[We were] just sentient puppets on God’s stage: indeed, our taskmaster was merciless, merciless, so long as our bruised feet could stagger forward on the road … so very brief and sore was life with us. With the sorrow of living so great, the sorrow of punishment had to be pitiless … — T.E. Lawrence (i.e. Lawrence of Arabia), The Seven Pillars of Wisdom

Lawrence had a front row seat among the Arab forces that revolted against Turkish invaders in WWI—a revolt that led to the formation of Saudi Arabia. They were successful because they moved like “a vapor”. In contrast, Lawrence compared the Turkish army, a more formalized force, to “plants, immobile as a whole, firm-rooted, nourished through long stems to the head.” (All quotes are from The Seven Pillars of Wisdom).

Lawrence and the Arabs were victorious; the firm-rooted Turks could not avoid being outmaneuvered by the vaporous Arabs. A similar story plays out with the German Blitzkrieg in WWII and in many other business and military settings.

In the business world, “vaporous” is an insightful description of the Toyota Production System. The TPS’s defining goal is to continuously rebuild itself by empowering every employee to help the company build cars faster. Despite their attempts to copy everything Toyota did in its operations, the American automakers missed this point entirely; their manufacturing processes remained firm-rooted. The American Big-3 automakers saw strategy as collecting best practices; Toyota built a culture of continuous improvement into a competitive advantage.

Most larger companies today are firm-rooted. Startups, though, are vaporous—they have to be, the roots haven’t developed yet.

The “Lean Startup”

Eric Ries put a taxonomy behind what it means to be a highly mobile learning organization with his 2011 book. Eric, when he was raising money for his own startup, ran into investor Steve Blank who made Eric take his course on rapid-cycle product development as a pre-condition for Steve investing. Thus, if Eric is the father of the Lean Startup approach, I like to think of Steve as its godfather.

Still, it should be repeated, as with Lawrence of Arabia, that the idea was not new. Shakespeare, for example, 400 years earlier, finalized his plays only after watching them being performed and hearing the audience’s reactions; he committed to nothing within the confines of his studio. Companies just lost sight of this approach as bureaucracy and hubris reigned in the latter half of the 20th century.

Most startups I see are disciples of the Lean approach, my own included. A few guiding principles include:

• Get to your users as soon as possible. The Minimum Viable Product (MVP) idea is central to the lean / agile methodology
• Get feedback as soon as possible. Don’t wait for more perfect products. Learn as quickly as you can. What is natural to users? What requires explanation and training and how can you make it more intuitive?
• Come up with many ideas and use the MVP approach to iterate. Eric calls it the “Build-Measure-Learn” loop. Looping through quickly he calls “fast-cycle testing”. In a similar mindset, one of the greatest disruptive strategic ideas in the military in the past hundred years was the “Observe-Orient-Decide-Act” loops, introduced by USAF Colonel John Boyd. Boyd referred to the ability to move faster through this loop than your opponent as an “asymmetric fast transient”. Similar words, similar concept.
• Measure early progress in the amount of learning you do about your customers (as intangible as this is), not in how many lines of code you write or whether you hit expected revenue targets (despite those being tangible). “[Startups] exist to learn how to build a sustainable business.”
• Find early adopters who will be your best partners to help you on this journey.

The startups and product development groups I’ve been a part of follow the “lean startup” approach closely…I believe most startups do nowadays.

Despite all of its strengths, the lean / agile approach has a few drawbacks in my observation:

1) It doesn’t supplant the need for strategy
You can’t use an MVP approach with very little product and let your users help shape it into a profitable product from nothing; strategies don’t appear from product feedback. What if the product iteration cycle leads you to a low $ value pool and thus a low price point?

One thing I’ve noticed is that the power of the MVP approach has made startups and product designers lazy about strategy: why do the hard work of thinking and planning when rapid customer feedback will lead us where we need to go?

2) What if gaining access to users requires signing a pilot customer … and that takes twelve months?
Short development cycles and then getting the product into the hands of users is important. But it has constraints. When serving hospitals, for example, the sales cycle (to get approved, contracted, and installed even for them to try a product for free) takes at least six months. You have six months to burn before it gets into the hands of users; you have to build and develop while you’re waiting based on the best information you have.

3) What if your user base is neither large nor forgiving?
The MVP approach in its most extreme state is where you have millions of B2C users who will test something out, provide feedback, and keep using while it improves. In a B2B model, you may only have a few users at a client.

Reid Hoffman, the founder of LinkedIn, has a famous quote, “If you are not embarrassed by the first version of your product, you’ve launched too late.” That quote might sound odd to a developer of elevators, motorcycle brakes, jet engines, or a hospital communication tool. “Okay, I grant you that our initial elevator plummeted thirty-four stories causing both injury and the complete cancellation of every contracted order we have… but aren’t you supposed to be embarrassed by your first version?” is something we’re unlikely to hear at a press conference.

For many B2B and critical products, if a couple users give up on your product because it was given to them too early to be viable, you won’t have a long line waiting to keep the MVP iteration cycle alive.

4) And finally, the term “lean startup” …
I prefer the term “fast-product-feedback-loop” instead. “Lean Startup” has the word “startup” embedded in it. But the rapid iteration cycle mentality is about how to best serve customers and outpace your competition and it should apply as well to larger companies.

One of the biggest challenges I’ve seen in larger companies is their ability to re-ignite fast-product-feedback-loops

As startups grow, they move towards the safety and predictability of roots. They build command-and-control lines of authority so that newly hired employees won’t upset the delicately-balanced machine the founders created. They build out familiar marketing, finance, and HR teams to play back-office roles needed to nourish the increasingly immobile plant.

