Jason Cohen: Building your Permanent Defensible Strategy

Mach 2: How anyone can build a permanent, defensible strategy. You’re not inventing a new $100B industry, but you do need a practical strategy.

You’re disillusioned with silly academic frameworks like SWOT, but you do need a process that creates a solid strategy for real products. You want a strategy that everyone in the company can participate in, that embraces your agile, even gut-feel approach to building products and delighting customers. You don’t want to replace the magic you already have, but you do want to hone and direct that energy to create something truly unique, that even well-funded incumbents cannot defeat.

Jason shares his deep knowledge born out of building his own highly successful bootstrapped and venture funded businesses and advising hundreds of others, to show how you can build a practical strategy that is right for you.

Slides

Transcript

Jason Cohen 

Hey everybody. It’s an honor to be asked to kick off the conference, of course, and something of a tradition, I guess that the first speaker sometimes drops ideas or even creates a theme that gently echoes throughout the rest of the conference. So I take that very seriously, and hopefully you’ll enjoy.

So, this is a glass of water at room temperature. It has about seven septillion molecules in it, which is a one followed by a lot of zeros and all the molecules are moving around and bumping into each other and stuff like that, because that’s what a liquid is. Molecules bump into each other. Just think, what do you think the velocity of one of these particles are in between bumping into each other? Just how fast do you think you’re moving in this quiescent glass of water?

The answer is it’s moving at twice the speed of sound, which you probably didn’t think, and that’s surprising. And if we were to reach in and twist all of the directions of those molecules to all just go in the same direction, like not add more energy, just get them aligned, then the glass would fly off at Mach 2. That’s much energy is sitting there. But since it’s all going in different directions, it’s just sitting there doing nothing. And when you do that, imagine a picture of a nozzle with a jet of water shooting out of it. That water is moving also at Mach 2, and it cuts through metal. It’s called a water saw, and you literally cut through metal with the same amount of energy just directed.

And so my contention is that this might be kind of like what it’s like at your organization, or even inside your own head where everyone’s moving fast, everyone’s got a lot of energy, everyone’s going places, hooray, but, but it feels like we’re not getting anywhere, or feels like we’re not going anywhere fast enough.

So imagine that there’s, you have an organization of people, and you think about.. So for example, you might say, like, this isn’t happening to me, people know generally what to do. But for example, in tech support. In tech support, people get tickets, and usually get tickets from small customers, because that’s most of your customers are small, so most of the tickets will be from them. And so what customer support sees as what’s important at the company, what should we build next? What do we need to do? is probably from the perspective of a small customer.

But then at the same time, you have a large, largest customer, my guess is, and they give you a lot of money, and you kind of want to keep them. And so when they come in, they might say, hey, we need this feature, or we have this compliance thing you need to do, and so on. And although that’s not like what the small customers need, you probably have your like, your a couple of great engineers working on that anyway, because you want to keep that 50k MRR, or whatever it is, right? And so they’re not on the same page.

And then you have people like designers, and they’re saying, well, there’s five different personas that use our software, so it has to work for the newbies and the people who are advanced. And so they’re going in different directions.

On the marketers say, we have all these different customers, so we’re just going to say invoices won’t have to suck, or something like that, which doesn’t say anything, but it’ll appeal to everyone, except it’s not saying anything. So there we go.

So I would say the first problem is, how do you get people aligned to something? Like, what would you write down? What would you decide that makes people make the similar kinds of decisions? How do you get aligned? That’s a hard problem, and we’re going to solve that today. But the really hard problem is, what should we align on in the first place? Like, should it be the small client? Should it be the large like, what is it that we should do? That’s really hard, and that’s also what we’re going to solve today.

Practical “Mach 2” Strategy: How we will win

And to me, that’s what strategy is about. It’s about saying, what are the decisions that we the high level decisions that we make, which makes us all be moving in the same direction? That’s, to me, what a strategy is.

And then ultimately, we have to pick these things so that we win. And I think it’s important to remember that… It’s important to remember that when that when everyone’s doing these things, they’re locally optimizing. Like they think they’re doing the right thing in the moment, and they kind of are with the context they have. That’s why we need something bigger than any one group or any one person, because they are being rational. But we need to work together in one direction. And I want to emphasize this idea of WE, how we will win, because a great strategy that we’re not good at executing is a bad strategy. Because whatever it is, it has to be a way for us to win. So it’s important that whatever it is meets us where we are now and then takes us to the place that we want to be to win. I feel like a lot of the problems with academic strategy is you just go into this special world where you invent stuff, and you’re like, we got to do that, even if that’s not really right for our company.

So here’s how we’re going to do it. I’m not going to go into this in detail, because we’re just going to do it. So we’re going to start at the front here, which is, right now, everyone’s going in different directions, and we’re going to get aligned. So we’re going to get aligned and start there.

What are the decisions people are making now?

So okay, so the first thing is to figure out if they’re going in, if they are aligned or not, like, what the hell’s happening? And that’s really hard, because you can’t just ask everybody, what decisions are you making? That’s not a that’s not a valid question. So we have to somehow reverse engineer what people are thinking, what people are doing, so we know what’s going on now. So you start like an alien, you’re coming down, you’re not allowed to interview anyone, because if you did, they would have these justifications, and they get defensive, and that’s no good. We’re trying to just find out what’s going on, not judging. And so if you’re an alien coming down, looking at the company, just looking at the behavior, what is it that this company is doing? What are they thinking? What are their decisions? That’s our task. That’s how we’re going to approach this.

And so to do that, what you can do, and it’s fun to involve everyone in the company, because when everyone’s involved, they feel like they’re more part of it. They can see themselves in some of their ideas, in the final result. And that’s powerful. That’s part of what the buy in, of the strategy later on is part of what will make it effective.

But again, you can’t ask people again, like, what decisions you’re making, et cetera. There has to be other prompts that sort of suck it out of them. So so here’s some that you can use that I think work well. Okay, so we’re, so whatever this is, it could be good or bad that even competitors admit it, like in a sales call, when their competitors, in their own sales call and they’re saying, they’re like, Okay, yeah, they’re good at this, but we blah, blah, blah, what is that thing they said? Because whatever that is, that’s who you are, that’s what you’re like. Reverse like, Oh my God. Like every time a customer comes in and they say x or they want y, we never win that one. What is that thing? That’s something that you’re not. When someone says, OK, they’re on Twitter complaining again, and you’re like, OK, is it about this? Whatever that is, is what you’re like. Or what they love about it? Oh, they’re praising us again for service, or whatever. That’s a good one.

