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Copyright FourWeekMBA

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PhD in the real business world, without going back to Academia. In the process I have
become a better business person, and helped thousands of people to do the same. For
the future, I hope this project can reach even more people, in as many countries as
possible!

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Introduction
As an HBR working paper entitled “From Strategy to Business Models and to Tactics” pointed
out1:

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hbs.edu/faculty/Publication%20Files/10-036.pdf

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Put succinctly, business model refers to the logic of the firm, the way it operates and how it
creates value for its stakeholders. Strategy refers to the choice of business model through
which the firm will compete in the marketplace. Tactics refers to the residual choices open to
a firm by virtue of the business model that it employs.

I like definitions, as they have an aesthetics of their own, but are not really useful if not
contextualized, narrowed down to specific situations. Personally, I have a controversial
relationship with the concept of “strategy.” I feel it’s too easy to make it foggy and empty of
practical meaning. Yet strategy and vision matter in business. A strategy isn’t just a calculated
path, but often a philosophical choice about how the world works. Usually, it takes years and,
at times, also decades for a strategy to become viable. And once it does become viable, it
seems obvious only in hindsight.

In the real world, the difficult part is understanding the problem

In the real world, a lot of time and resources are spent in defining the problem. Classic case
studies at business schools assume in most scenarios that the problem is known and the
solution needs to be found. In the real world, the problem is unknown, the situation is highly
ambiguous, and the most difficult part is making the decision that might solve that same
problem you’re trying to figure out on the fly.

Is a business strategy the same thing as a business model?

As the business world started to change dramatically, again, by the early 2000s, also the
concept of strategy changed with it. In the previous era, the strategy was primarily made of
locking in the supply chain to guarantee a strong distribution toward the marketplace. And
yet, the web, enabled new companies to form with a bottom-up approach. In short, product
development cycles shortened, and frameworks like the lean, agile, and continuous innovation
became integrated into a world where software took over. Where most of the processes before
the digital age, were physical in nature. As the web took off, most of the processes became
digital. In short, the software would become the core enhancer of hardware. We’ve seen how
in cases like Apple’s iPhone, it wasn’t just the hardware that made the difference. But it was
the development ecosystem and the applications that enhanced the capabilities of the device.
Thus, from a product standpoint, hardware has been enhanced more and more with the
software side. At the same time, the way companies developed products in the first place
changed. Software and digits-based companies could gather feedback early on, thus enabling
the customers’ feedback as a key element of the whole product development cycle. Therefore,
wherein the previous era, companies spent billions of budgets to release to markets, products,
with a little customer feedback. In the digital era, the customer feedback became built into
the product development loop. This whole change flipped the strategy world upside down.
And from elaborate business plans, we moved to business modeling, as an experimental tool,
that enabled entrepreneurs to gather feedback continuously. In a customer-centered business
world, business models have become effective thinking tools, to represent a business and a
business strategy on a single page, which helped the whole execution process. The key
building blocks of a classic business model approach, like business model canvas or lean
startup canvas move around the concept of value proposition, that glue them together. And
from the supply chain, we moved to customer value chains. Where most digital business

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models learned to gather customers’ feedback in multiple ways. The business strategy formed
in the digital era, therefore, developed its own customer-centered view of the world, and the
business theory world followed. Former entrepreneurs, turned academics, or by following
practitioners, moved away from traditional models (like Porter’s Five Forces) to more
customer-centered approaches (business model canvas, lean canvas). The mindset shift
flipped from distribution and optimization on the supply side. To optimize on the demand side,
or how to build products that people want, in the first place. This is the new mantra. No more
grandiose business plans, just substantial testing, iteration, and experimentation.

Is business strategy a science?

Business strategy is more of an art than a science. In short, a business strategy starts with a
series of assumptions about how the business world looks like in a certain period of time and
for a certain target of people. Whether those assumptions will turn out to be successful will
highly depend on several factors. For instance, back in the late 1990s when the web took over,
new startups came up with the idea of revolutionizing many services. While those ideas
seemed to make sense, they turned out to be completely off, and many of those startups failed
in what would be recognized as a dot-com bubble. While at hindsight certain aspects of that
bubble came up (like frauds, or schemes), in general, some of the ideas for which startups got
financed seemed to be visionary and turned out to work a decade later (see DoorDash, or
Instacart, in relation to Webvan’s bankruptcy). For instance, some startups tried to bring on-
demand streaming on the web (which today we call Netflix). Those ideas proved to be too early.
They made sense but from the commercial standpoint, they didn’t. Thus, if we were to use the
scientific method, once those assumptions would have proved wrong in the real world, we
would have discarded them. However, those assumptions proved to be wrong, in that time
period, given the current circumstances. While we can use the scientific inquiry process in
business strategy, it’s hard to say that it is a scientific discipline. So what’s the use of business
strategy? In my opinion, business strategy is useful for three main reasons:

● Focus: choose one path over another.

● Vision: have a long-term strategic goal.
● Commercial viability: create a self-sustainable business.

As a practitioner, someone who tries to build successful businesses, I don’t need to be

“scientific.” I need to make sure not to be completely off track. For that matter, I aim at creating
businesses. Thus, I need to understand where to focus my attention in a relatively long period
of time (3-5 years at least) and make sure that those ideas I pursue are able to generate profits,
which – in my opinion – might be a valid indicator that those ideas are correct for the time
being. If those conditions are met, I’ll call it a “successful business.” Those ideas will become a
business model that executes a business strategy. This doesn’t mean those ideas, turned into
a business model, pushed into the world will always be successful (profitable). As the
marketplace evolves I will need to adjust, and tweak a business model to fit with the new
evolving scenarios, and I’ll need to be able to “bet” on new possible business models.

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Survivorship bias
Survivorship bias is a phenomenon where what’s not visible (because extinct) isn’t taken into
account when analyzing the past. In short, we analyze the past based on what’s visible. This
error happens in any field, and in business, we might get fooled by that as well. In short, when
we analyze the past we do that in hindsight. That makes us cherry-pick the things that survived
and assume that those carry the successful characteristics we’re looking for. For instance, for
each Amazon or Google that survived there were hundreds if not thousands of companies that
failed, with the same kind of “successful features” of Amazon or Google. So why do we analyze
successful companies in the first place? In my opinion, there are several reasons:

● Those successful companies have turned into Super Gatekeepers to billions of people:
as I showed in the gatekeeping hypothesis2, and in the surfer’s model3, a go-to-market
strategy for startups will need to be able to leverage existing digital pipelines to reach
key customers.
● Modeling and experimentation: another key point is about modeling what’s working
for other businesses and borrowing parts of those models, to see what works for our
business. By borrowing parts you can build your own business model, yet that requires
a lot of testing.

● Skin in the game testing: therefore business models become key tools for
experimentation, where we can use real customers’ feedback (not a survey, or opinions
but actions) and test our hypotheses and assumptions. When we’re able to sell our
products, when people keep getting back to our platform, or service, there is no best
way to test our assumptions that measure those actions.

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fourweekmba.com/the-gatekeeper-hypothesis/
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fourweekmba.com/what-is-a-business-model/

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Lindy effect and aging in reverse

The Lindy Effect is a theory about the aging of non-perishable things, like technology or ideas.
Popularized by author Nicholas Nassim Taleb, the Lindy Effect states that non-perishable
things like technology age – linearly – in reverse. Therefore, the older an idea or a technology,
the same will be its life expectancy. Nicholas Nassim Taleb in his book Antifragile popularized
a concept called Lindy Effect. In very simple terms the Lindy Effect states that in technology
(like any other field where the object of discussion is non-perishable) things age in reverse.
Thus, life expectancy rather than diminishing with age, it has a longer life expectancy.
Therefore, a technology that has lived for two thousand years, it has a life expectancy of another
thousand years. That is a probabilistic rule of thumb which works on averages. Thus, if a
technology (say the Internet) has stayed with us for twenty years, it doesn’t mean we can
expect only to live for another twenty years at least. But as the Internet has proved successful
already, the Lindy Effect might not apply. In short, as we have additional information about a
phenomenon the Lindy Effect might lose relevance. For instance, if I know a person is twenty,
yet sick of a terminal disease, I can’t expect to use normal life expectancy tables. So I’ll have to
apply that information in understanding the future.

Strategies take years to fully roll out

It was 2006, when Tesla, with his co-founder Martin Eberhard4, launched a sport’s car which
broke down the trade-off between high performance and fuel efficiency. Tesla, which for a few
years had been building up an electric sport’s car ready to be marketed, finally pulled it off. As
Elon Musk would explained Back in 20125:

“In 2006 our plan was to build an electric sports car followed by an affordable electric sedan,
and reduce our dependence on oil…delivering Model S is a key part of that plan and represents
Tesla’s transition to a mass-production automaker and the most compelling car company of
the 21st century.”

The beauty of a strategy that turns into a successful company, is that it might take years to roll
out and seem obvious only in hindsight. This connects to what I like to call the transitional
business model. Or the idea, that many companies, before getting into a fully rolled out
business strategy, transition through a period of low scalability and low market size, which
though will help them gain initial traction. Indeed, a transitional business model is used by
companies to enter a market (usually a niche) to gain initial traction and prove the idea is
sound. The transitional business model helps the company secure the needed capital while
having a reality check. It helps shape the long-term vision and a scalable business model. As a
transitional business model proves viable, it helps the company shape its long-term vision,
while its built-in strategy is different from the long-term strategy. The transitional business
model will guarantee survival. It will help further refine the long-term strategy and it will also
work as a reality check. As the transitional business model proves viable, the company moves
to its long-term strategy execution. As the business strategy gets rolled out, over the years, it
becomes evident and obvious, and yet none managed to pull it off.

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wired.com/2006/08/tesla-3/
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tesla.com/blog/tesla-motors-begin-customer-deliveries-model-s-june-22nd

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Caveat: Frameworks work until suddenly they don’t

When you stumbled upon a “business formula” you can’t stop there. That business formula, if
you’re lucky will allow you to succeed in the long term. Yet as more and more people will find
that out, that will lose relevance. And the matter is, reality is a villain. Things work for years until
they suddenly don’t work anymore. We’ll see some frameworks, but the real deal is not a
framework but the inquiry process that makes us discover those frameworks. In short, the
value is in the repeatable process of discovery and not in the discovery itself. A discovery once
spread it loses value.

After this critical premise, let’s get to the point, you will learn throughout this book a set of
frameworks, and tools to improve execution, better understand your potential customers,
develop your product use cases, or define the problem you’re trying to tackle.

Some tools can be used interchangeably, and there is not right or wrong. As soon as those
tools help you think more clearly and act faster (or perhaps help you to give up a bad business
idea quickly and before you spend all the money) then, it’s good enough!

Table Of Content
Introduction
In the real world, the difficult part is understanding the problem
Is business strategy a science?
Survivorship bias

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Lindy effect and aging in reverse

Strategies take years to fully roll out
Caveat: Frameworks work until suddenly they don’t

Table Of Content
3C’s Model To Build A Solid Company
Understanding the 3C Analysis Business Model
Customers
4 Ps Marketing Mix & The 7 Ps Of Marketing
Understanding marketing mix
Product
Price
Promotion
Place
Other elements of an effective marketing mix
People
Process
Physical evidence
AIDA Model To Build Your Customer Base
The background story of the AIDA model
Attention
Interest
Desire
Action
Does AIDA still make sense today?
Enter the Flywheel model, The New Normal For Platforms
Anchoring: Price Anchoring, And The Anchoring Effect)
Understanding the anchoring effect
Perception
The power of suggestion
A tendency to avoid extremes
Key takeaways:
Ansoff Matrix To Place Your Products’ Portfolio Bets
Ansoff matrix in a nutshell
Market penetration
Market penetration case study
Market development
Market development case study
Product development
Product development case study
Diversification
Diversification case study
Backward Chaining And Reverse Integration
Understanding backward chaining
Advantages
Disadvantages
Examples of backward chaining
Key takeaways:
Balanced Scorecard To Build A Viable Organization

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Understanding the balanced scorecard

The four perspectives of the balanced scorecard
Financial
Customer
Internal processes
Learning and growth
Key takeaways:
Bandwagon Effect And How To Master Customers’ Perception
Why does the bandwagon effect matter in business?
Breaking down the bandwagon effect
Understanding the bandwagon effect
Drawbacks from the bandwagon effect
Barbell Strategy And Place Bets For Entrepreneurs
Barbell strategy in a nutshell
Mediocristan vs. Extremistan
The barbell strategy
BCG Matrix To Build A Winning Product Portfolio
The Product Portfolio origin story
Assumptions underlying the Product Portfolio theory
Cash cows
Pets (dogs)
Question marks
Star
The Success Sequence
The Disaster Sequence
Key takeaways
Benchmarking To Contextualize Your Business Performance
Understanding benchmarking
The three types of benchmarking
Process benchmarking
Performance benchmarking
Strategic benchmarking
The benefits of benchmarking
Key takeaways:
Blitzscaling: For When Your Business Faces A Survival Threat
Origin of the name
Blitzscaling is not growth hacking
Blitzscaling is not a magic formula
Speed in the face of efficiency
Blitzscaling is an uncertain process
The reward is the first-scaler advantage
What are the stages of Blitzscaling?
Blitzscaling Business Model Innovation Canvas
A glance at the four key growth factors The four growth factors are:
Market size
Distribution
High gross margins
Network effects

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The two growth limiters

Lack of product/market fit
Operational scalability
Key takeaway
Blue Ocean Strategy: Create Your Own Market
What does a red ocean look like?
The anatomy of a blue ocean
The former value-cost trade-off
The new era of more value at lower costs
Value innovation in a blue ocean strategy
Key takeaway
Blue Sea Strategy: Stay Small And Build Your MVA
Blue Sea vs. Blue Ocean
Zooming in to find your MVA
Redefine value by going from “a product for everyone” to a “product made for a few”
In a Blue Sea there is space for all
In a Blue Sea, price sensitivity is flipped upside-down
Look at the present and change it for a few
Is the Blue Sea strategy only for niche players?
Bootstrapping: Make Of Your Customers Your Primary Investors
Inside the Bootstrapper Bible
What is bootstrapping?
Not all businesses can bootstrap
The Bootstrapper’s commandments
Customers are your investors
The company’s vision is in your hands
Focus as the North Star
Speed of execution
Mastery and Passion
A little to lose but a lot to gain
Salesmanship
In it for the long-term
Bootstrapping is about survival
Start from a proven business model
Differentiate from the incumbent to enter a monopolized market
What does the bootstrappers have that the big corporations don’t?
Beware, a bootstrapper is not a freelancer, but an entrepreneur
Case Study: How MailChimp bootstrapped to over $700 million in revenues
Key takeaways
Bounded Rationality: Beyond Linear Thinking
A quick intro to bounded rationality
We don’t live in a small world
In the real world, risk cannot be known either modeled
Optimization is not bounded rationality
Biases are not errors but heuristics that work in most cases to make us avoid screw-ups
Satisficing: Look at the one good reason
Survival is rationality in the real world
Bowman’s Strategy Clock To Properly Position Your Product

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Understanding Bowman’s Strategy Clock

1. Low price and low value-added
2. Low price
3. Hybrid
4. Differentiation
5. Focused differentiation
6. Risky high margins
7. Monopoly pricing
8. Loss of market share
Branding In All Its Facets
Why Brand Building Matters
Identity: beyond the job to be done to define who you are
Trust: how do I trust you if you don’t “waste money” on branding?
Brand Awareness: The First Step Toward Building Your Brand
Breaking down brand awareness
How does brand awareness work?
Why is brand awareness important?
Costly in the short term, a valuable asset in the long term
Brand Essence
Understanding brand essence
Creating a brand essence
Benefits of brand essence to businesses
Increased focus and clarity
Market differentiation
Key takeaways:
Brand Equity And Why You Won’t Find It Easily On Your Balance Sheet
Beyond the balance sheet and into the consumer’s mind
Understanding the difference between Brand Equity and Brand Value
Inside brand value
The approaches and methodologies used to compute a brand value
Brand equity and demand generation
Brand Hierarchy
Understanding brand hierarchy
The three types of brand hierarchy
Corporate, umbrella, and family brands
Endorsed brands
Individual
Benefits of incorporating brand hierarchy strategy
Key takeaways:
Brand Positioning To Find Your Product/Communication Fit
Understanding brand positioning
The importance of brand positioning
Different types of brand positioning
Value-based positioning
Features-based positioning
Lifestyle positioning
Key takeaways:
Brand Pyramid To Prioritize Your Branding Strategy

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Understanding brand pyramids

Establishing a brand pyramid
1. Features and attributes
2. Functional benefits
3. Emotional benefits
4. Brand persona/core values
5. Brand essence
Key takeaways:
Brand Promise To Make Customers Identify With Your Product
Understanding brand promise
Three steps to creating a successful brand promise
1. Define the promise
2. Deliver the promise
3. Track and adjust performance where necessary.
Some more examples of companies with successful brand promises
Key takeaways:
Brand Voice To Find Your Unique Communication Style
Understanding brand voice
Developing a brand voice
1. Assess a representative sample of content
2. Describe brand voice in three words
3. Create a brand voice chart
4. Liaise with content and marketing teams
5. Revisit and revise
Key takeaways:
Bullseye Framework To Prioritize Your Marketing Activities
Enter DuckDuckGo
The bullseye framework in a nutshell
The bullseye framework requires continuous tuning
Key takeaway
Bundling To Expand Your Market Shares
Bundling vs. Unbundling
What is an example of bundling?
Unbundling To Enter Market Dominated By A Few Players
Disintermediation To Cut Intermediaries And Widen Existing Markets
Reintermediation To Consolidate New Markets
Decoupling To Break Apart Old Markets By Offering What Customers Want
Coupling To Keep Momentum As Scale Is Achieved
Business Model Canvas
A quick intro to business models
Business model canvas in a nutshell
Key partners
Key activities
Value proposition
Customer relationship
Customer segment
Key resource
Distribution channel

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Cost structure
Revenue stream
Key takeaways
Circle of Competence To Stay In The Entrepreneurial Zone
Understanding the circle of competence
Examples of the circle of competence
Key takeaways:
Comparable Analysis To Map Your Industry’s Context
Business Profile
Sector
Product and services
Customers and end markets
Distribution channel
Geography
Financial Profile
Size
Profitability
Growth profile
Return on investment
Credit profile
Select Comparable: Apple’s case study
How do you pick competitors in the digital world?
Competency Framework As A Process To Find Excellence
Understanding the competency framework
How to develop a competency framework
1. Determine the purpose of the framework
2. Research
3. Construct the framework
4. Implement the framework
The benefits of competency frameworks to businesses
Recruitment guidance
Succession planning
Improves productivity
Key takeaways
Competitive Profile Matrix As A Comparison Tool
Understanding the Competitive Profile Matrix
Key components of a Competitive Profile Matrix
1. Critical Success Factors
2. Weighting
3. Score
4. Total score
Key takeaways:
Coopetition In A Fluid Business World
The Netflix case study
Crowding Out Effect To Understand How Public Spending Can Influence Your Business Perspectives
Breaking down the crowding out effect
Understanding the crowding-out effect
Why does the crowding-out effect matter?

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The cyclical nature of the crowding-out effect

Decoupling As A Go-To-Market Strategy
Understanding the Customer Value Chain
Breaking down Decoupling
Breaking down entry barriers
Birchbox case study
How to decouple
The three customers’ currencies
Connecting the dots
MVP To Launch And Learn, Fast
The origin story of the lean startup movement
The birth of the Customer Development Manifesto
A glance at the lean startup methodology
What is not an MVP?
Demo > Sell > Build: Tweaking the classic lean startup loop
When does an MVP become too risky?
Enter the Exceptional Viable Product Methodology
That would be an exceptional product.
Connecting the dots between MVP, Leaner MVP and EVP
Design Thinking To Build A Viable Company
Origin of the term design thinking
What is design thinking?
Integrative thinking: The foundation of design thinking
The key ingredients of design thinking and its five stages
Business designers become the architects of business modeling
What’s next? The rise of Business Engineering
Dunning Kruger Effect To Get Tuned With Your Business
Understanding the Dunning-Kruger effect
The Dunning-Kruger effect in business
Key takeaways:
Dynamic Pricing To Better Target Your Customers’ Segments
When price tags didn’t even exist
What is dynamic pricing?
Is dynamic pricing legal?
Technological changes are enabling dynamic pricing
How can you apply dynamic pricing to your business?
Other dynamic pricing examples
Amazon dynamic pricing
Airbnb smart pricing
Engines To Boot The Growth Machine For Your Business
What is sustainable growth for a startup?
How do customers drive sustainable growth?
The three engines of growth
The Sticky Engine of Growth
What are the key metrics to measure stickiness?
The Viral Engine of Growth
What’s the key metrics to measure virality?
The Paid Engine of Growth

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What’s the key metrics to measure virality?

Experience Curve: When Experience Becomes Your Key Asset
Understanding the experience curve
Examples of the Experience Curve
Limitations to the Experience Curve
Key takeaways:
Feynman Technique To Explain The World
Understanding the Feynman technique
Benefits of the Feynman technique for businesses
Identifies gaps in knowledge
Useful in communicating traditionally text-heavy, complex ideas
Improves teaching skills
Key takeaways
First vs. Last-Mover Advantage
A business myth busted
Timing can make or break your business
Why Metcalfe’s law like so much the last mover
Peter Thiel’s law
Will this business be around a decade from now?
How to build a monopoly in four steps
Start small to monopolize
Scale-up
Stop with the BS of disruption
Be like a chess player, think about the endgame
Key takeaway: the last-mover (in some cases) takes it all
A few other considerations about first mover vs. latecomer
Fishbone Diagram (Root Cause Analysis)
Understanding the Fishbone Diagram
How to use the Fishbone Diagram
Fishbone Diagram best practices
Creative a diverse team
Clarify the major cause categories
Keep it (relatively) simple
Key takeaways
Flywheel And Platform Business Models
Breaking down Amazon Virtuous Cycle
Find your flywheel
Key takeaway
Gamification To Grow Your Business
Why gamification matters in business
Breaking down gamification
Applications of gamification
Drawbacks of gamification
The Hook Model To Further Gamify Your Product Experience
Key takeaways
GAP Analysis To Enable Your Long-Term Vision
Gap analysis to structure an effective action plan
Gap analysis to identify focus areas

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Gap analysis and process improvement

Gap analysis and KPIs
McKinsland
GE McKinsey Matrix To Prioritize On Successful Business Units
Understanding the GE McKinsey Matrix
Structure of the GE McKinsey Matrix
Drivers of the GE McKinsey Matrix
Strategic implications
Growth/investment strategy
Hold strategy
Harvest strategy
Divest
Key takeaways:
McKinsey Horizon Model To Innovate In The Long-Run
Understanding the McKinsey Horizon Model
Using the McKinsey Horizon Model in practice
First horizon
Second horizon
Third horizon
Key takeaways
McKinsey 7-S Model To Align Your Business
Understanding the McKinsey 7-S Model
Hard elements
Soft elements
Using McKinsey’s 7-S Model in practice
Key takeaways:
Growth Hacking To Accelerate The Pace
What happens when you use Growth Hacking?
What is Growth Hacking and what is not
Growth hacking is not a one-time marketing trick
Growth hacking is not a single person endeavor (unless you run a solo-business)
Growth hacking is not marketing without a budget
The Growth Hacking Mindset
Emphasizing growth as a process
The Growth Hacking method
What are some of the prerequisites of an effective growth hacking strategy?
A multidisciplinary team is the rule of thumb
Must-have product or service
Manufacturing the aha experience
Finding your North Star!
Switching on the engines of growth
Iteration and continuous discovery and innovation
Key takeaways
Guerrilla Marketing For Low-Cost High-Impact Marketing
Understanding guerrilla marketing
Types of guerrilla marketing
Outdoor/street
Indoor

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Experiential
Key takeaways
Hambrick & Fredrickson Strategy Diamond
Understanding Hambrick and Fredrickson’s Strategy Diamond
Arenas
Differentiators
Economic logic
Vehicles
Staging and pacing
Key takeaways:
Horizontal Integration: Expanding Your Business Horizontally
When and why horizontal expansion makes sense?
What are the potential drawbacks of horizontal integration?
Horizontal integration case studies
UberEats' acquisition of Postmates to stay competitive in the meal delivery industry
TikTok acquisition of Musical.ly and its rebranding
Inbound Marketing To Build Your Community
Why is inbound marketing important?
An example of inbound marketing methodology
Attract
Convert
Close
Delight
Key takeaways
Influencer Marketing To Build Your Brand
Influencer marketing explained
Why is influencer marketing important?
Examples of influencer marketing
Key takeaways
Kaizen’s Framework For Continuous Improvement
Why does Kaizen matter to your business?
History of Kaizen
What is Kaizen?
Principles of Kaizen
1. Small incremental changes
2. Employees are active participants and provide ideas and solutions
3. Accountability and ownership of new processes/changes
4. Feedback, dialogue, open communication
5. Active monitoring and measuring of changes – positive or negative impact
Marketing Personas To Identify Your Key Customers
Developing a marketing persona
Benefits of marketing personas
Understanding customer needs
Understanding customer behavior
Higher quality leads
Consistency in marketing message
Key takeaways:
Maslow's Hierarchy of Needs To Understand Your Audience

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Understanding Maslow’s Hierarchy of Needs in a marketing context

Physiological
Safety
Belonging
Self-esteem
Self-actualization
Key takeaways:
MECE Framework As A Scenario Analysis
Understanding the MECE framework
Mutually exclusive
Collectively exhaustive
Five steps to developing a MECE hypothesis
Applications of the MECE framework
Multi-Level Marketing To Build Your Scalable Referral Machine
The difference between multi-level marketing and pyramid schemes
Examples of successful multi-level marketing businesses
Advantages and disadvantages of multi-level marketing
Advantages
Disadvantages
Key takeaways
Net Promoter Score: Is Your Product A Must-Have?
Why does the Net Promoter Score matter?
How is the Net Promoter Score calculated?
Promoters
Passives
Detractors
How do you compute the Net Promoter Score?
Clarifies customer satisfaction and marketing liabilities
Encourages employee investment and provides a relevant benchmark
Fuels organic growth by identifying loyal customers
Allows your marketing strategy to be trackable
Key takeaways
New Product Development Framework
Why product development matters
1. Idea Generation
2. Idea Screening
3. Concept Testing
4. Business Case Analysis
5. Product development
6. Test marketing
7. Commercialization
8. Post Launch Review
Key takeaways
Occam's Razor To Remembers That Simplicity Works
Understanding Occam’s Razor
Real-world examples of Occam’s Razor
Key takeaways:
OKR To Achieve 10x Goals At An Organizational Level

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A glance at the OKR system

Focus and Commit to priorities
Align and connect for teamwork
Track for accountability
Stretch for amazing
How is OKRs different from MBOs?
The OKR cycle
OKR scoring system
The simple way
OKR example
The advanced approach
OKR vs. KPI
OKR vs. SMART Goals
OKR vs balanced scorecard
OKR and 10x: Moonshot thinking as a way to renew your business model
Open Innovation To Scale Your Company
Understanding open innovation
Types of open innovation
Advantages and disadvantages of open innovation
Advantages
Real-world examples of open innovation
Key takeaways:
Partnership Marketing To Expand While Adding More Value
Why and when partnership marketing makes sense
The Pinterest Shopify’s app case study
In a well executed Partnership Marketing agreement everyone wins
PESTEL Analysis To Map The Macro-Context
Why does a PESTEL analysis matter?
What are the critical components of a PESTEL analysis?
Amazon PESTEL Analysis
Political
Economic
Social
Technological
Environmental
Legal
Key takeaways:
PESTEL Analysis vs. Porter’s Five Forces
Pirate Metrics To Build Your Sales Funnels
How does the AARRR (pirate) funnel work?
Acquisition
Activation
Retention
Revenue
Referral
Poka Yoke For Top Quality Control
Understanding poka-yoke
The six principles of poka-yoke

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Benefits of poka-yoke principles for businesses

Improved profitability
Improved productivity
Simplification of smaller, error-prone tasks
Key takeaways:
Porterland
Porter’s Five Forces To Map Your Industry
Breaking down Porters’ five forces
Competitive rivalry
Barriers to entry
Bargaining power of suppliers
Bargaining power of customers
Threats of substitute products or services
Are Porter’s five forces still relevant today?
Competitive Advantage and Generic Strategies
Quick intro do generic strategies
Be a cost leader, differentiator, focuser or die..
Getting stuck in the middle
Porter’s Value Chain Model
Understanding Porter’s Value Chain Model
The primary activities of Porter’s Value Chain Model
1. Inbound logistics
2. Operations
3. Outbound logistics
4. Marketing and sales
5. Services
Secondary activities
1. Company infrastructure
2. Human resource management
3. Research and development
4. Procurement
Key takeaways:
Porter’s Diamond Model
Understanding Porter’s Diamond Model
The four characteristics of Porter’s Diamond Model
1. Firm Strategy, Structure and Rivalry
2. Factor conditions
3. Demand conditions
4. Related and supporting industries
Criticisms of Porter’s Diamond Model
Key takeaways:
Porter’s Four Corners Analysis
Understanding the Four Corners Analysis
Implementing a Four Corners Analysis
Motivation – Drivers
Motivation – Management Assumptions
Actions – Strategy
Actions – Capabilities

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Key takeaways:
Product/Market Fit? Better Problem/Solution Fit
Problem/Solution Fit comes first
Key takeaways
Profitability Framework To Narrow Down Financial Issues
Profitability analysis framework explained
Narrow The Problem
Step 1: Clarify the objective/target.
Step 2: You start breaking down the case in your head.
Step 3 You drill down the revenues.
Relationship Marketing To Move From Awareness To Loyalty
Understanding relationship marketing
Examples of relationship marketing
The importance of relationship marketing
Key takeaways:
RTVN To Build Your Business Model From Scratch
What are the SHaRP resources and why do they matter?
What’s the customer journey map and why does it matter?
What’s a business model narrative, and why it is essential?
Sales Funnels And Flywheels
Have sales funnels ever existed in the real world?
Shortening the sales cycle
Key takeaways
Scenario Planning To Identify Uncertainties
Understanding scenario planning
Implementing scenario planning
Step 1: Identify the driving forces
Step 2: Identify uncertainties
Step 3: Develop plausible scenarios
Step 4: Discuss the implications
Key takeaways:
Scrum: Borrow It For Better Project Management
Trust the process
Heavyweight vs.lightweight software development
Agile manifesto: the guiding principles of Scrum methodology
What are the benefits of using Scrum?
The Scrum elements
The Scrum Team
Scrum Events (so-called Ceremonies)
Scrum Artifacts
Scrum Rules
Scrum guide
Key takeaways
Switching Costs As Friction For Your Product Adoption
Why switching costs matter
Switching costs go beyond price and money
Building up moats
Monetary switching costs

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Non-monetary switching costs

Low vs. high switching costs
The Experience Curve
Understanding the experience curve
Examples of the Experience Curve
Limitations to the Experience Curve
Key takeaways:
Tipping Point Leadership For A Strategic Shift
Understanding Tipping Point Leadership
The archetypal example of Tipping Point Leadership
The four key hurdles of Tipping Point Leadership
1. Cognitive hurdles
2. Resource hurdles
3. Motivational hurdles
4. Political hurdles
Key takeaways
TQM Framework To Align Employees And Customers
Understanding the TQM framework
8 principles of Total Quality Management
1. Customer-focused
2. Employee engagement
3. Process approach
4. System integration
5. Strategic and systematic approach
6. Continual improvement
7. Decision-making based on facts
8. Communication
Key takeaways:
Transitional Business Models To Gain First-Stage Traction
Tesla: from electric sport’s car to everyone’s electric car
The transitional business model in a nutshell
Key takeaway
Triple Bottom Line (TBL) To Build A Sustainable Business Model
Understanding the Triple Bottom Line
The three Ps of the TBL theory
1. People
2. Planet
3. Profit
Advantages and disadvantages of the Triple Bottom Line theory
Advantages
Disadvantages
Key takeaways
Unique Selling Proposition To Differentiate Your Product
Understanding a unique selling proposition
Elements of a strong USP
Examples of successful unique selling propositions
Death Wish Coffee
Voodoo Doughnut

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Key takeaways:
Value Stream Mapping To Build A Solid Supply Chain
Understanding value stream mapping
Three components of every value stream map
Advantages and disadvantages of value stream mapping
Advantages
Disadvantages
Key takeaways:
Value Disciplines For A Solid Business Model
The three key areas of the Value Disciplines Model
Customer intimacy
Product leadership
Operational excellence
Limitations to the Value Disciplines Model
Key takeaways:
Vertical Integration To Cover The Whole Supply Chain
Vertical integration in the physical world
Google vertical integration explained
Atoms vs. bits
Google and the supply chain of data
Google business of collecting data
From the search page to the voice assistant
VMOST: From Short-Term Execution To Long-Term Vision
Understanding the VMOST Analysis
Vision
Mission
Objectives
Strategies
Tactics
Advantages and disadvantages of the VMOST Analysis
Advantages
Disadvantages
Key takeaways
VRIO To Identify Your Competitive Advantage
Understanding the VRIO framework
Examples of the VRIO framework in business
Key takeaways:
VTDF Framework To Dissect Any Tech Business Model
VTDF Business Model Template
Value model
Value propositions
Mission and vision
Technological model And R&D Management
Distribution Model
Financial model
Revenue model
Cost structure
Profitability

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Cash generation and management

Key takeaways
Webrooming / Showrooming
What is Showrooming?
What is Webrooming? Reverse showrooming in a nutshell
Is there a winner?
Speed-Reversibility Matrix To Prioritize Your Bets
When do you need data?
Understanding optionality and reversibility
Assessing the worst-case scenario
Slow-decision making mode
Gradual rollout mode
Multiple experiments mode
Fast mode
Key takeaways
Conclusions

3C’s Model To Build A Solid Company

The 3C Analysis Business Model was developed by Japanese business strategist Kenichi
Ohmae. The 3C Model is a marketing tool that focuses on customers, competitors, and the
company. At the intersection of these three variables lies an effective marketing strategy to
gain a potential competitive advantage and build a lasting company.

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Understanding the 3C Analysis Business Model

The 3C Analysis Business Model was developed by Japanese business strategist Kenichi
Ohmae. Ohmae argued that at the intersection of a company’s strengths, a customer’s needs,
and a competitor’s offering, there was an opportunity for competitive advantage.

Let’s look at each in more detail.

Customers
Customers are perhaps the most important of the three variables, for without customers there
can be no company nor any way to gain competitive advantage. Businesses must know their
customers intimately so that their marketing strategies resonate with them on a meaningful
level. This starts with research and a few questions such as:

● What is the demographic of the target audience? In other words, who are the
customers that a business wants to target?
● Why do they make buying decisions? Are they motivated by value, economy, or status?
What other problems might they be trying to solve?
● What are the different segments of a target audience and how might be they marketed
effectively? For example, a consumer who drinks coffee to stay awake will need a
different strategy than one who drinks it socially in cafes.
● Competitors
● A business must know where it stands in relation to its competitors. Is it bigger?
Smaller? Is the competition trying to take market share from the business, or is the
opposite true?

According to Ohmae, competitor-based marketing strategies involve looking for a point of

difference in purchasing, engineering, sales, or servicing.

This can be achieved in several ways:

● Investing in brand image. Ohmae noted that companies such as Sony and Honda
were able to sell more than their competitors in the Japanese market because of heavy
investment in advertising and consumer relations.
● Hito-kane-mono – Japanese business planners believe in the concept of hito-kane-
mono, loosely translating to people, money, and things (assets). As a point of
competitive differentiation, businesses can ensure these three resources are in balance
without waste or surplus. For example, managers who are given money over and above
what they can competently spend tend to waste that money unnecessarily. In this case,
Ohmae argues that managers should first define their ideas and then adapt a budget
to suit.
● Profit and cost-structure differences. Different sources of profit can also be exploited,
such as the profit seen in new product sales or value-adding services. Large companies
with lower fixed-cost ratios can also lower their prices in a stagnant market to gain
market share.

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● Company: The company itself must also look inwardly to design strategies aimed at
maximizing strengths relative to the competition. This involves a combination of short
and long-term strategies, including:
● Specialization. A business should always identify one or two areas of expertise, instead
of trying to specialize in everything.
● Produce or procure. In terms of manufacturing, a business has two options. It can take
advantage of backward integration, taking control over its supply chain in the process.
Or, it can outsource non-value-adding activities to a third party.
● Cost-effectiveness. This is a relatively simple way of gaining a competitive advantage.
Businesses can reduce basic operating costs by focusing on processes that have the
highest potential for automation or streamlining. Longer term, businesses can
combine resources and knowledge with others in their industry to develop a
competitive advantage.

4 Ps Marketing Mix & The 7 Ps Of Marketing

The marketing mix is a term to describe the multi-faceted approach to a complete and
effective marketing plan. Traditionally, this plan included the four Ps of marketing: price,
product, promotion, and place. But the exact makeup of a marketing mix has undergone
various changes in response to new technologies and ways of thinking. Additions to the four
Ps include physical evidence, people, process, and even politics.

Understanding marketing mix

While many understand marketing as “putting the right product in the right place, at the right
price, at the right time”, few know how to implement this in practice. Identifying the individual
elements of a marketing mix and then creating robust plans for each allows a business to
market accordingly. It also allows a business to market to its strengths while minimizing or
eliminating its weaknesses.

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At the very least, a marketing mix should include the four Ps of marketing:

Product
This can include a tangible good or an intangible service. Businesses must understand their
product or service in the context of the problem that it aims to solve. If the product does not
seem to address any problem, then the potential profitability of the product should be re-
analyzed. The target audience, or those who will buy the product, must also be identified.

Price
Price has a direct impact on how well a product will sell and is linked to the perceived value of
the product in the mind of a consumer. In other words, price is not related to what the business
thinks the product is worth. Thus, it is important to know what the consumer values and price
it accordingly. To a lesser extent, price may also be influenced by rival products and value chain
costs.

Promotion
Promotion includes all marketing communication strategies, such as advertising, sales
promotions, and public relations. Irrespective of the channel, communication must be a good
fit for the product, price, and the target audience.

Place
Place describes the physical location in which a customer can use, access, or purchase the end
product. Determining where buyers look for a product or service may seem simplistic, but it
has implications for marketing and product development. For example, place determines
which distribution methods are most suitable. It also dictates whether a product needs a sales
team or whether it should be taken to a trade fair to be sampled and advertised.

Other elements of an effective marketing mix

Conventional marketing mixes are product-centric, but services and other intangible goods
are also commonplace for many businesses. People, process, and physical evidence are three
more Ps that these businesses should implement.

People
People refer to the staff who are directly and indirectly involved in marketing the brand.
Employing the best people for the job is crucial since people shape the direction of the brand
and therefore the goals and values of the business.

Process
Process covers the interface between business and consumer, otherwise known as customer
service. Process is important because customers often give feedback on their service, which

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enables a business to improve its systems across the board. Effective processes should make
purchasing pleasing and simple while simultaneously increasing brand equity.

Physical evidence
Physical evidence describes anything that consumers see when interacting with a brand.
Physical evidence can take the form of packaging, branding, and even the physical layout and
design of retail spaces and shop fronts. Physical evidence also extends to how staff dress and
interact with customers and the possible impact that this has on sales.

AIDA Model To Build Your Customer Base

AIDA stands for attention, interest, desire, and action. That is a model that is used in marketing
to describe the potential journey a customer might go through before purchasing a product
or service. The AIDA model helps organizations focus their efforts when optimizing their
marketing activities based on the customers’ journeys.

The background story of the AIDA model

In the late 1800s, an advertising man, E. St. Elmo Lewis explained:

The mission of an advertisement is to attract a reader, so that he will look at the

advertisement and start to read it; then to interest him, so that he will continue to read it; then
to convince him, so that when he has read it he will believe it. If an advertisement contains
these three qualities of success, it is a successful Advertisement.

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From this first draft, other advertising pioneers, from Joseph Addison Richards to Fred Macey,
Frank Hutchinson Dukesmith, and others took inspiration. Indeed if today in sales we like to
call it a funnel, and it looks something like that:

Back then it was called a scale, and it seemed something like that:

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Source: dragon360.com

Until the acronym AIDA was finally used in 1921, in a publication called Printers Ink, wherein
“How to Write a Sales-Making Letter” by C.P. Russell explained:

An easy way to remember this formula is to call in the “law of association,” which is the old
reliable among memory aids. It is to be noted that, reading downward, the first letters of
these words spell the opera “Aida.” When you start a letter, then, say “Aida” to yourself and
you won’t go far wrong, at least as far as the form of your letter is concerned.

The message was clear. For an advertising message to work out, it had to “lift” a certain weight
of the potential customer’s attention and interest before it could become a sale.

Therefore, the AIDA model was supposed to give a clear framework to advertisers on how to
carry the interest of a potential customer to become a sale. Thus, the AIDA model was the
progenitor of the sales funnel.

What makes up a basic AIDA model? Primarily four phases:

● Attention
● Interest
● Desire
● Action

Let’s look at each of them.

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Attention
Since the dome of mass media, advertisers have fought for the conquest of a scarce asset:
people’s attention. Any good salesperson knows this is the first step to take before it would be
even possible to introduce the perspective of a sale.
Advertisers first, and marketers, later on, have learned how to grab the attention of potential
customers, before they could be presented with the option of completing a sale.

Interest
In the AIDA model, the second step or phase is interest. A salesperson knows that before a sale
could be closed, attention must be kept, by understanding what motivates the other part.
Maintaining the level of interest in the prospect is another critical step in the AIDA model.

Desire
Once attention is captured, and interest is maintained, the salesperson has to generate
excitement. This phase is critical, as the salesperson has to be able to bridge the gap between
action and interest before it could close a deal.

Action
That is when the transaction gets completed, and the sale happens. The salespeople can
trigger action by using several psychological levers, like scarcity, price, or else.

Does AIDA still make sense today?

The problem with the AIDA model is that it assumes we live in a linear world, where people
take deliberate steps before completing a transaction. This is true for all types of models
that academic or practitioners use. However, the world is way more unpredictable, and the
path people take before they become customers is hard to define in most cases. On the other
hand, a model should have a specific function – I argue – which is allowing the focus to whoever
is using it. In short, practitioners should never fool themselves to believe that the world follows
a linear model. However, a tool like the AIDA model is extremely helpful to focus the effort on
specific actions, to improve efficacy. In addition, the AIDA model might be not only
unrealistic in many circumstances but also not appropriate for certain forms of selling. For
instance, if you take a business model like SaaS or software as a service or a subscription-based
model, those need to leverage on a continuous engagement of its customers or users, which
implies a virtuous cycle or flywheel.

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Enter the Flywheel model, The New Normal For Platforms

With the AIDA model we imagine a linear path of potential customers. When it comes to digital
business models, and more in particular, platform business models, this acquisition process
looks more like a continuous loop, this is the so-called flywheel, made by Amazon as the
foundation of its go-to-market strategy. The Amazon Flywheel or Amazon Virtuous Cycle is
a strategy that leverages customer experience to drive traffic to the platform and third-party
sellers. That improves the selections of goods, and Amazon further improves its cost structure
so it can decrease prices which spins the flywheel. One of the ways to understand how the
business world has changed is through the Amazon Flywheel Model. In the old world, large
corporations might be able to control massive resources centrally, thus preventing other
businesses from entering space. In short, by controlling and leveraging on the supply side they
could keep their competitive positioning for a longer time. That implied a more linear logic of
business, where it might have been easier to spot competitors. As we moved to a digital age,
bottom-up forces brought the business world to become way more unpredictable. Thus, the
competition itself becomes nonlinear. Today your competitor might be coming from a place
you would never expect. That is why if you’re building a digital platform business, but also if
you’re riding the wave of a large platform business (think of how many small businesses are
powered by Amazon, Google, Facebook, and many other platforms) it is important to
understand those businesses in terms of network effects. Those network effects can be
triggered by understanding that a competitive advantage can be created by focusing on
customer experience and leveling that up. It is important to highlight that business changes
in nature as new ecosystems and mass adopted technologies become more accessible. For
instance, if you think about how coming developments like voice-enabled devices, IoT, digital
twins, and others will break further the technological divide (when access to a certain
technology is unevenly distributed) more and more people will be able to join in, thus
enhancing this wave. As other technologies like the Blockchain might become commercially
viable to consumers, those might reshuffle again the playground and the rules of the game,
thus making the nature of competition change with it!

We’ll see the flywheel model more in detail in its specific paragraph.

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Anchoring: Price Anchoring, And The Anchoring Effect)

The anchoring effect describes the human tendency to rely on an initial piece of information
(the “anchor”) to make subsequent judgments or decisions. Price anchoring, then, is the
process of establishing a price point that customers can reference when making a buying
decision.

Understanding the anchoring effect

The anchoring effect is part of an entire field of study researching how the brain determines
value. Dubbed neuroeconomics, the field is a mixture of economics, psychology, and
neuroscience and how these disciplines play a role in human decision making. Indeed, the
anchoring effect is a powerful strategy that businesses can and do use to influence consumer
behavior. When a price anchor is established, it gives the consumer a frame of reference for
valuing the product. In a $100 pair of shoes that is discounted to $75, the original asking price
of $100 is the anchor point. It allows the consumer to deduce that the shoes have been
discounted by 25%. More importantly, it leads them to believe that they are receiving a good
deal.

Perception
Within reason, the definition of a “cheap” or “expensive” product is open to interpretation. In
other words, price is always relative and judged after comparison to similar products. Since
consumers tend to desire the highest reward for the least amount of money or effort,
marketers can use this to their advantage. For example, a cloud storage company could offer
a premium plan of $1,000 per month with unlimited storage and a standard plan of $200 per
month offering 750 gigabytes of storage. Most consumers will sign up for the standard plan
because they don’t need unlimited storage. Because of the $1,000 price anchor, they’ll also
believe they are saving $800 a month. The business, on the other hand, deliberately created

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the premium plan to make the standard plan look more attractive in comparison. In this
scenario, it is a win-win for both parties.

The power of suggestion

Price anchoring is also effective when there are a large variety of products. With such variety,
some consumers have difficulty making decisions on what to buy. Their decision anxiety is
such that they might walk away from the purchase altogether. Businesses can use the
bandwagon effect and price anchoring to relieve this anxiety. For example, a bookstore may
feature a bestseller section with popular books and an anchor price of $20. Here, the anchor
price provides a frame of reference for the consumer who may have only wanted to spend $15.
But since many other consumers are buying books at this price, it must represent value for
money. This in turn reduces decision-anxiety because the consumer assures themselves that
the $20 price anchor is a good one.

A tendency to avoid extremes

As a general rule, consumers like to avoid extremes. Most will order a medium coffee in a cafe
instead of a small or large one. This tendency to sit in the middle is something that businesses
exploit through price anchoring. Consider the example of a hosting company that offers three
levels of hosting – basic, premium, and professional. Here, the company effectively uses the
price of the basic and professional level packages as an anchor to push consumers to the
premium level. Regardless of industry, businesses that offer a complete range of products can
take advantage of this tendency to avoid extremities. Instead, the consumer is directed to the
product that the business wants them to purchase.

Key takeaways:
● The anchoring effect is a basic human tendency to rely on initial information (the
“anchor”) to make future decisions. Price anchoring is therefore the process of using an
initial price to influence consumer purchasing decisions.
● Businesses can use the anchoring effect to influence consumer buying behavior
through exploiting cognitive biases and tendencies.
● The anchoring effect allows businesses to direct consumers to a target product. This is
achieved through perception, suggestion, and avoiding extremes.

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Ansoff Matrix To Place Your Products’ Portfolio Bets

You can use the Ansoff Matrix as a strategic framework to understand what growth strategy is
more suited based on the market context. Developed by mathematician and business
manager Igor Ansoff, it assumes a growth strategy can be derived by whether the market is
new or existing, and the product is new or existing.

Ansoff matrix in a nutshell

According to the Ansoff matrix, you can evaluate a growth strategy based on whether you’re
trying to grow in an existing market with an existing product (market penetration). Whether
you will try to grow in a new market with the same product line (market development).
Whether you will try to grow by developing new products in the existing market (product
development). Or growing by developing new products for new markets (diversification).

Market penetration
In a market penetration scenario, the company grows by leveraging its existing products, thus
trying to increase its market share in its current market. Therefore, the company will either try
to sell more to its customers or to expand its customer base. In this scenario, the company is
not trying to expand the boundaries of its market, rather increase its presence on that market.
In short, the company grows by leveraging on its products, within its defined market.

Market penetration case study

Since its inception, Google has been able to grow its market share in search, year over year. By
simply leveraging on its core product (the search engine) the company has been able to grow
consistently to dominate the search market.

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Market development
In this scenario, the company grows by leveraging its products to expand in new markets.
Thus, the company will try to make its product available in new markets, geographies.

Market development case study

When Facebook started to roll out, in the early years. The company followed a gradual traction
model. Where it opened to more and more universities first, in the US. Then moving to other
niches and markets, until it opened to anyone.

Product development
In this scenario, a company grows by developing new products for the existing market, for
instance, by developing new products that can benefit the same customer base.

Product development case study

As Instagram was expanding its market share in the social media space, it started to
experiment with new features that enabled it to gain more traction within the same market,
thus growing quickly.

Diversification
In this scenario, a company grows by going beyond its market boundaries and by developing
a whole new set of products. Based on the degree in which the new product line and the
market is adjacent compared to the existing market (related diversification) and a product line
or it goes far beyond it (unrelated diversification).

Diversification case study

When Apple launched the iPhone, back in 2007, it risked cannibalizing its most successful
product, the iPod. Yet when the iPhone was out, in a few years it would create a whole new
category (smartphone) much bigger than that of music player devices. Thus, making Apple
develop an entirely new market as a consequence of launching a whole new product.

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Backward Chaining And Reverse Integration

Backward chaining, also called backward integration, describes a process where a company
expands to fulfill roles previously held by other businesses further up the supply chain. It is a
form of vertical integration where a company owns or controls its suppliers, distributors, or
retail locations.

Understanding backward chaining

Supply chains start with the sourcing of raw materials. These materials are then delivered to a
warehouse or factory and then into stores for purchase by consumers. The supply of raw
materials is sometimes unpredictable and in short supply. As a result, these resources are
highly prized and there is much competition among organizations in trying to secure them.
Businesses use backward chaining to shore up these resources for themselves, eliminating all
competition in the process. Backward chaining is also a highly effective competitive strategy.
With more control over its supply chain, a business decreases costs and eliminates potential
supply chain pressures.

Advantages
● Efficiency. With greater control, businesses can streamline every aspect of the supply
chain to suit their needs and preferences. The efficiency of backward chaining might
reduce transportation costs and improve profit margins. In a retail context, a business
with total control over its supply chain is better able to stand behind the availability of
its products.
● Reduced costs. Traditional supply chains consist of one or more middlemen who
charge a mark-up for their services. With the middleman removed, acquiring raw
materials becomes cheaper and these savings can be passed to the consumer.

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● Intellectual property acquisition. For example, backward chaining in the technology

industry might see a business gain exclusive rights to trademarks, patents, and other
proprietary information owned by their former suppliers.

Disadvantages
● Cost. Backward chaining requires a substantial investment that not all businesses will
be able to absorb.
● Reduced economies of scale. Normally, a supplier who supplies multiple businesses
may pass on savings resulting from economies of scale. Since backward chaining
reduces the number of individual units being produced, the company acquiring the
supplier might face higher production costs.
● Manageability. Companies that acquire entire supply chains might become large and
more troublesome to manage. Spread so widely, their core strengths and values may
also become diluted.

Examples of backward chaining

Netflix started out as a DVD rental company with a focus on television and film. Eventually, the
company employed backward chaining to acquire the rights to start making content
themselves. Ford Motor Company originally sourced key raw materials such as rubber, glass,
and metal from suppliers. In order to protect its supply, Ford created several subsidiaries to
control the supply of these materials, guaranteeing availability, and increasing quality.
Apple is also a proponent of backward chaining. Apple software is installed on electronic
devices and operating systems that are owned by the company. Hardware and manufacturing
facilities are also under-owned by the tech giant.

Key takeaways:
● Backward chaining is the process of a company acquiring other companies further up
the supply chain, ostensibly to secure raw materials.
● Backward chaining is an effective competitive strategy because it increases efficiency
and reduces costs. However, it does require large amounts of capital and has the
potential to dilute a company’s brand.
● Backward chaining is common to many of the world’s largest and most successful
companies.

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Balanced Scorecard To Build A Viable Organization

First proposed by accounting academic Robert Kaplan, the balanced scorecard is a

management system that allows an organization to focus on big-picture strategic goals. The
four perspectives of the balanced scorecard include financial, customer, business process, and
organizational capacity. From there, according to the balanced scorecard, it’s possible to have
a holistic view of the business.

Understanding the balanced scorecard

Once a concept primarily associated with balancing financial and strategic objectives, the
balanced scorecard has now evolved into a holistic, all-encompassing management strategy.

Organizations now use the balanced scorecard to:

● Communicate what they are trying to accomplish.

● Ensure that all employees are aligned in their day to day activities and values.
● Prioritize the implementation of products, services, and projects.
● Define strategic targets and then measure and monitor progress toward them.

By focusing on these four distinct areas, balanced scorecards reinforce good behavior in each
and encourage growth and learning according to company objectives. If objectives are not
being met, then businesses can identify and then address factors which hinder performance.
Balanced scorecards, or BSCs, are used extensively in business, industry, government, and non-
profit settings worldwide. Many of the largest companies in the US, Europe, and Asia are using
this system – and for good reason. A recent study by Bain & Co discovered that it was the fifth

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most widely used management tool globally. Harvard Business Review editors also called the
BSC system one of the most influential ideas of the past 75 years.

The four perspectives of the balanced scorecard

The four perspectives of the balanced scorecard include financial, customer, business process,
and organizational capacity. Each has a proven track record of the effectiveness of several
decades of use in business, and each is outlined briefly below.

Financial
For many businesses, the financial perspective is concerned with meeting shareholder
expectations and making a profit. This perspective is often the easiest to define and measure,
but it is nonetheless a major focus of any balanced scorecard. If the business is not making
money, then it hints at problems in other perspectives which must be addressed.

Customer
The focus of the customer perspective is the implementation of measures directly related to
customer satisfaction. Satisfaction can be gauged when analyzing customer feedback on a
business’s products and services around metrics such as quality, price, and availability.

Internal processes
Otherwise known as business processes, these define how well a business is operating. Often,
the success of business operations is defined by the ability to meet customer needs. However,
managing internal processes also means identifying any gaps, delays, shortages, or waste and
then addressing them accordingly.

Learning and growth

This perspective looks at the culture of an organization. Are employees aware of the latest
industry trends? Does the organization encourage progressive and collaborative
communication between employees? Or are processes hampered by red tape? Most
importantly, do employees have fair and easy access to training and other opportunities that
enhance their growth?

Key takeaways:
● The balanced scorecard is a strategic planning and management system that
businesses use to get a more “balanced’ view of their performance.
● The balanced scorecard has evolved from humble beginnings to be a holistic
framework for business growth.
● The balanced scorecard consists of four primary objectives with a track record of
enabling businesses to become successful.

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Bandwagon Effect And How To Master Customers’ Perception

The bandwagon effect tells us that the more a belief or idea has been adopted by more people
within a group, the more the individual adoption of that idea might increase within the same
group. This is the psychological effect that leads to herd mentality. What in marketing can be
associated with social proof.

Why does the bandwagon effect matter in business?

The bandwagon effect, often referred to as the herd mentality, is the propensity for someone
to do something because a lot of other people are already doing it. The singular person often
acts subconsciously. That is, they will act even if the values and opinions of the herd contradict
their own. The bandwagon effect is a powerful driver of human behavior and has therefore
infiltrated most aspects of daily life. In the business and marketing spheres, studies have
shown that the effect influences not only a consumer’s willingness to buy but also how much
they are willing to pay. Furthermore, consumers are more likely to make a purchasing decision
if they can see that others have made successful purchases before them.

Breaking down the bandwagon effect

● The bandwagon effect describes the often unconscious tendency for an individual to
act based on the actions of the many.
● The bandwagon effect is a simple yet powerful marketing tool that no business should
ignore because, to some extent, the consumers are doing the work of marketing the
product for the business.
● The bandwagon effect is most effective for businesses with a history of positive
customer reviews. A lack of reviews is negatively correlated with successful marketing
campaigns.

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Understanding the bandwagon effect

The bandwagon effect is one aspect of consumer behavior that brands and businesses can
exploit. The simplest way is for a business to show their product and service in action.
Traditionally, celebrities and other high-profile figures would feature prominently in
advertisements. More recently, this technique has become the basis for influencer marketing.
Influencers with large, targeted followings are ideal for the bandwagon effect, for obvious
reasons. But businesses themselves can also jump on the proverbial bandwagon and adjust
their product offerings accordingly. Often these trends are driven by popular consumer
sentiment relating to technology or perceived status. Many television manufacturers, for
example, are now offering 4K resolution screens – even though most broadcasters do not
support 4K resolution. But since consumers are behind this demand for 4K products, it would
be unprofitable for manufacturers to not use the bandwagon effect to their advantage.
Customer testimonials, reviews, and case studies are also crucial to any marketing campaign.
A recent study by BrightLocal found that positive reviews make 91% of consumers more likely
to buy from a business. Furthermore, 84% equate positive reviews with recommendations
from a friend and a further 53% will not purchase from a business with an average rating under
4 stars. Amazon, Yelp, and TripAdvisor are all examples of the power of customer reviews in
building large and successful businesses.

Drawbacks from the bandwagon effect

The greatest strengths of the bandwagon effect also have the potential to be its greatest
weaknesses. Consumers who act in the interests of the crowd are often not acting in their own
interests. This poor decision making may also extend to businesses themselves, who choose
to invest in manufacturing goods or services based on trends and not on the core values of
their organization. Businesses may also find that as they (and their competitors) flock to
popular markets, profit margins will be smaller. Smaller businesses who do not possess long-
standing customer reviews might also find that the bandwagon effect is detrimental to their
marketing efforts. Several analyses into landing page conversion rates found that pages with
low or no social media share count resulted in a lower conversion rate overall. In the absence
of obvious social proof, businesses must direct consumers to other actions that increase the
odds of buying so that this proof can be built organically over time.

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Barbell Strategy And Place Bets For Entrepreneurs

A Barbell strategy consists of making sure that 90% of your capital is safe, and use the
remaining 10%, or on risky investments. Applied to business strategy, this means having a
binary approach. On the one hand, extremely conservative. On the other, extremely aggressive,
thus creating a potent mix.

Barbell strategy in a nutshell

A Barbell strategy, a la Taleb consists of making sure that 90% of your capital is safe, by
investing it in Risk-Free assets, which cover from inflation. On the other hand use 10%, or the
remaining capital for very risky investments. Few people can coin a new word, and one of those
is the options trader, writer, and philosopher Nicholas Nassim Taleb. He introduces the concept
of Black Swans and how to deal with that in his three books series called “Incerto.”
Before men discovered the existence of Black Swans in Australia, empirical evidence showed
that they did not exist. The problem with empirical evidence is that it can only be falsified
rather than prove to be right or wrong ultimately. In other words, there will be not a final theory
in science, or in socio-economic life, that will be right forever. Instead, a method that works
better compared to the previous ones. Until a new, evolved theory, therefore falsifies a previous
one. It does not mean that the former assumption was wrong, but rather not as complete as
the new theory. What does this introduction have to do with investing? The investing world is
plenty of gurus, which affirm to be able to read the markets. The problem is that this is not
possible, not because they are not knowledgeable enough but somewhat because they are
too indoctrinated with their theories and, therefore, they fall into the narrative fallacy. The
narrative fallacy is a bias that we all carry, but that the so-called “experts” seem to carry the
most. In other words, we tend to give an explanation and create cause-effect relationships
between events, which are not related at all. In short, with words we can create stories, those
stories fit a narrative, which is deviant from reality. Also, while experts in the domain of physical
things, maybe really able to have a better understanding of that domain, this is not the case
for social areas.

As Taleb puts it,

“if you put 1000 people in line and you take the person who weighs the most in the world, that
person will represent thirty basis points of the total (0.30% of the total);”

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Instead, if you take 1000 people and you want to measure how the wealthiest person in the
world will affect the total, you will be astonished to see that person representing 99.9% of the
total.

Mediocristan vs. Extremistan

In other words, Taleb classifies our world in two domains, a first domain, called Mediocristan,
like the weight example. And a second domain, called Extremistan, like the wealth example.
In the weight example (mediocristan), one single rare event minimally impacts the total. In the
wealth example (extremistan), instead, one single rare event will make the total. From here,
we go back to our idea of black swans. Socio-economics is classifiable as an extremistan
domain, where one rare event can make the total. Therefore, the problem here is to
understand the difference between rare events, or “Black Swans” which can be classified in
“Positive Black Swans” and “Negative Black Swans.” In other words, we want to avoid negative
black swans, while we want to completely expose ourselves to positive black swans. But how
does this concept apply to finance and investments? To take advantage of positive swans while
avoiding negative ones, you have to take an opposite approach in the same domain. In short,
you want to cover yourself from blow ups while also making yourself exposed to unlimited
upsides.

The barbell strategy

This strategy translates into the Barbell strategy, elaborated by Taleb. This strategy mainly
consists of making sure that 90% of your capital is safe, by investing it in Risk-Free assets, which
cover from inflation. On the other hand use 10% of the remaining capital for very risky
investments. Risky investments such as options, or rights but not obligations to either buy or
sell a stock in the future. The cool thing about options is the fact that you know the downside
beforehand (the cost of the option), although, you don’t know the upside (as Taleb puts it “The
sky's the limit”). While this strategy can be used in investing, it can also be used in other
domains of life. The interesting theory coming from Taleb’s book is intriguing since it can be
expanded to the point of making yourself “antifragile” to life. This new word coined by Taleb
differs from robustness. Indeed, while robust things are resistant, “antifragile” things, gain from
disorder. In an uncertain, extremistan world, becoming antifragile can be the answer and
solution to life’s meanest problems.

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BCG Matrix To Build A Winning Product Portfolio

In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The
Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful
business product portfolio based on potential growth and market shares. It divided products
into four main categories: cash cows, pets (dogs), question marks, and stars.

The Product Portfolio origin story

It all started back in the 1970s, when Bruce D. Henderson, the American businessman, founded
the Boston Consulting Group (BCG) in 1963 as part of a bank, The Boston Safe Deposit and
Trust Company. The BCG became independent by the end of the 1970s, and by then Bruce
Henderson had come up with The Product Portfolio (aka BCG Matrix or growth-share matrix).

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The idea was that of determining the share of cash to allocate for each product, based also on
how much future cash potential each product had.

Assumptions underlying the Product Portfolio theory

According to The Product Portfolio theory, it’s fundamental to look at cash flows, to build up a
successful portfolio, and this is based on four primary rules:

● Rule 1: High market shares bring high margins and cash flows.
● Rule 2: Growth requires cash to be maintained.
● Rule 3: High market share will be either earned or bought.
● Rule 4: No product market can grow forever.

Cash cows
Cash cows are products with high market share and slow growth. They generate cash in excess
for what it takes to maintain the market share. According to The Product Portfolio theory, cash
should be invested back in cash cows only to maintain them, but most of the excess cash
produced by cash cows should be invested in new products (question marks, see below), which
have the potential to become cash cows in the future.

Pets (dogs)
Dogs are products with low market share and slow growth. Pets are those products that don’t
have growth potential, and they don’t generate enough cash to be sustained.
As Bruce Henderson explained in his piece, all products either become cash cows or pets.

Question marks
Question marks are low market share, high growth products.
They require far more cash than they can generate, otherwise, they will die. The only way out
is if they become stars, otherwise, they will decay into dogs.

Star
Stars are high share, high growth products.
While they are leaders, they generate substantial cash. Yet, they will become large cash
generators only when they will turn into cash cows, as their growth rate will slow down.
However, they will have high market shares, thus becoming more stable products, requiring
diminishing investments and high cash generation.

The Success Sequence

Bruce Henderson, founder of BCG, in his Product Portfolio, explained how in a successful
sequence of cash allocation, stars over time become cash cows. And the abundant cash
generated by cash cows will be invested back in question marks, that will need, over time, to
become stars, to trigger a positive loop.

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In short, stars over time become cash cows, due to market dominance and saturation, thus
creating a condition of a product with a slower growth rate, and yet high margins and cash
flows. The cash flows generated by cows will need to get invested back to question marks, that
for the time being, will make substantial cash. To trigger a positive loop, those question marks
will need to be turned into cash cows, or else they will decay and turn into dogs.

The Disaster Sequence

Bruce Henderson, founder of BCG, in his Product Portfolio, explained how in a disaster
sequence of cash allocation, excess cash from stars is invested in question marks that turn into
dogs. And how excess cash from cash cows invested in dogs turns a negative loop.

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In a disaster sequence the cash generated gets invested inefficiently, thus either using the
excess cash from cash cows into products that will turn into dogs. Or the excess cash from
stars into question marks, that will decay into dogs.

Key takeaways
● Back in the 1970s, Bruce Henderson, founder of the BCG consulting produced a
cornerstone piece called The Product Portfolio, which would become the foundation of
what is also known as the BCG Matrix or Growth-Share matrix.
● The BCG Matrix assumes that the success of a portfolio of business products will highly
depend on how the cash will be allocated over those same products. More precisely
high market shares products will also bring high margins and cash and vice versa.
● The matrix divides the products into four main categories: cash cows, dogs, question
marks, and stars.
● In a success sequence, stars generate cash and over time they will turn into cash cows.
Cash cows have low growth but high market share and as such generate large cash
flows to be invested in question marks, to turn them into stars, that over time will
become cash cows, and trigger again this positive loop.
● In a disaster sequence, the excess cash from stars is invested in question marks that
decay into dogs. And the excessive cash from cash cows is invested back into cash cows
that over time decay into dogs.

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Benchmarking To Contextualize Your Business Performance

Benchmarking is a tool that businesses use to compare the performance of their processes
and products against businesses considered to be the best in their industries. Benchmarking
allows a business to refine their practices and thus increase its overall performance. Generally,
benchmarking can be broken down in the process, performance, and strategic benchmarking.

Understanding benchmarking
The process of benchmarking is the search for a measure – or a benchmark. In simple terms,
the benchmark is the “what” and benchmarking describes the “how”. However, it’s important
to understand that benchmarking is not a simple process. For example, it is not as
straightforward as visiting the manufacturing facilities of another company and taking notes
on their processes. Many organizations – particularly those with patented technologies or
other competitive advantages – enforce strict limitations on the information that can be
gathered by outsiders. In any case, a company that utilizes benchmarking should not limit
their research to their own industry. Benchmarking should also be a continuous process that
yields similarly continuous performance metric improvements.

The three types of benchmarking

Benchmarking can be broadly divided into three categories – process, performance, and
strategic.

Process benchmarking
Process benchmarking allows a business to better understand how their processes compare
to competitors in their industry. With this knowledge, businesses can refine their processes
according to the industry benchmark. A subset of process benchmarking is internal

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benchmarking. In this case, the business in question is in effect setting its own benchmark
because viable competitors have not yet been established.

Performance benchmarking
In performance benchmarking, a company assesses its performance against industry
standards. Internally, a HR department may set outcomes relating to employee net promoter
score or staff engagement. Externally, a customer care team may hire a consultant to
benchmark customer service metrics against those of a main competitor.

Strategic benchmarking
Strategic benchmarking takes what a business has learnt in process and performance
benchmarks and applies these insights to a strategy. Here, the goal is to create the sort of
strategies that underpin benchmark metrics in a given industry.

The benefits of benchmarking

The benefits of benchmarking are numerous, but the primary benefit is enhanced business
and operational performance. In terms of business performance, this means:

● Improved customer service and satisfaction. City planners can benchmark quality of life
metrics against those found in other cities to increase the health and well-being of
citizens.
● Increased market share and positive cash flow. For example, a shoe retailer may
compare its sales per square meter with industry standards and adjust their strategies
to suit.

As far as operational performance is concerned, benchmarking means:

● Increased manufacturing efficiency, with lower rates of defects and product failures.
Higher productivity in manufacturing also leads to fewer resources being diverted to
warranty claims and protracted customer service enquiries.
● Rapid and versatile equipment changeover with streamlined order-processing
procedures. For example, an eCommerce company benchmarks its average order
fulfilment and delivery time against industry standards.

Key takeaways:
● By studying companies with superior performance, a business can use benchmarking
to identify opportunities for internal improvement.
● Benchmarking can be divided into three main categories – process, performance, and
strategic.
● Effective benchmarking has a vast array of benefits for both business and operational
performance.

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Blitzscaling: For When Your Business Faces A Survival Threat

Blitzscaling is a business concept and a book written by Reid Hoffman (LinkedIn Co-founder)
and Chris Yeh. At its core, the concept of Blitzscaling is about growing at a rate that is so much
faster than your competitors, that makes you feel uncomfortable. In short, Blitzscaling is
prioritizing speed over efficiency in the face of uncertainty.

Origin of the name

Blitzscaling is prioritizing speed over efficiency in the face of uncertainty.
The name Blitzscaling comes from a World War II association with the term “blitzkrieg” or
lightning war, where the attacker risks it all to either win or lose the battle. Understanding
Blitzscaling might mean having a framework that can help your small organization to scale up
or your large company to also benefit from a new and reinvigorated acceleration, which is
critical to survival in a market that changes at a faster pace. Let’s start from what Blitzscaling
is not.

Blitzscaling is not growth hacking

Confusing Blitzscaling with growth hacking might be easy. There is a critical difference.
Blitzscaling looks at massive growth which is also accompanied by high uncertainty. As
pointed out by Reid Hoffman in an HBR interview:

Blitzscaling is what you do when you need to grow really, really quickly. It’s the science and
art of rapidly building out a company to serve a large and usually global market, with the
goal of becoming the first mover at scale.

Therefore three features of Blitzscaling are:

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● Grow really quickly.

● Usually at a global scale.
● Gain the first mover of scale advantage.

Thus, rather than a process of experimentation with the aim of testing what works and what
doesn’t efficiently, Blitzscaling is about being all in!

Blitzscaling is not a magic formula

Rather than a magic formula that works in each scenario, Blitzscaling follows a framework that
revolves around three key ingredients:

● Business model innovation.

● Management innovation.
● Growth strategy.

Those three are the key ingredients of Blitzscaling.

What’s Blitzscaling then? There are a few key elements I think are worth highlighting.

Speed in the face of efficiency

This is a critical difference between scale-up and Blitzscale. The former happens in a scenario
of certainty and efficiency. You allocated the resources necessary to test what works and what
doesn’t with fewer assumptions as possible. You have wider margins to test those things up to
focus on what works. In a way instead, Blitzscaling is about survival. Thus, max speed is
everything, because if you don’t reach the scale, you might be dead any time soon. That is why
efficiency takes a back seat.

Blitzscaling is an uncertain process

As Blitzscaling is an uncertain process, it might also require massive resources as it is a sort of
calculated gamble where many mistakes will be made. Capital will be a crucial element to
recover from those mistakes. Making a mistake, also big ones are part of Blitzscaling. In short,
those who take the risks of Blitzscaling are able to also amass the rewards by building multi-
billion companies at a global scale.

The reward is the first-scaler advantage

One key reward of Blitzscaling is the first-scaler advantage. The first who succeed at
Blitzscaling take all or most of the market which gives them a lasting advantage hard to
overcome.

What are the stages of Blitzscaling?

The main stages of Blitzscaling usually are:

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● Family-scale, up to 9 employees.
● Tribe, defined in 10s employees.
● Village in 100s of employees.
● City: in 1000s of employees.
● Nation: in 10,000s employees.

While this is a simplification, it is crucial to understand that a company which is Blitzscaling

will go through several stages, each of which has differentiating features. For instance, in some
stages financing might be the most important aspect, while in others building the winning
team is.

Blitzscaling Business Model Innovation Canvas

The Blitzscaling business model canvas is a model based on the concept of Blitzscaling, which
is a particular process of massive growth under uncertainty, and that prioritizes speed over
efficiency and focuses on market domination to create a first-scaler advantage in a scenario of
uncertainty. FourWeekMBA readapted the concept of Blitzscaling to a business canvas, which
is a particular process of massive growth under uncertainty that prioritizes speed over
efficiency and focuses on market domination to create a first-scaler advantage in a scenario of
uncertainty. Among the three key ingredients to Blitzscaling, there is business model
innovation (actually the most critical element). According to this framework, business model
innovation can be achieved based on a few vital components made of four growth factors and
two growth limiters.

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A glance at the four key growth factors The four growth factors are:

● Market size.
● Distribution.
● High gross margins.
● Network effects.

Market size
How large is the market you’re targeting when Blitzscaling? Is it really reachable?
A big market is a critical ingredient for a Blitzscaling business model. This market has to be
large enough and reachable. A large market has to be taken into account based on the context.
Indeed, launching and scaling a startup in Silicon Valley is not the same as doing it in Italy or
Spain. In general, as pointed out in the book (Blitzscaling: The Lightning-Fast Path to Building
Massively Valuable Companies) venture capitalists are usually looking for investments that are
returning many times over and can achieve a venture scale. This often implies targeting a
market that often is as large as a billion-dollar in annual sales.

Distribution
Are there existing networks you can leverage on? What viral loops can you create to spread
your product/service quickly and at scale?
Often, when you are the incumbent in a new space those who already have an established
brand and network, are probably your best option to start. This concept known in growth
hacking as other people’s networks is the perfect place to start. One classic example is how
Airbnb leveraged on Craigslist to gain initial traction. Another critical ingredient is about virality
and how you can instill it in your product. Usually, virality is achieved via a freemium pattern
where a product or part of it is given for free to allow a cheaper and quicker distribution.

High gross margins

When you grow your revenues, do you generate larger amounts of cash available to finance
growth?

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A gross margin or gross profit is merely the revenues left after subtracting the cost of sales (or
the costs you have to sustain to generate the sale).

This metric is fundamental when looking at tech companies as it determines their cost
structure and whether they can be financially viable in the long run. A high gross margin
implies that the company will have enough resources to invest even further in the scale of the
business. If you look at the Google cost structure and Google business model, you realize how
it is engineered to have high gross margins. Facebook is even a better example with higher
gross margins than Google; given the Facebook low cost of traffic acquisition, this social
network is a money-making machine. That money is used to keep growing at a fast pace.

Network effects

A network effect is a phenomenon in which as more people or users join a platform, the more
the value of the service offered by the platform improves for those joining afterward. Is each
additional user joining in bringing a positive effect to the whole platform? A critical element of
an innovative business model built on technological products and services is based on the
network effect. This principle is simple yet powerful. For each user that joins and uses a product
or service, the value of the same product or service will improve for the other users on the
platform.

The two growth limiters

The two growth limiters are:

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● Lack of product/market fit.

● Operational scalability.

Lack of product/market fit

Is the market satisfied with your product/service? If not what is that it’s missing?
Product/market fit is a well-known concept by anyone who has a minimum of experience in
the startup world, and yet that is often misunderstood. For instance, in general, the
product/market fit aims at coming up with a minimum viable product (MVP) that solves a need
for a group of people. That MVP will allow an organization to gather more and more feedback
about the product and improve it over time. Another school of thought wants the
product/market fit more focus on achieving an EVP (exceptional viable product). In short,
according to this way of thinking of product/market fit, you have achieved that once you have
an exceptional product that leaves your audience extremely happy. While this is a great
alternative to traditional MVP, probably not the best suited for the Blitzscaling business model
canvas, in the Blitzscaling business model canvas, a “good enough” product might do the job.
Indeed, that product, together with distribution will allow us to scale up.

Operational scalability
Are your operations sustainable at meeting the demand for your product/service? Are your
revenues growing faster than your expenses?
When you keep growing at a fast pace, often profitability becomes hard to manage. Indeed,
focusing too much attention on growth and revenue, but not having enough margins to cover
up for the infrastructural cost and human resources might be a big problem and cause of
failure for the business. That is why a business model that doesn’t make sense from the
operational standpoint is doomed to collapse overtime!

Key takeaway
● There isn’t a single way to define what a business model is. For the sake of this
discussion, we took into account the Blitzscaling business model canvas.
● In short, this is a one-page framework I put together, inspired by the book Blitzscaling:
The Lightning-Fast Path to Building Massively Valuable Companies which gives an
alternative way to define a business model.
● More precisely that is – in my own words – a process of massive growth under
uncertainty and that prioritizes speed over efficiency and focuses on market
domination to create a first-scaler advantage in a scenario of uncertainty.
● This business model can be engineered and designed or figured out along the way.
● Ideally designing it would be best as it allows to integrate within it four key growth
factors (market size, distribution, high gross margins, and network effects) and avoid
the two key growth limiters (lack of product/market fit and lack of operational
scalability).

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Blue Ocean Strategy: Create Your Own Market

A blue ocean is a strategy where the boundaries of existing markets are redefined, and new
uncontested markets are created. At its core, there is value innovation, for which uncontested
markets are created, where competition is made irrelevant. And the cost-value trade-off is
broken. Thus, companies following a blue ocean strategy offer much more value at a lower
cost for the end customers.

What does a red ocean look like?

The blue ocean strategy is the fruit of the homonym book, and research conducted by W. Chan
Kim and Renee Mauborgne. To understand and appreciate what makes a blue ocean strategy
so powerful, it makes sense to look at a place called the red ocean. A red ocean is a place where
competition is the norm. Players in a red ocean are all fighting for the same contested space.
This is usually an accepted market, with well-defined boundaries and where players either
provide a service at a lower cost. Or they differentiate it through higher quality by making that
service less accessible. It is a place where rules are well defined as well, and everyone plays
according to them. Innovation is marginal, and even if that happens, it is not a breakthrough.
By nature, a red ocean, as it is a very crowded space, it is also a place where profit margins are
narrow, and products and services are commoditized. And where differentiation mostly
happens on pricing.

The anatomy of a blue ocean

A blue ocean is any industry that is not yet defined, where boundaries are still to be built and
where competition doesn’t exist. There is a new demand ready to be molded and captured.
And the rules of the game are still to be written. The new market forming within a blue ocean
has exponential growth potential, and it is ready to grab to those players able to see it. Those
creating this new market will be able to tap into a new demand, which will have them enjoy
higher margins and lower competition. The first able to create and also capture that demand

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will also be the one able to create a lasting advantage. To understand the blue ocean strategy,
it is essential to retrace how such strategy reinterpreted the process of value innovation in
business.

The former value-cost trade-off

In the old days, companies would usually complete by either creating higher value for
customers, thus charging more. Or by creating a more standardized value proposition,
leveraging on operational efficiency, and offering decent value for a lower cost. That was the
old days. Digital businesses today can break this trade-off and innovate by offering more value
at a more reasonable price. That is the whole point of companies like Amazon.

The new era of more value at lower costs

If you look at the core principles of Amazon business model design, you’ll notice that its
flywheel starts from customer experience, which can be summarized as more selection of
items, coupled with a fast delivery service, and the ability to find almost anything. In short,
Amazon wasn’t just offering much better customer experience. It was offering a better
customer experience at a lower price. The same applies to platforms like Airbnb or Booking
and the whole logic of their value proposition design. More value at a lower cost is the key to
understand how to build a successful digital business model.

Value innovation in a blue ocean strategy

Therefore, value innovation looks slightly different in a blue ocean model. More precisely, it
looks at five core concepts:

● Create an uncontested market: the whole point of a blue ocean strategy is to look
beyond the conventional boundaries of existing markets to create an uncontested
market.
● Competition is made irrelevant: a blue ocean also makes competition irrelevant. Not
because you compete and win. But as you’re creating a new market, you're creating
the rules of the game. This also implies another key aspect.
● Create and capture new demand: a blue ocean strategy is not just about creating new
demand. We know now that the so-called first-mover advantage is just an illusion. And
the key to success here is actually to capture that same demand. In short, roll out a
business model with a strong distribution strategy to take hold of that new market.
Otherwise, the risk is that a first-mover is creating a market to see latecomers take it
over.
● Break the cost-value trade-off: the central concept of the blue ocean strategy is to
break the cost-value trade-off. Thus, you not only can offer more value. But as you
leverage on a more efficient cost structure, you can pass lower prices to your end
customers. You are thus making your value proposition as more value at a lower cost.
● Align the organization around the more value at lower cost principle: as blue ocean
players are aware of the possibility of breaking the cost-value trade-off. They need to
make this principle a built-in feature of the overall organization. So that all can be
aligned around these principles.

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Key takeaway
A blue ocean strategy enables the creation of new markets, by moving beyond the boundaries
of existing red ocean markets to create uncontested markets. A key concept of this blue ocean
strategy is value innovation. In this context, value innovation is built around the breakdown of
the cost-value trade-off. Thus a successful business model needs to be offering more value at
a lower cost. That’s the key to a blue ocean strategy.

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Blue Sea Strategy: Stay Small And Build Your MVA

In the business world, a Blue Sea is a space/market easier to navigate as it’s not crowded like
the classic red ocean. However, while the Blue Ocean focuses on creating uncontested
markets. The Blue Sea strategy looks at zooming as much as possible within existing markets
to find your minimum viable audience.

Blue Sea vs. Blue Ocean

The core premise of a Blue Ocean Strategy is to break down the trade off between value and
cost, by creating uncontested markets. This is all very interesting, and we all would like to
create those incredible uncontested markets where we can redefine the whole business
playbook. However, in a few cases, companies manage to transition toward uncontested
markets. And even when that happens, followers come quickly, to steal as much market share
as possible. Thus a blue ocean is oftentimes, more the result of a bloody war, rather than a
space exploration. A Blue Sea strategy instead tries to redefine value, not for a whole market,
but only for a small group of people, craving for that value to be provided. Let’s see what really
makes up a Blue Sea.

Zooming in to find your MVA

Where Blue Oceans create uncontested markets by looking beyond the boundaries of existing
ones (it zooms way out to understand how a whole market might look different a decade from
now). The Blue Sea Strategy instead looks at existing markets and it zooms in as much as
possible to find a minimum viable audience.

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The minimum viable audience (MVA) represents the smallest possible audience that can
sustain your business as you get it started from a microniche (the smallest subset of a market).
The main aspect of the MVA is to zoom into existing markets to find those people whose needs
are unmet by existing players.

Redefine value by going from “a product for everyone” to a “product made

for a few”
In a Blue Ocean Strategy competition is made irrelevant by changing the business playground.
As a whole new market is created the Blue Ocean player will be able to capture most of that
market opportunity. In a Blue Sea Strategy competition is made irrelevant by redefining value
for the minimum viable audience, that is not satisfied in full by existing products available on
the market. You go where existing players, can’t, won’t or are not able to go.

In a Blue Sea there is space for all

In a Blue Ocean Strategy new demand is captured by being the first-mover or among the first
movers in a new market. In a Blue Sea Strategy you can be very late and still build a valuable
business. That’s because the Blue Sea player will redefine value by going where the existing,
established players can’t, perhaps because it would be too expensive for them, or not scalable
at all. An audience so small that is not threatening for existing players, and yet interesting to
get the business off the ground.

In a Blue Sea, price sensitivity is flipped upside-down

Where the Blue Ocean Strategy breaks the cost-value trade-off (offer more at a lower cost). In
a Blue Sea Scenario, your smallest viable audience will be so keen to support your business, to
be happy to pay you a premium price for your product, as soon as you keep it tailored to them.

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Look at the present and change it for a few

A Blue Ocean Strategy looks at the future, it envisions it and it builds it. A Blue Sea Strategy
instead, looks at the past and it redefines it for the smallest audience that didn’t like how that
future turned out to be.

Is the Blue Sea strategy only for niche players?

Not really. A Blue Sea strategy does start from a minimum viable audience, but it creates
options to scale. Those options can be exercised from time to time. However, when a company
scales up it might bring to the end of value for its minimum viable audience. Therefore, as in a
classic Crossing The Chasm scenario, the Blue Sea player will need to think through this option.

Bootstrapping: Make Of Your Customers Your Primary Investors

The general concept of Bootstrapping connects to “a self-starting process that is supposed to

proceed without external input.” In business, Bootstrapping means financing the growth of

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the company from the available cash flows produced by a viable business model.
Bootstrapping requires the mastery of the key customers driving growth.

Inside the Bootstrapper Bible

A bootstrapper isnʼt a particular demographic or even a certain financial situation. Instead, it's
a state of mind. That is how Seth Godin described bootstrapping in his “The Bootstrapper
Bible.” As firms that are venture capital-backed get so much media attention, it’s easy to miss
the other 99% of businesses out there which made it and which built a sustainable business
model by bootstrapping. That’s because by definition firms that are looking for venture capital
need continuous PR coverage to play the “look cool game” to ease the hand in the pocket of
the venture capitalist’s next door. Thus, it’s easy to forget the army of entrepreneurs that from
day one decides to go the other route and first build a viable business model, then and when
they feel the time is right (if it ever is) take outside money to scale the business. Let’s start with
a simple definition of bootstrapping.

What is bootstrapping?
The general concept of Bootstrapping connects to “a self-starting process that is supposed to
proceed without external input.” In business, Bootstrapping means financing the growth of
the company from the available cash flows produced by a viable business model.
This means using customers as the primary source of cash to grow the business. The
bootstrapping process is critical when building up a new company as it enables us to reach
product/market fit without relying on external money, which might distract the founders from
the customer development journey. But are all businesses made for bootstrapping?

Not all businesses can bootstrap

It is essential to distinguish among companies that have very high barriers to entry and those
that don’t. Indeed, due to regulations, technological development, or capital requirements, in
general, bootstrapping might become hardly feasible. If you’re building up a whole new
technology in a whole new market, no matter how good you are, there will be no customers
for years to come. That is because the development of that market requires that technology
to be mature. It also requires an ecosystem to develop. Therefore, in these cases, bootstrapping
not only is not a good idea, but it’s not viable. In that scenario, you’ll need outside capital and
substantial resources to keep going for years before seeing the first customer. Instead, if you’re
launching a business in an existing market, where other business models proved viable,
bootstrapping is the way to go. Thus, you want to first understand the playground you’re in, to
identify the best way to go. Steve Blank identifies four main types of markets:

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A market type is a way a given group of consumers and producers interact, based on the
context determined by the readiness of consumers to understand the product, the complexity
of the product; how big is the existing market and how much it can potentially expand in the
future.

● Existing markets: usually well-defined with existing customers and well-known

competitors. This is straightforward, and in this kind of market, there isn’t necessarily a
dominant player or monopoly.
● Re-segmented markets: when a market, for instance, is taken over by one or a few
companies (monopoly or duopoly), re-segmentation is the way to go. Thus you enter
by addressing a need that other dominating businesses can’t tackle. In this way, you
can distinguish your brand (think of the case in which you target a specific niche of that
existing market). We discussed several times how DuckDuckGo entered the search
engine market quite late, and when Google was already a monopoly by targeting a
specific niche, users’ who cared about privacy.
● Clone markets: this is about copying existing business models to transpose them
either in other markets (think of how Baidu built its fortune in China due to the
impossibility for Google to take off). Or taking a successful business model in a market
and transposing it into an adjacent one. Think of the “uberization” of several industries.
● New markets: in this scenario, your solution is such a novelty that is very hard to identify
a potential customer or competitor.

Now, if you find yourself to be in a new market, or you’re trying to clone an existing business
model in a clone market, where regulations might make it capital intensive to enter,
bootstrapping is not the way to go. If you are in an existing market, or a re-segmented market,
that is where the opportunity lies! Let’s now dive into what bootstrapping means, what are its
commandments, and why it makes sense.

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The Bootstrapper’s commandments

In thebootstrappersworkshop.com Seth Godin sets the commandments for the bootstrapper.
He highlights the posture of a bootstrapper:

1. Ship real work.

2. Do it now. Not later.
3. Serve clients that are eager to pay for what you do.
4. Resist the urge to do average stuff for average people.
5. Build and own an asset that’s difficult to reproduce.
6. Scale is not its own reward.
7. Charge a lot and be worth more than you charge.
8. Create boundaries for yourself about what you do (and don’t do).
9. Become ever more professional.

Those principles are fundamental to internalize. Bootstrapping is not easy, as you’re

developing the business without outside resources. Thus, you need to be very good at
understanding what’s your market, who is your niche, and what the customers in that niche
want. That’s because customers are your investors.

Customers are your investors

In a bootstrapping mode, you don’t have venture capitalists giving you a free ride to get clear
about your business. Therefore, customers, purchasing what you make will be your investors.
It is essential to highlight that also, other key partners will act as investors. Your suppliers are
also investing in the business if they extend the credit terms. Your employees are your
investors if they work extra hours to get the business off the ground. Those are all key players
that will make your business model viable.

The company’s vision is in your hands

Another thing to understand about bootstrapping is you won’t rely on someone giving you the
vision for your business. You’ll need to have a clear vision and mission for where you want to
go. As you’re not taking outside money, you will be in control and in charge of your business,
which requires a lot of focus.

Focus as the North Star

I am a bootstrapper. I have initiative and insight and guts, but not much money. I will succeed
because my efforts and my focus will defeat bigger and better-funded competitors. I am
fearless. I keep my focus on growing the business—not on politics, career advancement, or
other wasteful distractions. This is what Seth Godin says in his “The Bootstrapper Bible.” A
bootstrapper can’t lose focus. Money is scarce at the beginning and either she manages to
build a profitable business early on, she risks failing.

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Speed of execution
My secret weapon is knowing how to cut through bureaucracy. My size makes me faster and
more nimble than any company could ever be. Once again, Seth Godin makes a good point
where he mentions that a bootstrapper needs to focus on being faster and more agile, and
avoid bureaucracy or politics. Where the founder who took a substantial investment from
venture capital might be in the position of having to show how she is putting that money in
motion. The bootstrapper doesn’t have anything to prove except that building a viable
business model, for the employees and the customers.

Mastery and Passion

When you build a company, especially in a re-segmented market, you better be passionate
and be willing to master that niche. Otherwise, it will be hard to gain a strong position where
incumbents already have an established brand. In short, you want to look at being the best in
the world for that vertical, which requires a lot of mastery.

A little to lose but a lot to gain

As you bootstrap your way up. You’ll initially have very little to lose. That’s because you don’t
have an established business model. And where incumbents can’t tweak their business model,
as they would risk killing their cash cow – think of the case of Google (now Alphabet) if it were
to stop tracking users, it would lose its advertising business which makes up most of its
revenues. You can go all the way in. You can experiment with your business model and make
money in unconventional ways.

Salesmanship
If you’re bootstrapping your way up, you need to understand you are the most important
salesman of the company. Thus, you need to go in understanding your market, your
customers, and why your solution makes sense to them. You need to be able to communicate
it. You need to talk to your community regularly and discuss how to bootstrap.

In it for the long-term

A bootstrapper is in it for the long-term. As we’ve seen, bootstrapping requires mastering and
passion. And those don’t go along with short-term thinking.

Bootstrapping is about survival

A lot of this manifesto is about survival. A true bootstrapper worries about survival all the time.
Why? Because if you fail, it’ s back to company cubicles, to work you do for someone else until
you can get enough scratched together to try again. Once again, Seth Godin highlights a
critical point in “The Bootstrapper Bible,” there is no alternative to the failure of your business.
That is why you need to be paranoid about survival.

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Start from a proven business model

To be a successful bootstrapper, you don’t have to reinvent the wheel. You can start from a
proven business model and copy it. Copying a business model won’t get you far, so you’ll need
to add your twist, or improve X times on that existing business model. You can start by looking
at how exciting companies organized their distribution, sales, and marketing, how they
positioned themselves, to bootstrap your way up.

Differentiate from the incumbent to enter a monopolized market

An entry strategy is a way an organization can access a market based on its structure. The entry
strategy will highly depend on the definition of potential customers in that market and
whether those are ready to get value from your potential offering. It alls starts by developing
your smallest viable market. The fact that a company controls a market limits competition.
However, usually, that same company won’t be able to satisfy the whole market. If you’re good
at listening to those people who are not satisfied with the incumbent, you can build a business
on top of that. Thus, be careful at what opportunities an existing market hides. You might think
that as a market is dominated by a large player, a monopolist, fewer chances you have.
However, you’ll find out this is far from reality. The longer a company has been a monopolist,
the more it might have imposed unfavorable conditions to its end customers, which might
grow unsatisfied over time.

What does the bootstrappers have that the big corporations don’t?
As we have seen so far, the bootstrapper starts from an unfavorable position when it comes to
money and human capital. However, the bootstrapper also has a few unfair advantages. It is
focused, it is fast in executing, it has nothing to lose, and it can grow its brand equity very

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quickly, due to an intimate relationship with its customers and the ability to charge higher
prices if going for a niche. Coupled with the inability of the large corporation to cover that
niche.

A microniche is a subset of potential customers within a niche. In the era of dominating digital
super-platforms, identifying a microniche can kick off the strategy of digital businesses to
prevent competition against large platforms. As the microniche becomes a niche, then a
market scale becomes an option.

Beware, a bootstrapper is not a freelancer, but an entrepreneur

A freelancer sells her talents. While she may have a few employees, basically sheʼs doing a job
without a boss, not running a business. In “The Bootstrapper Bible,” Seth Godin highlights the
critical difference between the bootstrapper, which is by nature an entrepreneur, and a
freelancer. In today’s world, that might be easily confused. But Seth Godin helps us understand
the difference: An entrepreneur is trying to build something bigger than herself. She takes
calculated risks and focuses on growth. An entrepreneur is willing to receive little pay, work
long hours, and take on great risk in exchange for the freedom to make something big,
something that has real market value.

Case Study: How MailChimp bootstrapped to over $700 million in revenues

How did MailChimp grow from scratch to $700 million in revenues (as of 2019)?
That would require a whole book. Yet, as a quick intro, MailChimp’s founders had a web design
agency focusing on enterprise clients. And by the early 2000s, they had designed an email
marketing service for small businesses. Therefore, initially, they used the money from the web
design agency to fund MailChimp. And only in 2007, they would shut down the web design
agency, to focus a hundred percent of their time on MailChimp. It took them another couple
of years to transition MailChimp from an email marketing tool to become what they call an all-
in-one Marketing Platform, with a set of other functionalities. In September 2009 MailChimp

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went freemium. Its user base went in one year to 450,000 users. Ever since MailChimp has
grown into a successful company. Later on, MailChimp would use freemium as a growth
strategy. However, MailChimp didn’t start as a freemium. When they launched the company
back in 2001, they didn’t even have a free trial.

The freemium is usually a growth and branding strategy rather than a business model. A free
service is provided to a majority of users, while a small percentage of those users convert into
paying customers through either marketing or sales funnel. The free users not converting in
customers help spread the brand.

They didn’t have a clue of what the freemium was. They only started to consider the freemium
when they realized that each paying customer was able to sustain at least nine unpaying
customers.

As remarked by MailChimp:

We’d never consider freemium until our “1” was big enough. Enough to pay for 70+ employees,
their health benefits, stash some cash for the future, etc.

They leveraged on the data they had to decide what sort of pricing made more sense to them.

As highlighted on drift.com by co-founder and CEO of MailChimp, Ben Chestnut:

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Ever since inception, I’ve been fascinated with the art and science of pricing. I’ve tinkered with
pay-as-you-go and monthly plans for $9, $9.99, $25, $49, $99.99 and so on. We’ve changed our
pricing models at least a half-dozen times throughout the years, and along the way we
tracked profitability, changes in order volume, how many people downgraded when we
reduced prices, how many refunds were given, etc. We’re sitting on tons of pricing data. When
we launched our freemium plan in 2009, you betcha we used that data to see what would
happen if we cannibalized our $15 plan. If we had started with freemium at ground zero, the
story would’ve been different. From there the company kept building a loyal user base with
its free plans and by having already a solid paying customer base, it could also afford to add
features to its marketing platform and make its SaaS product sticky. In the meantime, the
freemium offering enabled MailChimp to grow its user base quickly (the year after the launch
MailChimp user base grew by 5x, it’s paying customers by 150% and its profits by 650%). Over
the years MailChimp would focus on expanding the capabilities of MailChimp to have it
become more and more a marketing platform.

As a quick recap:

● MailChimp founders used the resources from their web design agency to develop a
scalable product. Email software for small businesses.
● It took them a few years before the founders could shut down the web design agency
and focus a hundred percent on MailChimp.
● The company focused for almost a decade to build a sustainable customer base, able
to potentially cover the cost of a forever free plan.
● By 2009, MailChimp launched its forever free plan, and it quickly expanded its user base,
paying customers and profits.
● The next decade would be spent in developing more and more features to make
MailChimp more of an all-in-one marketing platform, rather than just an email software
company.

Key takeaways
● Bootstrapping is about building and growing a business by having customers as key
investors in the business. In short, your business is so fine-tuned around customers that
it can grow organically and with high margins, thus financed by them.
● The bootstrapper is an entrepreneur at all effects. She/he doesn’t think as a freelancer
but as an entrepreneur able to build a scalable business. A bootstrapper cal starts as a
solopreneur but if the business becomes scalable to bootstrapper will evolve the
business model.
● Bootstrapping often starts by identifying profitable niches, or microniches and adds
value from there.

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Bounded Rationality: Beyond Linear Thinking

Bounded rationality is a concept attributed to Herbert Simon, an economist and political

scientist interested in decision-making and how we make decisions in the real world. In fact,
he believed that rather than optimizing (which was the mainstream view in the past decades)
humans follow what he called satisficing.

A quick intro to bounded rationality

Many models, especially in economic theory and social sciences still rely on the unbounded
rationality to make predictions about human behavior. Those models have proved wholly
ineffective, and they do not reflect the real world. In the last decade cognitive theories that
look at humans as a bunch of flawed beings that due to their biological limitations commit a
series of errors (the so-called biases) has taken over. I supported this theory on this blog.
However, what might seem biases, at a more in-depth look are in reality unconscious
rationality (what we call gut feelings) that helps us survive in the real (uncertain) world.
Bounded rationality is a framework that proves way more robust – I argue than any other. That
is why it makes sense to look at it to understand what bounded rationality really means.
Bounded rationality – more than a theory is a warning to economists and social scientists –
that can be summarised as the study of how people make decisions in an uncertain world. As
pointed out by Greg Gigerenzer, there are at least three meanings attributed to unbounded
rationality:

● Optimization: there are constraints in the outside world that don’t allow us to get all
the data available
● Biases and errors: there are constraints in our memory and cognitive limitations that
limit our decision-making ability
● Bounded rationality: how do people make decisions when optimization is out of reach.

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The first two don’t admit the existence of an uncertain world. Why? When you study decision
making under risk, the assumption is that we live in a certain world, where given all the data
available we can compute that risk. What economists like to call optimization under
constraints. This is true only in a small world, where everything can be calculated. The second
assumes that due to our limited cognitive abilities we deviate from solving problems
accurately, thus we fall into biases and cognitive errors. While the first emphasizes on
rationality, the second focuses on irrationality. The third concept, which is what bounded
rationality really is about was elaborated by Herbert Simon. He asked the question, “how do
people make decisions when optimization is out of reach?” In short, how do people make
decisions in an uncertain world? There are a few things to take into account when thinking
about bounded rationality:

We don’t live in a small world

In a small world, given enough data, we can compute the consequence of many actions and
behaviors.

In the real world, risk cannot be known either modeled

In many disciplines, especially economics and finance at the academic level, the assessment
of risk is central. However, what we cal risk implies something that can be computed. In fact,
in the financial toolbox, there are many measures of risks. However, those are often worthless,
since they start from the assumption that given enough data you can put a precise number
on the risk you’re undertaking. However, that is not the case. In the real world, there are hidden
variables that can be never taken into account even if you have zillions of data

Optimization is not bounded rationality

Many confuse optimization for bounded rationality. They are opposite concepts. Optimization
starts from the assumption that we live in a small world where you can compute risk. Bounded
rationality starts from the assumption that we live in an uncertain world where we can’t assess
risk. That is why we have a toolset of heuristics that work more accurately than complicated
models in the real world

Biases are not errors but heuristics that work in most cases to make us avoid screw-ups
In short, heuristics rather than being shortcuts that are fast but inaccurate. Those are instead
quick, effective and in most cases more accurate than other forms of decision making (in the
real world)

Satisficing: Look at the one good reason

In an uncertain world in many cases ignore all the information and look at the one good reason
to make a decision works best

Survival is rationality in the real world

Put in this form rationality is not a matter of beautiful mathematical models, but it is about
survival. What survives might be then called rational.

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Bowman’s Strategy Clock To Properly Position Your Product

Bowman’s Strategy Clock is a marketing model concerned with strategic positioning. The
model was developed by economists Cliff Bowman and David Faulkner, who argued that a
company or brand had several ways of positioning a product based on price and perceived
value. Bowman’s Strategy Clock seeks to illustrate graphically that product positioning is
based on the dimensions of price and perceived value.

Understanding Bowman’s Strategy Clock

Bowman’s Strategy Clock seeks to illustrate graphically that product positioning is based on
the dimensions of price and perceived value. Usually, the Bowman's Strategy Clock features
price on the x-axis and perceived value on the y-axis. On the graph lies the circular Bowman’s
Clock. Varying combinations of price and perceived value lead to eight conceivable marketing
strategies. Businesses can pick one of the eight strategies that suit them best, according to
the price and perceived value of the product, service, or brand they are trying to market. The
eight strategies of Bowman’s Strategy Clock

1. Low price and low value-added

Since the first strategy involves low-value products sold at the lowest possible price, there is
little scope for strategic positioning if a competitor is already selling for the lowest price
possible. The consumer also perceives very little value, despite the low price, which decreases
brand loyalty.

2. Low price
The low price strategy means a product is the lowest cost option in its marketplace. Businesses
who want to utilize this strategy must manufacture products in large quantities while also

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being cost-effective and efficient. Walmart is a classic example of a low price strategy market
leader.

3. Hybrid
In the hybrid strategy, consumers perceive added value through a combination of competitive
low pricing and product differentiation. If the added value is offered consistently, this can be
an effective positioning strategy. Flatpack furniture outlet IKEA is a great example of the hybrid
strategy.

4. Differentiation
The differentiation strategy is equated with high perceived value. Because of this, brand equity
is high – allowing businesses to compete in highly competitive markets. Ultimately, the
consumer chooses to pay a higher price for a product they could purchase elsewhere for less.
Starbucks is a company who use the differentiation strategy to their advantage.

5. Focused differentiation
Focused differentiation is where most luxury brands reside. They have extremely high
perceived value and a price to match. Companies such as Rolex and Ferrari are competitive in
this sphere through product promotion to their highly targeted audience. Brand equity is
similarly very high.

6. Risky high margins

As the name suggests, this is a high-risk strategy where businesses set high prices without
offering much value in return. Often, they are relying on brand equity to drive sales. Inevitably,
a competitor will enter the market and offer a product for similar perceived value but at a lower
price. Businesses who offer gym memberships are one such example.

7. Monopoly pricing
A company who enjoys a monopoly over its market is less concerned about perceived value or
pricing. This is because the consumer is reliant on the business for the products and services
that it offers. Thus, perceived value is often low and so too is brand equity. Despite total market
share, monopolies are difficult to obtain and such companies are often dissolved by regulatory
bodies. American telecommunication company AT&T is a notable recent example.

8. Loss of market share

The loss of market share strategy involves products with low perceived value but with
disproportionately high pricing. When the iPhone was first launched in 2007, it quickly
rendered the dominant Blackberry obsolete. As a result, Blackberry phones lost their perceived
value and market share very quickly.

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Branding In All Its Facets

Your most important asset isn’t just your product, but also the brand that you’re able to build
over the years. So let’s look at all the facets that make up a brand, and why, as an entrepreneur
you want to focus your effort on building a great product, and a brand that resonated with
your target audience.

All those facets will be part of what we can call brand building. Before we get to that, let’s clarify
why brand building matters so much.

Why Brand Building Matters

As Steve Jobs put it in a speech dated 19976:

To me marketing‘s about values this is a very complicated world it’s a very noisy world and
we’re not going to get a chance to get people to remember much about us no company is
and so we have to be really clear on what we want them to know about us.

This statement alone might well be considered the essence of brand building, and what it
really means to build a brand. Indeed, as Steve Jobs highlighted building a brand is not about
writing your mission statement, creating your list of values so that you can match that to who
you think can be your customers. That way is doing it backward. Brand building is about who
you are and the kind of company you want to build. And communicating it clearly is not about
words. A business making money is not a brand. And you can still build a business that makes
money without building a brand. However, as that company grows your brand will be a way to
align people within and outside the organization, thus enabling those people to relate with
your company. This isn’t just a matter of philosophy, where to paraphrase a popular business
author, you need to “start with your why.” There are deeper implications of brand building, that
have an evolutionary value, and that might make the long-term survival of your organization
depending on your ability to build that brand.

Identity: beyond the job to be done to define who you are

In the same speech in 1997, Steve Jobs was trying to revitalize Apple‘s brand. As he got back to
the company after being ousted more than a decade earlier, Apple‘s sales had experienced a
massive decline. Several CEOs were hired and paid millions just to make things worse.
Steve Jobs had pretty clear what had happened to Apple. As he highlighted:

The question we asked was our customers want to know who is Apple and what is it that we
stand for where do we fit in this world and what we’re about isn’t making boxes for people to
get their jobs done although we do that well we do that better than almost anybody in some
cases but apples about something more than that.

And he went on:

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Apple at the core its core value is that we believe that people with passion can change the
world for the better. That’s what we believe and we’ve had the opportunity to work with
people like that…and those people that are crazy enough to think they can change the world
are the ones that actually do.

Beyond the inspirational words, Steve Jobs made an important point. In a tech-driven business
world, where technological innovation might seem to be the main driver of success. And
where digital channels make it easy to track your marketing strategy. It’s very easy to get
confused about the things that really matter. The rational and conventional approach, based
on jobs to be done, starts from several assumptions that might make it hard to build a brand
in the first place.

Some of those assumptions are:

● People always want convenience and low prices.

● If A is more functional than B, then everyone will want to have A, rather than B.
● Rationality is what drives people’s actions.
● What cannot be explained by rationality is either stupid, irrelevant, trivial or not worth
our attention.
● Marketers are liars trying to manipulate people.
● Perceptions don’t matter as much as engineering.
● People are biased, and we need to leverage those biases.

I could go on listing dozens of those assumptions, but you get my point. In a tech-driven world,
where tracking visible metrics has become inexpensive, those metrics become the key drivers
of startups, that neglect their brands and focus on building functional products. And the thing
is, large tech players, with the most valuable brands in the world, are aware of the fact that
their brand-building activities are a key element of their success. But they pretend those don’t
count. Companies like Alphabet (Google), Amazon, Apple, and Microsoft, spend billions of
dollars in advertising, brand building, distribution, to pass the message that the reason they
are so dominating stands with their superior technologies, innovation, supply chain or
accounting department. There is more to the story and this is called brand building. Referring
to Nike, in the 1997 speech, Steve Jobs explained:

Nike sells a commodity they sell shoes and yet when you think of Nike you feel something
different than a shoe company and their ads as you know they don’t ever talk about the
product they don’t ever tell you about their soils and why they’re better than Reebok so what
Nike is doing in their advertising they honor great athletes and they honor great athletics
that’s who they are that’s what they are about.

Trust: how do I trust you if you don’t “waste money” on branding?

A flower is a weed with an advertising budget. ― Rory Sutherland, Alchemy.

Rory Sutherland, Vice Chairman of Ogilvy in the UK, in his book Alchemy, explains the
evolutionary forces behind branding. As he highlights ever since science has become so

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powerful in explaining physical processes. More and more intellectuals tried to apply the
scientific method to real-life scenarios, where there is an extremely high degree of uncertainty.
As former trader, Nassim Nicholas Taleb explains in his book Antifragile, in the real world,
what’s really hard is understanding the problem in the first place.
Indeed, often we try to solve a problem that makes us look good but it’s the wrong one, we
tend to apply rationality and logic (that look good on paper) to situations of high uncertainty.

In short, as Jeff Bezos highlighted and recounted in a Shareholders letter in 20067:

We have made a decision to continuously and significantly lower prices for customers year
after year as our efficiency and scale make it possible. This is an example of a very important
decision that cannot be made in a math-based way. In fact, when we lower prices, we go
against the math that we can do, which always says that the smart move is to raise prices.

In short, this is not a sort of decision that can be made with mathematical models, but it
requires vision and the understanding of hidden facets of reality (which the human brain
might be wired for). Where Amazon is endowed with price elasticity models able to predict in
the short-term that lowering prices has short-term negative consequences on the bottom-
line, Jeff Bezos highlighted:

Our judgment is that relentlessly returning efficiency improvements and scale economies to
customers in the form of lower prices creates a virtuous cycle that leads over the long term to
a much larger dollar amount of free cash flow, and thereby to a much more valuable
Amazon.com.

While this decision didn’t make much sense from a purely economic standpoint, it did
generate the so-called Amazon Flywheel or virtuous cycle. In short, there are certain decisions,
where optimization is worth pursuing. And in these cases, quantitative and mathematical
models do work well. In all the other cases, where there is a high degree of ambiguity and
uncertainty, those models won’t work. But there is more to it. In a scenario of ambiguity and
uncertainty (as most of the important business decisions), Rory Sutherland highlights how,
what he calls “psycho-logic” plays a key role. In short, what seems irrational has an evolutionary
value that can’t be explained by logic.

Rory Sutherland in The Wiki Man highlights:

I think if you set out to build a great business, you’ll stand a fair chance of building a great
brand. I am not equally confident that someone aspiring to build a great brand will build a
great business.

And money spent on branding seems to be one of those things that while can’t be explained
by economists, it is instead an element of trust. In short, as a subconscious assumption, if you’re
spending money to build a brand and a reputation, you have more skin in the game, and more

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to lose. As such you might deserve more trust (this isn’t supposed to be rational or logical, but
rather make sense to our subconscious).

Brand Awareness: The First Step Toward Building Your Brand

Brand awareness is a measure of how familiar a customer is with a brand. The greater the
brand awareness a business enjoys, the more their products and services are recognizable to
their target audience, thus, in theory, augmenting its long-term strength on the marketplace.
Brand awareness is a key element of an effective marketing strategy.

Breaking down brand awareness

Brand awareness is a broad and sometimes vague concept, but this does not decrease the
relevance or importance of brand awareness to the success of a business.

● Brand awareness describes the familiarity of a consumer to a specific brand.

● Brand awareness allows organizations to dominate competitive consumer markets
through differentiation and the usage of brand names in daily conversation.
● Creating and maintaining brand awareness can be costly and a function of success.

How does brand awareness work?

For better or worse, consumers are spoilt for choice when making a buying decision.
Overwhelmed at the thought of having to choose from multiple products, consumers often
stick to brands they know. This is brand awareness at work. Awareness breeds familiarity and
familiarity breeds a purchasing decision that the consumer is comfortable with. Brand names
that have turned into nouns are also great examples of brand awareness in action. Band-aids
were originally made by Johnson & Johnson, but the term is now widely used to describe any
small bandage regardless of manufacturer. Kleenex is a brand of facial tissue made by
Kimberly Clark, but kleenex as a noun now denotes a generic term for any kind of facial tissue.
Regardless of the product, brand names that have infiltrated the English language are so
familiar to consumers that they do not have to think twice about purchasing them.

Why is brand awareness important?

Brand awareness is important because it is almost impossible to defeat. It is difficult to imagine
that band-aid or kleenex will ever disappear from daily usage and be replaced with something
else. Indeed, these brands enjoy what Warren Buffett called an economic moat. Businesses
who enjoy an economic moat are so recognizable that their market share and profitability are
protected from competitors. Brand awareness is also important in industries where there is
little scope for product differentiation. For example, soft drinks are largely indistinguishable
from one brand to the next. Companies such as Pepsi and Coca-Cola rely on brand awareness
to beat their competition – even if their soft drink looks no different from their competitors.
Brand awareness also builds a brand’s value through brand equity. When consumers have
positive experiences from brands they trust, brand equity increases. For the business, this
means that:

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● They can sell their products or services at a higher price because of a higher perceived
value.
● They can expand their product or service offerings based on products that sell well.
● They have a greater social impact because of the attached value of their brand.

Costly in the short term, a valuable asset in the long term

Brand awareness has the potential to be costly and time-consuming. Start-ups or smaller
businesses hoping to emulate the reach of Johnson & Johnson or Coca-Cola will need to
develop a robust brand that has the potential to appeal to a large group of people.
Popular brands also attract further costs associated with maintenance as competitors seek to
take advantage of their popularity. For example, a restaurant bearing the name “Little Mac”
was threatened with legal action by McDonald’s if they did not change their name. Aside from
the obvious trademark infringement, maintenance is important to ensure that a brand is not
tarnished or sullied by copycat competitors. Brands can also suffer from negative awareness
when they are attached to people who act in contrast to the brand’s values or attract negative
attention in other ways. The impending death of Steve Jobs, for example, caused Apple share
prices to fall. This is because consumers believed the next CEO would be unable to maintain
the product quality they had come to expect from Jobs.

Brand Essence

Brand essence is defined as the core characteristic of a brand that elicits an emotional
response in consumers. Brand essence is unique to every business, and the most successful
businesses use it to create a reliable feeling in their target audience that builds loyalty over
time

Understanding brand essence

Fundamentally, brand essence is the emotional reason behind a consumer choosing one
company over another. Since it deals with human emotions, brand essence is intangible. In
other words, it is felt. It’s important to note that brand essence is not a company slogan, tagline,

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or mission statement. By its very definition, brand essence is driven by consumers – it is not
something a business can deliberately communicate. In the most successful brands, brand
essence is described in just a few short words. Here, there is power in brevity. Consider the
following global brands and the characteristic emotions that consumers experience just by
thinking about them:

● Volvo – safety.
● Disney – magic.
● Harley Davidson – freedom.
● BMW – driving pleasure.
● Apple – simple elegance.

Creating a brand essence

Brand essence is about striking a balance between authenticity and ambition. To gauge the
perception of their brand, businesses should seek the input of internal and external
stakeholders. Consumers should of course be consulted first and foremost, but employees,
clients, and industry peers should also be consulted. Once the relevant stakeholders have been
assembled, they should brainstorm the answers to a list of questions. These include:

● If the business in question was a car, what make and model would it embody, and why?
● How does the business perceive itself and does this perception align with those of
customers or clients?
● What does a business contribute to the world and how does this make consumers feel?

With the answers to these questions, stakeholders can further refine brand essence by
ensuring that descriptive words are:

● Authentic – does a business deliver on its promises? Brand essence must be in

alignment with what the customer experiences.
● Relevant – is the brand essence statement relevant to the customer? Does it resonate
with them to the degree that emotion is felt?
● Consistent – consistency is key because it informs others of what to expect from a
brand. McDonald’s became a powerful global force because its restaurants are
consistently branded regardless of the country they operate in.
● Sustainable – brand essence is a long term strategy. As such, it must be sustainable in
the sense that it must maintain relevancy as a business grows. For example, a car
manufacturer whose brand essence is “handmade engineering” may run into trouble
as they shift toward production line manufacturing to meet growth targets.

Benefits of brand essence to businesses

Increased focus and clarity

Businesses who develop a brand essence are more focused on their core goals and attributes.
This enables them to make better decisions and communicate with consumers in a way that
reinforces brand recognition and awareness.

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Market differentiation
Tying emotions to a particular brand are important in creating meaningful and sustainable
differentiation, particularly in oversaturated markets. Apple has not drastically changed the
design of their products in many years, but it maintains a competitive advantage through clear
and consistent communication of its brand message.

Key takeaways:
● Brand essence is the reliable feeling that consumers come to expect when interacting
with a brand.
● Brand essence relies on the power of brevity and should be ascertained by consulting
internal and external stakeholders.
● Brand essence must be authentic. That is, it must deliver on its promises and resonate
with customers through consistent and sustainable communication.

Brand Equity And Why You Won’t Find It Easily On Your Balance Sheet

The brand equity is the premium that a customer is willing to pay for a product that has all the
objective characteristics of existing alternatives, thus, making it different in terms of
perception. The premium on seemingly equal products and quality is attributable to its brand
equity.

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Beyond the balance sheet and into the consumer’s mind

The purpose of the balance sheet is to report how the resources to run the operations of the
business were acquired. The Balance Sheet helps to assess the financial risk of a business and
the simplest way to describe it is given by the accounting equation (assets = liability + equity).
If you speak to an accountant about brand value, he’ll call it “goodwill.” Indeed, in the
accounting world, goodwill is a sort of leftover. A sum of money accountants can’t explain by
matching existing assets with respective accounts, so they’ll lump it up under the umbrella of
goodwill. Goodwill usually arises when a company gets acquired with a plus, which can’t be
explained in any other way. However, if you ask a marketer what’s the brand, she/he’ll tell you
“that’s everything!” It’s not like the marketer is trying to emphasize, quite the opposite. All the
marketer does is about creating a brand, making a brand unique, making a brand “valuable.”
They will ask for a marketing budget based on that brand. Yet, when you ask the marketer,
how much is our brand worth? The marketer will probably have a stunning face, almost like
you were asking to put a dollar value on the Monalisa. Between those two positions, there is a
third one, which is that of brand valuation. More than science this is an art, which is in infancy.
The attempt is to put a dollar value on a brand so that marketers can’t say a brand is worth like
the Monalisa and entrepreneurs are finally happy to tell their accountants a brand is much
more than just goodwill.

Understanding the difference between Brand Equity and Brand Value

First, you need to understand the difference between brand equity and brand value.
Brand equity refers to the importance of a brand for customers, while the brand value is the
financial strength and significance of that brand. Both brand equity and brand value are
estimates of how much a brand might be worth in the marketplace. Therefore, brand value is
primarily a financial estimate. Brand equity is a more holistic measure which comprises:

● Brand Loyalty.

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● Brand Visibility.
● Brand Associations.

Inside brand value

A brand is the set of expectations, memories, stories and relationships that, taken together,
account for a consumer’s decision to choose one product or service over another. If the
consumer (whether it’s a business, a buyer, a voter or a donor) doesn’t pay a premium, make a
selection or spread the word, then no brand value exists for that consumer. This is a great
definition given by Seth Godin in 2009. And he continued:

A brand’s value is merely the sum total of how much extra people will pay, or how often they
choose, the expectations, memories, stories and relationships of one brand over the
alternatives.

While this definition is the best I could find. Putting a dollar sign on memories and stories is
tough. Thus, brand valuation as a financial methodology has a more quantitative approach.
That doesn’t necessarily mean a better approach. A few argue that the things that can be
measured might be those that count the least. Yet as we start measuring them, they become
part of our conscious understanding of the world, which makes our world a set of metrics. This,
in turn, makes us measure things that don’t matter. Indeed, even though brand valuation
starts from a compelling need to assess a brand quantitatively to explaining how valuable a
company is in the marketplace. It might also end up simplifying too much a brand. For that
matter, it is critical to understand that brand valuation is just an estimate. Thus, a reference
number, not something to take as the absolute value of your brand.

At least tracking a brand value has multiple benefits:

● Justifying marketing expenditures and activities based on a “clearer” ROI.

● Tracking the growth trajectory of a brand.
● Being able to communicate more clearly the value of the brand to stakeholders
(potential investors, shareholders and potential partners).

But it might also lead to side effects:

● Measuring the wrong metrics for a company’s brand success.

● Removing the focus from customers and placing it too much on metrics that don’t
really impact the business.
Having said that, let’s see the methodologies available.

The approaches and methodologies used to compute a brand value

There are several methodologies available to compute brand value:

● Brand Equity Ten: things like Differentiation, Satisfaction or Loyalty, Perceived Quality,
Leadership or Popularity, Perceived Value, Brand Personality, Organizational

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Associations, Brand Awareness, Market Share, and Market Price and Distribution
Coverage.
● Brand Equity Index: it takes into account three main aspects of Effective Market Share,
Relative Price, and Durability.
● BrandAsset Valuator: it accounts for Differentiation, Relevance, Esteem, Knowledge
● Brand Valuation Model: also based on a few key financial metrics and other parameters
to assess the value of a brand.
● Brand Contribution to Market Cap Method: given by the asset value of the brand as a
component of the company’s market valuation.

Those are the leading brand valuation methodologies. Each of those takes into account a
different perspective and makes an assumption about what a brand is made of. Thus, each of
those approaches has its limitations.

Brand equity and demand generation

Brand equity is about mastering the desires, and perceptions of your customers, thus making
them demand your product, and define their needs around it. Rather than start from existing
pain-points, demand generation also focuses on changing the fundamental questions other
brands ask. For instance, where a brand might sell sport’s shoes because they are more
comfortable than others. Companies like Nike tap into demand generation by inspiring people
to give them meaning through sport. In short, rather than asking “are these shoes more
functional?” Nike asks “are we making our customers feel they are part of a movement?” That
is how a shoe transitions from being a commodity to becoming a status quo.

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Brand Hierarchy

Brand hierarchy, otherwise known as brand architecture, refers to the brand strategy behind
the relationships between various parts of a business. Broadly speaking, this strategy is best
summarized by grouping products and services according to their associated similarities and
differences

Understanding brand hierarchy

As companies grow, so too do their product ranges. Brand hierarchies help businesses and
indeed consumers communicate vital brand elements and feature differences between
individual products in a range. Brand hierarchy is important for the simple fact that many
businesses overlook the strategy entirely. These businesses tend to have a preoccupation with
releasing products and services without first thinking about the relationship between them.
As a result, the association between offerings is vague and not reflective of the wider brand.
Consumers then become confused and unable to make a purchasing decision, which
negatively impacts on revenue and profits.
Establishing a robust brand architecture is not difficult and can be performed at any stage of
business development. However, those who focus their efforts on product development at the
expense of brand hierarchy may encounter a costly rebrand in the future.

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The three types of brand hierarchy

Corporate, umbrella, and family brands

The highest level of the hierarchy is corporate, family, or umbrella brands. This level uses
cohesive and consistent naming and identity structures, ensuring that individual products and
services are homogeneous throughout the range. The corporate strategy is particularly useful
for large parent companies that have many divisions or subsidiaries. For example, Heinz Cream
of Tomato Soup and Heinz Tomato Ketchup both share similar visual branding on their labels.
They also feature the corporate brand Heinz in their names, reducing confusion among
consumers, and increasing brand equity in the process.

Endorsed brands
Endorsed brands are those that have been endorsed by a parent brand that is either a
corporate, umbrella, or family brand itself. In theory, the endorsement from the parent brand
adds credibility to the endorsed brand in the eyes of consumers. In this approach, products are
linked or grouped according to brand identity itself. They do not rely on homogeneous naming
or aesthetics. For example, parent company Microsoft lends its brand identity and credibility
to Office, Xbox, Windows, and Bing. But each endorsed brand in isolation is distinct in the sense
that it is not immediately recognizable as being owned by Microsoft.

Individual
Individual brands are consumer-facing brands where no explicit link between the product and
its parent brand is promoted. In many cases, there is also no link between individual brands
themselves. This is a common occurrence when parent brands acquire smaller brands with
high equity among consumers. Here, the parent brand is irrelevant and often detrimental to
brand equity compared to the individual products it takes ownership of. Coca-Cola uses this
strategy to their advantage, having acquired brands such as Fanta, Sprite, and Dasani that
were successful in their own right. Further investigation will reveal the connection to Coca-
Cola, but these brands continue to exist in original, recognizable forms.

Benefits of incorporating brand hierarchy strategy

● Reduces customer confusion. Businesses offering a line of unrelated products confuse
consumers as to the brand they are trying to create and convey. Establishing proper
brand hierarchy lessens this confusion, establishes consistency, and leads to increased
brand equity.
● Reduces competition. In some cases, sub-products achieve such popularity with
consumers that the weaker core brand loses popularity. Brand hierarchy strategies
focus on strengthening the primary brand so that products under its “umbrella” do not
compete with or undermine each other.
● Provides clarity. When brands are visually or otherwise segregated with a hierarchy, it
allows businesses to develop a marketing strategy for each. Since each brand will have
its own target audience and brand story, clarity reduces the chances of brand dilution
or improper messaging.

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Key takeaways:
● Brand hierarchy is a means of organizing different brands and their associated
products under a larger, parent brand.
● Brand hierarchy can be divided into three main types: corporate, endorsed, or
individual. Each has a different organizational structure based on real or perceived
relationships between a parent company and its various brands.
● A brand hierarchy strategy is most effective when implemented as a foundational
element of business operations. It clarifies the future direction of a brand and avoids
individual products within a brand potentially undermining each other.

Brand Positioning To Find Your Product/Communication Fit

Brand positioning is about creating a mental real estate in the mind of the target market. If
successful, brand positioning allows a business to gain a competitive advantage. And it also
works as a switching cost in favor of the brand. Consumers recognizing a brand might be less
prone to switch to another brand.

Understanding brand positioning

Brand positioning allows consumers to view brands in unique ways. For example, a consumer
may associate emotions, traits, feelings, and sentiment toward a brand. Ideally, these factors
give the brand a competitive advantage because positioning encourages consumers to make
the decision to buy from one brand over another. Band-Aid is an example of a brand that is
well-positioned in the minds of its customers. Whenever someone is injured, Band-Aid is the
product that first comes to mind despite there being many similar products on the market. In
fact, Band-Aid is so entrenched in the minds of consumers that the brand has become a noun

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and entered everyday usage. Such is the level of integration that even non-injury related
problems are sometimes referred to as needing a “band-aid solution”.

The importance of brand positioning

Effective brand positioning shapes consumer preferences by increasing consumer loyalty and
brand equity. High brand equity is particularly important since companies can charge more
for their products and increase profit margins. The perceived brand equity in one product can
also extend to products that contain the brand name in their description. For example, Virgin
had humble beginnings as a record store in 1970. But Richard Branson has since extended the
Virgin brand to many other products in airlines, trains, financial services, and cell phones. With
each successful foray into new markets, Virgin increases their credibility and brand position
among consumers. This allows the Virgin brand to become competitive relatively quickly
through market differentiation.

Different types of brand positioning

Choosing the most effective brand positioning strategy will depend on how a company
chooses to differentiate their product from others in the market.
Here are a few of the most common positioning strategies:

Value-based positioning
Value-based positioning places the brand based on its value proposition – or the tangible
benefits a customer will experience from purchasing or experiencing an offer.
Value often means different things to different people, but it is usually related to completing a
task, solving a problem, and increasing convenience and/or status.

Features-based positioning
Features-based positioning is important in competitive, saturated markets where there is little
differentiation between products.
Common in the cell phone industry, this form of positioning focuses on product-level features
such as price and quality and service features such as warranties and money-back guarantees.

Lifestyle positioning
In lifestyle positioning, the brand attempts to sell an image or identity, instead of the product
itself. Here, the main focus is on convincing a consumer that the product is associated with a
lifestyle worth aspiring to. Alcoholic beverage brands most commonly use lifestyle positioning,
but it can also be seen in the marketing of gambling services, luxury cars, and certain clothing
products.

Key takeaways:
● Brand positioning is the unique space a brand occupies in the minds of consumers.
● Brand positioning facilities an emotional connection between brand and consumer,
increasing brand equity in the process.

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● Brand positioning strategies differ according to the product market and the features
of the product that need to be emphasized.

Brand Pyramid To Prioritize Your Branding Strategy

A brand pyramid is a representational framework that answers fundamental questions about

a brand and market positioning. The framework is particularly useful for new brands to enter
a market for the first time. It moves from bottom to bottom with these elements: features and
attributes, functional benefits, emotional benefits, brand persona/core values, and brand
essence.

Understanding brand pyramids

Brand pyramids help a business clarify its brand essence – or the emotional feeling that
consumers come to expect from interacting with a brand. Here, it’s important to note that
developing a brand pyramid should be an internal process. In other words, the business must
define the external face of its brand by first looking inwards. What does a business stand for
and how does it want to be perceived? This is a question that only a business can answer, and
should never be left for others to decide. Ideally, the brand pyramid should assist in developing
a unique selling proposition, brand story, and overall marketing strategy. It can also serve as a
standard that businesses can refer to in gauging whether its actions are aligned with its core
values.

Establishing a brand pyramid

A brand pyramid can be created by using a triangle divided into five tiers. Marketing teams
must start at the base and then move upwards.

Let’s look at each of the tiers in more detail.

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1. Features and attributes

Features and attributes describe the basic purpose of the product in the market. In other
words, what does it do, and how does it do it? For example, a messaging app may have custom
emojis, group chat, and video chat features.

2. Functional benefits
Functional benefits delve a little deeper. This tier seeks to determine the problems that a
product or service is attempting to solve. Put differently, functionality describes the reason a
consumer uses a product. It also describes their expected outcome after consumption. The
messaging app solves the problem of free, instantaneous communication allowing consumers
to express themselves through video and custom emojis.

3. Emotional benefits
What emotions do consumers tie to the usage of a product or service? The user of an instant
messaging app may feel connection, anticipation, joy, and acceptance.

4. Brand persona/core values

Brand persona simply describes the personification of a brand. What values are important to
this person? How does the brand persona influence or reinforce marketing strategies and
product development, and vice versa? For example, insurance company Geico uses a gecko as
representative of its brand persona. The gecko calms the typical fear and distrust of insurance
companies by appearing curious, approachable, and friendly.

5. Brand essence
Brand essence is the apex of the brand pyramid, and for good reason. Brand essence is the
heart and soul of a business and is a culmination of the previous four tiers. It is a reason for
existing that guides everything a business does. Importantly, brand essence is felt by
customers in the form of positive emotions. Volvo’s brand essence is safety. That is, safety is a
core function of their brand which determines how they invest in the manufacture of safe cars.
This focus on safety is decades-long and is best exemplified by Volvo’s invention of the three-
point seat belt in 1958. The company was also ahead of the curve with the introduction of
airbags over 30 years later.

Key takeaways:
● Brand pyramids help businesses define the very essence of their brands by way of visual
representation.
● Brand pyramids are divided into five tiers that a business must move through to reach
the top: features and attributes, functional benefits, emotional benefits, brand
persona/core values, and finally, brand essence.
● Brand pyramids provide a systematic means of clarifying brand essence, which
determines the emotions consumers associate with a brand. These pyramids also
guide marketing strategy and business operations.

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Brand Promise To Make Customers Identify With Your Product

A brand promise is usually one or two sentences that accurately communicates what a
consumer should expect when interacting with a brand. When a business creates a brand
promise, it is making a declaration of assurance. Brand promises are often seen as extensions
of brand positioning statements that explain why a business exists. A brand promise then tells
the consumer how a product's service is better than those of a competitor.

Understanding brand promise

Brand promises can be overt in nature – with courier company FedEx being a prime example.
The company motto “when it absolutely, positively has to get there overnight” is a public
promise which the company has never compromised. Brand promises can also be less overt.
McDonald’s delivers on familiar, consistent, and affordable meals without incorporating
making specific promises around these characteristics. Instead, the brand promise of
McDonald’s is the less tangible ability to help families take the guesswork out of choosing a
restaurant.

Three steps to creating a successful brand promise

1. Define the promise

The most successful brand promises will combine the personality, mission statement, values,
and USP of a business into a succinct and deliverable package. Combining these important
elements ensures that a business creates a brand promise that is not only authentic but
unique. Here, the brand promise should be written down for clarity. But the promise itself
must also be present in a less tangible form. That is, the promise should be reflected in every
aspect of internal and external business culture.

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2. Deliver the promise

Next, determine how the promise might be delivered. FedEx’s promise of overnight delivery
seems simplistic on paper, but tremendous buy-in from employees and other relevant
stakeholders is consistently required to make this promise unbreakable. At this step, it’s
important to remember that cutting corners and making promises do not mix. Businesses
who promise to prioritize consumer needs without first determining what they need are
doomed to failure.

3. Track and adjust performance where necessary.

While it is true that there is some degree of art in developing a brand, businesses still need a
trackable strategy in place. Engagement metrics will provide clear insights on whether a brand
is resonating with its audience or whether marketing needs to reconsider its approach.
Surveys and questionnaires are also a great way of determining whether consumers
understand a brand. Indeed, carefully worded questions can reveal a range of insights around
the credibility and authenticity of a brand promise.

Some more examples of companies with successful brand promises

● Apple – who give consumers a chance to own the trendiest, sleekest, and most
technologically advanced electronics.
● Lynda.com – offering affordable and convenient high-quality training on a range of
topics.
● Nike – with an all-encompassing promise to bring inspiration and innovation to world
athletes.
● Coca-Cola – whose beverages promise to instill a mindset of fun and optimism through
refreshing and uplifting experiences.

Key takeaways:
● Brand promises set expectations for the business to consumer relationship. The
promise should permeate every aspect of a business and be authentic, unique, and
consistent.
● Brand promises can be tangible and overt in the sense that they are explicitly stated.
But they can also encapsulate specific experiences that consumers come to expect
when interacting with an organization.
● To develop a brand promise, businesses must combine aspects of their values, mission
statement, values, and USP. Importantly, there must be no potential for the promise to
be broken through inadequate due diligence or a lack of employee buy-in.

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Brand Voice To Find Your Unique Communication Style

The brand voice describes how a brand communicates with its target audience. The exact style
of communication is based on the brand persona or the collection of personality traits and
values that a brand embodies regularly, and it needs to communicate the brand‘s essence to
the desired target audience.

Understanding brand voice

A core component of brand voice is the personification of a brand. A surf shop adopts the
vocabulary and care-free attitude of surfers in their advertising campaigns. A clothing
company selling blue-collar workwear embodies the tough, rugged exterior of deep-voiced
construction workers. Importantly, brand voice must be consistent wherever a brand “speaks”
to its target audience -whether that be radio, television, social media or email newsletter.
Consistency ensures that a brand does not give mixed messages to consumers, who may have
difficulty determining whether the values of a brand align with their own.

Developing a brand voice

While methods vary, this five-step process will help businesses establish, create, and then
maintain a consistent brand voice for future success.

1. Assess a representative sample of content

A business should first critically assess the content it has released thus far. Does the content
accurately reflect what the business wants to communicate? Or conversely, is the content
more closely aligned with the brand of a competitor? The business should set aside content it
feels is an accurate representation of its brand, grouping them according to the emotions or
feelings they conjure.

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2. Describe brand voice in three words

Here, the business should review the set-aside content and have a group discussion on the
common themes or values present in each. Then, it is important to link these themes and
values to personality traits. To get a better idea of the personality traits a brand embodies, it
may be helpful to assign personality traits to competitors also. For example, one brand may be
authentic if a competitor tends to imitate others. Another may be passionate and joyful if the
competitor is calm and austere.

3. Create a brand voice chart

With the personality traits identified in the previous step, briefly describe each and then list
actions that do and don’t support these traits in marketing initiatives. Visually represented in
the form of a table, this chart will be an invaluable reference tool in ensuring that content is
consistently aligned with brand voice.

4. Liaise with content and marketing teams

Arguably the most important step involves obtaining buy-in from any employee who will be
involved in brand messaging. To achieve this goal, personality traits and examples of on-point
content should be made available as these employees create future marketing content.

5. Revisit and revise

While the core traits of brand voice should never change over time, elements of brand
messaging will need to be tweaked in response to a new competitor or other fluctuating
market conditions. For example, the current pandemic has forced most brands to incorporate
empathic, understanding, and community-minded messaging. In any case, it is a good idea to
evaluate strategies quarterly to ensure that brand voice is sensitive to wider societal and
organizational contexts.

Key takeaways:
● Brand voice is the communication of particular personality traits and values to a target
audience that represents a specific brand.
● Brand voice must be consistent across all marketing channels. Otherwise, a consumer
may become confused as to the alignment of brand values and their own values.
● Brand voice can be developed in an iterative, five-step process. Among other things,
the process ensures that a business does not adopt the voice of a competitor.

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Bullseye Framework To Prioritize Your Marketing Activities

The bullseye framework is a simple method that enables you to prioritize over the marketing
channels that will make your company gain traction. The premise is that when you grow a
company from scratch, in most cases, you don’t have a massive marketing budget. This
requires a scientific method for marketing experimentation to prioritize on those channels
that have the highest potential. Often, this marketing prioritization process will bring you to
experiment with new marketing channels which might still be underutilized by your
competitors, and for such reason also the ones with the highest potential. The bullseye
framework was manufactured by Gabriel Weinberg, Justin Mares, in their book, Traction. Let
me give you a bit of background about the story of one of the authors, Gabriel Weinberg, and
how they came up with this framework.

Enter DuckDuckGo
Gabriel Weinberg is the founder of DuckDuckGo (DDG), a search engine that offers private
navigation on the web. Over the years, DDG has evolved into a set of tools which provide
privacy for users around the web. DuckDuckGo's primary monetization strategy is still based
primarily based on affiliate revenues generated when a user goes on a site like eBay or
Amazon. DDG's business model revolves around a value proposition which emphasizes
privacy. This value proposition is quite powerful as it offers an alternative to Google, which
primary business model is based on data tracking which enabled the search engine from
Mountain View to build a multi-billion dollar business, which in 2018 passed the hundred
billion-dollar mark in revenues:

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DuckDuckGo itself has used a bullseye framework which prioritized several marketing
channels when growing. But what are the primary marketing channels available to founders
when first launching their company? According to Weinberg and Mares, those can be traced
back to 19 primary channels.

The bullseye framework in a nutshell

The bullseye framework follows three simple steps, intending to hit one target: traction!

● The first layer is about what’s possible. In other words, this is a brainstorming phase in
which the team starts to gather at least a strategy per channel that may be used to
start “moving the needle of growth.”
● The second layer is about what’s probable. In short, this is the phase where you start
experimenting and testing the strategies that were brainstormed in the first step. Here
it is crucial to start with inexpensive tests. That is not the phase where you have to go
all in. Look at it as a testing phase. Where you start testing the market to see what works
and what does not.
● The inner ring is the bullseye. That is where you identified the channel or channels that
are fueling the growth. Therefore, focusing on them at least until they will bootstrap
your startup to the next growth phase. Eventually, you’ll restart the process to identify
which channel or channels will work for the next growth stage.

In the book, Gabriel Weinberg identified 19 channels for growth:

1. Targeting Blogs.
2. Publicity.
3. Unconventional PR.
4. Search Engine Marketing.
5. Social and Display Ads.
6. Offline Ads.

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7. Search Engine Optimization.

8. Content Marketing.
9. Email Marketing.
10. Viral Marketing.
11. Engineering as Marketing.
12. Business Development.
13. Sales.
14. Affiliate Programs.
15. Existing Platforms.
16. Trade Shows.
17. Offline Events.
18. Speaking Engagements.
19. Community Building.

Each of those channels will be able to propel your organization in a specific growth stage. It is
important to understand that marketing prioritization isn’t a process that you do once, and it
stops there. It is a continuous process.

The bullseye framework requires continuous tuning

When you finally master a marketing channel which propels you to the first phase of growth,
that channel might lose efficacy over time, for several reasons:

● Certain marketing channels are well suited for a specific reach. For instance, while
using niche blogs to propel your growth in the first phase is a great marketing strategy.
Over time this channel might become not sufficient to bring you toward a second
growth phase.
● As your competitors find out that you stumbled upon an effective marketing channel,
they will start to copy your strategy. Until that marketing channel becomes saturated,
thus losing efficacy.
● While growing your company, you might also be expanding the customer base and the
audience you talk to. Thus, a marketing channel that worked to deliver a specific
message to a niche might not work to spread that message further as your audience
might not be there anymore. Thus you will need to figure out where your audience
hangs out to expand the reach of your marketing message and trigger a further growth
phase.

Key takeaway
The bullseye framework is a straightforward methodology – presented in the book “Traction –
to prioritize the marketing channels that can help to grow your business. According to
Weinberg and Mares, the authors of Traction, this framework can be used to understand what
of the 19 potential marketing channels can trigger the growth of your organization throughout
the several growth stages.

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Bundling To Expand Your Market Shares

Bundling is a business process where a series of blocks in a value chain are grouped to lock in
consumers as the bundler takes advantage of its distribution network to limit competition and
gain market shares in adjacent markets. This is a distribution-driven strategy where
incumbents take advantage of their leading position.

Bundling vs. Unbundling

Usually, when a company has gained monopoly power it will use bundling to make consumers
get its whole set of products and lock them, by levering on their existing distribution networks
(Microsoft Windows is an example). Unbundling instead is a business process where a series
of products or blocks inside a value chain are broken down to provide better value by removing
the parts of the value chain that are less valuable to consumers and keeping those that in a
period in time consumers value the most.

What is an example of bundling?

As Microsoft became a tech giant throughout the PC era, it managed to build such a strong
distribution network, to be able to lock in consumers in the PC market for decades. Indeed,
Microsoft bundled its Windows in computers before they got purchased. Thus, encouraging
manufacturers to push Microsoft’s products. A business model primarily built on bundling if
abused by a monopolist can turn into anti-competitive behaviors.

Unbundling To Enter Market Dominated By A Few Players

Unbundling is a business process where a series of products or blocks inside a value chain are
broken down to provide better value by removing the parts of the value chain that are less
valuable to consumers and keep those that in a period in time consumers value the most.
Usually in business, depending on the context, companies might gain a competitive
advantage by either bundling or unbundling some of the activities within a value chain.
Usually, when a company has gained monopoly power it will use bundling to make consumers

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get its whole set of products and lock them, by levering on their existing distribution networks
(see Microsoft Windows). Unbundling is the opposite process when a newcomer enters a
traditional and established industry by removing the parts of the value chain less valuable to
consumers and only capture the most valuable part (think of how Amazon unbundled retail
stores by designing in a whole new experience, that leveraged on digital real estates).

When entering the market, as a startup you can use different approaches. Some of them can
be based on the product, distribution or value. A product approach, takes existing alternatives
and it offers only the most valuable part of that product. A distribution approach, cuts out
intermediaries from the market. A value approach offers only the most valuable part of the
experience. The digital era has brought to several business waves, that led to the creation of
new industries and companies, once newcomers, then become giants themselves. Let’s look
at some of those trends that were shaped and shaped the business world in the web era.

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Disintermediation To Cut Intermediaries And Widen Existing Markets

Disintermediation is the process in which intermediaries are removed from the supply chain,
so that the middlemen who get cut out, make the market overall more accessible and
transparent to the final customers. Therefore, in theory, the supply chain gets more efficient
and, all in all can produce products that customers want. Where Unbundling looks at the
product offering to break down what’s most valuable and offer it more conveniently.
Disintermediation looks primarily at distribution to understand what actors can be driven off
the market, as they primarily work as fragmented intermediaries. The classic example is how
platform business models have been disintermediating several industries. As they did so,
former intermediaries were wiped out, and the whole market grew. Yet, this process often
leads to the consolidation of a new ecosystem created by the super platform. As this ecosystem
adapts to the new rules and policies created by the super platform (implicit or explicit). The
ecosystem adapts to it, and the new intermediaries that enhance that ecosystem, spring up.
For instance, as Amazon is disintermediating the delivery industry, with last-mile delivery, that
might create a situation where key players, that have existed for decades (FedEx, DHL), might
be kicked out of the marketplace, or perhaps just remain niche players, with marginal market
shares. That might happen as Amazon might create a much larger industry, driven by its last-
mile delivery ecosystem that might favour the birth of new intermediaries, that are aligned
with the Amazon last-mile delivery policies.

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Reintermediation To Consolidate New Markets

Reintermediation consists in the process of introducing again an intermediary that had

previously been cut out from the supply chain. Or perhaps by creating a new intermediary that
once didn’t exist. Usually, as a market is redefined, old players get cut out, and new players
within the supply chain are born as a result. This process of reintermediation will help
industries and markets to be born on top of new ecosystems, made of incentives and
disincentives.

Decoupling To Break Apart Old Markets By Offering What Customers Want

According to the book, Unlocking The Value Chain, Harvard professor Thales Teixeira identified
three waves of disruption (unbundling, disintermediation, and decoupling). Decoupling is the
third wave (2006-still ongoing) where companies break apart the customer value chain to

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deliver part of the value, without bearing the costs to sustain the whole value chain. In a
decoupling process, the decoupler takes the most valuable part of the customer value chain,
and it offers it to customers. That is how it gains traction.

Coupling To Keep Momentum As Scale Is Achieved

As startups gain control of new markets. They expand in adjacent areas in disparate and
different industries by coupling the new activities to benefit customers. Thus, even though the
adjunct activities might see far from the core business model, they are tied to the way
customers experience the whole business model. In a coupling process, instead, the coupler
expands in new areas and activities that might seem disconnected to the overall business
model, and yet, the way those activities are offered to final customers, also enhance the whole
business model.

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Business Model Canvas

The business model canvas is a framework proposed by Alexander Osterwalder and Yves
Pigneur in the book Business Model Generation enabling the design of business models
through nine building blocks comprising: key partners, key activities, value propositions,
customer relationships, customer segments, critical resources, channels, cost structure, and
revenue streams.

A quick intro to business models

A business model is a way in which organizations capture value. Not only the economic value
but also the social values an organization can foster and the cultural values it can sustain in
the long run. In other words, generating a business model isn’t just about how companies
make money but how they create value for several players. Unlocking profits for the
organization that came up with that business model is one of the critical elements. There isn’t
a single way to design and assess a business model. However, the business model canvas is a
holistic model that takes into account nine factors or building blocks. Alexander Osterwalder
proposed the Business Model Canvas. He’s a Swiss business theorist that in 2000 together
with a team of 470 co-creators in an attempt to create a tool that entrepreneurs could use for
their businesses. The aim of having a sharp understanding of your business model is critical to
provide strategic insights about your customers, product/service, and financial structure. Thus,
to take action and iterate the business model until it unlocks value for your organization as a
whole. Let’s take a real case study. I often mentioned the Google business model as a great
example. You might like or not the giant from Mountain View. Yet what made this company
so profitable – I argue – was its ability to unlock value for several players in the digital marketing
space. In fact, on the one hand, with AdWords, Google allowed businesses to transparently bid

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on keywords based on the clicks those ads received. This allowed companies to
disintermediate advertising from intermediaries that were taking up most of the margins (of
course now Google gets them).
On the other hand, with AdSense, Google allowed small publishers around the world to
monetize their content. All they needed was an AdSense account and enough traffic to start
earning money. Of course, as of today, this model isn’t sustainable anymore for many
businesses. In a way, AdSense democratized the ads revenues, which before were only taken
by large players. With Google, those profits got shared with content creators. Also, Google
offered the best search experience compared to any other search engine. Even though it
wasn’t the first to take over the market (it was actually among the last movers) Google offered
a free service that worked wonders. The focus on a great search experience was one the most
crucial factors in Google‘s success.

Business model canvas in a nutshell

The nine-building blocks of the business model canvas comprise vital partners, key activities,
value propositions, customer relationships, customer segments, critical resources, channels,
cost structure, and revenue streams.

Key partners
Who are your key partners/suppliers?
What are the motivations for the partnerships?

It all begins with your partners. If you don’t have the right partnerships in place, you don’t have
a business at all. That is the starting point of your business model. Finding the right partners is
critical. The success of your business and the traction depend upon your ability to identify and
offer your partners a compelling reason to do business with you. For instance, if you think
about Google, the principal partners are the small publishers part of the AdSense program,
together to the businesses that are part of the AdWords network and the users that daily keep
going back to the Google search box by giving it critical data to sustain its business model. If
you think about Uber instead, you’ll notice how the key partners are its drivers for which Uber
means an additional if not a full-time income as self-employed. Its engineers that keep the
platform smooth and running and people that sustain the cause of Uber. If you think instead
at Airbnb, you’ll notice that those key partners aren’t only hosts and travelers that transact
each day on the platform. Also, freelance photographers that travel the world to take
professional pictures that enrich the user experience of Airbnb are also key players. When it
comes to partners “who” and “why” are critical questions. In short, who’s the niche of people
that can sustain your business? And why, so what compelling reason are you giving them?
What value do they get from this partnership? It doesn’t have to be just in terms of finances.
Of course, initially, a better deal would do. But it could also be about social values or personal
values. For instance, initially for its drivers, Uber didn’t mean right away full-time income. But
it also meant more freedom for its drivers to work when they wanted. So initially freedom
might have been a critical aspect.

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Key activities
What key activities does your value proposition require?
What activities are important the most in distribution channels, customer relationships,
revenue streams…?

In short, those are the activities needed to make your value proposition compelling for your
key partners. Thus, they can vary from removing friction (think of a marketplace that is hard to
use), add features, or make transactions smooth. The more your organization acts as an
enabler of business relationships among several players the more its value proposition
consolidates. Thus, anything that solves a customer problem, or satisfies an unfulfilled need
would do. Based on my personal experience from the case studies I’ve looked at the more the
value proposition can adapt to several players’ needs, the more it makes a business model
become the driver for organizational growth. Take Quora:

The Q&A social network can bring together several partners (users, writers, top writers,
publishers/online businesses, and investors) with different value propositions; all met on the
same platform.

Value proposition
A value proposition is about how you create value for customers. While many entrepreneurial
theories draw from customers’ problems and pain points, value can also be created via
demand generation, which is about enabling people to identify with your brand, thus
generating demand for your products and services.

What core value do you deliver to the customer?

Which customer needs are you satisfying?

Although the value proposition is not listed as the first element. In reality, this is the first thing
you should assess. I’d say this is the foundation of your business model. That is what keeps the

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blocks together. Without knowing the core values for your customers or partners and what
needs you’re satisfying, or what problems you’re solving for them you might have a product
but not a business. This is connected with the previous building blocks and with the next ones.
This is the glue that keeps it all together. As explained in the last point a value proposition
doesn’t have to be for only one player, partner, or type of customer. Take the case of a multi-
sided platform like LinkedIn. The value proposition can embrace both sides of the marketplace.
The value proposition isn’t marked in the stone, but it can change over time. As new partners
join; and as you tinker with your business model and as new unforeseen needs come about
your value proposition might also change.

Customer relationship
What relationship that the target customer expects you to establish?
How can you integrate that into your business in terms of cost and format?

Each of those relationships will have different dynamics. For instance, drivers might be
concerned about safety risks while regulators might be worried about transparency and
proper data management. Another example, if you take the Airbnb business model, hosts are
critical to the success of the platform, and concerns like liability coverages are essential for
them to keep using it. That is why hosts are provided with insurance and liability coverage, the
“Host Protection Coverage” (of course that might have happened because of some accidents).

Customer segment
Which classes are you creating values for?
Who is your most important customer?

Once you have the previous building blocks in place, it shouldn’t be hard to define for which
class of people you’re creating value and what are your most important customers. It is
important to stress that although this is a list of blocks, it is not necessarily meant to be read
or assessed in order. In fact, at times you might have some blocks but miss others. For instance,
let’s take the case of a startup that has created an innovative software-based on new,
emerging technologies. The startup founders might know for sure that technology is valuable
and it will open up market opportunities. Yet that same founder might not have a clue about
who the potential customers might be. This shouldn’t surprise you. Starting up a business
doesn’t necessarily mean starting from a problem people have. That is true in more traditional
industries. In tech, the opposite might apply. You have new technology and a product that
does many things. However, you struggle to have that business take off. How to find your
customers? Often they will come to you as the interactions with the first customers become
more intense. You’ll also refine your service to make it more focused on specific features and
needs. That process of iteration will bring you to the so-called “product-market fit.” This process
can be at times painful and time-consuming.

Key resource
What key resources does your value proposition require?

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What resources are important the most in distribution channels, customer relationships,
revenue streams…?

As we’ve seen the value proposition is the glue that keeps all the blocks of your business model
together. Thus, it is critical to assess what financial and human resources to allocate to allow
your value proposition to keep your business model going. For instance, on Airbnb, it is critical
to continue growing the offering and the quality of it to give more and more options to
travelers. Also, Airbnb has noticed users wanted more experiences. It started to offer a whole
new section focused on those experiences.

Distribution channel
A distribution channel is the set of steps it takes for a product to get in the hands of the key
customer or consumer. Distribution channels can be direct or indirect. Distribution can also be
physical or digital, depending on the kind of business and industry.

Through which channels that your customers want to be reached?

Which channels work best? How much do they cost? How can they be integrated into your
and your customers’ routines?

A Peter Thiel might say if you don’t have a distribution you don’t have a product. As engineers
are running many successful tech companies, it’s easy to get deluded by the fact that
engineering alone can generate a successful business model. This is false! The business world
is a competitive environment. It doesn’t matter if you’re technically skilled if you don’t have the
guts to take action in critical moments your business might well sink with your technical skills.
If you take Bring and Page, Google‘s founders, they are engineers, but they are businessmen.
When Google paid $300 million for keeping its search engine as default choice within Mozilla,
when Microsoft was about to steal it, it was an aggressive move to keep one of the most
important distribution channels (at the time). Microsoft was trying to have Bing featured as
the default choice of Mozilla. When Google’s founders understood what was happening, they

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didn’t stop thinking for a second. They didn’t build algorithms to make that decision. They
acted out of their guts feelings. If I had to name what’s the most important asset of any
company, the distribution would come first. Finding the distribution channels that best fit your
business isn’t a natural process. Traditional channels are word of mouth, paid marketing, and
media coverage. In the digital business world instead, there are channels like SEO, social
media, and content marketing. I know you might look at them as marketing tactics and they
are. However, those are meant to build distribution channels. For instance, content can be
used as a way to connect with key players in your industry that you’d want to have as business
partners. Google can also act as a “distributor” as with a proper SEO strategy can bring a
continuous stream of qualified traffic to enhance your business and so on.

Cost structure
The cost structure is one of the building blocks of a business model. It represents how
companies spend most of their resources to keep generating demand for their products and
services. The cost structure together with revenue streams, help assess the operational
scalability of an organization.

What are the major costs for your business?

Which key resources/ activities are most expensive?

In the business community often growth is confused for profitability. That is not the case. Many
companies that achieved staggering growth rates have failed to be profitable. This isn’t
necessarily bad, but a successful long-term business needs to become profitable as soon as
possible. When Google opened its hood in 2004 after its IPO, the numbers were staggering. In
terms of growth, revenues, and profitability. A cost structure is then crucial to allow sustainable
long-term growth.

Generally speaking, your customer acquisition cost has to be lower than the lifetime value of
your customers. Easier said than done. This connects us to the next, critical building block, the
revenue stream generation.

Revenue stream
A revenue stream is one of the foundational building blocks of a business model, and the
economic value customers are willing to pay for the products and services offered. While a

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revenue stream is not a business model, it does influence how a business model works and
delivers value.

For what value are your customers willing to pay?

What and how do they recently pay? How would they prefer to pay?
How much does every revenue stream contribute to the overall revenues?

Until you don’t have a stream of revenues coming in you can’t say you have a business. This
might seem a trivial point. Yet the way you monetize the company will also affect the overall
business model. There isn’t a single way to generate revenues. You might choose a
subscription business model, a freemium, a fee, or membership model. That also depends
upon the industry, product, and service you offer. For instance, Facebook uses a hidden
revenue generation model. In short, the free platform in a way “hides” to its users the way it
monetizes. Of course, business people and marketers are well aware of how Facebook makes
money as it has been so far a proper advertising channel for many businesses. However, the
average user doesn’t have a clue. Things are changing now that privacy issues and new
regulations have brought attention to the Facebook business model. Yet for a decade
Facebook has benefited from a vast stream of revenues and high profitability without most
users ever noticing it. Many might argue that the hidden revenue generation model is the
most powerful. And in fact, it has proved so (Google is another example). Indeed, as Peter Thiel
remarks in his book, Zero to One, sales works best when hidden. As none likes to be reminded
of being sold something. However, a business model that works, in the long run, needs to be
aligned with users’ interests. Thus, the way you monetize isn’t only about the bottom line but
also about the kind of organization you’re building. If the revenue streams you generate
provide value and are in line with your users’ interests, there is no need for corporate slogans
like “don’t be evil.” What more? Once you’ve found a revenue stream the works and is in line
with your business model you can’t stop there. You need to keep experimenting with new
revenue models. In short, the business model canvas is the starting point for your business,
rather than the ending point of your entrepreneurial journey.

Key takeaways
The business model canvas is a model that helps you have an overall strategic vision of your
business. It comprises nine building blocks. Those building blocks are critical to assessing your
long-term strategy.

This is one of the methods you can use. To sum up, the nine building blocks are:

● Key partners.
● Key activities.
● Value proposition.
● Customer relationship.
● Customer segment.
● Distribution channel.
● Cost structure.
● Revenue stream.

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Each of those blocks is not independent of each other. In fact, in many cases, they are strictly
tied to each other. And from the interactions between them, you can build a sustainable
business model able to unlock value for your organization and other players that are part of its
growth.

Circle of Competence To Stay In The Entrepreneurial Zone

The circle of competence describes a person’s natural competence in an area that matches
their skills and abilities. Beyond this imaginary circle are skills and abilities that a person is
naturally less competent at. The concept was popularised by Warren Buffett, who argued that
investors should only invest in companies they know and understand. However, the circle of
competence applies to any topic and indeed any individual.

Understanding the circle of competence

It is useful to think of the circle of competence as a small circle within a much larger circle. The
larger circle represents what an individual thinks they know but are far from an expert in.
Conversely, the smaller circle represents what they actually know and could be considered an
expert in. Buffett's strategy for success in life using the circle of competence is relatively simple.
Firstly, it is important that individuals know where the boundary of their inner circle is. Once
the boundary has been established, it must not be crossed. Buffett's business partner Charlie
Munger took the circle of competence one step further. He argues that a person must clarify
their individual strengths and then play to them to have a competitive advantage. If a person
not playing to their strengths comes up against a person who is, they will most likely lose.
However, it is a natural tendency for many individuals to deliberately step outside of their

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circles or attempt to broaden them. The circle can be expanded to an extent, but skills are
usually industry-specific and non-transferable to other industries. In business, this is why some
organizations divest or outsource operations that don’t align with their core business.

Examples of the circle of competence

In a 1991 lecture to university students, Buffet reflects on the circle of competence of a Russian
immigrant who built the largest furniture store in Nebraska. Buffet noted that this woman
understood cash and furniture selling. Therefore, her circle of competence was furniture and
specifically a talent for buying large amounts of furniture to turn a profit. Despite also being a
business partner of his, Buffet noted that this woman had no interest in the stock market. The
circle of competence explains why. She was disinterested because she did not understand how
it worked. Indeed, Buffet would later exclaim that “she wouldn’t buy 100 shares of General
Motors if it was 50 cents a share.” Furthermore, consider the Olympic athletes Michael Phelps
and Hicham El Guerrouj. The first is a gold medal-winning swimmer, the second a gold medal-
winning runner. Despite the athletes differing in height by 7 inches, the length of their legs is
almost identical. Phelps with relatively short legs and a long torso that is perfect for moving
through water. El Guerrouj has relatively long legs and a short torso that is perfect for long-
distance running. Each man operates within his circle of competence, and each has been
highly successful. If the two were to switch sports and move beyond their circles, it would be
highly unlikely that either would succeed to the extent they have.

Key takeaways:
● The circle of competence describes the skills that a person has mastered throughout
their careers or lives. Outside of this circle are interests, skills, or abilities that they do
not competently understand.
● To be successful, individuals must know the boundaries of their circle of competence
and stick within these boundaries at all times.
● Depending on the context, a circle of competence can encompass very broad or very
specialized skills and abilities in a certain field or industry.

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Comparable Analysis To Map Your Industry’s Context

A comparable company analysis is a process that enables the identification of similar

organizations to be used as a comparison to understand the business and financial
performance of the target company. In short, we want to select companies, which present the
same features as our target firm. The objective, then, is to understand the competitive context
of the organization we’re analyzing.

Joshua Rosenbaum and Joshua Pearl, authors of “Investment Banking,” offer us two main
criteria to select our comparable companies:

● The business profile.

● And the financial profile.

These two profiles will help us find those companies that can be used as comparables for our
financial analysis.

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Business Profile

The business profile attains to qualitative aspects of the business, which we can synthesize in
five properties:

Sector
In what sector does the target company operate?

Product and services

What are the core products and services the target company offers?

Customers and end markets

What’s the customer base? And which market is the company serving?

Distribution channel
How does the target company get to its end customers?

Geography
What is the main market where our target company operates?

For instance, Apple Inc. operates in the consumer goods category and electronic equipment
category. Its main products are iPhone, iPod, MAC (which make up most of its revenues).
Apple Inc. distributes its products mainly through its own retails stores and the main market
is the U.S. (although the company operates worldwide and currently Greater China also makes
up for a good chunk of the company’s sales).

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Financial Profile

The financial profile attains quantitative aspects of the business. We are going to consider five
main elements:

Size
Market cap, revenues, net income

Profitability
Average net margin, or gross margin last three or five years

Growth profile
Where does the revenue growth come from? Geography and product analysis

Return on investment
Net Income/Total Assets

Credit profile
What rating was the company assigned lately? Or what level of liquidity the company has?
For instance, Apple Inc. 2015 market cap surpassed $500 billion, with over $230 billion in
revenues and over $50 billion in net profit. As for the profitability, the company showed an
average net margin (net income/sales) of 23% in the last five years. Its revenue growth came
mainly from one product, the iPhone and one market, Greater China.

Select Comparable: Apple’s case study

It is time to select Apple’s main comparable.

For simplicity’s sake, here I want to highlight the fact that when selecting Apple comparable I
gave more importance to criteria such as geography, products and services, size, and
profitability. Apple has been able to achieve a dominant position in so many different
industries in the tech world, and therefore it also has several direct competitors. For instance,
in the smartphone industry, Apple’s direct competitors are Samsung, Sony, Lenovo and so on.
In the personal computer industry, Apple’s main competitors are Microsoft, Dell, HP, and
Lenovo. We could go on forever. Although, my assumption here is that de facto Apple’s success

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was mainly due to its ability to integrate several products through a very intuitive interface
that differentiated it from its competitors. In short, I am assuming that the future battle in the
tech industry will be played on the software side, rather than the hardware. Therefore, the two
most prominent players, which are competing against Apple in this respect, are Microsoft and
Google. Understand that although the business and financial profiles criteria help use a lot in
discerning the competitors of our target company personal judgment is a determinant factor.
For instance, if you believe that the future battle will be played on a different ground you may
be tempted to select another comparable for Apple and that is fine. Or you could pick a larger
group than I did. In short, you can personalize the analysis as much as you want if it gives a
better picture of Apple’s overall competitive landscape.

How do you pick competitors in the digital world?

Tech giants like Amazon have built digital empires with much fluid boundaries. Perhaps,
Amazon built its legacy across several industries, and that makes it harder to pick competitors.
Indeed, analyzing a company like Amazon requires a wide perspective and understanding of
several industries. In the image above you can appreciate how, based on the various business
units of Amazon, there will be different competitors.

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Competency Framework As A Process To Find Excellence

A competency framework broadly describes performance excellence within an organization.

These frameworks usually include specific competencies that are applied to a variety of
occupational roles.

Understanding the competency framework

Although many no doubt classify competency frameworks as corporate jargon, they are
nonetheless a crucial aspect of any successful business. Indeed, an organization that neglects
to create a competency framework is neglecting to define performance standards. With no
standards to judge against, performance metrics are highly subjective. Competency
frameworks are developed for each distinct role within an organization. They must use clear
and identifiable language that defines excellence and how it might be achieved. Indeed,
excellence becomes the performance standard that each employee is measured against.

How to develop a competency framework

Developing a competency framework consist of four steps:

1. Determine the purpose of the framework

When determining purpose, it’s important to realize that context is everything. A framework
which determines which employees are eligible for a raise will be vastly different from a
framework whose primary goal is to reduce product shrinkage.

2. Research
Once the purpose has been determined, relevant information must be collated. This can be
done by:

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● Observing the relevant role within the organization and making competency-based
notes. That is, analyzing the behaviors for each role that constitutes competency.
● Liaising with employees who are the most familiar with the competency being
measured. For example, a key part of reducing product shrinkage may be checking
best before dates three times a day. In any case, lines of communication must be
opened to glean important details. This can be done in the form of surveys or
questionnaires, if not through face-to-face interviews.

3. Construct the framework

With the list of behaviors and actions, the framework should be constructed by grouping
similar behaviors and actions together. An employee involved in reducing shrinkage may have
grouped behaviors such as:

● Thrice-daily checks of perishable goods according to best before date.

● Logging products that will come out of date in the coming days on to a hand-held
device.
● Ensuring that the device is charged and a report printed for tomorrow’s best before
check routine.

4. Implement the framework

Once implemented, employees should be informed of the reasons for creating the
competency framework and what the business hopes to get out of it. Such frameworks need
total buy-in to be effective, and full disclosure is one way to get it. Employees should also be
trained in certain areas if they do not already possess the relevant skills.

The benefits of competency frameworks to businesses

Recruitment guidance
When a business is hiring, competency frameworks guide the suitability of interviewees for a
specific role. Once employed, employees are naturally more motivated, satisfied, and remain
with the company longer.

Succession planning
Many businesses are facing awkward transition phases as their predominantly baby-boomer
workforce retires from management and is replaced with a younger generation. Competency
frameworks can help smooth this transition by ensuring that the next generation has the
requisite abilities and behaviors to be leaders of the future.

Improves productivity
Competency frameworks reduce cost overruns that result from poor employee performance
and high employee turnover. It may also reduce the costs of inefficient leadership where a lack
of communication on expectations creates confusion and low morale.

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Key takeaways
● A competency framework broadly defines how an organization might strive for
excellence – either within the organization itself or in the sector as a whole.
● Developing a competency framework is a four-step process that is iterative and specific
to individual employee roles.
● Competency frameworks have several benefits including increased staff retention,
morale, and productivity. They may also assist in succession planning and hiring.

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Competitive Profile Matrix As A Comparison Tool

A Competitive Profile Matrix (CPM) describes the strategic analysis of comparing a business to
its competitors in such a way that it reveals its relative strengths and weaknesses. Those will
be assessed against a few key components like product range/quality, customer service, brand
equity/reputation, marketing innovation, management, and HR competency. Once weighed
they get scored for a complete assessment.

Understanding the Competitive Profile Matrix

Regardless of the industry concerned, organizations have distinct strengths and weaknesses.
One might have the most recognizable brand, while another may enjoy the lowest production
costs. A Competitive Profile Matrix is a graphic representation of the most important
businesses in a given industry, giving a reasonably detailed overview of the competitive
landscape. In the matrix, businesses are rated according to critical success factors with a
numerical score. Once each business has been rated, the matrix will naturally show where each
is relatively strong and relatively weak.

Key components of a Competitive Profile Matrix

Let’s look at the four key components of an effective CPM.

1. Critical Success Factors

Sometimes called Key Success Factors (KSF), these are factors that have relevance to the
success or failure of a business within an industry. The success factors that a business chooses
to judge itself on will, of course, be dependent on their specific industry. But in general, most
CPMs will assess common factors such as:

● Product range and quality.

● Customer service.
● Brand equity and reputation.
● Marketing and innovation.
● Management and HR competency.

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2. Weighting
Once the critical success factors have been determined, they must be given a weighting from
0.1 to 1. For example, a factor given a weighting of 0.2 means that it is not a particularly large
driver of success. A rating of 0.8, on the other hand, denotes a critically important success
factor. A bricks and mortar grocery store may give customer service a weighting of 0.7, while
an eCommerce retailer without the need for face-to-face interaction may give the same factor
a weighting of 0.3.

3. Score
With critical success factors and their associated weightings determined, a business can now
be scored against them. Most use this simple scale:

● 1 – major weakness – a company lagging behind its competitors.

● 2 – minor weakness.
● 3 – minor strength.
● 4 – major strength – a company that is an industry or market leader.

It’s important to note that scoring is an objective process – so some businesses may find value
in expanding the scoring scale to achieve better objectivity. In any case, the weight of each
factor must now be multiplied by the score to give the weighted score for each competing
business.

4. Total score
To arrive at a total score for each competitor, simply add the weighted scores together. The
company with the highest score is the strongest in its industry, relative to its competitors.
However, even businesses in strong competitive positions will have one or two relative
weaknesses. This is another strength of the CPM, as it allows competitive organizations to
further increase market share.

Key takeaways:
● A Competitive Profile Matrix is a powerful strategic analysis tool that displays the major
players in an industry and their strengths and weaknesses relative to each other.
● A Competitive Profile Matrix can be used in any industry with multiple businesses to
give a detailed view of the competitive landscape.
● A Competitive Profile Matrix has four key components. Critical success factors must be
identified, weighted, and then scored to determine the overall market position.

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Coopetition In A Fluid Business World

Coopetition describes a modern phenomenon where organizations both compete and

cooperate, which is also known as cooperative competition. A recent example is how Netflix
streaming platform has been among the major customers of Amazon AWS cloud
infrastructure, while Amazon Prime has been among the competitors of Netflix Prime content
platform.

The Netflix case study

As highlighted on Amazon AWS website:

Online content provider Netflix can support seamless global service by using Amazon Web
Services (AWS). AWS enables Netflix to quickly deploy thousands of servers and terabytes of
storage within minutes. Users can stream Netflix shows and movies from anywhere in the
world, including on the web, on tablets, or on mobile devices such as iPhones.

Crowding Out Effect To Understand How Public Spending Can

Influence Your Business Perspectives
The crowding-out effect occurs when public sector spending reduces spending in the private
sector.

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Breaking down the crowding out effect

● The crowding-out effect describes the way government spending reduces private
spending.
● Public sector spending is accommodated by increasing taxes or the level of borrowing
itself. This reduces available capital and decreases consumer confidence.
● In the long term, the crowding-out effect inhibits economic growth and, in some cases,
can exacerbate pre-existing fiscal issues.

Understanding the crowding-out effect

Governments engage in spending to increase demand for goods and services among
consumers at a given time and price – otherwise known as aggregate demand. However, such
public spending is theorized to decrease aggregate demand instead of the reverse.
How governments finance this increased spending explains the crowding-out effect and how
it can reduce consumer confidence in spending.
Spending is usually financed by:

1. Increasing tax – taxes imposed on consumers and businesses reduce the amount of
discretionary income, thereby reducing demand for goods and services.
2. Increased borrowing – governments finance borrowing by selling bonds to the private
sector through pension funds, investment portfolios, and private individuals. With
private sector capital invested in government bonds, there is less to invest back into
the private sector itself.

Fundamentally, the crowding-out effect reduces the total amount of savings available for
investment. As public spending increases, so too does the demand for available capital.
However, the total amount of capital remains constant. This has the effect of increasing
interest rates to a level where only governments can afford to service loan repayments. When
this occurs, individuals and businesses of all sizes are forced, or “crowded-out” of the market.
Consider the case of a company looking to borrow $100 million to build a new headquarters.
Before government spending, the company was offered an interest rate of 6%. But after the
government announced it would offer business loans to stimulate the economy, the company
finds the interest rate is now 8%. With a 33% rise in the interest rate, the company cannot afford
to service the loan. They are in effect prohibited from entering the market, and the resultant
jobs and consumer spending that would have occurred from construction are also lost.

Why does the crowding-out effect matter?

Decreases in private sector spending on goods and services ultimately slows economic
growth. When governments borrow money to stimulate consumer spending during a
recession, consumers are fearful of being crowded out and subject to higher taxes or interest
rates in the future. As a result, they tend to save the stimulus money instead of spending it.
This, in turn, renders fiscal stimulus packages ineffective.

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The cyclical nature of the crowding-out effect

Government spending has the potential to backfire and reinforce the problem it was designed
to address. This can be observed in the following examples:

● Economy – governments that spend more to address shortfalls in tax revenue may
create a negative cycle where they spend more and more capital to try to stimulate a
private sector that becomes increasingly crowded-out of the market.
● Welfare – with more consumers turning to welfare during a recession, the government
must spend more money to accommodate them. This spending is derived from
borrowed capital that is serviced by governmental raises in private sector interest rates
and taxes. This then reduces discretionary income and makes consumers more reliant
on welfare.

Decoupling As A Go-To-Market Strategy

According to the book, Unlocking The Value Chain, Harvard professor Thales Teixeira identified
three waves of disruption (unbundling, disintermediation, and decoupling). Decoupling is the
third wave (2006-still ongoing) where companies break apart the customer value chain to
deliver part of the value, without bearing the costs to sustain the whole value chain.

Understanding the Customer Value Chain

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In the book Unlocking The Customer Value Chain, professor Thales Teixeira explains it as a
framework of all the steps or activities that customers have to go through to acquire products
and services. The customer value chain then helps to map the journey of our customers from
their viewpoint. The customer value chain primarily represents all the steps customers take in
order to get the product or service. Thus, that represents a journey, but from the customers’
perspective (what set of values the customer gains at each step).
In short, at each step of the experience customers gain a different set of values which make
up the whole customer value chain. For instance, if I walk into a local bookstore, the whole
experience will have different sub-values I gain as a customer. As I enter the store, the value I
get is the immersive experience of being able to feel, touch and walk through the store to find
the book I need. As I see various books, I can open them, have a quick glance within, and why
not, also read some chapters. While I might be able to do the same on my Kindle, the
immersive experience of the bookstore, makes it very attractive for a voracious reader. And yet,
as I’m about to buy a few books, I might have to find them in various local bookstores. Or I
could, for instance, check if they are all available on Amazon at a lower price. On Amazon I’ll be
able to find them all in the same place, and at a lower price (Amazon’s mission it’s all about
variety and convenience). While initially, as a customer I get the most of the experience. I can
use any local bookstore to evaluate and choose the books I need, and yet finalize the purchase
on Amazon, as I get convenience. Over time, I might end up doing the whole process on my
Kindle (as I can have all the books I need, right away). This is, perhaps, how Amazon decoupled
the bookstores’ customer value chain. Where in disintermediation, the company disrupts the
distribution process, by cutting out intermediaries. Decoupling is primarily about value and
how it’s delivered to customers. So part of the experience is redesigned, and the decoupler
identifies a core part of the value chain where it will add much more value compared to
existing players. The decoupler then, in theory, enhances the part of the value chain where
there is the most business value (Amazon didn’t have to maintain physical stores) as it carries
high margins and it is highly scalable (the whole experience can happen online). This is an
asymmetry which digital business models and platform business models have leveraged on
to build multi-billion dollar companies.

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Breaking down Decoupling

As discussed with Thales Teixeira: “Decoupling is this idea that I’ve observed across all these
industries and these startups that I noticed is that they weren’t trying to really steal customers
from what we call the incumbents, the large established companies.”

In short, as he pointed out “Airbnb wasn’t really trying to steal the customer in the traditional
sense from all the hotels in the world. If it was trying to do that, it would create hotels and
maybe build it and get hotel rooms and then steal customers from Marriott or from the Ritz
Carlton or from any other hotel.”

Instead, what Airbnb wanted to do was just “improve the matchmaking between people that
had homes to rent and people that were trying to find, and not just hotel rooms, but actually
a different experience to stay in somebody else’s home for a while.”

And so that key activity of matchmaking is what Airbnb decided to do.

Breaking down entry barriers

When I interviewed Thales Teixeira he pointed out:

First, let’s be clear that decoupling is an ENTRY strategy. Due to the power of specialization, it
allows small, cashless, resource-constraint startups to enter a market, steal activities from
much larger and cash-rich competitors and, in essence, disrupt these incumbents.

As Thales pointed out, decoupling can be used as a strategy to reduce entry barriers in a world
dominated by existing incumbents.

In that scenario, it is essential to map the customer journey and identify the single activity that
the decoupler can perform better than the incumbent. Once you find the activity to decouple,
you have an excellent place to start. Indeed, to build a platform business, it is essential to
master a core transaction, thus simplicity and focus on that might help scale fast.

Birchbox case study

An example is how Birchbox manufactured a different experience compared to Sephora,
already a massive player in the beauty industry. Birchbox, helped women sample beauty
products more conveniently and with a subscription-based business model.
Thus, with $10 per month the customer gets five samples of beauty products, delivered at
home. Convenience, price and different kinds of experience drove the Birchbox business
model. Therefore, Birchbox removed the hassle for customers to have to go to Sephora to
source beauty products. While also pricing it at a convenient price, and delivered at home.
By identifying the key activities Sephora customers have to go through. Birchbox understood
they wanted to focus on sampling beauty products, as the most valuable part of the customer
value chain. And they specialized in that. Initially, startups entering several markets choose to
decouple as this makes them focus on one core and key activity in the value chain, which
makes them grow more quickly and be identified with that .

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How to decouple
To decouple you might want to ask a few questions:

● Why do people want to buy it?

● What do they want to buy the most?
● What is the most difficult part of the experience and yet the most valuable?

Usually, the decouplers offer a better alternative, and gain traction quickly might enter the
market with a sort of Blue Ocean Strategy, where they offer more, for less.

For that, we need to look at the three main currencies people use throughout the value chain.

The three customers’ currencies

Let’s take into account three main currencies:

● Monetary currency: (money).

● Time currency.
● And effort currency.

As a decoupler if you can reduce costs for customers, time and effort taken, this might unlock
major disruptive changes. Airbnb reduced these three costs. Uber reduced these costs.
Amazon did the same.

Connecting the dots

Disruption moves in waves. Unbundling helped to break apart existing products to offer only
the most valuable parts of them. Thus, it worked at product level. Decoupling instead, works
at customer level. Where the customer experience (the customer value chain) gets broken
down, and the decoupler focuses only on a few key values, customers get to enter the market
and quickly grow. By reducing costs, improving convenience in terms of time and effort, the
decoupler makes it a no brainer for the customer to go through this redesigned customer
value chain, where the most valuable part, according to the customer, is offered at more
convenience.

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MVP To Launch And Learn, Fast

As pointed out by Eric Ries, a minimum viable product is that version of a new product
which allows a team to collect the maximum amount of validated learning about
customers with the least effort through a cycle of build, measure, learn; that is the
foundation of the lean startup methodology.

The origin story of the lean startup movement

It officially started with an HBR article of 2013 that referred to a new phenomenon in
the business world “Why the Lean Start-Up Changes Everything:” However, the origin
story started in the late 1990s. Steve Blank, a retired serial entrepreneur, had the time
to think through what he had missed in terms of business frameworks, during the
years, as he started several high-tech companies. He had noticed that the only tool
available at the time was the business plan. However, not only the business plan was
a static document which didn’t survive the first contact with the real world.
That document was also plenty of untestable and untested assumptions. The patterns
he noticed would be all gathered into what became a manifesto, and the foundation
for the lean startup movement. This manifesto would be called, Customer
Development Manifesto, and it moved along 17 principles.

It started from a definition of a startup that moves along those lines:

A Startup Is a Temporary Organization Designed to Search for A Repeatable and

Scalable Business Model

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The interesting part of this definition is – I argue – the “search for” part. In fact, many
companies in the past started from a prepackaged business model they could apply
to their business to scale up. In the real world, startups need to look for a business
model. The process of iteration to find a business model is as tough as the process of
iteration of humans searching for meaning. In fact, only when a startup has found the
proper business model it will be able to unlock value in the long-run.

The birth of the Customer Development Manifesto

The Customer Development Manifesto moved around 17 principles:

1. There Are No Facts Inside Your Building, So Get Outside

2. Pair Customer Development with Agile Development
3. Failure is an Integral Part of the Search for the Business Model
4. If You’re Afraid to Fail You’re Destined to Do So
5. Iterations and Pivots are Driven by Insight
6. Validate Your Hypotheses with Experiments
7. Success Begins with Buy-In from Investors and Co-Founders
8. No Business Plan Survives First Contact with Customers
9. Not All Startups Are Alike
10. Startup Metrics are Different from Existing Companies
11. Agree on Market Type – It Changes Everything
12. Fast, Fearless Decision-Making, Cycle Time, Speed and Tempo
13. If it’s not About Passion, You’re Dead the Day You Opened your Doors
14. Startup Titles and Functions Are Very Different from a Company’s
15. Preserve Cash While Searching. After It’s Found, Spend
16. Communicate and Share Learning
17. Startups Demand Comfort with Chaos and Uncertainty

The lean startup Manifesto would become the starting point for the evolution of The
Lean Startup Movement. And the introduction of new tools and frameworks to use as
an entrepreneur (Business Model Canvas and all its variations)

A glance at the lean startup methodology

The lean startup methodology aims at creating a scientific, repeatable process for
product development that allows the startup to build products and deliver them fast.
In other words, the lean startup moves around three stages:

● Build.
● Measure.
● Learn.

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This process of build > measure > learn will need to be repeated over and over, thus
creating a feedback loop. The main purpose is to initially come up with a minimum
viable product (MVP), which is a critical aspect of the lean startup model.

As pointed out by Eric Ries:

A Minimum Viable Product is that version of a new product which allows a team to
collect the maximum amount of validated learning about customers with the least
effort.

The MVP will be the foundation to build a successful company.

What is not an MVP?

As Ash Maurya pointed out the definition of MVP got overtime simplified with “the
smallest thing you can build that lets you quickly make it around the
build/measure/learn loop.”

This kind of simplification brings to flaws and mistakes that can also lead to great
failures. For instance, Ash Maurya defines the MVP as “the smallest thing you can
build that delivers customer value (and as a bonus captures some of that value
back).”

Demo > Sell > Build: Tweaking the classic lean startup loop
When I spoke to Ash Maurya, author of Running Lean and Scaling Lean, we discussed
how building a solution before validating it, might be at the basis of one of the most
dangerous biases for entrepreneurs: the innovator’s bias. As he pointed out, “one of
the biases that that many entrepreneurs fall run into is this premature love of the
solution. Like the first principles in science, you almost have to deconstruct an idea.
We have to start with the basics. In this case, when we look at our business, we have
to break it down into customers and problems.” And he continued, “If you don’t have
the right customers who are trying to get sorted and problem solved, and no matter
what solution you build, it doesn’t matter because we know that unless you’re solving
a problem, customers are not going to use it. They’re not going to pay money. Even if
you can reach them. Even if you have a patent or an unfair advantage, it doesn’t
matter at the end of the day because your customers don’t care. So that is the way
we logically break it down, but that innovator’s bias is one of those sneaky things.”

Ash Maurya proposed a slightly different approach:

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We might start with the demo. We might first go and find customers, see if we can
reach them, even talk to them. Because if you can talk to customers, we can sell them
anything. We start with the end in mind and then we deconstruct our way back to
the beginning and start validating at a bottom-up level. That generally is how we
overcome the innovator’s bias toward a solution.

As Ash Maurya pointed out “build a demo first, sell that demo and if you can sell the
demo then don’t even build the product.” Validating the market with a bottom-up
approach to flip upside-down the product-market fit problem This process helps to
validate the market clearly, thus eliminating most of the risks associated with a
company’s failure (people do not need or want that product). This MVP approach flips
upside-down the product-market fit problem. Where in a product-market fit scenario,
we build a product first and we iterate times and times again to find this magic
moment, called “market fit.” In this leaner MVP approach we validate the market first,
then build a product. Of course, that doesn’t mean success is guaranteed. We just
moved the market risk away, and now the whole pressure is on the feasibility of the
product that we demoed. A great example of this approach is how Tesla pre-sells its
cars, by demoing them first, before going in a large-scale production:

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While the demoed product has already all the aesthetic and most of the features the
final product might have. For a car company, one thing is to build a single car, another
is to produce it at scale. On a much smaller scale, a demo might be a simple landing
page, with the mock-up of the product you want to build. Once again, this process will
help us validate the market first. From there it will be more a problem of feasibility. Of
course, the more a product is technically challenging the more the feasibility risk will
be high, later on. However, that also means we saved massive financial resources. As
to produce that product, and make it go to market, we would have spent time, money
and other people’s capital and yet build something people do not want. The leaner
MVP approach is about finding whether the “commercial time-window” is right.

We might argue that the whole concept of leaner MVP is completely new. However,
companies that have innovated in their fields have been using this approach all along
(or at least the innovative units within those companies). When I interviewed Alberto
Savoia (he was among the engineering team of Google in the early years and before
its IPO), he explained how back in the 1980s IBM thought “we want everyone to have
personal computers.” IBM thought there was no way that most people would use
computers as they would not be predisposed to learn how to use a keyboard (an
assumption proved wrong). How to test this assumption? IBM thought to tackle the
market, with a speech to text technology that enabled people to talk to computers
and get that translated into text. They figured a mechanism that could convert speech
into text, would make a computer a potentially mass-market product. In short, people
would dictate to computers, instead of typing on a keyboard. Yet, instead of focusing
on building the product first (it would have taken years and many billion dollars), IBM
devised a smart experiment. The IBM team brought people in a room, they gave them
a microphone, and there was a screen in front of that microphone and told them,

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“Look, this a new way of running a computer, there’s no keyboard, you just speak to it,
and give it a shot and tell us what you think.” Therefore, people talked and the
computer would translate that into text. However, it wasn’t the final product, not even
close. In the room next door, there was a human being that got the input through the
headphone, and typed it on a keyboard. The effect was that the users in the
experiment thought the IBM speech to text was a working prototype, but it wasn’t.
With this simple experiment IBM collected valuable data that told them a few things
they were completely wrong about. First, people would not talk to computers for long,
as they got a sore throat. Also in an office environment, everyone talking loudly will
not be viable (especially if you need to input in the computer confidential
information). Those data points alone made IBM stop prioritizing on the speech to text
experiment. And this would save them years of R&D, lost focus and financial resources.
A third assumption, would be proved wrong after a few years. Indeed, keyboards
would eventually become mass-adopted, and an efficient way to use computers at
scale! (and it still is today). Voice-enabled devices are going into mass-production only
now (Alexa, Google Home, Cortana, Siri). However, this is a much different
technological environment compared to the 1980s.
Thus, if at all this leaner MVP approach can tell us an extremely valuable piece of
information on whether the commercial use case timing is right! (that for sure
represents a good chunk of the product’s success in the first place). It’s important to
clarify that this approach will not tell us whether a product or technology will ever be
successful in the future. Neither, whether this technology will be successful with
another commercial use case. In short, IBM thought the speech to text would be an
alternative to a keyboard and this assumption turned out to be wrong, for the time
being. Had they thought another commercial use case would that been proved right?
Maybe. But for what they needed back then (make PCs scale and become a mass
product), text to speech wasn’t the right project to prioritize.

When does an MVP become too risky?

If you just started up, you don’t have an established brand and your reach is limited,
the MVP might be the way to go. That’s because the risk of failure and the cost in
terms of branding is very very limited. Thus the value captured from the iterations and
the feedback gained is high. All that changes, if you have an established brand and a
broad reach. That is where the Exceptional Viable Product definition given by Rand
Fishkin (founder of Moz, and SparkToro) comes handy.

As Rand Fishkin pointed out:

I believe it’s often the right choice to bias to the EVP, the “exceptional viable product,”
for your initial, public release.

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Fishkin suggests creating an MVP but not releasing it until that is exceptional. At that
point, you do release it to the public. Thus, the exceptional viable product (EVP)
methodology requires an iteration of the product “in-house,” tested with your team
and maybe a few selected customers. Companies like Apple have been following this
approach all along. Apple has been building its hardware products by testing them
internally, as much as possible.

There are two main reasons to opt for this approach:

● Brand risk: if you have an established brand, a new product, released to your
audience is way too risky. As this might compromise the whole brand equity
gained over the years.
● Competitive risk: when you release a product to the market, even to a smaller
subset, you’re enabling competitors to gain access to the new product you’re
launching, thus giving away valuable information, that will give them a
competitive edge, to quickly improve on what you’re doing.

As Fishkin suggests, only when you’re sure the product is exceptional you can launch
to a broader audience. The EVP methodology allows more established brands to avoid
failures that can lead to irrecoverable loss of reputation.

Enter the Exceptional Viable Product Methodology

As Rand Fishkin pointed out:

My proposal is that we embrace the reality that MVPs are ideal for some
circumstances but harmful in others, and that organizations of all sizes should
consider their market, their competition, and their reach before deciding what is
“viable” to launch. I believe it’s often the right choice to bias to the EVP, the
“exceptional viable product,” for your initial, public release.

Rand Fishkin also added:

Depending on your brand’s size and reach, and on the customers and potential
customers you’ll influence with a launch, I’d urge you to consider whether a private
launch of that MVP, with lots of testing, learning, and iteration to a smaller audience
that knows they’re beta testing, could be the best path.

In other words, he takes into account two main variables. On the one hand, you have
the attention, customers, and evangelism. On the other hand, you have the product
quality. The greater the attention, customer base and ability to evangelize the more
you’ll need to have a solid product before its launch.

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In Rand Fishkin vision, an EVP has to have two minimum features:

● Have a decent exposure.

● And be truly impressive, at least at one must-have – identified – feature
customers are looking for.

He learned that lesson at Moz when he was trying to build a new tool to identify
spammy links. As Rand Fishkin recounted:

Our research had already revealed what customers wanted. They wanted a web
index that included all the sites Google crawled and indexed, so it would be
comprehensive enough to spot all the potential risky links. They wanted a score that
would definitively say whether a site had been penalized by Google. And they wanted
an easy way of knowing which of those spammy sites linked to them (or any other
site on the web) so they could easily take that list and either avoid links from it or
export and upload it to Google Search Console through a disavow file to prevent
Google from penalizing them.

That would be an exceptional product.

But we didn’t have the focus or the bandwidth to build the exceptional product, so we
launched an MVP, hoping to learn and iterate. We figured that something to help our
customers and community was better than nothing. I think that’s my biggest lesson
from the many times I’ve launched MVPs over my career. Sometimes, something is
better than nothing. Surprisingly often, it’s not.

Connecting the dots between MVP, Leaner MVP and EVP

The lean startup movement and the lean startup methodology gave an important
contribution to the startup ecosystem. A core part of the lean startup methodology is
the MVP. As we’ve seen throughout the article an MVP is the classic mode of
experimentation for startups. It has been a very powerful shift as it enabled companies
to start gaining customers’ feedback early on in the product development cycle. Yet,
as we move toward, the leaner MVP approach has taught us that we can use an
approach that is even more bottom-up by demoing the product even before we’ve
built it, to see if people want it. This approach moves from build > measure > learn to
demo > sell > build. The leaner MVP approach will work well to remove market risk
away, while putting more pressure on the feasibility risk. And yet, it will help us save
valuable time and resources. Both an MVP and leaner MVP approach become risky
when it comes to an established brand with a wide audience and reach, where a new
product release, also if circumscribed to a small audience, can spread quickly. In that

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case, an EVP approach will help, as it will focus on iterating the new product with
specific units within the company, and with only a few selected customers.

Design Thinking To Build A Viable Company

Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered

approach to innovation that draws from the designer’s toolkit to integrate the needs
of people, the possibilities of technology, and the requirements for business success.”
Therefore, desirability, feasibility, and viability are balanced to solve critical problems.

Origin of the term design thinking

While design thinking has historic roots that date back to the 1950s, 1960s, when
design methods started to be applied to business, it gained momentum in the early
2000s when the consultancy firm IDEO popularized it further.

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How design thinking has grown in popularity starting the 50s, 60s and it gained
momentum throughout the 2000s according to Google Books Ngram. Today Design
thinking has become even more predominant and popular throughout the 2010s
when thinkers like Tim Brown, Tom and David Kelley from IDEO highlighted how
design could be used as the primary force to balance out human needs with
technological feasibility and viability.

The spike and explosive growth in interest in design thinking throughout the 2010s,
when the founders of IDEO popularized the term.

What is design thinking?

As highlighted on IDEO, by Tim Brown, Executive Chair of IDEO:

Design thinking is a human-centered approach to innovation that draws from the

designer’s toolkit to integrate the needs of people, the possibilities of technology, and
the requirements for business success.
At the base of design thinking, there is creative confidence. Tom and David Kelley put
it in Reclaim Your Creative Confidence, back in 2012:

…creative confidence—the natural ability to come up with new ideas and the
courage to try them out. We do this by giving them strategies to get past four fears
that hold most of us back: fear of the messy unknown, fear of being judged, fear of
the first step, and fear of losing control.

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In an interview in 2012, on HBR about “The Four Fears Blocking You from Great Ideas”
Tom and David Kelley explained what prevented people to unlock their creative
power:

● Fear of the messy unknown meant fear of getting out from the office to gather
firsthand observations that require the ability to deal with the uncertain.
● Fear of being judged.
● Fear of the first step.
● Fear of letting go connected to the fear of losing control.

In his TED talk, How to build your creative confidence, David Kelley explained how to
use a process which psychologist, Bandura called “guided mastery” that enabled
people to get comfortable with the unknown or the featured step-by-step. With
confidence built up gradually and deliberately, a renewed self-reliance comes, that
Bandura called “self-efficacy,” or “the sense that you can change the world and that
you can attain what you set out to do.”

Integrative thinking: The foundation of design thinking

Tim Brown, in 2009 TED Talk entitled “Designers – Think Big!” highlighted:

Roger Martin, the business school professor at the University of Toronto, calls
integrative thinking. And that’s the ability to exploit opposing ideas and opposing
constraints to create new solutions. In the case of design, that means balancing
desirability, what humans need, with technical feasibility, and economic viability.

In short, according to Tim Brown, design thinking is born by balancing:

● Desirability: do people want it?

● Technical feasibility: can we actually build it?
● Economic viability: is it sustainable? Should we do it?

The key ingredients of design thinking and its five stages

Design thinking moves around a few key ingredients such as problem-solving,
human-centric (as Tim Brown, in 2009 TED Talk that means “It may integrate
technology and economics, but it starts with what humans need, understanding
culture and context before we even know where to start to have ideas“).
An effective design thinking process moves around five key stages:

● Empathize: what do my users/customers need?

● Define: what core problem do they have?

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● Ideate: craft and brainstorm creative ideas.

● Prototype: craft a possible solution for each core problem.
● Test: does the proposed solution fit and solve the problem?

Disciplines like design thinking have become critical in these times, as they flipped
the old business logic and moved the moats (competitive advantages) to the bottom
of the company, its customers.

Business designers become the architects of business modeling

Business design enables organizations to deliberately craft a business model to prove

sustainability in the marketplace by validating the building blocks of a business
model. The business designer can help an organization to build a viable business
model by readily testing its riskiest assumptions against the marketplace. In that
respect, UX designers have become among the key people that helped companies
build valuable products for customers. And in that, the business design is the
evolution of this approach where the whole business is built by gathering as much
feedback from customers, thus iterating it quickly, to evolve it fast.

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What’s next? The rise of Business Engineering

I argue that the next step to this evolution is that of the Business Engineer, usually
intended as a person using technology to build technical processes within the
organization. However, in the FourWeekMBA view, the Business Engineer is a hybrid
between an entrepreneur, customer-centered business designer, and a business
analyst, able to prevent false patterns, thus growing the business with a mixture of
intuition, business acumen, testing, and experimentation.

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Dunning Kruger Effect To Get Tuned With Your Business

The Dunning-Kruger effect describes a cognitive bias where people with low ability in
a task overestimate their ability to perform that task well. Consumers or businesses
that do not possess the requisite knowledge make bad decisions. What’s more,
knowledge gaps prevent the person or business from seeing their mistakes.

Understanding the Dunning-Kruger effect

The Dunning-Kruger effect was first coined by psychologists David Dunning and
Justin Kruger in 1999. They argued that the scope of a person’s ignorance is often
invisible to them – particularly in fields where they are underqualified. Dunning and
Kruger called this meta-ignorance, or ignorance of ignorance, which can lead to
individuals overestimating their abilities. This ignorance also extends to other people.
A person who is ignorant of their own shortcomings may simultaneously believe their
ability is superior to others. This is in direct contrast to a person with true ability in their
chosen field. With increased knowledge, they are humbled by how much they are yet
to learn. Indeed, the only way that an ignorant person will acknowledge their lack of
ability is when they are alerted to the fact through education.

The Dunning-Kruger effect in business

The Dunning-Kruger effect can also affect businesses, particularly when new products
or concepts are introduced into the market. For example, the introduction of digital
currency and blockchain technology resulted in the rapid formation of many new

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entrepreneurial companies. Unfortunately, many lacked the required knowledge and

awareness to understand their mistakes before it impacted on their viability. This
initial overconfidence can also affect businesses that are unwilling to take the
educated advice of other professionals. Legal representation, accounting, and
financial planning are tasks that some businesses attempt to save money or because
they genuinely believe they have the required skills. Of course, the consequences of
doing so are often financially disastrous.
Addressing the Dunning-Kruger effect in practice

Since individuals and businesses are largely ignorant of the Dunning-Kruger effect, it
can be helpful to pause and reflect during day-to-day decision making. The following
points may help stop the effect before it inflicts further damage.

1. Evaluate all company processes critically. In other words, is there a better,

more efficient, or more economical way of doing things? Would a change in
supply chain management yield higher profits? What about a change in payroll
systems?
2. Consider workplace culture. Managers should put themselves in their
employee’s shoes and assess what kind of leadership they provide. Are they
approachable, reasonable, fair, and open to solving problems? Would a
leadership course broaden their leadership skills?
3. Evaluate the business to consumer relationship. Businesses should ask
themselves what they are like to work with from the customer perspective. Is
online and offline communication professional and attentive? Does the
business listen to and implement customer recommendations?

Ultimately, the Dunning-Kruger effect can be overcome with humility and critical
thinking. Businesses and individuals who challenge their own assumptions will at
worst come away better equipped to improve themselves and their processes.

Key takeaways:
● The Dunning-Kruger Effect describes the phenomenon in which low
competence individuals or businesses lack the ability to recognize such
incompetence.
● A core component of the Dunning-Kruger effect is meta–ignorance, or
ignorance of one’s ignorance. This leads to an overestimation of ability and in
some cases, an underestimation of the abilities of others.
● Critical thinking with the goal of improving is the best way to overcome the
Dunning-Kruger effect.

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Dynamic Pricing To Better Target Your Customers’ Segments

Dynamic pricing is the practice of having multiple price points based on several
factors, such as customer segments, peak times of service and time-based
consumption that allow the company to apply dynamic pricing to expand its revenue
generation. Thus, wherein a static or fixed pricing company applies the same price
level to any customer and market condition, in a dynamic pricing strategy a company
applies several prices based on a few critical factors for the business.

When price tags didn’t even exist

Today we go to any store, find a price tag and assume that is the value of that item
we’re purchasing. There’s no question asked, neither interaction in many cases with
the clerk. Yet there was a time when price tags didn’t exist. Finding the origin of things
is always hard. Before the 19th-century price tags didn’t exist. In other words, before
buying anything you needed to bargain and haggle with the clerk to finalize the
purchase. When price tags got introduced, they did represent an incredible
innovation. Indeed, stores could finally manage more inventories with fewer clerks.
That’s because clients needed to walk to the clerk to ask for a price and after haggling,
a bit agreed on the purchase. This might have been time-consuming in terms of the
clerks required to manage the inventory, the training needed to have clerks know the
price ranges, and what was allowed. And the time it could take to customers to
bargain the price. As price tags have become the norm, where the same prices are
applied to anyone, we find it odd when on the web the same thing changes in price.
In many cases, we look for a flight ticket, which price is different, an item on a popular
e-commerce platform that according to where and when we browse shows us a
slightly different price. This makes us wonder whether the era of price tags is over in
favor of what is called dynamic pricing. Also, many dynamic pricing strategies are

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already used in many of the products or services you might buy. It’s just that you don’t
realize that.

What is dynamic pricing?

Dynamic pricing is the practice where prices for goods or services change based on
several factors. Think of the case in which there is a surge in demand for a service
(Uber for example), and the price of it rises accordingly. Therefore, there are certain
times of the day or certain periods where the same service or item can be sold for
more. Also, at a certain interval of time, the demand for a service might be higher.
Think of the case of more people trying to purchase a ticket for a concert which might
drive the price up.

Is dynamic pricing legal?

As fixed prices have become the norm after the 19th century, people often wonder
whether dynamic pricing is legal. Yet it is when price discrimination depends on
economic factors that are affected by demand and offer. In other cases, if price
discrimination might be based on gender, race or religion that becomes illegal.

Technological changes are enabling dynamic pricing

Think of the case in which you enter a store to purchase a coffee and pay $2. Yet a
person enters the same coffee shop and purchases the same coffee for $1. Would you
feel good about it? Chances are you’d feel ripped and perceive the so-called dynamic
pricing as a fraud. Think of a different scenario. You’re purchasing an item on e-
commerce, that item price is set according to several factors. The algorithm that
drives the offering on the e-commerce platform has quite some data about your
behavior, spending habits, it knows your location, and it knows the time of purchase.
Based on all those variables it determines the price of the good you’re buying. You
would perceive it as all done algorithmically and automatically by a machine, which is
not thinking. You might perceive it as technological advancement. Besides, if you
don’t feel like buying, you can see quite the e-commerce and get back when and if
prices are lower. The fact that technology nowadays allows platforms to embed
algorithms makes it easy for those companies to leverage dynamic prices and makes
it easier for consumers to accept this practice.

How can you apply dynamic pricing to your business?

If you’re evaluating dynamic pricing for your business, then it makes sense to
understand whether your business model might be better off with this approach. For
instance, do you serve several segments that have entirely different budget levels?
Think of a company that serves both consumers or business clients. The former will
have a budget that is way lower compared to the latter. In that case, you can achieve

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higher revenue by simply repackaging your product or service in a different format.

Therefore, for the customer segment with the highest budget, it might make sense
to have your service at a certain time of the day. Thus the price for that segment will
be higher. In other cases, your product or service might have peaked. Think of the case
of more people consuming electricity at a certain time of the day. Based on simple
demand and offer electricity will cost more. Think also of a coffee shop for which
customers purchasing from the early hours of the morning are willing to pay more.
You can create a fast track that makes the price higher for those customers. Think also
of the case of e-commerce that does business around the world. In certain countries
(like the US and Canada) the value of the service is higher and the spending ability as
well. Therefore, based on the IP of the user accessing your store prices will change to
reflect local spending habits.

In short, there are several ways in which you can apply dynamic pricing to your
business, and it boils down to a few scenarios:

● Peak or surge pricing: based on peak hours or periods where the service gets
charged more.
● Segmented pricing: based on the spending ability of some customers
compared to others.
● Changing conditions: applied for instance when sales start to slow down due
to macroeconomic factors, to keep up with the trend and adjust them upward
again when the market gets better.
● Time-based pricing: offer faster service for a higher charge.
● Penetration pricing: lower the price of service as a sort of marketing expense
to penetrate a market.

Other dynamic pricing examples

In the current online e-commerce industry, there are many examples of dynamic
pricing. Indeed, as most of the interactions happen without a salesperson in the way
of finalizing the transactions, digital platforms experiment as much as possible with
pricing dynamics that match users’ journeys with the final product price.
Let’s see some of them.

Amazon dynamic pricing

One of the digital platforms that are able to leverage dynamic pricing is definitely
Amazon. Indeed, on Amazon, also a product like the Kindle might chance in price
throughout the year:

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Kindle price chance tracked by Keepa

The price chance will depend on multiple factors, including seasons, the ability of
third-party sellers to run their own campaigns on the platform, and Amazon‘s
experimentation with pricing to enable more convenience compared to retail prices.

Airbnb smart pricing

Airbnb offers the ability to run smart prices on the platform. As the company explains:

When you have Smart Pricing turned on, your pricing suggestions reflect the controls
you’ve set, combined with a lot of data. In fact, Smart Pricing takes into account over
70 different factors that could change your price.

What are some of the factors taken into account? As Airbnb points out, some of those
factors might comprise:

● Lead-time or how close is the booking to the check-in date.

● Market popularity or how many people are looking for the same home (of
course, the price will go up for more popular locations).
● Seasonality, as the high season comes close the prices will go up.
● Listing popularity or the pricing increase as the listing gets more and more
views.
● Listing details or the more amenities you add to the listing the more the price
might increase or vary.
● Booking history or when the host closes higher bookings rates compared to
what the algorithm suggested, the pricing will adjust to that new pricing, so
enable the host to earn more.
● Review history or as the listing gets more positive reviews the price will adjust
upward, based on those reviews.

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Engines To Boot The Growth Machine For Your Business

As Eric Ries specified in an article entitled “The Law of Sustainable Growth,” as an

extract of The Lean Startup:

The engine of growth is the mechanism that startups use to achieve sustainable
growth. I use the word sustainable to exclude all one-time activities that generate a
surge of customers but have no long-term impact, such as a single advertisement or
a publicity stunt that might be used to jump-start growth but could not sustain that
growth for the long term.

What is sustainable growth for a startup?

In the same article, Eric Ries defined sustainable growth:

Sustainable growth is characterized by one simple rule:

New customers come from the actions of past customers.

Like in a feedback loop triggered by network effects, the actions of past customers
need to drive new customers, with more speed and efficiency.

How do customers drive sustainable growth?

Eric Ries classified the ways customers drive sustainable growth as falling into four
primary categories:

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● Word of mouth: those are usually triggered by “customers’ enthusiasm for the
product.”
● As a side effect of product usage: this is usually true for viral products, those
that enable network effects to pick up over time.
● Through funded advertising (paid advertising).
● Through repeat purchase or use (driving the repeat customer).

As Eric Ries points out those sources of growth “power feedback loops that I (Eric Ries)
have termed engines of growth.”

The three engines of growth

Eric Ries breaks down the sustainable growth in three key drivers:

● The sticky engine.

● The viral engine.
● And the paid engine.

The Sticky Engine of Growth

Through this engine, you want to focus on making sure your customers go back to
use your product or service. You might want to answer questions such as: are users
returning? Are they engaging? A low stickiness of the product entails a high churn
rate. And in many cases, according to the lean startup if you have a product that isn't
engaging it’s tough it will be successful in the long-run.

What are the key metrics to measure stickiness?

Some of the key performance indicators (KPI) for stickiness are customer retention
metrics measured in:

● Churn rates.
● Usage frequency.
● Customer retention rate.
● Customer acquisition rate.

The Viral Engine of Growth

Word of mouth and virality can substantially lower the marketing costs associated
with growing a users’ base. That is why, for many startups, that is seen as a key
element for growth. At its core virality implies that each customer brings in more than
one person that becomes a paying customer to your business. Thus, when new users
bring in more new users, that enables a compounding effect.

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What’s the key metrics to measure virality?

When a user invites more than a friend to join your platform, that means your viral
coefficient is higher than one. The viral coefficient is the key metric to track to
understand viral growth.

The Paid Engine of Growth

The paid engine usually kicks in once stickiness and virality have picked up. Otherwise,
spending might be extremely inefficient, thus making the company lose money on
its attempt to acquire paid customers.

What’s the key metrics to measure virality?

The paid engine has two key metrics:

● Customer lifetime value.

● Cost per acquisition.

When the customer lifetime value is higher than the acquisition cost, the company
has figured out how to make money through the paid engine.

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Experience Curve: When Experience Becomes Your Key Asset

The Experience Curve argues that the more experience a business has in manufacturing a
product, the more it can lower costs. As a company gains un know-how, it also gains in terms
of labor efficiency, technology-driven learning, product efficiency, and shared experience, to
reduce the cost per unit as the cumulative volume of production increases.

Understanding the experience curve

The Experience Curve was developed in the 1960s by The Boston Consulting Group who
observed the phenomenon in the manufacture of semiconductors. They found that the value-
added production cost declined by as much as 20 to 30% each time the total manufacturing
output doubled. In this context, manufacturing output was directly related to experience. In
theory, experience then allows a company to further reduce production costs and gain a
competitive advantage in the process. In terms of the fundamental core processes that power
the Experience Curve, consider the following:

● Labor efficiency – employees who perform the same job repeatedly will naturally
become more skilful and efficient. Confidence also grows and as a result, they make
fewer errors which increases productivity.
● Standardization and specialization – skilled employees with experience then
contribute to standardizing processes. They also streamline the use of required tools,
techniques, and materials.
● Technology-driven learning – with more time, streamlined processes are fed into
technology, further increasing the level of experience that a business has in
manufacturing a product.
● Product efficiency – when a company has enough experience to bulk produce goods
and services, they achieve product and thus cost efficiency.
● Shared experience effect – at this point, the company can apply their skill and
experience in manufacturing one product into the manufacture of a related product.

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This potentially shortens the learning curve and fast tracks their ability to reduce costs
with experience.

Examples of the Experience Curve

Perhaps the most well-known example of the Experience Curve can be seen in the
development of the Model T Ford. With the benefit of 11 years of assembly experience, Ford
cut production costs of the Model T and increased its market share from 10% to 55%. This was
achieved by modernizing plants, vertical integration and eliminating model changes. Ford
even went as far offering the Model T in black only, since black paint dried the quickest and
therefore increased the speed of production. Contact lens maker Bausch & Lomb consolidated
their market position by computerizing lens design and expanding their plant to facilitate
greater productivity. Arc welding supply company Lincoln Electric also encouraged
experienced employees to create policies that would increase efficiency.

Limitations to the Experience Curve

The Experience Curve does suffer from limitations, particularly if certain aspects of the business
are mismanaged.

Potential limitations include:

● A lack of mentors or skilled employees who can contribute their experience to

improving company processes.
● Mistaking the Experience Curve with future potential. While the curve does lead to
reduced costs, it does not make any guarantees. Companies with poor management
who suffer from negative external factors may find it difficult to reduce costs
significantly.
● Reliance on product relevance. When a product becomes obsolete or falls out of favour
with consumers, any cost reduction the company previously enjoyed will be eroded
due to falling sales and lower profits. The company must then start the process again.

Key takeaways:
● The Experience Curve refers to the graphic representation of the inverse relationship
between the total value-added cost of a product and the experience the company has
in manufacturing it.
● The Experience Curve is powered by at least five fundamental mechanisms that
emanate from a skilled and experienced workforce.
● The Experience Curve has several limitations because it relies on a skilled workforce and
favourable product sales.

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Feynman Technique To Explain The World

The Feynman Technique is a mental model and strategy for learning something new and
committing it to memory. It is often used in exam preparation and for understanding difficult
concepts. Physicist Richard Feynman elaborated this method, and it’s a powerful technique to
explain anything.

Understanding the Feynman technique

The Feynman technique is named after Nobel prize-winning physicist Richard Feynman, who
developed the technique to understand a topic in its entirety.
There are four steps to the technique:

1. Pick a topic that you want to understand completely. Although Feynman used the
technique to study physics, it can be used for any topic.
2. Once you think you have an adequate understanding, explain it to someone else as if
they were a grade 6 student. The use of plain and simple language is key.
3. If there are gaps in the explanation or if you resort to technical terms, go back to the
source material to better understand it.
4. Review what you have learned and then repeat the process from step 2. Importantly,
the concept must be understood by a person with no prior base knowledge on the
topic.

The premise behind the Feynman technique is that to explain something well, one must have
the ability to explain it simply. Indeed, the technique is often associated with the famous Albert
Einstein quote: “If you can’t explain it simply, you don’t understand it well enough.”

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Benefits of the Feynman technique for businesses

In addition to grasping difficult concepts, there are several other benefits to the Feynman
technique.

Identifies gaps in knowledge

Through the evaluative four-step process, it is inevitable that knowledge gaps will be present
themselves. Identifying and then addressing knowledge gaps strengthens the understanding
of both the teacher and the student. Businesses can also identify certain gaps in their
marketing and communication strategies and adjust accordingly. For example, they should
be able to concisely communicate company values and product benefits if asked to do so.
Removing knowledge gaps also ensures that all employees, regardless of role or department,
are aware of company and product values.

Useful in communicating traditionally text-heavy, complex ideas

The Feynman Technique is also useful for those who prefer not to write. Feynman himself was
a fan of communicating his ideas through the spoken word. He also used somewhat
cartoonish diagrams to communicate complex scientific ideas and tell stories that the average
person could relate to. Organizations that sell complex ideas by necessity, such as stock market
investment firms, may find the Feynman technique useful in attracting clients.

Improves teaching skills

The teachable course industry in the United States is predicted to grow to $325 billion by 2025.
Businesses who operate in this space can use the Feynman Technique to successfully
communicate major course ideas and themes to a wide and varied audience. This gives them
a competitive advantage over others and strengthens their position as experts in their
industry.

Key takeaways
● The Feynman technique is a strategy for learning a new concept and memorizing it to
the extent that it can be explained to others in plain, simple language.
● The Feynman technique comprises four steps, with the primary objective being to
describe a concept to a person with no prior knowledge in that concept.
● The Feynman technique has several benefits for businesses. It allows then to identify
gaps in operations while also communicating complex ideas to colleagues, potential
clients, and customers.

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First vs. Last-Mover Advantage

In the business world, it is usually believed that the first to market will retain a long-term
advantage due to branding recognition, economies of scale, and switching costs. However,
business history shows examples of tech companies that took over markets even though they
were not first-mover, but the latecomers (see Google and Facebook as reference).

A business myth busted

When you get into business school, one of the first principles they teach you is about the story
of the first-mover advantage. As the story goes, when you’re the first to enter a market; things
like branding recognition, economies of scale, and switching costs allow the first player to
retain that advantage for a long time. This is the conventional part of the story business
professors like to teach so much. There is another part of it, which makes less noise and might
sound less appealing but in the real business world is more accurate than the conventional
first-mover advantage story. I’m talking about the last mover advantage. My argument is that
– first movers not only are not supposed to win, but they might have a few drawbacks that
make their moves very risky. This makes the last comer, who makes the last move in the
position to dominate the market. In this article, we’ll see why and how.

Timing can make or break your business

As specified by TechCrunch:

Segways, and websites like Six Degrees or services like Webvan, we saw the stumbling start
of great ideas that were ahead of their time. We learned that when starting a company being
right and too early is the same as being wrong.

When you’re the first mover, you’re seen as bold. This isn’t a chance. In fact, you’re taking a
huge risk. Indeed, if you failed to gain traction and conquer market dominance, chances are
you’ll be kicked out by the last comers. Not only that. But also market dominance isn’t enough
if you’re not able to capture enough profits to be able to acquire or kick out the latest comers.
Think about Google. When he got in the search market, it wasn’t the first. In fact, in the 90s
Netscape held 90% of the browser market. Only to disappear by the turn of the century. Why?
Well, Google arrived last, but it built a monopoly able to capture most of the market value. Who
can afford to compete with that?

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Why Metcalfe’s law like so much the last mover

As techopedia.com explains:

Metcalfe’s Law is a concept used in computer networks and telecommunications to represent

the value of a network. Metcalfe’s Law states that a network‘s impact is the square of the
number of nodes in the network. For example, if a network has 10 nodes, its inherent value is
100 (10 * 10). The end nodes can be computers, servers and/or connecting users.

This means that when the last mover arrives on the market, it has one of the most important
assets you can have in business: your competitors’ mistakes. In fact, if you are entering the
market, you can do it by looking at what your competitors have done wrong. At the same time,
you can also look at what they’ve done right to copy it! In this scenario, when growth picks up
the effect of it will be more than exponential. So the first mover that seemed a giant will soon
become the dwarf.

Peter Thiel’s law

In Zero to One by Peter Thiel, there is a whole chapter on the last mover advantage. As he
explains, when looking for a successful business one should ask:

Will this business be around a decade from now?

In fact, what he means is that – this is true for the tech world – the ability of a company to be
the dominant player depends upon two main things. First, the ability to monopolize the
market. Second, the ability of that business to generate future cash flows.
He suggests to look at four main aspects:

● Proprietary technology.
● Network effects.
● Economies of scale.
● And branding.

In the end, being the first mover doesn’t mean anything if you’re not able to build any of those
factors into your business. The secret then is to be the last mover but then make sure you
create a monopoly. How?

How to build a monopoly in four steps

In the book Zero to One, Peter Thiel also explains how – in theory – to build a monopoly.

Start small to monopolize

The first objective is to start very small. We all like the grandiose project to conquer the world.
Having that kind of vision is fine. Yet you want to be highly practical on a day to day basis. You
need to start from a tiny group of people that might benefit from your product or service.
In fact, by targeting a tiny market, it will be way easier to monopolize it.

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Scale-up
One example that Peter Thiel mentions in the book is about Amazon. When it started, it did as
an online bookstore. This was, of course, a niche. Amazon could have tried to sell anything from
day one. Instead, they focused on books. Until they dominated the market. As of now, Amazon
has expanded so much also to sell grocery and gourmet food. Thus, once dominated a niche,
the time will be right to move to the next.

Stop with the BS of disruption

Looking like someone that is trying to innovate and challenge the status quo is cool. Yet it also
brings a lot of attention and visibility. In the Silicon Valley startup stereotype visibility has
become the goal rather than a means for growth. Instead, as Peter Thiel suggests in Zero to
One, you don’t need to disrupt. In the long run, you will. But in the short term, you don’t have
to challenge large organizations just for the sake of it. You need to work on dominating your
niche and move on to the next. As quickly as possible; and with the slightest attention from
the public as possible

Be like a chess player, think about the endgame

Having an ambitious long-term vision isn’t bad. Instead, this is the compass that will guide you
toward the successful building of your business. In short, your long-term vision will be
endgame. Just like the chess player starts with the last move in mind. However, targeting a
small niche, dominating it, move to the next is your primary day to day goal.

Key takeaway: the last-mover (in some cases) takes it all

In this perspective, the last mover arrives at a stage when the public is ready to accept that
product and service. It has learned from the first movers. It has copied them. It has avoided
their mistakes. Used their strengths but also innovated. From that perspective, by starting
small, dominating a niche, moving to the next. The network effects will allow the last mover to
gain traction at an exponential growth rate that makes it impossible for the first mover to
understand what’s happening and to stop its advancement. This is how the last mover takes
it all!

A few other considerations about first mover vs. latecomer

When implementing a strategy, or building up a new market, a lot of work goes into educating
this new market, perhaps around a technology. This effort takes years and it requires
substantial resources. As the first-mover educates and builds up the market, if the market is
not mature yet, the latecomer still has a wide space to attack the same market the first-mover
dominates. As long as the market is still growing, and the first-mover can’t yet lock-in
distribution, the latecomer can manage to steal market share quickly, and establish itself as
leader in that market, thus building up a long-term competitive advantage.

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Fishbone Diagram (Root Cause Analysis)

The Fishbone Diagram is a diagram-based technique used in brainstorming to identify

potential causes for a problem, thus it is a visual representation of cause and effect. The
problem or effect serves as the head of the fish. Possible causes of the problem are listed on
the individual “bones” of the fish. This encourages problem-solving teams to consider a wide
range of alternatives.

Understanding the Fishbone Diagram

A Fishbone Diagram is simply a visual representation of cause and effect. The problem or effect
serves as the head of the fish. Possible causes of the problem are listed on the individual
“bones” of the fish and where possible, are grouped into categories on each bone.
Through the use of categories, Fishbone Diagrams encourage problem-solving teams to
consider a wide range of alternative, less-obvious causes.

Cause and effect diagrams can also:

● Help businesses understand where or why a process is not working.

● Be used in product development where the product concerned is intending to solve a
consumer problem.
● Identify potential problems before they arise, such as the teething problems associated
with new product launches.
●
For example, Mazda used the Fishbone Diagram to design their now iconic MX-5 sports car.
Engineers even used the diagram to identify that the current design of the door would not
allow the driver to rest their arm on it while driving.

How to use the Fishbone Diagram

Using the Fishbone Diagram in practice is relatively simple, but the technique is nevertheless
a powerful way to unearth causes of problems.

Teams of employees should follow this 5-step process:

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1. Define the problem, and then write it at the mouth of the fish. The problem itself should
be as clear and concise as possible. Make sure there is an agreement between all team
members before proceeding.
2. Define the categories of causes, and then write them along the bones of the skeleton
of the fish. Categories will vary from industry to industry, but common categories
include the environment, procedure, human resourcing, and equipment.
3. Brainstorm potential causes. Begin with the question “Why does this happen?” and
then write each response as a branch of the relevant category.
4. Probe further. For the answers gleaned in step 3, ask the same question once more.
These “sub-causes” can be written as secondary branches and are particularly
important for large or complex causes that need further investigation.
5. When the group has run out of ideas, it’s time to investigate the causes in more detail.
Look for causes that appear more than once but with slightly different wording.
Employee or consumer surveys can also be used to verify the validity of particular
causes.

Fishbone Diagram best practices

Creative a diverse team

Although the temptation may be to create a team who has direct experience with the
problem, it’s more beneficial to include other employees too. Outside employees who do not
directly deal with the problem can bring a balanced, unbiased, and objective stance.

Clarify the major cause categories

In business and marketing, the 8 Ps of product marketing is a good place to start. In other
words: product, price, place, promotion, personnel, process, physical evidence, and
performance.

Keep it (relatively) simple

Fishbone Diagrams with many potential causes quickly become cluttered and confusing.
Consider asking each member of the team to vote for their four most probable causes. From
there, choose the four categories that received the most votes and begin the process.

Key takeaways
● The Fishbone Diagram is a root cause analysis that assists in accurately identifying the
causes of an effect, event, or problem.
● The Fishbone Diagram is a collaborative and thorough five-step process involving
teams of employees.
● To be effective, the Fishbone Diagram technique requires a diverse range of
perspectives and the ability to correctly identify the most likely causes.

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Flywheel And Platform Business Models

The Amazon Flywheel or Amazon Virtuous Cycle is a strategy that leverages customer
experience to drive traffic to the platform and third-party sellers. That improves the selections
of goods, and Amazon further improves its cost structure so it can decrease prices which spins
the flywheel. This process is well known within Amazon and as explained by Jeff Wilke, CEO of
Amazon Worldwide Consumer this idea was first sketched by Jeff Bezos back in 2001 and
would become Amazon marketing strategy for years to come. That contributed to the Amazon
business model success. More than a tool this is a mindset, a way to seize opportunities within
industries, where inefficiencies are the rule. At the same time, it helps speed up growth by
investing as much as possible on customer experience.

In a YouTube video Jeff Wilke explained:

I want to go back to the sort of core approach that our company has taken to take care of
customers and grow the company and it’s this thing we call the virtuous cycle this it is true it
was written on a napkin by Jeff probably eight or nine years ago – (back in 2001) – the napkin
will eventually be in the Smithsonian Institution I imagine but we’ve taken the liberty of
converting it into PowerPoint and the way you read this thing is you start with customer
experience so we want to have in order to grow our company a fantastic customer experience

In short, it starts with customer experience, Jeff Wilke continued:

if we do we know we’ll get lots of traffic lots of consumers will be interested in that customer
experience they’ll hear about it through word-of-mouth will have their own experiences and
they’ll come to the website well now we have all this traffic what can you do with it we can
certainly sell to our consumers but we can also allow other sellers to offer their items on our
detail pages now when we first thought about this it seemed kind of crazy right why would

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you open up your detail pages your store to competitors to sell right next to you and the
answer is twofold one it’s just a better customer experience but mostly it’s a better customer
experience because the sellers bring selection

Therefore, customer experience is fueled further via the presence of third-party sellers. While
today it makes perfect sense, back then it didn’t seem as trivial.

Indeed, those third-party sellers were Amazon competitors, and by giving them space Amazon
was giving visibility to its competitors. However, as Jeff Wilke further explained:

So Amazon through fast track in stock stuff that we have in stock in our warehouses that we
buy and through FBA which is the seller selection is made much more valuable because
sellers as you know sellers in many subcategories that were not in and even categories that
we have an expansive retail selection make the experience much better by backfilling us
when we’re out of stock and by adding extra aces that would take us a long time to get so
selection

In short, the flywheel converts in a growth strategy, where Amazon can speed up the process
of having a more extensive selection, where it would have taken years for Amazon to build.
Thus, by co-opting third-party sellers, Amazon speeded up the process:

really is about fast track that we buy ourselves and mostly FBA but really all selection that’s
added by by third parties and I say mostly FBA because we really want to focus our attention
on this particular piece of 3-p in the category leadership positions that you’re all in want to
make sure that when third parties have a choice of selling to us through their own platforms
their own fulfillment or putting their merchandise in our warehouses so that our customers
can use Prime and Super Saver and have the same experience as if it was a retail offer that
they choose the latter it makes our virtuous cycle complete and a better customer experience.

This virtuous cycle gave a particular imprint to Amazon‘s growth, as explained more in detail
by Jeff Wilke:

You’re growing the company a side benefit of our growth over the last 10 years has been that
we build a lower cost structure so as we get bigger we get to leverage our buys we get to
leverage the fulfillment infrastructure and logistics infrastructure we get to leverage the
website and and that lowers the cost per unit of everything that we do and we have two
choices we can keep that cash paid as dividend or lower our prices as you know over the years
we’ve chosen to lower our prices which completes again another cycle of great customer
experience

Breaking down Amazon Virtuous Cycle

The Amazon Flywheel, what they call a Virtuous Cycle starts from the customer experience. As
explained by Jeff Wilke customer experiences might focus on a few key elements:

● Low prices.

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● Really big selection.

● A great delivery experience.

Therefore, from customer experience, you get a lot of traffic.

Rather than monetizing that traffic just by selling Amazon products, the company focused on
allowing third-parties to sell their products on Amazon; this is the foundation of third-parties
stores. Instead of focusing on products Amazon already has, the company allows third-parties
to bring a selection that – at least initially – is hard for Amazon to have. That selection makes
the customer experience even richer. Therefore, it allows the cycle to reinforce itself. At the
same time, Amazon is known for its cash machine strategy where the company can operate
efficiently at very tight profit margins. Rather than distribute the cash as dividends to its
shareholders, Amazon passes it in the form of lower prices to customers (Costco does
something similar), while still generating enough money to sustain its short-term operations.
That cash generated is also used to fuel other initiatives, like Amazon Prime. On the other hand,
the army of dozens of thousands of sellers that as of 2018, sold on Amazon, are all small
organizations that employ up to six people, which when combined, make up another large
organization. Yet, when those small companies send their inventories to Amazon so it can get
fulfilled (managed and delivered) by Amazon, the whole flywheel strengthens as those
advantages are passed along the same third-party sellers on the platform.

To simplify even further this marketing strategy, we can start from two key elements:

● A lower cost structure, where cash is reinvested in the business, to offer even lower
prices, better selection, and more efficient inventory management.
● The customer experience improves as prices get lower and selection broadens up,
which in turns spins the flywheel with more momentum!

Find your flywheel

A flywheel can be built in any business. While we’ve seen Amazon flywheel is built specifically
on an e-commerce platform, you can try to find your flywheel.

Remembers these five elements:

● Initially, it takes a lot of force to allow the flywheel to spin around.

● As you build up momentum, the flywheel rotates more efficiently.
● As it turns, it also stores energy for later release.
● When the flywheel has built momentum, it keeps releasing energy.
● At that point, it becomes harder to stop!

If you never thought of your business, a business unit, or a project as a flywheel, now that is
time to start implementing this mindset!

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Key takeaway
Amazon has built its success on a marketing strategy called flywheel or virtuous cycle. That
consists of a reinforcement process that starts with the customer experience and ends with it.
When this cycle gains momentum, it also powers up economies of scale and made it possible
for Amazon to speed up its growth process to the point in which in a few years the company
dominated several industries. The flywheel isn’t just a marketing strategy, but a mindset. The
difference is critical as a marketing strategy makes it applicable only to certain areas of a
business. A mindset makes you think in terms of flywheels in any part of your business. If you
can incorporate that mindset within your organization, you might be able to unlock the great
potential for your business!

Gamification To Grow Your Business

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Gamification borrows key concepts from the gaming industry to encourage user engagement
and experience. Some of those concepts include competitiveness, mastery, sociability,
achievement, and status. The application of game principles to the business context,
companies can design products that are more enjoyable to users and customers.

Why gamification matters in business

At its core, gamification involves taking a mundane task and making it more enjoyable. It does
this by borrowing key concepts from the gaming industry that encourages user engagement.
These concepts include competitiveness, mastery, sociability, achievement, and status, to
name a few. This increased user engagement is largely driven by rewards. In the context of
gamification, rewards are in turn driven by game mechanics such as badges, points, levels, and
any other factors which give performance feedback to the user and increase a sense of
accomplishment. By tapping into basic human emotions and desires, businesses can use
game mechanics to educate, entertain, and inspire employees and consumers alike.

Breaking down gamification

● Gamification attempts to bridge the gap between a potential client and an actual client
by making mundane tasks more enjoyable.
● Gamification encourages consumer interaction with a brand through point and status-
based loyalty programs.
● Gamification is subject to the same risks that all games possess. Namely, that
consumers can become addicted and exploit the game at the expense of others.

Applications of gamification
Perhaps one of the most well-understood applications of gamification is in the frequent-flyer
schemes offered by most airlines. The aviation industry harnesses well-known game
mechanics in their schemes with frequent-flyer points, membership levels, and their
associated privileges. Though few will associate travel with playing a game, it is hard to deny
that game mechanics are a significant reason for the success of frequent flyer programs
worldwide. Gamification is also used in marketing to drive consumer engagement in much
the same way as it is in aviation. Here, gamification is used primarily to build brand loyalty
through competitions, ranking lists, and loyalty programs that utilize point systems. The goal,
as in any game, is to keep the user playing. In this sense, the gamification of marketing
strategies is very well suited as it increases the odds a consumer will be motivated long enough
to buy. The incentivized reward program used by Starbucks is a classic example of following
up with customers through gamification. Loyal customers receive stars with each purchase
which are redeemable for free food and drinks. Loyalty program members also receive gifts on
their birthday and can achieve certain levels according to how much they purchase.
Gamification can also involve contests to drive sales. In McDonald’s Monopoly Time, the fast-
food giant offered cash prizes in the millions for customers who held the relevant game pieces.
The only catch was that the consumer had to dine-in at one of their many restaurants to collect
them.

