5 essential questions to craft a winning strategy | Roger Martin (author, advisor, speaker)

0:00 Why are so many people bad at strategy? What's taught now in business schools generally sucks. People aren't prepared educationally, then they sure don't get prepared for it in companies. It's intellectually challenging and it's emotionally intimidating. You have something you call the strategy choice cascade. You have to have answers to five questions. And what's your winning aspiration? Where to play? How can you win? What capabilities do you have to have that your competitors don't? And then what enabling management systems do you have to put in place for the most part in the leading business schools? It's illegal to teach that. Playing to win, you talked about there's kind of these two routes. You have to be if they're differentiated or low cost. There's no way to protect yourself if you're not one of those two. Is there anything else you wanted to just leave listeners with? I have never met this mythical beast called a great natural strategist. Great strategists have all one thing in common. They just practice. Today my guest is Roger Martin.

1:01 Roger is one of the world's most trusted strategy advisors. He's Professor Emeritus at the Rotten School of Management at the University of Toronto, where he served as Dean for five years. In twenty thirteen he was named Global Dean of the Year. And in twenty seventeen, he was named the world's number one management thinker by thinkers fifty. He's also the author of what many listeners consider their favorite book on strategy called Playing to Win.

1:26 I've gone a lot of requests to get Roger on this podcast, and I can now see why. This is the most tactical and fascinating conversation I've had on this podcast about developing a strategy, and that is a really high bar. We delve into the five questions that you need to answer to help you craft your strategy, how Hamilton Helmer, Michael Porter, and Richard Remelt's work fits into his framework and worldview. What people most often get wrong when they're developing their own strategy. The two options you have for how to win with your strategy.

1:56 A very tactical and simple trick for getting started thinking through your strategy. And so much more. This episode is for anyone who is trying to build their strategic thinking muscle. If you enjoy this podcast, don't forget to subscribe and follow it in your favorite podcasting app or YouTube. It's the best way to avoid missing future episodes and it helps the podcast tremendously.

2:15 With that, I bring you Roger Martin. Roger, thank you so much for being here and welcome to the podcast. It's great to be here, Lenny. Thanks for having me. What I wanna try to do with our time together is to help people that are on the ground at a company, say like the product manager.

2:34 Designer, engineer, data scientists, folks that aren't necessarily the CO or the founder or exec at a company. Get better at product strategy. Crafting a strategy, validating a strategy, developing a strategy. Because it feels like there's always tons of advice for like the leaders of a company, but less for people on the ground doing the thing. I feel like

2:51 Luckily your stuff applies to everyone. Um so how does that sound as a lens for that sounds great. And can I tell us little story to that end, please. So Recently there was a uh a newspaper article saying that, uh, pointing out that Ten percent. of the S P five hundred CEOs.

3:08 Ten percent. Or X. Proctor and gamble people. It's an amazing number. Like a stunningly high high number.

3:17 Why? Would that possibly be? I believe It's because At Procter Gamble there is a view.

3:24 That people Way down the organization. Like let's just say the head and shoulders brand franchise leader. Right.

3:33 who reports to the Head of Shampoos and conditioners. Who reports to the head of beauty care. Who reports to the CEO.

3:42 So at least four levels down in the organization, in the guts of the organization. Proctor. understands That that

3:49 individual, not the CEO, not the global president of beauty care, not the uh head of sh of uh hair care, not the head of shampoos and conditioners, the brand manager makes super important strategic choices. And if they don't make them well, The brand does terribly. Uh and so so I believe

4:10 And not many Companies have enough of that attitude. So I'm a big believer that People down uh organization Have to make

4:19 really important strategic choices or bad things are gonna happen. Uh if they make really great ones, good things are gonna happen. And they get trained to be a CEO s uh someday. So I'm with your I'm with your Your uh your thesis. But yours is co counter

4:36 what I would say is normal. What is most normal is people at the top do strategy and people down below do something. And they it's usually called execution and I hate that I hate that term of art for what it's worth. Uh and so I think you and I are

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6:45 You should consider work OS. It's a drop-in replacement for OTZero and supports up to 1 million monthly active users for free. Check it out at workos.com to learn more. That's work os dot com. I just want to ask this broad question about strategy. Why why strategy?

7:05 So hard. Why are so many people bad at strategy? Perhaps the thing that That makes it sort of Intellectually hardest.

7:14 is that It is an integrative activity. You've got a it answers to a bunch of questions. That Have to

7:23 fit together and reinforce one another. So that just makes it a little more more complicated. It's not like saying uh kind of Lenny, what do you want for lunch? It's It's saying Lenny.

7:34 What kind of diet do you want that'll keep you healthy? And that includes breakfast, lunch, dinners, snacks, yeah, a whole bunch of other other things that you gotta kind of fit together. So so it It makes it It makes that

7:48 Harder. uh to do intellectually. Another aspect of it is it is Intimidating.

7:57 Strategy involves making choices to do some things and not other things. Uh and It is often. Intimidating to say You know, oh dear.

8:09 I have to I I I have to cut these things off and not do them and actually make a decision. that I'll that I'll be held accountable for potentially, or I'll even hold myself accountable. Uh for so So so that's a second thing. It's harder

8:25 sort of emotionally, not harder. uh uh intellectually. And then there's sort of the Training. aspect of it, the knowledge aspect of it, which is

8:36 Which is what's taught now. in strategy in uh business schools generally sucks. It's gone on a on a crazy theoretical band. uh the Strategy Academy

8:50 as a whole has fallen in love with a theory called the resource based theory of the firm that is that is silly and nobody uses it out in the world. And so students are no longer trained on useful uh strategy. And the other feeder into people learning strategy were the strategy consulting firms.

9:09 But the strategy consulting firms, the so called strategy consulting firms do almost no strategy anymore'cause it's a little business compared to post merger integration, digital transformation, and a bunch of other other uh other things. So People aren't prepared.

9:24 educationally for it. And If they're not prepared educationally for it, then they sure don't get prepared for it in companies. Uh it's intellectually challenging. And it's emotionally

9:38 uh intimidating. On this point you made about how Uh, schools are teaching strategy wrong. How do you describe with the wrong approaching? It's a theory that's sort of taken over called the resource based view of the firm.

9:52 That said that was Yeah, like in in the world of Academics is a weird place, uh, where the number one emotion is jealousy. And people were massively jealous of my

10:05 Order. Who sort of created many of the most important p uh concepts of strategy when you wrote a book. Competitive strategy in nineteen. eighty.

10:14 And so they needed to sort of counter him. Because they just didn't like the fact that he was so prominent. And they decided they would say he was about Positioning. So they called his the positioning school that and they character

10:30 caricatured what he said, w which he never did, but they said he said It's all about Finding a place That is structurally attractive. And then milking it for everything you can.

10:43 We at the resource based view of the firm think that That strategy's all about building resources. Uh, and if you build resources, it's almost like If you build it, they will come. And that's what you should pay attention to.

10:59 No. The problem is A any Resource Right. That it may be useful.

11:07 somewhere is not necessarily useful elsewhere. So it sort of begs the question. Um how would you think through What resources to invest in building? What would be a way to do it?

11:20 of doing that, of investing here versus here versus here. It's silent on that because It's kind of a dumb theory. And and it does it doesn't have anything. Useful to say. In my in my uh in my view. uh about that. And so when the students go out and say they're their their company, I'm gonna do a V V R I O analysis or a V R I N some

11:41 Uh People just roll their eyes at'em and so it doesn't get used. I've only seen it used I've been in consulting companies for forty two years and I've seen it used once. And the truth. As is

11:54 Usually the case. It is. Is that it's it's both. And And that's That's why the model I use for for strategies uh says says

12:04 A lot about where you play is important. That's one of the key questions. And your capabilities are important and you've got to link those things Things together. Um but That's For the most part in the leading business schools, it's illegal to teach that.

