I don’t like reinventing the wheel, so for months now, I’ve been trying to reconcile everything I know about traditional business (think Peter Drucker and the Harvard Business Review) with all the seductive ideas I’ve been learning from the Lean Startup movement (and I’ll admit I am simultaneously attracted to, and wary of, those ideas). Some instinct led me to focus on a single word: positioning.
It seemed to be the key word, and I think my instincts were correct. I’ve concluded that positioning, defined in a 7-dimensional way, is the single most important word in business. So what is positioning? To paraphrase Marc Andreessen, it is the only thing that matters. It is the controlled, but not deterministic, crossing of a threshold beyond which the business suddenly seems to come alive and “work.” The emotion changes from depressed to excited. The energy changes from languid to explosive. The rhythms change from weak and uncertain to harmonious, vigorous and steady. Positioning happens when a business has an “Aha!” moment, and discovers identity, profitability and sustainability. The business has found its groove and tempo (the business word for tempo is clockspeed) Positioning involves throwing seven firing switches from “Off” to “On” position and all 7 cylinders firing steadily enough that anyone in the business can take a real vacation without everything going to hell.
Seven is not an arbitrary number. I looked hard and that’s all I could find. I’ll tell you about two that didn’t make the cut later. Each of the 7 switches, if it causes successful firing, induces an S-curve (if not, you get a peak and collapse).
If the S-curves are clustered close together in time, you get one big Aha! Otherwise you get a series of smaller Ahas! All 7 must be switched on. Otherwise you’ll get a change in emotion and energy, but not a true business positioning. The characteristic sign is that you get a frenzied, high-anxiety, manic energy tempo instead of a harmonious, vigorous and steady tempo. I call the former the “fire alarm” situation, and it will collapse if it isn’t corrected. Steady rhythms are a sign that you are in a predictable place. So let’s explore the seven dimensions of positioning and see if there’s anything useful to be found.
1. Marketing: Positioning as Hole-in-the-Head
Positioning in marketing is Al Ries’ classic theory of marketing. People’s heads are overstuffed. The only way to get in is to associate yourself with what’s already in there. Avis, We’re No. 2, so we try harder, and The Uncola are examples. These either fill a “hole in the head” (creneau to use Ries’ French term), or reposition an incumbent to create a space for yourself. Nyquil created a position against strong incumbent cold remedies by turning their 24-hour nature against them. There was a creneau that could be created for a night-time cold remedy.
What happens when you get this right? Simple. An anemic demand-driven business turns into an overbooked supply-limited business. This is what Drucker meant when he said the job of marketing is to make sales superfluous. One killer positioning concept smoked up by some Mad Men can bring the business to you, so you don’t have to pound the pavements. Your selling costs shrink spectacularly. (Aside to readers who’ve been demanding I watch and write about Mad Men: I finally caved and watched the whole series to date on DVD over the last few months; thank you all for a great recommendation, and stay tuned.)
Marketing positioning is not the same thing as finding a “repeatable sales road map” in the sense of customer development inside lean startups. Yes, you still have to be agile, and pivot, and get outside the building. But you don’t use the customer development model, which is optimized for sales-led discovery. You focus on typical marketing things like finding good names and taglines. If you talk to potential customers at all, you do so in different ways, to find a creneau. You look for inspiration in pop-culture trends. If it works really well, you may not have to do the sales pavement-pounding and hypothesis testing at all. At the risk of losing half of you, here’s the football metaphor. Customer development is a rush offense. One yard at a time. One problem or product presentation to a customer/group at a time. Effective marketing positioning is a Hail-Mary passing offense. Touchdown in one pass if you are lucky and skillful.
For ribbonfarm, I did no customer development, hypothesis testing or anything of the sort. I just wrote whatever the hell I liked. Then the Gervais Principle happened. Now ribbonfarm is positioned as a blog selling a certain darkly-humorous, realist, dystopian view of life, the universe and everything. Marketing positioning and luck, not customer development.
