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

why are so many people bad at strategy what's taught now in Business Schools generally sucks people aren't prepared educationally then they sure don't get prepared for it in companies it's intellectually challenging and it's emotionally intimidating you have something you call the strategy Choice Cascade you have to have answers to five questions what's your winning aspiration 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 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 either 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 [Music] practice today my guest is Roger Martin Roger is one of the world's most trusted strategy advisers he's professor ameritus at the rotman school of management at the University of Toronto

where he served as Dean for 5 years in 2013 he was named Global dean of the year and in 2017 he was named the world's number one management thinker by thinkers 50 he's also the author of what many listeners consider their favorite book on strategy called playing to win I've gotone 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 workor fits into his framework and world view what people most often get wrong when they're developing their own strategy the two options you have for how to win with your strategy a very tactical and simple trick for getting started thinking through your strategy and so much more this episode is for anyone who is trying to build their strategic thinking muscle if you enjoy this podcast don't forget to subscribe and follow it in your favorite podcasting app or YouTube

it's the best way to avoid missing future episodes and it helps the podcast tremendously with that I bring you Roger Martin Roger thank you so much for being here and welcome to the podcast it's great to be here Lenny thanks for having me what I want to try to do with our time together is to help people that are on the ground at a company say like the product manager designer engineer data scientist folks that aren't necessarily the COO or the founder executive company get better at product strategy at 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 and I feel like luckily your stuff applies to everyone um so how does that sound as the lens for that sounds great and can I tell us little story to that end so recently there is a uh a newspaper article saying that uh pointing out that 10% of the S&P 500 CEOs 10% are ex Proctor and Gamble people it's an amazing number like a stunningly high high number

why would that possibly be I believe it's because at Proctor and Gamble there is a view that people weigh down the organization like let's just say the headen shoulders brand franchise leader right who reports to the head of shampoos and conditioners who reports to the head of beauty care who reports to the CEO so at least four levels down in the organization in the guts of the organization Proctor understands that that individual not the CEO not the global president of beauty care not the uh head of of hair care not the head of shampoos and

conditioners the brand manager makes super important strategic choices and if they don't make them well the brand does terribly uh and so so I believe and not many companies have enough of that attitude so I'm a big believer that people down organization have to make really important strategic choices or bad things are going to happen uh if they make really great ones good things are going to happen and they get trained to be a CEO uh someday so I'm with your I'm with your your uh your thesis but yours is Count counter what I would

say is normal what is most normal is people at the top do strategy and people down below do something and it's usually called execution and I hate that I hate that term of art for what it's worth uh and so I think you and I are singing from a bit of the same uh song book even if it's a minority s book this episode is brought to you by web flow we're all friends here so let's be real for a second we all know that your website shouldn't be a static asset it should be a

dynamic part of your strategy that drives conversion that's business 101 but here's a number for you 54% of leaders say web updates take too long that's over half of you listening right now that's where webflow comes in their visual first platform allows you to build launch and optimize web pages fast that means you can set ambitious business goals and your site can rise to the challenge learn how teams like Dropbox Ideo and orange theory trust web flow to achieve their most ambitious goals today at webflow tocom this episode is brought to you by work OS

if you're building a SAS app at some point your customers will start asking for Enterprise features like samel authentication and skim provisioning that's where work OS comes in making it fast and painless to add Enterprise features to your your app their apis are easy to understand so that you can ship quickly and get back to building other features today hundreds of companies are already powered by work OS including ones you probably know like versel webflow and Loom workos also recently acquired warrant the fine grain authorization service warrant's product is based on a groundbreaking authorization system

called Zanzibar which was originally designed for Google to power Google Docs and YouTube this enables fast authorization checks at enormous scale while maintaining a flexible model that can be adapted to even the most complex use cases if you're currently looking to build role-based access control or other Enterprise features like single sign on skim or user management you should consider work OS it's a drop-in replacement for ozero and supports up to 1 million monthly active users for free check it out at work.com to learn more that's work.com I just want to ask this broad question about

strategy why why is strategy so hard why are so many people bad at strategy perhaps the thing that that makes it sort of intellectually hardest is that it is an integrative activity you've got a answers to a bunch of questions that have to 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 what kind of diet do you want that'll keep you healthy and that includes breakfast lunch dinners snacks a whole bunch

of other other things that you got to kind of fit together so so it it makes it makes that harder uh to do intellectually another aspect of it is it is intimidating strategy involves making Cho is to do some things and not other things uh and it is often intimidating to say you know oh dear 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 sort of emotionally not harder uh uh int ually and then there's sort of the training aspect of it the knowledge aspect of it which is which is what's taught now in strategy in uh Business Schools generally sucks it's gone on a on a crazy theoretical bent uh the strategy Academy as a whole has fallen in love with a theory called the resource based Theory The Firm that is that is silly and nobody uses it out in the world and so students are no longer trained on youthful uh strategy and the