12:20 Illegal to teach your approach. Yes. I couldn't teach my approach at my own business. So when I was Dean, the most powerful person, but the the The the uh departments or areas as we call it, like str strategic management is an area. they have a hundred percent control over what's taught in

12:41 Strategic management, finance in finance, et cetera. the dean may be the most powerful person in the school. And I was a I happened to be a super successful dean. So if anything, I was a super powerful Uh a powerful Dean. Uh and students would beg me, they'd say, R you know Roger, you're this you you have this

12:59 You know. Twenty years of experience, you're sort of a famous consultant, uh in strategy. Uh and you got these Theories. Uh please.

13:08 Teach a course in it. No. I I I did I did do extra curricular stuff. Right, I did I I I had practice of

13:17 you know, one Saturday a year teaching everything I knew to anybody who wanted to show up, but for credit. I was not allowed. And if you don't if you try to get a job At any business. The only exception might be Harvard Business School, maybe. But if if you took the other the forty nine other top business schools in America.

13:38 And And if asked the question. Do you swear allegiance to the resource based view of the firm? If you don't answer an enthusiastic yes, you have no chance of being hired, zero. Wow. This academia drama. I had no idea.

13:55 This is unreal. Makes me even more excited to dive into your world. And your ways of seeing things. Before we do that, just we've had a few other strategy People on the podcast. It it might be helpful to frame out where they fit in the spectrum that you're describing.

14:09 Okay, I may know I may not know all of them, but do you give me give me a Uh, Hamilton Helmer on the podcast. Yes. And then uh Rich River Melt on the podcast. How do they relate just for people to get to your stuff versus

14:24 Dogma. So one of them isn't one of them is sort of an a an ac academic and one of them isn't is a is a quasi academic or non academic like me. Like I w I was a tenured Professor for many years, but don't consider myself an I An academic, I don't think Hamilton Does all I've never asked. Yeah. Yeah.

14:43 So he's He's wrote written a a very I think useful book that would in some sense fit into my how to win box, right? I say I say strategies about where do I how to win, and he g he he has a categor what I call a categorical model.

15:01 Here are categories. of things that you should think about. If you're trying to win, here are seven ways of uh of winning. Uh and And I categorize him as a As a non academic practical.

15:15 strategy guy. Richard Rumult is is Um a now retired Tuck. Uh Professor and he and he has a uh kind of this hyper competition thing.

15:26 That that uh that he He does She He also is of the Of the

15:35 I'm jealous of my porter. uh kind of thing. So I've gotta say my quarter is wrong. And here's how I am so right. And competition doesn't take place in the way Mike says, where it's really stable and And whatever it's really hyper competition. Mike Porter never in his entire life has said competition is stable. He's repeatedly said the opposite. But

15:54 In order to say I'm not like my porter. Uh and in fact I distinguish myself by saying he's wrong and I'm right. And so

16:05 Mm. So I I don't know. A fine a fine guy. Um I

16:15 Don't think that he Like most business academics, he doesn't know much about business. Right. Uh, like he he d hasn't gone out and practiced a a lot. He came to our school and And gave a lecture because people loved hypercompetition because he because he would blast Mike Porter and he gave a

16:33 Example. of Procter Gamble I've Been consulting at Procter Gamble. And know everything about Brockter and Gamble, basically. Uh in what he said.

16:44 Hair a boat. Proctor Gamble. Head. Zero to do with. Reality. Like zero.

16:52 It was just Completely Utterly, absolutely wrong. And I sort of asked him afterwards, it's sort of like why do you say that? And he said. Well, I think that's the way it worked.

17:04 Yeah. Are you kidding me? So I'm I'm not I'm not a I'm not a fan. o of of of that piece of work. I would say

17:15 It's it's It doesn't fit nicely into research based view of the firm versus versus Mike Porter. It's sort of like here's another here's another lens to take on on the world and and um I'm gonna take that lens. Everything's hyper competitive and and here's how you think about Hyper competition. This is a fascinating I love that we're spending some time on this. This is really helpful to hear the landscape of of strategy. Minds.

17:40 Okay, let's dive into to your uh worldview. And maybe the simplest way is just like how do you define strategy? What is a strategy? Strategy is an integrated set of choices that compels desired Customer action. So the way I think about it is

17:58 There's a whole bunch of things a company controls. Right. How many factories to build, how much R and D to do in what areas and how much advertising to do, how many people to hire, what to pay them, blah blah blah. Those are all the things under our control. What, Lenny, is the thing we have. almost no control over.

18:18 What? If we're customers too. Yeah. Like We would like them to take Some of these out of their pocket and give them to us. Can we make them?

18:27 No, we can't. So Essentially The job of strategy Right, is to

18:34 make decisions on the things we do control. That will compel Right? We can't force But it'll compel them. It'll s they'll say. Gosh.

18:44 I should take my hard earned cash. And whether it's a company or an individual I should take my hard earned cash and give it to you rather than Give it to nobody if there's no product now. Or give it to a competitive uh product.

18:58 So The important pieces of it are is Integrated. Right? It's the whole set of choices that has

19:05 That One Outcome. That it compels desired customer action.

19:11 Amazing. Okay. And to help People Define their strategy. You have something you call the strategy choice cascade. Which is basically five questions that you need to answer to help you think their strategy. Can you talk through this? Yeah, and and this and this is yeah, this is sort of the f the fruits of many, many years of of

19:29 doing strategy work and trying to figure out like like How do you do this thing? Yeah. The fun the fun thing was I was in the era, like I started in the in strategy. uh in nineteen eighty one and that was early in the era. It it

19:43 Strategy was born in nineteen sixty three with the founding of Boston Consulting Group by Bruce Henderson, who is the father of strategy, in my view, of practical commercial strategy. Um so it was still in the early days and And You know

19:59 Bruce Henderson. had a theory of how strategy should What result it should produce for you. Mike Porter then came along in nineteen eighty, so sixty three uh uh uh Bruce Anderson and AD Porter, the two most important figures in the history of of strategy, came along and said

20:18 A strategy has to look like this. Right. It ha it has to have this as its output. But Neither of them was

20:27 Very good on. Because again, it was early. They can't do everything right away of well, how would you get one of those? So Mike Porter says you have to be either differentiated or low cost. Good. And if you If you look through competitive strategy as landmark seminal book to say

20:44 How would you do that? There is no answer. Right. And so so and because monitor company though. The firm I was one of the leaders of, uh, for for

20:55 Decade in half. was founded essentially to commercialize Mike Porter's work. customers would ask us, they'd say, Well, we like Mike Porter and we'd like to have one of those. Yeah, you know, w w

21:08 We can look at ourselves under his framework and and we can say we're stuck in the middle. And he said that's bad. You said good is this or this. How do we think through Creating one of those. We didn't actually have an answer.

21:22 Uh and and it turned out because I'm I'm I was sort of the most I th I don't know, intellectually engaged on this and didn't mind the hard work of product development from About nineteen eighty seven. When we sort of discovered we really didn't know that and clients really wanted us to tell them that. Between nineteen eighty seven and nineteen ninety uh ninety five I did all this work on

21:43 How how How could you develop a process for getting yourself one of those. Right. Excellent strategy.

