(2023-08-14) Cohen What Makes A Strategy Great

Jason Cohen: What makes a business strategy great. These are the characteristics of great strategy. Strategy is: How we will win. (cf Good Strategy/Bad Strategy)

For strategy to correctly determine and communicate “how we will win,” it must tackle the reality of complex systems, it must parry the follies while exploiting the strengths of human nature, and it must justify and spell out the decisions which lead to the desired outcome.

Great strategies accomplish this with the following characteristics:

• Simple: Reshapes complexity to be manageable and actionable.
• Candid: Dares to spotlight the most difficult truths.
• Decisive: Asserts clear decisions and accepts their consequences.
• Leveraged: Magnifies strengths into durable competitive advantage.
• Asymmetric: Defeats uncertainty with higher upside than downside.
• Futuristic: Solves for the long-term.*

Simple

No one reads anything. You’re in the Top 1% just for reading this sentence. No one remembers anything. Certainly not an 86-slide PowerPoint. So the strategy has to be simple—even simplistic—to have a chance at being read or remembered

Long supporting documents are useful, because they explain and justify complex topics

The process of strategy creation must indeed tackle the complexity of the world, but the output of that process is a document that frees everyone else from having to re-solve every puzzle. (one-pager?)

Characterizing the world in a few, simple, clear assertions, and solving our challenges with a few, clear directives of what we must do, is required for a strategy to be “how we will win.”

Candid

Strategy must lay bare the most frightening, embarrassing realities. It must face the truth that we all avoid facing during the struggle of daily work.

If the strategy doesn’t expose—and then solve—the most brutal facts, the strategy is wrong

In particular, the strategy must diagnose the primary challenges (crux) facing the business, even if the facts are so scary that it seems hopeless

Real threats are either happening now or are at least 70% likely to happen. Real threats are specific, ideally backed by data that proves they are happening, e.g. your market is shrinking; a competitor has accelerating market share; cancellation rates prove that even paying customers don’t value the product. Real threats are written in the present tense because they are happening

When the puzzles are clear, everyone can help solve them. When the puzzles remain hidden, what’s the chance that they’ll be solved by accident?

Decisive

A strategy asserts a set of justified, self-consistent decisions, such as:

• Which subsets of the market to target (market segment)
• Which customer personas are most important to delight (ideal customer)
• How to position against the competition (positioning)
• What we value (e.g. quality, service, speed, design, compatibility, lock-in)

What we must (and must not) build, to pay off that positioning and win those customers in that market.

There are both positive and negative second-order consequences of any complex decision. If these aren’t identified—in particular, if the problematic consequences aren’t embraced within the strategy—then it’s not a clear decision.

One decision in every strategy is what market and customer-segment the company will target. Customers outside that target segment will inevitably buy anyway. Then they’ll complain

these ideas should be ignored so that the team can focus on winning the target customers

Fluffy language is a hallmark of indecisiveness, and therefore of bad strategy.

Decisions and consequences must at minimum be self-consistent.

Better than “self-consistent” is “mutually-reinforcing.”

Leveraged

Great strategy leverages the strengths and assets of the organization; a bad strategy asks the organization to win even while acting unnaturally

“Leverage” means generating a large effect from a relatively small effort, where time and dollars are far more effective than one might expect, because we are riding tailwinds of natural abilities or hard-won assets

It’s even just more fun to play to your strengths instead of wallowing in weaknesses.

It is of course better when the strength is differentiated from the competition

even better when that differentiation is durable over time

It has never been more difficult to establish a permanent advantage

which makes it all the more important to decide what one or two moats you will build. The strategy is the place to name those moats.

Tailoring the decisions for the strengths of this organization, avoiding (rather than reversing) weaknesses, even better when the strength is differentiated, identifying and investing in durable differentiation, so that moats are constructed in the long run, is required for a strategy to be “how we will win.”

Asymmetric

*A sailboat always moves forward.

This remarkable fact is due to its asymmetrical shape: it is pointy at the front and flat in the back. This creates resistance to moving backwards, but a natural ease in moving forward*

Great strategies prescribe activities that always move the company forward, despite the inevitable bad luck and setbacks

This is the mechanism behind Venture Capital portfolios, which are investments in a slate of early-stage startups. The worst-case outcome for each bet is that they lose 100% of their investment, but in the best case they can gain 10,000%.

Economists call this “convexity.”

Strategy must create a portfolio of bets having this “VC-like” asymmetric quality, whether for a small startup trying to find product/market fit or a mature company entering new markets. A sign of a bad strategy is when success requires everything to go right.

One form of asymmetric bet is entering a large and growing market.

There are many niches to exploit, many possible ways for a product to deliver value, many marketing and sales channels, and there’s more of all of it every year. Because there are many options to try, there are many ways to succeed; if your first few ideas don’t work, the next one might.

Another kind of asymmetry is a process that compounds

Examples are customer retention, customer upgrades, and employee retention

Another example are growth-vectors that are proportional to the size of the current customer base, such as word of mouth referrals and viral products

A common example is a reseller channel, because each reseller could bring you a number of clients over time

In the negative, companies also face asymmetric threats. With ten competitors, only a few need to become break-out winners to pose a significant challenge

Futuristic

“Being agile4” is a great way to climb the proverbial mountain-shrouded-in-fog.

backtracking is inevitable; it’s a sign of puzzling-out, not a sign of failure.

The job of strategy is to identify which mountain we’re trying to climb in the first place—the puzzle we’re solving for, the opportunity we’re exploiting

Part of explaining “how to win” is defining what the “winning” state looks like. Often called the “vision statement,” it describes an what the world will look like when we’re successful

The Vision statement is often the first sentence the strategy document, but was the last thing crafted by the authors of that document. Only once you fully understand the challenges you face, the main, coherent courses of actions to undertake, and the results you want, can you summarize a clear vision of what the future will be.

Bad Strategy

Tell-tale signs of a strategy that lacks these qualities:

Not simple

Detail is great, if it is attached as optional reading, expanding on a summary

Nothing scary that demands action.

Not decisive

No clear decisions that would cause us to “easily say ’no’” to many otherwise excellent, reasonable ideas

Not leveraged

Strategy would apply equally well to a competitor, or even to a business in another industry.

Not asymmetric

Potential upsides aren’t at least 10x larger than costs.

Not futuristic

Doesn’t describe a specific future destination of the company or product

Not strategy (bonus)

Generic statements that would apply equally to nearly any company, even in a different field

Postscript: How do I construct a strategy?

More coming. See past (2023-12-24) Cohen The Roadmap For Product/Market Fit Maybe and (2023-04-16) Cohen Excuse Me Is There A Problem