Pride is a funny one. Pride is a good one. It sounds very subjective. What are you proud of? But actually, in the moment, you know, when you’re doing something that you’re proud of or not proud of, you can feel it. It’s actually quite objective when you’re in the middle of it. And so at WP Engine, people will say things like, you know that one time we really messed up, but we made it right for our customers, and we emitted it right away, and we posted it publicly. I’m really proud that we did that.

Like it was harder for our brand. We probably lost some money. Some customers might have even left us for it, but I’m proud of that we did that. And in fact, some customers may love us more because we were honest about the mistake, right? So that pride thing, whatever you’re proud of, that’s again, part of who you are.. Or jealousy, man, they have this. Again, you can feel that that’s important. That’s a thing.

When you have a technical architecture, typically, some features are easy. They’re afforded by the choices you’ve made, and some are not. That’s very important. Again, if the strategy is going to meet you where you are, this is going to be part of what that means. We claim this on the website, but we’re not really walking the walk, and maybe that’s ok. Maybe we’re getting there. We’re a smaller company. It’s all right. But just the fact that you’re claiming it sounds like you think that’s important, I guess, or you wouldn’t have put it there anyway, even though it’s not true. So that’s an interesting little like realization that I guess we care about that. I guess we want that to be the case. Or these values that you have,we love design, and so we will only make beautifully designed things, because that’s who we are, but it’ll be slower and more expensive and left the hair designer doesn’t matter. That’s called a value or a philosophy, right? So those are those things are obviously important, often left out of academic exercises, right? What you just care about and value, but it’s really important. It’s part of who you are.

Extract Choices

So with those kinds of things done, that’s still not choices or decisions, that’s just stuff that’s true. But now we can extract the decisions that people must be making, not necessarily consciously, by the way, not necessarily on purpose, not necessarily but this is still happening. And so here’s how you do it. Here’s how you go from the introspection to those things.

Extract Choices: List as attributes

So the first thing is to list these things that you found as individual attributes like this.

Let’s suppose this is one of the things in your list is: we’re a small company; it’s affordable; it does only a few things, but it does it well; it’s great service. This is a very typical small business thing. Of course, it only does a few things. It’s just you writing a code. So of course, it only does a few things, but it does it well, because I don’t know you think you’re good, fine. So the attributes are something like low price, few features, good support. And the thing to remember is, this is not a judgment, like, is few features good? Is that good or bad? Well, I mean, if the customer needs lots of different things and you don’t supply it, I guess it’s bad.

On the other hand, if customers are like, Finally, a simple product that only does what I need and isn’t to expect, finally, then it’s good. So the point is, it doesn’t it’s irrelevant if it’s good or bad. That’s not what we’re doing. You can’t tell if it’s good or bad till later, when you decide who the customer even is, right? So it’s not about that. It’s just it.

Extract Choices: Pair with Opposites

So then, then what you do is you take these attributes that you have and you pair them with their opposites, which is easy. I mean, here’s, here’s some really obvious ones, right? It’s overpriced, it’s, there’s shit support. That’s, you know, that’s the other kind of support that there is. And, okay, that’s easy to do, but it’s also not really a choice. Like a real company doesn’t say, Okay, let’s be really overpriced and see if we can get away with it. Like that’s not in anyone’s strategy. They may do that a little bit, but it’s not, you know, that’s unintentional. That’s not what successful companies do. So it’s not a real choice.

What we have to do is act like a lawyer and make a great case for the opposition. What is an alternative to a low price? That actually is logical. It’s smart. There are a lot of successful companies that make that other choice, and so we could have made that choice a real good choice.

Extract Choices: Refine into intelligent choices

So an example might be, okay on the subject of price, we’re affordable, but the alternative is premium. You pay more, get more. That’s very logical, and it’s underneath are these pluses and minuses so like and this is important to list, as you’ll see, these consequences of the decision. So it’s low price, so we can sell to the most number of people. Ooh, that’s good lots of customers is good.

But as a problem or as a constraint, you might say, we can’t, it can’t be expensive to deliver the software, otherwise we’re not profitable, so our operations have to be cheap. That’s a consequence of this, of this decision. And you notice I have pluses and minuses, but I’m not saying strengths and weaknesses, and there’s a reason for that which I want to explain, because it’s important and also different from things like a SWOT, in which you do things like list strengths and weaknesses, which I don’t think you should do, and here’s why.

So at WP Engine, at our company, we have all employees go through this thing called Strengths Finder, which is this formal thing. It’s sort of like a personality test-ish, if a Strengths Finder person heard me say that thing. No, it’s not. It kind of is, and it’s supposed to be there’s like 36 dimensions, and it tells you who you are and all this kind of stuff. But it’s nice. It’s nice icebreaker with new hires, and it’s kind of fun.

Being Competitive

So my third one of this list of 36 is Competitive. I remember one time we were doing an exercise with this, and all the people who were competitive were placed by the facilitator in the corner, and I said, Tiffany competitor’s competitive is my number three. And she’s like, it’s my number two. Okay, we’re in the right group, I guess. So, question is competitive a strength? It’s called strengths finders, being competitive a strength?

Well, if I’m an environment or a situation where being competitive is useful, then it’s a strength. If I’m trying to hire someone and Google’s also trying to hire them, then it’s a strength. If I’m competitive, if I’m trying to win a sales deal, then right then it’s useful and so on, trying to raise money. That’s good.

On the other hand, maybe I’m in a meeting where it’s supposed to be a team and we’re supposed to act like a team. We’re discussing something, and I feel like I need to be right or win the argument more than I then we all need to find the right answer, the best answer, right. So then being competitive is not only not a strength, it’s actively a weakness, or it’s a gap, or it’s a problem, it’s actively a problem. And so what is that? And so to me, it. Is an attribute. It is a thing that I am. And saying it’s a strength and weakness is completely context specific, which is useful and interesting, but it’s why I say, Don’t say things like strengths and weaknesses and stuff like that. It’s not correct.

