I’m always looking for better ways to distill strategy. My favorite strategy author is Richard Rumelt, who wrote Good Strategy, Bad Strategy and the more recent but less acclaimed follow-on, The Crux.
I love Rumelt’s work for two reasons:
- He takes a wrecking ball to the garbage that is often passed off as strategy. Aspirations are not strategy. Goals and OKRs are not strategy. Financial projections and forecasts are not strategy. SWOT analyses and five forces analyses are not strategy. Driving results is not strategy. Deciding to be a butcher, baker, or candlestick maker is not strategy. You may, like me, find reading these takedowns not only educational, but therapeutic.
- He whittles strategy down to the head of a pin. First, by defining strategy as identifying and planning to overcome a company’s most important challenge (aka, challenge-driven strategy). Then, by capturing what he calls the kernel of strategy: a diagnosis, a guiding policy, and a set of coherent actions.
Much as I love the kernel idea, in one assignment a few years back we tried to apply this framework and stumbled into a problem. We arrived at a diagnosis fairly easily, but got stuck trying to create a guiding policy. We found that the diagnosis alone wasn’t enough to arrive at a guiding policy. We kept needing to insert a few assumptions (or beliefs) about the future before we could agree on a guiding policy. We drifted to a modified framework that looked like this:
- Given diagnosis X,
- And beliefs Y,
- We choose guiding policy Z,
- And coherent actions 1-5 to implement it.
I was so excited with this discovery that I emailed Rumelt. While he kindly did reply, I don’t think my point landed. He directed me to his then-upcoming book and suggested it would be addressed there. The Crux was subsequently published and I don’t think it was. Never meet your heroes, as Flaubert wrote, a little gold always rubs off when you do.
Undeterred, I continued to use Rumelt’s framework, but added beliefs as an explicit part. I’ve always felt that diagnosis was by far the hardest part of strategy, as I believe does Rumelt, given this excerpt from his first book:
“After my colleague John Mamer stepped down as dean of the UCLA Anderson School of Management, he wanted to take a stab at teaching strategy. To acquaint himself with the subject, he sat in on ten of my class sessions. Somewhere around class number seven we were chatting about pedagogy and I noted that many of the lessons learned in a strategy course come in the form of the questions asked as study assignments and asked in class. These questions distill decades of experience about useful things to think about in exploring complex situations. John gave me a sidelong look and said, “It looks to me as if there is really only one question you are asking in each case. That question is ‘What’s going on here?’ ” John’s comment was something I had never heard said explicitly, but it was instantly and obviously correct. A great deal of strategy work is trying to figure out what is going on. Not just deciding what to do, but the more fundamental problem of comprehending the situation.”
I believe Rumelt would say that what I call beliefs are simply part of the diagnosis. For example, he said, “Netflix’s overall challenge (in 2018) was that it could no longer count on contracting for existing good TV and studio films at reasonable prices.” I’d argue that Rumelt’s Netflix diagnosis is actually two statements in one. Writing from the viewpoint of Netflix:
- That today we find ourselves increasingly hit with large price increases and/or a non-desire to renew distribution agreements for content.
- We believe the vast majority of the content producers will enter the content distribution business via streaming services in the next few years and ergo will not want or need to work with us.
First, that’s one hell of a “gnarly challenge” as Rumelt likes to call the crux issue. Second, I like splitting it because, particularly when working with a good-sized group to build strategy, it helps to distinguish between what we are seeing right now versus what we anticipate in the future. The former are facts, the latter are beliefs — and most of the interesting debate is not about the facts, but the beliefs.
I was happy with this modified framework until a strange thing happened the other day. I was talking with a founder and — lightbulb moment — I realized I could further distill strategy simply by looking only at beliefs. Not a laundry list of them (which can easily get generated in such a process), but what I call the primary belief, the big one, the one that resolves the crux issue and drives all the rest.
I immediately tried to apply this idea to my experience at Business Objects where, for nearly a decade, I worked as one of the top executives as we grew the company from $30M to $1B. I found it was pretty easy to divide 16 years of history into four eras categorized by primary belief:
- Era 1 (5 years). We believe customers will pay 5x the price of commodity query and reporting (Q&R) tools for an enterprise solution.
- Era 2 (4 years). We believe that Q&R and online analytical processing (OLAP) tools should be integrated in one product.
- Era 3 (4 years). We believe the Internet will require a wholesale rewrite of business intelligence (BI) and enable both existing internal and new external use-cases.
- Era 4 (3 years). We believe that customers will increasingly want to buy an integrated suite of BI tools, including Q&R, OLAP, and enterprise reporting.
These beliefs were largely heretical at the time. $500/seat for a Q&R tool? Insane. Integrating Q&R and OLAP? Can’t be done (and “they” were nearly right). Extranet BI? Never, corporate data is highly proprietary. BI suites? No, customers still want best of breed!
But those four beliefs took us from $0 to $1B in revenues. The beliefs alone are not enough, of course. You need to build strategies (e.g., product, go-to-market) and execute against them. In era 1, we needed a highly targeted strategy to break into the market with this radical idea. In era 2, we needed to build and market the integrated product. In era 3, we needed to devise the right web product strategy, a task that befuddled several of our competitors.
But I can and will argue that it all flowed from the underlying primary belief.
I worked with Alation in various capacities for many years, so I feel I know their evolution pretty well. Let me try the same exercise, as an outsider looking in, separating Alation’s history into three eras and assign a name to each:
- Era 1 (search and discovery). We believe that companies will need a centralized data catalog to help people find the data they need, and that machine-learning can help with that finding.
- Era 2 (data governance). We believe that data catalogs (almost surprisingly) turn out to be an ideal tool for data governance, particularly the non-invasive variety.
- Era 3 (data intelligence platform). We believe that customers will increasingly want to buy a data intelligence platform that includes data search & discovery, governance, and lineage.
I’m probably missing the company’s strong commitment to cloud platforms as part of era 3 and there may be a new era 4, but you get the idea. Again these beliefs were often heretical at the time. A lot of people didn’t believe data catalogs were even needed. Most people believed data governance was a distinct category and that the “prevent access” ethos of data governance ran strongly counter to the “enable access” ethos of data catalogs. Until recently, many people didn’t believe in data intelligence platforms (but with help from IDC and Databricks that debate has been put to bed). Again, beliefs alone are not enough. There are numerous also-ran data catalog companies who presumably shared some of these beliefs, but built the wrong strategies in response or lacked Alation’s relentless drive in execution.
I often say that strategy is best analyzed in reflection. Meaning that somehow everything is clearer and simpler when you look back 10 or 20 years to reflect upon what happened. In fact, I often encourage people to do a future look-back when formulating strategy: “imagine it’s ten years from now and your company won in the market — now tell me why.”
My conclusions from all this are:
- Read Rumelt. Both Good Strategy, Bad Strategy and The Crux.
- Add beliefs to the framework. More precisely, separate the diagnosis into present truths and future beliefs.
- Work to find the one primary belief for your current situation. If you’re a new startup, that belief is probably embedded in the answer to, “why did you found the company?” If you’ve been around for a while, start by analyzing your history and trying to break it into belief-driven eras.
- Once you’ve found a potentially era-defining primary belief, resume the Rumelt exercise: define guiding policy and coherent actions around it.