Getting marketing positioning right is at once liberating and confining. In the case of ribbonfarm, it is liberating because the blog is operating cash-flow positive (not counting my time, which I view as ongoing in-kind capital infusion). It is also enough of a believable insurance policy that I think I could make a living off it if I had to. Constraining because “ribbonfarm” now means very specific things to readers. Now if I want to experiment outside this core, I’ll need a different blog and brand. But within this core, my marketing costs are near zero. The Be Slightly Evil list is a natural line extension, but not a brand extension. With near zero additional marketing, and ONE email to a few readers counting as “customer discovery,” I was able to launch it. And in less than 3 months it is already getting close to 500 subscribers. But I could not have done this if I’d wanted to build a non sequitur or dissonant brand off the ribbonfarm base, like a blog about inspiring quotes or great shopping deals.
2. Operations: Positioning as Rapidly Improving Margins
Chronologically, this notion of positioning came first, with BCG’s pioneering role in the strategy industry (a long story I’ve told elsewhere), and focus on the fact that market leaders grow rapidly, learn and drive down cost curves, setting a pace that followers cannot keep up. At the heart of it is an accelerating trajectory of increasing margins, generating growth money, leading to more revenues at better margins, a virtuous cycle that leaves competitors far behind until you are the entrenched low-cost leader. Only true disruption (item 7, wait for it) can displace you. Until then, others can fight over your table scraps at the margins. This is the growth curve you get to after Crossing the Chasm. This is a positioning problem start-ups rarely have to solve, since principals often exit before they are forced to solve it. You can get roaring rivers of revenue and still bleed margins for a long time.
This is also not the free-cash-flow positive threshold. It is the accelerating margin improvements threshold. You can limp along with razor-thin margins for quite a while and call yourself cash-flow positive, but until you hit this phase transformation, your position is very shaky indeed. Specific things happen to trigger this phase transformation. Startup types think of it as mechanical “introduce big company systems and processes” but there’s a lot more. You have to find the artistically right kind of systems and processes that can put you on the accelerating margins trajectory. For Zappos, for instance, it appears to have been the decision to move away from drop shipping. So it is not a matter of just hiring a few bureaucrats to create some tedious forms. Big companies know all about this transition. I’ve done work on this dimension, but unfortunately it isn’t work I can talk about publicly.
The fully-refined version of this gets you the classic positioning model of Michael Porter (the five forces model). Practitioners like to call it “strategy” but it doesn’t deserve that lofty term. It’s operations they are talking about. Very useful nevertheless.
In BCG Growth Share Matrix language, the switch gets thrown when an uncertain “wildcat” (or “question mark”) business suddenly turns into a “Star” (moving from the top-right to the top-left quadrant). From here you can drive down costs faster than competitors can, and move the business into a relatively unassailable high-margin cash cow position.
3. Sales: Positioning as a Pain Point Relief
If you plow through the Lean Startup material, you’ll find that the entire customer development process hinges on one crucial decision: you only go after a small subset of early customers who a) have a problem you can solve, b) are aware that they have a problem c) are actively shopping for a solution d) are actually improvising temporary solutions.
This is a customer “in pain” as it were. Product-Market Fit (PMF) in this narrow sense “relieves” a pain for someone. Focusing on customers “in pain” is a very specific way to find a market.
In an earlier Drucker-inspired article, I defined a customer as a “novel pattern of human behavior” based on Drucker’s notion of “customer creation.” Creation is expensive, but it can be done. But in CD-driven businesses, you don’t create this novel pattern so much as you recognize it in the wild and then offer a less painful substitute. This is significantly cheaper, which is why it is so popular in the startup world.
It is a slightly worrying metaphor, but I like it: in customer development, you domesticate a wild customer.
Here is my example. I was the first employee at Sulekha.com, after the two founders, 10 years ago. Today, it is sort of the Craigslist-plus-Facebook-plus-Fandango of India. I witnessed (and, in modest ways, contributed to) the PMF phase change, when we found our first strong revenue model (online ticket sales). And yes, the script ran exactly as the lean startup people describe it, with pivots and everything. We just used different language to talk about what was happening.