But they are things, and there are consequences, and some of them you can leverage, like, Oh, if all our customers will use a credit card that we can leverage that to have easier billing and get paid sooner. That’s good. It’s not necessarily a strength. It’s just something we can take advantage of, or potentially being perceived as untrustworthy or low quality. That is a constraint we have to deal with. We have to grapple with. It is a strength or weakness, but like, it’s a constraint we have to mess with. That’s, to me, the right way to think of it.

So you do this with the other things. So it’s not garbage support, it’s self service. Our product is so good, our design is so good, it’s doesn’t have bugs, and so you don’t need to call this that’s more like, that feels a lot better. This is more like actual choices that are hard to make, actually, because you’re like, well, Those both sound pretty good. I know that’s the whole point, is to have to make the choice of what it is you’re going to do. That’s the point.

So sometimes you find a thing and you can’t find the negative, like maybe in talent, you say, we hire only the best. Doesn’t everyone say that? And the fact that everyone says that is already a signal. It’s not really a decision. What else are you going to do? What is the alternative like? And by the way, you hire the best of what of the point 0001% of humans that applied? The best of that? Congratulations, is that really the best? I don’t know. So anyway, so it’s just not true. Like, it’s not really a thing where everyone says it. And so what that means is it’s just not one of these decisions. It just doesn’t go here. It may be an operating principle that you like, care about hiring, that’s fine, but it’s not a strategy. It’s not how you’re different. It’s not a decision that you’ve made.

But typically, when you run into this, there’s something else about it that is, if you keep digging so like, Well, what do you mean by the best? What kind of people do you think are best? And when you dig into that, you go, Well, you know, we’re new at the startup thing, so we’re crappy managers. In fact, that’s part of why we started a company, is because we didn’t want to be managed, and we don’t know how to do it, and that’s why I’m here. But now I have to manage people. I’m the bad guy all of a sudden. So I need people that don’t need to be managed. I need people that are like self starters, and they’ll be super productive because we don’t have a lot of money, so we can’t hire people, so it’s super productive. People, so it’s super productive, and they don’t need to be told much. We just give them a hint, and they go off and do good things. That’s who we hire. Ooh, that sounds like a decision, because there’s many other kinds of people who are like, I’m good at a team. I work well with others. I communicate well together. We can go far all that kind of stuff. And at WP Engine, we absolutely have both kinds of people, no doubt, right? They’re both useful, right? So that’s, this is now a real decision, because there’s these kind of companies are definitely different.

Consistent Choices: Identity conflicts

Okay, so the next thing is to say, all right, not all these decisions make sense. They’re doing this, like the water. We got to find them. That’s the point of this. Now that we’ve sort of enumerated things, we’ve got to find it. And we’re going to need those consequences, because a lot of times it’s in the details of like, what’s next that you find this.

So for example, let’s take this White-glove service thing, and, we’ll take the White-glove service thing and then and we’ll call that purple, and then we notice that there’s this conflict, like White-glove service means people are expert. They’re expensive, and yet it’s supposed to be inexpensive to deliver, so that’s a problem. And furthermore, we might not get a lot of tickets in the first place. Okay, we might not get that many tickets in the first place. So who cares if we have, like, this great service that no one’s using? That doesn’t really make sense, so this seems like in conflict. And on the other hand, we have this alternative to have white glove service, which is, oh, there’s this other kind that’s less expensive to deliver, especially once you scale where you don’t need a lot of people. And so this already starts triggering ideas of like, how to make this make more sense. And so there’s two really obvious things, because they’re in different colors already.

And one of them is, okay, well, we could take these orange ones that makes sense. And you could imagine some kind of notion, like low cost leader, or some kind of, you could name that strategy something where, like, all right, everything is consistent with being low price, low cost. And that’s very logical.

And then another one would be the opposite. What if we charge more and we were what we did have white collar service. That’s logical. That’s what premium means. So that’s another strategy that works. So sometimes it’s as simple as that, just resolve it one way or another. But usually the best ideas are more of a synthesis than that. And here’s let me explain a way that you can get there.

So let’s suppose we go back to this notion, and we said, OK, let’s say I want all three of these. Anyway, even though they’re in conflict, the question is, and this is, this is a question that Roger l Martin is famous for promulgating, what would have to be true? For this to still make sense, what else would have to be true? It’s a powerful question.

So for example, you could say, well, let’s see. Okay, you said it inexpensive, fine. But also let we don’t need that much tech support. Okay, well, if we didn’t have that many tickets, it wouldn’t be that expensive. So maybe what would have to be true is that we don’t have a lot of tickets, and that would be consistent with this minimal thing, but and consistent with inexpensive even though we have a couple of expensive people, when the tickets do come in, that would be consistent, but we’d have to do there were these consequences. We would have to prioritize reducing tickets over adding features, which you don’t like to do, especially product managers don’t like to do that. Engineers don’t even really like to do that, right? But we’d have to that’s definitely a choice. Move fast and break things versus lower tickets is definitely a choice. But if we made that choice, it could start supporting this apparent contradiction. Another choice we could make is having high or we would have to make is having high quality, because if there was bugs all the time, people writing in all the time, that’s no good. So once again, we have to have higher quality. Maybe we have code reviews, maybe we do some QA, and certainly we’d have to prioritize bugs that come in over features again. So that’s, again, a big decision.

Facebook, you know, famously, didn’t do this at first, move fast and break things, but then they did move fast with stable infrastructure. They changed their slogan. It’s a really boring slogan now, so no one cares and no one quotes it, but they changed it like 12 years ago. So anyway, and then the other thing is great design, because it has to be easy to use. If people are confused how to use the software, then they’re going to generate tickets. And we don’t want those kind of tickets, so it’s going to have to be a greatly designed product, let’s just say. And if we did all of these things, then indeed, we could say we are back to something that’s not conflicted. And maybe we call that something like elegant simplicity or something it doesn’t really matter what we call it. But the point is, like now we’re back to a consistent thing because we asked, what else would have to be true to make it work? And this might be the better strategy than any of those other two. Might even be a little bit more unique possible. Who knows.