Sodexo, a workplace consultancy, labeled the “agile organization” as its top global workplace trend in a report issued at the end of 2017. The characteristics of an agile organization, in their view, were “moving quickly to market”, “nimble and responsive”, “common orientation towards organizational goals”, and “achieving a balance between speed and stability”.

It’s what I call a “highly mobile organization” with “fast-product-feedback-loops”; other terms are lean or agile.

Accenture studied 277 companies. The ones with higher levels of both a stabilizing central strategy and velocity were over four times more likely to be seen as outstanding performers in their industries than those who lacked both.

Fast-product-feedback-loops ideally should be focused in areas where the team can control the speed of the intervention—i.e. not where customers, suppliers, or competitors can set up speed bumps (in which case, we might as well proceed more slowly with formal coordination). Uber, when it launched, was able to set the speed of innovation—neither users, local regulatory bodies, nor taxi companies (i.e. their competitors) could say “hold up; let’s wait six months and see if this is a good idea.” Other innovations have to move slower, such as B2B enterprise contracts because the buyers prefer to slow down the speed of sales and software updates to avoid too much risk or disruption.

If you can control the pace of innovating better for your customers and remain mobile, one benefit is that you can ignore competitor reactions. In contrast, if your quarterly earnings are predictable (which your Board and Wall Street demand), then by definition, aren’t you immobile?
So why aren’t more companies more oriented to speed and constant customer feedback? Why can’t they operate with faster design and production feedback loops?

Because it is harder.

Because you need to build the lean / highly mobile / fast-product-feedback-loop mindset into your culture and into new hires as they come on board.

Because choosing command-and-control and a focus on systematic earnings targets feels more comfortable.

I’m not the first person to use Lawrence as an example of a decentralized, fast decision-and-action cycle leader, but I may be the first to point out how sore his feet were from doing it.

Despite how the movie may have glorified his time in Arabia, the quotes above remind us of the truth: Lawrence was constantly uncomfortable. What he did was hard, far harder than remaining in an army tent in a camped location with British colleagues. The cost of being uncomfortable is far outweighed by the benefits in the long-term, but how many corporate leaders have the confidence and grit to do so?

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All books and other resources referenced in this article

In my last company, I led the development of a major data visualization addition to our core product. It allowed our product to be used for the first time by the C-Suite of our client base and that alone raised our price point considerably. But one problem kept recurring: smart people didn’t have the time or wherewithal to figure out what to do with the reports. They wanted guidance from a system that had seen more than they had which could automatically bring the next steps to them. They wanted AI, not charts.

So when my colleagues and I started our newest company 18 months ago, we said “no charts, no reports” would be our mantra. We invested our time deeply in strategic understanding of our buyers’ needs and built AI engines to support day-to-day nudges. The convergence of strategy and analytics was a journey that we’re still on, but the road we’ve traveled so far has made it clear to me that strategy is an equal partner with analytics in the pursuit of AI.

Strategy and analytics should already be inseparable even without considering AI
I believe the most valuable and innovative companies of the next twenty-five years will be those that build their strategies and product around unique data or analytics/algorithms.

Corporate strategy today needs to be heavily-anchored in data: data should guide strategic decisions and investments. I also believe building an analytics flywheel to create new innovation and customer value over time needs to be a major consideration of most strategies.

So why shouldn’t the corporate leadership in strategy and analytics be the same role? It’s a joint role I’ve played many times now and one I’m seeing it gaining in popularity.

In short, analytics is the new strategy.

Strategy

In a prior article I wrote that strategy “identifies a buyer, their need/value pool, our chosen mechanism for addressing that need and why it will be effective, the unique skills/assets/capabilities we have, and how all those things will come together to uniquely serve the buyers’ needs while delighting our users.”

To do this, you need to do real problem-solving work. You need real data from your market and your customers. You need to think. It takes time. It might take a full-time team year-round to keep it alive, tested, and updated.

Analytics

Deploying analytics as a function is not super hard to do these days. There has been a proliferation of tools and knowledge in recent years. Companies looking for analytics expertise can simply hire it.
Unless there’s a clear, well-tested user need that a distinctive analytic solves that your company can expand the natural value of… then what you’ve got is analytics without strategy.

Analytics is not “adding pie charts to a dashboard”
Nowadays, anyone can add charts to their platform. Dashboards are everywhere, but what users really need us a thought partner: “What do we do with the data? Tell me the actions I should take now based on the data.”

Analytics is the tool that lets you bring fast-product-feedback-loops and network effects into your product strategy and product development. This is not a technical capability. Like everything else strategy-related, it is the hard, problem-solving work of finding a path to outsized, meaningful customer value based on the core skills and assets you are already working with.

Analytics and strategy together will power the rise of AI … and “data visualization” tools, like Tableau, will soon become collateral damage
Data visualization tools have been great at democratizing the ability to make beautiful charts. But the vast majority of users don’t know how to act on charts. They don’t want more things to login to, filter and explore, then figure out what it is telling them, then figure out what to do about it. That “pull” approach requires sophisticated curiosity. 99% of users, at least in my experience, struggle to interact with those visuals. What they want is the simplest answer to “what do I do?” pushed to them.

For me that’s why strategy (thinking outside the data) and analytics are a powerful combination.

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All books and other resources referenced in this article

The CEO of a 500-employee company said to me recently, “strategy isn’t even a full-time job here”.

He was in a company that had been doing well. Why does he need strategy?

For startups, hasn’t the recent rise of the Minimum Viable Product/Lean Startup approach killed the need for a strategy? Can’t we figure out everything we need to know along the way, based on fast user feedback loops?

When thinking about strategy nowadays, if you’re not confused, you’re probably at least a bit disheartened.

