Takeaways: Good Strategy / Bad Strategy (Rumelt), Part 9
Focus. (50% complete)
Hello again! Over the past few weekends I’ve recorded three episodes of the soon-to-launch Takeaways podcast 🎙💬. As an email subscriber, you’ll be the first to receive episodes, so coming soon I guess.
As for the book posts, this week’s read unpacked “strategic focus” in a way that just clicked. Let’s check ‘er out.
This is a continuation of the book’s second section called “sources of power.” We’ve already covered Leverage, Proximate Objectives, Chain-link Systems, and Design.
Now we’re on to ➡ focus ⬅.
Used carelessly, “Focus” is a cousin of Fried’s dangerous four-letter words. Stop me if you’ve heard these:
I need to focus. [proceeds to do 100 different things a day]
Our team will focus on these 13 things. [the worst baker’s dozen]
Our company’s focus is [insert ocean-boiling problem here].
In this chapter, Rumelt makes focus into something we can handle with skill and ease. It’s not just about having a few, important things. He says focus is a “particular mixture of policy and positioning.”
Of course, that transition is not so easy. He sets the stage with problem he gave to one of this business classes. Rumelt’s objectives were as follows:
Team them how to identify a company’s strategy
Deepen their skills at analyzing qualitative information
Explore focus (that particular mixture of policy and positioning)
He gives them a scenario. A metal container maker, Crown Cork & Seal, experiences monumental business growth, leadership changes, nosedive, and re-growth. It’s a great case study, but you’ll have to read it on your own time (slideshare).
We’ll just focus on… how he got to focus and what I took from the read.
Takeaway #1: “To begin identifying a company’s strategy, it is usually most helpful to examine how the major competitors make their livings.”
After much hemming and hawing in the classroom example, all of the students who chimed in were off the mark. Rumelt leads them (and you, the reader) with this question and answer:
”If we are not going to automatically accept the opinions of others, how can we independently identify a company’s strategy? 1️⃣ We do this by looking at each policy of the company and 2️⃣ noticing those that are different from the norm in the industry. We then 3️⃣ try to figure out the common target of such distinctive policies—what they are coordinated in accomplishing.”
(Editor’s Note: my emoji numbers)
Now, I’m going to try to contrive a version of this that loosely applies to my industry. I’ll use Calm as an example.
Imagine Calm has these policies:
Massive Paid User Acquisition
Extraordinary Welcome Journey
Go big on Sleep Stories
Encourage Meaningful Virality
Then we try to guess the target of each of these policies:
Paid User Acquisition ➡ (re-)targeting successfully connects new customers
Extraordinary Welcome Journey ➡ sign-up completions are maxed
Go big on Sleep Stories ➡ common use case, celebs advertise to massive follows
Encourage Meaningful Virality ➡ customers become warm lead generators
You can see the opportunity for debate about these policies and what they could be targeting. We have to develop sight 1 or 2 levels behind these decisions. Why spend so much on celebrity sleep stories? Is there a pattern in the celebs they’ve selected? Why sleep stories vs. their other features?
Eventually the debate has to end. Once all the pieces are collected, we should attempt to summarize the FOCUS of the company (recall this, the mixture of policy and positioning). And don’t forget, tie these pieces to the fundamental economics of the industry (no easy feat).
In Calm’s case, they’re a direct-to-consumer (D2C) mindfulness app. Regular usage is associated with retention, so they employ a variety of LTV-encouraging tactics to make that happen (I’m sure you could find many blog posts with many detailed analyses). Competition in the space has escalated and seems dominated by a few players racing to entertain their way to the top1.
How do we level up our ability to analyze this qualitative information?
Takeaway #2: “How to tackle seemingly-formless questions like [‘what kind of company creates a television series about itself?’]… The first trick is to replace general nouns with specific examples. like [‘what about Calm, does it need an HBO Series about mindfulness?’]”
It might help to ask “What drove Calm to focus only in the USA?”, or “What do they get out of hiring Laura Dern to read a sleep story?”
Takeaway #3: “Focus doesn’t always mean more profit”
Takeaway #4: “Attacking a segment of the market with a business system supplying more value to that segment than the other players can—that’s called focus.”
In Takeaway #4, the word “focus” has two meanings, says Rumelt. First, it denotes the coordination of policies which produce extra power through their interacting and overlapping effects. Second, it denotes the application of that power to the right target2.
OK, so maybe Calm is not attempting to make a profit. Maybe they’re funding future growth, or a massive product expansion? Maybe they’re preparing for an even larger round of funding and need to show sustainability?
The chapter has ended, and I should try to independently identify a Calm’s strategy.
I’m no Porter, and I’m no MBA, so take this with a grain of salt. Here’s what I think:
I believe they are attempting to leverage VC funding to snowball the largest consumer userbase they can into a very simple, but effective mindfulness use case. They are massively committed to the obstacles between new customers and that use case (namely the onboarding journey and social proof + promotions).
With massive distribution will come more and more reasons to pay that annual fee. Calm will become more like an Amazon prime membership. Calm will get you sleep stories and HBO access and status at the (future) Calm Island Resort.
Overall, a fun chapter, and a refreshing way to think about focus.
🔖 Bookmark! next chapter, “Growth”
So that’s all for today. Thanks for following along, and if you know someone who’d like to join us in this reading journey, there’s an awesome button here that’ll help us out: