Competing like crazy makes you mediocre

Frameworks to make your brand stand out from the crowd

This is the third post in a series. The first was The Four Horsemen of Silicon Valley, followed by How ideas can be turned into path breaking innovation. Amazing how one podcast can lead you down the rabbit hole with so many books and ideas.

Different: Escaping the Competitive Herd is written by Youngme Moon, Professor of Marketing at Harvard Business School. The author sets the stage with a visit to the a department store’s shampoo section where one is spoilt for choice. If the variety of brands, colors, aromas, etc aren’t enough to confuse one, the shampoos are further augmented with such labels as “new”, or “new and improved” or if that is still not enough “new, improved and with added (insert a name of a plant or organic based ingredient)” etc. We are so used to this sight that we ignore all the augmentations and go for the shampoo we have been buying for years. The author points out that with shampoos, we know what we want. What if it was a new category? One would be confused to no end. Say you are in a market for a new TV. We no longer go for our parent’s trusted Sony. In a showroom, TVs are stacked from one corner of the wall to the other, each with a new or slightly different feature, all priced in similar range, with similar warranties. You could spend a lifetime comparing and deciding between them. In addition, you would read customer reviews online (there are always a few one or two star reviews that can put you off that brand forever) as well as various tests done by different tech publishers. If you are anything like me, after being totally confused now, you may finally ask the sales person “Which one do you recommend?” and come home with whichever brand he recommended provided there is a warranty behind it. This is what the author of the book was driving at. According to her, that competing brands have done so much feature augmentations that the brand name has almost become invisible. Brands exist to differentiate themselves from others yet we are at a point in quite a few of product categories that brand name doesn’t matter anymore. The book talks about how we come to this pass and how to differentiate oneself from others in such a scenario.

The challenge brands face that any feature introduced by one brand can easily be copied by competing brand. Hence, “new and improved with oil of quinoa seeds added” for a P&G branded soap can easily be offered by Unilever if the sales show that there is a demand for this type of soap. Any spurt in sales that P&G experiences in the first few months will gradually come down to the equilibrium level once Unilever introduces a similar feature. But product and marketing managers at companies will continue to augment their products with new features followed by other competitors copying it with the result that you are faced with store shelves full of soaps that all have similar features with no meaningful differentiation between them.

The author shared a insightful example of what happened when her students unintentionally followed the same behavior.

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We can very much see this in our daily lives as we strive for being a “well rounded” student, employee or a leader because that is how we are measured. According to the author, excellence comes from being lop-sided (as opposed to being well-rounded) yet all of us are trained to aim for well-rounded-ness. Similarly, when marketers and brand managers do focus groups, market research, surveys for their products, they strive to get an A+ in all the categories i.e., try to come up with a well rounded product.

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The author points out that adding so many features becomes a pointless exercise after a while adversely affecting company’s bottom line.  On a mobile phone or TV screen, you can increase the resolution to such an extent that the consumer’s eyes cannot register the difference yet brands are forced to do it at a significant cost because the competitor is offering this feature as a standard.

She proposes a couple of strategies namely Reverse Positioning and Breakout Positioning to breakout of this vicious circle which are explained later. I liked this book and the following book as the authors are humble enough to admit that there is no sure shot way of success. The multiple strategies mentioned in the books are just frameworks.

If you are in a Dogfight, Become a Cat” is by Leonard Sherman who is a professor of strategy at Columbia Business School and also moonlights as a management consultant. If you have read as many strategy books as myself, you will notice that all strategy books have the same few success stories that provide you with a framework. Every book you read talks the same old cases and you start to wonder whether it was sheer luck that led to success of these companies and then management consultants came along and tried to fit them into “a formula for success” that they can sell as part of their consultancy gig. The above two books plus all other strategy books are based around on the following examples:

  1. P&G vs Kimberly Clark (Pampers vs Huggies)
  2. Harley Davidson H.O.G. (Harley Owners Group) and/or Saturn Car Club
  3. Post It notes by 3M
  4. IKEA
  5. Reincarnation of Apple under Steve Jobs

These businesses achieved the successes without having management consultants or a tried and tested framework at hand. Afterwards management consultants came along, made case studies of these selected events and then tried to sell them as part of their strategy services. Recent books add cases about Amazon, UBER and AirBnB etc but I have yet to read a book wherein a management consultant was brought in and she applied the recommended strategies which resulted in a breakthrough successes repeatedly.