So you might find other things in the process. This is kind of messy, but that’s the point. This kind of stuff is kind of messy, right? The sausage making all this stuff it’s messy until it’s not. We might notice things like, well, if we’re going to design things, well it’s going to be slower to implement, because we have to do the designs and implement them and stuff. And also higher quality, is slow to release new things, and this means it’s slower, so we’re going to be slower to release new things. And maybe that’s okay because we said, we said we wanted to have fewer features anyway. So so the fact that it’s a the fact that it’s that we’re moving more slowly in new features is maybe that’s ok, actually, but there’s another thing we probably want to add is we move slow, slow and deliberate, rather than fast, and break things, something like that.

So you can see how this you’re ending up building the set of like, here’s the decisions we make that all make sense together. That’s the alignment part. And you end up, and I’ve removed the detail, but again, the detail is important when you’re making the decisions, and you basically have this like, all right? Well, there’s stuff we’re doing now that is still right, and there’s stuff that we are going to change because it will get this aligned thing. And a document even like this, but especially with the with the bullets on it, is part of how you can describe to everyone else what you’ve decided to do. And so that’s the first part about getting people line in the glass.

Decision Circle

Now, the thing about spreadsheets, which I’ve thrown in the corner now, is, especially when they get long with all this, it’s very hard to see the different things and keep track of whatever. So while you have to have it to have that detail for reference, I actually like a visual way of arranging this, which I call the decision circle.

So here’s those decisions we made, and I’ve just abbreviated with the topic and which decision we made. Again, the table on the side that’s got the detail in it. And also, you see, I’ve colored it so that the status quo is gray and yellow are things we would have to change if we were going to do this. And then I add lines.

So here the red is the conflict. So we said that affordable, affordability and expensive support that was in conflict, so I just showed that with a line. But some things are self reinforcing, like one helps the other, and so I showed that with a green line. So like, it’s affordable, but there’s not that many features, and not having to make a lot of features makes it inexpensive to make. And so, so that makes it affordable. So these decisions actually reinforce each other. And then finally, between, like, white-glove service and features, I just don’t have a line. It’s neither here nor there. You could, you could go either way. So only draw the line when there’s actually a conflict or something that’s that’s like actively reinforcing. That’s how you use the diagram, and it’s in a circle, so the lines don’t, don’t intersect anything.

So then what we just said on the other screen can be shown as this. Which is we added a bunch of things that are that are intentionally self reinforcing, and that’s starting to make something good. When you see a lot of green lines, it’s like these, this is stuff where each decision helps the other one, and that’s going to be strong, but there’s that conflict.

And so the way I like to show that is by saying, okay, so what we did is some of these things specifically went to go resolve that conflict. And so I just show that that way, like, yes, there’s a red line, but we know that, and because of these other things, right? And but it better be true, like we explained on the other slide why it was actually true. You can’t just decide, like, that helps. It has to be, it has to actually do it right? So let’s also just say, for the sake of argument, that being well designed and affordable is also a conflict. Now you could argue with me about that one for sure, but often when things are well made and well designed, they cost more, and that’s true in software, like a lot of iOS apps, are expensive because they’re designed well as well as in the real world. So let’s just suppose it looks something like that.

So to me, the circle is useful for, again, getting the lines together, but then I like to group them up where I cluster the ones where there’s a lot of green and I try to separate the red ones. So like this, where it’s the same stuff, I just moved it around so that elegant simplicity is now this stuff, right?

And then I have these conflicts that I’ve now highlighted, which you might notice once it’s on the page. Okay, so this is human stuff. It takes human effort to design things, and it’s human effort to support and that’s the human things are sort of at odds with things being affordable, although maybe not. Maybe we have enough lines where it’s okay. And so these are the ways that I think about that.

So then you could say, All right, well, what alternatives are there? Like, we only looked at one alternative really. But of course, you should be playing with different things. Well, what if we decided this or that? I look at this, for example, there’s, there’s some yellow on it. That’s not so great. So I look at this affordability piece and like, well, that’s where all the conflict comes in. So another way is just, like, don’t do that. Charge more. That would be another way, wouldn’t it? So if I try to do that, let’s say I switch it to mid range. And this is kind of like the diagram we had earlier, like where we switched from the little to the maybe mid size or something. Okay, so that’s a change now it’s yellow because right now we’re presuming that we’re affordable. So that would be a change. A price change is a big deal, okay, but is it better?

Well, some of the red went away. It may be a little of a problem now that we have minimum features, if you’re gonna charge more and not do much, is that okay? Well, I don’t know if it’s designed really well? and it doesn’t have it’s really robust, doesn’t have a lot of bugs, then maybe that is a good reason to pay so maybe that works. Anyway, there’s a lot more green here and less red. So maybe that’s good. Obviously, you’re not adding up. It’s not a rubric. You don’t add up the green, it’s attractive. That’s not how it works. These are just things to help your thinking process, right? So maybe that’s a good strategy. Maybe not.

Disjointed to Aligned

But anyway, this kind of thing thinking through alternatives, that’s how you start playing with different ideas, and there’s that elegant simplicity still. So we finished this first part. We went from like, I don’t know, and we figured out, like, well, who the hell are we? What’s going on? What decisions are we apparently making, and how do we maybe resolve some of the conflicts, getting moving in the same direction like that. And you could stop having idea to different things, you could stop and you’re already way better of, you’re probably making a few different decisions, and that’s fine.

But being strategic, we haven’t really done that yet. And by that I mean stuff like, we didn’t talk about competitors. We didn’t talk about our special, Okay, let’s say, even say strengths and weaknesses organization. We didn’t talk about industry trends, like there’s stuff we haven’t brought in yet, and it’s unfortunately complicated or complex to wrestle with all that and put all those things together. But that’s the job of strategy is to wrestle with these many complex domains like that and somehow bring it all in and make decisions. So this is going to get more complex now, but that’s because the problem space is complex, so it needs to be complex. So here’s how we do this.

So the first thing is staying on ourselves.

OK, there’s all these yellow boxes, maybe there’s too many yellow boxes. That’s a lot of change. And you say a lot of change, like, maybe it’s not the right strategy for us. I would say maybe it’s even worse than that, because wow, that doesn’t look red. So just imagine that that design box is red. So if we’re not good at design now, then it’s really hard to become good at design you. Because if no one’s good at it yet, you don’t just magically have great design. You probably need to hire a designer. Maybe you don’t even know how to do that. Maybe you can’t afford that, and once the designer’s there, do the developers care about that? Do they work? Did they value designs? Are they okay with the fact that they’re going to have to be doing a lot more of that? And maybe even testing the front end so that you can find better designs? This a change in the DNA of the company to care about design. And it’s expensive, it’s going to take a long time. So that’s not just a yellow box.