other feeder into people learning strategy or the strategy consulting firms but the strategy consulting firms the so-called strategy consulting firms do almost no strategy anymore because it's a little business compared to post merger integration digital transformation and a bunch of other other uh other things so people aren't prepared educationally for it and if they're not prepared educ for it then they sure don't get prepared for it in companies uh it's intellectually challenging and it's emotionally 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 that said that was you like in the world of academics is a weird place uh where the number one emotion is jealousy and people were massively jealous of Mike Porter who sort of created many of the most important uh concepts of strategy when he wrote a book competitive strategy in 1980 and so they needed to sort of counter him because they just didn't like the fact that he was so prominent and they decided they would say he was about

positioning so they called his the positioning school that and they car caricatured what he said which he never did but they said he said it's all about finding a place that is structurally attractive and then milking it for everything you can we at the resource based view of the firm think that that strategy is 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 now the problem is a any resource right that may be useful 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 of doing that investing here versus here versus here it's silent on that because it's kind of a dumb Theory and and 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 that they they're company I'm going to do a v v analysis or a VIN some uh people just roll their eyes at them

and so it doesn't get used I've only seen it used been in Consulting companies for 42 years and I've seen it used once and the truth as is usually the case is that it's it's both and and that's that's why the model I use for for strategies says it says 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 illegal to teach

your approach yes I couldn't teach my Approach at my own business school so when I was Dean the most powerful person but the the that the uh departments or areas as we call it like strategic management is an area they have 100% control over what's taught in Strategic Management Finance in finance Etc the dean may be the most powerful person in the school and I was I happen to be a super successful Dean so if anything I was a super powerful uh powerful Dean uh and students would beg me they'd say you know Roger you're

this you have this you know 20 years of experience you're sort of a famous consultant in strategy uh and you got these theories uh please teach a course in it nope I I I did I did do extracurricular stuff where I did I I I had practice of 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 the 49 other top business schools in America and and if asked the question do you swear allegiance to the resource-based view of the firm if you don't answer an enthusiastic yes you have no chance of being hired zero wow this Academia drama I had no idea the Loyalty test this is unreal 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 where they fit in the

spectrum that you're describing so okay I may know I may not know all of them but do you give me I imagine you do so we've had a Hamilton Helmer on the podcast yes and then uh Richard remelt on the podcast how do they relate just for people to get to your stuff versus this Dogma so one of them is one of them is sort of an an academic and one of them isn't is a is a quasi academic or non-academic like me like I I was a tenure Professor for many years but don't consider

myself and I an academic I don't think Hamilton does though I've never asked question yeah 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 how to win and he he he has a categor what I call a categorical model here are categories of things that you should think about if you're trying to win here are seven ways of of winning uh and and I categorize him as a as a non-academic practical strategy guy

Richard ralt is is um a now retired tuck uh professor and he and he has a kind of this hyper competition thing that that uh that he he does he he also is of the of the I'm jealous of my porter uh kind of thing so I've got to say Mike Porter is wrong and here's how I am so right and competition doesn't take place in the way Mike says where it's really stable and and whatever it's really hyper competition Mike Porter never in his entire life has said competition is stable he's repeatedly said the

opposite but in order to say I'm not like Mike Porter uh and and in fact I distinguish Myself by saying he's wrong and I'm right and so so I I I don't know he see he seems like a a fine a fine guy um I don't think that he like most business academics he doesn't know much about business right like he he hasn't gone out and practiced a lot he came to our school and and gave a lecture because people loved hyper competition because he because he would blast Mike Porter and he gave a example

of Proctor and Gamble I've been Consulting a Proctor and Gamble and know everything about Proctor gamble basically uh and what he said had about Proctor and Gamble had zero to do with reality like zero it was just completely utterly absolutely wrong and I sort of asked him afterwards to sort of like why did you say that and he said well I think that's the way it worked are you kidding me so I'm I'm not I'm not a I'm not a fan of of of that piece of work I would say it's it's it doesn't fit

nicely into resarch 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 going to take that lens everything's hyper competitive and and here's how you think about hyper competition this is fascinating I love that we're spending some time on this this really helpful to hear hear the landscape of of strategy Minds okay let's dive into into your worldview and maybe the simplest way is just like how do you define strategy what is a strategy strategy is an integrated set

of choices that compels desired customer action so the way I think about it is there's a whole bunch of of things company controls right how many factories to build how much R&D to do in what areas and how much advertising to do how many people to hire what to pay them blah blah blah those are all the things under our control what Lenny is the thing we have almost no control over what if we're a company customers do yeah like we would like them to take some of these out of their pocket and give them

to us can we make them no we can't so essentially the job of strategy right is to make decisions on the things we do control that will compel right we can't force but it'll compel them it'll they'll say gosh I should take my hard-earned cash and whether it's a company or an individual I should take my hard-earned cash and give it to you rather than give it to nobody if there's no product now or give it to a competitive uh product so the important pieces of it are is integrated right it's the whole set of

choices that has that one outcome that it compels desired customer action amazing okay 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 the fruits of many many years of of doing strategy work and trying to figure out like like how do you do this thing because the fun the fun thing was I was in the era

like I started in the in strategy uh in 1981 and that was early in the era it strategy was born in 1963 with the founding of Boston Consultant Group by Bruce Henderson who was the father of strategy in my view of practical commercial strategy um so it was still in the early days and and you know Bruce Henderson had a theory of how strategy should what result it should produce for you Mike Porter then came along in 1980 so 63 uh Bruce Anderson and 80 Porter the two most important figures in the history of of