21:51 And I came to the view that you have to have answers to five questions. You have to have an answer to the question of What's your winning aspiration? Like what are you trying to accomplish? Because it'll Help.

22:04 Contextualize. the kinds of choices you could make. Then there's a Where to play? on what playing field, or if you're like military stuff, battlefield.

22:13 Are you gonna plop down on? You're not gonna play everywhere. in every product at every vertical stage around the world, you're gonna pick Some place.

22:23 And in that place. How can you be either better than competitors in terms of Creating customer value. Or lower cost.

22:35 Then th those competitors. To win. There. Where you've Twenty play you to meet your winning aspirations. What capabilities do you have to have that your competitors don't that would enable you to win that way?

22:49 And then what Management systems enabling management systems you have to put in place to make sure you Build and maintain. Those must have capabilities to win.

22:59 Where you've chosen to play. to meet your winning aspiration. And so I came to the conclusion Actually It was in nineteen ninety five. the end of an eight year journey.

23:07 I I came to the conclusion those were the That those were the five and you had to do them together and that is the essence of Producing a strategy that compels desired. Customer action.

23:20 I wanna go through an example of of a company. But before we do that, something I I think that's important to talk about is Your book is called Playing to Win. You talked about this idea you've you need to play to win. And you kind of argue that a lot of people are just playing to play. They're playing to play the game. I'm guessing.

23:36 most people listening and most people developing a strategy don't think they're doing that. They don't think they're just playing to play the game. They they think they're playing to win. I'm curious what are signs that You're just not you're not actually playing to win. It would be mainly signs given to you by customers.

23:53 So if you say We're the most Innovative. company in our industry. Uh and customers

24:01 And let's say even the industry distributes through a given A given channel. And customers come into that. Uh channel. Uh and and they look at those.

24:12 The two products and say Yeah. I could flip a coin on this one. Right? you're not effectively playing to win. Maybe you thought you were winning, but but

24:23 Customers don't think your uh your uh better. Or if your competitor Lowers their price. Compared to compared to your price.

24:35 And you say to yourself Oh my God, if we lowered our price we would make no money. But your competitor keeps on pricing there. You may think you have the low cost position, but They do.

24:50 Uh and you have to give them whatever share they they desire. at that lower price because you can't compete there. So You you'll know you're playing to play if you're not Aiming. to and accomplishing.

25:03 Having either An offer where Lenny walks into the store, whatever kind of store it is, and says And it says to the person in the store. I want

25:12 That. Brand. Right. Lego. One of the companies I've worked with for a long time.

25:20 Great company. It turns out that if you do market research on kids. Mm. store that purports to be a toy store. But that doesn't have Lego.

25:34 Is not a toy store. They would define it as not a toy mom. Why are we here? I wanted to go to a toy store and she said, But d this it's just it says toys. And here and the kids said Uh uh.

25:48 It's an insane brand. That's an insane Insane, insane brand. Uh and You know, it's

25:57 As a price premium for anything over any of its uh competitors by by a long shot. It keeps growing. It it actually for most years in the last decade it has had eighty or ninety percent of the entire category growth is Lego. And so they're playing to win, to be Distinctive in the minds. of consumers. But you know

26:19 Vanguard. Yeah, it you know, it's got nine trillion dollars of assets under management last time I last time I checked. Uh does it do anything distinctive? Not really the customer, but

26:33 Do they have the lowest cost position so they can charge the lowest uh a AUMs? Absolutely. Uh and so There's different kinds of ways, but you'd know you'd know by the actions that customers Uh take.

26:48 So essentially to mirror back what you're saying, to win, there's kind of these two routes. You talk about one is You're the lowest cost option. The second is your differentiated. You have a differentiated brand where it's not a coin clip it's like, Oh, I really need that for this reason. Yes. Yeah, you got it.

27:03 And if you don't Uh Can't do that then. The advice you share is go find a different playing field. Well, or get out of business. Whatever, like you know, it's only a matter of time till you're dead.

27:17 Right. Is is the It's the sand. kind of truth of the matter, which is Which is the

27:24 the competitors in your industry who are either low cost or differentiated. Can Essentially jerk you around as much as they want. It's like South West Airlines, right? Like South West Airlines. was just a tiny little airline that flew Austin.

27:38 Houston. Dallas. And now it's number one in passenger seat miles. uh in in America and the only airline that's earned its cost of capital over the last half half century. All the rest are losing money for their shareholders over over time. They have good cycles and bad cycles.

27:55 How did that happen? Well, it's it's just the other airlines had a step aside whenever uh South West came into a r route. The other airlines just had to say. Well, I guess you're gonna get your thirty share or thirty five share of passengers on this route.

28:11 You know, welcome to town. That's all they can do. They they just have to seed Position. And that's what happens if you play to play. You will end up just being

28:23 Yeah, I mean it's literally like having a bully who can just uh, you know You you shove you and you take one step back, then they shove you and you take another step back, and they shove you and you take another step back. There's There's no way to protect yourself. If you're not one of uh uh those two. You cannot

28:42 Bully Vanguard. You cannot bully. South West. You cannot bully Procter and Gamble. You cannot bully Lego. Um That's that's the way though.

28:53 business world works. And in the case of South West, the reason they couldn't be bullied is they were the low cost provider and the c other airlines couldn't Meet their prices. So they're like, All right, there's nothing we can do. Yeah, awesome. Right. So when so they while I was in living in Boston they entered the Boston to Chicago.

29:12 route, which was a duopoly of American and United at the uh at the time. And the price was about in those days like a thousand bucks for a round round trip'cause it was a nice duopoly. Uh what did South West come in and they say we're gonna fly Providence to Midway. Not

29:29 Logan to O'Hare. And it's gonna be two hundred bucks. And they had great advertising. I always love the advertising they did when they entered the they did maps of Boston and s and said if you live in either of any of these places Kind of the south the west of Boston.

29:47 It takes you less time to get from your house. And it does. for uh to go to uh to Logan. I said Logan, right? You're gotta park in a parking garage and then walk half an hour and then when you get through security you still have to walk twenty minutes twenty minutes.

30:04 Blah blah blah, and at Providence, if you've ever flown out of Providence, uh you can park about a hundred yards from the gates. And so They just had to say We. We can't stop that.

30:16 Not everybody's gonna do it. But A whole bunch of people are and we there's nothing. we can do to stop that. What I love is we're already diving into these five questions. So we've been mostly talking about how we will win. Basically, here's your options to win.

30:29 low cost provider or be differentiated or find a different place to win. Let me summarize the five again. What is our winning aspiration? Where will we play? How will we win? What capabilities must we have in place to win and what management systems are required to make sure. Like capabilities are in place.

30:44 Right. You got it. Quick quick study, my friend. So coming back to the how will we win? Cause I think everyone's listening to this Okay, cool, we got two ways to win. We're gonna be the cheapest or we're gonna differentiate it. Oh yeah, how do we differentiate? Uh, do you have is there like a taxonomy of options that you think about or tell people like what are the ways and options for exploring? Here's how we will be different. It is mainly understanding customers.

31:07 Kind of Uh as well as you can and then s and then saying Is there a way? To be Distinctive.

31:16 Uh against that. And There are There are lots of ways. Uh uh to do it.

31:25 But it's tied very closely to the capabilities, right? Which is Which is If you have a way of winning Right. You say you say oh my where to play is I'm gonna sell pet food on the internet.