I’ve been thinking about strategy a lot myself in recent years, first as a McKinsey consultant, and then, more recently, as a founder, strategy leader, and board director in several tech startups and growth stage companies. I wanted to share a few insights I’ve arrived at along the way about strategy and why it’s as relevant as ever today.

There are some insights about strategy I’ve arrived at:
 
Strategy isn’t dead. In fact, it’s as critical today as ever

• The fact that the world is changing around us means that companies can no longer rely on annual strategic plans to provide meaningful guidance. But it also means that, without a simple articulation of whom we serve and why we create unique value for those customers, companies can become lost in the noise of a frenetic and chaotic environment around us.
• Unfortunately, collectively we have disregarded strategy in recent years. This may be because we either overestimated our ability to repeat past growth or because we have seen strategy as something far scarier than it really is. Here’s a way to test this latter theory: see how quickly you can strike fear into the heart of any career executive by walking up to them and asking, “What’s your strategy?”

 
The concept of “competitive advantage” isn’t dead

• There are many great points made in the popular book whose title declared the end of competitive advantage but I disagree with its central thesis. I believe even the author disagrees with it. In her case study of Milliken, for example, she highlights their consistent distinctiveness in specialty materials production, corporate culture, and employee engagement, among other areas—all of which sound like great examples of competitive advantage to me!
• Everyone agrees the world is moving faster today than ever before. Thirty-year advantages in the 1970s may have been commonplace, while five to ten years may be more the case today. In addition, sources of competitive advantage have migrated from physical assets (e.g. mines and plants) to technical and cultural/skill-based ones. But that doesn’t mean the concepts are irrelevant. Innovation today is the process of taking the set of things you do well as an organization and injecting them into new products and better ways to serve your customers.
• Find what unique technologies, skills, or resources you have that allow you to help your customers accomplish things 2-, 3-, 5-, or 10-times faster, cheaper, or better than they otherwise could: that’s why they’re buying from you and that’s where your advantage lies. If you don’t have a competitive advantage, why is anyone buying your product?

 
The Lean Startup approach has not made strategy irrelevant. In fact, one without the other is dangerous, and the two combined are exceptionally powerful

• The Lean Startup approach is a set of tools and concepts to create highly-mobile teams that iterate the product development cycle. But too many startups are using quick iterations and Minimum Viable Products as an excuse to avoid upfront strategic thinking.
• If you iterate purely on an MPV without the guidance of a strategy, who knows if you’ll end up solving a need large enough to be meaningful to buyers?

 
Google’s success has not proven that strategy is irrelevant

• Google is distinctive at hiring creative, smart engineers, investing large amounts of money in long-term products, and creating technical, web-based solutions in easy-to-use products. The ability to do those things is a large part of their competitive advantage.
• Google’s two most public failures, Wave (a real-time email and messaging platform) and Glass (wearable glasses) were anchored in those areas of competitive advantage.
• They were both built on a technical insight but solved no articulated business need. They probably iterated the product development with a Lean Startup approach and got great user feedback. But then what problem did they solve? For whom? Why would anyone pay (or accept advertisements) for them? Strategy forces these questions into the forefront.

 
Analytics is the root of most effective strategies today

• Years ago, strategy was anchored primarily in frameworks (e.g. the Five Forces) and executive muscle memory. Those days are gone. Strategy today needs to be heavily anchored in data. Data is the best guide we have to strategic decisions and investments—especially data that we can uniquely see.
• In addition, building an analytics flywheel into your product to inform new waves of innovation and customer value over time is a powerful component of a strategy.

 
The three primary colors of building a business are Strategy + Analytics + Agility

• Strategy is a clear vision of whom you are serving, the problem you are solving for them, an understanding of why they need your help solving it, and an outline of how you’ll solve it.
• Analytics (or a similar technological insight) is the unique tool that you are able to use to solve the problem that others either don’t have access to or haven’t considered applying to this problem.
• Agility is your unique ability to quickly deploy the technology to solve the problem for the customer, get feedback, and continuously improve.

 
Hiring and investing in “strategic stem cells” is a primary way that companies can become more mobile, innovate faster, and be able to re-allocate resources as needed

• When startups and successful companies are hiring today, they look for people who are comfortable with ambiguity, can learn new skills, and who get excited about the prospect of playing multiple roles in their company. They look to make deep investments in core assets that can evolve into different products as an uncertain future plays out (e.g. flexible factories). They double down on building fundamental capabilities such as customer care, designing unique user experiences, and training their employees.
• These are all examples of what I call “strategic stem cells”: the flexible collection of skills/assets/capabilities that can be moved into different products as corporate priorities shift in a fast-evolving environment.
• Like a blank tile in Scrabble, strategic stem cells can play the role of any vowel. What’s the word we’ll need? Patting? Putting? Potting? Our future options are open.
  

 
Companies need to be decentralized and agile to innovate … and a strong, simple strategy will let you do it

• My personal affinity is to the startup model where everything is both centralized and decentralized at the same time: the firm is small enough so everyone can see and weigh in on most things quickly, while any employee is typically afforded the freedom to propose and run with major changes. But even in startups, I’ve seen the pendulum swing, as it should. There’s a period of open innovation where solutions are cobbled together (in a decentralized way), then, once the proof points are established, there’s a period of purposeful rebuilding to handle scale, maintain consistency, and improve responsiveness (as part of a centralized build).
• When I’ve had the chance to be part of larger companies, I’ve seen how hard it is to let any process run in a decentralized way. Any company looking to be more innovative has to reduce the centralization of control. There are many ways to do it. The most important criteria is that they have a strong, simple strategy. Then decentralized, agile teams can operate with the freedom they need within the confines of a consistent corporate direction.