strategy came along and said a strategy has to look like this right it it has to have this as its output but neither of them was very good on because again it was early they can't do everything right away of well how would you get one of those so Mike Porter says you have to be either differentiated or low cost good and if you if you look through competitive strategy as Landmark seminal book to say how would you do that there is no answer right and so so and because monitor company the The Firm I

was one of the leaders of for for decade and a half was founded essentially to commercialize Mike Porter's work customers would ask us they'd say well we like Mike Porter and we'd like to have one of those you know we can look at ourselves under his framework and and we can say we're stuck in the middle and he said that's bad and he said good is this or this how do we think through creating one of those we didn't actually have an answer uh and and it turned out because I'm I was sort of the

most I don't I don't know intellectually engaged on this and didn't mind the hard work of product development from about 1987 when we sort of discovered we really didn't know that and clients really wanted us to tell them that between 1987 and 199 95 I did all this work on well how how how could you develop a process for getting yourself one of those right one of those excellent strategies and I came to the view that you have to have answers the five questions you have to have an answer to the question of what your

winning aspiration like what are you trying to accomplish because it'll help contextualize the kinds of choices you could make then there's a where to play on what playing field or if you're like military stuff Battlefield are you going to plop yourself down on you're not going to play everywhere in every product at every vertical stage around the world you're going to pick some place and in that place how can you be either better than competitors in terms of creating customer value or lower cost than th those competitors to win there where you've chosen the play

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 and then what Management Systems enabling Management Systems you have to put in place to make sure you build and maintain those must have capabilities to win where you've chosen to play to meet your winning aspiration and so I came to the conclusion actually it was in 1995 the end of an eight-year journey I 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 I want to 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 if you need a play to win and you kind of argue that a lot of people are just playing to play they're playing to play the game I'm guessing most people listening and most people developing a strategy don't think they're doing that 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 so if you say we're the most Innovative company in our industry uh and customers and let's say the industry distributes through a given a given Channel and customers come into that uh channel uh and and they look at the the two products and say I could flip a coin on this one right you're not effectively playing to win maybe

you thought you were winning but but customers don't think you're you're uh better or if your competitor lowers their price compared to compared to your price and you say to yourself oh my God if we lowered our price we would make no money but your competitor keeps on pricing there you may think you have the lowcost position but they do 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 having

either an offer where Lenny walks into the store whatever kind of store it is and says it says to the person in the store I want that brand right this this example Lego one of the companies I worked with for a long time great company it turns out that if you do market research on kids a store that reports to be a toy store but that doesn't have Lego 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'd

said but this this it says toys on here and the kid say uhuh that's an insane brand that's an insane insane insane brand uh and you know it's has a price premium for anything over any of its competitors by by a long shot it keeps growing it it actually for most years in the last decade it has had 80 or 90% 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 Vanguard uh you know has got 9 trillion of assets under management

last time I last time I checked uh does it do anything distinctive not really the customer but do they have the lowest cost position so they can charge the lowest AUM ABS absolutely uh and so there's different kinds of ways but you know you'd know by the actions that customers uh take so essentially Tim your 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 you're differentiated you have a differentiated brand where it's not a coin flip it's like oh I

really need that for this reason yes yeah you got it 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 or whatever like you know it's only a matter of time till you're dead right is is the is the sad kind of truth of the matter which is which is the the competitors in your industry who are either lowc cost or different can essentially jerk you around as much as they want it's like Southwest Airlines right like Southwest Airlines was

just a tiny little airline that flew Austin Houston Dallas and now it's number one in passenger seat miles 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 how did that happen well it's it's just the other airlines had to step aside whenever Southwest came into a route the other airlines just had to say well I guess you're going to get your 30 share or 35 share of

passengers on this route you know welcome to town that's all they can do they they just have to seed position and that's what happens if you play to play you will end up just being I mean it's literally like having a bully who can just you know you you shut 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 those two you cannot bully Vanguard you cannot

bully Southwest you cannot bully Proctor and Gamble you cannot bully Lego um that's that's the way the business World works and in the case of Southwest the reason they couldn't be bullied is were the lowc cost provider and the other airlines couldn't meet their prices so they're like all right there's nothing we can do yeah yeah awesome right so when so so they while I was in living in Boston they entered the Boston to Chicago route which was a duopoly of American and United at the at the time and the price was about in those

days like a thousand bucks for a round round trip because it was a nice daop uh would Southwest come in they say we're going to fly Providence to Midway not Logan to O'Hare and it's going to be 200 bucks and they had great advertising I always loved the advertising that they had when they entered they they did maps of Boston and and said if you live in either any of these places kind of the South the west of Boston it takes you less time to get from your house to the gate than it does for

to go to uh to Logan because at Logan right you're got to park in a parking garage and then walk a half an hour and then when you get through security you still have to walk 20 minut 20 minutes blah blah blah and at Providence if you ever flowing out of Providence you can park about 100 yards from the gates and so they just had to say we we can't stop that not everybody's going to do it but a whole bunch of people are and there's nothing we can do to stop that what I love

