What is a strategy, really?
January 1, 2024
You probably don’t know what strategy really is. And if you do, you probably have at least one misconception.
Pop quiz! What is a strategy?
- Actions you take towards a goal?
- How you make decisions?
- Your plan to achieve a goal?
- Long-term thinking?
- High-level thinking?
- Your mission and vision?
Which of these do is correct? Perhaps none of them? Or maybe a combination of them? Or perhaps something is missing altogether?
If any of these sound plausible, keep reading. I think you’ll be surprised.
War games: shall we play a game?
In the 1983 film War Games, David Lightman is a brilliant, unmotivated student and hacker that accidentally hacks into a military supercomputer. He then plays a game of Global Thermonuclear War with the computer. However, for the computer, this is not a game. The computer is playing for real. And it wants to win. Worse, the computer cracks the launch codes to launch real missiles.
Welcome to World War III.
So here’s the question: how do you win against a supercomputer than can predict your every move? Or against a computer that doesn’t care if this is a game or if it’s real life? Or against a computer that’s willing to lie to you about launching missiles so you start the initial attack?
Southwest Airlines: how to break into the industry?
Back in the 1970s, there were several large giants in the airline industry. These giants focused on the business traveler. They offered first-class seats, lounges, and other amenities to attract the business traveler. They also charged high prices for their tickets.
This allowed them to increase their profits and weather the ups and downs of the economy. They were also able to invest in new planes, new routes, and other things to grow their business.
But Southwest airlines was a new, scrappy airline that wanted to grow. There was just one challenge: growing an airline takes a lot of money. Between planes, pilots, marketing, and other expenses, it can take tens of millions of 1970s dollars to start an airline.
So how do you grow an airline when you don’t have the money to grow? And when your competitors have the money to copy anything you do? And when your competitors can weather any change in the industry?
Amazon: can you be cheaper than cheap?
In the early 2000s, Amazon wanted to grow it’s eCommerce store. Luckily, they had a simple strategy already in place informed by Walmart’s strategy:
- Widest selection.
- Cheapest prices.
- Fastest delivery.
The hard part? If you want the cheapest prices, you’re not going to have a ton of profit. And you need profit to grow your selection and invest in fast delivery.
Unfortunately, the other competitors also had razer thin profit margins, so Amazon couldn’t raise the prices. It seemed like they were backed into a corner.
So if you want to grow while still giving the customer the best experience possible at the cheapest price, what would you do?
The solution? Strategy.
Strategy is an integrated set of choices that position you on a playing field of your choice in a way that you win.
Strategy has three choices:
- The game.
- Your success criteria.
- Your position in the game.
So is strategy:
- Actions you take towards a goal? Nope. Strategy says nothing about what you should do.
- How you make decisions? Nope. Strategy does not define how you execute.
- Your plan to achieve a goal? Nope. A plan is not a strategy.
- Long-term thinking? Nope. Many great strategies challenge long-held beliefs.
- High-level thinking? Nope. Strategies often incorporate details.
- Your mission and vision? Nope. Mission and vision only define your success criteria.
Let’s take a look at how choosing the right strategy helped David in War Games, Southwest Airlines, and Amazon win.
How to win: choose the right game
Amazon: build a cheaper store?
With razer thin profit margins, there’s a limit on how much you can cut costs before losing money. But what if you could price your products at or below cost without losing money?
Amazon’s strategy: create the cheapest eCommerce website by making a profit elsewhere.
From it’s inception, Amazon was an online store. At that time, that meant running your own servers and your own technological infrastructure. This is expensive. It’s inefficient. To handle fluctuations in daily usage, you need the technical staff and server capacity to handle peak load. But most of the time, you’re not at peak load and you pay for unused servers.
Luckily, all web sites have the same issue. So what if you sold your excess server capacity to other companies? Enter Amazon Web Services (AWS).
AWS is a cloud computing platform that allows companies to rent servers and other infrastructure on demand. This allows companies to pay for what they use instead of paying for peak load. More importantly, it allows Amazon to operate their online store more efficiently than any other eCommerce store.
Even in 2022, Amazon’s eCommerce store is not profitable. It lost 10.6 billion dollars! However, AWS made 22.8 billion dollars in profit. That allowed Amazon to make a profit of 12.2 billion dollars. Best of all, because Amazon profits with AWS, they can offer products below cost and still profit.
This is why Amazon consistently has the lowest prices. Instead of competing in a cost-cutting war against other companies, Amazon profits outside of their eCommerce store, allowing them to have the cheapest prices in the industry.
Southwest Airlines: build a cheaper airline?
Southwest realized that all other airlines catered to the business traveler. However, none of them catered to the price conscious traveler.
These price conscious travelers typically chose Greyhound busses. Busses are slow and don’t have all the amenities of a plane. But they’re cheap.
Southwest’s strategy: don’t create a cheaper airline, create a faster Greyhound. Their theory? If they could offer a faster, cheaper alternative to Greyhound, price conscious travelers would choose Southwest over Greyhound.
Each of these “innovations” was unheard of in the airline industry but commonplace in the bus industry. So by competing against Greyhound, Southwest could leverage it’s largest competitive advantage: planes are faster than busses.
This strategy not only allowed the scrappy newcomer to compete against the giants, but also allowed them to be the largest domestic airline in the US and the largest low-cost airline in the world.
War Games: play Global Thermonuclear War?
So how do you win a game of Global Thermonuclear War against a supercomputer that can predict your every move? You realize you’re playing the wrong game.
Global Thermonuclear War is a game of mutually assured destruction. If you win, you lose. If you lose, you lose. You cannot win.
David’s strategy: don’t play Global Thermonuclear War.
The only winning move is not to play.
– War Games
And to make sure the computer doesn’t play, have it play against itself to make it realize it cannot win.
Going back to the definition of strategy, here’s how I’d define each of their strategies:
|Earn a profit elsewhere so you don’t need to make a profit
|Budget consumer transportation
|Price conscious travelers choose Southwest
|Be a faster Greyhound at a similar price
|Do not play Global Thermonuclear War
|Make the computer play itself to realize it cannot win so it doesn’t play either
Notice how in every case, the game you choose to play has a huge impact on your success. If you choose the wrong game, you cannot win. And most competitors chose the obvious (and wrong) game, so they did not win.
When you play the game everyone else plays, you’ll get the same results as everyone else. Choose your game wisely.
I have several posts lined up about strategy over the next month:
- How I get 7,800 monthly views on YouTube without posting any videos
- My personal strategy
- My marketing strategy
- My strategy to run the SF marathon
- How I got a job offer at Google without applying
- …and possibly a few more
Excited? Stay tuned and subscribe to my newsletter to get notified when these come out.