 
The existence of “Black Swans” underscores the need for short, simple, and thoughtful strategies

• Nassim Nicholas Taleb’s popular books on “Black Swans”, the rare and extreme events whose odds of occurring are unknowable, provide no justification for avoiding having a strategy. Indeed, a strategy is most valuable in those situations. A strategy should provide enough clarity during the chaos of shocks to your market while still being open-ended enough to allow all employees to adjust their own decisions and actions as needed as the exact circumstances and opportunities evolve.

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All books and other resources referenced in this article

Close your eyes for a minute and imagine a strategy.

Are you imagining a simple, specific document you refer to for helpful guidance that summarizes your company’s north star?

Or are you imagining absolutely nothing?

Don’t blame yourself. In Michael Porter’s books, or anywhere else, I haven’t been able to find many examples of what a strategy should look like.

Here’s a proposal: open any book on strategy and go to the Index. Lookup “Strategy, an example of”. Find anything?

The “4 Steps to Develop a Strategy” outline the four major components that a good corporate strategy needs:

A strategy could cover these four components in ten to twenty sentences.

Why not a 200-page plan? Because if every one of your employees can’t remember the strategy and don’t know how to use it to prioritize their day, what good is it? A strategy needs to be specific enough to be helpful, but short enough to be memorable. It should be something that everyone can refer to. Companies often either do too little strategic thinking and/or create too much “strategic material”. Either way, they avoid the hard work of these 4 Steps.

Here’s my best guess at Southwest Airlines’ strategy circa the 1970s (it has changed little since)

Southwest Airlines’ Strategy Buyer + $ value pool. What’s the high $ pain point or unmet need? Anyone who travels distances that take 4-8 hours by car (e.g. over-served by major airlines) who want a faster and similarly low-cost alternative. Need will only grow (unless high-speed rails take off). How to unlock the $ value pool. What’s keeping the value pool from being unlocked? How unique is our chosen method? When an existing airline attempts a short-hop flight, the airports they fly into (the major urban hubs) take a long time for passengers to get to. And it takes a long time to park, get through security, and board—so the total door-to-door time is too long. You might as well drive the whole way. We’ll specifically choose hubs and processes with the explicit goal of shortening that time as much as possible. Why us? What are our sources of advantage? What trends will we ride? Founding team’s deep knowledge of what is required to build and operate an airline The insight that all the major airlines have purchased the rights to gates of all major airports, thus locking new airlines from flying into them. However, this has also caused those incumbents to ignore gates at smaller suburban airports. By buying the rights to those gates, Southwest can overcome this barrier to entry. This means Southwest can reduce door-to-door travel time for passengers but also limits the ability to transfer passengers between other airlines. Unique customer insights about sources of unmet customer needs The existing airlines are stuck in their long-haul models and can’t reorganize to challenge us serving customers on these types of trips. Over time, scale, as a dedication to building our approach into all areas of our delivery systems will make it impossible for anyone to mimic us. There is a big trend emerging in airline de-regulation. For example, profitability now has to be earned but the existing airlines have been guaranteed profits under regulation. User + how we will delight them. What are the two to five unique and pivotal decisions that will define our solution? Limited passenger services Such as no first class; no frequent flier miles; open seating/first-come-first-on; passengers cleaning up after themselves to speed up gate turnarounds; no meals Be lowest cost Such as flying one aircraft type, the 737; thus, also not needing to train and certify pilots on other aircraft; No travel agents or 3rd party travel websites—you can only book with the airline thus avoiding royalty fees. Highly agile and invested grounds and air crew Such as personality-infused pre-flight safety presentations; employee stock ownership; ground and flight crews well compensated; crews allowed to join unions; crews empowered on any safety issue. Let employees be our “eyes and ears” for new ways to continually improve our service to customers.

Every employee can understand this and can apply it to decisions they make day-to-day. Even though it (or a variant of it) should be shared across the company, it should be specific enough to be confidential.
 
Here’s my guess at Fitbit’s strategy circa 2015:

Fitbit’s Strategy Buyer + $ value pool. What’s the high $ pain point or unmet need? Regular people looking to do more exercise. They see regular exercise as a way to increase the years and quality of their life. Ways to unlock the $ value pool. What’s keeping the value pool from being unlocked? How unique is our chosen method? Instead of focusing on different types of exercise (as a gym might do), focus on the activities they do every day—especially walking—and allow them to track the impact of it and encourage more. Why us? What are our sources of advantage? What trends will we ride? Founders’ expertise in gaming methodologies. Ability to create simple physical devices at scale (so a pure internet-based startup could not compete). User + how we will delight them. What are the two to five unique and pivotal decisions that will define of our solution? Make tracking exercise that is already being done easy to do. Build encouragement from the exercise they are already doing. Make it easy to set daily goals (such as 10,000 steps) and use the fact that by any given evening, they’ll already be close to their goal as a mechanism to get the extra 1,000 steps or so. Allow them to see progress over time, earn badges, and feel good about what they are doing (as opposed to gyms and weigh-ins that are a mixture of positive and negative experiences). Build in social aspects—for example, allow them to have friendly competitions with friends and family.

In the Southwest example, note the four top-level bullets in section four are the “two to five unique and pivotal decisions of our solution”.

The “such as…” examples in the lower-level bullets are the specific activities. Not having meals is not part of a strategy. It is an example, among many, that reinforce a commitment to limited passenger services and being low cost. Not having meals means also that they don’t have to wait for a lot of food to be loaded at the gate. That’s possible because they only fly short distances and it helps make the door-to-door faster as well. Southwest’s four unique and pivotal decisions are coordinated.

What strategy experts often overlook

I’ll also point out that all four decisions follow a natural storyline. Once they established the core concept of short routes to compete with driving, then deciding to be low cost made sense. Flying into smaller airports was a natural decision as well. And so they followed the thread to establish a full list.

The examples in Section four are important. They give the strategy real punch. But you need not have figured them all out on Day One. This is something that experts either miss or overlook explaining. As much as I’m a big fan of both Michael Porter and Kim and Mauborgne’s Blue Ocean Strategy, neither one observes this in their analysis of Southwest.

The Blue Ocean Strategy book, for example, introduces a “strategy canvas”. This is a set of five to ten customer-facing attributes that each competitor is scored on. For Southwest, the list includes lounges, meals, and hub connectivity.

Michael Porter has the “activity map” with eighteen activities in the graph. I have two issues with the activity map:

1. Showing these details that way makes them appear as if they have always existed and were prescribed in advance. (In fairness, Porter’s activity maps often have major/hub and minor/spoke activities colored differently. In that case, the major ones are the “two to five unique and pivotal decisions”; the minor/spoke ones match the sub-bullet “such as…” items. Though Porter himself doesn’t explain the development of a strategy as such.)
2. I see people confused about what to put in activity maps. In Playing to Win, an otherwise great book on P&G’s strategic evolution, the P&G activity map listed are sources of advantage (e.g. “scale”, “innovation”, “go to-market capabilities”, “customer understanding”)—not decisions made. And the co-author of the strategy and book is a long-time consultant of Porter’s own consulting firm, Monitor!

Why is it important to get the guiding principles and not a full list of all the specific tactics? For one, listing out the ten ways you will compete can’t always be possible on Day One of a startup. You need to learn them over time. For another, not everyone in the company can remember all ten in their heads, thus violating the “keep-it-short” rule.

And finally, a company like Southwest learns over time. It wants all of its employees out there thinking about new ways to reinforce these approaches. Provide a list of ten detailed ideas to your employees and it will always stay ten. Provide four governing thoughts and your employees will give you hundreds of new specific ideas. Toyota made their Toyota Production System a strategy because they made it strategic and evolutionary while none of the other automakers did; others simply tried to copy specific parts of the system they observed.

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All books and other resources referenced in this article

This is Step 4 of “4 Steps to Develop a Strategy”, focused on finding power users who have already been compelled to find some solution to a need they have. Can we productize some version of it to serve other users while addressing the buyer’s pain point in the same product?

There’s a difference between a strategy and a product definition. This step is not about building a product (that has to be an iterative process with actual users over time), but rather about defining the few pillars of the product that put both a direction and guardrails on your product development.

Why do we need Step 4 at all? Isn’t it enough to have identified a value pool?
Whatever value pool you identify, you should be aware that the market will be flooded with companies claiming to solve it. You can differentiate based on ROI case studies (when you get them) and a focus on a unique root cause … but more valuably, based on a focus on a unique user and a unique way of serving that user. Win over the user and the buyer will follow.

Software as a Service (SaaS) companies are realizing that contract renewals are determined in the first few weeks of deployment: if users are engaged and adopt quickly, renewals two or three years later are already on a strong path.

While delighting your users won’t fully be solved in your strategy, the rough guideline for accomplishing it has to start with the strategy. A focus on the buyer is not enough. We now turn to the user.

(4a) Identify our users. Our buyers are not our users.

My colleagues and I kicked off our most recent startup about 18 months ago. We knew our “buyers” very well, having served Chief Nursing Officers in hospitals for many years. We scoped out and pitched a product to them that we believed would solve one of their most pressing needs, the need to engage and retain their clinical workforce.

We also knew our “users”: nurse managers in those hospitals. We knew that nurse managers had a very difficult role and designed a product approach based on dozens of hours of discussion and feedback with those managers, as any good Lean Startup would do.

We also knew that buyers wouldn’t buy our product if they didn’t truly believe that the users would use it, so there was natural alignment there. But what I have consistently been surprised by in the course of the past months is how different the two stakeholders’ needs are and how difficult it is to be a startup that is trying to thread the needle between them both.

A large number of our product and strategy discussions have been around what to build, how to organize what we are building, and how to message it. In so many discussions, the question has come down to: should we build for (and message to) the buyer or the user? And if we want to balance both, how do we best do it? Which one matters more for sales? For product adoption? For impact?

I don’t profess to have a perfect generalizable solution to the challenge. I simply raise the distinction because realizing that we had multiple stakeholders and part of the magic of our product is to unite them both has helped us.

Terms like “Product-Market Fit” are ubiquitous and are a good example that we often don’t disentangle buyers and users.

In our startup, we evaluate our “Product-Buyer Fit” and “Product-User Fit” separately, for example.

Buyers are not users… even when they’re the same person.
If they are the same person, they are still different stakeholders. Too often, strategists merge buyers and users into “customer” and they lose insight because of it. Buyers and users have different goals and pain points.

For example, how many times have you (as a buyer) bought a plane ticket and chosen the cheapest one? Then weeks later when you (as a user) are waiting in long lines, sitting in a cramped middle seat, and suffering through delays and cancellations… and cursing the earlier version of yourself for being such a cheapskate?

When you are serving the user, delight them with what they care about (e.g. how easy your product is to use); that’s a great way to have them buy from you again. But don’t distract the buyer with messages about what only the user values.

(4b) Determine the two to five unique and pivotal decisions that will define our solution—and will delight our users

Our chosen method for addressing the value pool is only the start. Here we need to weave in the user. How can we delight them while impacting the buyer’s value pool? How will we create raving fans?