is we're already diving into these five questions so we've been mostly talking about how we will win basically here's your options to win lowc 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 the capabilities are in place right youve got it you're very quick quick study my friend I got some notes here so coming back to the

how will we win because I think everyone's listening to this okay cool we got two ways to win we're going to be the cheapest or we're going to differentiate okay okay how do we differentiate uh do is there like a taxonomy of options that you think about or tell people like what are the ways and options for exploring here's how we will be different it is mainly understanding customers kind of as well as you can and then and then saying is there a way to be distinctive uh against that and there are there are lots

of ways uh uh to do it but it's tied very closely to the capability ities right which is which is if you have a way of winning right you say you say my word to play is I'm going to sell pet food on the internet and my how to win is I'm gonna I'm G to kind of be the best but it turns out that anybody who can build a website can sell pet food on the internet uh and in fact you know 20 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 going to be hard to replicate 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 this won't right like do you really think Walmart couldn't have built as good a website as as Amazon and at massive scale I I think they could have right yeah probably did they they didn't they said I hope

this online thing doesn't really take off because that would be a pisser because we've got 5,000 stores Across America and and we've got all that and that would be really that why would be a bummer and so they don't do anything for 10 years giving Amazon the scale so that Amazon then has this huge scale Advantage uh kind of on this and network effects and voila uh you've uh you know you've got a competitive advantage that you that you didn't necessarily kind of completely deserve you needed the help of the player who stood to lose

the most to hope that it wasn't going to happen same with Tesla Tesla got a 10-year Head Start not because the oems couldn't they could have and of course GM did many many years ago right great fully functioning electric vehicle but 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 electric vehicle equals uh Tesla and get them you know allow them to jump way ahead and

then have the scale that is hard to hard for others to match you said something that's really interesting that I think is also really important which is you said that just being the best or better is not not a solution you could have a better pet food you imply that's not going to get you there can you talk a bit about that yeah you have to answer a second question I guess which is which is here's the way I'm going to be better and here's the way somebody else isn't going to be able to Simply

replicate that uh quickly right like one of my one of my one of my favorite businesses because I was on the board of I was on the board of Thompson Reuters for 14 years it was Thompson first and then he bought Reuters so Thompson reuter best business is a business called Westlaw uh and it's the the dominant 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 West law and and uh and and put in some Search terms using a Westlaw keyword uh system to to help help with and um you you uh get the five cases that really matter you can Google it and do the same thing and you'll get the 500 cases that might matter right so how does Westlaw do that well for now over a hundred years they've taken every case that's come out of the the US legal system had a lawyer a West law lawyer write a head note that summarizes what's in the case using these

key words so that they are searchable and today to do 2024 uh takes, 1500 full-time lawyers right so if somebody else said you know this Westlaw business is incredibly profitable and it keeps growing and it's you know it's awesome I'd like to be in that business all they'd have to do is hire 150,000 lawyers full-time and you'd have to create a numbering system and a keyword system that's different than West laws and then you'd have to do what West law has done for the past 50 years which is give it free to law schools so

that they teach their students before they even get out how to use West law and all you know no problems that'll be easy right you know nobody's even tried why bother Life's too short and that's the kind of the kind of capabilities you need to be able to say well win by having the searches that make the lawyer's job the most effective and if it saves them time it saves them money right and 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 it's on everybody's PC and 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 today's episode is brought to you by cycle the AI powered feedback platform for product teams is your customer feedback a tangled mess of slack threads survey responses and overflowing inboxes wish that you could know what your customers really need cycle unifies all of your customer interactions from support chats to user research gong calls and App

Store reviews into one neat collaborative space Cycles AI then extract actionable insights on autopilot cycle will learn what you're building so that it can label incoming feedback automatically that means you'll get a full voice of customer report without manually triaging feedback then simply you cycle ask to dig deeper into any topic and generate custom AI generated summaries across your entire feedback repository what makes cycle different is the way that it lets you close feedback loops in each release feedback is not used just as a way to prioritize what to build but also is a tool

that creates trust with all stakeholders sign up for a free cycle trial today at cycle.app Lenny and put your feedback on autopilot that's cycle.app Lenny so essentially we're talking about Moes what are some Mo that you can create where people can't just copy what you're doing Warren Buffet likes uh that terminology right there that's what he says he invests he invests in modes yeah I'll find the code we us we us did in a podcast episode but he's like yeah castles with Moes and maybe along those lines is there is there kind of a way

way you think about types of barriers to recreate capabilities is like here's the options we have is it like like essentially the seven Powers I think talks about this yeah yeah I mean that that's that's why I kind of like Helmer I like because he he categorizes them and and I've got and I've got to look into look into it uh some more because I I mean I haven't studied it to to say whether I would whether I would concur that there are just seven or or there are more my suspicion might be that there

are more but there may there may not be they may be all clustered there may be variants that cluster 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 Moe great that would be nice so here's the quote from Buffett by the way I look for economic castles protected by unbreachable modes yes I like that I like that and he's he's smart he's consistent um 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 like Warren Buffett who's outstanding arguable genius is gonna is gonna sort of think I think this I think this is a moe uh and it's going to be ephemeral uh but I I I you know any of us should be pleased to have a track record that would be anywhere close to that on really identifying modes because he because he has we talked about that with Hamilton hmer that every startup deck