Yellow box is more like, Okay, we could just start prioritizing bugs over features. We could just do that tomorrow in JIRA, if we want to. It’s still a change, but like, we can, we can just do it. Deciding to be good at design is not a trivial change. So imagine that that’s red. That’s more of a pivot of who we are scarier. And then maybe there’s also stuff that we’re especially good at, that’s especially who we are from that previous exercise. And let’s suppose white glove service is one of those. We’re just so good at it. It’s one of those things that customers always remark on, like, oh my god, you guys. You’re so responsive and so knowledgeable. And that other place I was at, they were awful. So I came to you guys, and even though you have bugs, I stay anyway, because you’re so nice. This is a strength. This isn’t just like a choice. This is a thing that is who you are, and it’s a major way that you win. And so you’ve got to highlight that somehow, like that. So, and we’re not actually right now. That’s the kind of interesting, interesting observation.

So when we bring in this point, these ideas of like, this is what we’re really who we are. So we should be leveraging that in our strategy. That’s green, and these things that are extra pivot, that would be extra hard, that’s red. And so now when we go back to the strategy that we had with the elegant simplicity. It’s like, OK, so there was already a lot of yellow, and now there’s also this red box, almost red box and almost circled. And so this is actually maybe sounding too hard, maybe like maybe this wasn’t such a good idea, just because there’s too many difficult things to deal with. And so it’s a question mark. And then also that white-glove service box is, we’re not leveraging it at all, like this is one of our superpowers and we’re not doing anything about it. That sounds dumb, like a good strategy leverages the things that we’re good at. I seem to be totally out if any of the tech people want to help by advancing the slide or something.

Competitive Differentiation

So we dealt with ourselves so far, and that’s good, but we haven’t talked about anyone outside of ourselves. There’s obviously things outside of ourselves.

Now, some people say like, you shouldn’t think about the competition when you do strategy, because it’s not about them, it’s about you. But the thing is, your customers are definitely looking at the competition. When they’re looking at who to buy, they’re looking at the competition. You can’t just ignore that. Or when, when they’re thinking about leaving you, they’re looking at the competition. So, you know, like, the idea that you don’t look at them doesn’t make any sense to me, but I do agree that, like, you can’t base it on them, so there’s got to be some way to incorporate what the competition is up to without, like, basing your whole decision on them. And so here’s what I like to do.

So you got to analyze the competition, and you can do it exactly the same way that you analyzed yourself. You’re the alien still, and you’re looking in from the outside, definitely because you are on the outside. And you can ask, based on their behavior, what does it seem like their strategy must be? And you can ask questions like the ones on the ones on the previous slide, or here’s other ones that are that are more about the competitor and about being on the outside. So when they make that new feature, look at the features they had in the last year, say, and ask like, Who’s that for? Who? Who were they apparently targeting? What jobs to be done? Since we’re going to talk about that later in the day, right? What jobs to be done are they doing? Are they attempting to be done here. What’s happening? What segment are they targeting with the language they use on their home page? When you go to the About Us, and it has their values, who knows if they really live those values, but they purport to. So it seems like that’s part of who they are, maybe. And so you can do just the same thing as you did yourself to see what decisions are they making.

So you can take those decisions and first of all, there will be decisions that they made that you didn’t think of yet. And you can add that to yours, like the board. You can add their distinctiveness to your collective. So for example, let’s suppose there’s some there’s some competitor who’s really good at integrations. They integrate with everything, and you don’t. So you never thought to put that on your screen. That’s fine, but now that you saw that, you’re like, oh yeah. They decided to be like, integrating everywhere. And we decided to be like, all in one or super simple, and keep and keep it simple. Okay, that’s a decision, so I can just add it here. And how does it go? Well, actually, it’s pretty good, as it turns out, because if, if I want high quality, I don’t want to let third parties come in and do crap that makes it very hard to have good design and have high quality. And so yeah, for my things like design and quality, like, actually, this is probably accidentally a good decision, hooray.

Now the other thing that you do is, is you say, like, which of our which of our decisions are things that only we make? Or maybe all but one. It’s special let’s say, right? It’s pretty special. And what I do with those is I make the outlines dark as again, this is getting a little busy now, a little complicated, a lot of like stuff and a legend. Again, that’s because we are integrating many concepts at once, so we need it to be a little bit complicated.

So okay, so I add these dark boxes that, which means we’re the only ones that are doing it, are all but one, something like that. This would be special. This is extra important, because this is how you make sales. Like, when you’re in the sales call, it is these things where you’re like, look, you know, our competitors, we do a lot of different things. But the thing is, no one is as well designed as us, and so if you value your eyeballs and your time and your and the delight in your life, there’s really no other choice. Or like in service that was that was true at WP Engine, so I used to say things like, I encourage you to call our tech support about anything. Just ask them about anything, anytime, and do the same thing with the competitor that you’re looking for. Just do it. Just call them up. I know what’s going to happen next, and so I know then you’re going to choose us, but I don’t even tell you what’s going to happen. You see. That’s that’s a powerful sales pitch, but it only happens if it’s like that only works.

In debate, we used to call these voters. Because in high school debate, you don’t have any time to summarize stuff. So like, the second to last speaker in high school debate gets seven minutes. That’s a long time in debate. And then the last speaker gets only three minutes. What you cannot do in the three minutes is rebut all the things that were said in the seven minutes. It’s not physically possible you don’t have the time. So you’re forced to go, All right, I’ve got to boil this down to like, one or two key things, and if I can convince the judge that my argument’s better on this one point. That’s got to be good enough to carry through, even if they made good points. I don’t have a choice. So we used to call those voters the things that you want the judge voting on, and you would say there’s only one thing we have to figure out here, and that’s, I don’t know, whatever you made up that’s in your favor. And all that is true. I even acknowledge some of that, but this is more important, and that’s why this and that’s how your sales calls go. And these is what, these are the voters. So they’re really important.