4. Engineering: Positioning as Killer App
Everybody hates us engineers when it comes to the business side of things. Even engineers themselves, when they move over to the dark side, have a tendency to speak disparagingly about the narrow mindset they’ve left behind. I’ve done the leap, but I don’t do the disparagement. For positioning to work you also need an engineering switch to fire: from platform concept to killer-app.
Visicalc is everyone’s favorite example of a killer app. Killer App is primarily an engineering dimensions of positioning. Engineers, like mathematicians, are lazy. They like to generalize and come up with powerful solutions that can do lots of things. This generality is what ultimately creates value, otherwise we’d be living in a flood of what Alton Brown (in the context of kitchen equipment) calls “unitasker” products. But a journey of a thousand apps must still begin with a first app.
The story repeats itself all over the place. Walk through this trail of killer apps to see more examples (Atari and Pong, Nintendo and Mario Brothers, Gutenberg’s Press and the Bible, and many more).
Brad Feld has labeled “platform” the annoying word of 2010. He correctly notes that you cannot build a platform, anymore than you can make a viral video. The best you can do is build a platform-intent product or service, or a viral-intent video. But platform-intent thinking is crucial. Otherwise if your first and only application idea fails, well, you’re screwed. Nor will a generic “multi-tasking” minimum-viable product do the trick. That gets you a Swiss Army knife. That still has only one shot at success. You don’t just want a multi-tasker product. You want multiple cheap shots at making an application catch on.
Once you ask the question minimum viable product that does WHAT? you’ll see why “Killer App” is a useful separate term. It is that last 20% of the engineering that brings in 80% of the value. First you build a minimum-viable platform, and then you start doing several 20% stabs to find your first killer app. Each stab is a minimum-viable product hypothesis, but each stab is not necessarily a full repositioning or pivot. Think of a startup as a new PC that and each MVP stab as a half-assed app like Microsoft Works. If you find that a lot of people are using Microsoft Works, well, go ahead and build and sell Office. That’s your killer app. But if it doesn’t work, you shouldn’t have to retool 100%. Only 20%.
Most high-value engineering products turn out to be platforms with applications. So platform-intent is the right strategy. Unitaskers, such as combs or toothbrushes, are rarely enough to build a business (unitaskers are usually made by companies that maintain portfolios based on similarities in manufacturing or service delivery processes).
But don’t let the word “platform” intimidate you. A platform does not have to be as complex as an operating system or a new fighter plane. A knife is a very simple instrument, but it is a “platform” in the kitchen because it can do so many things. The killer app turned out to be “chopping,” but it can still do some mean squashing, stirring, serving and spatula-ing. Some caveman or cavewoman probably started the search for a business model with a stick, and figured out that sharpening one edge created the first “killer” app. Pun intended.
Note: there are two engineering styles which I call “vertical first” (the first app comes before the minimum-viable platform) and “horizontal first” (the other way around). I think both can work, but the risk-benefit tradeoff does favor at least some platform work upfront, in my opinion. Pure vertical-first too easily leads to a series of narrow visions, none of which is worth much.
5. Public Relations: Positioning as Brand Socialization
While a “pure marketing” brand can exist just as a service or product, entrenched and strong brands also become part of the society within which they live. Levi’s is not just a famous (and now trashed through mismanagement) brand. It is part of the story of the American West. Ford stars in the story of American ingenuity, with its role in the growth of the assembly line. The Tatas are the story of industrialization in India. The East India Company is the story of 17th Century Britain.