has like here's our Moes here's how we're going to have barious entry and they're all delusional like rarely is there ever actual Moe at least especially in early stages yes 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 think about strategy and I can describe what fig Jam is so sure sure I do not know that 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 little cursors Okay and soort like brainstorming and ideation and things like that and laying out concept gotcha okay that would make sense for yeah exactly yeah right okay so so You' you'd ask the question sort of kind of what are we trying to accomplish right are we are we attempting to create something where 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 is already doing this and they're just not doing it very well you know you'd want to sort of say well what are we trying to accomplish and and I don't spend a whole lot of time on that because you got to togg go back and forth between between those those five questions but you have to have a reason for searching in a given space for where

to play how to win and so so what do what do you think their their reason for fig for thinking fig Jam is worth investing in is what do you think it is is it is it is it white space or is it is it crummy crummy uh offerings in the in the market currently like if I had to 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 okay good so I don't love it to start right 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 the reason should be uh customers are bereft customers are lacking something that we can provide this is why I hate most and and and most entries by Foreign companies into China 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 so I don't love I don't love it for for uh for uh starters I'm not saying that that will guarantee failure but it's it's it's if somebody gave me 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 with inigma with their teams and there's these yeah yeah that that that so that so that would be that would be a better one and you're specul I've asked you to

speculate so we don't know but I like that one better right which is which is what's our aspiration is to satisfied core customers who love what we do but think it's too narrow that that if we could broaden that for them uh into this Market our our customers would be very happy that is really cool and so you want to frame it in the words of how customers would benefit essentially I just think those are tend to be tend to be stronger 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 want to 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 and what and with kind of what product is it you know is it a finished product is it a component of you know kind a product through what distribution channel would would we sell this is another self-served type product because

I think figma is mainly self- served right yeah um and uh and so you choose choose that where and then say how can we solve before we get to that before we get to that real oh yeah yeah yeah please so the things you mentioned there is like who specifically are the customers in this case it' be like product managers engineers and other functions and then yep there's the distribution channels like how we'd actually get to them get to them yeah and then else was what other uh questions are there within this where we is

it is sort of to what extent is it a finished product or a component because sometimes it it could be a you know we we'd like to supply this component that could be integrated into other other people's products I mean that's what Apple apps are right got it we don't sell them an iPhone we sell them a component customers uh 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 fit fit in with the uh the the rest so the where 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 them so where they where the integrator those are all those are all important where to play choices from from uh from my view because those those make them you know kind of a big uh a big difference like four seasons chose a Four Seasons the hotel company

luxury hotel chose a completely different choice on the on the vertical stage where to play uh back in the 80s they said uh we're going to get out of real estate development so buying land and getting it zone for hotels we're going to get out of construction building hotels we're even going to get out of the business of owning the land or the hotel so that we can be awesome at hotel management rich people like you know Michael Dell and David Thompson and Bill Gates will own the hotels as an as an investment and they

will be happy to have four seasons brand on their on their hotel and 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'd like to other luxury hotels who serve luxury customers at a high high price oh no no no no no they do it with a stack this thick we do it with a stack this thin so it's like a value chain question like where in the value CH You're Gonna Play yeah where in the value chain that

that's exactly that's exactly right and everybody has value chain uh questions they often complain after after the fact like all the apps complain about what cut apple is taking but they made a choice of value chain choice we are going to design something that will appear on an iPhone or an Android Android device if it's that that case and then good luck to you you can complain like crazy that they're taking so much of it and this is unfair and they've got to do opo yeah but you guys you guys cooperated 100% in building that

100% never complained about it until you wanted a bigger piece of the piece of the pie that was a vertical stage a value chained stage that you chose willingly nobody nobody forced you to do it and Apple's not not playing not playing ball giving it back too too easily no and and do I love the love just how controlling and everything apple is do I no no but would I would I say oh those poor apps right you know get your own distribution Channel buddy cold blooded yeah Okay so we've talked about the winning aspiration

so for figjam and 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 ver to go maybe to other tools and then where will we play let's say Engineers product managers is trying to uh Target them distribution through the existing product and 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 you asked the question how can we solve well

how can we either solve that problem at a at a much lower cost so we can always be a sharper price point than than them so if the exist there are solutions but they cost 50,000 a user because their costs are 30,000 a user we can do this for 15 bucks a user and so we can we can charge a 100 bucks per seat and and absolutely annihilate the competitor by figuring out a a less costly way to do it or there are other selections but they make the 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 you just say a few words into it and they say oh yeah I know what you mean and and and here here it goes in the in the in the workflow or or we're more integrated like Thompson writer the 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 we integrated is it better integrated into their work workflow that makes makes their life uh easier it would be it would be questions uh you know possibilities like like that that I that I would be uh asking essentially you've got to have a theory there of how you're going to be how you going to be better or lower cost on the lower cost front I think generally the advice is you don't want to go that route that's a 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 right I I I I think they're both completely legitimate uh uh strategies they have implications right so so if you want to be the cost leader it is rare that you can be the cost leader without having dominant scale in the territory in which you're operating so if you want to be a niche cost leader you know good luck to you that's almost never going to happen so Vanguard had to make a race to know we're going