And then you also see here, I have other items without a border. Those are the ones where almost everyone has it. So some are half and half, but some are just commodity. Everyone’s got it. They’re just kind of.. that doesn’t mean they’re bad, that doesn’t mean you necessarily need to change. Doesn’t mean that. It simply means this isn’t interesting, this isn’t distinguishing. Maybe you just, you have to, because that’s, that’s the deal. That’s fine. If you’re a medical device company, has to have high quality. I mean, that’s okay, right? Everyone’s going to have it, right, of course. But we’re going to say, so, we’re going to say that’s what, that’s what it’s about. So we still have this elegant simplicity pillar. And I look at it and think, Okay, this design that’s crafted, that’s red, theoretically, again, we were kind of questioning whether that’s okay, but you know what it would it would make us unique. That’s a good reason to do a pivot, to really change who we are, in order to make a really solid strategy and then also be unique and have a voter? Maybe that is worth it. Maybe that’s one of the few times where pivots worth it. So maybe it’s not. Again, you have to decide, but it’s triggering these right kind of things.

Okay, so we talked about, oh yeah, but we still haven’t. We still haven’t dealt with this. The strategy still doesn’t care about the fact that we’re good at the service. But okay, we’ll get to it.

External Constraints

So one more thing we got to layer in, because the chart’s not busy enough yet, right? And Lucidchart still has more things you can do to boxes so, you know. So the other thing is, in our industry, or in secular trends in general, these things are happening, and we don’t get to choose that they’re happening. We get to choose what to do about it, but we don’t get to choose that they’re occurring. AI’s happening. I don’t want to talk about AI. I’m not going to, but it is happening. You have to decide something about it, and so forth. And so how do we incorporate these macro things that are that exist into the strategy? So the first thing is, you write them up just like our decisions. It’s just there isn’t a second column, because you have no choice. But there’s this concept, and there’s the consequences, pluses and minus type consequences of them again, so you can look for conflicts and so on. And then I go back to our chart, and just like the competition, there might be new things you hadn’t thought of before, like AI, and then you can add them.

So an obvious thing you could do in AI is nothing, because you could say, look, it’s moving really fast every week it’s different. It’s a complete waste of time for us to chase every damn thing. Just wait till it calms down a little, by the way, all the things people are doing in AI suck anyway. So it’s not like that’s really good. It’s actually a great use of our time to not get distracted like that. Let our competitors get distracted with that nonsense. And while they’re going like this, making features that aren’t good, we will continue to do well in our strategy for our customers, that’s smart. Equally smart is the other way. If you don’t do it, you’re behind. It’s changing so fast. If you don’t get on board now, you’re going to be behind forever. And yeah, we don’t have the best feature yet, but we will because we’re trying, and you won’t because you’re waiting around. And so we’re going to be the nimble, agile thing that gets it right first, and that’s a perfect. Smart strategy. Again, it goes back to it’s a decision. It’s not about good or bad. So OK, let’s say it’s that.

The other thing we got to do, just like the competition, is say, All right, we’ve got new things, and we’ve got to somehow tag stuff that is in conflict with or is supported by these trends. And it won’t be all of them, but in some places, there’s tailwinds or headwinds. So for example, right now we’re in economic decline. I was talking to people last night who were saying things like, a lot of people just don’t have the money, and they’re just leaving us because they don’t have the money, and I don’t know what to do about that, right? So that’s an economic trend, which is people don’t have money right now, or at least they don’t want to spend it. And so raising prices is contrary to that. You can still do it. It might still be smart, but, like, we got to know going in that that’s going to be hard, that’s going to be a headwind, you might say. On the other hand, well designed software is the rage now. There’s a lot of people are like, I’m just not using that. Or a lot of people switch to linear instead of JIRA, strictly because it’s nice to use. Okay, the consumerization of the enterprise means that the regular people bring in stuff to work first, and eventually the company’s forced to buy it because the people are using it already. They don’t do that unless it’s well designed. Okay? So there’s these trends where, like, okay, that’d be on track. And again, it’s like, oh, another reason to do this pivot to design. There’s this secular trend where, when we do, it will be unique, and it’s what people want. Okay, that pivots looking better. Actually, it’s like, not so bad now, because we’ve layered on enough stuff. But okay, there’s still like, red and yellow and x’s like, this is not necessarily the best in any way. There’s no such thing of like, a chart that has no problems, that doesn’t exist. There are different sets of rational trade offs, right? So let’s see. We gotta, we gotta, like, inspect this again and see and like, let’s try another alternative. So again, like, I don’t know about this thing about raising prices in a bad economy, that sounds not so good.

And okay, we can justify this pivot, actually, but let’s say we don’t. It’s still a pivot, and pivots are hard and risky and expensive, so suppose we don’t do that. And also I don’t really love that we don’t integrate. I actually believe that that trend, that everything integrates with everything is important. And by the way, if customers did integrate us with everything, they’d never be able to rip us out. It’d be really hard. So actually, I don’t like that we’re counter trend on that after all. And we’re still missing the service, we’re still not using the service in our strategy. That’s just bad. That’s like, one of the only things we’re good at, and it’s not part of the strategy. So let’s think of something else.

And so we could go all right, let’s change all the things I just circled to something else. I know you can’t, like, follow all lines, but we just changed a bunch of stuff, and then I’ll rearrange it again, because it’s nice to clump things up and that’s easier to read, because now what we’ve got is, oh, we’ve got this little Nexus that all has green lines between them, that’s a cheap, functional product. It doesn’t do a lot, but there’s this ecosystem of plugins and other things for integrations that make it do a lot of things. That’s that’s also a very rational thing. It’s all makes sense with itself. And there’s not like there’s no yellow on here. There’s, you can’t see it, but it’s red. The plug in ecosystem thing is red because we’re not, we’re not doing that now, and it’s hard. You can’t just decide to have 1000 vendors building stuff on your platform. That’s not how that works. So that’s hard, that’s a risk, but it’s all on trend. It all makes sense with each other. So that sounds pretty good.

And then over here, we’re finally doing something here where we say, Screw it. The service is the product. We don’t want to have fewer tickets. We want to have great service, and we want people to know it by opening tickets. That’s what we’re going to do. So that thing on the left makes sense and the thing on the thing on the right makes sense, but they’re in conflict between each other. So once again, we could ask what would have to be true for these two things to make sense and not be in conflict? And one idea would be to have two products.

You have your one low cost, community style product, and then you have your expensive, we added in high price, expensive product that pays for all that yummy service stuff. And of course, there’s a lot of companies that have this strategy.

