Strategy fundamentals | Characteristics of good strategy | Defining your strategy | Two examples: Whole Foods & Airbnb
Ah, strategy. Everyone agrees it's an important part of building a product and business, but surprisingly few people can articulate what strategy is, and put together a coherent one.
We can be especially allergic to strategy in the tech world: can't we just move fast and break things? Sure. But that works best if we agree on the direction we want to move, and the things we are okay breaking in the process. That's where strategy comes in.
In this post, we'll cover:
According to Harvard Business School professor and strategy guru Michael Porter:
"The essence of strategy is choosing to perform activities differently than rivals do." - What is Strategy? (1996).
Let's break this down:
💡 Tip for PMs: in your customers' eyes, your product experience extends well beyond the UX of your application, and includes your sign up flow, Instagram ads, confirmation emails, and customer support chats. When devising your strategy, take every customer touchpoint into account, not just the so-called "core product experience."
Strategy is the bridge between where you are now, and your ultimate product vision. It drives your investments in product, go-to-market activities, and customer support, and culminates in your company's day-to-day execution.
Let's use Shopify to illustrate the relationship between vision and strategy.
Shopify was founded in 2006, with the product vision to "make it easy for anyone to create a beautiful and powerful online store" - Shopify announcement of Series C funding.
Some of the key strategic activities that built toward this original vision:
While it may not have been pretty, you can see the beginnings of this strategy evident in Shopify's homepage in 2008 - captured here by the Internet Wayback Machine.
When defining your strategy, resist the urge to solve every problem for every type of customer. In Porter's words:
"Trade-offs are essential to strategy. They create the need for choice and purposefully limit what a company offers."
🛍 One intentional trade-off Shopify made was forgoing their own brand awareness in favor of prioritizing their merchants'. Shopify operates mainly behind the scenes, powering massive online stores like Sephora.com, but 99.9% of customers don't know that. This makes organic brand awareness -- and the cheap acquisition that comes with it -- challenging. But their empowerment of merchants via professional branding tools is a unique activity compared to aggregator rivals like Amazon and eBay.
Porter recommends that strategic positions "have a horizon of 10 years or more." Given the speed at which technology moves, and that many of us work at venture-backed companies without that kind of time, I'd shorten this to 2-5 years.
This will force you to think well beyond monthly or quarterly OKRs, but not so far out that the uncertainty of the future is daunting.
🛍In our Shopify example, each of these strategic positions are still being executed today, even as Shopify has added an ecosystem component to their strategy. On branding, for example, they've continuously built out a vast set of professional branding resources for their merchants.
A moat is a durable advantage a business creates that is difficult for competitors to copy.
This is worthy of a much deeper dive, but here's a Cliff's notes version of Hamilton Helmer's excellent book, 7 Powers: The Foundations of Business Strategy (2016), a framework for categorizing moats:
For mature products, identify which of these moats you've created, or have the potential to. It'll help you prioritize activities that reinforce these advantages and build a durable business. For startups earlier in their journey, start with hypothetical moats you can iterate into.
🛍 Back to our friends at Shopify. They've built a couple powerful moats over the years: 1) Economies of scale. Shopify enjoys low marginal costs to each new merchant on their platform. At scale, their margins and pricing power swell. 2) Switching costs. Once a merchant creates a storefront, uploads their inventory and branding, sets prices, and starts accepting payments, Shopify is a sticky product.
A key distinction Porter makes is between strategy and operational effectiveness:
In other words, offering the same product as your competition, but 10 or 20% better, is not strategy. It will help you win, but alone it's not enough to do so.
If I start a scooter company that is identical to Lime in every way, but rides were 10% cheaper, I may get some initial traction. But nothing is preventing Lime from lowering prices and driving me out of business.
Instead, if my scooter service focused exclusively on helping college students get around campus (instead of all city dwellers), could be unlocked only with student IDs (instead of phones), gamified ride activity with a virtual treasure map, AND rides were 10% cheaper than Lime, I've got the beginnings of a strategy! And I just might be able to beat Lime in the college student market.
🛍 If Shopify focused on incrementally beating rivals in a single point solution, that could be considered operational effectiveness: more intuitive website design than Squarespace, faster payments than PayPal, or more flexible inventory management than Quickbooks. Instead they've created an all-in-one "digital store in a box." Shopify may not be the absolute best in each category, but solving these jobs together forms a strong strategic position.
💡 Got a PM interview? Our PM interview drills help get you in top form
Let's put this all together. To create an effective strategy, there are four questions you and your team need to be aligned on:
Let's answer these questions for two familiar companies:
Educated, upper middle-class customers who are passionate about eating healthy, fresh food that is sourced locally.
Fill out this table for your company or product line.
If you find it difficult to crisply answer any of these questions, it may be time to rethink your strategy, or re-establish it with your team. Odds are you're not the only who's hazy on your competitive advantages.
If your team is aligned on these 4 questions, you'll find that prioritizing product, sales, marketing, and support activities will come much easier. Tempting ideas will surface that are orthogonal to your strategy, and you can point to this framework as a tool to say ‘no'.
I'll leave you with an important reminder that I've been guilty of forgetting: strategy is only strategy if it's actually executed.
Strategy isn't a ‘set it and forget it' exercise. It's not a Google doc that is crafted alone in an ivory tower, emailed to your team, and then magically leads you to the promised land. It's an always-on force that your team lives, breathes, and revisits frequently.
📬 I'd love to hear about other frameworks to help develop strategy. Shoot me an email or tweet!
🙏 Thank you Vipul Chhajer, Stephanie Long, and Kenton Kivestu for reviewing drafts of this post.
Real interview questions. Sample answers from PM leaders at Google, Amazon and Facebook. Plus study sheets on key concepts.