I’ve been a regular listener of the After Hours podcast show in which three HBS professors discuss current events and share their recommendations. Felix Oberholzer-Gee is one of the regular hosts of the show and he often brings some unique takes on issues they discuss. I also like his quirky music recommendations 😁 When I heard he brought out a new book on strategy, I had to have it.
In Better Simpler Strategy FOG, describes a simple model to come up with and evaluate strategies. This is actually just the second book I have read after Good Strategy Bad Strategy so my exposure to this topic is very limited but evolving. The one key idea in this book is called the value stick and the rest of the book is organised around it. My key takeaways from the book follow.
The Value Stick
This Value Stick is the diagram shown below. WTP is your customers’ willingness to pay and WTS is your employees’ willingness to sell aka interest to work. The length of the stick is the value the company creates. You either increase customer’s willingness to pay or decrease the cost of your employees’ or vendors’ willingness to work. This simple framework provides an interesting way of looking at tactics and strategies. Your job is to focus on initiatives that raise WTP or lower the WTS (and balancing a few others things like how quickly can it be copied by your competitors).
Two important things to note here.
- In the sea of opportunities, key benefits lie close to home. There’s always more you can gain from your own industry than by trying to get into another. Lots of research linked in the book illustrates this fact so be careful before you decide to pivot into a different industry.
- Always think in terms of value, not profit or price. The “delight factor” a consumer experiences can be thought of as the difference between the value your customer derives vs what she pays. The higher this difference, the higher their WTP.
Increasing WTP
There’s a massive amount of literature on this. From network effects to tipping points of scale to increasing delight, you can find many ways and means of increasing your consumers’ willingness to pay on the internet. I found a couple of interesting fresh ideas in this book worth noting.
Focus on near-customers – Near customers are almost your customers but not quite. These may be people who want to pay a little less and need something less or have other problems that prevent them from becoming your customers. Studying them and figuring out how to get them might open you up to a whole new market. Usually it means making something simpler or doing less but could also mean building a whole lot more.
Use of complements – Michelin’s travel guides (this book answered my old question to why does a tyre company rate restaurants) to boost tyre sales are a classic example of how complements can be used to increase the sales of a core product. This of course is a very nuanced topic and the competition must always be in the back of your head while you think about adopting or selling complements.
In case you also wonder, Michelin, the old tyre company started at a time when there was a very limited market for driving. To sell tyres, they had to sell driving as an experience (thus, the travel guides which later evolved into restaurant guides). The right present day analogy would be how Slack is selling organisational transformation (and not group chat). Stewart Butterfield’s we don’t sell sadles here memo is spot on.
Decreasing WTS
Focussing on employee engagement can have massive effects on business. Not only are there direct costs savings if people like to work for you, their engagement is almost directly linked to innovation at the workplace. While this book focuses on other aspects of the WTS too, like reducing vendor costs (by investing in initiatives like vendor networking, working with them more closely to share intimate knowledge about the product, etc) but I am going to skip that bit as it doesn’t apply to a software company like the one I am a part of.
The two key ideas that I most related to are
- Give your people a longer term view of their employment. You can do this by asking them to think about the career path and working with them closely to come up with their growth chart.
- Encourage people to pursue their passions in a flexible way. This can be done in a myriad of ways like offering generous time off, encouraging creation of interests groups at work, recognising personal passions and interests, etc.
Investments in productivity
Warren Buffet is once said to have told a hypothetical scenario of people watching a parade. One person decides to stand on his toes to get a better view and by doing so he does get a better view but only for a little while as others around him start doing it as well. Now they are all standing on their tip toes but have essentially the same view as before and are therefore worse off than when they were standing normally.
This analogy is usually brought to the fore everytime people discuss making small operational improvements as it is likely to be copied almost immediately by the competition. The reality however is quite different.
Advances in organisation wide productivity initiatives can affect both WTS and WTP. Research suggests that there is a wide variance in similar companies with respect to their management practices ike goal settings, performance tracking, incentives and appraisals, etc. In short, It makes sense to invest in learning about industry specific management techniques. Learning and development seems like slowing down initially but its benefits compound over time.
Value maps
Smart trade offs are an essential part of a good strategy. Value maps (see image below that shows the value map for a hypothetical consulting business) are a way for you to assess what you need to be good at (your customers’ prime needs), and what you can ignore (customers don’t care too much about).
Ideal value map would have a straight line coming from the top right down to the bottom left, i.e. you excel at what is most important to your customers and you kind of suck at or ignore things they are indifferent to.
FOG makes an interesting point about tradeoffs. The idea of a tradeoff comes hard to A type personalities. Personal experiences of working hard and “achieving everything” rarely ever translates to an organisation. An organisation, even one composed of all geniuses, would need alignment, communication and processes to achieve its goals and in that respect, it is very different from an individual who can work hard and win with brute force. More moving pieces (think individuals with different passions and desires) means we need a clear strategy to decide on what to go big on and what to ignore.
I run a startup called Harmonize. We are hiring and if you’re looking for an exciting startup journey, please write to jobs@harmonizehq.com. Apart from this blog, I tweet about startup life and practical wisdom in books.