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Drawbacks of gamification
While gamification seeks to emulate the positive emotions associated with game playing,
there cannot be winners without losers. In other words, some consumers will inevitably
associate the game with a negative experience. Businesses that use gamification in their
marketing strategies must also strike a careful balance. Games must be effective in that they
should direct consumers to take a specific course of action. They should also encourage
positive associations with a brand and be designed in such a way that consumers cannot
exploit loopholes and win at the expense of others. Games must also be non-addictive –
particularly those involving products or services that are considered high-risk such as
gambling and eating.

The Hook Model To Further Gamify Your Product Experience

The Hook Model is a framework designed by Nir Eyal, author of the book “Hooked” which
consists of four elements: trigger, action, reward, and investment. This is a process of
gamification that helps startups create habit-forming products. An example of Gamification
and the principles of the gaming industry applied to business is the hook model, by Nir Eyal.
This is a process and methodology which creates habit-forming products. To prevent from
creating products that are ethically wrong, Nir Eyal proposes the Manipulation Matrix:

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Source:
NirAndFar.com

In the Manipulation Matrix, in order to know whether a product can be gamified you want to
be in the Facilitator box, where it both improves the users’ lives and the maker also uses it.
The worst case scenario, and a no no in terms of using gamification in designing your products,
is if you build products that make users‘ lives worse, and the maker does not use the product.
Of course, the most difficult part here is defining in which way the product might improve the
user‘s life.

Key takeaways
Used properly, gamification can be an effective business tool, that helps companies connect
the core problems customers experience, built into the product‘s dynamics, to enhance the
experience and value of the product for users and customers. This in turn, helps to build a more
sustainable business model. It is important to use gamification ethically, to build valuable
products that improve users‘ lives.

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GAP Analysis To Enable Your Long-Term Vision

A gap analysis helps an organization assess its alignment with strategic objectives to
determine whether the current execution is in line with the company’s mission and long-term
vision. Gap analyses then help reach a target performance by assisting organizations to use
their resources better. A good gap analysis is a powerful tool to improve execution.

Gap analysis to structure an effective action plan

Gap analyses also help to assess how in line is the company’s organization vs. the action plan
defined in the stage of planning. Thus, helping reach target goals given the current state. The
gap between the target objectives and the current state needs to be broken down in steps,
small enough to be executable and measurable.

Gap analysis to identify focus areas

Gap analyses also help to identify focus areas and simplify the execution strategy. Indeed, while
business planning tends to complicate things, a gap analysis is useful to identify a few key
areas of interest for the upcoming strategy initiatives.

Gap analysis and process improvement

Gap analyses also help with improvement in business processes. Indeed, gap analyses can help
identify organizational inefficiencies thus identifying quality management processes such as
Lean, Scrum, Kaizen, or Six Sigma.

Gap analysis and KPIs

The gap analysis starts also by determining a future state the company is envisioning, which
can follow several principles, and in general, that needs to be ambitious yet reachable,
measurable, and breakable.

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McKinsland
In this paragraph we’ll look at a few frameworks built by McKinsey and that you can use to
better manage your business.

GE McKinsey Matrix To Prioritize On Successful Business Units

The GE McKinsey Matrix was developed in the 1970s after General Electric asked its consultant
McKinsey to develop a portfolio management model. This matrix is a strategy tool that
provides guidance on how a corporation should prioritize its investments among its business
units, leading to three possible scenarios: invest, protect, harvest, and divest.

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Understanding the GE McKinsey Matrix

The GE McKinsey Matrix is fundamentally a portfolio analysis. That is, it compares groups of
products with their competitive power and market attractiveness. The portfolios themselves
comprise the full suite of products or services that a business offers to the market. In the
context of General Electric, the matrix was created so that the company could analyse the
composition of each of its 150 portfolios – otherwise known as strategic business units (SBU).
Ultimately, the GE McKinsey Matrix allows a large, decentralized company to determine where
best to invest its cash. It does this by allowing the company to judge each SBU on its own
merits according to metrics which determine future viability.

Structure of the GE McKinsey Matrix

The matrix comprises two axes. The competitive strength of the individual SBUs is represented
on the x-axis, while market attractiveness is represented on the y-axis. Both competitive
strength and market attractiveness are determined by a weighted score calculated from the
relevant factors that apply to each. Each parameter is further divided into three categories –
low, medium, and high. This creates a matrix with a total of nine cells. The nine cells are then
divided by a diagonal line, running from the bottom left to the top right of the matrix. When a
product is placed on the matrix, its position relative to the diagonal line determines the
strategy that should be used. In other words, products that fall above the diagonal line are high
performers with high growth or cash flow potential. Conversely, products that fall below the
line have little potential for growth and are costing the company money to sell.

Drivers of the GE McKinsey Matrix

Before any business can plot their products on the matrix, they must first define both
competitive advantage and industry attractiveness.

Competitive advantage may include:

● Market share and growth in market share.

● Profit margins, cash flow, and manufacturing costs.
● Brand equity and customer loyalty.

On the other hand, industry attractiveness includes:

● Market size and the potential for growth.

● Buyer and supplier power.
● The potential for new entrants (competition) or substitution with another product.

Strategic implications
As we touched on earlier, the position a product occupies on the matrix drives future strategy.
Listed below are the three main strategies.

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Growth/investment strategy
A growth strategy is prudent when a product has a competitive advantage in an attractive
market. Investment in growth and a focus on maintaining strengths is a priority. Profitability
can also be increased with an emphasis on productivity.

Hold strategy
A hold strategy occurs when a product has both average competitive advantage and market
attractiveness. Here, businesses should invest in segments with high profitability and low risk,
while also minimising their weaknesses.

Harvest strategy
If the product is at a competitive disadvantage and resides in an unattractive industry, a
harvest strategy should be employed. Investment should be minimized at all costs, and assets
should be sold when cash value is highest. The harvest strategy also ensures that low viability
products do not negatively impact on other, high viability areas of a portfolio.

Divest
When the competitive strength of the business unit and the intrinsic attractiveness of the
industry are low, the option to undertake is divestment. In this way, the resources can be
reallocated to focus on more strategic areas that can help gain a competitive advantage.

Key takeaways:
● The GE McKinsey Matrix is a nine-cell portfolio matrix, originally developed for GE as a
means of screening their large portfolio of strategic business units.
● The drivers of the GE McKinsey Matrix for a product portfolio are competitive strength
and market attractiveness.
● The position of a product on the matrix ultimately decides whether the business should
focus on growth or on minimizing investment and selling.

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McKinsey Horizon Model To Innovate In The Long-Run

The McKinsey Horizon Model helps a business focus on innovation and growth. The model is a
strategy framework divided into three broad categories, otherwise known as horizons. Thus,
the framework is sometimes referred to as McKinsey’s Three Horizons of Growth.

Understanding the McKinsey Horizon Model

The McKinsey Horizon Model was developed after two decades of extensive research on high-
growth companies. At this point, it is useful to make the distinction that McKinsey’s growth
strategy should not be confused with an innovation strategy. Instead, the three horizons model
should be used to implement a growth strategy – which in turn drives future strategies
centered on innovation. McKinsey’s model is also ideal for large businesses with expansive
member boards that have different visions for the future of the organization. Here, the model
seeks to create a united and cohesive plan for growth over time. Ideally, milestones are set
regarding investments, results, and profits. Ultimately, the McKinsey Horizon Model is an
adaptable future tool. It identifies short, medium, and long term changes to an industry and
details how a business might react to these changes.

Using the McKinsey Horizon Model in practice

Imagine that three horizons are plotted on a graph, with time on the x-axis and the potential
growth of the company on the y-axis. Let’s take a look at each horizon according to its position
on the graph.

First horizon
At the bottom left of the graph, a business is at the start of its journey with low potential
growth. As a result, the first horizon usually describes activities that currently contribute to
revenue generation and company stability. Once stability has been achieved, the business can
look at short-term projects that will deliver growth in the next 1-3 years – but actual timeframes

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will vary from industry to industry. For example, a tech start-up might experience higher initial
growth than a new café.

Second horizon
In the middle of the graph, several years have passed and the business has experienced a
moderate amount of growth. Second horizon growth strategies should ideally span 2-5 years
and often relate to adopting processes, revenue streams, or technologies from other
industries. Therefore, the chance of successful growth is relatively high, despite the longer time
frames.

Third horizon
After a significant amount of time has passed, the company now has more resources to devote
to large and complex strategies that may take 5-15 years to materialize. These strategies may
relate to research, pilot programs, and brand new product offerings. Given their large upfront
cost, third horizon strategies often have a focus on incremental improvements. But because
of their longer time frame and a large number of variables, many strategies are risky and can
become unprofitable.

Key takeaways
● The McKinsey Horizon Model is a strategy that is particularly beneficial for mature
companies who tend to devote fewer resources to growth.
● The McKinsey Horizon Model helps large businesses with different points of view settle
on a unified direction for the future of the company.
● The McKinsey Horizon Model offers a framework of three horizons. These act as
stepping stones for businesses that want to balance current profitability with future
growth.

McKinsey 7-S Model To Align Your Business

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The McKinsey 7-S Model was developed in the late 1970s by Robert Waterman and Thomas
Peters, who were consultants at McKinsey & Company. Waterman and Peters created seven
key internal elements that inform a business of how well positioned it is to achieve its goals,
based on three hard elements and four soft elements.

Understanding the McKinsey 7-S Model

McKinsey’s model applies to any situation where it is important to understand how the various
parts of an organization interact with each other.
Within these interactions are the seven internal elements that McKinsey named, divided into
categories, and classed as either “hard” or “soft”.

Hard elements
Hard elements are tangible and easy to identify. As a result, they are targeted for management
with various strategies, plans or organizational templates. They are:

● Strategy – detailing how an organization plans to build or maintain a competitive

advantage.
● Structure – how the organization is structured from a management and departmental
perspective. Common structures include hierarchical, centralized, and
autonomous/outsourced.
● Systems – any process commonly found in daily business operations. For example,
product development, manufacturing, or distribution.

Soft elements
McKinsey defines soft elements as less tangible and more difficult to describe than hard
elements. They are also subject to change as corporate cultures and values evolve.
Let’s now look at the four soft elements:

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● Shared values – these are often the core values of an organization that define its culture
and the way it does business. Many regard shared values as the foundational building
block for the other 6 elements in McKinsey’s model.
● Style – specifically, the management style of company leadership and the way that
their behaviors and actions set the standard for other employees.
● Staff – this refers to the number of personnel in the company and their motivation,
preparedness, and ability to successfully do their jobs.
● Skills – skills describe the talents of an organization’s staff. Skill level determines the
level of achievement in the organization and whether such skills are aligned with its
goals.

Using McKinsey’s 7-S Model in practice

When using the model in a business setting, it is important to understand that each of the
seven elements is interdependent. In other words, adjusting one element alters the other six.
To use McKinsey’s model, businesses should:

1. Analyze their shared values. Are they consistent with other elements such as structure
and strategy? Remember: shared values determine the direction of the rest of the
framework.
2. Analyze their hard elements. Do they work in harmony or there is discord? What needs
to change to bring them back into alignment?
3. Consider whether their soft elements support their hard elements. Again, it is
important to identify and address any misalignment of goals.
4. Make adjustments throughout the process. The act of making frequent and sometimes
complicated adjustments will require time and money, but the potential benefit of an
aligned and strategic company is worth the expense.

Key takeaways:
● The McKinsey 7-S Model argues that there are seven internal elements of a business
that need to be aligned for that business to be successful.
● Of the seven internal elements, three are ”hard” elements that are easy to identify and
measure. The remaining four are “soft”, in that they are intangible and hard to quantify
precisely.
● The McKinsey 7-S Model is an iterative and often resource-intensive process, but the
potential benefits of using this model make it a worthy investment.

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Growth Hacking To Accelerate The Pace

Growth hacking is a process of rapid experimentation, coupled with the understanding of the
whole funnel, where marketing, product, data analysis, and engineering work together to
achieve rapid growth. The growth hacking process goes through four key stages of analyzing,
ideating, prioritizing, and testing. It is critical to integrate growth hacking within your business
model experimentation to develop a full potential for your business.

What happens when you use Growth Hacking?

Back in 2018, my blog was dead. I had managed to build some traction back in 2015, as I used
external channels like Quora to bring quite some referral traffic back to my blog. But I’ve never
managed to build enough traction with SEO. Things got worse when at the end of 2016 I
focused my efforts on developing the business for a high-tech startup. The blog tumbled to
the point where I was organically reaching just a couple of dozens of people per day. Don’t get
me wrong, that isn’t a bad result. However, it wasn’t either the kind of result you would get
excited about. And that was fine to me as I wasn’t using anymore my blog as a channel to sell
my courses and ebooks. Yet, in 2018 I decided things needed to change. Thus, I started to
iterate on a process which I later called SEO Hacking, which is simply the transposition of the
concept of growth hacking around SEO.

Below you see the results I got:

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I don’t mean to say that things happened overnight. It took me a few months before the
strategy would start to pay off big time. Also, it wasn’t a magic thing or a simple tactic which
worked. It was a process of rapid experimentation, enhanced by a continuous stream of ideas,
tested over and over. And it wasn’t effortless. Quite the opposite. The kind of effort to make this
flywheel gain momentum was insane and it did require trust that things would work out. That
the growth process would eventually pay off. Thus, beyond the buzz around the growth
hacking discipline, growth is a key element of any digital business. Thus, growth hacking offers
a solid framework to achieve growth. To really appreciate this discipline we’ll look at three key
aspects of growth hacking:

● Mindset.
● Process.
● Framework.

More specifically we’ll look at why Growth Hacking looks at the whole funnel. What’s the key
process around it? Why it matters to have a must-have product or service, before going all-in
with a growth strategy and what’s an aha experience!

What is Growth Hacking and what is not

As the story goes, in 2007, Brian Chesky and Joe Gebbia 8 couldn’t afford the rent on their San
Francisco apartment that is why they decided to transform their loft into a lodging space.
Yet instead of relying on Craigslist, they built their site, which they called Airbed & Breakfast
and leveraged on Craigslist to drive users back to their website:

8
growthhackers.com/growth-studies/airbnb

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Source: GrowthHachers.com9

I wish I could tell you that this is how that idea turned into a multi-billion company, known
under the name of Airbnb. Airbnb didn’t grow in a multi-billion business from a day to the next
with a single magic trick. Instead, they had to undertake several experiments before seeing
their listings grow. More importantly, they had to master a process of continuous iteration that
spanned across product’s features, to marketing channels which eventually spurred an
impressive growth track for the company. Sean Ellis, one of the fathers of the discipline, called
this process of continuous experimentation to achieve exponential growth: growth hacking.
Let me further define what’s not Growth Hacking so we can avoid falling into the trap of a few
myths surrounding the discipline; appreciate its full potential.

Growth hacking is not a one-time marketing trick

One of the biggest misconceptions around growth hacking is that it is a trick, a tactic or
technique that all of a sudden spurs incredible growth for an organization. While some
companies might have stumbled upon a trick that gave them short-term traction. Growth
hacking is, first of all, a process. It’s not a one-time thing or trick. It requires continuous analysis,
ideation, prioritization, and experimentation. The classic growth hacking process is more like
a loop, which needs to be run over and over again.

Growth hacking is not a single person endeavor (unless you run a solo-business)
Another common belief is that growth hacking is usually performed by this mythological
figure, called the growth hacker. In reality, in general, there is no such thing as a growth hacker.
There is instead a growth team, led by a growth lead, which is in charge of coordinating the
work of several people. As we’ll see this is usually the rule of thumb because growth hacking
requires several disciplines that span from marketing, product, and engineering to run
successful experiments. The only exception might be if you’re running a solo business where
in fact, you have a bunch of capabilities that go from marketing to development which indeed

9
growthhackers.com/growth-studies/high-tempo-testing-revives-growthhackers-com-growth

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enable you to follow a sort of growth hacking process. But if you’re building a startup or
company made of a few people, growth hacking becomes a group process.

Growth hacking is not marketing without a budget

A dangerous misconception is that growth hacking is marketing without a budget. Indeed,
growth hacking does require thinking outside the box to find marketing channels, product
features, or data that enable us to have a massive ROI on our investment. However, usually, a
growth hacking team is made of people with extensive expertise. And it might require
advanced tools for analysis and experimentation which might be expensive. What matters
here, again, is not the budget itself but the mindset behind it. A growth hacking team looks
for an untapped opportunity. It looks for marketing channels that can have an impact on the
business; in the long run, it is way less expensive than a marketing strategy spent without a
growth hacking mindset. However, in the short term, having a competent growth hacking
might be expensive, but might result in an ROI which a conventional marketing team won’t
be able to achieve. Now that we clarified some of the myths, we can go to the definition of
growth hacking.

The Growth Hacking Mindset

If you look at a traditional sales funnel you can realize right away how that creates silos within
the organization. In short, it makes people think in terms of departments. Thus, in a traditional
funnel, as an example, marketing together with sales will be in charge of acquisition. And for
instance, engineers and product managers might be in charge of retention (by adding product
features, updating the product code, enabling more functionalities and so on). Yet in growth
hacking the whole funnel is in the hands of the growth hacking team, led by a growth lead
which is all aligned around a North Start (we’ll see that). In the meanwhile, it is important to
start emphasizing on the process.

Emphasizing growth as a process

Mindset change is not about picking up a few pointers here and there. It’s about seeing things
in a new way. When people…change to a growth mindset, they change from a judge-and-be-
judged framework to a learn-and-help-learn framework. Their commitment is to growth, and
growth takes plenty of time, effort, and mutual support. By Carol S. Dweck from Mindset: The
New Psychology of Success To build a solid growth mindset it is important to stress the process
to avoid falling into the trap of believing that growth can only be achieved by a few individuals
that have it as a gift. That implies aligning your growth team around this simple fact: growth
is a process.

A few ways to make sure your team internalizes growth as a process consists of:

● Praising the process and making sure your team knows the process is what matters.
● Reward effort, strategy, and process not individual intelligence.
● Learn and teach to push outside the comfort zone so that failure becomes a normal
aspect of the growth process.

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Once aligned with your team around the fact that growth hacking is a process, you can make
sure they follow the growth hacking methodology and cycle in a continuous pattern.

The Growth Hacking method

Sean Ellis in Hacking Growth shows the growth hacking methodology as it follows,

The process is simple yet powerful. From data analysis to testing and back to that analysis, the
loop of growth must be followed consistently. We start from data analysis and insights to
gather and generate as many ideas as possible. It is important to highlight that ideas can come
from anywhere and from anyone on the team. There isn’t a single department, or person within
the organization in charge of generating ideas. In addition, often good ideas might come from
what seems completely disconnected domains. So it’s important to keep the process of idea
generation as open as possible. Once those ideas have been brainstormed it is possible to
evaluate the impact that each idea might have and also how hard it might be to experiment.
For instance, changing a landing page color might be simple to implement, with a potentially
high impact if you have a large number of users. However, if you have a few users, the problem
is not in optimizing the conversion process. But rather focusing on acquiring users in the first
place. Thus, other ideas might have a priority. Once experiments have been designed and
weighed against potential outcome and difficulty of implementation (certain experiments
might require a few resources, others might require extensive resources) it is possible to start
testing those who have a priority. Only then it is possible to go back and measure what
experiments had the most impact. Only then to proceed with a full roll-out. For instance, if
changing the landing page color didn’t have an effect on the conversion, then it makes sense
to revert it back. Thus, it is very important that those experiments are reversible, rolled out
gradually, and evaluated against other options. Before we can push at full speed on a growth
strategy it is important to make sure that all the pieces come together. Let’s see how.

What are some of the prerequisites of an effective growth hacking strategy?

Before realizing the full potential of a growth hacking strategy it is important to understand
its foundations.

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A multidisciplinary team is the rule of thumb

Unless you are a solopreneur which has a deep competence in multiple disciplines. A growth
hacking team has to be composed also of individuals whose competence goes from
marketing to development, data analysis, product management, and more. This is a key
ingredient as your growth team will be aligned around the same objective. Usually, a good fit
for a growth team is called in HR lingo, a T-shaped profile:

Source: FourWeekMBA

Thus, a person with deep competence and expertise in a field and a broader competence
spans across several areas of the business.

Must-have product or service

The foundation of a successful growth hacking strategy, as highlighted in the book Hacking
Growth, by Sean Ellis, it’s a must-have product or service. In short, if you were to run a survey
to your existing customer base, announcing to them how disappointed they would be if you
were to shut down your product or service. If the answer is “very disappointed” then you do
have a must-have product. If you’re not there yet, you need to work a bit more on the product
and service to understand why it’s not a must-have. There are several ways to understand
whether your customers or users are close to perceiving your product or service as a must-
have. For instance, if you were to survey them to ask what makes your product special to them.
If you got a lot of conflicting answers. It might mean there is not yet a clear value proposition
that makes your product unique and sticky. So you need to manufacture the so-called “aha
experience.”

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Manufacturing the aha experience

An “aha experience” might be defined as the moment in which your users or customers
appreciate the full potential of your product or service.
It’s that moment when they realize what makes your product unique and special. So much so
that they want to tell others. When you do have that aha experience, your product might be
on the way to become a must-have. Of course, the aha experience will depend on the product
or service you offer. For instance, for a social network like Facebook that was the realization
that after having a certain number of friends in the network the product would become sticky.
Or if you offer an email list software that might happen when the newsletter becomes big
enough for your customer to appreciate the full potential of your software. Thus, once
identified that aha experience, it is important to align your product feature to enable users or
customers to reach that moment. So that you can make your product sticky. And when that
happens that is when it becomes the right time to push as much as possible on growth. Thus,
speeding up the process of experimentation!

Finding your North Star!

As growth hacking enables you to unlock data not available before (in your team, you might
have a data scientist or someone very good with data) that might cause you and your team to
fall in the trap of looking at too many metrics to assess the success of a growth strategy.
While each experiment might have its own metrics. It is important to find your North Star, or
these 2-3 metrics which really might have an impact on your business. In this way, you have
the compass to understand whether the growth process is moving in the right direction.

Switching on the engines of growth

When you aligned your team around the growth hacking mindset, process, and method.

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When you’ve made sure to build up a team made of T-shaped profiles aligned around growth.
And you’ve built a must-have product or service, which produced the aha experience for its
users or customers. That is when growth can be unlocked at its full potential.
For that matter, you’ll have three engines of growth:

● Paid engine.
● Sticky engine.
● And a viral engine.

From there, you’ll be able to experiment with several marketing channels and find the ones
that fit most of your growth stage, industry, and product.

Iteration and continuous discovery and innovation

When dealing with the growth of a digital business or with a physical business transitioning
more and more into the digital space, it’s important to understand this is a process of
continuous discovery. In short, growth hacking in the context of continuous innovation can be
extremely powerful because it enables companies to experiment quickly while keeping in
mind their long-term mission. In that context, growth hacking becomes a powerful process to
follow, especially in the growth stage of an organization.

Key takeaways
● Growth hacking is not a marketing trick, but a mindset, methodology, and discipline
followed by growth teams..
● Usually, growth hacking goes through a process of analysis, ideation, prioritization, and
testing. It’s not a one-time thing but a continuous process.
● A growth hacking team is usually composed of T-shaped individuals with core
expertise and competence, and a broader understanding of several disciplines.
● Growth hacking requires a solid product or service which is a must-have for users and
customers. That also requires the so-called aha experience, when users and customers
perceive the value of the product and service in full.
● When you reach that must-have status you can push and prioritize on the speed of
experimentation as you’ll get the most results from your growth efforts!

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Guerrilla Marketing For Low-Cost High-Impact Marketing

Guerrilla marketing is an advertising strategy that seeks to utilize low-cost and

sometimes unconventional tactics that are high impact. First coined by Jay Conrad
Levinson in his 1984 book of the same title, guerrilla marketing works best on existing
customers who are familiar with a brand or product and its particular characteristics.

Understanding guerrilla marketing

Unconventionality is the key to guerrilla marketing because it creates a buzz and gets
people talking. Guerrilla marketing gets its name from guerrilla warfare, where small,
independent groups use irregular tactics to fight a larger, unified force. Effective
guerrilla marketing campaigns take consumers who are engaged in their daily lives
by surprise – tying emotions to a brand in the process. Guerrilla marketing is cost-
effective in that it seeks to repurpose existing promotional content in the
environment the target audience operates in. The real “cost” of this technique is in the
ability to think in a creative fashion and create buzz around a brand at minimal
expense. The ultimate goal of guerrilla marketing is to create enough buzz that
campaigns go viral online. Thus, these campaigns are usually executed in highly
visible public spaces including parks, shopping malls, beaches, and at sporting events.

Types of guerrilla marketing

Guerrilla marketing may appear to be relatively specialized at first glance, but there
are several subtypes.

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Outdoor/street
Outdoor marketing adds a surprise element to existing urban environments. For
example, Volkswagen hung cartoon thought bubbles over parked cars of various
competitor models in Dubai. The thought bubbles read “I wish I was a Volkswagen.”
Numerous cancer awareness organizations have also placed morgue toe-tags on
sleeping sunbathers to start conversations about sun protection.

Indoor
Indoor guerrilla marketing is most commonly seen in shops, train stations, and public
thoroughfares and can be more targeted than outdoor marketing. Guinness created
custom advertising that wrapped around pool cues in pubs, reminding players to
make the very natural association between pool and beer. A Swiss skydiving school
also used stickers on the floors of public elevators to simulate the view a consumer
might have while plummeting to the ground.

Experiential
Experiential guerrilla marketing involves the design of immersive or pop-up
experiences that allow consumers to get a “feel” for the brand. These experiences are
usually sensory in nature and foster emotional bonds between brands and
consumers. Energy drink Red Bull partnered with extreme athlete Felix Baumgartner
to document the world’s highest skydive, solidifying the catchphrase “Red Bull gives
you wings” among loyal fans. Paper towel company Bounty left giant, edible popsicles
on the streets of New York to melt in the sun with an accompanying billboard reading
“Makes small work of big spills.”

Key takeaways
● Guerrilla marketing is a low-cost, high impact form of unconventional
marketing.
● Guerrilla marketing relies on the element of surprise to form emotional bonds
between consumers and brands.
● Guerrilla marketing has many indoor and outdoor applications. It can also be
used so that consumers experience a brand before buying from it.

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Hambrick & Fredrickson Strategy Diamond

Hambrick and Fredrickson’s Strategy Diamond is a simple means of illustrating how

the different parts of a strategy fit together. The diamond creates a strategic direction
for the future operations of a business by looking at five elements: arenas,
differentiators, economic logic, vehicles, and staging and pacing.

Understanding Hambrick and Fredrickson’s Strategy Diamond

Developed by researchers Donald C. Hambrick and James W. Fredrickson, the
strategy is fundamentally a practical approach to strategic plan creation. Importantly,
it seeks to determine a profit-centric strategy by providing a solid foundation of “sub-
strategies” which make up the diamond. The strategy itself applies to any industry or
organization where managers need guidance on key strategic decisions. To assist
with these decisions, Hambrick and Fredrickson identified five elements of strategy
where a business should focus its efforts. These elements are:

Arenas
Arenas describe where a business should be active. This includes products, markets,
technologies, geographic areas, and value-creation strategies. For example, Nike and
New Balance operate in the same product and geographic arenas, but their value-
chain arenas differ. New Balance manufactures its shoes in the United States, while
Nike shoes are predominantly manufactured in China, Vietnam, and Indonesia.

Differentiators
Differentiators describe the factors that dictate how the business will achieve success
in a given market. Factors may include price, image, customization, styling, or product
reliability. Differentiators may be tangible, where a golf course with ocean views has a
competitive advantage over a course that is further inland. But they may also be
intangible, such as logos, patents, or even brand equity.

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Economic logic
Economic logic explains how the business will achieve a return on investment. Larger
companies may rely on economies of scale to see a return, while others may rely on
vertical integration or proprietary product features. For a business to possess positive
economic logic, its differentiators must be in alignment with its arenas. This ensures
that financial profits keep investors interested in the continual funding of operating
costs.

Vehicles
Vehicles describe how a business can enter the arenas that it determines the most
profitable. Potentially, this may include internal development, franchising,
acquisitions, or joint ventures. Toyota and Mazda came together to jointly own and
operate a new car assembly plant in the United States. Each company will contribute
50% of the establishment cost, and each will share certain technologies to reduce the
cost of manufacturing.

Staging and pacing

Staging describes the sequence and speed of potential moves. In other words, how
fast can the product be taken to market? When is the right time to begin marketing,
advertising, or product expansion? When a Tex-Mex restaurant chain wanted to
expand beyond the city of Austin Texas, the company knew that it would be difficult
to manage restaurants that were far away. Ultimately, cities earmarked for expansion
were those that were connected to Austin via a short, direct Southwest Airlines flight.
This allowed managers to freely travel between new restaurants in a shorter amount
of time.

Key takeaways:
● Hambrick and Fredrickson's Strategy Diamond is a useful strategic tool in a
wide variety of markets, industries, and organizations.
● A core belief of Hambrick and Fredrickson's Strategy Diamond is the cohesive
and harmonious interaction of five elements: arenas, vehicles, differentiation,
staging, and economic logic.
● The strategy diamond provides a framework with which a business can
envision future success. Importantly, the strategy guides how this success
might be achieved in actuality.

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Horizontal Integration: Expanding Your Business Horizontally

Horizontal integration refers to the process of increasing market shares or expanding by

integrating at the same level of the supply chain, and within the same industry. Perhaps, a
manufacturer who buys or merges with another manufacturer, in the same industry, is an
example of horizontal integration.

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Horizontal integration, just like vertical integration can happen in several ways. Companies
willing to expand will do that by either using their internal resources to take more space within
the same part of the supply chain and within the same industry (internal expansion).
Or they might merge, by forming a single entity. Or through acquisition.

When and why horizontal expansion makes sense?

Horizontal expansion can happen for several reasons:

● Limiting competition: in some cases, companies look to dominate specific segments

of a market, to retain a competitive advantage, for longer.
● Growth and expansion: horizontal integration can shortcut the growth and expansion
within the same industry.
● Economies of scale: in theory, horizontal integration might help the merged
companies to benefit from economies of scale.
● Survival: in other cases, horizontal acquisition also helps in surviving a market getting
increasingly competitive.

What are the potential drawbacks of horizontal integration?

● Market monopolies: horizontal integrations can limit competition, at the point of
creating monopolies, which overall might reduce the options for consumers. On the
other hand, they also raise regulatory concerns.
● Diseconomies of scale: while in theory horizontal integration can create economies of
scale, in practice, from integrating two different groups in the same industry can also
lead to the opposite, effect, diseconomies of scale.
● Cultural clashes: the hardest part of integrating or merging companies, might be
about really making it work from a cultural standpoint. And as horizontal integration
usually works by creating a new, larger group. This renewed scale might cause cultural
clashes, which are hard to overcome.

Horizontal integration case studies

Let’s see a set of horizontal integrations happening in the digital era, which might help us
understand how the process has been used by current market players to expand, defend or
redefine their business models.

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UberEats' acquisition of Postmates to stay competitive in the meal delivery industry

Uber Eats is a three-sided marketplace connecting a driver, a restaurant owner and a customer
with Uber Eats platform at the center. The three-sided marketplace moves around three
players: Restaurants pay commission on the orders to Uber Eats; Customers pay the small
delivery charges, and at times, cancellation fee; Drivers earn through making reliable deliveries
on time. Uber Eats is among the largest players in the meal delivery industry. Launched by
Uber, it gained traction quickly, and it became among the largest players in the US. In July
2020, Uber announced a multi-billion dollar deal, which would enable it to be among the
largest players, as a result of the consolidation happening in the meal delivery industry.

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TikTok acquisition of Musical.ly and its rebranding

TikTok is the Chinese creative social media platform primarily driven by short-form video
content. It launches challenges of various types to tap into the creativity of its users and
generate engaging (if not addicting content) accessible via an infinite feed. TikTok primarily
makes money through advertising, thus making it an attention-based business model. Back
in 2017, TikTok acquired Music.ly and by 2018 it rebranded it within its own app, to create a
single platform, which scaled extremely quickly. TikTok, therefore, used the acquisition of
Music.ly to expand, quickly.

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Inbound Marketing To Build Your Community

Inbound marketing is a marketing strategy designed to attract customers to a brand with

content and experiences that they derive value from. Inbound marketing utilizes blogs, events,
SEO, and social media to create brand awareness and attract targeted consumers. By
attracting or “drawing in” a targeted audience, inbound marketing differs from outbound
marketing which actively pushes a brand onto consumers who may have no interest in what
is being offered.

Why is inbound marketing important?

Before the advent of the internet age, outbound marketing techniques such as catalogs, TV
advertisements, and cold calls were reasonably effective. However, consumers are now savvier
and more empowered. They see outbound marketing as aggressive, pushy, and most
importantly, not tailored to their individual needs. Inbound marketing is the way of the future
since it seeks to build a relationship with high-quality leads who have a prior interest in a
product or service. Indeed, a HubSpot study of over 6300 businesses found that 68% of those
using inbound marketing strategies believed their marketing strategy was effective. Yet only
48% of those engaged in outbound marketing could say the same. Inbound marketing is a
more effective strategy because it provides solutions to problems that consumers are actively
searching out. Indeed, a 2016 Nielsen survey found that adults spend an average of 10 hours a
day in front of a screen consuming content. Businesses who provide helpful content to
consumers build trust, reputation, and authority in their niche without being seen as
motivated by sales. Importantly, they provide answers where consumers are looking for them.

An example of inbound marketing methodology

While providing value is essential to any inbound marketing strategy, it is not enough to solve
consumer problems and then wait for sales to materialize. Businesses must have a
methodology that moves the consumer from an interested lead into a happy and satisfied
consumer. Here is what that might look like.

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Attract
Attracting customers is the first step, and it must be done with precision. Businesses need to
draw in consumers who stand a good chance of being converted into customers. Attracting
the right consumer means creating content that resonates with a business’s target audience
– while also compelling them to move to the next stage of the methodology.

Convert
Once the customer is attracted to a brand, businesses must capture their contact details to
begin the process of relationship building. In exchange for such details – usually an email
address – marketing teams must offer something in return. This is usually a free industry
report, a chapter of a paid book, or access to exclusive blog posts or webinars.

Close
Closing describes the process of turning a lead into a happy customer through a combined
sales and marketing strategy. However, it’s important to note that closing will only be
successful if the consumer has been properly nurtured in the previous step and been primed
to purchase. Effective closing marketing strategies include marketing automation, email
marketing, and sales promotions or discounts.

Delight
Many businesses abandon their customers once they have closed the sale, but this is to their
detriment. In the delight phase, the goal is to establish brand loyalty by showing consumers
that you still value them and what they have to offer. This is achieved through continuing to
engage with them and ensuring they are completely satisfied. This is particularly important for
businesses that offer ongoing services such as subscriptions, but all businesses should make
customer retention and satisfaction one of their main priorities.

Key takeaways
● Inbound marketing is a process of attracting and then converting customers through
valuable content.
● Inbound marketing is an effective way to reach consumers in the modern age.
Businesses must cultivate a brand that consumers associate with value first. Only then
should the focus move to selling.
● A four-step inbound marketing methodology details how a business might attract and
then convert consumers in their target audience.

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Influencer Marketing To Build Your Brand

Influencer marketing involves the marketing of products or services that leverages

the popularity, expertise, or reputation of an individual. Influencer marketing is often
associated with those who have large social media followings, but popularity should
not be confused with influence. Influence has the power to change consumer
perceptions or get their audience to do something different.

Influencer marketing explained

In simple terms, influencer marketing is a hybrid of old and modern marketing
techniques. It harnesses the power of celebrity endorsements from the past with a
modern, content-driven marketing strategy.
When researching potential influencers to partner with, businesses should assess the
following characteristics:

1. Reach – usually defined as the ability to deliver a message to a large group of

people. However, reach is less important in influencer marketing because
influencers with small followings often possess higher credibility and a more
targeted audience.
2. Credibility – or the level of trust an influencer enjoys because of their perceived
knowledge or authority in a niche.
3. Salesmanship – influencers who possess salesmanship can convince others of
their point of view because it is told with confidence and conviction.

Influencer marketing is also a less transactional and more authentic form of

promotion, in that there is more collaboration between brand and influencer.

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Collaboration means that the goals and values of both parties need to be aligned.
Importantly, businesses must respect the influencer and how they have built their
audience. Successful collaborations result when businesses resist the temptation to
change an influencer’s goals or values to suit their own purposes.

Why is influencer marketing important?

Influencer marketing is important because conventional digital marketing is now
largely ignored. A study by Harris Interactive found that 90% of Americans ignore
digital ads. 66% of consumers are also overwhelmed by the sheer volume of digital
ads and use the quantity of such ads to consider whether to boycott certain brands.
By partnering with influencers, brands can insert themselves into consumer
conversations and leverage influencer trust to reduce the chance of being ignored.
When businesses get consumers talking about their brand, they create genuine
conversations that can never be replicated through traditional marketing strategies.

Examples of influencer marketing

To spread the word on the benefits of grass-fed beef, producer La Cense Beef
collaborated with food-bloggers who had an audience of dedicated meat fanatics.
The company set up a website detailing the benefits so that influencers could spread
the message about their brand in an informed and authentic fashion.
A less typical example of influencer marketing can be seen in the case of carmaker
General Motors (GM). GM created an insider’s club for car fanatics who possess a deep
passion and affinity for the maker.

By sharing exclusive news and offers with insider members, General Motors was able
to encourage their most loyal supporters to spread the word about their brand.

Key takeaways
● Influencer marketing is a form of marketing that utilizes those with influence
in a particular industry to increase brand awareness and encourage them to
take a specific course of action.
● Influencer marketing relies on shared goals and values between the concerned
parties, and not on transactional arrangements.
● Conventional digital marketing is now largely ignored by consumers.
Influencer marketing is seen as a more authentic marketing strategy.

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Kaizen’s Framework For Continuous Improvement

Kaizen is a process developed by the auto industry. Its roots are found in the Toyota
Production System, which was heavily influenced by Henry Ford’s assembly line
system. The word Kaizen is a hybridization of two Japanese words, “kai” meaning
“change” and “zen” meaning “good.” Two of the basic tenets of Kaizen involve making
small incremental changes – or 1% improvement every day – and the full participation
of everyone.

Why does Kaizen matter to your business?

Building a business is and will always remain something of a hit or miss process. While
there are obviously many entrepreneurs that have successfully ushered startups into
fully flourishing companies, no two have probably ever done it exactly the same way.
This doesn’t mean that there aren’t certain underlying principles that can help guide
the process, nor some fairly common obstacles to building most businesses. They
have invested their time and learned all there is about their business segment before
taking the leap of faith. To some degree, every business will face competition, financial
challenges, skill shortages and opposition to change. One methodology that can help
you address and overcome many of these issues is Kaizen.

History of Kaizen
Kaizen is actually a process that developed out of the auto industry. Its most infamous
roots are found in the Toyota Production System, which was heavily influenced by
Henry Ford’s assembly line system. In the 1930s a team from the Toyota Motor

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Company visited Henry Ford’s plant. At the time, Toyota was producing just 40
automobiles per day, while Ford was producing 8,000. Toyota decided to implement
many of Ford’s techniques, but a visit by one of the lead engineers to the local Piggly-
Wiggly gave him an inspiration which significantly advanced the basics of Ford’s
system. Kaizen didn’t gain international popularity, however, until the 1980s when a
Japanese organizational theorist and management consultant named Masaaki Imai
founded the Kaizen Institute Consulting Group to help introduce the concepts of
Kaizen to western businesses.

What is Kaizen?
The word Kaizen itself is a hybridization of two Japanese words, kai meaning change
and zen meaning good. As we know, not all change is a good change, and not all
change ends up having positive results. Two of the basic tenets of Kaizen involve
making small incremental changes – or 1% improvement every day – and the full
participation of everyone. Kaizen methodologies allow you to test, tweak, and evaluate
consistently while you are making changes to ensure you are actually heading in the
right direction. They also help ensure your entire business moves forward as one
smooth, seamless unit.

Principles of Kaizen
Here are the five fundamental principles of Kaizen and how you can use them to grow
your business.

1. Small incremental changes

While 1% improvement may not seem like much, over time, it adds up. Imagine
putting $1 into savings every day. You would barely notice $1 missing every day, but by
the end of the year, you would have $365 saved up. If you take that $365 and invest it
at even a 2% interest rate and then continue to invest another $30 per month, then in
just 5 years your $1 a day investment can produce nearly $3,000, thanks to
compounded interest. Small changes produce compounded results, the same way
interest compounds on your investments. Every year, millions of Americans make
New Year’s Resolutions, and yet only a small fraction of them ever succeed. This may
be largely due to setting their initial goals too high and trying to achieve them too
quickly. It’s one thing to set a goal of losing 50 pounds in 6 months if you have already
been working on getting more exercise and changing your diet.
It’s a whole other issue if you are an avowed couch potato who hasn’t cooked a healthy
meal or eaten a vegetable in years. On the other hand, even the most avowed couch
potato can make a 1% increase in their activity each day or a 1% improvement in their
diet. Kaizen doesn’t focus on the results; it focuses on the process. But by investing in
the process every day, there is no way not to experience significant results. For your

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business, take a long, hard look at your finances, and eliminate expenses that you
don’t need. Just make sure to do this gradually.

2. Employees are active participants and provide ideas and solutions

Imagine you need to increase production by 15% over the next 6 months. You could
call in some type of expert to analyze your operations and make recommendations.
You could then inform your employees of the changes you are making and the results
you expect them to produce as a result. The likelihood is that at best you are going to
get a lot of pushback and at worst may have an outright revolt on your hands.
Conversely, however, you could approach your employees and ask them how they felt
production could be improved. The likelihood is, they have a very good idea of what is
slowing production down in the first place. By asking the people that are actually
boots on the ground, you are far more likely to get a far more accurate picture of
where the problems are, versus calling in an outside set of eyes.

3. Accountability and ownership of new processes/changes

Once you understand where your employees feel the problems are, you can problem-
solve solutions together. By involving your employees in coming up with solutions,
they literally become partners in the solutions.
For instance, let’s say they identify a step in their process that is a huge time-waster,
such as getting approval for something from a manager before proceeding. If you
investigate and discover that it is, in fact, a wasted or problematic step, then you can
trouble-shoot ways of speeding up the process. From there, you can work with
employees to develop new goals based on the newer, more streamlined process and
a system of accountability to ensure they are progressing appropriately. The likelihood
is, your employees will participate far more readily if they helped troubleshoot and
devise a solution in the first place. Even more importantly, they will begin to hold each
other accountable, relieving you of the burden of doing so.

4. Feedback, dialogue, open communication

Even with employee buy-in and tweaks to the system, it doesn’t automatically
guarantee that new goals will be met. Sometimes, solving one problem simply creates
another. This is where constant dialogue, feedback, and communication is important.
For instance, bypassing manager approval at one step might actually lead to a greater
number of mistakes being made or create an influx of additional work somewhere
down the line. By keeping lines of communication open and seeking consistent
feedback, you can identify these problems early on and take corrective action before
they become a major log-jam. Perhaps the most vital aspect of implementing Kaizen
effectively, however, is to avoid playing the “blame game.” When there is a problem,
you can solve it far more effectively by working together to solve it rather than wasting
time trying to figure out who is to blame. The only way employees will feel safe enough

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to bring problems to the attention of management is if they feel confident that

neither themselves nor their colleagues will be blamed for the problems nor
“punished” for them in any way.

5. Active monitoring and measuring of changes – positive or negative impact

The one thing Kaizen is not is a “set it and forget it” type of system. While 1% daily
improvements are entirely achievable, the whole point of making small, incremental
changes is that they allow you to make adjustments and course corrections as you go.
Think of it as the difference between making course adjustments when moving 5
mph versus making course corrections doing 70 mph. Just because you are only
moving 5 mph doesn’t mean you don’t need to be constantly vigilant. The point of
moving at 5 mph rather than 70 is to give you ample time to discuss and implement
solutions when you start to realize you are getting off course. One of the biggest
reasons many startups fail is that they simply try and grow too fast. Small businesses,
in particular, can benefit from Kaizen because it will help slow their growth to a more
manageable pace. In addition, by incorporating Kaizen principles into your business
when it is small, it will help ensure they become a part of your business development.
That way, they will still be there when your business is grown when you might just
need them the most.

Marketing Personas To Identify Your Key Customers

Marketing personas give businesses a general overview of key segments of their

target audience and how these segments interact with their brand. Marketing

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personas are based on the data of an ideal, fictional customer whose characteristics,
needs, and motivations are representative of a broader market segment.

Developing a marketing persona

Although marketing personas are developed around individual consumers, it is
important that this individual is representative of the audience it is intended to reflect.
To ensure representational accuracy, businesses must undertake market research
and analyze data on their existing customers. Indeed, effective marketing personas
require businesses to gather quantitative and qualitative data. This can be achieved
by:

● Surveying or interviewing existing customers to build demographic data such

as age, gender, income, and education level.
● Analyzing website analytics to determine consumer buying behavior.
● Keyword research to determine the words people are using or the problems
they are trying to solve.
● Industry articles detailing current consumer trends.
● Product-specific data – where was the product bought? What functions are
most important to the consumer?

Benefits of marketing personas

A well-defined marketing persona helps businesses deliver marketing campaigns
that are cost-effective and drive sales. Following is a list of benefits detailing how this
might be achieved.

Understanding customer needs

Since customer needs are usually related to problems they need solving, knowing
these problems allows businesses to create relevant and valuable content. With a
content strategy based on a marketing persona, organizations self-select their ideal
consumers by creating content that resonates with them most.

Understanding customer behavior

Customer behavior encompasses where the fictional individual in a marketing
persona likes to spend time online. It details where they get their information, which
social media channels they prefer to use, and how they like to be communicated with.
Understanding this behavior is crucial because it provides valuable insights on where
marketing strategy and content creation should be directed.

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Higher quality leads

Once a business understands what a consumer needs and where the consumer is
trying to meet that need, it is important to communicate in a personable manner
Communicating in this way shows the consumer that a business understands them
on more than just a superficial level. It also results in high-quality leads because the
right message is matched to the right marketing persona according to the right
location and consumer behaviors.