These have to be directly connected to our sources of advantage as well. In Southwest Airlines’ case study, for example, their value pool and source of advantage focused them on serving short distance travelers from smaller, more suburban airports. Therefore, it would have been out of synch for them to choose first-class dining or multiple business class seating hierarchies in how they served their user. From their value pool and source of advantage, you can clearly draw a direct path to being a lower cost and more agile company across the board.

Our goal is to develop the two to five unique and pivotal decisions that define our solution. Determining what they are is perhaps the hardest part of developing a strategy. Often, when starting on a new product, you don’t know, because it requires a working knowledge of the user and what they value. But it’s important to build a perspective and evolve it.

These decisions will allow us to best serve our chosen buyers and users, leverage our sources of advantage, and align us with the larger trends.

These decisions should be internally consistent and mutually-reinforcing.
For example, with a company I was a part of, we believed that generating insights from a particular data source would be one of the core product attributes that would define our solution. Over time, we discovered that component of our product wasn’t as important to our users—so we demoted it and promoted other decisions. So, while all Four Steps of a strategy are connected and will evolve, this section needs a strawman that gets re-evaluated often, especially in the early days.

Interviews are still a valuable tool
We need to talk to potential users about what product would be valuable for them, centered on the chosen method. Resist the urge to jump into a specific product solution. And resist the urge to frame the problem in terms of the buyers. If we go to nurses and say, “your CEO wants to accomplish this and here’s a product we’re working on that can help do that”, the odds are they will say, “Great! Another thing for me to do that’s pushed on me by the administration! Don’t they understand how busy I am and how I have no time to do every new thing they come up with?”

What you have to do is talk to the users about their needs and areas of friction and build your product and story to them around where they are.

You need to accomplish a job the user is already trying to solve
Let me be clear: no user will use your product unless it helps them solve a problem or accomplish a critical job they are trying to solve (even if it solves a buyer’s problem and the buyer is their boss). To get product usage, you need a user’s internal triggers to fire and then you want to be the reaction they have to that trigger firing. You cannot create usage by giving people a product and saying it does something new that they are not trying to do. Amazon on a cellphone does this for many people: whenever they think they need to buy something, it’s easier to open their phone and buy it than it is to write it down on a shopping list and buy it later in a store. The internal trigger fires and Amazon is the brain’s go to response.

Don’t build two loosely joined products here—one that solves the buyer’s need and another for the user. Focus on doing one thing well. The magic is threading the needle between the users’ and the buyers’ needs.

Find the “power users” out there and ask them what solutions they have cobbled together for themselves. Then productize that.
Power users are the most forward-thinking of your user base. They are often the most tech savvy, may have multiple cross-disciplinary degrees, and/or may have worked in another industry. Use LinkedIn to find people who meet that profile and interview them.

Look at what they’ve built themselves. If users have a real need, they’re not going to sit still while waiting for someone else to solve it.

The odds are that users are not immediately solving a problem aligned with a buyers’ value pool. But aligning them to win over both in a single product is where you should focus your efforts.

Find the smallest prototype of the product/solution that will fit both buyer and users’ needs
This is often called the “Minimal Viable Product” (MVP) in the lean startup vernacular. I prefer the term “prototype”; MVP includes the word “product” which already plants the idea that it has to be something real. Prototype, on the other hand, conjures the right image for me: something duct-taped together in an afternoon. It doesn’t matter how rudimentary or unscalable it is. Its goal is to help you learn about what your buyers and users need and want.

If yours is an analytics company, could you imagine some early, viable version of the solution being built in Microsoft Excel? You might not actually build it that way, but if you can imagine it, you can then imagine how you could build a working version of your product in six months. On the flip side, do you need massive data to get started, which you don’t have? Or do you need to invent something that doesn’t exist today just to get started? If the latter, that would be a warning flag for me.

. . .

This article is an abridged chapter from a book of mine, 4 Steps to Develop a Strategy

All books and other resources referenced in this article

This is Step 2 of “4 Steps to Develop a Strategy”, focused on identifying the root causes of a buyer’s pain point, determining why it hasn’t been solved already, and outlining our approach/technology to do so.

(2a) List out all the root causes of the high $ value pool

This step typically follows Step 1 (the process of identifying a buyer and value pool).

This step should not be super difficult. Ideally there are many publications on the top drivers of the pain point we can reference and by citing them, everyone will nod their heads in agreement. Be concerned if it’s too difficult; while we should do our own research into the root causes of the value pool we identify, we don’t want to have to spend time in a sales meeting educating our potential customers about this.

Interviews again are a valuable tool
At one point in my career, I investigated building a product that would help reduce patient falls in a hospital. I decided not to pursue it and partly for that reason, it makes a good case study.

For Step 1, I talked to buyers about how they measure the cost of falls and how much value they see in a further reduction. I also asked them the mechanisms they have seen effective for fall reduction and which ones they use, or are considering using, today.

I talked to the prospective users of such a solution—in this example, physicians, nurses, and nurse assistants. In my experience, offering people a gift card for thirty minutes of their time for an expert interview will allow you to hear the voice from the front lines—and it is always well worth it. In any case, I asked nurses what the root cause of patient falls were.

At this point, our team began to imagine solutions based on what we learned about the main cause of falls (e.g. elderly people getting up to go to the bathroom) and how they were currently prevented (e.g. checking in on patients regularly). One solution the team came up with was an alert for the nurse when the patients’ weight is no longer present on their bed.
Note we’re not looking to invent a product here, but rather to identify a solution approach (also known as a product strategy or value proposition) that a product could be built around. In this example, a scale under the bed could be a solution, but not a “product” yet. We don’t know what the users’ needs are and so we don’t know yet what product features would be needed to have them use it.