Red Hat, famously, like a lot of things in open source actually, like, Red Hat says, All right, Linux is the thing on the right, and we’re gonna contribute to it, and it’s gonna be actually free, not even low cost. But we also have all these enterprise services that we charge a lot for. And there’s service, there’s literal service, and we have people helping with code and stuff, and that’s what they did. And there’s these other companies like Mongo and Elastic. They’re public companies. This is also their strategy, this really cheap community thing. And then the way we make our money, which is over here, perfectly reasonable strategy, even Slack, arguably, because the free version of Slack is all about integrations to things that gets you hooked, and then later you have more people, and you need the enterprise stuff, like, we have a WP Engine, and then we end up paying for it, and it’s really expensive for us, but it doesn’t start that way. So this is a perfectly reasonable, we kind of arrive at a perfectly reasonable place.

Aligned to Strategic

So it’s complicated for sure, or complex for sure, but the space is complex. So what is our specialty? What’s a pivot? Don’t have more than one pivot, hopefully zero, but not more than one. They’re too risky and expensive. And there’s no perfect diagram, but you can play with different ones and ask, how would that work? Well, how does that feel? And that’s nice, because otherwise, in a discussion, you kind of go around in circles, but this, yeah, but that, but then that, but then this, and then that, and so this stops that sort of nonsense. And you’re comparing whole chunks of things, which is nice.

So you could stop there, and that would be good. It would probably be a lot better than now, because you’ve incorporated this stuff also, it’s easy to tell everybody else about it. Hey, everyone, these things are good. This is a trend we’re writing. This is going to be hard over here. This one’s going to be hard, but see here’s why we’re doing it. That kind of again, that narrative is part of how the strategy will actually work in real life with humans. And it’s easy. It’s easy to see how it falls out of the diagram, those kind of narratives.

Strategic to Extreme

But I want to make one last argument to take this another step further. You don’t have to. But if you take it another step further, now that you know what decisions you have, you are making, or will be making, you can take them to extreme levels, and when you do, you get this magical thing where you build a defensible moat, where even well funded competitors or incumbents cannot hurt you, even though you’re a small company. And I know that’s a really big thing to claim, so let me give you some examples to back this up.

Example 1: Southwest Airlines

So this is a diagram from Michael Porter in Harvard Business Review in 1996 about Southwest Airlines. And, oh, look, it looks a lot. It looks really familiar, right? It’s one of these things. And he was making a similar point, when you make a bunch of decisions and they interact, and that makes a network of choices, and that’s a strategy, was what he was saying. And I want to point out something really interesting.

So first of all, there’s a bunch of stuff here that is bad for customers. Like, actively bad for customers. No meals, that is not good. It’s just None. No meals like, what not that airline food is great. You can’t use travel agents, so it’s bad for business travelers. They don’t connect with other airlines. So just screw you, and it’s only short flights. There’s no long haul, there’s no over the ocean. And so especially if you’re a business traveler again, you don’t want to make you don’t want to get points on Southwest. So there’s all kinds of ways in which this is bad for this kind of customer, just the worst experience. And in the extreme, like, no connections other airlines, no well like it’s not a little bit, it’s none, like zero policy. But by doing that, by limiting in all these ways and being strong about that an extreme, they kind of purchase for themselves, extremes that are positive. They have the lowest fares, and the flights have the best on time and ratings in the whole in the whole country, in America, and they’re frequent. You can go between like Dallas and Houston every 30 minutes. I think. You can just show up and go and it’s very reliable. That’s amazing. That’s good. So by accepting a bunch of bad things, you get a bunch of good things that other airlines also don’t have.

And finally, there’s other things which are sort of operations behind the scenes, which make all this happen. Since they have low prices, they better have low costs. We already covered that, and they do so. One of the things they do is they only have one kind of airplane, a Boeing 737, which also gives Boeing a lot of power over them, right? Everything comes with pluses and minuses, right? Anyway, that’s what they do. That’s all they have. As a result, the mechanics only need to know one plane. So it’s really easy to train and hire, and they’re really good at it, because they just do the same thing. They even only need one set of tools. You don’t even think about that, but they only need one set of tools to use for it, it’s cheaper, so it’s cheaper and easier to have to maintain the planes, and that’s what helps fuel the lower prices that they pass on to customers. So this network of choices, which are coherent, including being extreme and stuff like only one kind of airplane at all, even though that gives Boeing power, those extreme choices are why this works so well. So in 1996 what the argument that was made is because of this, Southwest Airlines is the only airline, this is in 1996, the only airline that has never gone bankrupt and is profitable. Only one, because it’s a terrible, terrible industry where it’s like impossible to make a profit. Everything is completely commoditized. There’s no distinguishing things. So in one of the worst industries you can be in, they’re healthy and profitable.

And Porter’s argument is, that’s why, I agree. That’s my point, too. That’s why. Now that was in ’96 then we had things like 9/11 where lots of airlines were bankrupt, but not Southwest. Southwest wasn’t profitable then, but they got back to profitability quickly. And then we had the 2008 recession. They were fine, and then, of course, Covid. Once again, airlines went bankrupt, bankrupt. Southwest wasn’t profitable that year, right? But they came back, and now they are so not only was he right, but in the subsequent 25 years or so, it’s remained true, and this has been their strategy for 60-70, years. And why can’t another airline do it? Yeah, they can’t. This was published in Harvard. They could just do it. They could just copy the damn slide. But that’s not what happens, is it? Companies don’t just change their whole strategy and do that, and even if they copied one or two of these things, it’s not good enough, because it’s the network of all of it that makes it work, of course. That’s why it’s a permanent competitive advantage, even in the worst industry ever.

Example 2: Craigslist

Second example I want to give you is Craigslist. Might be hard to see this. This is a screenshot of Craigslist from like, last month. It looks sort of like it was made, you know, 20 years ago. And here’s a screenshot from 20 years ago. I pulled it from the Wayback Machine. So, yeah, it it does look like it is. It doesn’t change, like, at all, almost. About that’s 20 years of web development and design, and that is all you got. I mean, I think justified in saying their strategy is consistent, but not not a little bit consistent, like, stupid, extreme, crazy, consistent, like, what? And minimal design, okay, it’s not just a little bit minimal design. It’s like, what could you even take away? I don’t even know. So it’s super extreme.