Consistency in marketing message

Developing marketing personas means that every employee, regardless of their role,
is on the same page with regard to the type of consumer the business is trying to
attract. This allows all levels of the business, from executives to floor staff, to streamline
coherent marketing efforts. For marketing and sales teams, personas paint a
consistent and ultra-specific picture of the types of people they are endeavoring to
attract. Ultimately, targeted sales pitches can be created before the business has even
connected with an interesting lead for the first time.

Key takeaways:
● Marketing personas, sometimes called buyer personas, describe fictionalized
ideal customers and how they utilize a product or service.
● To be accurate and effective, marketing personas require upfront research into
consumer buying habits, trends, and demographic data.
● Marketing personas allow businesses to match their marketing campaigns
with the right audience at the right time. They also create consistency and
awareness of marketing efforts across different departments.

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Maslow's Hierarchy of Needs To Understand Your Audience

Maslow’s Hierarchy of Needs was developed by American psychologist Abraham

Maslow. His hierarchy, often depicted in the shape of a pyramid, helped explain his
research on basic human needs and desires. In marketing, the hierarchy (and its basis
in psychology) can be used to market to specific groups of people based on their
similarly specific needs, desires, and resultant actions.

Understanding Maslow’s Hierarchy of Needs in a marketing context

A simplified overview of the hierarchy is as follows, starting from the most basic needs
and progressing to the most complex. There are five levels in total.

1. Physiological.
2. Safety.
3. Belonging.
4. Self-esteem.
5. Self-actualization.

Marketers can target any and all of these levels in the marketing campaigns,
depending on the motivations of their target audience. Let’s return to the five levels
in the context of marketing, and why consumers on these levels require distinct
marketing strategies.

Physiological
Consumers who are driven by the most basic needs often reside in third world
countries or come from low socio-economic backgrounds. However, some basic
needs go unmet regardless of financial standing. Pharmaceutical companies, for

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example, recognize the fundamental need for sleep in insomniacs. Clean drinking
water is also a physiological need that some businesses market aggressively.

Safety
Consumers on this level have the most basic physiological needs met, but they may
have difficulty securing stable employment, housing, or healthcare. Fundamentally,
consumers on this level have a need for stability and security. Businesses who are
involved in selling insurance, retirement living, and alarm systems some that benefit
from marketing strategies focused on stability and security. Banks also touch on the
need for shelter when marketing their home loan packages.

Belonging
The third level is where most middle-class consumers reside. As a result, it is
potentially the most lucrative for businesses. With basic needs met, this level has
discretionary income to spend on clothing, sport, and entertainment among other
things. The consumer’s need for belonging means they are motivated to buy if it
means they will fit in. They tend to have larger circles of family and friends and more
disposable income, increasing the effectiveness of word-of-mouth marketing
strategies.

Self-esteem
Consumers on this level are motivated by a need to respect themselves and also gain
the respect of others. They also want to feel important and accomplished. Some have
a need to make the most of their life and become fulfilled, while others are motivated
by status and vanity. Organizations that sell higher-end products such as luxury cars,
club memberships, and fine wine can reap the rewards of touching on these
motivational points in their marketing campaigns.

Self-actualization
Consumers with a plentiful supply of time and money have a need to solve problems,
be creative, and have their lives filled with meaningful activities. This is self-
actualization, or the realizing of one’s talents or abilities. The U.S Army recruitment
slogan “Be all you can be” is a good example of marketing to consumers with a need
for purposeful self-actualization.

Key takeaways:
● Maslow’s Hierarchy of Needs argues that all humans have universal needs
which they must meet.

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● Maslow’s needs range from basic necessities such as food and water to more
abstract needs such as love, self-esteem, and life purpose.
● Consumers on each level of the hierarchy have different needs, requiring
unique, tailored marketing strategies.

MECE Framework As A Scenario Analysis

The MECE framework is an exhaustive expression of information that must account

for all conceivable scenarios. While the framework is used in categorizing information
and data processing, it is commonly used in formulating problems and then solving

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them. The MECE framework is a means of the exhaustive grouping of information into
categories that are both mutually exclusive (ME) and collectively exhaustive (CE).

Understanding the MECE framework

The MECE framework argues that to understand and solve any large problem,
potential factors must be sorted into two categories.

Mutually exclusive
Mutually exclusive means that each factor can only fit into one category at a time. In
other words, there is no overlap. Consider the example of a French cheese company,
who is seeking to find the root cause of a problem with its distribution network. A
framework that is not mutually exclusive may identify two items: distribution
networks in France and camembert product distribution networks. The reason for this
lack of mutual exclusivity is that there is overlap between the two items. Since
camembert is distributed in France, the item is counted twice. Thus, a mutually
exclusive problem may choose to analyze camembert distribution in France and
camembert distribution in Italy. Here, there is no overlap between each item because
they occupy different geographic areas.

Collectively exhaustive
Collectively exhaustive means that each factor covers all possible causes of a problem.
Returning to the cheesemaker with a distribution problem, simply looking at France
and Italy is not collectively exhaustive. The company also exports to Spain and the UK,
so assessing France and Italy in isolation may cause analysts to overlook the root cause
of the problem. Ultimately, the MECE framework allows businesses to investigate
every potential cause in isolation. They do not have to worry that a specific cause may
potentially influence the role of another cause in creating the same problem.

Five steps to developing a MECE hypothesis

1. Understand the problem in detail. What outcome does the business hope to
achieve?
2. Write down the problem statement, ensuring that there is no room for
ambiguity.
3. Then, list potential options (solutions) to the problem using a MECE idea tree.
In the case of the cheesemaker, each option must be both mutually exclusive
and collectively exhaustive.
4. With a list of potential solutions illustrated on the idea tree, consider the pros
and cons of each individually. Remove any that seem illogical or add new
solutions gleaned from greater insight into the problem itself.

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5. Select the best option and then present it to internal or external stakeholders.
At this stage, it’s important that the option is proven, not obvious, and can be
performed with a set of predetermined actions.

Applications of the MECE framework

Several frameworks across various disciplines have MECE principles at their core,
including the:
● Cost-Benefit Analysis – which involves the systematic evaluation of the costs
or benefits of a project, policy, or program.
● Porter’s Five Force Model – which is a powerful tool for understanding the
competitiveness in a given industry.
● 4C Model – a tool for analyzing workplace psychology using core components
of motivational theory.
Key takeaways:
● The MECE framework allows businesses to assess large amounts of
information according to mutual exclusivity and collective exhaustion.
● The MECE framework forms the foundation of several other frameworks, but
it is most commonly used in the rigorous and exhaustive solving of problems.
● Solutions to problems derived from the MECE framework must have proven
effectiveness and be realistically achievable. Crucially, they must not be the first
or most obvious solution encountered.

Multi-Level Marketing To Build Your Scalable Referral Machine

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Multi-level marketing (MLM), otherwise known as network or referral marketing, is a

strategy in which businesses sell their products through person-to-person sales.
When consumers join MLM programs, they act as distributors. Distributors make
money by selling the product directly to other consumers. They earn a small
percentage of sales from those that they recruit to do the same – often referred to as
their “downline”.

The difference between multi-level marketing and pyramid schemes

Many equate multi-level marketing with sometimes fraudulent and often illegal
pyramid schemes. However, individuals who invest in MLM can make money through
sales alone without the need to recruit others. Multi-level marketing also incorporates
high-quality products that serve a purpose – the classic examples being Avon and
Tupperware. Pyramid schemes, on the other hand, rely on income being derived by
recruiting as many people as possible. The quality of the product is also low,
overpriced, or simply doesn’t work. Furthermore, pyramid schemes do not offer the
possibility of inventory buy-backs and are not backed by research into consumer
demand. Whatever the marketing strategy, it is important to understand that the
presence of a pyramid selling structure does not automatically make it illegal. The
reality is that MLM businesses are the same as any other; their success or failure is
dependent upon finding, attracting, and then selling to a target market.

Examples of successful multi-level marketing businesses

Home, health, and beauty company Amway is the largest MLM company in the world,
with close to $9 billion in annual revenue. A landmark ruling in 1979 confirmed that
Amway was a legitimate business and not a pyramid scheme. The aforementioned
Tupperware is perhaps the most well-known example of a successful MLM company.
With annual revenue of $2.26 billion and almost 3 million distributors, their line of
durable kitchen products are synonymous with food storage and are much sought
after. Companies such as Digital Altitude and Tecademics are also using multi-level
marketing. They sell business systems to entrepreneurs that teach them how to
market their own companies while also receiving income from referrals.

Advantages and disadvantages of multi-level marketing

Advantages
Multi-level marketing is well placed to take advantage of the surge in popularity of
freelancing and the gig economy. If businesses do their product research properly,
then MLM can also leverage word-of-mouth advertising and increase recruitment
levels. Multi-level marketing also gives each distributor the flexibility and

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empowerment of growing their own “business” as they recruit more and more people
in their downline.

Disadvantages
Because of the association with pyramid schemes, businesses that employ multi-level
marketing strategies should expect closer scrutiny from regulatory bodies. The stigma
that still surrounds multi-level marketing amongst consumers also means that
businesses might find it difficult to sell their products. Resistance might also be met
when businesses ask their distributors to buy large amounts of a product without the
guarantee that it will be sold. Furthermore, the freelance nature of MLM means few
entitlements such as insurance or paid vacations. These factors mean that, to some
extent, MLM businesses are at the mercy of their distributors to make a profit.

Key takeaways
● Multi-level marketing involves an individual consumer deriving an income from
selling a company’s products. The consumer also derives a percentage of the
sales income from consumers who they manage to recruit in their downline.
● Multi-level marketing is not a pyramid scheme if it features high-quality
products and doesn’t rely on recruiting others to make money.
● Multi-level marketing gives consumers the freedom and autonomy of running
their own business, but it comes with attached stigmas and extra scrutiny.

Net Promoter Score: Is Your Product A Must-Have?

The Net Promoter Score (NPS) is a measure of the ability of a product or service to
attract word of mouth advertising. NPS is a crucial part of any marketing strategy,
since attracting and then retaining customers means they are more likely to
recommend a business to others.

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Why does the Net Promoter Score matter?

While the old adage of “the customer is always right” may be somewhat outdated
now, there is no denying that customer satisfaction is the ultimate benchmark of
successful businesses.

How is the Net Promoter Score calculated?

A survey is usually offered to customers to gauge their willingness to recommend
products or services to others on a scale of 1-10. Depending on the results of that
survey, the customers will fall into these three categories:

Promoters
Loyal customers who score either a 9 or a 10 are your biggest fans and will happily tell
others about their buying experience.

Passives
Satisfied customers who score a 7 or 8 but who are not enthusiastic enough to tell
others. Passives may be indifferent to repeat buying and could switch to a competitor.

Detractors
Unsatisfied customers who score between 0 and 6. Detractors are likely to share bad
experiences with their friends and family and so are damaging to your brand.

How do you compute the Net Promoter Score?

The NPS score, then, is simply the percentage of promoters minus the percentage of
detractors. Any score above 0 is considered a pass mark because there are more
promoters than detractors. However, the companies who experience the most
growth will have scores in the range of 50-80. Businesses can tap into this growth by
incorporating NPS data into their marketing strategies.

Here are some of the benefits of doing so.

Case study: Imagine you asked 100 people to score your software. Of those, 30 were
detractors, 30 passives, and 40 promoters. Your net promoter score will be 10 (40
promoters – 30 passives).

Clarifies customer satisfaction and marketing liabilities

Let’s face it, every business likes to think that it offers the best products in the world.
But is this reflected in reality? The Net Promoter Score is a good way to find out,
because it compares the perceived level of customer satisfaction with the actual level.

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If a difference of opinion exists between the marketing department and the customer,
then the NPS will quickly identify where it exists.

These gaps often exist because of marketing liabilities such as:

● Advertising claims that don’t live up to consumer expectations of reality.

● Product defects, weaknesses, or flaws.
● Improper or incomplete usage instructions.

The NPS allows your business to clarify where its marketing strategy is falling short.
Furthermore, it allows certain shortcomings to be rectified that have the potential to
cause customer dissatisfaction and hurt the brand image.

Encourages employee investment and provides a relevant benchmark

Firstly, the NPS is easy to understand. From the survey results, every member of the
marketing department will be clear on what they are doing right and what still needs
improvement. A high NPS not only increases customer satisfaction, but it also
increases employee engagement. Multiple studies have shown that engagement, or
the emotional commitment an employee has to their employer, produces marketing
campaigns that result in higher and repeated sales. Secondly, the NPS is a universal
benchmark. It allows you to compare your efforts with publicly available data in your
niche and also from your competitors. NPS data also provides marketing teams with
tangible information that they can use to demonstrate progress to clients and
stakeholders associated with the company.

Fuels organic growth by identifying loyal customers

When businesses receive the results of their NPS surveys, the temptation may be to
focus on customers who fall into the passive and detractor categories. However, it is
important not to overlook the promoter category. Research by Nielsen found that over
70% of study participants were more likely to buy a product if a friend mentioned it
through email or social media. A Harvard Business Review study also found that
customers referred through word of mouth were worth 16% more in dollar terms than
those who found a business through other channels.

Why else are promoters so important? There are several reasons:

● Promoters fuel organic growth of your business through brand advocacy. To

some extent, they become your marketing department. They are more than
happy to spread the word about your business for free.
● Promoters allow your marketing strategy to focus on what matters and build
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your brand specifically, you gain clarity on what sort of marketing is most
effective at recruiting new customers.
● Promoters spend more money on your products than the once-off buyer.
Thus, it is important to develop marketing strategies that keep promoters
happily engaged. Loyalty programs, discounts off future purchases and
incentives for spreading the word are examples of effective strategies.

Allows your marketing strategy to be trackable

It might seem obvious, but you cannot improve what you cannot track. The most
effective marketing strategies are backed up by hard data. Tracking your Net
Promoter Score allows the marketing team to refine their strategies based on how
well certain changes are received. With this feedback, they can devote more resources
to strategies that work and less to those that do not. So that you can build a viable
business model, quickly. Regular tracking also allows trends and seasonal changes to
be identified quickly. Technology, for example, is always evolving and some
consumers will inevitably become passive or unsatisfied customers if they are left with
outdated products. Passive customers, as we have learned, are indifferent to your
products and can be lost to competitors easily. Since it is much easier to retain existing
customers than it is to recruit new ones, it is crucial that marketing efforts be directed
toward converting passives into promoters. Here, NPS survey data is invaluable. It
enables businesses to refine their products and associated marketing strategies. Such
strategies become more flexible to current trends and stand a better chance of
retaining customers who might be potentially lost forever.

In short, in the growth hacking process, there are two elements which are crucial in
order to develop a growth strategy:

● The “aha experience.”

● And the must-have product.

The “aha experience” represents the moment in which users or potential customers
realize the full potential of your product. This is critical, as there is no growth strategy
that can be built on a mediocre product. From there it’s critical to understand whether
your product is a must-have. In short, how much would people be disappointed if your
product would be withdrawn from the market tomorrow. From there the net
promoter score helps really grasp how much built-in viral growth the product has, and
therefore you have the basis to push as much as possible!

Key takeaways
Considering the ease with which NPS data can be collated, the benefits of using it to
deliver marketing strategies are tremendous. NPS data clarifies customer satisfaction

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and addresses gaps in marketing message or product development. NPS data is also
easy to digest, increasing buy-in across different departments and increasing
employee engagement. It also provides a relevant benchmark that businesses can
use to judge their efforts against others in their industry. Perhaps most importantly, it
allows businesses to devote their resources to where it matters most – their
promoters. Businesses with effective marketing departments understand that
promoters are enthusiastic brand evangelists. They offer a low-cost, high-profit
opportunity for growth and by tracking the relative proportion of promoters over time,
businesses can stay one step ahead of trends and prevent brand desertion before it
occurs.

New Product Development Framework

Product development, known as a new product development process comprises a set

of steps that go from idea generation to post launch review, which help companies
analyze the various aspects of launching new products and bringing them to market.
It comprises idea generation, screening, testing; business case analysis, product
development, test marketing, commercialization and post launch review.

Why product development matters

In an increasingly connected world, average product life-cycles are incredibly short.
To remain competitive, businesses must continually innovate by developing new
products. And yet most of them fail. So how do businesses maximize their chances of
success? It starts by adopting a systematic and strategic product development
process. The process should also have a clear understanding of consumers,

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competitors, and the market in which the product might be released. The New
Product Development (NPD) process is one such way that a new product idea can
graduate beyond the concept stage. Here is a more detailed look at this eight-step
process, which turns a market opportunity into a product that is available for sale, thus
enabling a sustainable business model.

1. Idea Generation
Every great product starts with an even better idea. Ideas can be generated from a
variety of internal and external sources. Internal sources include ideas stemming from
market research conducted by the Research and Development team. Much internal
creativity can also be attributed to employees, with a PricewaterhouseCoopers study
suggesting they are responsible for at least 45% of creative ideas. External sources of
idea generation, on the other hand, are derived from distributors and even from
competitor analysis. But perhaps the most useful ideas come from the consumers
themselves. Since the consumer is the sole person who will define the success or
failure of the finished product, businesses must understand their needs, wants, and
desires above all.

2. Idea Screening
As you might have guessed, the idea generation step will generate ideas for a lot of
potential products. Unfortunately, not all will be commercially viable. How do we sort
the wheat from the chaff, as it were?

Each idea should be evaluated on its own merits according to some key constraints:

● Compatibility – is the idea compatible with the objects of the business?

● Relevance – is the idea relevant to the niche the business occupies and to the
goals of the business itself?
● Assumptions – are the assumptions that the idea is based on valid? That is, is
there enough scope or confidence to move past the screening step?
● Constraints – what (if any) are the internal and external impediments that
would potentially prohibit the idea becoming a real product?
● Feasibility – is the idea feasible, given the resources available?
● Value – an important step that predicts an idea’s return on investment (ROI).
● Risks – similar to constraints in that internal and external risks can delay idea
development.

Importantly, the screening process prevents two types of errors. The first is called a
drop error – or the dismissal of a good idea. The second, a go error, involves proceeding
with a bad idea.

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3. Concept Testing
In this third step, an idea evolves into a tangible concept that has been refined by
screening. Another way to think about a concept is that it is a presentable idea. For
example, an idea may be a new barbershop. A product concept, however, might be a
barbershop that caters to middle-aged professionals who enjoy a beer or glass of
whiskey while their hair is cut. Indeed, businesses should be crystal clear on the
potential target audience of the product and the value the product would provide. In
other words, does the consumer understand the product or service? Do they even
need or want it? Often, the best way to find out is to ask them or have them order it.

4. Business Case Analysis

By the time a business reaches this fourth step, they hopefully have a product that
has been the subject of internal and external review. A business case analysis involves
making sales, costs, and profit projections to determine how valuable the potential
product or service is in dollar terms. Accurate sales projections can be gleaned by
considering the sales figures of direct competitors. From this data, a business can
clarify how many units they must sell to break even or better still, make a profit. Of
course, there is more to new product development than profit and loss. The business
case analysis“>analysis must also consider the cost of developing the product itself.
Research and development, manufacturing, finance, and marketing are all
expenditures that must be accurately forecasted.

5. Product development
Up until this point, the potential product has existed in 2-D form on a piece of paper.
Now, in the fifth step, it is time to turn the concept into three-dimensional reality. This
is achieved by the development of several prototypes – with each representing various
physical versions of the product. Prototypes help businesses avoid putting all their
eggs in one basket because with more iterations, there is more chance that at least
one prototype will be successful. Such prototypes will then need to be tested for
safety, durability, and functionality while still living up to customer expectations. This
brings us to the next step!

6. Test marketing
Test marketing is where it all starts to come together. A prototype is launched with its
marketing plan to a specific pilot market segment. This allows businesses to track the
effectiveness of the overall package without spending vast sums of money on a full
rollout. Test marketing is a validating process and allows for product refinement if
required. It also allows for changes to be made to the marketing strategy – whether
that be in pricing, branding, positioning, or advertising.

Businesses can use a few different test markets, including:

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● Standard test markets – small representative markets that are subject to a full
marketing campaign. The response of the smaller market is extrapolated
outward to gauge the potential success of a broader campaign.
● Control test markets – some businesses will agree to showcase new, untested
products in their stores for a fee. Control test markets are generally less
expensive and more efficient than the standard test market. But there is also
the risk that competitors gain access to the new product before it has been
commercialized.
● Simulated test markets – as the name suggests, businesses simulate a
shopping environment and analyze consumer behavior around the new
product. Simulated test markets have the benefit of incorporating customer
interviews for deeper research around buying preferences.

7. Commercialization
Commercialization is the process that consumers are undoubtedly most familiar with.
The new products are being mass-produced and distributed widely. But behind the
scenes, businesses must decide when to launch a product and where it will be
launched. Early in the commercialization process, there may also be teething
problems. It is important to monitor supply chain logistics and ensure that product
shelves do not become bare. Marketing departments must also develop advertising
campaigns that keep their new products top-of-mind with consumers who are ready
to buy. Primarily, this can be achieved by sales promotions or introductory pricing.

8. Post Launch Review

Once the product is well established in the market, it is important to plan ahead.
Businesses should develop long-term marketing plans and ensure that competent
sales and distribution teams are in place to cater for demand. Prices should also be
reviewed regularly, particularly after the expiration of introductory promotions. As
customers are introduced to the product, the marketing team must endeavor to turn
them into brand evangelists. The business must also balance these customer
retention strategies with profits and staying one step ahead of the competition. Each
NPD process should always be reviewed, irrespective of whether the product was a
success. This enables mistakes to be addressed and then corrected for next time,
increasing the success rate and improving productivity.

Key takeaways
The New Product Development process is certainly high risk, but the rewards of a
successful product campaign can be similarly immense. However, businesses that fail
to bring new products to the market can also learn from their mistakes, emerging
stronger as a result. In both cases, the NPD process represents a formalized,

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repeatable process that allows businesses the best chance of creating one of the 5%
of products that gain commercial success and build a viable business model.

Occam's Razor To Remembers That Simplicity Works

Occam’s Razor states that one should not increase (beyond reason) the number of
entities required to explain anything. All things being equal, the simplest solution is
often the best one. The principle is attributed to 14th-century English theologian
William of Ockham.

Understanding Occam’s Razor

It’s important to realize that Occam’s Razor is not 100% reliable. That is, the simplest
solution is not always the correct solution. But when a business is presented with
several solutions to a problem, its best course of action is to choose the solution with
the fewest assumptions. In business, companies spend vast amounts of time and
money recruiting new customers and retaining them as loyal followers. Consumers
themselves are bombarded with messages daily and are easily distracted by social
media and other sources of cognitive overload. While complex marketing strategies
may be somewhat effective in attracting customers, far simpler solutions help
businesses retain them.

Here, the simplest solution for the business is to focus on:

● Product quality. Many businesses equate the number of features with the
value of a product. But they do not ask the customer what they value
beforehand. Products with too many features distract a consumer and reduce
product utility. Occam’s Razor suggests that product development teams
discard as many features as possible and go for the simplest, most effective
solution.
● Customer service. Simplifying customer services means removing as many
barriers as possible. It might be streamlining the customer purchase journey
by removing unnecessary sign-up forms. It might also mean removing wait

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times on customer support calls. Ultimately, consumer behavior is guided by

simplicity and pleasurable shopping experience.
● Defining their target audience. No product or business can appeal to
everyone, so defining a target audience should be made as simple as possible.
Simplicity is achieved by starting small and focusing on the traits of a single,
ideal customer to develop a marketing persona. This is Occam’s Razor at work.
Simplifying procedures increases productivity and profitability by focusing on
processes most likely to deliver results.

Real-world examples of Occam’s Razor

In an attempt to boost their profits, McDonald’s created the now-infamous phrase
“Would you like fries with that?” But behind this catchphrase, marketing executives
selected a very simple way to increase profits out of what was likely a large spread of
options. Fries are of course made with potatoes, which are very cheap to purchase and
thus are very profitable. Though the removal of the headphone jack may have been a
case of over-simplifying, the design of Apple smartphones also reflects Occam’s Razor
principles. With just a single button on their smartphones and tablet devices,
designers gave consumers a sleek and minimalist product without extraneous
features.

Key takeaways:
● Occam’s Razor says that the simplest solution is more likely to be the correct
solution.
● Occam’s Razor does not provide the correct solution 100% of the time. Rather,
it argues that a simple explanation with fewer variables yields more predictable
results and is easier to execute.
● Occam’s Razor helps businesses focus on streamlining product development,
simplifying customer service, and defining a target audience.

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OKR To Achieve 10x Goals At An Organizational Level

Andy Grove, helped Intel become among the most valuable companies by 1997. In his
years at Intel, he conceived a management and goal-setting system, called OKR,
standing for “objectives and key results.” Venture capitalist and early investor in
Google, John Doerr, systematized in the book “Measure What Matters.”

A glance at the OKR system

Back in the 1970s, Intel was among the most respected and admired companies in
Silicon Valley. During that time Intel’s CEO, Andy Grove, was the man who managed
to drive organizational change. Andy Grove did that via a goal-setting process called
OKRs or objectives and key results. Where the objective is the direction, toward which
the organization needs to be in the medium term. And the key results are milestones,
things that allow the company to get there. Those key results need to be easily
trackable, understandable and shared across the company. In its purest form OKRs
consists primarily of four superpowers:

Focus and Commit to priorities

This superpower focuses on making clear what matters and what doesn’t. More
precisely it allows whole teams and departments to decide where the focus is and
dispel any confusion

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Align and connect for teamwork

One essential ingredient of the OKRs is its transparency and the fact that it needs to
be openly shared across the organization, from the CEO down to each team and
member of the organization. OKRs is not a siloed process but rather a transparent
goal-setting tool

Track for accountability

OKRs are data-driven. It doesn’t stress though on a countless number of metrics that
help to increase the level of noise. OKRs instead focuses on a few critical metrics to
measure the impact on the business

Stretch for amazing

Objectives set in OKRs aren’t conservative, those are aggressive, hard yet possible and
attainable. From this balance, OKRs brings the organization forward
Those superpowers are kept together by continuous improvement and corporate
culture.

How is OKRs different from MBOs?

For those that know Management by Objectives or MBO, it might be easy to confuse
it with OKRs. However, there are a few key differences. At its core, the MBOs focused
on what while it was primarily top-down and risk-averse. By contrast, OKRs focus on
the “what” (direction) and “how” (key results). Rather than an annual review process
which might make it too complicated and formal OKRs follow a quarterly or monthly
schedule which is public and transparent and usually bottom-up. Where MBOs’ goals
are risk-averse, OKRs goals are aggressive and aspirational.

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OKRs objectives have a few key elements such as:

● Ambitious
● Qualitative
● Time-bound
● Actionable by the team

While OKRs key results are primarily:

● Measurable and quantifiable

● Make the objective achievable
● Lead to objective grading
● Difficult but not impossible

The OKR cycle

● Brainstorm: in this phase, the top senior leaders set the company-wide OKRs
● Communicate: the OKRs can be communicated to everyone. At the same time
teams develop their own OKRs to be shared
● Share: contributors share their OKRs but also negotiate them with their
managers
● Track: employees track and share their objectives with managers
● Reflect: at the end of the cycle employees perform a self-assessment and what
they have accomplished

OKR scoring system

There are two ways to score OKRs:

The simple way

Andy Grove would use a very simple approach of “Yes/No” to understand whether the
key results would be achieved, so whether the main objective also got accomplished.

OKR example
Objective: Reach $100K in revenue this year:
1. KR: build a newsletter with a thousand subscribers to sell $33K worth of
products
2. KR: attend three events where to find 10 clients worth $33K in contact value
3. KR: publish 10 articles to share to sell $33K worth of products

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Track the results with the simple method:

● Build a newsletter with a thousand subscribers to sell $33K worth of products?
Yes
● Attend three events where to find 10 clients worth $33K in contact value? No
● Publish 10 articles to share to sell $33K worth of products? Yes

The advanced approach

Each key result can be scored on a scale. “0” meaning failure and “1.0” meaning the
objective was achieved. Therefore, you can score each result against its outcome and
evaluate whether you failed, made progress, or achieved them. It’s important in this
phase to be honest about the self-assessment as the OKR itself requires self-reflection.

OKR vs. KPI

It is also important not to confuse OKR with KPIs. KPIs (Key Performance Indicators)
performance metrics for a specific activity. OKRs are aggressive and aspirational. They
drive the key objectives underlying the plan. Where KPIs are a set of more objective
standards to measure activity and operating plans. OKRs are set to achieve
extraordinary goals.

OKR vs. SMART Goals

A SMART goal is any goal with a carefully planned, concise, and trackable objective. To
be such a goal needs to be specific, measurable, achievable, relevant, and time-based.
Bringing structure and trackability to goal setting increases the chances goals will be
achieved, and it helps align the organization around those goals. SMART goals are very
similar in nature to the way objectives are defined within the OKR framework. The key
difference is that OKR is a company-wide exercise, whose target is to align an entire,
potentially large company, to achieve goals and move fast, nonetheless. SMART goals
instead, might be more suited for individuals. Another core difference is that OKRs

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objectives, even if achievable, are very ambitious, often connected with 10x targets.
Where SMART goals might and might not be as ambitious.

OKR vs balanced scorecard

A balanced scorecard’s main aim is to track, control, and improve the execution of
activities that can be monitored by executives and managers within an organization.
The balanced scorecard differs in scope and aims with the OKR which is set to achieve
an ambitious growth plan.

OKR and 10x: Moonshot thinking as a way to renew your business model

Moonshot thinking is an approach to innovation, and it can be applied to business or

any other discipline where you target at least 10X goals. That shifts the mindset, and it
empowers a team of people to look for unconventional solutions, thus starting from
first principles, by leveraging on fast-paced experimentation. In 2010, Google founded
its research and development lab, called X, or Google X. As pointed out by Google
“while almost every corporate research lab tries to improve the core product of the
mother ship, X was conceived as a sort of anti–corporate research lab; its job was to
solve big challenges anywhere except in Google’s core business.“ This connects with
Google’s founders 10x mindset, which we can apply back to the business world as it
makes us switch from an incremental growth mindset to a 10x mindset. What are
some of the key elements? As I highlighted in the moonshot thinking guide, the key
principles are:

● Create exigency
● Context is king

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● Give up on incremental changes

● Embrace the 10X attitude
● It all starts by reasoning from first principles
● Target the impossible but make it actionable
● Fail most of the time
● Do the hardest thing first
● Take massive actions
● Forget T-shaped; it’s all about X-shaped people
● 10X thinking is cheaper than incremental thinking, in the long-run

When you apply this sort of mindset, it might seem way more difficult to implement
in the short-term. In reality, over time, once the proper context has been developed it
becomes cheaper and more effective. It’s important to align part of the team around
10x goals, as it enables the company to look for opportunities that are outside the core
business model. Just like in Google, where most of the organization is focused on
maintaining and incrementally growing the core business model, Google is also
invested in other bets, a strategic set of initiatives that could change its whole
business model. Where Google is the most powerful advertising machine, with the
cash invested in new bets, it might become something else in the future decades.
This is at the core of reinventing your business model.

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Open Innovation To Scale Your Company

Open innovation describes a situation where a business does not rely on their internal
knowledge or resources for innovation. They instead source ideas from external
sources through the sharing of knowledge and in some cases, collaboration with
other businesses.

Understanding open innovation

Open innovation was developed by academic Henry Chesbrough, who believed that
it could be used to increase product quality and variety and also shorten the time it
took to bring new products into the market. Chesbrough also noted that open
innovation would help a business share internally derived innovation with others if it
did not fit its business model. Businesses can also look at external sources of
innovation such as customers, external agencies, and published patents. But
whatever the source, those who openly innovate have a genuine belief that internal
expertise is not sufficient enough to help them reach strategic goals.

Types of open innovation

While there are myriad ways to openly innovate, some of the most common include:

● Intracompany –some may argue that intracompany innovation is not a form of

open innovation, yet it nevertheless exists in large companies with different
functions or business units.
● Intercompany – innovation between two or more separate companies.
● Consultancy – where a business seeks the input of relevant experts.
● Publicly open – as the name suggests, inputs are sought from anyone in the
general public.

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Once a business has chosen the source of innovation, they can apply it to a similarly
varied range of purposes. These include scouting for talent and gathering data for
market and consumer insight. However, most openly innovate for research and
development of new products and services.

Advantages and disadvantages of open innovation

Advantages
● Expanding the pool of knowledge. Chesbrough notes that useful knowledge
is widely distributed across the globe and that no company has the answer to
every question.
● Lower innovation costs. Businesses can get access to ideas that other
businesses have already spent money on developing. This saves them a
tremendous amount of upfront capital.
● Increased credibility. New businesses, in particular, will find value in partnering
with more established businesses to increase credibility, market share, and
brand equity.
Disadvantages
● Cost. The cost of open innovation can be prohibitive to smaller, less
experienced companies – particularly if they inadvertently give away their
competitive advantage.
● Intellectual property (IP) rights. Two or more businesses who work
successfully on bringing a new product to market may face disputes when
assigning intellectual property rights. Businesses should always prioritize their
reputation over lengthy and sometimes public disputes over such rights.

Real-world examples of open innovation

Consumer household goods maker Phillips is well known for quality and usability
across a broad range of products. In 1998, the company created the Philips High Tech
Campus where other companies and a technical university could come together for
research and development. In more recent times, Philips has partnered with hospitals
to tackle problems such as affordable healthcare and energy-efficient lighting in
cities. Netflix has also used open innovation in the public sphere. In 2006, the company
created a challenge called Netflix Prize in their quest to develop an algorithm that
improved user movie suggestions. With a cash price of $1 million, 40,000 teams across
186 countries entered the competition. The initiative was so successful that Netflix
used elements of both the #1 and #2 ranked algorithms to increase user engagement.

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Key takeaways:
● Open innovation is a business management model that encourages a business
to collaborate and share knowledge with external organizations and people.
● Businesses who engage in open innovation understand that they do not have
the resources or knowledge to solve every problem they encounter.
● Open innovation increases knowledge and lowers innovation costs. However,
there can be resultant disputes over intellectual property rights when two or
more businesses claim credit for a new product.

Partnership Marketing To Expand While Adding More Value

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With partnership marketing, two or more companies team up to create marketing

campaigns that help them grow organically with a mutual agreement, thus making
it possible to reach shared business goals. Partnership marketing leverages the time
and resources of partners that help them expand their market.

Why and when partnership marketing makes sense

Partnership marketing can be a great way to grow a business in several
circumstances. As financial resources might be scarce and a company wants to grow
more organically, partnership marketing can help in forming long-term relationships
to expand overnight the market of your company. In shot, partnership marketing can
be the most effective organic growth strategy as an alternative to other paid channels.

The Pinterest Shopify’s app case study

The Pinterest app on Shopify is a great example of how partnerships can be used as
win-win-win. Both companies (Shopify and Pinterest) can gain from the partnership.
And as effect also its main partners (e-commerce websites on Shopify, users on
Pinterest). Indeed, Shopify makes it even easier for its e-commerce websites to
directly post their product listing on Pinterest, thus expanding each of their products.
At the same time, Pinterest benefits by gaining more active users, and by enabling
more curated images on the platform, which makes it more valuable for Pinterest
users. And in turn, the company would be able to sell more advertising.
As specified on the Pinterest blog:

The Pinterest app on Shopify includes a suite of shopping features like tag
installation, catalog ingestion, automatic daily updating of products, and an ads
buying interface.

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The Shopify’s Pinterest App

As further explained on the Pinterest blog:

By uploading their catalog feed, merchants make it possible for people to discover
and save their products and buy directly from their website. People come to Pinterest
with an intent to plan and purchase.

How the Pinterest App on Shopify born as a partnership between the two brands will
help e-commerce platforms on Shopify to sell more. While adding value to
Pinterest’s users and further growing the market for both platforms. This is a win-
win-win.

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In a well executed Partnership Marketing agreement everyone wins

As we saw, partnership marketing can be a great way to organically grow a business,
while at the same time expanding its boundaries, as partners can draw from each
other’s markets to add more value to their existing audience. A well executed
partnership marketing plan then adds value for everyone!

PESTEL Analysis To Map The Macro-Context

The PESTEL analysis is a framework that can help marketers assess whether macro-
economic factors are affecting an organization. This is a critical step that helps
organizations identify potential threats and weaknesses that can be used in other
frameworks such as SWOT or to gain a broader and better understanding of the
overall marketing environment.

Why does a PESTEL analysis matter?

A PESTEL analysis is one of the tools and frameworks that marketers can use to assess
the impact of external market forces on the organization’s growth and profitability
over time. Indeed, the PESTEL analysis becomes a companion framework to other
tools, and frameworks, like the SWOT analysis as it allows to gain a broader
perspective on the overall market and industry where the organization operates. In
too many cases marketers fall into the trap of analyzing an organization as it operated
in a vacuum. Understanding macro trends, and how those are and will affect the
organization is a crucial skill for marketers to gain perspective on the company’s

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overall marketing strategy. And to perform a better analysis of the current and future
scenario. This also allows an organization to formulate a better business strategy. This
also helps organizations adapt their business models based on the changing
macroeconomic landscape.

What are the critical components of a PESTEL analysis?

The PESTEL analysis comprises six macro-environmental factors that span from
political to legal:
● Political: how much is the government involved in the economy or in that
particular market? And how much a government policy can influence that?
● Economic: how many economic factors, such as interest rates, employment,
foreign exchange, unemployment and other factors will affect the company’s
profitability?
● Social: how much emerging trends or demographics, such as population
growth, age distribution, and so on affect the organization?
● Technological: how much technological innovation, development, and
disruption might affect a market or the industry in which the organization
operates?
● Environmental: how much the surrounding environment and the impact of a
business on ecological aspects are influencing the organization’s policies as
well?
● Legal: how will change in legislation affect the organization’s profitability,
sustainability, and growth?

Case Study: Amazon PESTEL Analysis

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Let’s now evaluate the global retail giant Amazon in the context of a PESTEL Analysis
by looking at the following external factors:

● P – Political.
● E – Economic.
● S – Social.
● T – Technological.
● E – Environmental.
● L – Legal.

Amazon PESTEL Analysis

Let’s now perform a PESTEL Analysis on Amazon, addressing each factor in more
detail.

Political
Political factors encompass the level of governmental intervention in an economy.
This may include policy decisions relating to foreign trade and tax or laws relating to
labor or the environment. As a global retailer, Amazon is not immune to political
factors. Politically stable western countries with similar laws to the USA offer Amazon
expansion opportunities. However, the company has faced stiff competition in China
where the government tends to back Chinese e-commerce companies.

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Economic
Economic factors are those that directly impact on the performance of the economy.
In turn, these factors influence the profitability of an organization. Economic factors
may include unemployment rates, raw material costs, and foreign exchange rates.
In the wake of the coronavirus pandemic, Amazon has benefited tremendously from
economic stimulus measures that have increased consumer discretionary income.
However, this income has also allowed competitors to enter the market.

Social
Social factors describe the general beliefs and attitudes of a population, most often
related to cultural and demographic trends. These factors ultimately determine and
then drive consumer behavior. With the shift toward convenient, fast, and contactless
delivery, Amazon has again taken advantage. Savvy and computer literate millennial
consumers are also driving huge growth in mobile shopping as the availability of 5G
networks increases.

Technological
This describes the rate of technological innovation and development and how it
might influence a given market. Digital technology is often the focus, but non-tech
companies also look for advances in distribution, manufacturing, and logistics.
Amazon is highly innovative within the retail sector. The company has invested heavily
in drones to deliver parcels. It has also created an unattended locker system called
Amazon Hub so that consumers can receive parcels when it is convenient for them to
do so.

Environmental
In the 21st century, environmental factors are becoming increasingly prevalent. They
encompass such things as carbon footprint, waste disposal, and sustainable access to
raw materials. Climate change has also meant that businesses must be more
adaptable to frequent natural disasters. As Amazon’s distribution network grows, the
company must sustainably address its greenhouse gas emissions. In the United
States, Amazon Prime is particularly polluting because of the promise of 1 or 2-day
delivery.

Legal
Large organizations that operate in many countries must have a detailed
understanding of the laws applicable to each. This is especially true in countries where
employment, consumer, tax, and trade law directly impacts on business operations.
Amazon has had to deal with legal challenges regarding its tendency to subvert tax
law and move profits into tax havens such as Luxembourg. The company was also
recently investigated by the US Federal Trade Commission for misleading discount
claims on over 1000 of its products.

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Key takeaways:
● The PESTEL analysis is a tool that businesses use to analyze macro-
environmental factors that have the potential to impact on performance.
● PESTEL is an acronym for six factors: political, economic, social, technological,
environmental, and legal.
● As a large, global retail company, Amazon has been able to take advantage of
the shift toward convenient and contactless consumer goods delivery.
However, it’s global reach also leaves it vulnerable to sustainability trends and
investigation for tax evasion.

PESTEL Analysis vs. Porter’s Five Forces

PESTEL analysis and Porter’s Five Forces can be both used to have both a micro and
macro strategic assessment for the company. In addition to that, together with the
PESTEL Analysis also the Porter’s Diamond Model can be further used to refine the
strategic assessment, for the overall firm’s strategy within the marketplace.

Pirate Metrics To Build Your Sales Funnels

Venture capitalist, Dave McClure, coined the acronym AARRR, which is a simplified
model that enables us to understand what metrics and channels to look at each stage
for the users toward becoming customers and referrals of a brand. This is a simple tool
for business growth.

How does the AARRR (pirate) funnel work?

This funnel goes through:

● Acquisition

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● Activation
● Retention
● Revenue
● Referral

It is important to highlight that this is a model, and as such, it doesn’t represent the
actual behaviors of users or customers. Instead, that is a simplification that helps
identify the crucial actions and marketing tactics to implement to make sure a user
becomes a paying customer.

Acquisition
How do potential customers get to know us? The acquisition stage is usually when a
user or potential customer gets to know a brand. A single touchpoint isn’t often
enough at this stage. That is why organizations use several channels to gain visibility.

Some of those are:

● SEO or search engine optimization is a critical channel as it enables us to gain
visibility through Google, primarily. When a user finds your website or service
through Google, it is a great first touchpoint to bring it closer to the activation
stage. Again the process is not given, and it might well happen that users
acquired through SEO might become customers right away. In general, though
SEO is a good starting point.
● SEM, or search engine marketing, is the ability to gain visibility through Google
by paying the search engine to show up on specific queries that users type. For
instance, if you sell clothing and shoes, you might pay Google to enable your
site to show up on its search results pages when people search for “shoes” or
“sport’s shoes.”
● Social networks have become a massive distribution channel for most
companies. That is why organic and paid campaigns on social are critical to
gain visibility and traction for the brand.
● Blogging has become a critical element for brands to build trust with their
audience. That’s because ongoing blogging is a good substitute for an ongoing
conversation with a broad audience. People get to know your brand, intimately.
● Email marketing is also a key distribution channel in the acquisition stage.
● BizDev is about creating the proper distribution for your product and services
to scale up the business.

Other channels for acquisition comprise:

● PR
● Affiliates

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● Apps and Widgets,

● TV, and more…

Activation
How do potential customers get to try our product?
At this stage, you need to make the acquisition concrete by enabling users to start
playing around with your product or service:

● A homepage that converts, and that is optimized is essential to activate as

many users that land on a site.
● Landing pages also help you create a controlled experience for users to take a
set of actions you want them to take.
● Product features empower your clients, but they also work as a magnet for new,
potential customers.

Retention
How many potential customers will stick around?

At this stage, it’s essential to look at the user engagement and how to make her stick
around:
● Emails & Alerts, to enable users to understand the benefits of your product and
help them benefit from it, thus reducing the churn at this stage, which brings
the user closer to becoming a paying customer.
● Blogs and content help build that kind of trust and ongoing relationship with
the audience, to make your product sticky.
● System Events and Time-Based features.

Revenue
How many will actually become customers? At this stage, it is essential to focus on
how to make the potential customer or the users that are already engaging with your
app, service, or site to become a paying customer:

● Ads and switching on the paid engine at this stage makes sense to speed up
the growth process.
● Lead generation and a continuous stream of qualified prospects are critical to
keeping the business going.
● BizDev operations help a business capture as much business value as possible.
That is even truer for enterprise businesses.
● Subscriptions and more

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Referral
Will those customers invite other potential customers?
At this stage, you want to make sure to trigger network effects so that existing
customers can bring you more customers too:

● Campaigns,
● Contests,
● Emails & widgets

Poka Yoke For Top Quality Control

Poka-yoke is a Japanese quality control technique developed by former Toyota

engineer Shigeo Shingo. Translated as “mistake-proofing”, poka-yoke aims to prevent
defects in the manufacturing process that are the result of human error. Poka-yoke is
a lean manufacturing technique that ensures that the right conditions exist before a
step in the process is executed. This makes it a preventative form of quality control
since errors are detected and then rectified before they occur.

Understanding poka-yoke
Some process errors cannot be detected ahead of time. In this case, the poka-yoke
technique seeks to eliminate errors as early on in the process as is feasible. Although
the poka-yoke technique became a key part of Toyota’s manufacturing process, it can
be applied to any industry or indeed any situation where there is potential for human
error. One of the most well-known examples of poka-yoke in action is in the case of a
manual automobile. The driver must engage the clutch (a process step) before
changing gears. This prevents unintended movement of the car and reduces wear on
the engine and gearbox. Another example can be found in washing machines, which

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do not operate if the door isn’t closed properly to prevent flooding. In both cases, poka-
yoke principles mean that automation is in place to prevent errors before they occur.

The six principles of poka-yoke

To reduce the prevalence of process errors, poka-yoke is based on six principles in
decreasing order of effectiveness.