I’ve also done surveys. In this case, surveying 300 nurses to find out the root causes they see in patient falls would tell us a lot. The result of that work would be something we can deploy as part of our marketing materials later on. All you need are an email list and the ability to offer a $15 Amazon gift card for a few minutes of their time. You may find it best to do your research first so you can ask meaningful, informed, and hypothesis-driven questions in a survey.

(2b) Determine why the value pool isn’t being solved today: Are there major root causes not being addressed? Or are current approaches just not effective?

The value of finding unaddressed root causes
This is where you look for Blue Ocean—value pool solution approaches that don’t exist today. Other companies may know the value pools (as discussed in Step #1), but the current competitors are likely focusing in on solving one or two of the root causes and solutions to the value pool. Are there any root causes that are being overlooked today? If so, coupled with a unique product approach, this is where you can do something different and impact your customers’ value pools in a way that’s complementary to what they’re already doing.

Strategy at its core is carving out divergent solutions and approaches. Ivan M. Arreguín-Toft’s analysis in “How the Weak Win Wars” shows that taking a divergent strategy allows the smaller player to win two-thirds of the time. But taking a strategy similar to an incumbent’s wins only one-fifth of the time.

There are three ways to be different: choosing an over-looked buyer, choosing a value pool / pain point for that customer that no one else has noticed, and, finally, choosing a novel approach to solve that pain point.
What root causes have others overlooked so far? They are often in plain sight

(2c) Choose a method of unlocking the value pool—ideally one that’s based on a unique technology or insight
If there are many competitors already providing solutions to the buyer’s need/value pool similar to the one you are considering, you have to have a strong belief you can build yours uniquely enough to win a certain customer segment. Don’t immediately worry about competitors: having competitors is validation of the need you identified. Instead focus on differentiating against those competitors.

Where there are existing players, opportunities can still be attractive if you can avoid becoming a commodity. In the chart below, you can see the relative attractiveness of a strategy based on the differentiation to incumbents in (1) choosing a buyer/value pool and (2) a method of unlocking that value pool.

For (2), if there are many competitors or in-house solutions addressing a value pool, but doing so in dissimilar ways as your solution, you can still be successful. I’ll warn you that potential buyers may react with “well, we’re already doing so much in this area, let’s see how those initiatives do before we start up a new one.”

What is the unique technology or analytics/data that you are bringing to the solution? If you don’t have a clear answer, why wasn’t your solution already built years ago by someone else? The unique technology or analytical core should become a source of advantage that will deter copycats and enable you to find a unique voice in a crowded field of competitors. More on that in the next section.

. . .

This article is an abridged chapter from a book of mine, 4 Steps to Develop a Strategy

All books and other resources referenced in this article

This is Step 1 of “4 Steps to Develop a Strategy”, focused on identifying a buyer and a value pool/pain point.

(1a) Identify a buyer

Anchor on a customer (or start with a few and aim to narrow them down to one). Whom would you be selling to? What organizations do they work for?

For example, your customer can be the marketing departments of large corporations (as it is for Facebook and Google), COOs of hospitals (as it is for manufacturers of operating room beds), or busy professionals (as it is for Blue Apron). The best customers are ones you and your founding team know well. My personal experience is that later, when you’re building a product, raising money, and selling a product, there’s so much less risk if you can say “I’ve been serving this customer for over ten years and I personally know their opportunities and challenges.”

(1b) Identify a high $ value pool

What’s the pain point (or untapped opportunity) for the buyer? How big is the $?
The next step is to identify the areas of highest cost savings or revenue growth potential for that customer; often these are well-known.

A value pool is the $ amount representing how much you and your buyers expect your product to alleviate a major cost driver or open a new revenue opportunity for a customer. Ideally, it is one of the top five items on a C-level leader’s mind. Finding a large $ value pool is important. Investors have a saying that the success rate of companies is the same whether they go after a big market or a small one, so invest in those that go after big ones. I use the term “value pools” and not “markets” because product strategy focuses on building new solutions; the term “market” implies that many competing solutions already exist, which may not be the case.

The best value pools are ones which buyers are already measuring and reviewing every month. Examples for businesses may include metrics such as too many hours spent doing X, too high of a product return rate, too high of a customer churn rate, or too few sales leads.

Who on the CEO’s team is accountable for the value pool? If it’s an area that’s measured today but no one is personally held accountable for it, you may find the lack of a buyer who will clamor for your solution. One such example could be employee turnover. Is the VP of HR on the hook? Or are the individual managers? Or is no one? It may vary depending on how the CEO allocates accountability.

Second best are the value pools which are abstract, noisier, infrequently reported, or harder to measure. For these value pools, it can be hard to know if a solution deployed against them is having an impact at ninety days, or even a year in. Examples of these more abstract categories might include: doctors not being prepared enough for rare medical events, employee happiness and morale being too low, and customers not being aware of a buyer’s product. These may keep a C-level leader up at night… but how are they measured and how can we prove that our product will generate an improvement on them over time?

Will the value pool grow and persist?
Is the value pool likely to remain unsolved five years from now? Is there a time limit like the fixes for Y2K had? Is there an obvious solution that everyone will have implemented soon?

The question of how the value pool will change (i.e. Grow? Shrink? Persist?) is often overlooked. It’s harder to get an insight into, but interviews with forward-thinking buyers should illuminate the most likely trends. For example, TiVo was a company in the early 2000s. It allowed cable and satellite TV viewers to pause, delay, or record TV shows that were live-streamed for later on-demand viewing. The customer need was that people wanted to watch content when they wanted to, not when TV stations broadcast it. But the massive trend was in content becoming internet-based and on-demand. That trend removed this value pool and there was no obvious replacement that TiVo could pivot into.

I was talking to someone at a kid’s birthday party recently and shared the criteria above. I realized it was a lot to remember so I said I should get it printed on a bumper sticker to help. I decided against it, but I tested out what it might look like.

