100+ Strategy Tools Book
As an HBR working paper entitled “From Strategy to Business Models and to Tactics” pointed out:
Put succinctly, business model refers to the logic of the firm, the way it operates and how it creates value for its stakeholders. Strategy refers to the choice of business model through which the firm will compete in the marketplace. Tactics refers to the residual choices open to a firm by virtue of the business model that it employs.
I like definitions, as they have an aesthetic of their own but are not really useful if not contextualized or narrowed down to specific situations.
Personally, I have a controversial relationship with the concept of “strategy.” I feel it’s too easy to make it foggy and empty of practical meaning.
Yet strategy and vision matter in business. A strategy isn’t just a calculated path but often a philosophical choice about how the world works.
Usually, it takes years and, at times, also decades for a strategy to become viable. Once it becomes feasible, it seems obvious only in hindsight.
In the real world, the difficult part is understanding the problem
In the real world, much time and resources are spent defining the problem.
Classic case studies at business schools assume that the problem is known in most scenarios and that a solution must be found.
In the real world, the problem is unknown, the situation is highly ambiguous, and the most difficult part is making the decision that might solve that same problem you’re trying to figure out on the fly.
Is a business strategy the same thing as a business model?
As the business world started to change dramatically again by the early 2000s, also the concept of strategy changed with it.
In the previous era, the strategy was primarily made of locking in the supply chain to guarantee a strong distribution toward the marketplace.
Yet, the web has enabled new companies to form with a bottom-up approach.
In short, product development cycles shortened, and frameworks like lean, agile, and continuous innovation became integrated into a world where software took over.
Where most of the processes before the digital age, were physical in nature. As the web took off, most of the processes became digital.
The software would become the core enhancer of hardware.
We’ve seen how in cases like Apple’s iPhone, it wasn’t just the hardware that made the difference.
However, the development ecosystem and the applications enhanced the device's capabilities.
Thus, from a product standpoint, hardware has increasingly been enhanced by the software side.
At the same time, the way companies developed products changed in the first place. Software and digits-based companies could gather feedback early on, thus enabling the customers’ feedback to be a vital element of the product development cycle.
Therefore, in the previous era, companies spent billions of dollars on releasing to-market products with little customer feedback. Customer feedback has become part of the product development loop in the digital era.
This whole change flipped the strategy world upside down. And from elaborate business plans, we moved to business modeling as an experimental tool that enabled entrepreneurs to gather feedback continuously.
In a customer-centered business world, business models have become practical thinking tools to represent a business and a business strategy on a single page, which helped the whole execution process.
The key building blocks of a classic business model approach, like a business model canvas or lean startup canvas, move around the concept of value proposition that glues them together.
From the supply chain, we moved to customer value chains where most digital business models learned to gather customers’ feedback in multiple ways.
The business strategy formed in the digital era, therefore, developed its customer-centered view of the world, and the business theory world followed.
Former entrepreneurs turned academics, or by following practitioners, moved away from traditional models (like Porter’s Five Forces) to more customer-centered approaches (business model canvas, lean canvas).
The mindset shift flipped from distribution and optimization on the supply side. To optimize on the demand side or how to build products that people want in the first place.
This is the new mantra: no more grandiose business plans, just substantial testing, iteration, and experimentation.
Is business strategy a science?
Business strategy is more of an art than a science. In short, a business strategy starts with a series of assumptions about how the business world looks in a certain period and for a specific target of people.
Whether those assumptions will turn out to be successful will highly depend on several factors.
For instance, back in the late 1990s, when the web took over, new startups came up with the idea of revolutionizing many services. While those ideas seemed to make sense, they turned out to be completely off, and many of those startups failed in what would be recognized as a dot-com bubble.
While in hindsight, certain aspects of that bubble came up (like frauds or schemes), in general, some of the ideas for which startups got financed seemed to be visionary and turned out to work a decade later (see DoorDash or Instacart about Webvan’s bankruptcy).
For instance, some startups have tried to bring on-demand streaming to the web (today, we call it Netflix). Those ideas proved to be too early.
They made sense, but from the commercial standpoint, they didn’t.
Thus, if we were to use the scientific method, once those assumptions would have been proved wrong in the real world, we would have discarded them.
However, those assumptions proved to be wrong in that period, given the current circumstances.
While we can use the scientific inquiry process in business strategy, it’s hard to say that it is a scientific discipline. So, what’s the use of business strategy?
In my opinion, business strategy is useful for three main reasons:
Focus: choose one path over another.
Vision: have a long-term strategic goal.
Commercial viability: create a self-sustainable business.
As a practitioner who tries to build successful businesses, I don’t need to be “scientific.” I need to make sure not to be completely off track.
For that matter, I aim to create businesses.
Thus, I need to understand where to focus my attention for a relatively long period (3-5 years at least) and make sure that those ideas I pursue can generate profits, which – in my opinion – might be a valid indicator that those ideas are correct for the time being.
If those conditions are met, I’ll call it a “successful business.” Those ideas will become a business model that executes a business strategy.