This brings me to a small digression (I hope it remains small) into Michael Maubossin’s
The Success Equation: Untangling Skill and Luck in Business, Sports and Investing“. I read it in 2014 and the lessons have remained with me since. Maubossin is widely read, a numbers guy,  and very insightful writer of investment research. In the financial and investment universe, there is a saying that a rising tide lifts all boats i.e., when the economy is doing good, all asset managers whether in equity, fixed income, private equity, alternatives etc. appear like geniuses. Under such a scenario, how can we figure out whether increase in asset values we are seeing is due to the skills of asset manager or is it because due to sheer luck, asset manager found himself in the right asset at the right time. Maubossin’s book is about how does one go about figuring this out as contrary to what people may think, it is very difficult. It is made more difficult as what he describes as “paradox of skill” which can be illustrated as follows.

In fund management industry, every company e.g. Vanguard, BlackRock, DynamicFunds, Fidelity, PIMCO etc is employing immensely talented Ivy League economics, business or quant graduates who are bringing best practices and new approaches to investments in each of these organizations. From consumer perspective, the performance on absolute basis is increasing (we get wide variety of products to invest in and lower and lower fees compared to previous years) but from the fund manager’s perspective, performance on relative basis is actually shrinking. One year in a particular category, Vanguard funds may do well and in the following year, BlackRock funds may do well (though this difference may be in few basis points). With both fund managers using state of the art technology for investing and army of highly talented asset manager and offering similar products, there may be some element of skill in the performance differential but luck is starting to play a bigger and bigger role.

The problem happens when we start misidentifying the role of luck in performance as skill. This is what these strategy books do. In “If you are in a Dogfight, Become a Cat“, the author does start with the premise that managers have been taking strategies as promoted by such books as Jim Collins’ Built to Last: Successful Habits of Visionary Companies and Clay Christensen’s The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Management of Innovation and Change) as gospel. According the author, manager’s are not fully to be blamed as the authors of these books have been running successful consultancies by prescribing their theories. However, to really read a take down of these strategies, one has to read Maubossin’s The Success Equation: Untangling Skill and Luck in Business, Sports and Investing

Perhaps the best-known book about this method is Jim Collins’s Good to Great. Collins and his team analyzed thousands of companies and isolated eleven whose performance went from good to great. They then identified the concepts that they believed had caused those companies to improve—these include leadership, people, a fact-based approach, focus, discipline, and the use of technology—and suggested that other companies adopt the same concepts to achieve the same sort of results. This formula is intuitive, includes some great narrative, and has sold millions of books for Collins.

No one questions that Collins has good intentions. He really is trying to figure out how to help executives. And if causality were clear, this approach would work. The trouble is that the performance of a company always depends on both skill and luck, which means that a given strategy will succeed only part of the time. So attributing success to any strategy may be wrong simply because you’re sampling only the winners. The more important question is: How many of the companies that tried that strategy actually succeeded?

Jerker Denrell, a professor of strategy at Oxford, calls this the undersampling of failure. He argues that one of the main ways that companies learn is by observing the performance and characteristics of successful organizations. The problem is that firms with poor performance are unlikely to survive, so they are inconspicuously absent from the group that any one person observes. Say two companies pursue the same strategy, and one succeeds because of luck while the other fails. Since we draw our sample from the outcome, not the strategy, we observe the successful company and assume that the strategy was good. In other words, we assume that the favorable outcome was the result of a skillful strategy and overlook the influence of luck. We connect cause and effect where there is no connection. We don’t observe the unsuccessful company because it no longer exists. If we had observed it, we would have seen the same strategy failing rather than succeeding and realized that copying the strategy blindly might not work.

Collin’s was big on vision and mission statements. Personally I would credit him with the bringing in the vision/mission revolution into every organization. Over the course of my career, I have been part of multiple internal group discussions wherein we tried to come up with the best fluff for our employers. The book Good Strategy Bad Strategy: The Difference and Why It Matters by Richard Rumelt had a good critique of this revolution but hardly anyone has heard of this book much less read it. Some of the examples from the book:

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Here is the template of most such exercies and results:

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One of the companies that followed Collins’ mantra to the tee i.e. Enron died an ignominious death. Probably Enron was also affected from paradox of skill i.e., all the success till its downfall was attributed to the highly skilled manpower Enron recruited. Yet no one asks that didn’t Enron tick all the boxes required to run a visionary, world-class  company following Collins’ advices as well as Christensens’s by having many subsidiaries which innovated and disrupted. Finance curriculum has something akin to under sampling of failure. it is called “survivorship bias” but it is mostly used for performance measurement of funds, asset classes etc. However, when it comes to corporate strategy, financial sector is as guilty as other industries.