to do index mutual funds uh and it doesn't exist now we're going to do it and we're going to get gigantic and we can't let anybody get close to us in size uh because we want to have the lowest cost position and so they are the the world's biggest mutual fund uh uh company um and you sort of have to do that and same with Southwest to really make that model work there to keep expanding and expanding to get uh bigger M&M Mars it takes an enormous amount of commitment to say we're going to go

and we're just going to keep charging ahead on on this whereas in differentiation I think you can differentiate sometimes at lower scale and build yourself slowly towards higher scale but the world the business world is just getting so much more scale sensitive like when you when you think about the costs of differentiation it's often spending on branding spending on R&D R&D sort of innovation those those two are of the most scale sensitive elements of anybody's cost structure right you know and and so being a nichy differentiator 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 yes yes you're not gonna have formula of like how to win okay we got it we got a big business I agree I agree and and and that's why you know if if I if I looked at a 100 strategies of major companies I I'd say I didn't like 90 of them very much and then like the other nine out of 10 probably look good but also

don't work out yes yeah no that's true there's lots of lots of spaghetti thrown at lots of walls in the world of business yeah capitalism yes okay so now we're at the capability step of trying to figure out what capabilities you need to win can you talk about say with fig Jam how do you what are the sorts of things you think about here well well I I guess I'd ask myself uh questions kind of like do is there is there kind of a learning curve to this where we could have better capabilities because we

started earlier than anybody else right and have more essentially cumulative experience is there kind of a way that we've figured out how to serve customers that make them feel tended to better by by us so we've got we've got helpline we've figured out how to do sort of the helpline because 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 of all their providers at at at that how to

win is a theory of how customers are going to perceive us better if we're diff differentiator uh and then 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 wish so if we want them to feel like we're the easiest to deal with we have to have capabilities uh to do that and just like again for season said the reason they they're by Far and Away the most successful profitable best in all front luxury hotel chain in the

world biggest best most profitable best employee uh ranking best guest uh guest rankings all of those well there H to win was they said people if you talk to people who are in luxury hotels they'd rather not be there you'd say wow they're in the lap of luxury why would that be where do you think they'd prefer to be Lenny at home yeah dominantly at home for their segment which was high-end business Travelers they've traveled they've stayed in one luxury hotel too many 20 years ago and so we're going to have luxury defined as not

Grand architecture and decor and obsequious service but rather we're going to Define it as a service that makes up for what you left at home or at the office because people would rather be if they could have to not be at home they'd rather be at the office than in a hotel because they can be more productive so so we need capabilities we need staff right that that can deliver on that uh capability what's the problem for that the problem is turnover in the hotel industry globally is 80% a year which means that the average

person you meet the average staff person you meet in the average hotel is on their way to a 16-month career at that Hotel chain so how do you deliver that really cool special kind of service with that the answer is an is amount skipping ahead to enabling Management Systems you have of a different way of recruiting a different way of onboarding a different way of career development and if if you do all of those things you end up with a 10% turnover rate so that your people are there 10 years on average and you can

then get them trained up to deliver that kind of service so that's the capability that you build in the people to be able to take more decision-making at a lower level and treat the guests in a customized way that make them feel that this wasn't by the book some rule book uh that this person just said no this is a good solution for my for my guess it's interesting that these capabilities and even the management systems which is step five uh relate to your Moe which is sometime 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 if you are the most successful people are going to say I want to do that too but here's where there's this modern sort of unfortunately bullshitty thing that says oh all 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 I guess that isn't very long term that is only been 45 years now since they no 35 years I should say don't exaggerate since they went to that Str oh and tied so 77 years isn't the long time I guess either because they've been the number one detergent for 77 consecutive years I guess you're right it's fleeting it's not but what makes it fleeting is when you have one thing and one

thing only so let's say you build the biggest polyethylene plant in the world near a good a good feed stock source and you have a lowc cost position what's somebody else going to do when they see how much money you make doing that build a build a polyethylene plant beside yours twice the size and then then your toast why because the competitive Advantage was too simple but at Four Seasons you got to sell off all your hotels uh you got fire all the people involved in hotel de development and everything and actually the people in

the business like doing that you have to essentially get rid of your entire staff start from scratch paying them more than you do now by far uh giving them more career security uh giving them more training giving them better uniforms whatever spending 10 times as much uh hiring them with the hopes that maybe someday you'll be able to produce the kind of services four seasons does compe s basically say Life's Too Short do they give up and die no there are other great chains Mandarin Oriental my wife life loves staying in M Oriental even more

than four seasons often and and but they've not said we will replicate Four Seasons they've said we'll pick a different where and a different how and that's in the end what you want is rather than complete overlap right where you've got concentric circles of people picking the same wear you you convince people to pick different wees that's why people sort of say Roger how to win that's so so in in in politic you know because that you're producing losers and then and then there's victims and be you know all that oppressor and oppressive it it