PR is the difference between a strong marketing position for an unsocialized brand and a socialized brand with a role in the grand narrative of its host society. The story doesn’t just happen. But it can’t be created in controlled ways like advertising either. You have to scan for sparks of genuine social “integration” in the environment and pour fuel on them. Volkswagen’s ongoing “punch-dub” series of commercials is an attempt to do exactly this: talk up something to do with VW customer culture. I am not sure if it will work though, because this is a case of trying to make marketing do PRs job. PR is essentially a hidden and delicate backstage influencer activity. You are trying to co-opt a story that’s already “out there,” in service of your brand. Many people have a stake in that story, so at best you can influence the story, not “tell it.” VW may regret its punch-dub series of commercials. It may have killed the golden goose. Now I bet people who play the game might want to stop. If, on the other hand, VW had spent its money on a grassroots word-of-mouth campaign around the punch-dub game, a lot more could have happened. Groundswell has several great examples. I could be totally wrong on this one. Only time will tell.
Aside: this is why the new continent of social media has primarily been colonized by PR people. The marketing and sales people are talking a lot about the potential, but it is PR people who are making the medium work for them. Good marketing talks more than it listens. Good sales listens more than it talks. Good PR strikes a conversational balance. Social media is fundamentally friendlier to PR than either sales or marketing. In the past companies had to have either marketing or sales cultures. You could not lead with PR. Today you can.This is especially true because rank-and-file employees can be turned into a PR army. To use them in marketing means cheesy employee photos in brochures. Using them in sales means sales people bringing customers in for “insider visits.” Though Word-of-Mouth can work for sales (forwarding discount coupons/referral/lead generation schemes), marketing (contests, “viral” videos) or PR, it works best for PR.
This is where the classic reading of the Google origin myth gets it wrong. The story goes that Brin and Page, when told they had to “choose” between a marketing or a sales culture, (and this is engineering braggadocio pure and simple) “chose” to create an “engineering” culture instead. This is wrong on two levels. First, it is a three-way fork today, not two way, and Google is a company built on effective PR. “Don’t be Evil” and stories about great buffets (and ironically, the story of Brin and Page “choosing” an engineering culture) are basically the core of a PR socialization narrative (how many people know Google’s marketing tagline of “organizing the world’s information?” or have encountered its AdSense/AdWords sales face?). Second, culture isn’t yours to choose. Your business model completely determines it, and it will always be a culture driven by a customer-facing function. More on that later.
6. Finance: Positioning as Pricing Sweet Spot
You didn’t think the bean counters would have nothing to say, do you? Pricing confuses a lot of people because they think it is some sort of objective, if inexact science. The most naive people think: “if only I had perfect information and could construct my demand/supply curves, identify my substitutes and measure elasticity, I could price this thing perfectly to maximize earnings.”
Wrong. Economics constrains, but does not determine, pricing design. Economics will make you crash and burn if you get it wrong, but it won’t tell you how to get it right. It’ll just create a canvas. Getting the pricing model right is a positioning switch in its own right.
Creative finance people know that pricing is a positioning art. There are many famous products that made it via the right pricing strategy. Gillette (cheap razors, expensive blades), Xerox (originally, “lease the copier, sell the toner”) and Netflix (no late fees) are examples. And of course the whole world of $0.99, $19.99, “introductory price,” artificial scarcity “limited editions,” and and the like are all pricing design ideas. The entire cloud computing sector is driven by a pricing idea: pay-by-the-sip $0.10 offerings for enterprises that are used to paying by the million. To innovate in the cellphone market, pricing should be your top concern.
I recently tried myfooddiary.com (a great calorie counting tool) for a couple of weeks. They advertise $0.29 a day. Not the equivalent $8.70 a month. Why? Monthly subscriptions are better, right? No. This has to do with the psychology, calibration points and money metaphors at work in the prospect’s mind. See my Fools and their Money Metaphors article. Calorie counting is a daily activity for dieters. Health and fitness run on “daily” tempo mental models. The most effective pricing models are likely to be “daily.” That way you can compare it to other daily health/nutrition expenses like food purchases. Gyms would do well to shift to a daily price advertising model. A $90/month gym membership is a $3/day membership. So I know that it costs me about as much to ruin my healthy day with a slice of pizza as it is to redeem it with a workout. Why would you want me to think about my gym membership with a mental model that contains things like rent checks and phone bills? If some gym uses this daily price advertising idea, I demand a royalty!
Money metaphors are complex beasts. Entrepreneurs think with the entrepreneurship (capitalist) metaphor. But to sell stuff, you must think and talk within the customer’s active metaphor. Get it right, and the pricing cylinder fires.
7. Innovation: Positioning as Disruptive Breakthrough
Disruption theory is the most fundamental explanation of differentiation. It is an innovation model, and while it can seem very close to engineering, it isn’t. Innovation can come from a platform-creating scientific breakthrough, but it can just as easily be an enabling breakthrough along any of the other 6 positioning dimensions. It may be technically major or trivial (or to use the correct terms, radical or incremental), but you won’t know what it enables until after it has happened.
Three conditions have to be met for disruptive breakthrough. First, an innovation is “disruptive” because the place it is born is not the place it can grow. So it needs to be transplanted into a new business unit run by a logic within which the idea is sustaining. Second, you need a grow-in-peace peripheral position next to a major disruptee market, where you are too small to pay attention to, but too big for the incumbent to kill once you gain traction. If you don’t do the first, the business is stillborn. If you transplant, but there is no big disruptee market, you create a small niche business. But if you do both, you can get “breakthrough.”
The theory of disruption is highly evolved, and the relevant phase change happens when your adoption S-curve crosses an older one. Read my primer if you are not sure about what disruption means (and most people who use the term without having read Clayton Christensen’s book don’t know what it means, but think they do).
Is every new business disruptive? Is this an optional switch? I’ll leave that for later.
What Really is Business Strategy?
The 7-dimensions model allows you to view the essence of business in a very simple way. It is a matter of turning 7 switches to the “On” position, and hoping the corresponding cylinder fires. If you’re lucky, you’ll start out with one or more of the cylinders already firing. If not, you’ll have to keep trying each switch till all cylinders are firing.
Are there more than 7 switches? I thought about this really hard, especially about two very attractive candidates for an eighth switch: the “culture” switch (going from an inchoate culture of random types of people to a distinctive one) and an “ecosystem” fit (where the corporation is socialized into a supply chain).
After much thought, I gave up on culture. A distinctive culture is an outcome, not a control variable. How you throw the 7 basic switches determines what a corporate culture looks like. Equally, when a culture seems to be going wrong or toxic, it is almost certain that one of the 7 basic cylinders is misfiring, and the switch has been reset to “Off.” I think if you try direct cultural design rather than hiring against your 7-switch needs, you are asking for trouble. And once culture has emerged, naming, codifying or ritualizing it is a very dangerous game. All you can do is try subtle things to not screw up a working culture, and to protect it from too much toxic disruption. At the same time, you shouldn’t protect it too much, otherwise the culture will ossify, and when the business environment makes a particular cylinder misfire, the culture will lack the ability to adapt.
The last candidate is ecosystem fit. Normally, this would be part of operational fit (strong, effective and mutually beneficial supplier and distributor relationships are a big part of switching from Wildcat to Cash Cow). But there is a difference between “inside the corporation” fit as processes stabilize and fit into a jigsaw puzzle, and “outside the corporation” fit as a vertical or horizontal integration structure emerges in a sector. But overall, I don’t think this is a meaningfully separate distinction with separate legal control variables. Antitrust laws see to that. When these laws can be bent or broken without consequence, or the government gets involved, then you’ve got an eighth switch. Ecosystem fit design is therefore just a part of organization design. Where you draw the boundary of the “organization” is a somewhat arbitrary legal issue.
That’s it for now. This is Part I of a two-part article (the whole thing was starting to weigh in at over 6000 words, which I’ve decided is too much even for me, so I decided to separate this idea into two parts). I’ll finish and post Part II if people like this one. Call this the MVP of a potential series.