# The Grid by Matt Watkinson Business thinking has always been based on an analytical approach: breaking things down into small pieces, then studying them in isolation. The problem is that everything in a business is interconnected – the whole doesn’t behave like the sum of its parts. ( [Location 139](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=139) ) There are three things that make for a successful business. The first is desirability. If people don’t want or need what you offer, you have a fundamental problem. The second is profitability. If people love what you provide but it costs more to make than you can sell it for, you won’t be around for long. The third is longevity. There’s no point making a fortune today if you lose it all tomorrow. ( [Location 197](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=197) ) **Tags:** #product-management, #work, #success, #model, #economics **Note:** .model .work .success .mental_model .economics .product_management Desirability, Viability ( e.g. profitability), Feasibility (e.g. tech stack, longevity, sustainability) The same is true with business decision-making, where, broadly speaking, change is experienced within three distinct categories. What customers want and how they behave can change. Since without customers you don’t have a business, paying attention to these changes is paramount. Market conditions can also change. New rivals emerge, categories grow and decline, new government regulations come into effect, any of which can impact your success. Finally, the organisation – the business itself – is always changing. As your business develops, you will find that your capabilities, strengths and weaknesses change. ( [Location 209](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=209) ) **Tags:** #work, #model, #ideas, #economics **Note:** .model .economics .work .ideas 3C's and P Model 1. Customers 2. Competitors 3. Company (+ Product or Service) Now for the interesting part. We’ve got three goals: desirability, profitability and longevity. We’ve also got three changing layers: the customer, the market and the organisation. Because everything in a business is interconnected, each layer can affect each goal: a change in competition can affect our profitability for example, or a change related to our customers might make our products less desirable. ( [Location 215](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=215) ) **Tags:** #work, #model, #ideas Every business is sandwiched between its customers and its suppliers. ... This means you’re not just in competition with your rivals, there is also a competitive element to your relationships with suppliers and customers too. Whoever has the most bargaining power gets the best deal overall. ( [Location 238](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=238) ) **Note:** Linked to 'bargaining power of suppliers' and 'bargaining power of buyers' in Michael Porter's 5 Forces framework. The easier something is to imitate, the more intense competition becomes and the less profitable it is likely to be in the long term. Imitability, then, plays a significant role in determining the longevity of our business. ( [Location 253](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=253) ) **Tags:** #product-management, #work, #tech, #success **Note:** Linked to 'barriers to entry' in Economics the 'threat of substitutes' and 'threat of new entrants' in Michael Porter's 5 Forces framework, and 'business moats' in Buffet speak. Many topics critical to business success are missing from the grid. Hard factors, like processes and technology; and soft ones, like people and culture. These are essential considerations and occupy the majority of many a decision-maker’s day-to-day activities. Why do they not have their own, clearly labelled presence on the grid? Because these factors are instrumental to the success of the business rather than the direct cause of it – they are the means rather than the end. The grid aims to provide a more robust way to think about them. ( [Location 289](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=289) ) **Note:** e.g. Tech -> Costs, Adaptability, Imitability, Offerings e.g. Culture -> Adaptability, Offerings, Costs A customer’s wants and needs are underpinned by three factors: Customers choose products and services that reflect their values and beliefs: ... Every product or service is also a means for customers to achieve their goals: losing weight, learning another language, or arranging a meeting, for example. ... Barriers are obstacles preventing customers from achieving their goals or from adopting your product or service. ( [Location 317](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=317) ) **Tags:** #product-management, #work, #ideas, #behaviour **Note:** Values / beliefs ~ NVC needs Goals ~ jobs-to-be-done Barriers ~ friction Three elements determine the rivalry you face, and how it might be changing: Your category – the kind of product or service you sell – determines the basic requirements you must meet to be competitive. How easily rivals can launch a business in that category, and whether it is growing or declining in popularity, will also affect the intensity of the competition. Your territory – where your business is located and the geographical area you cover – impacts the size of your opportunity and the rivals you face. Finally, within your chosen field there will always be alternatives and substitutes – other options customers use to judge the desirability of your offering. ( [Location 325](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=325) ) **Tags:** #work, #model, #laws **Note:** e.g. Category = cloud. Customers expect the best-in-class. Growing industry (5-20% average YoY growth), attractive commercial opportunities, cloud-native > cloud-enabled. Your offerings consist of these interconnected elements: The product or service proposition is the concept the customer is buying into. For it to be desirable, customers must have clear, obvious reasons to choose it over alternatives. The expectations and associations people have about a business – its brand appeal – affects the desirability of all its products and services. The customer experience is also important. ( [Location 333](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=333) ) Creating a profit requires revenues from customers. Three considerations must be borne in mind: The mechanism by which you make the money, your revenue model: choosing between selling your services for a fixed price, or charging by the hour, for example. You must also decide the price ... Finally, you need to consider the volume – the quantities people buy, and the frequency with which they buy them. ( [Location 341](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=341) ) **Tags:** #work, #model, #finance, #economics **Note:** Revenues = price * volume (quantity * frequency) Note: fixed price, subscription, freemium Your bargaining power also affects your ability to make a profit. ... Governments introduce rules and regulations for many reasons, but a major driver is to protect society by controlling the power of organisations. ( [Location 348](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=348) ) An organisation incurs costs in three basic categories: Fixed costs, like rent or staff salaries, stay the same regardless of production volumes. Variable costs depend on production volumes – like the raw materials or packaging you need to make and sell your product. ... Capital expenditure refers to longer-term investments, like a factory or equipment purchase. ( [Location 354](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=354) ) The size of your customer base – the number of customers you have – relies on three factors: People can’t become customers unless they know you exist, so raising awareness is your first consideration. Awareness should lead to acquisition – new customers joining your business. There’s no customer base if people won’t buy what you’re offering. Finally, your customer base won’t grow if existing customers leave at the same rate as new ones join. Retention – keeping hold of the customers you have acquired – is crucial for most businesses. ( [Location 362](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=362) ) **Tags:** #tech, #model, #work, #product-management The ease with which a rival can copy you – your imitability – dramatically impacts your longevity. You can make yourself less imitable in three ways: You can seek legal protection – using patents, trademarks and copyright to stop rivals from copying you. You can build durable advantages that are challenging to imitate – such as a unique cost structure or product ecosystem. Finally, you can create competitor lag ( [Location 369](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=369) ) An organisation’s adaptability ultimately determines its chances of survival in the long run: If you run out of cash, you cannot continue to operate the business. The stronger your cash position, the greater the scope of options you can pursue. Your scalability or capacity can also be a major constraint. Operating at full capacity leaves you with no room to plan for the future, and if your business cannot scale it cannot grow. Finally, complexity and rigidity within a business make changing direction agonisingly slow, if not impossible. ( [Location 377](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=377) ) **Tags:** #product-management, #work It helps to ask yourself three questions for each element. 1. What assumptions am I making? Basing decisions on incorrect assumptions can send you down the wrong path, so you must clarify your assumptions for each element of the grid. Just listing those assumptions as hypotheses to test is half the battle already won. ... 2. How can I test my hypotheses? Once you’ve listed your hypotheses – such as ‘Demand for our category is growing’ or ‘Existing alternatives are difficult to use’ – you should test them. ... 3. Do the parts fit together? As you continue around the grid, keep zooming out to consider the whole, checking that the parts fit together. ( [Location 520](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=520) ) **Tags:** #take-action, #product-management, #work, #tech, #success, #signal, #decision In Good Strategy Bad Strategy, Richard Rumelt defines a strategy as a ‘cohesive response to an important challenge’, and suggests that it consists of three elements. First, a diagnosis that defines the challenge. Second, a guiding policy, or broad approach, to overcome that challenge. Finally, there must be coherent actions to carry out that policy. ( [Location 589](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=589) ) **Tags:** #work, #success, #power, #politics, #leadership, #laws, #decision First, start with the king. Who is the king of Hublot? Immediate answer – the customer. If you want to serve a customer, you must know his history, where does he come from, how was he educated, what does he like, what does he hate, what is his religion, what is his passion, what is his hobby, what is his character, how wealthy is he, how generous is he. All this, we have to know. The more we know, the better we can serve him. Hublot has a king who loves polo, who loves cricket, who loves sailing, who loves football, who loves Formula One, who loves music, who loves Coachella, who loves to have tattoos. So, are we going to do that? OF COURSE! If the king likes it. We are going to follow … We have got to adapt to the taste of our king. And that’s it! It’s not more difficult than this. ( [Location 687](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=687) ) **Tags:** #product-management, #work, #tech, #success, #listening, #ideas **Note:** .product_management .tech .work .ideas .success .listening To truly understand your customers there are three things you need to know: Who are they? What are their values and beliefs? What are they trying to achieve? What are their goals? What is standing in their way? What barriers do they face? ( [Location 698](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=698) ) Our beliefs matter because they determine what we find pleasurable. As Paul Bloom explains in How Pleasure Works, ‘The enjoyment we get from something derives from what we think that thing is. For a painting, it matters who the artist was; for a story, it matters whether it is truth or fiction; for a steak, we care what sort of animal it came from.’ ( [Location 711](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=711) ) **Tags:** #happiness, #fyi, #coaching, #behaviour, #art As the Hungarian physicist Eugene P. Wigner remarked, ‘People do not build their beliefs on a foundation of reason. They begin with certain beliefs, then find reasons to justify them.’ ( [Location 724](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=724) ) **Tags:** #green, #bias, #behaviour The first step to understanding your customers is to consider how they identify themselves and how we can reflect that image through our offerings. ( [Location 736](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=736) ) **Tags:** #product-management, #tech, #success, #relationships, #decision, #behaviour In The Business of Belief, Tom Asacker likens this process to getting customers to cross a footbridge that spans a deep chasm.27 Instead of pushing them across by yelling at them or using logical arguments that fall flat – your fear of heights is irrational! – you should encourage them to follow your lead, so they gently inch their way across. Asacker suggests a two-pronged approach. First, you start with what’s already there – their existing desires and feelings. You need to know what will motivate them to cross. ‘People are drawn across the bridge of belief by their anticipation of a better experience and a better life,’ he writes. ‘Effective leaders ignite people’s imaginations by painting vivid, compelling, and personally relevant pictures – ones that move them.’28 De Beers did this brilliantly, tapping into men’s desires not only to express their love, but to demonstrate their status and success in life. Second, you have to do everything you can to make them feel comfortable and safe, providing reassuring evidence that the bridge is steady and secure.29 De Beers excelled here too, making sure that diamonds were featured in romantic movies and feeding pictures of celebrities and royalty wearing diamonds to magazines. Surrounded by evidence from their role models that the diamond was the ultimate symbol of romance, customers eagerly followed suit. ( [Location 827](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=827) ) Every product or service should be thought of as a means for the customer to achieve an objective. As marketing professor Theodore Levitt remarked, ‘People don’t want to buy a quarter-inch drill. They want a quarter-inch hole.’ ( [Location 847](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=847) ) **Note:** i.e. Jobs-to-be-done (JTBD) I learned to start by understanding the nature of a character – or rather, in this context, a customer – by uncovering their super objective, an overarching goal that drives all their other behaviour.32 A customer’s immediate goal might be to buy some bathroom scales, but the scales are a means to achieving a higher-level goal – losing weight or monitoring progress on an exercise routine. Going up another level, a possible super objective might be to increase their sense of self-esteem: to feel better about their body image. It’s an insight that could help develop a better product. ( [Location 858](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=858) ) **Note:** Linked to needs in NVC. If people don’t say what they think, and don’t do what they say, how can we hope to know what they want? ... The secret is to consider the subtext – to ask what is our customer thinking but not saying?33 What goals don’t they feel comfortable mentioning? If you can understand their subtext – something important to them that they don’t openly discuss – you can create more compelling offerings. ( [Location 881](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=881) ) **Tags:** #product-management, #listening Barriers are obstacles that prevent customers from achieving their goals or adopting your product. Most businesses are so focused on product benefits that they forget about barriers entirely, leaving an open goal for those who can recognise and dismantle them. These barriers can be grouped into three categories: the operational; the experiential; and the financial. ( [Location 915](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=915) ) **Note:** e.g. Operational = set-up, compatability, functionality, competing technology, network and distribution effects Experiental = training, trialability, MAYA, biases Financial = opportunity cost, up-front cost, switching cost, risk Once we have chosen a product, for most of us picking up the instruction manual is an admission of defeat, not a logical starting point. The prospect of a steep learning curve can be enough to put us off, especially with technology products.51 The aim should be to move customers from novice to intermediate as quickly as possible, then allow them to advance at their own pace. ( [Location 991](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=991) ) The legendary modernist designer Raymond Loewy, who designed everything from logos and cigarette packets to trains, buses and refrigerators, observed: ‘Our desire is naturally to give the buying public the most advanced product … Unfortunately, it has been proved time and time again that such a product does not always sell well. There seems to be for each individual product … a critical area at which the consumer’s desire for novelty reaches what I might call the shock zone … It is a sort of tug of war between attraction to the new and fear of the unfamiliar.’52 In response, he targeted what he called the MAYA stage – shorthand for Most Advanced Yet Acceptable – a zone where the product has sufficient novelty to be attractive, but is not so radical as to be unfamiliar. ( [Location 1003](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1003) ) **Tags:** #product-management, #mental-model, #laws, #ideas **Note:** MAYA The product that is easiest to buy and use generally wins. If customers are likely to face high barriers to achieving their goals or adopting your product, you must identify ways to dismantle them. ( [Location 1047](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1047) ) Values and beliefs How do customers describe or identify themselves? What values do your customers want to express through their product choices? What beliefs need to change for your offering to succeed? How will you do this? Goals What are your customers’ super objectives? What hidden goals or subtext does your customer have? How do you know if your customer has achieved their goals successfully? What are their success criteria? Barriers What equipment does your customer already have that you must work with? Does this make a barrier? What ways of working might your offering impact? Can you reduce the effort required to get customers started with your product or service? What financial barriers stand in your target customer’s way? Can you find a way to dismantle them? ( [Location 1050](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1050) ) Ecologically speaking, competition is defined as direct or indirect interactions between species that reduce access to resources needed to survive.4 Swapping the word ‘species’ for ‘organisations’ gives us a smart definition of competition in business: direct or indirect interactions between organisations that reduce access to resources needed to survive. ( [Location 1082](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1082) ) As Darwin himself explained, ‘More living beings can be supported on the same area the more they diverge.’ ... This is the approach we should bring to the economic jungle – to flourish by being different. How do we do this in practice? The starting point is to form a deep understanding of the competitive landscape. Only then can you decide how best to fit into it. I suggest a three-step process. Start by exploring your category – building basic knowledge about the dynamics of your market. Next, identify your habitat – the geographic territory that you intend to occupy. Finally, identify your rivals: the remaining alternatives and substitutes that must be faced. ( [Location 1096](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1096) ) **Tags:** #product-management, #work, #success, #model, #decision Customers buy from established categories because it makes life easier. When a product is in a clear category – running shoes, office chairs or garden sheds – we understand what the product is for and how it works, and we usually have a basic idea of how to choose between options. When products fall outside an obvious category, it becomes easier for us to simply reject them – we can’t be bothered to figure all that out. ( [Location 1113](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1113) ) **Tags:** #product-management, #work, #success **Note:** Hence the need for clear business cases and value propositions. One way to assess the profit potential is to look at the category’s entry and exit barriers. Entry and exit barriers affect supply. If there is nothing to stop new rivals pouring into the category, oversupply will drive down prices and margins. If existing players can’t leave because of high exit costs, they will fight to make the category as uncomfortable as possible for new entrants.13 An entry barrier is anything that makes it difficult for new firms to join a category: the costs of getting started, the need for high-level expertise, economies of scale, access to distribution, and the challenges posed by regulatory hurdles. ( [Location 1133](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1133) ) **Tags:** #work, #model As Al Ries wrote in his classic book Positioning: The Battle for Your Mind, ‘Prospects don’t buy, they choose … The merit, or lack of merit, of your brand is not nearly as important as your position among the possible choices.’21 The key, therefore, is to pin down the reference points customers will use and then decide where your offering sits among them. ( [Location 1189](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1189) ) The market map is a simple chart with two axes, one showing ‘what you pay’, the other ‘what you get’ – in other words, the customer’s overall perception of the quality or performance of your offering. The map is divided into nine positions, as shown below. Figure 8 A generic market positioning map. ( [Location 1194](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1194) ) **Tags:** #product-management, #mental-model, #tech, #model, #ideas Markets are chaotic and unpredictable, and in the fog of competition you can lose sight of who your rivals are. To help people stay focused, legendary technologist Andy Grove suggested the ‘silver bullet test’: If you had just one bullet in a figurative pistol, whom among your many competitors would you save it for? ... Imagine you have a magic net that can make one competitor’s customers your own. Who would you use it on? Who would use their magic net on you? ... Imagine it’s three years from now. Who will you use the magic net on? ... If your business shut down tomorrow, where would your customers spend the money they would have spent with you? ( [Location 1267](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1267) ) Anything that expresses the customer’s identity – their self-image, values, community or position in society – can be a source of value. The philosopher Jean Baudrillard called this sign value because it derives from what it signifies about them. ( [Location 1311](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1311) ) **Tags:** #product-management, #tech, #philosophy, #ideas, #behaviour Few motivators are more powerful than feeling autonomous – we want to feel in control.10 Giving customers greater control over when and where they interact with you; what things look like; or how much they spend can increase desirability. ( [Location 1355](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1355) ) **Tags:** #work, #tech, #success, #leadership, #coaching, #behaviour For – target customer Who has – goals Our product or service is a – category That unlike – specific alternative(s) Provides – compelling rationales ... ‘For dachshund fans who want to express their love of the breed, devotedtodachshunds.co.uk is an online retailer that – unlike Amazon – exclusively sells sausage-dog-themed products, making it easy to find accessories they’ll love.’ ( [Location 1368](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1368) ) Your proposition must outperform rivals and industry norms where it matters ... Eliminate rationales that don’t involve making a noticeable improvement on what already exists. Rationales are based on comparative strengths, not absolutes. If there is not sufficient contrast to rival offerings or industry norms, you cannot expect the customer to choose your product.14 Tesla have done a great job here, emphasising areas where they outperform alternatives: a growing number of autonomous driving features, zero emissions, the best safety of any car ever tested in America, and lower maintenance and fuel costs, all of which track back to the sources of value we mentioned earlier. ( [Location 1397](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1397) ) The first step to building an appealing brand is to choose a distinctive set of associations you will actively promote from the sources of value given at the beginning of the chapter. You don’t need associations in every category; you can use just two or three. Lush cosmetics, for example, are associated with their strong ethics, and equally strong-smelling stores. American car insurer GEICO is associated with a category (car insurance), a financial rationale (cheap) and an experience (easy), as their tagline suggests: ‘Fifteen minutes could save you fifteen percent or more on your car insurance.’ ( [Location 1432](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1432) ) **Tags:** c1 **Note:** .c1 Once you’ve decided on your associations, you must make sure that every proposition and customer experience (and decision in general) reinforces rather than undermines them. ( [Location 1437](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1437) ) Kahneman explains this phenomenon by distinguishing between our experiencing self and our remembering self.31 Whilst the experiencing self answered the questions throughout the procedure, the remembering self gave the final assessment based on their memory of it, which is influenced by the peak–end rule. This has profound implications for every business, since it reveals that customer satisfaction doesn’t accurately reflect what customers experience. It reflects what they remember of the experience, which isn’t the same thing. ( [Location 1498](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1498) ) **Tags:** #mental-model, #science, #bias, #behaviour **Note:** Experiencing self = (start) 1,1,3,4,7 (peak),5,4 (end) Remembering self = ,,,,7 (peak),,4 (end) Marketing professor Leonard Berry and his colleagues found that we have two levels of expectation for all our interactions as customers: the adequate, the service we would find acceptable, and the desirable, the service we hope to receive. Between these points is a grey area known as the zone of tolerance, where events are satisfactory, yet unremarkable.32 Interactions within the zone of tolerance have little impact on our perceptions because they aren’t memorable. Interactions outside these boundaries, however – below adequate or above desired – lodge in the memory because they are unexpected. It is these interactions that most determine our satisfaction. ( [Location 1505](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1505) ) **Tags:** #product-management, #success, #science, #model, #ideas, #blue, #behaviour **Note:** .product_management .success .behaviour .blue .model Minimum expectations + value-add It's risky to change the first part (exceptions: uber, netflix), and most organisations compete on the second part. What is therefore essential is not so much to engineer satisfaction into every experience, but – in typically less time and at less cost – to concentrate on the key interactions. First, you must make sure the final part of any journey ends on a high – a positive peak beyond what was desired, since this has a disproportionate impact. ... Next, you need to eliminate any troughs – interactions that are below adequate. ... Finally, you should create the occasional positive peak by including a couple of interactions that are better than the customer might usually expect, leaving them with nothing but positive memories. You can even create a set of ‘memory-makers’ – interactions that you can use semi-randomly to inject delight or reinforce a brand message during the experience. ( [Location 1525](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1525) ) A five-stage journey might look like this: Figure 10 Overlaying customer interactions on a journey’s stages. There are two troughs – stages 1 and 5. The other interactions are within the zone of tolerance so are easily forgotten. ( [Location 1538](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1538) ) **Proposition** What aspects of existing alternatives can you improve upon, and will the target customer care? Is your combination of rationales sufficiently distinctive from those of your rivals? Where can you surpass industry norms? Where can you outperform alternatives? **Brand appeal** What associations do you want people to have with your brand? What associations have they formed independently? Do you express your brand values consistently? Where are the gaps between your brand image and brand reality? **Customer experience** Do your customers’ journeys end on a high? How might setting better expectations improve customer satisfaction? If your customers were in charge for a day, what one thing would they change? ( [Location 1608](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1608) ) **Tags:** #model, #take-action, #tech, #product-management First, that we must choose our revenue model based on what will make our offering most desirable, rather than starting with whatever model we have and retrofitting offerings onto it. Second, that every model has a finite amount of value it can generate. As wants, needs and technologies change, the revenue models best suited to monetising those opportunities may well change too. ( [Location 1687](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1687) ) This doesn’t make sense for one simple reason: customers typically don’t know or care what your costs are – they care what represents value to them. A ‘cost plus’ approach can lead you to overprice if you have high costs (as we saw with the wheelchair in Chapter Two) or to underprice if your costs are low, all the while ignoring what customers are willing to pay.10 However you look at it, short of a lucky guess this approach leaves money on the table, either as lost volume or lost margin. ( [Location 1729](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1729) ) **Tags:** #product-management, #finance, #economics, #decision **Note:** .finance .economics .product_management .decision Initially, he set the price at $189 instead of the usual $30, but nobody would take it seriously. Following his wife’s advice, he upped the price to $365 and the crowd went wild: celebrities and exclusive gyms bought them; customers gushed about the product’s brilliance, claiming ‘nothing gets as deep’.15 As the RolPal demonstrates, a price is not just a number – it can carry symbolic significance, and plays a part in expressing the customer’s