31:38 And my how to win is I'm gonna I'm gonna kind of be the best. But it turns out that anybody you can build a website Can sell pet food on the internet. Uh and in fact

31:50 You know, twenty of them do it almost immediately and they all go they all go bust. uh you don't have the capability. So you've got to ask yourself the question. Can I serve a particular customer need? with a set of capabilities that are gonna be hard to replicate.

32:08 uh by my by my competitors. They either Can't do it or they won't do it. And and both are important questions because Sometimes it won't. Right.

32:19 Like Do you really think Walmart couldn't have built As good a website as as Amazon and at massive scale. I I think they could have. Right.

32:30 Yeah. Probably. Did they? They didn't. They said I hope this

32:36 online thing doesn't really take off'cause that would be a pisser because we've got five thousand stores across America and and and we've got all that and that would be really that that would be a bummer. And so they don't do anything for ten years. Giving Amazon the scale. So that Amazon then has this huge scale advantage. uh kind of on this and network effects.

32:56 And Voila Uh you've uh Yeah, you know. you've got a competitive advantage that you

33:03 that you didn't necessarily Kind of. Completely. Deserve. Yeah, you needed the help.

33:11 Of the player who stood to lose the most. To hope. that it wasn't gonna happen. Same with Tesla. Tesla got a ten year head start. Not because The OEMs couldn't.

33:21 They could have. And of course GM did many, many years ago. Right. Create a f uh fully functioning electric vehicle. But

33:30 They couldn't they couldn't figure out how how the hell you make Make a buck on it. And so they didn't. Uh they didn't do it. giving Tesla the ability to establish a brand that that people associate with that.

33:43 electric vehicle equals uh a Tesla and get them uh uh you know allow them to jump. way ahead and then have the scale that it's hard to Hard for others to match. You said something that's really interesting that I think is also really important, which is you said that just being the best or better is not Not a solution.

34:03 You imply that's not gonna get you there. Can you talk a bit about that? Yeah, w you have to answer a second question, I guess, which is which is here's the way I'm gonna be better. And here's the way somebody else isn't gonna be able to simply replicate that. Uh quickly. Right.

34:18 One of my favorite businesses, uh'cause I was on the board of I was on the board of Thompson Reuters for fourteen years. It was Thompson first, and then he bought Reuters of Thompson Reuters. Best business is a business called Westlaw. Uh, and it's the It the dominant

34:34 provider of online legal searches. So if you're a litigator and you're you're Trying to You're getting ready for a case and you need to know what are the What are the important precedents for this case? You go on to

34:48 West Law. And and uh and and put in some search terms using a Westlaw keyword uh uh system. to to help help with it. And um You you uh Get the five cases that really

35:03 matter. You can Google it and do the same thing. And you'll get the five hundred cases that might matter. I So how does

35:11 Westlaw. Do that. Well for now over a hundred years. They've taken every case that's come out of the

35:21 the US legal system. had a lawyer, a w a Westlaw lawyer write a head note that summarizes what's in the case using these keywords so that they are searchable. And Today to do

35:36 twenty twenty four. uh takes fifteen hundred full time lawyers. Mm-hmm. Right. So if somebody else said, you know, this West Law business is incredibly profitable and it keeps growing and it's you know, it's awesome. I'd like to be in that business. All they'd have to do is Higher

35:54 A hundred and fifty thousand lawyers full time. And you'd have to create a numbering system and a keyword system that's different than West Law's And then you'd have to do what Westlaw has done for the past fifty years, which is give it free to Law schools.

36:10 So that they teach their students before they even get out how to use West Law and all you know? No problems. It'll be easy, right? You know, nobody's even tried. Why bother? Life's too short. And that's the kind of

36:24 the kind of capabilities you need to be able to say we'll win by having the searches that make the lawyer's job the most effective. And if it saves them time, it saves them money. Right.

36:39 And And you don't need A huge law library. Like law firms used to have these huge law libraries, right? You don't need one, you need a terminal. Or actually now tell everybody's

36:50 P C Then you don't need a bunch of librarians to go and find the cases that that you need they pop up on your screen. That's a great Case of Competitive advantage.

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38:08 That's C Y C L E dot app slash Lenny. So essentially we're talking about motes. What are some moat that you can create where people can't Just copy what you're doing. And warn Buppet likes, uh That terminology, right? That's what he says he invests.

38:23 He uh he invests in moats. Yeah. I'll find the quote we used we used it in a recent podcast episode, but he's like yeah. Castles with moats. Okay and maybe along those lines is there is there a kind of a way Way you think about types of

38:35 Barriers. to recreate capabilities as Like here's the options we have is it like Like essentially the seven powers, I think, talks about this. Yeah. Yeah. I mean tha that that's a that's why I kinda like Hilmer. I like because he he categorizes them. And and I've got it and I've gotta look into look into it uh some more'cause I I I mean I haven't

38:54 Uh, studied it. To to say whether I would Well, I would concur that there are just seven, or or there are more My suspicion but there may there may not be. They may be all clustered. There may be variants that cluster.

39:09 Uh uh behind those. But I don't myself have A categorization scheme that says here's how you search for Uh the Uh the mode.

39:20 Great. Uh that would be nice. So here's the quote from Buffett by the way, I look for economic castles protected by unbreachable moats. Yes. I like that. And he's He's smart, he's consistent. Um

39:32 Though, you know, everybody makes mistakes, right? You know, and and he and he did too, right? Solomon Brothers, US Air. Um It's you know, anybody who thinks they can be perfect on strategy is delusional. Uh, and so even the very, very best.

39:48 Like a Warren Buffett who's Outstanding, arguable, genius. It's gonna It's gonna sort of think. I think this is a moat.

39:57 Uh and it's gonna be ephemeral. Um But I I Yeah. Any of us should be

40:04 please to have a track record that would be anywhere close to that on really identifying modes because he Because he has. It we talked about that with Hamilton Helmer that every startup deck has like here's our motes, here's how we're gonna have barriers to entry. And they're all delusional. Like rarely is there ever actual mode. At least especially in the early stages. Yes.

40:23 Let's go back to the five uh questions again because that's so core to the way you think about strategy. What do you think about using, say, this fig jam as an example as a hypothetical just to think through questions that they might ask to think about strategy? And I can describe what fig jam is. So you Sure, sure. I do not know the product. Uh it's basically a visual whiteboard collaboration tool where people can put in sticky notes and put little mocks and kind of play around with the cursors. Okay. And so it's for like brainstorming and ideation and things like that and laying out concept. Gotcha.

40:52 Okay, that would make sense for for thinking. Yeah, exactly. Yeah. Yeah. Right. Okay. So so y you You'd ask the question It's sort of Kind of what are we trying to accomplish?

41:04 Right. Yeah, are we Are we attempting Two create something where

41:11 Nothing. sort of digital exists. People do this in pen and paper, or are we uh and so we're trying to invent a category and then and then you know be transformative by making the the user experience better. Is that is that what we're trying to do or are we are there players already doing this and they're just not doing it very well. You know, you'd want to sort of say well Are we trying to accomplish? And and I don't spend a whole lot of time on that because you gotta toggle back and forth between between

41:38 between those those five questions. But You have to have a reason for searching in a given space. For a where to play, how to win. And so So what do you what do you think?

41:49 Their their reason for fig for thinking fig jam is worth investing in is. What do you think it is? Is it is it it's is it white space or is it is it Crummy Crummy uh offerings in the in the market currently. Like if I had to

42:05 Get to it. I think it's they're trying to expand their market and they have a A stronghold in design. tooling and there's this adjacent market. For product teams broadly to be using Figma more. And there are existing tools similar to that that are good.

42:21 So I don't love it to start. I had to say more. So There's a there's a big market over there. We'd like to get some is a terrible reason uh uh in my in my In my my view.

42:35 The reason should be Oh. Customers Or Bereft. Customers.

42:42 Or lacking. Something that we can provide. This is why I hate most And and and most Entry.

42:49 buy foreign companies into China or they they get their faces shot off. Uh and the reason is the rationale is It's big. We could get some of that. So

43:00 So I don't love I don't love it for for uh for uh starters. N and I'm not saying that that will guarantee failure, but it's it's it's If somebody gave me a review with a pitch deck for that, I would I would not invest. Well, I imagine you can also frame it in other terms like our customers are uh demanding uh more ways to work within Figma with their teams and there's these

43:22 Yeah, that that that so that so that would be that would be a A better one. And w you're speculating. I'm I've asked you to speculate, so we don't know, but uh I like that one better. Right? Which is which is our aspiration is to satisfy Core customers. Who love what we do but think it's too narrow. That that if we could broaden that for them.

43:42 uh into this market. our our customers would be very happy. That is really cool. And so you wanna frame it in the Words of w how customers would benefit, essentially.

43:52 I just think those are tend to be s tend to be stronger. So uh uh strongest if if if there's a link, because remember what is strategy about? compelling desired customer action, right? So everything sort of ties back Uh to that. So then the where to play would be you you just want to wanna say, Okay, what customers are we talking about or what parts of our current customers that we don't serve are we are we attempting to serve with that?

44:17 And what and with kind of what product is it? You know, is it a finished product? Is it a component of a you know, kind of product, through what distribution channel? Would w would we sell this as another self serve type uh product?'Cause I think Figma is mainly self serve, right? Yeah. Um

44:34 And um And so you Choose uh choose that where And then say. How can we solve it? Before we get to that before we get to that. Oh yeah, yeah, yeah. Please. So the things you mentioned there is like who specifically are the customers. So in this case it'd be like

44:49 Product managers, engineers, and other functions. And then yep, there's the distribution channels, like how we'd actually get to them. And then what else was what other people uh questions are there within this where we will be able to do is it is sort of to what extent is it a finis product or a component?'Cause sometimes it it could be a uh you know We we'd like to supply this component that could be integrated into other other people's uh products. I mean

45:13 That's what Apple apps are. Right? Got it. We don't sell them an iPhone. We sell them a a component within the iPhone. iPhone, is that is that what is that what we're doing here? Because then you have to ask questions about well, how does it

45:27 Fit uh fit in with uh Z uh so The rest. So the where imp also implies like where in the product it kind of lives, like where at what vertical stage is it like is it an integrated product where it's the whole thing from soup to nuts is it? some upstream pieces that some people downstream. Do we take pieces from other people and assemble'em so we're the we're the integrator. Those are all those are all important where to play choices from from uh from my view, because those those make them Yeah, kind of a big

45:58 uh a big difference. Like. Four seasons. chose a force is the hotel uh uh company, luxury hotel try chose A completely

46:08 Different. choice on the on the vertical stage where to play. Uh back in the eighties they said Uh, we're gonna get out of Real estate development.

46:19 So buying land and getting it zoned for hotels. We're gonna get out of construction. building hotels. We're even gonna get out of the business of owning the land or the hotel. So that we can be awesome at hotel management.

46:35 Rich people. Might. No, Michael Dale and David Thompson and Bill Gates will own the hotels as an as an investment. And they will be happy.

46:45 to have four seasons brand on their on their hotel, then we will charge a management fee. That is a where to play choice. Right. Even though somebody somebody could say, Well, you're just you're a luxury hotel. You're like the other luxury hotels. who serve luxury customers at a high High price.

47:02 Oh no no no no. No. They do it with a stack this thick. We do it with a stack this thin. It's like a value chain question. Like where in the value chain you're gonna play. Yeah. Where in the value chain. That's exactly.

47:13 That's exactly right. And everybody has Value chain. uh questions. Yeah, if we can complain uh after after the pack, like All the apps.

47:22 complain about what cut Apple is taking. But they made a choice, a value chain choice. we are going to design something that will appear on an iPhone. Or an Android Android device if that that is. And

47:37 Then good luck to you. You can complain like crazy that they're taking so much of it and this is unfair and they've got a Duopoly. Yeah, but You guys You guys cooperated a hundred percent.

47:49 in building that a hundred percent. Never complained about it. Until You wanted a bigger piece of the uh piece of the pie. That was a vertical stage.

47:59 uh value to uh chain stage. That you chose willingly. Nobody f nobody forced you to do it. And Apple's not not playing not playing ball, giving it back. Too too easily. And and do I love the love just how controlling and everything Apple is? Do I d no no, but

48:17 What I would I say Oh, those poor apps. Right. Yeah, no. Get your own distribution channel, buddy. Cold blooded.

48:27 Yeah. Okay. Hm. So we've talked about the winning aspirations. So for Fake Jam would be satisfy customers that are trying to work with their team in these different ways and make sure they're staying Make sure they get what they need out of Figma. First of all, maybe each other tools.

48:42 And then where will we play, let's say? Engineers, product managers, is trying to uh Target them, distribution through the existing product. And

48:51 And so it's like a feature of the existing product. Yep. And then it's how will we win? How do you think about That yeah, yeah. Well, it y you ask the question, how can we solve Well, how can we either solve

49:03 That problem at a At a much lower cost. So we can always be a sharper price uh point than than them. So if They exist there are solutions, but they cost Fifty thousand uh.

49:16 uh a user because their costs are thirty thousand a user. We can do this for fifteen bucks a user. And so we can We can Charge a hundred bucks per seat.

49:26 and and absolutely annihilate the competitor by figuring out a a a less costly way to do it. Or There are other uh selections, but they make the c the the the user do all these things and it's ponderous and it takes a long time. We have shortcuts. We use AI to

49:45 You just say a few words into it and they say, Oh yeah, I know what you mean and sh and and here here it goes in the in the in the workflow or Or were more integrated, like uh Thomson Reuters, the c the company I was on the board of. you know, our advantage was we were better integrated into the workflow. You didn't have to sort of get out of your workflow to go use this product and then you get back in, we just said what's your workflow? Oh well sh

50:10 T integrated. Is it better? integrated into their Will work. workflow that makes makes their life uh easier. It would be

50:20 Uh Yeah. possibilities like like that that I that I would be Uh asking. Essentially you've got a theory.

50:28 There of How you're gonna be Are you gonna be Better or Lower cost.

50:34 On the lower cost front. I think generally the advice is you don't want to go that route. That's all very difficult. Route. Do you what's your thinking of just like when to go that route that you might actually win at lowest lower costs. That's not advice I give. I I

50:48 I I think they're both completely legitimate. uh uh strategies. They have implications, right? So If you want to be the cost leader.

50:59 It is rare that you can be the cost leader without having dominant scale. in the territory in which you're operating. So if you want to be a niche Cost leader, you know, good luck to you. That's almost

51:13 Never gonna happen. So Vanguard had to make a race to no, we're gonna do indexing mutual funds. Uh and It doesn't exist now, we're gonna do it. And we're gonna get

51:24 Gigantic and we can't let anybody get close to us in size. Uh because we wanna have the lowest cost position. And so they are The the world's biggest mutual fund. uh uh company.

51:38 Um And you sort of have to do that and same with Southwest to really make that model work. They had to keep expanding and expanding to get uh a bigger M Mars. It takes an enormous amount of commitment to say We're gonna go and we're just gonna keep Charging ahead.

51:55 on on this. Whereas in differentiation, I think You can differentiate Sometimes that's lower scale and build yourself slowly towards higher scale.

52:06 But the world uh the business world is just getting so much more scale sensitive. Like when you when you think about the costs of differentiation. It's often Spending on branding, spending on R D. R and D sort of innovation. Those those two are

52:21 Of the most scale sensitive. elements of anybody's cost structure. I Yeah, you know, and and so being a niche differentiator.

52:31 Uh is getting harder and harder in my view. I think it's also important to say Either path is very hard. Like it's very hard to build a business that makes money and is profitable and survives. Just broadly. And you're not gonna have the formula of like how to win. Okay, bay bay, we got it. We got a big business.

52:49 I agree. I agree. And that and and that's why, you know. If if I If I looked at a hundred strategies of majies, I'd I'd say I I didn't like ninety of them very much.

53:01 And then like The other nine. out of ten probably look good, but also don't work out. Yes. Yeah.

53:08 Oh, that's true. There's lots of Lots of spaghetti thrown at lots of walls in the world of business. Yeah. Capitalism. Yes.

53:16 Okay, so now we're at the capability step of trying to figure out what capabilities you need to to win. Can you talk about say with Fig Jam, how do you what are the sorts of things you think about here? Well, I'd I guess I'd ask myself Uh question. Do

53:34 Is there Is there kind of a learning curve to this where we could have better capabilities because we started earlier than anybody else. Right. Essentially cumulative experience.

53:47 Is there Kind of. A way that we've figured out how to serve customers that make them feel tended to better by by us. So we've got

54:00 We've got Helpline. We figured out how to do sort of the helpline'cause if it's sort of self serve and and that's how they get the product and then they've got they've got issues with how to use it. They feel that we're that we're just better. We're the best.

54:15 Had. How to win is a theory of how customers are gonna perceive us. Better if we're different differentiator. Uh and then

54:26 It's what capabilities would have to would we have to have to make that theory Come true rather than just be Just be a kind of a a a wish. So if we want them to feel like we're the easiest to deal with.

54:41 We have to have Capabilities. Uh to do that. It's just like again four seasons said.

54:48 The w the reason they're they're they're by far and away the most successful, profitable best on all front luxury hotel chain in the world. Biggest best Most profitable. That's Employee.

55:00 Uh rankings best. Guest uh guest rankings, all of those. Well their how to win was they said People If you talk to people who are in luxury hotels.

55:11 They'd rather not be there. You'd say. Wow, they're in the lap of luxury. Why would that be? Where do you think they'd prefer to be? Lenny.

55:19 At home. Yeah. Mm. dominantly at home for their segment, which was high end business travelers. They've travelled.

55:28 They've stayed in one luxury hotel too many twenty years ago. And so We're going to have luxury defined as Not grand architecture and decorum and obsequious service, but rather We're gonna define it as a service that makes up for what you left at home or at the office, because people would rather be

55:45 If they ca have to not be at home, they'd rather be at the office than in a hotel'cause they can be more productive. So So We need capabilities. We need staff. Right. That

55:56 That can deliver on that. uh capability. What's the problem? For that the problem is turnover in the h hotel industry globally is eighty percent a year.

56:07 Which means that the average person you meet, the average staff person you meet in the average hotel is on their way to a sixteen month career at that hotel chain. So how do you deliver that really cool special kind of service with that? The answer is in a is a mountain skipping ahead to enabling management systems. You have to have a different way of recruiting, a different way of onboarding, a different way of career development.

56:31 And i if you do all of those things. you end up with a ten percent turnover rate. So that your people are there ten years on average. And you can then get them trained up to deliver that kind of service. So that's the capability. that you build in the people to be able to take more decision making at a lower level.

56:49 And treat the guests. in a customized way that makes them feel that this wasn't Buy the book, some rule book. Uh that this person just said no, this is a good solution for my For my guest.

57:01 It's interesting that these capabilities and even the management systems which are step five Uh, relate to your moat, which is sometimes is the thing you need to achieve. Also ideally is the thing that other people it'll make it hard for them to do. So that you're exactly right. You can call if you want how to win mode, right? Definition of your mode. And so capabilities and management systems are what What both build and maintain the mode. Right. And and the maintaining is an important part because

57:29 If you are the most successful People are gonna say I wanna do that too. But here's where there's this modern sort of

57:39 Unfortunately bullshitty thing that says oh Competitive advantage is fleeting in this modern hyper competitive world and you can't have long term advantage anymore. And I and I just say, Oh Oh, I see. So Four seasons. I guess yeah.

57:54 I guess that isn't very long term. That has only been Forty five years now. Since they No, thirty five years, I should say. Don't exaggerate since they went to the side. Oh, and Tide. So seventy seven years isn't a long time, I guess, either, because they've been the number one detergent for seventy seven. consecutive years.

58:12 I guess you're right. It's Fleeting. It's not. But What makes it fleeting is when you have one thing.

58:22 And one thing only. So let's say you build the biggest polyethylene plant in the world near a good A good feedstock source. And you have the low cost position. What's somebody else gonna do when they see how much money you make doing that?

58:38 Build aid. Bill Dave. Polyethylene plant beside yours twice the size. And then Then your toast. Why? Because the competitive advantage was too simple.

58:49 But at four seasons. You gotta sell off all your hotels. Uh, you gotta fire all the people involved in hotel develop development and everything. And actually the people in the business like doing that. You have to essentially Get rid of your entire staff, start from scratch.

59:07 Seeing them more. than you do now by far uh giving them more career security uh giving them more training, giving them better uniforms, whatever. spending ten times as much uh hiring them.

59:19 with the hopes that maybe someday you'll be able to produce the kind of services Four Seasons does. Competitors basically say Life's too short. Do they give up? And die. No, there are other great chains. Mandarin Oriental.

59:35 My wife li loves staying in Minor and Oriental even more than four seasons often. And And But they've not said we will replicate. four seasons. They've said

59:46 We'll pick a different where And a different how. And that's In the end, what you want. Is rather than complete overlap, right where you've got

59:55 concentric circles of people picking the same wear. You you convince people to pick different wares. That's why people sort of say, Roger, you're How to win, that's so so in in in politic, you know,'cause that you're producing losers and then and then there's victims and You know, all that.

1:00:14 Oppressor and oppressor it it it fits in the in the modern dialogue. And and I say no, I I what I wanna do is encourage them to find some place else to prosper. Rather than smack on top of us. And so If you have completely different management uh capabilities and management systems.

1:00:35 It'll encourage people. to choose a different where to play how to win. If your capabilities and management systems are very similar to your competitors and you're succeeding with your chosen where to play how to win, what are they gonna do? You're gonna drive straight to your where to play and and try to win exactly the same place and and wreck your market for both For both of you.

1:00:55 That's what you You don't want. in the more sort of complicated in some sense. Not com I shouldn't use complicated. The more nuanced. that your and and and multifaceted your

1:01:07 capabilities and management systems are The more likely they're gonna say life's too short. Right, that's what everybody says about South West. So if you're the only airline in the United States that's earning its cost of capital for fifty years Wouldn't you kinda say

1:01:24 Gee, I'd love to be like that. But what does it mean? Well that means. Selling off most of your aircraft. So that you can have only one kind of aircraft, seven thirty sevens.

1:01:36 Tearing up your entire root structure, your entire hub and spoke structure and make it point to point. Kind of changing your complete labor relations strategy. From fighting the unions to paying them paying them a lot as long as they're highly flexible. People think South West is non union, it's not as unionized as it, but they do different

1:01:56 You have to Essentially fire all your travel agents and convince your customers to book uh book uh online by themselves to save to save more money. Life's too short. Last yeah it's just

1:02:09 too short. So they try things like uh Continental Light or Ted. That do half the things. that uh that Southwest does. And then you're what?

1:02:21 A crappy southwest. You know. And so That's the to me that's the ultimate. The ultimate is It's like the ultimate weapon is the one you never use. The ultimate

1:02:32 way to compete to win is to never actually be forced to compete. Wow. Mm that's a great quote. This story about South West Uh makes me think about uh Hamilton Helmer's uh power of counter positioning. I don't know if you've

1:02:49 But basically, Oh You position yourself in a way where the competitor can't do the thing that you're doing because of the way their business is already structured. And that's right. I can't. Yeah, I can't. Can't thing. Yeah, and and and Mike and Mike Porter and he probably he may quote Mike Mike on that Mike.

1:03:06 was very big on that. He said it's fault lines. You're trying to find fault line where Where it is so painful. for your competitor to come across that fault line into your Your side.

1:03:18 That's so great example. of that would be uh uh Ola when when a P and G it's and it's in the in the in the book when When we did the repositioning of Of of that. The

1:03:30 competitor that could have Killed us. Absolutely killed us. was Estate Lauder with Clinique. If they would have brought Clinique.

1:03:40 Into the mass channels. Because we were doing a clinic kind of thing in the mass channels rather than the prestige. Prestige is like the first four of the department stores, right? Which is all which all Or Sephora. Or Alta.

1:03:53 If if Este Lauder would have taken their clinic brand and brought it into mass. They it they they would have They would have killed what we were doing. Simple as that. And in fact Clonique was the biggest

1:04:07 Brand in all of skin care. We became the biggest brand in all of skin care. And they didn't do it. Why? Are they idiots?

1:04:20 No, they're not. Este Lauder's super smart. But S D Lauder. Also has Bobby Brown and Mac and and the Estee Lauder uh Tel Brand and uh a half a dozen more. All in prestige.

1:04:32 And the prestige channel if they'd have taken Clinique. And taking it over into Mass would have done what? Shot them in the face. Kill them. Right.

1:04:46 Huh. Plectic. Uh and so had to stay if that's counter positioning by by uh Helmer's uh terms.

1:04:54 They had to stay there. Was that stupid? No, they're still they're still with all of their brands combined the biggest In skincare, but Clinique is You know, lost leadership to You know, our brand that they would have considered.

1:05:08 Kind of nothing. oil of Olay became Olay Olay Pro V, uh regenerist. all of these higher price products than they could ever m imagine being sold in the mass. Channel. But our biggest friend

1:05:22 Was In some in some sense. uh their distribution. Channel.

1:05:29 Which would have killed them. If we literally they would have just punished them so, so, so bad. Uh. Mm. That they didn't do it.

1:05:38 I love that I'm learning all this information all this strategic thinking about makeup and skin care. I also love just the idea of you leading strategy for Skincare makeup brands. Yeah, I know. I got Frocry Gamble into uh cosmetics. So funny. I love that. I don't know if you're following the AI Google stuff that's happening where there's Uh

1:05:57 Search engines competing with Google by just answering the question versus giving you a bunch of blue links. And there's this question of will Google shift because people seem to really like it versus they're making trillions of dollars running ads when they share blue link. And it's this like super innovators dilemma. Position they're in. Yeah. No, no, I I yeah, I I'm very interested in in in what's going on in

1:06:19 uh in AI and I'm writing some stuff on on On that. I mean it it's hard. Like I've seen I've seen the inside of this for many of my my clients. It is super hard when the Though

1:06:33 guts of how you make money. Is under Is it under threat. Um And you You just don't want that thing to go away.

1:06:43 you know, the big O auto OEMs make money selling cars with ice engines. That it's as simple as that. And it's no surprise. They've been doing it for a hundred years. They're way down the learning curve. They have scale. Blah blah blah blah blah. And so these damn electric vehicles are no kinda no fun. And so the g the Google situation you've described, I think is similar But My general my general advice is always the same, which is Yeah.

1:07:09 It can take a while. But in the end the customers will Triumph. And A. G. Laughley, my friend, who I co wrote the book with, great great great CEO, was very good on this and And um

1:07:25 One of his big customers. big ass customers came to him and said, If you don't stop cooperating with Amazon We're gonna delist all your products. Big threat. Right?

1:07:37 Big threat. A G just said If customers want to shop there. We can't. We just can't not.

1:07:49 be where our customers want to shop. And so If you feel you need to do that, you're usually gonna have to because customers wanna shop there and we're not We're not doing that. But

1:08:02 What are you offended by? That we're doing there. And They said well. Your

1:08:10 Allowing them to ships. to their customers from your From your Distribution centers. And A G just said, um

1:08:21 Uh Do you want a two? And they were like Mm-hmm. And he just said,

1:08:29 W we w we don't do anything special for them that we wouldn't do for you. They ask for things that you don't ask for because of their their business model, but But we're you know, if you come to us with ideas of how we can help you serve our joint customers better. We're we're all in, but we're not. We're we're not boycotting.

1:08:50 A place That customers have shown they want to shop. As long as sort of an honest like you know Yeah. Amazon was sleazy and dishonest or quite whatever, but you know, an honest upstanding place where customers

1:09:04 can get our our products. And so I'm that's That's where I'm at, which is which is You you may have to scramble like hell. Um You may have to suffer.

1:09:16 Uh from kind of economic downturn, but if you Think you can You can uh like I I always think of it like we I I don't know if you did this as a kid, Lenny, but when we went to the beach on family trips, you know, we would Four brothers, we would

1:09:32 build plus and baby girl that later, but the we would build sand castles and try to try to uh and hold back the tide. Like this would be in Florida or California, we'd tr try and hold back the tide and we come the next morning to see if our castle and it was always gone. Like it's it's like gone. But we keep trying doing it. And it's sort of like You can't hold back the tide. Maybe it can for a while. But you can't You can't forever, so

1:09:59 So you just have to figure out Where are the customers going? Right. And If they're going someplace. And Vanguard did this, right? Um Jack Bogle, the late Jack Bogle, he's dead he died now, uh a couple of years ago now.

1:10:14 He did not like ETFs. He said ETFs are not as good for customers as mutual funds. And he had a he had all sorts of good reasons uh uh for that. But the the index ETF business started to kinda grow like crazy and and and Jack had to relent and say, I don't think it's good for them, but they want it. And so

1:10:36 You know, they went whole hog into it and and are the leading index ETF provider as well as the index mutual fund provider. But for a while they weren't. But he realized it was the tide. And he was attempting to hold back the tide.

1:10:51 So good luck. Good luck to you on that. So To me If Google thinks they can because of their their power and the fact they're got a multi trillion dollar

1:11:01 market cap and they've got'em near monopoly position on on something, they can hold back the tide. You see the the the the water finds a way to flow. Right? Like think about Microsoft.

1:11:17 and its monopoly on PC operating systems, or it's near monopoly on P PC operating systems. I would argue That they abuse that. kind of monopoly, right? Like I ask I often ask people

1:11:32 When's the last Windows update? That got you as a customer excited. Yeah, Windows ninety five. The answer I think it's really clear, Windows ninety five. Right. took the graphical user interface that he bought rights to from Steve Jobs and put it on so you didn't have to do backslash, backslash, but you know, you could actually point and click.