This doesn’t mean those ideas, turned into a business model, pushed into the world will always be successful (profitable).
As the marketplace evolves I will need to adjust, and tweak a business model to fit with the new evolving scenarios, and I’ll need to be able to “bet” on new possible business models.
Survivorship bias
Survivorship bias is a phenomenon where what’s not visible (because it is extinct) isn’t considered when analyzing the past. In short, we analyze the past based on what’s visible.
This error happens in any field, and in business, we might also get fooled by that. In short, we do so in hindsight when we analyze the past.
That makes us cherry-pick the things that survived and assume those carry the successful characteristics we seek.
For instance, for each Amazon or Google that survived, hundreds if not thousands of companies failed, with the same kind of “successful features” as Amazon or Google.
So why do we analyze successful companies in the first place? In my opinion, there are several reasons:
Those successful companies have turned into Super Gatekeepers to billions of people. As I showed in the gatekeeping hypothesis and in the surfer’s model, a go-to-market strategy for startups will need to leverage existing digital pipelines to reach key customers.
Modeling and experimentation: Another key point is about modeling what’s working for other businesses and borrowing parts of those models to see what works for our business. By borrowing parts, you can build your own business model, yet that requires a lot of testing.
Skin in the game testing: Therefore, business models become key tools for experimentation, where we can use real customers’ feedback (not a survey or opinions but actions) to test our hypotheses and assumptions. When we’re able to sell our products, when people keep coming back to our platform or service, there is no best way to test our assumptions that measures those actions.
Lindy effect and aging in reverse
The Lindy Effect is a theory about the aging of non-perishable things, like technology or ideas.
Popularized by author Nicholas Nassim Taleb, the Lindy Effect states that non-perishable things like technology age – linearly – in reverse.
Therefore, the older an idea or a technology, the same will be its life expectancy. In his book Antifragile, Nicholas Nassim Taleb popularized a concept called the Lindy Effect.
In very simple terms, the Lindy Effect states that things age in reverse in technology (like any other field where the object of discussion is non-perishable).
Thus, life expectancy, rather than diminishing with age, has a longer life expectancy. Therefore, a technology that has lived for two thousand years has a life expectancy of another thousand years.
That is a probabilistic rule of thumb that works on averages.
Thus, if technology (say the Internet) has stayed with us for twenty years, it doesn’t mean we can expect to live for at least another twenty years.
However, as the Internet has proved successful, the Lindy Effect might not apply. In short, as we have additional information about a phenomenon, the Lindy Effect might lose relevance.
For instance, if I know a person is twenty yet sick with a terminal disease, I can’t expect to use normal life expectancy tables. So, I’ll have to apply that information to understanding the future.
Strategies take years to fully roll out
In 2006, Tesla, with his co-founder Martin Eberhard, launched a sports car that solved the trade-off between high performance and fuel efficiency.
Tesla, which had been building up an electric sports car that was ready to be marketed for a few years, finally pulled it off. As Elon Musk explained Back in 2012:
In 2006 our plan was to build an electric sports car followed by an affordable electric sedan, and reduce our dependence on oil…delivering Model S is a key part of that plan and represents Tesla’s transition to a mass-production automaker and the most compelling car company of the 21st century.
The beauty of a strategy that turns into a successful company is that it might take years to roll out and seem obvious only in hindsight.
This connects to what I like to call the transitional business model.
Or the idea that many companies, before getting into a fully rolled out business strategy, transition through a period of low scalability and low market size, which, though, will help them gain initial traction.
Indeed, a transitional business model is used by companies to enter a market (usually a niche) to gain initial traction and prove the idea is sound.
The transitional business model helps the company secure the needed capital while having a reality check. It helps shape the long-term vision and a scalable business model.
As a transitional business model proves viable, it helps the company shape its long-term vision, while its built-in strategy differs from the long-term strategy.
The transitional business model will guarantee survival. It will help further refine the long-term strategy and work as a reality check.
As the transitional business model proves viable, the company moves to its long-term strategy execution.
As the business strategy gets rolled out, over the years, it becomes evident and apparent, and yet none managed to pull it off.
Caveat: Frameworks work until suddenly they don’t
When you stumbled upon a “business formula,” you can’t stop there.
That business formula, if you’re lucky, will allow you to succeed in the long term.
Yet, as more and more people find that out, that will lose relevance. And the matter is, the reality is a villain.
Things work for years until they suddenly don’t work anymore. We’ll see some frameworks, but the real deal is not a framework but the inquiry process that makes us discover those frameworks.
In short, the value is in the repeatable discovery process, not the discovery itself. A discovery, once spread, loses value.
After this critical premise, let’s get to the point. Throughout this book, you will learn a set of frameworks and tools to improve execution, better understand your potential customers, develop your product use cases, or define the problem you’re trying to tackle.
Some tools can be used interchangeably, and neither is right or wrong. As soon as those tools help you think more clearly and act faster (or perhaps allow you to give up a bad business idea quickly and before you spend all the money) then, it’s good enough!
Ciao!
With ♥️ Gennaro, The Business Engineer
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