beliefs, values and self-image. Some customers find products more appealing the more expensive they are. ( [Location 1769](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1769) ) Figure 13 A table showing how combinations of metrics highlight different opportunities to increase volume. ... The point of these deliberately simplified scenarios is to show that looking at any one metric in isolation can lead to ineffective knee-jerk decisions. Many spend a fortune on customer-experience improvements that yield few results because the problem is elsewhere. Others spend on advertising, which drives customers to a broken experience, generating little return for their investment. ( [Location 1902](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1902) ) The complex interplay of these relationships is essentially governed by five principles.5 1. The more you buy, the more power you have A customer who contributes a significant part of a company’s revenue inevitably has more negotiating power than one who contributes a small amount, since the business will lose more if the big customer walks away. ... 2. The harder it is for you to switch, the less power you have If you can swap suppliers at the drop of a hat without incurring penalties, you have a powerful negotiating position – you can just threaten to leave if you don’t get your way. If, however, you face high switching costs, your bargaining power is weaker. ... 3. The more important your product, the more power you have When a product or service is crucially important – life-saving surgery, or business-critical infrastructure – customers naturally have less negotiating power. ... 4. The more rivals you have, the less power you have ... The volume and diversity of options available to the customer determines their bargaining power. If all of their choices are essentially the same, you can’t expect them to choose on anything other than price, driving down margins. If you don’t maintain a distinctive, desirable offering, customers will walk all over you. The same dynamic governs our relationships with suppliers. If demand for their products or services increases, or the number of alternatives dwindles, their bargaining power will increase, and with it their prices. ... 5. The more easily they could do your job, the less power you have If I can do the job of my supplier, what do I need them for? If customers can do my job themselves, what do they need me for? Where customers can easily bring the work you do in-house – a threat known as backward integration – it limits your bargaining power. Attempt to charge too much and they’ll find someone else or just do it themselves. By the same token, if a supplier could easily do your job – forward integration – it limits your negotiating power too. ( [Location 1973](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=1973) ) **Note:** #3 Similar to Superhuman's product-market fit test: "how dissapointed would you be if you could no longer use this product or service?" > 40% The key message of this section is that regulatory changes have far-reaching implications beyond the most common considerations – cost and competitiveness. They can affect any and every element of the grid. ( [Location 2118](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=2118) ) Situations like this arise because of two fundamentally incompatible human traits. On the one hand, we have an innate sense of fairness that provokes strong emotional reactions when violated. On the other, power has an intoxicating effect that blinds us to the perspectives of others. The result is that those in positions of power routinely accrue dangerous levels of resentment, with dramatic consequences. ( [Location 2142](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=2142) ) One of the words most frequently used to describe the effects of power is ‘intoxicating’, and for good reason: power has a similar psychological impact to drunkenness. We feel invincible, becoming overconfident and reckless. We become arrogant, reacting aggressively if challenged, and most dangerously of all, we lose sight of the consequences of our actions. The laundry list of toxic side effects also includes: diminished morality and empathy, overconfidence in the support of others, increased hypocrisy, selfishness and willingness to cheat.27 It also results in what Dacher Keltner calls ‘narratives of exceptionalism’ – the belief that our own unethical actions are acceptable because we are extraordinary, whilst the same actions by others are deplorable and should be punished.28 The result is Keltner’s power paradox: in gaining power we lose touch with reality, setting in motion events that cause us to lose that power. ( [Location 2154](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=2154) ) **Tags:** #mental-model, #work, #power, #leadership, #bias **Note:** .power .work .leadership .bias .mental_model "Power corrupts, and absolute power corrupts absolutely." Or "power reveals." Keltner’s twenty years of research into the dynamics of power has led to some surprising conclusions. We often think of power as something that comes from manipulation and coercion, but his research reveals quite the opposite: power is both gained and maintained by focusing on other people. Power is granted to us when we improve the lives of others and contribute to the greater good. ... Keltner suggests that the path to enduring power is simply to stay focused on others: to prioritise your customers’ needs as much as your own; to maintain an empathic connection with the customer base; and to treat them with respect and gratitude. ( [Location 2246](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=2246) ) **Tags:** #relationships, #power, #leadership, #ideas ‘Expensive solutions to any kind of problem are usually the work of mediocrity.’ ( [Location 2371](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=2371) ) A central TPS theme is the continuous drive to eliminate waste: any operation that does not add value to the final product or service.15 Four sources of waste are common: Overproduction – the cost of manufacturing and storing excess inventory is wasteful. Waiting – paying staff to be inactive is wasteful. Overprocessing or incorrect processing – inefficient processes soak up time, poor processes result in defective products, and products of higher quality than necessary waste resources. Defects – the production of defective parts can be highly disruptive and time-consuming. ( [Location 2379](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=2379) ) This line of thinking is – in a nutshell – Goldratt’s theory of constraints and it has direct application when prioritising capital expenditures. Just as the weakest link determines the strength of the whole chain, the constraint on a system limits its entire performance. ( [Location 2526](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=2526) ) **Tags:** #mental-model, #work, #tech, #systems, #model **Note:** .model .mental_model .work .tech .systems Effective communication begins with a clear purpose: to inform, persuade or encourage an action. Before undertaking any communications work you must be clear as to what you’re trying to achieve, and how you’ll measure your success. ( [Location 2621](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=2621) ) **Tags:** #work, #success, #speaking, #relationships, #leadership, #decision **Note:** What do you want someone to think, feel, say or do? Ray Kordupleski arrived at a similar conclusion when working at AT&T as far back as the late 1980s. One year they ran 60,000 surveys a month with 95 per cent of customers saying they were satisfied, only to lose six points of market share (worth $3.6 billion) that year.32 On further scrutiny of their data he gained two key insights. First, that willingness to repurchase tails off dramatically for satisfaction scores that are below excellent. He found that only customers who rated AT&T as truly outstanding were likely to show something approaching true loyalty. In other words, a marginal increase in satisfaction may not be enough.33 Second, that what counts isn’t whether your satisfaction scores are going up or down, it’s how they compare to the alternatives.34 It’s entirely possible for your ratings to go up while you are losing customers to a rival. ( [Location 2811](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=2811) ) **Tags:** #product-management, #work, #tech, #success, #signal A competitive advantage is any benefit that allows a business to outperform its rivals. Two tests can determine whether you have one. First, you should be more profitable than your strongest competitor. It would be hard to claim a competitive advantage if you make less money than rivals, and comparing yourself to the weakest in the pack is cheating. Second, your relative market share should be stable (or growing) over time. If new rivals are pouring into the market or you are losing share to competitors, it’s hard to support the idea that you have an advantageous position. ( [Location 3050](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=3050) ) How has furniture giant IKEA managed to stay dominant for so long? The answer, according to strategist Richard Rumelt, is chain-link logic.29 What makes IKEA special isn’t the catalogue or website, or the self-assembly furniture, or the enormous warehouse-style stores, or the appealing design of the products – it’s the combination of all of them. To outperform IKEA you can’t just copy one of these things, you need to do them all. Mastering the necessary skills – product design, cost control, logistics, e-commerce – then linking them together is all but impossible for a new entrant. One way to build a competitive advantage, then, is to create a proposition that requires a unique combination of skills or activities to deliver, where all are necessary to succeed. ( [Location 3058](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=3058) ) The durable advantages that I’ve just explored – chain-linked activities, lower costs, economies of scale, retention, location, network effects and government protection – become even more powerful when they are combined. Apple combined high retention, network effects and economies of scale to create one of the most valuable companies in the world. Fashion brand Zara combine stores in great locations with a chain-linked, ultra-efficient supply chain. Their profits have exploded in recent years.36 As these companies show, combining two or more sources of advantage might make the difference between a temporary and an enduring lead over rivals. ( [Location 3121](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=3121) ) **Tags:** #product-management, #work, #tech, #success, #model, #history **Note:** Linked to Scott Adam's idea of a skills-stack. Success in any field is about finding the intersection between complementary skills. Almost three decades have passed since Hamel and Prahalad stated that the aim of strategy is to ‘create tomorrow’s competitive advantages faster than competitors mimic the ones you possess today’. ( [Location 3130](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=3130) ) **Tags:** #work, #success, #ideas, #green As Clayton Christensen – whose research is most closely associated with this phenomenon – explains, ‘A company that finds itself in a more-than-good-enough circumstance simply can’t win: Either disruption will steal its markets, or commoditisation will steal its profits.’ ( [Location 3159](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=3159) ) **Tags:** #product-management, #work, #success, #model, #ideas, #green, #economics Jim Barksdale, who made his fortune as the CEO of Netscape, is renowned for his colourful proverbs, once announcing to a room of investment bankers: ‘Gentlemen, there’s only two ways I know of to make money: bundling and unbundling.’ ... As a general guideline, when markets are dominated by bundles the opportunity lies in unbundling them. When markets are unbundled, and incompatible offerings are strewn all over the place, you can do well by bundling them together. ( [Location 3162](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=3162) ) ‘If consumers expect your product to become popular, a bandwagon will form, the virtuous cycle will begin, and consumers’ expectations will prove correct. But if consumers expect your product to flop, your product will lack momentum, the vicious cycle will take over, and again consumers’ expectations will prove correct.’ ( [Location 3270](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=3270) ) **Tags:** #narratives, #success, #product-management Estimate your cash-to-cash time For almost every new venture, cash starts flowing out a long time before it starts coming in. It’s entirely possible for years to pass and millions of dollars to be spent before any revenues come in. It is therefore useful to have an idea of the ‘cash-to-cash’ time between when you start spending money and when you think your first revenues will come in. ( [Location 3390](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=3390) ) Keep an eye on your cash burn rate and runway For start-ups, traditional accounting formats may not be too valuable – you may have no revenue for years, or have no assets to list – but you will definitely be incurring costs, and if you run out of cash, it’s game over.4 This is why well-run start-ups keep track of their burn rate – the amount of cash that is spent each month. They also keep an eye on their runway – the cash in the bank divided by the burn rate – which reveals how long they have before they will run out of money. ( [Location 3396](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=3396) ) **Tags:** #product-management, #tech, #finance Scalability describes the fundamental ease with which a business model can expand or contract in response to demand. Capacity is the amount of work that can be undertaken with current resources. You might, for example, have a business model that is difficult to scale but has ample capacity to handle current demand; or have a business that can scale easily, but which seeks to do more with its current capacity to make the enterprise more profitable. Your spare capacity fundamentally determines your adaptability because there is always a trade-off between efficiency and flexibility. Without slack in your operations it becomes impossible to change direction.9 If you are 100 per cent busy, when do you plan for the future? If people are doing the whole time, when do they think? ( [Location 3445](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=3445) ) As Jules Goddard and Tony Eccles write in Uncommon Sense, Common Nonsense, ‘Strategy is the rare and precious skill of staying one step ahead of the need to be efficient.’ ( [Location 3461](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=3461) ) **Tags:** #take-action, #work, #success, #leadership, #green, #coaching, favorite **Note:** i.e. Without a strategy, you must be efficient to succeed. Every great civilisation in history has eventually collapsed. No business has stayed number one for ever. Yours won’t be the exception to the rule – it’s the natural order of things. There’s a simple reason why. What may start life as an energetic, aggressive enterprise inevitably gains complexity and rigidity as it grows and therefore finds it difficult to adapt when conditions change. When these organisations decline, it is not generally because of an external force or lack of resources, but because their operational and psychological baggage prevents them from responding to change. ‘Business success’, wrote Andy Grove, ‘contains the seeds of its own destruction.’ ( [Location 3466](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=3466) ) The longer an approach has worked, the harder it becomes to conceive of any other. The danger is that you keep exaggerating your strengths until you succeed your way to failure. This is the central thesis of Danny Miller’s excellent book The Icarus Paradox, where he outlines four common patterns. Craftsmen – organisations who pride themselves on quality and attention to detail – become tinkerers. Obsessed with incremental improvement, they create perfect products that make no commercial sense. Builders – who succeed though aggressive, entrepreneurial expansion – become imperialists. Overreaching into businesses they don’t understand, they eventually bite off more than they can chew. (The Royal Bank of Scotland under Fred Goodwin is a great example.) Pioneers – whose success came from big ideas and bleeding-edge innovations – become escapists. They turn off customers with inventions that are too far ahead of their time, too expensive or serve no practical need. Finally, salesmen – organisations whose success was founded on brand creation and marketing – become drifters. Thinking they can sell anything, they end up with a jumbled portfolio of undifferentiated products and services. ( [Location 3545](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=3545) ) The ‘gemba walk’ – visiting the actual place where work happens, observing a process and asking questions about it – is a foundational principle of the lean management approach and one that offers real benefits. ( [Location 3577](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=3577) ) Eric Hoffer made a profound observation in his 1951 classic The True Believer: The powerful can be as timid as the weak. What seems to count more than possession of instruments of power is faith in the future. Where power is not joined with faith in the future, it is used mainly to ward off the new and preserve the status quo. Fear of the future causes us to lean against and cling to the present, while faith in the future renders us receptive to change … When the present seems so perfect that the most we can expect is its even continuation in the future, change can only mean deterioration. Hence men of outstanding achievement and those who live full, happy lives usually set their faces against drastic innovation. ( [Location 3581](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=3581) ) Peter Drucker expressed the same opinion as far back as 1957. In Landmarks of Tomorrow, he expounded timeless advice on this topic, with three recommendations in particular. First, that if you wait until growth slows to pursue new opportunities you are already too late. Second, that organisations must experiment with multiple new opportunities simultaneously since the odds of any one plan succeeding are slim. Finally, that these exploratory activities must be undertaken with the knowledge that they are uncertain. To use Drucker’s words, you must ‘perceive the as yet unknown’ and ‘do the as yet impossible’ to safeguard your future.27 Ideally, you need a business unit or offering at each of the key stages – outburst, steady growth and conservation. ( [Location 3591](https://readwise.io/to_kindle?action=open&asin=B01M01HPWC&location=3591) ) **Note:** e.g. 50% incremental innovation (i.e. core revenue-generating activities), 30% adjacent innovation (i.e. new offerings, new customers), 20% disruptive innovation (i.e. moonshots)