When Mark Zuckerberg started Facebook in 2004, he wasn’t the first to build a social networking platform. There were dozens of other social networking platforms before him — many with millions of dollars in funding and millions of users. Yet, he still managed to build the largest social networking platform on the planet.
How did Facebook manage to win against bigger and better-funded competitors who had a huge head-start over them? The answer: Facebook won on strategy — not on an original founding vision or an inherent unfair advantage.
What is Strategy?
Ask a dozen people what strategy means to them, and you’ll probably get a dozen different emotionally charged answers, such as this one:
Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.
– Sun Tzu
The term “strategy” first appeared in modern-day management theory only in the 1960s, but its roots date back to ancient eastern and western military philosophy. Since then, lots have been published on strategic thinking and planning. In 1998, Henry Mintzberg proposed five ways of thinking about strategy:
1. as a plan,
2. as a pattern,
3. as a perspective,
4. as positioning, and
5. as a ploy.
I would argue that while all these definitions look seemingly different, each is a means for achieving a given goal under conditions of uncertainty.
Strategy as How
The high-level goal of every business is to realize the full potential of an idea or, more specifically: To build a repeatable and scalable business model.
The mistake too many entrepreneurs make is rushing up the innovation pyramid shown below and leading with what they are building (product) instead of taking the requisite time needed first to get their vision and strategy in order.
Vision and strategy are foundational pieces in this pyramid, without which even a good product cannot withstand the weight of its market. While you need a strong vision to define your goal, your strategy ultimately helps you achieve it.
Strategy as Patterns
Science is built upon the collective knowledge of many. Innovation is no different.
If I have seen further, it is by standing on the shoulders of giants.
- Isaac Newton
Sam Walton is known to have traveled great distances to study his competitors. He would bring back new ideas, like the modern-day centralized checkout lane, and first, try them out in a few of his stores. If they worked there, he would roll them out to all his stores.
Google similarly did not invent the automated auction-based ad system (in Adwords) that today powers their core business model. They borrowed the idea from a close rival (Overture) and doubled down on this strategy when it outperformed their banner-based advertising approach by 3X.
Analogs don’t have to only come from rivals. Charles Darwin was heavily influenced by another Charles (Lyell), whose book (Principles of Geology) he carried with him on the Beagle. Lyell made a case for the gradual evolution of the earth through geological processes, which helped Darwin formulate his Theory of Evolution (which, ironically, Lyell refuted for many years).
A lot of business model innovation also comes from a remixing of existing patterns across diverse domains. Unbundling (music from CDs, tv channels from cable, etc.), disintermediation, and sharing economy (e.g., Airbnb) are all patterns that have been repeatedly applied across many different domains. If you use a high-level concept in your Lean Canvas, that is usually one or more analogs at work, e.g., an Airbnb for parking spaces.
Strategy as Differentiation
While an analog can jumpstart your strategy, you still need to build for differentiation (aka your unfair advantage). One that keeps copycats and competitors at bay who will inevitably enter the market if you are successful.
Insanity: doing the same thing over and over again and expecting different results.
- Albert Einstein
The bad news is that, like Mark Zuckerburg, we don’t always have an inherent unfair advantage from day one. The good news is that we often know where that unfair advantage needs to come from (large network effects in the case of Facebook). But we still don’t know how to get there.
Most unfair advantages start as a secret.
A secret is a unique opportunity that others don’t see.
- Peter Thiel, Zero to One
Secrets can be secrets of nature or secrets about people. Facebook’s secret was about people. Mark quickly realized that people loved to talk (connect, gossip, etc.), and modern-day life was getting in the way. The most effective way for building a large social network was NOT by trying to create a brand new social network built on weak links (a strategy his competitors were pursuing) but rather by removing friction in pre-existing social networks. Like any college campus, the Harvard campus was the perfect petri dish for his experiment.
Uncovering secrets like these is aided by deep observation and even a studying of anti-patterns or antilogs. Randy Komisar and John Mullins first popularized the concept of antilogs in their book: “Getting to Plan B.” These are previous implementations of something similar that either failed to realize the vision's full potential.
So how do you capture all this? While the Lean Canvas is highly effective at capturing your overall vision (and some aspects of strategy), I wanted something solely for this purpose. It had to fit on a single page, and it had to be able to capture both your overall strategy and shorter-term strategic objectives like new features or marketing campaigns.
I’m going to focus only on the former for today.
Meet the Strategy Proposal
This is a format based on the A3 report that was developed at Toyota. The proposal is divided into two halves with a clear delineation down the middle of current reality from future reality. You read these reports from top to bottom, starting with the left-hand side, then the right-hand side
Let's start with the analysis section:
A brief description of what you are trying to achieve. For your overall strategy, articulate your high-level vision or your WHY.
2. Current Condition
Summarize the current situation and highlight problems or shortcomings in the current offerings or existing alternatives.
3. Root Cause Analysis
This is the heart of the analysis and an opportunity to go deeper. Starting with your closest analogs and antilogs:
- Analyze for root causes
- A job not being done well
- Craft your differentiation
We all want to build “better” products. Here you get to define the critical axes of “better.”
Understand root cause and secrets reveal themselves.
Then on to the proposal section:
State your measurable time-boxed goal here. For the overall strategy proposal, I like to use my minimum success criteria. You can read up more about how to determine this here.
Your minimum success criteria is the smallest outcome that would deem your project a success X years from now.
5. Implementation Plan
Describe your go-to-market plan. The goal isn’t to write a 30-page document but rather to outline a coarse-grained implementation plan with significant milestones. Facebook did not open its service to the world like its competitors but instead implemented a carefully orchestrated staged rollout from one ivy league college to another. While this rollout played up on exclusivity and desire (which was a great strategic ploy), it had the more important effect of trading customer risk for technical risk — allowing them to first focus on building the right product before pursuing massive scale.
6. Follow-on Strategies (if any)
What could you do next if you are successful with this plan? Achieving your minimum success criteria is not the end but usually the beginning of something else. You may expand into other markets, introduce additional products, etc. Or, like Facebook, move from ivy league schools to companies and then a billion plus people…
Like the Lean Canvas, it helps to craft one of these proposals quickly and then go share it with someone (you trust) other than yourself.
The first principle is that you must not fool yourself and you are the easiest person to fool.
- Richard P. Feynman