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Coming back to If you are in a Dogfight, Become a Cat, the book has a very good anecdote that I haven’t read elsewhere so it is worth mentioning. My guess is a management consultant led Honda down this path but since the author didn’t mention any consultants, let me not bring in my biases. In US, Honda wasn’t doing as well among the young generation. So Honda decided to carry out a marketing research for a new kind of car targeting the summer youth. They took cameras with them and went to beach parties as well as events like X-Games taking pictures, making videos, conducting focus groups to determine what are the aspirations of this demographic. What features they like i.e., roof should be able to carry surf boards, cup holders should be able to hold large size drinks, interior should be roomy enough as the guys like to hang out and travel together in a same cars plus it should have some off road capability. Honda got the designers to design the shape and curves of the car to appeal to this demographic. The result was Honda Element introduced in 2003.

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It was a failure. It had better than expected sales in the first year but it was followed by tanking sales in subsequent years. The analysis showed that most of the cars were being bought by older generation of upper income tiers because of the safety and reliability it afforded. The target demographic, the surfing kind with offroad driving aspirations, didn’t have the income to afford this car. The 9 to 5ers with their steady income wanted boring sedans or family SUVs.

Honda was taking a page out of Christensen’s book. The New Yorker magazine did an amazing analysis of the “disruption” mantra that has become so pervasive on account of Christensen’s book and consultancies in the excellent long form piece titled The Disruption Machine: What the gospel of innovation gets wrong. (Highly recommended piece to be read in full)

Things you own or use that are now considered to be the product of disruptive innovation include your smartphone and many of its apps, which have disrupted businesses from travel agencies and record stores to mapmaking and taxi dispatch. Much more disruption, we are told, lies ahead. Christensen has co-written books urging disruptive innovation in higher education (“The Innovative University”), public schools (“Disrupting Class”), and health care (“The Innovator’s Prescription”). His acolytes and imitators, including no small number of hucksters, have called for the disruption of more or less everything else. If the company you work for has a chief innovation officer, it’s because of the long arm of “The Innovator’s Dilemma.” If your city’s public-school district has adopted an Innovation Agenda, which has disrupted the education of every kid in the city, you live in the shadow of “The Innovator’s Dilemma.” If you saw the episode of the HBO sitcom “Silicon Valley” in which the characters attend a conference called TechCrunch Disrupt 2014 (which is a real thing), and a guy from the stage, a Paul Rudd look-alike, shouts, “Let me hear it, disss-ruppttt!,” you have heard the voice of Clay Christensen, echoing across the valley.

……..

The theory of disruption is meant to be predictive. On March 10, 2000, Christensen launched a $3.8-million Disruptive Growth Fund, which he managed with Neil Eisner, a broker in St. Louis. Christensen drew on his theory to select stocks. Less than a year later, the fund was quietly liquidated: during a stretch of time when the Nasdaq lost fifty per cent of its value, the Disruptive Growth Fund lost sixty-four per cent. In 2007, Christensen told Business Week that “the prediction of the theory would be that Apple won’t succeed with the iPhone,” adding, “History speaks pretty loudly on that.” In its first five years, the iPhone generated a hundred and fifty billion dollars of revenue. In the preface to the 2011 edition of “The Innovator’s Dilemma,” Christensen reports that, since the book’s publication, in 1997, “the theory of disruption continues to yield predictions that are quite accurate.” This is less because people have used his model to make accurate predictions about things that haven’t happened yet than because disruption has been sold as advice, and because much that happened between 1997 and 2011 looks, in retrospect, disruptive. Disruptive innovation can reliably be seen only after the fact.

………

The handpicked case study, which is Christensen’s method, is a notoriously weak foundation on which to build a theory. But, if the handpicked case study is the approved approach, it would seem that efforts at embracing disruptive innovation are often fatal. Morrison-Knudsen, an engineering and construction firm, got its start in 1905 and helped build more than a hundred and fifty dams all over the world, including the Hoover. Beginning in 1988, a new C.E.O., William Agee, looked to new products and new markets, and, after Bill Clinton’s election, in 1992, bet on mass transit, turning to the construction of both commuter and long-distance train cars through two subsidiaries, MK Transit and MK Rail. These disruptive businesses proved to be a disaster. Morrison-Knudsen announced in 1995 that it had lost three hundred and fifty million dollars, by which point the company had essentially collapsed—not because it didn’t disruptively innovate but because it did. Time, Inc., founded in 1922, auto-disrupted, too. In 1994, the company launched Pathfinder, an early new-media venture, an umbrella Web site for its magazines, at a cost estimated to have exceeded a hundred million dollars; the site was abandoned in 1999. Had Pathfinder been successful, it would have been greeted, retrospectively, as evidence of disruptive innovation. Instead, as one of its producers put it, “it’s like it never existed.”

Now that I have taken all the digressions, we come to the conclusion __ how do we stand apart from the crowd. The author of If you are in a Dogfight, Become a Cat gives us three frameworks to differentiate oneself from the crowd. These are not mutually exclusive frameworks. Rather there is a significant overlap between them.

Framework 1: Breakaway and Reverse positioning

He derives the first one from Youngme Moon’s book Different: Escaping the Competitive Herd which I had skipped earlier to avoid repetition. Reverse positioning refers to dumbing down the product by stripping away certain features and offering that as a value proposition.

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Breakaway positioning refers to adding features from a different category such that the product now becomes a different product altogether.

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Framework 2: Blue Ocean Strategy

Blue Ocean Strategy is a marketing theory from a book published in 2005 which was written by W. Chan Kim and Renée Mauborgne, professors at INSEAD and co-directors of the INSEAD Blue Ocean Strategy Institute where they argue that leading companies will succeed not by battling competitors, but by systematically creating “blue oceans” of uncontested market space ripe for growth. The strategy represents the simultaneous pursuit of high product differentiation and low cost, thereby making competition irrelevant. The other ocean is red  because competitors are having a bloody battle over a stagnant or shrinking market share.

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Framework 3: Disruption Innovation

Expanding on Christenson’s famous term of art coined in his book The Innovator’s Dilemma: a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.

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Conclusion

I hope the explanation of three frameworks make the title of the book If you are in a Dogfight, Become a Cat self explanatory i.e., when competition has become a dogfight (intense bloody competition over similarly features products), it is wise to become a cat (introduce a different category of product or create a new market).

Both the books Different and If you are in a Dogfight, Become a Cat are recommended as their is much to learn in these books. In addition, I recommend you pick up The Success Equation: Untangling Skill and Luck in Business, Sports and Investing (I might as well re-read it again).

Tailpiece

What all these strategy books agree on is that Apple is in a class apart as it has been able to disrupt its way into smart phones and differentiate itself in such a way that on one hand you have iPhone (running iOS) and on the other you have the Android phones (Samsung, LG, Xiaomi, Pixel etc). And despite having lesser features than many Android phones, still commands 90% of the profits of smart phone sector.  Apple’s genius is explained well by the following ad from its competitor Samsung yet suckers (including myself) keep throwing money at buying an overprice phone.

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The Four Horsemen of Silicon Valley

Four companies have infiltrated every corner of our lives and are very hard to avoid (or boycott)

It started when I listened to the Masters in Business podcast with Scott Galloway where he was talking his book “The Four” about the four horsemen of technology i.e. Facebook, Amazon, Apple and Google and how these companies are taking over lives. These had already taken over the financial and business press (before Bitcoin arrived and unseated them), remember #FAANG stocks at the beginning of 2016 (the N in FAANG stands for Netflix.) The author posits that Netflix could very well be the fifth horsemen but the book is mainly about the FAAG_Facebook, Apple, Amazon and Google_ the four horsemen. For those who can’t be bothered to read the book, I recommend the below podcast as in it, the author pretty much distills his book into an hour long conversation.

The podcast got me interested in the book and I placed a hold on it at Toronto Public Library website. This post is also a paean to Toronto Public Library system which has allowed me to road so many books that I otherwise wouldn’t have been able to.

