How do we, you know, so we begin to try to identify, you know, the one or two key challenges that can actually be addressed, and what are we going to do about it? What are the coherent actions we are up to take these on? That's the exercise. It's from time to time. after the founders all say to me, well, where's the strategy? Where's the document with the mission, vision, all that?

Starting point is 01:47:26 No, that's not what we do. We're doing an action agenda. And the foundry is time-consuming and a bit expensive to some extent. But most of the times we've had salaries, they really hope the company they'll gather its wits and its resources and do something, which I'm very pleased with how the foundries work. It's not so easy to figure out how to take the foundry concept and expand it. I've talked to a couple consulting firms about, well, you guys like to learn how to do founders,

Starting point is 01:48:13 and they say, how does it work? It's one guy for three days. That's not what we do. We do 10 guys for three years. It's not a business model. But that's a nice asymmetry for me because, you know, they're not going to compete with me. I love that.

Starting point is 01:48:32 I feel like you're about to get a flutter of interest and requests. For everyone else, make sure to buy Richard's books. I got them right here. The crux good strategy, bad strategy. Richard, again, thank you so much for being here. Lenny, thank you for a really pleasant time. It was 1,000% my pleasure. Bye, everyone.

Starting point is 01:48:53 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. 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 Lenny'spodcast.com. See you in the next episode.

Lenny's Podcast: Product | Career | Growth - Good Strategy, Bad Strategy | Richard Rumelt

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