1:11:54 That's a long time ago. Last time I checked that's now almost thirty years. Right. And so They just abused their their customer. He is there

1:12:04 their share of P operating systems Much lower than it was then? No. But that's not the right measure of share. the right measure of share in my view in that in that industry.

1:12:18 Is your share of minutes spent staring at a smart screen? Right? Like that. That that's what the share of operating systems that you should care about. And so What kind of smart screens do people now stare at?

1:12:34 Most Right. Right? Most And what other one do they do a lot of people stare at who really like them?

1:12:43 Pads. Mm-hmm. Right. Um and so if you added up all those that I said, what do you think so what's their share of of uh smartphone operating systems? Microsoft? Last time I checked it was point four of one percent. Yeah.

1:12:58 So effectively zero. How about Pads. Apparently it's four percent uh there. So their share of people staring at a smart screen has plummeted.

1:13:11 Plummeted. Why? Because Water finds its own level. People said. There are these other ways. Of getting around.

1:13:21 uh uh this and I'm gonna take those uh take those uh ways. And I think the degree to which people use their Smartphone. for more things as a function of that smartphone is advanced so much faster. Then than your PC operating system.

1:13:37 Because More people are using it. So That's what I'd say to That's what I'd say to Google. I don't care how painful it is. It is water

1:13:48 Water flows downhill. The tide comes in. And You know, you cannot stop that. Even if you're one of the most powerful

1:13:57 three firms on the face of the planet. And it may take time, but eventually The customer tied pools. Think that's really important. Yeah, but start now. Yeah. Right. If you're if you don't start now.

1:14:09 It's too late. Yeah. I wanna end with one. Very tactical question. For people that may feel

1:14:16 overwhelmed. There's like, Oh my God, I'm I don't know what we're gonna do. This is so hard. All strategy stuff. Um, you have this really cool idea of called betterment. I think you wrote a media post about it, thinking betterment over perfection. And it gives you kind of like a first step of like, Okay, here's a way to move forward. Can you just talk about that approach? So for me, strategy, this thing call strategy with yeah, with people, Oh my God, oh my God, how I can do strategy, whatever I I I I just think of it as a problem solving tool.

1:14:42 Right. And what problem Should you attempt to solve it You should attempt to solve Something where

1:14:51 your current outcomes that you're getting. Are lower than the outcome if you wish You were getting. That's what I call a gap. There's a gap between those two.

1:15:01 And You should just conceptualize it as Your current outcomes are a natural result of all the choices you've made. interacting with the competitive environment. Right.

1:15:13 And so you should reasonably assume that probably those outcomes aren't gonna get a whole lot better. Because they've they've sort of they are the way they are for a good reason. Right. So You're gonna need to make a different set of choices.

1:15:27 To make that gap go away. That's what I would work on. I would just ask the question, what is the single most painful gap currently that I'm facing. customers used to do this and they're doing this. Uh I can't find this kind of kind of uh resources, uh distribution channel has abandoned us and w I you know, whatever whatever is the most painful thing. And then just taffle that.

1:15:51 And say What Different choices could I make? And I'd say use my cascade. What What

1:15:57 Could I change where I'm playing? Could I change how I'm winning? Could I change my capabilities? Could I Change my management systems. In order to achieve a different A different aspiration.

1:16:09 And so don't try to solve the problems of the world. Or even All the problems of your company. That's perfection. betterment is making that gap go away. And guess what happens if you make that gap go go away?

1:16:23 You can turn your attention to the next gap. And the next guy. And the next guy. And if you do that. All the time.

1:16:32 Right. You you're always working on the next gap, the next They'll get Smaller and smaller. Over time. I mean, I don't know if this is a great analogy, but you know, I was dean of a business school for fifteen years, the guy who won the Professor of the Year award more times than anybody else and did it sort of teaching tough courses, often executive MBA courses and

1:16:53 And the like. had a simple formula. For doing it. Right. Which is which is He he the

1:17:02 He taught s second year courses and second year courses would happen to be thirteen two hour They kind of lectures. Or sessions of one sort or another. He just pulled the students. Uh on

1:17:14 What they thought of each session as they went along. And regardless of the reason, regardless of anything else Simply chopped number thirteen every year. Because in some sense it's the biggest gap. The gap between what What what uh the customers, students

1:17:33 Wished for And we're getting. Um And he would just replace it with something. You would try something else and replace it with that.

1:17:42 When you say And that gets you like Professor of the Year every year. And the answer is yes. Betterment. Because if you're teaching for twenty five years, right.

1:17:54 And you just keep doing that. Every year, every year. the course keeps getting better and better and better and better and better and better. So Betterment.

1:18:07 You know. It doesn't make Purists feel awesome. But I'm not.

1:18:15 Here to Make pure purists feel awesome. I'm Here to help. Help people get better. This makes me think about your water metaphor too, of just water f eventually finding a way through.

1:18:25 A little bit of iterating. Yeah, yeah. Yeah. A lot of what I think about in strategy is sort of natural, if you will. I I I I try to ask. How does the world generally operate? And is what we're doing kind of consistent with the way the world generally operates or not? Roger, this was so much fun. Uh we covered everything I was hoping we'd get through. I think we're gonna help a lot of people with the way they think about strategy. Is there anything else you wanted to just leave listeners with or say or before we wrap up and

1:18:53 And let you go. And we did a we covered a lot, so there may not be anything left. Well, on strategy, I'll th this one piece of advice I'd say. People often ask me about About Yeah. about people who are natural strategists or they say

1:19:09 I'm not naturally good at that. I'm more of an operational guy or gal. And what I tell them is I have never met. This mythical beast called a great natural strategist.

1:19:22 And they often throw back in my face laughing. They say, Well look, laughing, he was he was known as a strategy genius, right? And I say Yeah. Um, but when I interviewed him in depth about his background for for a uh a paper I was I was I was writing.

1:19:39 What I discovered was when he was in the navy as a whatever, I don't know, probably twenty five year old. In the Navy. Where

1:19:49 He had a Think about strategy and was testing things out and doing things and the like. And then I realized that. Hm. had been practicing strategy for

1:20:00 Decades before we became the CEO, decades. Uh And so he just had more reps. When he became CEO than almost anybody else. that that uh that I've ever met.

1:20:11 There's another guy here in Vic Dustarp, CEO or ex CEO now, he's uh gone on to a higher level. uh Lego brand group. Uh would be s would be similar. So Great strategist that I have met. Have all one thing in common.

1:20:28 They just practice. And Anybody. There's no such sort of p uh thing as a person. Who is willing to practice strategy

1:20:38 who will end up saying, I'm kind of operational, I don't I don't do strategy well. Which links to our pr m our last thing about betterment. Just Just work on making different choices to solve Problems. Not problems that I see. I'm not gonna define your gap. It's one that you feel in your heart. I wish this were better.

1:20:58 Work on it. If you do that. You'll be a great strategist. So be encouraged. Uh don't be don't be discouraged and the worst thing to do Is to wait.

1:21:11 People say, Well I've got all these Operational concerns and right now, and then I'll get to strategy later. Mm. You'll never amount to anything. Nobody who says that ever amounts to anything.

1:21:22 Well I love this. I love how empowering it is. I love the real talk. Roger, you're awesome. Thank you so much for being here. You're most welcome. Thank you for making it a uh fun journey for me. I learned a ton and that's always a good sign and it was all a lot of a lot of fun. Well Thanks, Roger.

1:21:37 All right. Bye everyone. Thank you so much for listening. If you found this valuable, you can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. 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's Podcast dot com. See you in the next episode.

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