Web Excursions 2022-07-29
No single factor is decisive.
For example, execution and all its subcomponents (leadership, management, finance, ops, etc) are of course key to any individual company’s ability to successfully accomplish their plan.
But I focus on strategy rather than execution
The question is, what kinds of strategies generate market power?
fuse together the ideas of the three most important theorists in business strategy: Clayton Christensen, Michael Porter, and Hamilton Helmer
Define the market.
You can go as broad or narrow as you want, but what’s most important is that you nail down
A) the job-to-be-done / use case, and
B) the general product category that serves that use case.
Identify the basis of competition.
Why do consumers choose one product over another?
What attributes are most important?
Which are good enough, where no further improvement is felt?
And which dimensions of product quality are felt to be lacking and in need of improvement?
Map the value chain.
What is the chain of activities that needs to be performed for raw resources to get translated into finished products?
What companies are involved, and which activities do they control?
Locate the position of power.
Which activities in the value chain shape the end-user’s experience the most?
These are the key activities that relate to the basis of competition.
Which companies perform these activities?
Who does it best?
Trace the source of that power
Using Hamilton Helmer’s 7 Powers as our list of options
(scale economies, network economies, counter-positioning, switching costs, branding, cornered resource, and process power)
we’ll see which one has the biggest impact on the user experience, and therefore is the source of their power.
the most important thing to know and remember about analyzing a market is that
all power ultimately stems from finding a way to play an indispensable role in some important chain of economic activities
that translates supply into demand.
Define the market
The first mistake is to pick a generic market definition that
has little bearing on what you’re actually interested in, and
confusedly use it as a stand-in for the real market you would like to go after
New products rarely slot in perfectly to existing markets, so it’s useful to analyze the status quo with a bit of healthy detachment.
Official categorization schemes like the NAICS (North American Industry Classification System)
make it seem like the economy is composed of atomic, permanent, industries that were handed down from God,
but in reality the lines between industries are blurry and constantly evolving.
So you should think more like an evolutionary zoologist, and less like an old-school Linnaean taxonomist that believed all earthly species were set in stone since the beginning of time.
the framing is that people don’t “buy” products, they “hire” them to perform some job in their life.
It’s based on the classic quip that people don’t want a quarter-inch drill bit, they want a quarter-inch hole.
an example of how a market definition should look:
Product category: business writing delivered via email newsletter
Job-to-be-done: understand what’s happening in the industries I care about at a deeper level than the news will tell me about, so I can make better decisions and advance my career.
Identify the basis of competition
The basis of competition is the collection of product attributes that cause customers to choose one product over another.
For example, you might choose a smartphone on the basis of price, photo quality, and screen size—
or, more realistically, a subconsciously prioritized list of these and many more factors.
don’t forget about marketing and distribution
The hard part about determining the basis of competition is figuring out what people actually think.
Often people’s priorities aren’t that clear to them.
They may say or even think they want one thing, then act a different way when push comes to shove.
There are all sorts of interesting psychological theories about this (my favorite of which is contained in the book The Elephant in the Brain)
but needless to say, discovering the truth here is more art than science.
Honest introspection and judgment-free observation are just as powerful tools as user interviews and surveys.
the easiest way around it is to just look at what is selling, and ask yourself what’s different about it as compared to the alternatives.
Sometimes it’s actually more valuable and easy to see the differences when you compare #1 in a market to a really small competitor.
Often #1 and #2 are really serving slightly different jobs-to-be-done, which is why they’re both successful
The basis of competition for business writing delivered via email newsletters is…
Relevance - does the content speak to things I can relate to my personal experience?
Clarity - do I understand what it is trying to convey?
Surprisingness - is it unexpected?
Importance - does it feel like knowing it will make a difference?
Truth - is the information accurate?
Fun - do I enjoy having this voice in my head?
Map the value chain
create a map of the value chain.
Essentially we want to lay out in as much detail as is practical all of the companies and activities
involved in the creation of value for this market
What would be even better was if this visualization showed the relative economic value and power captured by each step.
It may not seem clear at first why exactly we are mapping the value chain. There are two reasons.
it’s just an important excuse to understand in detail everything that happens in the industry
we’re doing it so that we can perform the next step of our analysis, which is key.
Locate the position of power
Re-read the “basis of competition” you wrote down
Look at your map.
For each activity, ask yourself how big an impact it makes on the “basis of competition.”
Put one star next to anything that has a discernible impact, and two stars next to anything that has a huge, decisive impact.
If there are multiple important bases of competition, and different activities have a different impact on one or the other,
you could color code them or come up with some system to remember which activity has what impact on what basis of competition.
different activities have different attributes,
some of which are more powerful and harder to copy than others—
making the entity that controls that activity more indispensable.
Trace the source of that power
For each activity that makes a big impact on the user experience and forms the basis of competition,
think about what it takes to be able to do it well.
Some activities, like reading a lot, take time, energy, discipline, and a little bit of money.
It’s not necessarily easy to copy, but it’s also not that hard
Scale economies - when your cost structure benefits from scale
Network economies - when your value proposition benefits from scale
Counter-positioning - when your competitors are disincentivized to copy you
Switching costs - when your customers are disincentivized to leave you
Branding - when quality is hard to discern, or signaling is important
Cornered resource - when nobody can access a key ingredient you control
Process power - when you evolve a complex process that nobody can copy