fits in the in the modern dialogue and and I say no I I what I want to do is encourage them to find someplace else to prosper rather than smack on top of us and so if you have completely different manage uh capabilities and Management Systems it'll encourage people to choose a different where to play how to win if your capabilities of management systems are very similar to your competitors and you're succeeding with your chosen where to play out to win what are they going to do they're going to 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 that's what you you don't want and the more sort of complicated in some sense not I shouldn't use complicated the more nuanced that your and and multifaceted your capabilities and management systems are the more likely they're going to say light's Too Short right that's what everybody says about Southwest so if you're the only airline in the United States that's earning its cost of capital for 50 years wouldn't you kind of say GE I'd love to

be like that but what does it mean well it means selling off most of your aircraft so that you can have only one kind of aircraft 737s tearing up your entire root structure your entire Hubb 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 Southwest is non-un it's not as unionized as it but they do different you have to essentially fire all your travel agents and convince your customers to

book uh book uh online by themselves to say to save more money Life's Too Short life's it's just 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 a crappy Southwest you know so that's to be that's the ultimate the ultimate is it's like the Ultimate Weapon is the one you never use the ultimate way to compete to win is to never actually be forced to compete wow that's a great quote this story about Southwest uh makes me think about

uh Hamilton helmer's uh Power of counterposing I don't know if you've heard that term but basically uh you position yourself in a way where the competitor can't do the thing that you're doing because because of the way their business is already structured and that's sounds right that's the can't can't thing awesome yeah and and M and Mike Porter and he probably he may quote Mike Mike on that Mike 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 and so a great example of that would be Olay when when at PNG it's and it's in the in in the book when when we did the repositioning of of that the competitor that could have killed us absolutely killed us was Estee Lauder with Clinique if they would have brought Clinique into the mass channels because we were doing a Clinique 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 if if Estee Lauder would have taken their Clinique brand and brought it into Mass they they would have they would have killed what we were doing simple as that and in fact Clinique was the biggest brand in all of skincare we became the biggest brand in ol of skincare and they didn't do it why are they idiots no they're not Estee Lauder is super smart but SD Lauder also has Bobby Brown and mac and and the SD Lauder tell Brandon a half a dozen more all in Prestige and the prestige Channel if they would

have taken Clinique and taken it over into Mass would have done what shot them in the face killed them right they would have been just apoplectic uh and so F Lauder had to stay if that's counterposing by by helmer's terms 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 has you know lost leadership to you know our brand that they would have considered kind of nothing Oil of Olay became Olay Olay Pro Regenerist all of these higher price products than

they could ever imagin being sold in the mass Channel but our biggest friend was some in some sense uh their distribution Channel which would have killed them if we literally they would have just punished them so so so bad uh that that they didn't do it I love that I'm learning all this information all this strategic thinking about makeup and skincare I also love just the idea of you leading strategy for skincare makeup brands yeah I know I got proor gal into uh color Cosmetics so funny love that I don't know if you're following the

AI Google stuff that's happen where there's uh 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 Links and it's this like super innovators dilemma position they're in yeah no no I I yeah I'm I'm very interested in in in what's going on and uh in Ai and I'm writing some stuff on on on that but I mean it's hard like I've

seen I've seen the inside of this for many of my my clients it is super hard when the the guts of how you make money is under is under threat um and you you just don't want that thing to go away you know the Big O Auto oems make money selling cars with ice engines that it's simple as that and there's no surprise they've been doing it for 100 years they're way down the learning curve they have scale blah blah blah blah blah and so these damn Electric Les are no kind of no fun and

so the the Google situation you've described I think is similar but my general my general advice is always the same which is you know it can take a while but in the end the customers will Triumph and AG lle my friend who I co- wrote the book with great great CEO was very good on this and and uh one of his big customers big ass customers came to him and said if you don't stop cooperating with Amazon we're going to delist all your products big threat right big threat and AG just said if customers want

to shop there we can't we just can't not be where our customers want to shop and so if you feel you need to do that you're you're going to have to because customers want to shop there and we're not we're not doing that but what are you offended by that we're doing there and they and they said well you're allowing them to ship products to their customers from your from your distribution centers and a just said um yeah do you want a to and they were like and he just said we we don't do anything

special for them that we wouldn't do for you they ask for things that you don't ask for because of their their business 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 a place that customers have shown they want a shop as long as sort of an honest like you know you know if Amazon was Sleazy and dishonest or whatever but you know an honest upstanding place where customers can get our

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 uh you may have to suffer 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 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 there four brothers we would build plus then a baby girl later but we would build sand castles and try to try to

hold back the tide like this being Florida or California we try and hold back the tide and we come the next morning to see if our Castle is and it was always gone like it's like gone but we keep trying doing it and it's sort of like you can't hold back the tide maybe it can for a while but you can't you can't forever so 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 a couple years ago now he did not like ETFs he said ETFs are not as good for customers as mutual funds and he had he had all sorts of good reasons uh uh for that but but the the index ETF business started to kind of 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 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 so good luck good luck to you and that so to me if Google thinks they can because of their their power and the fact they got a multi-trillion dollar market cap and they've got them 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 and its Monopoly on PC operating systems or it's near Monopoly on P PC

operating systems and I would argue that they abused that kind of Monopoly right like I I often ask people when's the last Windows update that got you as a customer excited yeah Windows 95 the answer I think is really clear Windows 95 right because that's when he 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 to you know you could actually point and click that's a long long time ago last time I checked that's now almost 30 years right and

so they just abused their their custom is their their share of PC operating systems much lower than it was then no but that's not the right measure of share the right measure of share in my view in that in that industry is your share of minutes spend 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 most right right most and what other one do they do a lot of people stare at who

really like them pads right um and so if you added up all those and said what you think so what's their share of of uh smartphone operating systems Microsoft last time I checked it was 04 of 1% yeah so effectively zero how about pads apparently it's 4% uh there so their share of people staring at a smart screen has plummeted plummeted why because water Finds Its Own level people said there are these other ways of getting around uh uh this and I'm going to 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 than than your PC operating system 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 is water water flows downhill the tide comes in and you know you cannot stop that even if you're one of the most powerful three firms on the face of the planet and it may take time but eventually customer tide pulls that's a think that's really important yeah

but start now yeah right if you're if you don't start now it's too late yeah I want to end with one very tactical question for people that may feel overwhelmed there's like oh my god um I don't know what we're going to do this is so hard all strategy stuff um you have this really cool idea of called betterment I think you wrote 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 called 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 right and what problem should you attempt to solve you should attempt to solve something where your current outcomes that you're getting are lower than the outcomes you wish you were getting that's what I call a gap there's a gap between those two and you should just conceptualize it as your current outcomes are a natural result of all the choices you've

made interacting with the competitive environment right and so you should reasonably assume that probably those outcomes aren't going to get a whole lot better because they they've sort of they are the way they are for a good reason right so you're going to need to make a different set of choices to make that Gap go away that's what I would work on I would just ask the question what is the single most painful Gap currently that I'm facing customers used to do this and they're doing this uh I can't find this kind of kind of

resources distribution channel is abandoned us and I you know whatever whatever is the most painful thing and then just tackle that and say what different choices could I make and I'd say use my Cascade what what 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 and so don't try to solve the problems of the world or even all the problems of your company that's Perfection betterment is making that Gap go away and guess

what happens if you make that Gap go away you can turn your attention to the next Gap Gap and the next scap and the next scap and if you do that all the time right you you're always working on the next Gap the next they'll get smaller and smaller over time I don't know if this is a great analogy but you know I was a dean of a business school for 15 years the guy who won the professor of the Year award more times than anybody else and did it sort of teaching tough courses often

Executive MBA courses and and the like had a simple formula for doing it right which is which is he he he taught second year courses and second year courses happen to be 13 two hour kind of lectures or sessions of one sort or another he just pulled the students uh on what they thought of each session as they went along and regardless of the reason regardless of anything else simply chopped number 13 every year right because in some sense it's the biggest Gap the gap between what what what uh the customers students wished for and

were getting um and he would just replace it with something he would try something else and replace it with that and you'd say and that gets you like professor of the year every year and the answer is yes betterment because if you're teaching for 25 years right and you just keep doing that every year every year the course keeps getting better and better and better and better and better and better so betterment you know it doesn't make purists feel awesome but I'm not here to make p purist feel awesome I'm here to help help people

get better this makes me think about your water metaphor too just water eventually finding a way through a little bit iterating things better yeah lots 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 going to help a lot of people with the way they

think about strategy is there anything else you wanted to just leave listeners with or say or before we wrap up and and let you go I did a we covered a lot so there may not be anything left well on strategy I'll this's one piece of advice I'd say people often ask me about about about people who are natural strategists or they say I'm not naturally good at that I'm more of an operational guy or gal and what I tell them is I have never met this mythical beast called a great natural strategist and they

often throw back in my face laughly they say but look laughy 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 paper I I was I was writing what I discovered was when he was in the Navy as a whatever I don't know probably 25y old in the Navy he had a job where he had to think about strategy and was testing things out and doing things and the like and then I real realized that he had been

practicing strategy for decades before he 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 there's another guy J vicd CEO or ex CEO now he's gone on to a higher level Lego brand group uh would be would be similar so great strategist that have met have all one thing in common they just practice and anybody there's no such thing as a person who is willing to practice strategy who will end up saying I'm kind of operational I don't

I don't do strategy well which links to our our last thing about betterment just just work on making different choices to solve problems not problems that I see I'm not going to Define your Gap it's one that you feel in your heart I wish this were better work on it if you do that you'll be a great strategist so be encouraged uh don't be don't be discouraged and the worst thing to do is to wait people say well I've got all these operational concerns right now and then I'll get to strategy later you'll never amount

to anything nobody sets that ever amounts to anything wow I love this I love how empowering it is I love the real talk Roger you're awesome thank you so much for being here you're most welcome thank you for making it a a fun Journey for me I learned a ton and that's always a good sign and it was lot a lot of fun well thanks Roger good all right bye everyone thank you so much for listening if you found this valuable you can subscribe to the show on Apple podcast 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 podcast.com see you in the next episode