. . .

This article is an abridged chapter from a book of mine, 4 Steps to Develop a Strategy

All books and other resources referenced in this article

After many years as a software engineer, I went back to school for a couple of years to get an MBA, and then joined the consulting firm McKinsey & Company. It was there that I got my real education in business building, problem-solving, executive communications, and, perhaps most of all, strategy.

McKinsey for me was a masters’ class in corporate strategy from some of the world’s most experienced and thoughtful practitioners of it. In my later years at the firm, I helped form an analytics-based startup there and then left to pursue a series of my own startups.

What I learned from my experience in an international strategic consulting role helped me tremendously in all of these later ventures, but I also recognized that the fundamentals of strategy had to be reinterpreted a bit to apply to a high-tech/analytics-based SaaS B2B startup. The core elements of a good strategy as it applies to a Fortune 500 executive team are fundamentally the same as those for a startup, but for a smaller company, strategy needs to provide a path from a blank sheet of paper to a profit-generating product—as opposed to getting the most out of existing products.

In other words, what I’ve come to realize is that there are two types of strategy.

There are two types of strategy

“Product strategy” is the process of creating and sustaining a new value-creating product
A “product strategy” captures how and where the product will grow, whether for a startup or a hundred-year old brand.

Product strategy is a simple coherent answer to the classic questions: Who is the buyer? What is their need? What is stopping the buyer from solving that need? What unique assets and skills will we bring to solve it? And how will we delight the end user?

In a startup, this is done by the founding team, the company’s strategy lead, and/or the lead engineers/product designers.

“Portfolio strategy” is the high-level process of managing multiple products
For an established company with one or more existing products, “corporate portfolio strategy” builds on top of product strategy.

Innovation and product strategy form one lever you can pull to grow and cultivate new seedlings.

The five other levers within portfolio strategy include the constant re-allocation of resources to growth areas, active M&A/divestitures, doubling down on capital investment, continuous productivity improvements, and brand differentiation.

Active acquisitions can be a great mechanism for an established company to stay innovative. It’s a way to keep the CEO in front of new ideas and to avoid a corporate mentality that all the answers they need exist within their own four walls.

In established companies, this type of strategy is typically done by a Chief Strategy Officer or leader of business development; these are roles which, in my experience, are often more focused on M&A than on product strategy and innovation.

Portfolio strategy can be considered a “strategy of strategies”. It should answer: What do we create uniquely well? What are we known for by our customers? What are the different ways we deliver what we do uniquely well (e.g. what are our products)? Which ones are the most promising and thus deserve the most resources? How do our products interoperate, cross-sell, and contribute new value to each other?

For example, Disney’s unique skill is creating animated characters (e.g. Cinderella, the Little Mermaid, or Buzz Lightyear) and stories that can be easily ported over to other products such as theme parks, books, comics, and cruise ships. Apple’s unique skill is creating well-designed, mutually-integrated, and easy-to-use products with a similar consistent interface across computers, music devices, and phones. My prior company’s unique skill was creating tests and e-learning content for clinicians, which we ported into pre-hire assessments, onboarding programs, and personalized professional education.

There are two level that strategy can operate in, but, in either case, the goal of strategy is to define how you are going to create unique value for customers.

Product strategy, in particular, declares how we will solve a specific need in a unique way
A strategy identifies a buyer, their need/value pool, our chosen mechanism for addressing that need and why it will be effective, the unique skills/assets/capabilities we have, and how all those things will come together to uniquely serve the buyers’ needs while delighting our users.

Good strategies also …

• Focus us on the few big decisions (many made before serving a first customer) where our collective effort will be multiplied to create the most unique customer value.
• Force us to zero-in on a particular buyer, their needs, and the tradeoffs inherent in building a specific solution to them, and therefore makes it clear that there are many customers and initiatives we will not pursue.
• Highlight the challenges we face and demands real problem-solving power to help overcome them.
• Show how we will build fast-product-feedback-loops (“learning loops”) into the product to continually learn and increase the tempo of value creation for our customers.
• Are simple to understand. There are cohesive, coherent, focused, attainable, and clear. They have the outline of real steps we need to take. Anyone in the company can understand them, remember them, explain them in their own words, and apply them to their decisions on a day-to-day basis.

 
By choosing how to uniquely serve your chosen customers, you are forcing tradeoffs. Aldi (related to Trader Joe’s) chooses low prices as its primary mechanism for creating value for its customers. To do that, it has a much lower selection of products (2,000 items compared to 15,000 that many grocery stores have), among other no-frills decisions. What if customers want more choices? That’s fine—Aldi is happy to have them go somewhere else. It is instead focused on serving the customers whose needs match their value proposition.

Some decisions and tradeoffs have to be committed to and locked in early on. But ideas that can be tested without irreversible investments should be. Your strategy should still declare the good faith intent to those areas but only with a small investment. Keep your options open for a commitment once you’ve learned more and reduced the risk.

Strategy is also the path by which a company survives evolution

[The aim of strategy is] to improve our ability to shape and adapt to unfolding circumstances, so that we … can survive on our own terms. — Col. John Boyd, the pre-eminent military strategist of the 20th century

The nice addition that Boyd makes with the line “survive on our own terms” is connecting strategy to evolution. Boyd was a student of the sciences and believed that organizations, like organisms, move through cycles, interacting with their environments by learning, adapting, and aiming to survive.

In short, if you win, it is in part because of your speed, focus, flexibility, and agility. Arguably these are more about culture and tactics than strategy—but your strategy should enable and set the groundwork for your ability to shape, adapt, and evolve.

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All books and other resources referenced in this article