Now, the president of or the CEO of Craigslist, is famous for having strong opinions about these things, right? And here’s an example quote creating a superior customer experience, which he’s saying. This is, by the way, he’s claiming that’s a superior is more important than making money. I don’t think investors like CEOs saying stuff like that, right? Of course, they don’t have investors. It’s all right. Yeah, so this is intentional. In other words, yeah, this is exactly how we want it.

Okay, so back to Harvard Business School, because it’s fun to, you know, make fun of them because they’re you’re great. So there’s this case, and in the case, they say the obstacle to sustainability and growth at Craigslist is their strong principles. Just think about that for a second. Their problem is that they have principles, okay. Is the strong principles which value customer offering over monetization? Okay, that’s fair they do. That’s a fair statement. Trust and consistency over innovation. Yeah, that’s what they do. That is a good that is a good description of their strategy. So is it an obstacle to sustainability and growth?

Last year, they did 700 million in revenue, and they have 50 people. Dang. They suck. Too bad they have this really terrible strategy that’s an obstacle that, okay, what? No, this simple strategy, but in extreme, in extreme works really well. But wait a minute, maybe they have a case, because there’s like, kind of famously, companies go in and try to, like, just be part of Craigslist, like, one piece of Craigslist, and take it so, like, here’s a screenshot from this blog called a crowded space, which made this in 2012 so even back then, so even 10 years ago, people were making this argument. It was like, look at all these companies, and each one is like, oh, we’ll just do automotive services, we’ll just do, and because we’re specialists in it, we’ll do it better, which is a very reasonable thing to say. And even in 2012, the point was, well, a lot of them didn’t make it, which is normal, right? But a lot of them did. Like each one of these is multi billion dollar valued companies, and for good reason, like they’re good. And yet, Craigslist made $700 million last year on 50 people, even though the competition did do this and they were successful to the tunes of super billions and billions and billions of dollars and billions in revenue and blah, blah, blah. And yet, Craigslist is still successful anyway. And this is my point about it’s a durable thing. Obviously a website that lasts that long is super durable, very successful, even though well funded competitors who were even successful, unlike the airlines, these are actually successful.

MOAT

So, okay, so examples of not only making the decisions, but taking to extreme, makes really who you are. It really identifies. This is it? This is your unique place in the world. And to me, it’s defensible in this way. And so this is called a moat. You probably know that right when you have this like more or less permanent competitive advantage, often called a moat. And so my argument is this idea of these mutually reinforcing decisions, taken to the extreme, creates one creates a moat, and there’s lots of moats that you’ve probably heard of, like a network effect, like, once everyone’s on Facebook, it’s really hard for another social media company to exist because all your friends are already in the one place. That’s true, where you have the coke formula. So there’s a lot of soda out there, but Coke’s still good because they have the formula people like, or if you are, like, a WP Engine sale. I remember talking to someone, I think it was last night about sales tools. And I was like, well, it has to integrate with Salesforce, because we have almost 200 salespeople, and they’re in Salesforce, we have everything integrated with it. And like, that’s never coming out. That’s called being the system of record, that’s good, that is a totally emote. And so my claim is that this idea of having these mutually reinforcing, not just consistent, but like helping each other stuff and extreme, when it’s extreme, creates one of these moats like those.

And what’s so cool about it is almost none of us in this room, maybe zero of us in this room can make moats like these. Almost none of us is making something that truly can disrupt Salesforce and throw it away, right? Or make a network effect, really, maybe a couple of us. So what moats are available to us, especially for a smaller company, especially for self funded, and everyone else has got a lot of money, and there’s like, what are we supposed to do exactly? So my argument is, you definitely can make set of decisions that are visually reinforcing and then decide to accept the extremes, even the bad parts, right? In order to create something that is a moat anyway, that’s, that’s my claim, which is pretty cool, because otherwise it’s, you’re just like, I don’t know, we’re just another time tracker tool. So that’s why you don’t have to do that. But that’s why, I think that’s what makes it really strong. And so that’s the system.

We start by saying, all right, who the hell are we? Then we refine those into the decisions that we made, usually not on purpose. We try to resolve the conflicts in there. Use that decision circle to sort of sort things out and try alternatives on for size. Then start layering on the things that you might say are strategic, like our own strengths and weaknesses, trying to cluster the cluster the green stuff around the green lines, around stuff that’s our natural strength so that we can win where we’re already good. And being really critical about pivots, maybe zero or one only. And then layering on the competition, layering on, layering on, not not letting it all dictate it for us, but layering it on so we can evaluate these alternatives. And finally, taking the to extreme, especially the bad things. It’s easy to take the good things to extreme, but maybe, as I said all along, maybe saying good and bad is not even the right way to look at it. Maybe it’s to go in an extreme, in some direction, and as long as everything else is consistent with that, that is a unique thing. It’s a special, strong thing that people cannot take away from you, which is pretty nice.

And so that’s it. I think that’s how you get that’s how you get something that aligns everyone, where you can win in the long run, and explain to everybody it can be a picture where you can turn into a narrative, of course, and really have everyone make that. And the way, you’ll know if you’ve done it and that people are really living the strategy is that one day there’ll be a feature request coming in from a big customer, and it’s a good idea. You’re like, ooh, that would be cool. That’s a cool idea. And they want it. Others probably want it too, awesome.

And the product manager takes it and says, closed, won’t do and just throws it away. And the reason is the product manager, we took it and went up to the thing and said, This is a great idea, but not for our strategy, because it doesn’t, it doesn’t, it’s not aligned with this, so we’re not going to do it. And by doing that, we make the space for an equally good idea that is aligned so that we’re actually doing this, and that’s how you’ll know you’re really living this, and that everyone in the company is living it properly. And then I think you move it even feels like you’re moving much faster. You know where you’re going and what you’re doing, and that’s what it feels like, and that’s the Mach 2.

Thank you very much.

Jason Cohen

Jason has  built four software startups, both bootstrapped and funded, both alone and with co-founders. All of them grew to more than $1m annual revenue.He sold two, and currently serves as CTO of the fourth, WPEngine, with 380 employees headquartered in Austin, Texas.  More recently, he has also been an angel investor and was a founding member of Capital Factory, an Austin incubator and co-working space. He writes about software and startups at ASmartBear.

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