I checked out the book in late November. It is a quick read__could have been shorter as in some places author rambles. If he had taken his meanderings out, the book would have been reduced by one third and could have been a quicker read. Nevertheless, it is a good book. I have read 50+ books so far this year (fiction and non-fiction included) in addition to reading long form articles as well as listening to podcasts. However, very few have given me that “a-ha” insight or compelled me to change my opinion or at least look at an issue from a different point of view. As we grow older, we become entrenched in our views despite thinking of ourselves as open to new ideas and perspectives. But this book forced me to alter some of my views and that in my opinion, makes it a good book.

Rather than summarizing the contents of the book, I will put a few snapshots of the different pages of the book.

Acquisition of Disruptive Companies

On acquiring “disruptive” companies by old economy firms, think Walmart’s acquisition of Jet.com, the author summarized it pithily in the following manner.

On the podcast, author was humble enough to admit that when Walmart announced Jet.com acquisition, he deemed it one of the stupidest mistakes by a dying old-economy dinosaur but time has proved him wrong and Walmart right.

Apple

He had a a lot to say about Apple which made me see Apple in a different light i.e., in a world where “software is eating the world” and when everything is moving from “bricks and mortar” to “click and order”or” clickbait”, Apple is holding its own and hitting it out the park despite being in an old world industry of “hardware manufacturing” and “bricks and mortar” retailing. Manufacturing and retail is deemed uncool from Silicon Valley perspective, yet Apple has made it sexy. Author uses this is an opportunity to rant about our search to satisfy our innate need of worshiping a higher authority and calls it a sad state of affairs that we have decided that tech leaders are our new gods.

Amazon

Amazon is taking over the world. We all know it. The insight for me was Amazon is moving into bricks and mortar though it is not obvious right away. I know about Amazon Go (prototypical cashier less store) or “physical” bookstores opened by Amazon in certain US cities or even acquisition of Whole Foods, which most pundits think Amazon will use as drop box location for its deliveries. But Amazon is also making significant investment in warehouses and fulfillment centers. If Amazon continues to promise deliveries in two days, it needs to have those warehouses next to every major city and metropolitan area. Delivery is becoming a major expense line, and to have some control over it, Amazon is increasing its investment in transport sector.

Needless to mention, this additional growth is coming with increased customer acquisition costs and that Amazon is trying to push consumers towards Amazon Prime subscription model.

I wished I had taken a snapshot of the next page in the book before I returned it to the library where the author highlighted a very import research conducted by him. According to him, when you ask Alexa to place an order say AA batteries for you, Alexa only recommends Amazon’s store brand Amazon Basics batteries and says other types not available. But if you log on to the website, it shows that other brands are available. So as we move from “one click” world to “zero click” world of Alexa and Home pods and Siri, we will be handing more and more decision making power to these horsemen.

Google

With respect to Google, there wasn’t anything snapshot worthy. Google knows more about us then our closest friend, parents, spouse or even ourselves. To wit, if someone is searching for a divorce lawyer on Google, or inquiring about symptoms of a particular disease, Google now knows that she is looking for a way out her marriage or may be afflicted with a particular disease that she wants to keep hidden.

What if someone hacks into Google database and publishes the stuff that you have been searching next to your email and profile. This is like putting all your private interests, fetishes, diseases and fears etc. for all the world to see. Scary.

Facebook

Finally the elephant in the room — Facebook. Facebook has already taken over people’s lives before Farmville and Candycrush came along. More recently, we have the Russians allegedly using it to manipulate the US elections. In addition to being a way to stay in touch with friends, Facebook is also a platform for launching new businesses. I log on to Facebook occasionally once or twice a month mainly if I come across a fantastic Pakistani political meme and want to share it with my network. Every time I log in, Facebook tells me that I have 10+ notifications outstanding. When I click on them, only one or two are from my friends and rest of them are about people in my circle, neighborhood, or some other area that Facebook has determined some how are linked to me, selling goods and services. Facebook has become a big platform for people for sales, launching new businesses and reaching out to new customers. That was my perception of Facebook. Till I read this about how when it comes to news feeds and other stuff, Facebook ignores the moderates and goes for the extremists.

There is more to this book than just what I excerpted above. The book mentioned two more books “Different” by Youngme Moon and “If you are in a dog fight, become a cat” by Leonard Sherman both of which I then requested from the library and have since read but you will have to read about them some other time if I ever get around to writing it.