1. Elimination – the most preferable solution. It involves redesigning a product or

process so that a particular step is no longer necessary.
2. Prevention – or engineering a product or service so that it is virtually impossible
for an individual to make a mistake.
3. Replacement – can a more reliable process be substituted in to lessen the
chances of an error occurring?
4. Facilitation – or the adoption of techniques to make a task easier to perform.
This may involve combining certain steps.
5. Detection – or identifying an error before further process steps are undertaken.
This allows the error to be rectified without further damage to equipment or
personnel.
6. Mitigation – the least preferable solution. Here, the aim is to minimize the
effects of errors without necessarily solving them.

Benefits of poka-yoke principles for businesses

Error prevention is an obvious advantage to poka-yoke, but what positive
ramifications does error prevention have for business?

Improved profitability
Errors on production lines decrease profitability – whether that be through line
shutdowns or expensive worker injuries. But poka-yoke principles improve a
company’s bottom line in other ways. For example, hotels now require that guests
insert their key-card into a slot to activate electricity in their room. Since many guests
do not bother to turn the lights off after they leave, the hotel can save money on
wasted electricity consumption.

Improved productivity
Preventing errors before they occur increases productivity. Online forms require that
every field be filled out before submission. This reduces errors in forms resulting from
incomplete or missing information, saving the company time and money in having to
chase up consumers for the extra details. ATMs also chime or flash to remind the
customer to retrieve their debit card and cash. This greatly reduces the once common

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error of customers leaving their cards in the machine. It also saves the bank money in
loss prevention, giving customer support the resources to deal with other problems.

Simplification of smaller, error-prone tasks

Small tasks with high probability of error are particularly prevalent in some industries
such as the service and hospitality industries. Cashier errors in counting change, for
example, are relatively inconsequential errors in isolation that have the potential to
lose a business a lot of money over the long term. To this end, poka-yoke principles
have automated the change counting process and where automation is not possible,
digital interfaces verify that the cashier has given the correct amount of change.
Similar systems are now in place to prevent errors in order fulfillment and delivery of
orders to a table.

Key takeaways:
● Poka-yoke is a Japanese quality control technique that aims to make processes
error-proof.
● Although having origins in the manufacturing industry, poka-yoke principles
are useful in any scenario where there is potential for human error.
● Poka-yoke error prevention is guided by six principles, with elimination the
most desirable and mitigation the least desirable. All six principles can
nevertheless improve productivity, profitability, and simplify smaller, error-
prone manual tasks.

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Porterland
Porter has been one of the most influential people in the business strategy world,
and this chapter is all dedicated to him.

Porter’s Five Forces To Map Your Industry

Porter’s Five Forces is a model that helps organizations to gain a better understanding
of their industries and competition. Published for the first time by Professor Michael
Porter in his book “Competitive Strategy” in the 1980s. The model breaks down
industries and markets by analyzing them through five forces:

● Competition in the industry

● Potential of new entrants into the industry
● Power of suppliers
● Power of customers
● The threat of substitute products

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Porter’s five forces is a business framework which can provide a qualitative

assessment and come up with a corporate strategy.

Breaking down Porters’ five forces

Porter’s five forces help, according to the author, to identify the attractiveness of an
industry, and whether this might be retained in the long-run. According to Porter, the
attractiveness of the industry, coupled with its competitive positioning (either
through cost leadership or differentiation) can help a firm build a competitive
advantage.

Competitive rivalry
This force examines the intensity of the competition in the marketplace. The
competition is given by several factors such as barriers to entry, the bargaining power
of buyers and suppliers, and the threat of substitute products or services. All those
factors combined determine the competitive rivalry within an industry, and how
attractive that is. Some of the key elements that Porter takes into account in his book,
“Competitive Strategy” are:

● Industry growth.
● Fixed (or storage} costs are value-added.
● Intermittent overcapacity.
● Product differences.
● Brand identity.
● Switching costs.
● Concentration and balance.
● Informational complexity.
● Diversity of competitors.
● Corporate stakes.
● Exit barriers.

Barriers to entry
Imagine operating in a business where anyone can become your competitor. This is a
market where there is no high capital requirement to start a business, and there are
no particular regulations in place to limit the entrance from new competitors. For
example, in today’s world where anyone with internet access can create its blog or
website with very few overhead costs, barriers to entry are very low, therefore the
competition is fierce, and it is tough to keep the market share for too long. What
determines barriers to entry? According to Porter, there are some key factors:

● Economics of Scale.
● Proprietary product differences.

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● Brand identity.
● Switching cow.
● Capital requirements.
● Access to distribution.
● Absolute cost advantages (Proprietary learning curve, Access to necessary
inputs).
● Proprietary low-cost.
● Government policy.
● Expected retaliation.

Bargaining power of suppliers

This force studies the numbers of suppliers in the marketplace. Indeed, a smaller
number indicates the power of those suppliers to dictate prices. A more significant
number shows no power of those suppliers over price control. For example, Coca-Cola
operates in a market where the suppliers are neither concentrated nor differentiated.
Indeed, Coke ingredients such as caffeine and sweetener can be easily found in the
marketplace. Therefore suppliers, in general, cannot control prices. Other factors that
according to Porter determine the power of suppliers are:

● Differentiation of inputs.
● Switching costs of suppliers and firms in the industry.
● Presence of substitute inputs.
● Supplier concentration.
● Importance of volume to a supplier.
● Cost relative to total purchases in the industry.
● Impact of inputs on cost or differentiation.
● The threat of forward integration relative to the threat of backward integration
by firms in the industry.

Bargaining power of customers

This is the flip side of the power of the supplier. Imagine a business where there are
very few customers and switching between one supplier and the other is extremely
easy. Undeniably, this gives total control to customers to set the prices they want.
Going back to our previous example, Coke is very powerful to its bottle suppliers.
According to Porter, there are two major factors affecting the bargaining power of
customers:

● Bargaining leverage: perhaps how many buyers (concentration vs firm

concentration there is in that industry). The switching costs for the buyer
compared to those for the firm, and how much information buyers have.

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● Price sensitivity: include price/total purchases; Product differences, Brand

identity, Impact on quality performance, Buyer profits, Decision-makers’
incentives.

Threats of substitute products or services

This force examines how easy it is for customers to switch from a product or service to
the other. For example, Coke is extremely powerful in relation to its can manufacturer.
Indeed, competition among can suppliers is fierce. Also, the threat of substitution is
very high. In effect, Coke can easily switch to plastic bottles.
That includes

● The relative price performance of substitutes.

● Switching costs.
● Buyer propensity to substitutes

Are Porter’s five forces still relevant today?

Having analyzed the factors that influence an organization through Porter’s five
forces, a company can draw conclusions on its corporate strategy and integrate it
with its business strategy, to maintain a competitive advantage. However, it’s
important to highlight that the world has changed substantially, since the 1980s. And
there is one force that, in my opinion, broke down the walls of the Porter’s five forces:
buyers’ information. Where in the previous era, factors that spanned from economies
of scale, integration, and distribution played a primary role. In today’s business world,
a core factor flipped it upside down: data and information. The Internet enabled many
innovations. And yet, at a business level, it helped companies get to know customers
in ways that it was not possible before (or at least it was not possible to mass
customize marketing activities). And it gave much more information to customers.
Indeed, today the matter isn’t much about how much information customers have.
But rather what information to ignore. In an era of information overload, easy access
to the web and its applications has given to customers many options to pick from
With much more information on the side of customers, lower switching costs (you can
access offers from several competitors in a few clicks), and platform business models,
competitive advantages have turned much more inward. The customer-centered
approach (what you see in design thinking, business model innovation, and lean
methodologies) has taken over. And those companies that obsessed over customers
also managed to build valuable businesses:

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Customer obsession goes beyond quantitative and qualitative data about customers,
and it moves around customers’ feedback to gather valuable insights. Those insights
start by the entrepreneur’s wandering process, driven by hunch, gut, intuition,
curiosity, and a builder mindset. The product discovery moves around a building,
reworking, experimenting, and iterating loop.

Porter’s forces might still be useful, as an exercise to analyze industries. Yet, the faster
you move in gathering customers’ feedback, the more you will know whether you’re
moving in the right direction. Shorter product cycles, customer-centered frameworks,
and lean methodologies have become the rule, in this era.

Competitive Advantage and Generic Strategies

In his book, “Competitive Advantage,” in 1985, Porter conceptualized the concept of
competitive advantage, by looking at two key aspects. Industry attractiveness, and the
company’s strategic positioning. The latter, according to Porter, can be achieved
either via cost leadership, differentiation, or focus.

Quick intro do generic strategies

As Porter was trying to conceptualize and break down what determined a
competitive advantage for companies, within specific industries, Porter created a
framework that would stick for decades. This framework moved along two core sub-
frameworks. One to determine industry attractiveness (Porter’s five forces). And
another one, that also based on the industry attractiveness, determined the strategic
positioning (Porter’s generic strategies to gain a competitive advantage). As he
explained in the book, “competition is at the core of the success or failure of firms.”
The whole point for Porter was, through competitive strategy, “to establish a profitable

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and sustainable position against the forces that determine industry competition.”
Industry attractiveness could be analyzed through five core forces (above).

Be a cost leader, differentiator, focuser or die..

Within cost leadership, a company that for several factors (spanning from economies
of scale to operational efficiency) managed to sell a product at a lower price and still
make good profit margins, would sustain its long-term competitive advantage, is in a
good strategic position. On the other side, based on a different context a company
could still reach a competitive advantage in a broad market through differentiation.

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A third generic strategy, that targeted a narrow scope within an industry could also
be reached through cost focus or differentiation focus.

There is one scenario that Porter emphasized to avoid: stuck in the middle.

Getting stuck in the middle

In all the cases in which a company wouldn’t be able to execute one of the generic
strategies highlighted by Porter in competitive advantage, this would result in a stuck
in the middle scenario, where no competitive advantage is created.

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Porter’s Value Chain Model

In his 1985 book Competitive Advantage, Porter explains that a value chain is a
collection of processes that a company performs to create value for its consumers. As
a result, he asserts that value chain analysis is directly linked to competitive
advantage. Porter’s Value Chain Model is a strategic management tool developed by
Harvard Business School professor Michael Porter. The tool analyses a company’s
value chain – defined as the combination of processes that the company uses to make
money.

Understanding Porter’s Value Chain Model

In his 1985 book Competitive Advantage, Porter explains that a value chain is a
collection of processes that a company performs to create value for its consumers. As
a result, he asserts that value chain analysis is directly linked to competitive
advantage. Competitive advantage occurs when a business systematically examines
its internal processes and how they interact with each other. Each process in the value
chain should create value that exceeds the cost of creating that value. In other words,
it should be profitable. The strength of Porter’s model lies in its focus on customers
through value chain systems. This is in contrast to other value chain models that focus
on departmental and accounting expenses, for example.

The primary activities of Porter’s Value Chain Model

Porter breaks down his value chain model into five primary processes, or activities.

1. Inbound logistics
This includes the warehousing and associated inventory control of raw materials. This
also includes the nature of the relationship with suppliers.

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2. Operations
Operations encompass any process that turns raw materials into a finished product
ready for sale, including labelling, branding, and packaging.

3. Outbound logistics
Outbound logistics concern any process where the product is distributed to a
customer. This includes the storage and distribution of products and the processes
involved in fulfilling customer orders.

4. Marketing and sales

Any processes that attempt to enhance product visibility among a target audience
are included in marketing and sales. This activity is also heavily reliant on customer
relationships.

5. Services
Services include any processes that occur after a purchase has been made, including
customer service, repairs, refunds, and warranty acknowledgement.

Secondary activities
Within Porter’s Value Chain Model there are also four secondary activities which
support the foundational primary activities common to most businesses.
Here is a brief look at each.

1. Company infrastructure
Company infrastructure entails any process that supports daily business operations.
Administration, clerical, financial, and line management are all value-creating
infrastructure processes.

2. Human resource management

Human resource management (HRM) covers any process related to the training,
acquisition, or termination of employees. HRM departments and their ability to hire
talented and motivated staff are crucial to a company’s competitive advantage.

3. Research and development

Technology can create a competitive advantage in Porter’s value chain because it
can streamline important processes. These include payroll automation software,
customer service procedures, and distribution networks.

4. Procurement
Procurement is simply the acquisition of necessary goods or services. The most
typical example is the procurement of raw materials and the negotiation of pricing

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and product purchase contracts. It may also include the purchase of equipment,
offices, buildings, and machinery.

Key takeaways:
● Porter’s Value Chain Model is a strategic management tool for the analysis of a
company’s value chain.
● Porter’s Value Chain Model is customer relationship centric and is used by
businesses to systematically examine each of their many processes for
profitability.
● Porter’s Value Chain Model consists of five primary value chain activities, further
supported by four secondary process activities.

Porter’s Diamond Model

Porter’s Diamond Model is a diamond-shaped framework that explains why specific

industries in a nation become internationally competitive while those in other nations
do not. The model was first published in Michael Porter’s 1990 book The Competitive
Advantage of Nations. This framework looks at the firm strategy, structure/rivalry,
factor conditions, demand conditions, related and supporting industries.

Understanding Porter’s Diamond Model

Traditional economic theory suggests that factors such as land, labor, population size,
and natural resources are crucial factors in a nation gaining competitive advantage.
However, Michael Porter argued that this model was a rather passive summary of
economic potential and that far from creating sustained growth, the aforementioned
factors may undermine any potential competitive advantage. Instead, he proposed

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that four other characteristics could accurately predict whether a nation produced
organizations that were competitive on the international stage. These four
characteristics give Porter’s model the diamond shape for which it is known, and they
are explained in the next section.

The four characteristics of Porter’s Diamond Model

1. Firm Strategy, Structure and Rivalry

This characteristic encompasses how companies are structured and managed. It also
includes company objectives and the presence of competitive rivalries, if applicable.
Rivalry is particularly important because it forces companies to innovate, better
preparing them for the international market. For example, German carmakers BMW,
Mercedes-Benz, and Audi would not have become globally successful brands without
the intense competition they face inside their native Germany.

2. Factor conditions
Factor conditions are more basic in nature and refer to unskilled labor, natural
resources, and infrastructure. However, Porter argued that more advanced factor
conditions such as skilled and specialist knowledge and access to capital were more
important to competitive advantage.

3. Demand conditions
Demand conditions refer to the level of demand in the home market of an industry.
Demand creates competition and in turn, competition creates innovation. Specific
demand conditions may include market size and market sophistication.

4. Related and supporting industries

Most large companies are only as successful as their supply chains. Indeed, most are
dependent on alliances and good relationships with suppliers to make cost savings
that can be passed to consumers. Nations with high concentrations of large,
innovative companies who operate close to each other facilitate the spread of
innovation. For example, the cluster of tech companies in Silicon Valley, California,
facilitates innovation because of the proximity of innovative and often supportive
companies.

Criticisms of Porter’s Diamond Model

Given that Porter’s Model assesses competition in the relatively broad context of
nations, it has been subject to criticism. Criticisms include:

● Scope – when the model was developed in 1990, it included just 10 developed
countries. Thus, it does not yet apply to second or third world nations.

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● Contradictory evidence – there is a wealth of evidence to suggest that the

competitiveness of a nation has many external influences that Porter does not
account for.
● Industry selective – Porter’s original analysis focused on the banking sector,
consultancy firms and manufacturers. Some academics have questioned
whether the model is at all relevant to the many large and influential global
service companies such as McDonald’s.

Key takeaways:
● Porter’s Diamond Model is an economic model which argues that the global
competitiveness of a particular organization is dependent on the country it
operates in.
● Porter’s Diamond Model is based on four key characteristics that explain the
requirements for a competitively strong nation.
● Porter’s Diamond Model has attracted criticism for its lack of scope and focuses
on select, non-service related industries.

Porter’s Four Corners Analysis

Developed by American academic Michael Porter, the Four Corners analysis helps a
business understand its particular competitive landscape. The analysis is a form of
competitive intelligence where a business determines its future strategy by assessing
its competitors’ strategy, looking at four elements: drivers, current strategy,
management assumptions, and capabilities.

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Understanding the Four Corners Analysis

In a rapidly changing global market, business analysts are often required to make
important decisions on how a business will not only adapt but gain a competitive
advantage. The Four Corners analysis is one such tool that can be used to collect and
analyze information on competitors to guide future strategy. As a result, the business
can then use the tool as a form of self-analysis – identifying parts of its strategy where
there is room for improvement. Ultimately, Porter’s framework gives all businesses a
frame of reference with which they can judge their competitive success. We will look
at how this frame of reference is created in the next section.

Implementing a Four Corners Analysis

The analysis involves identifying four factors that give a business valuable insight into
their competitors.

Motivation – Drivers
What drives the competition and impels them to act? How do their motivations
impact on their strategy, and vice versa? When a business understands the drivers of
competitor behavior, it will be able to better predict future drivers of success. For
example, a market leader will work hard to defend their position and be largely
unconcerned by smaller rivals. A start-up, on the other hand, will take a more offensive
approach in their attempt to gain market share.

Motivation – Management Assumptions

This corner involves determining how a business perceives itself in the market. This
may be hard to ascertain externally, but actions speak louder than words. For
example, a business can make assumptions about a rival restaurant by assessing
patronage levels, wait times, and subsequent customer loyalty. Regardless of the
industry, management teams who feel that their market share is easily diminished
will face challenges quickly and aggressively. Conversely, organizations that feel more
secure lead by example and are not perturbed by external disruptions.

Actions – Strategy
Is the competition succeeding or failing with respect to its strategy? Again, a detailed
strategy may be hard to obtain from a competitor, but there are several areas that
when used in combination give clues. These include competitor language, behavior,
press releases, product range, partnerships, content production, and geographic
footprint. Once a business has gathered information from these sources, compare
their intentions with quantitative data. This will determine whether a competitor
strategy has been financially or otherwise successful.

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Actions – Capabilities
This describes the ability of an organization to either initiate or respond to external
forces. Capabilities in specific terms include such things as marketing skills, employee
training, held patents, and even the leadership qualities of the CEO. Capabilities (or a
lack thereof) tell the competition a lot about a business. For example, a business
without the ability to innovate may simply lower its prices when faced with a
competing product.

Key takeaways:
● The Four Corners Analysis allows a business to glean insights on their
competitors and position themselves accordingly.
● The Four Corners Analysis provides a means of independently and holistically
assessing a competitor’s current and future actions.
● Businesses who use the Four Corners Analysis diligently will understand the
complex interplay between a competitor’s mission, management, strategy, and
capabilities.

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Product/Market Fit? Better Problem/Solution Fit

Don Valentine, from Sequoia Capital might have coined the term. While Marc
Andreessen, from A16z popularised it as “being in a good market with a product that
can satisfy that market.” According to Andreessen, that is a moment when a product
or service has its place in the market, thus enabling traction for the company offering
that product or service.

From Build > Measure > Learn to Demo > Sell > Build
In a nutshell, the lean startup methodology aims at creating a repeatable process for
product development to minimize the time it takes to build a product that the market
wants.

This process consists of three phases:

● Build.
● Measure.
● Learn.

Once you go through the build > measure > learn that will need to be repeated over
and over, thus creating a virtuous cycle or feedback loop.

Steve Blank also highlights a few core principles at the core of the lean startup
methodology:

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● Business plans rarely survive first contact with customers.

● Five-year plans are worthless and a waste of time.
● Start-ups are not smaller versions of large companies.
● The lean start-up movement is about agile development.

Thus, the primary purpose is to come up with a minimum viable product (MVP) which
helps companies reduce the time to market.

The Minimum Viable Product in a nutshell

Back in 2009, Eric Ries defined MVP as:

The minimum viable product is that version of a new product which allows a team
to collect the maximum amount of validated learning about customers with the
least effort.

And he continued:

MVP, despite the name, is not about creating minimal products. If your goal is simply
to scratch a clear itch or build something for a quick flip, you really don’t need the
MVP. In fact, MVP is quite annoying, because it imposes extra overhead. We have to
manage to learn something from our first product iteration. In a lot of cases, this
requires a lot of energy invested in talking to customers or metrics and analytics.

Ash Maurya also described it as:

The smallest thing you can build that delivers customer value (and as a bonus
captures some of that value back).

At the same time, other entrepreneurs like Rand Fishkin also highlighted the
drawbacks of the MVP approach when you have an established brand.

Indeed when you have an established brand, it might make more sense according to
Fishkin to adopt the EVP or Exceptional Viable Product approach, summarized as:

My proposal is that we embrace the reality that MVPs are ideal for some
circumstances but harmful in others, and that organizations of all sizes should
consider their market, their competition, and their reach before deciding what is
“viable” to launch. I believe it’s often the right choice to bias to the EVP, the
“exceptional viable product,” for your initial, public release.

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In my view, an MVP done right should already have the features described by Fishkin
EVP. However, Rand Fishkin raises an important point. A company with an established
brand should be cautious the way it releases its MVP.

One classic example of what a disastrous MVP can do is Microsoft‘s launch of Bing,
which promised to take over the search engine industry, and replace Google as the
monopolist of search and the meme of our generation (Microsoft wanted to establish
the meme “bing it”) but failed miserably:

While Bing today represents a decent presence for Microsoft in the search industry
(Bing makes a few billion dollars to Microsoft) it never really recovered from that MVP
launch.

As of 2019, if you ask the SEO industry (the practitioners that position their content via
search) many still curl their lips at the sound of “Bing.”

Indeed, while SEOs are both a blessing and a curse for Google, that community has
helped Google get better over the years.

For instance, thanks to the so-called Black SEO practices (attempts to manipulate –
successfully – the Google’s algorithms) the search engine has evolved more quickly,
by releasing algorithm updates that allowed it to get better and better over the years.

Key problems with the Product-Market Fit

While the concept of product-market fit is extremely powerful, it also has some flaws.
In most cases, what makes a product fail in the first place is the market validation, or
whether customers are willing to use or spend money for a product. Therefore, it
becomes very important to build a commercially viable product.

Problem/Solution Fit comes first

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MVP makes you fall into the trap of building up a product even before understanding
the problem the target market faces. That might delay the ability of a company to
build a product that satisfies the market.

Ash Maurya describes this phenomenon in “Don’t Start With an MVP:”

You raise your odds of success significantly by spending the requisite time first
defining the MVP, then validating it using an offer, before building it. Think of it as
Demo-Sell-Build versus the more traditional Build-Demo-Sell approach.

Therefore, where the entrepreneurial world has stressed so much over the solution by
trying to build an MVP, that has delayed the ability to deliver a product that the market
wants.
Instead, by focusing on the problem first, you can understand the problem, and as Ash
Maurya said it, you’ll make the market “an offer your customers cannot refuse.” The
demo > sell > build process has become common nowadays with many platforms
(Kickstarter is one of them) that make it possible to validate an idea, selling it, even
before the product is ready.

Key takeaways
The product-market fit can be defined as the ability of a product to satisfy the market.
The market itself can be segmented to start from a niche market; throughout this
process, it is critical to use a method called market segmentation. At the same time
before going to build a product through the lean startup methodology, it is essential
to define the problem itself. That can be done via the problem-market fit model which
goes through a process of demo-sell-build. Thus, you will maximize the chances of

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success of your MVP. Once the MVP is ready, you want to keep improving it to grab
more and more market share or to broaden the market wanting the product. At that
point, you’ll have reached product-market fit. However, the product-market fit isn’t
something that lasts forever. If the market conditions change, you might lose your
product-market fit. Therefore, you’ll have to start the process to regain your product-
market fit. The whole point of the process highlighted in this guide is about coming
up with ideas that you can validate and sell even before building a product. Today that
is possible via crowdfunding platforms, or by setting up offerings and only after
enough people join in, you start building a product. Thus, in this era, where digital
allows entrepreneurs to quickly and at low costs gather feedback from a large group
of people. It is possible to sell something even before you’ve built it!

Profitability Framework To Narrow Down Financial Issues

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A profitability framework helps you assess the profitability of any company within a
few minutes. It starts by looking at two simple variables (revenues and costs) and it
drills down from there. This helps us identify in which part of the organization there is
a profitability issue and strategize from there.

Profitability analysis framework explained

Analyzing financial statements is one of the most crucial skills to acquire if you want
to work in financial accounting, strategy, investing and a good business skill to master.
However, analyzing financial statements implies that you have all the needed
information to perform your analysis. The word “analytical” means being able to select
from a wide spectrum of data, the one who is relevant to perform the analysis.
Therefore the analyst mindset is one of abundance of information. In a world that
constantly evolves and becomes more complex, there may be situations in which
information is very scarce. Consequently we have to quickly develop a scarcity
mindset. One in which no information is provided, however an answer is required in a
short amount of time. How do we deal with such situations? It is crucial to develop the
consultant mindset. Thus, instead of using Top-Down approaches, typical of the
managerial accountant, we have to use a bottom-up approach, typical of a consultant.

Narrow The Problem

Imagine this scenario: One day, you are in your office. The boss comes in and he asks
for your opinion. He wants to know why the earnings for the IT department declined.
You do not have an idea of what he is talking about and never had any exchange
whatsoever with the IT department in the last couple of years. What are you going to
answer? That is where the “profitability framework” helps. The Income Statement,
together with the balance sheet and cash flow statement, is among the main financial
statements to look at to analyze a business.

The income statement, together with the balance sheet and the cash flow statement
is among the key financial statements to understand how companies perform at a
fundamental level. The income statement shows the revenues and costs for a period
and whether the company runs at profit or loss (also called P&L statement). It starts
by showing the revenue, then expenses and eventually the bottom line: the net
income This implies that we have all the information we need to understand how the
Net Income/Loss was generated. Let’s go back to the scenario I asked you to imagine
at the beginning of the paragraph. Remember, the boss or your client asks you on the
spot an opinion about something we don’t have any information about. There is no
time and not even an Income Statement to look at. The only information about the
business cannot be accessed visually. The only way to access it is through questions.
Therefore, it is crucial to ask the right questions, two to five to assess the situation. To
structure our thinking process we are going to use the “profitability framework”. This

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starts from the assumption that we do not have any information about the business
but we know that the business had a loss. This implies a sort of reverse engineering of
the Income Statement using the falsification process from the scientific method.
Consequently, you will start from the net profit/loss, devise a hypothesis and test it.
The profitability framework is like a reversed income statement and it will look like the
following:

Once tested the hypothesis if it reveals to be true, you have to cross this framework
with another business framework to have the answer you are looking for. To test the
hypothesis we have to devise a logical argument. This argument will look like an
algorithm where you will ask for example: Did our revenue decrease? If yes, then drill
down and figure out whether the issue relates to the price or the volume. If not, then
move on and ask: Did the expense increase? If yes, drill down further to understand
whether the issue is in the variable or fixed cost. Once established where the issue is,
you will switch to a business framework to assess whether it was a problem of
competition, customers, market and so on. For example, John, the CEO of your
organization, comes to you and says: “Department XYZ, an electric company
experienced a decline in profitability (Net Loss), we have a board meeting in six
months, how do we improve its profitability?” Before we assess the how we have to
find the why, in three simple steps and five simple questions.

Step 1: Clarify the objective/target.

You want to know: what are they looking for? (Break even or make profits) and what
is the time frame. Therefore you ask:

Are we trying to break-even or to make profits? (perhaps if a company is

entering a market, breaking even or also losing money might be a short-term
strategy to gain market shares).
What is your time frame?

The CEO explains that they are looking to break even in six months. Before the board
meeting is hosted. Perfect.

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Step 2: You start breaking down the case in your head.

You know that profits are revenue and cost.
Furthermore, you want to understand whether the problem is in the Revenue or in
the Cost, before you start drilling down. Therefore, you ask:

Do we have any information about decreased revenue or increased costs?

The CEO explains there was a decline in revenue by 20% while the costs remained the
same over time. Great.

From this simple answer you can already exclude half of the framework (the cost side)
and focus on the other half (the revenue side). See below:

Step 3 You drill down the revenues.

How? Revenue is composed of: Price per unit and Volume. In this step, you will try to
assess whether the 20% decline in revenue was due to decrease in price or decrease
in sales volume.
Therefore you ask:

Has the price declined?

The CEO says the price stayed the same.

Furthermore, you ask:

Has the volume declined?

The CEO confirms the volume has fallen by 20%.

The good news is that you have narrowed the issue down in just a few minutes.
Indeed, your framework will look like the following:

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This leads to the end of the first stage. Indeed, we figured out “what” is causing the
issue. In fact, the decrease in profitability is due to a decrease in sales volume.

How did this happen? From there, you can move to a more context-based analysis, or
business framework that looks at the overall market landscape.

Relationship Marketing To Move From Awareness To Loyalty

Relationship marketing involves businesses and their brands forming long-term relationships
with customers. The focus of relationship marketing is to increase customer loyalty and
engagement through high-quality products and services. It differs from short-term processes
focused solely on customer acquisition and individual sales.

Understanding relationship marketing

Relationship marketing starts with a business understanding their client base. Who are they
and what do they buy? What are their values and long term needs? Like any successful
relationship, it is important that businesses use demographic and buying behavior data to
understand their customers on a meaningful level.

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In the context of relationship marketing, understanding customers means gaining clarity on

the nature of their repeat business. Why do certain customers return again and again? Most
businesses assume it is the quality of their products. Yet the real reason may be that their store
is the closest to a customer’s home. Alternatively, their business may simply stock a range of
products that can’t be found anywhere else. Whatever the reason, it will vary from person to
person. As a result, businesses should segment their audience based on these reasons to
develop an effective marketing strategy for each. For example, a customer who enjoys the
usefulness of a product is different from one who buys from a business because of their
philanthropy. Each must be marketed in different ways so that the relationship is maintained
and strengthened over time.

Examples of relationship marketing

Swedish furniture maker IKEA has a large, global, and very loyal audience. But after changes
to the font used in their brochure drew widespread criticism, the company became fearful of
alienating their customer base. Consequently, they immediately returned to using the old font.
Manufacturer of popular ADHD drug Vyvanse went above and beyond for their customers by
creating an online portal for families suffering with ADHD. The portal features a discussion
forum with videos and articles from industry experts. From a marketing perspective, the portal
allows Vyvanse’s loyal customers to interact with each other and form a long-term relationship
with the brand. In perhaps a more visible commitment to long term relationships, ArmorSuit
offers a life-time warranty on all of their smartphone screen protectors. While this may not be
the most lucrative deal for the company, ArmorSuit does strengthen their customer
relationships and get people interested in other products which don’t carry lifetime warranties.

The importance of relationship marketing

The acquisition of new customers for any business can be costly and time-consuming. In some
cases, acquiring a new customer costs a business five times more than retaining an old one.
Furthermore, customers who are familiar with a brand spend more money. Research by Bain
& Company found that an increase of just 5% in customer retention ability increased company
revenue by 25-95%. When businesses strive to create authentic relationships with their
customer base, they can focus their marketing efforts on where it matters most. Authentic
relationships that are paired with quality goods and services get customers talking about a
brand with their friends and family. In effect, marketing budgets are decreased since loyal
customers promote the business for free.

Key takeaways:
● Relationship marketing seeks to foster customer loyalty, interaction, and engagement
with exemplary products and services.
● Customers have different reasons for entering into long term relationships with brands.
Therefore, marketing departments must develop strategies that speak to each
customer individually.
● Relationship marketing is a cost-effective marketing strategy since existing customers
cost less to retain and spend more money over the long term.

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RTVN To Build Your Business Model From Scratch

Source: bizmodelbook.com

But if you’re even earlier than that, I mean you’ve come upon this idea that you think
might be innovative or it might have a market opportunity, even the lean canvas
might be a little more than you’re prepared to develop. Because it does require you to
think in at least a little bit of depth about channels and customer relationships and
cost structures and you just might not be there yet. And so for that, we recommended
this model (RTVN), which stands for resources, transactions, value, and the narrative.
And it’s meant to be an extremely simplistic way to get started with a business model.
Think about the essential resources that you’ll need. What is it that creates value?
What are the transactions that take place? Who do you interact with? Whether it’s
suppliers, customers, partners, how is value created and then captured? And that
those are not necessarily the same thing. How you create value and then how you
monetize that and capture it may be slightly different. And then surrounding that, we
encourage early entrepreneurs to make sure they do think about the narrative. What’s
the story that ties all of this together? Because maybe the single most important thing
about business models, if we could jump ahead 50 years and think about how
business models changed management, it might be that the ability to use a business
model to tell a straightforward and clear story about why an organization is going to
be successful is really what makes it work. And so you make sure that as you think
about these elements; the resources, transactions, values, or if you use the lean canvas
or if you use Osterwalder’s Business Model Canvas, that you always have in the back
of your mind, what’s the underlying story here? What’s the compelling way to explain,

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whether to employees or partners or investors or customers or suppliers. What is that

story that shows why this business works?

What are the SHaRP resources and why do they matter?

Adam J. Bock: The SHaRP resources perspective is a variation of a more longstanding
approach to resources in strategic management and corporate strategy. There’s a
framework called the V-R-I-N or the VRIN framework based off of the resource-based
view of the firm, which is this long-running strategic framework in the academic
literature. When we were thinking about what we did want to make sure that we
distinguish this a little bit from a business model perspective simply, again, to kind of
make sure that we didn’t get too caught up in links with strategy. The SHaRP
resources framework helps to emphasize that organizations gain advantages and are
successful because of the various resources within the organization. And resources is
a very generic term, it can refer to human capital, it can refer to financial capital,
physical assets, capabilities, skills, knowledge. We wanted to make sure that people
had a relatively straightforward way to think about those and to assess them in a
relatively simple way.

And so SHaRP stands for:

● Specific: They’re going to be the people or the assets, or the way money is used
that are specific to that particular opportunity in that industry.
● Hard to copy: They need to be hard to copy. Because if anybody can get access
to them, then your advantage is going to be limited either in time or in
geographic scope.
● Rare: They need to be rare. They need to be something that once you access,
they become something that other organizations can’t as easily also generate.
● And precious: They have to be valuable in some specific way.

The more of those characteristics that a resource has, the more it contributes to the
success of a business model. Thus, having a resource, an individual for example, who’s
very specific can provide a lot of value to your opportunity, that’s very good.
But if they have unique experience, they have unique capabilities, no one else has
been working on the same kinds of topics that a person has been working on, the
more of those characteristics, hard to copy, rare and precious, the more likely that that
person’s going to be that person, that asset, that capability, that skill will actually
ensure that your business model is viable in the long-term.

What’s the customer journey map and why does it matter?

Adam J. Bock: The customer journey map is one of those tools that I’m constantly
surprised not to see more often. The customer journey map is a very simple thing, and
this is not something we invented by any stretch of the imagination.

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It’s a map or a diagram or even a narrative that explains every step that your customer
takes:

● From when they first become aware of your innovation, product, company
● All the way through the educational process, the purchasing process, customer
support after purchase,
● And ultimately to a point where they’re either becoming a long term customer
or also, they’re also helping refer other customers to you.

And this customer journey map is incredibly powerful for thinking about from a
business model perspective because it shows you every interaction that you have with
the customer and it gives you a relatively clear and testable process for thinking about
all the things that your business model has to do to be successful. And there are many
versions of the customer journey map, and there are at least a dozen different
templates online that you can access. But I am constantly surprised that I don’t see
more entrepreneurs generating a customer journey map in conjunction with their
business model because I think they go hand in hand if you know what your customer
journey looks like. Putting together the business model and recognizing the critical
places in the business model where you’re going to create and capture value becomes
dramatically easier.

What’s a business model narrative, and why it is essential?

Adam J. Bock: The business model‘s narrative is a couple of things. It could be a little
bit of your organizational story. It could be a simple description of how you create
value. It could be in part what makes your organization unique from any other. The
way that we have tried to encourage people to think about the narrative is to tie it
explicitly back to the RTVN framework. So the narrative should encompass in some
simple way the essential resources, the key transactions, and how value is created and
captured. And it’s not the case that the narrative has to be perfect. It is something that
you can constantly return to say, “Is this actually what the business does and do all of
the elements of the business model in this canvas or in this broader analytical
framework that we’ve created, do they all ultimately tie back to that?”

And this is so important because as people, as humans, we think in narratives. We

automatically create stories about everything. About ourselves, about the
organizations we work for. And that is a compelling way to communicate information
extremely quickly. So we feel like it’s a bit of a missing piece that a lot of entrepreneurs,
they know about it, and they’re thinking about it as they build their pitches. And so
from our perspective, why not make that explicit and make sure that it matches
exactly what it is that your underlying business model is doing?
What are some of the key obstacles to designing a great business model?

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Adam J. Bock: I think there are three.

The first one is the unstated assumptions. Getting those assumptions and
hypotheses down in the business model. I think that the most common mistake that
I see is when entrepreneurs put together a business model, but they still have these
assumptions in the back of their head that are driving how they think about the
business model and they never get written down.
And what that means is that if you don’t write them down, you’re never going to test
them. And that’s an extremely dangerous place to be. We know from studying
entrepreneurs that the assumptions that they have about how a business is going to
work are often not reflected in the market reality because very often we are not our
company’s primary customers and so it’s just really essential to get those assumptions
written down.
The second thing from my perspective is just failing to look beyond the surface.
So you look at a business model, and all the pieces seem to link up, and you just leave
it there. And the reality is that business model analysis is fundamentally more
complicated than that. We can look at the example of low-cost airline carriers like
Southwest and Ryanair and sure, some things are obvious, they don’t serve
champagne on the flights. Well, that’s an obvious element of the business model.
But you can look at a company like Southwest Airlines in the United States and they
spend more on training than most other airlines do. That doesn’t seem to fit the low-
cost business model concept. But you have to look deeper. Because mistakes in the
airline industry are very costly. If you’ve got the bag on a wrong flight or a flight gets
delayed, the costs of those mistakes are extremely high. And so training ultimately is
a low-cost activity even when you spend more on it because it’s generating returns in
the long haul.
And then the last thing I think is the last obstacle is missing the value needed for
the customer’s relationship. Where does the need of your customer match up to the
value you create in the organization? What is the value created in the business model?
And again, this is where that customer journey map I think is critical because it
ensures that you’re making that connection very, very explicit and there’s no shortage
of other tools out there that you can use in terms of linking up customer needs with
value creation.

But making sure that you’re doing that very explicitly from my perspective is a critical
obstacle that a lot of entrepreneurs face in building an effective business model.

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Sales Funnels And Flywheels

The sales funnel is a model used in marketing to represent an ideal, potential journey that
potential customers go through before becoming actual customers. As a representation, it is
also often an approximation, that helps marketing and sales teams structure their processes
at scale, thus building repeatable sales and marketing tactics to convert customers.

Have sales funnels ever existed in the real world?

The sales funnel is just a representation of reality, as such, it has its own drawbacks, such as:

● Assuming most customers reach you through the same path can drive bad marketing
campaigns.
● Assuming the sales cycle is linear, when it’s not, it can create the illusion of
understanding of the customer.
● Simplifying too much the sales funnel means losing significant opportunities as the
service won’t correctly be tailored for more complex shots.

And yet the sales funnel has been a useful tool for marketing and salespeople, as a way to
communicate and talk about the way customers get to know a brand. In short, sales funnels
introduced a consumer-centered approach to sales that required marketing people to get
aligned with potential customers, thus identifying potential actions to take to unlock the
potential of a product. Therefore, the funnel answers an important function, that of setting a
team’s priorities. So even with its evident limitations it can still be a great tool for teams.

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Shortening the sales cycle

One of the elements that most of all can damage the bottom line is a mistake in understanding
the sales cycle for larger customers. As sales deals move from small and B2C, to larger and
more complex deals, the sales cycle becomes increasingly volatile. Thus, deals that you
thought might close in a few weeks, take months, and this, in turn, affects the health of the
overall organization. Therefore, having a sales funnel to prioritize, at each step of the cycle, it
can be a critical element to sustain the company. In short, if you know that important deals
will take closer than expected to close, you will need to fill the so-called sales pipeline, quickly,
to prevent you from completely missing the targets.

Key takeaways
● Sales funnels are useful tools that enable sales and marketing teams to prioritize their
work.
● While sales funnels are useful for digital and platform business models, the flywheel
can be more effective.
● Indeed a flywheel marketing model can help build an ecosystem that becomes the
main asset of the platform.

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Scenario Planning To Identify Uncertainties

Businesses use scenario planning to make assumptions on future events and how their
respective business environments may change in response to those future events. Therefore,
scenario planning identifies specific uncertainties – or different realities and how they might
affect future business operations. Scenario planning attempts at better strategic decision
making by avoiding two pitfalls: underprediction, and overprediction.

Understanding scenario planning

In the context of business, a scenario is defined as the description of a possible future and how
an organization might reach that future through a story. Here, it’s important to note that the
story does not describe an ideal scenario for the business. Nor does the story predict the future.
A story is just one description of one possible future, and it includes:

● The current position of a business and the issues it is facing.

● Awareness of basic trends relating to demographics, economics, and politics. Trends
must represent a global consensus in that they are based on fact.
● An analysis of key future uncertainties and how they may impact on the organisation.
● An awareness of the key local and global drivers of change and their potential impacts.

Ultimately, scenario planning attempts to address two common strategic errors in corporate
decision making. Businesses who make these strategic errors invariably have strategies that
are backed up by incomplete or inaccurate stories.
They are:

● Underprediction – where businesses predict that the future will be much like the past
and present. For example, Nokia underpredicted the rise of the smartphone and how
its popularity would affect their bottom line.
● Overprediction – where businesses predict that the future will be very much unlike the
past and present. For example, many health and technology companies in the 1960s

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predicted a cure for all cancers and mass uptake of flying cars bye the turn of the 21st
century.

Implementing scenario planning

Once a business has identified the key driving forces and the uncertainties they may produce,
it must develop several distinct scenarios that are most likely to come to fruition. Workshop
discussions that encourage brainstorming are effective in formulating these scenarios. Here is
a simple step-by-step process that workshop participants can use.

Step 1: Identify the driving forces

Start by identifying possible shifts in global society, specific to their relevant market segment
or industry. Driving forces must have the potential to impact on business operations.

Step 2: Identify uncertainties

From the list of driving forces, businesses should pick three or four with the potential to make
the biggest impact. Two of the biggest driving forces of uncertainty in agribusiness, for
example, are consumer demand and food prices.

Step 3: Develop plausible scenarios

Plausible scenarios are realistic scenarios. They should have the ability to challenge a business
moving forward and also have a reasonable probability of occurring in the first instance. While
consumer demand for agribusiness is a realistic uncertainty, it would be unrealistic to suggest
that demand for red meat would drop to zero, for example.

Step 4: Discuss the implications

Businesses who are aware of the potential implications of their various scenarios can then start
to reconsider their strategy. They can achieve this by realigning their mission, goals, and values
while still catering to every possible future scenario. In 1980s Detroit, three of America’s largest
car manufacturers imagined that oil price fluctuations and changing consumer values were
their biggest potential threats. They invested billions of dollars in infrastructure and car design
and shared values of Detroit being a powerhouse of manufacturing for years to come.
However, they did not see or plan for the rise of new competitors from Japan which ultimately
led to the demise of Detroit as a car manufacturing hub.

Key takeaways:
● Scenario planning is a future planning strategy in which organizations form an idea of
potential future scenarios and how these scenarios may affect their strategic objectives.
● Scenario planning is based on descriptive stories that are not future predictions but
instead plausible alternate realities.
● The four-step scenario planning assists businesses in telling the difference between
plausible and implausible future events and planning accordingly.

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Scrum: Borrow It For Better Project Management

Scrum is a methodology co-created by Ken Schwaber and Jeff Sutherland for effective team
collaboration on complex products. Scrum was primarily thought for software development
projects to deliver new software capability every 2-4 weeks. It is a sub-group of agile also used
in project management to improve startups’ productivity.

Trust the process

While agile is a set of principles that drive the activities in software development. Scrum is a
methodology that applies those principles to make software development faster and more
productive. However, Scrum has also become a methodology for project management in the
startup world. When Jared Dunn (the character in Silicon Valley Series) in the vest of business
developer, he convinces Pied Piper’s founder, Richard Hendricks to use the Scrum
methodology, Richard was a skeptic. Why would a group of smart software engineers fall into
a management strategy? Well, it turned out he was wrong. In fact, Scrum is a process
envisioned to make software development lighter, faster and more suited to customers’ needs.
The method is now also used by startups for project management. Yet in reality, Scrum was a
methodology born from the Agile Manifesto, a set of principles put together in 2001 by
software development experts.

Heavyweight vs.lightweight software development

The agile manifesto started out as a movement that wanted to challenge the assumption of
the so-called heavyweight methods for software development that were based on more
sophisticated and regulated approaches. In fact, Scrum evolved as a lightweight software
development method. The main difference between heavyweight vs. lightweight is
fundamental. In fact, heavyweight software development methodologies, which prevailed a
few decades back, consisted of many rules and protocols to follow. Instead, a lightweight
methodology is based on a few basic guiding principles. And it all started with the agile
manifesto.

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Agile manifesto: the guiding principles of Scrum methodology

In 2001, a group of seventeen software developers met to discuss these lightweight
development methods, with the aim of challenging the old assumption of heavyweight
software development. They forged “The Agile Alliance,” as a group of independent thinkers
about software development, which agreed on the Manifesto for Agile Software Development.
Together they published the Manifesto for Agile Software Development. It comprises twelve
guiding principles from which many applications (comprising Scrum) were born.

1. Our highest priority is to satisfy the customer through the early and continuous delivery
of valuable software.
2. Welcome changing requirements, even late in development. Agile processes harness
change for the customer’s competitive advantage.
3. Deliver working software frequently, from a couple of weeks to a couple of months, with
a preference to the shorter timescale.
4. Business people and developers must work together daily throughout the project.
5. Build projects around motivated individuals. Give them the environment and support
they need, and trust them to get the job done.
6. The most efficient and effective method of conveying information to and within a
development team is face-to-face conversation.
7. Working software is the primary measure of progress.
8. Agile processes promote sustainable development. The sponsors, developers, and
users should be able to maintain a constant pace indefinitely.
9. Continuous attention to technical excellence and good design enhances agility.
10. Simplicity–the art of maximizing the amount of work not done–is essential.
11. The best architectures, requirements, and designs emerge from self-organizing teams.
12. At regular intervals, the team reflects on how to become more effective, then tunes and
adjusts its behavior accordingly.

Some of those principles might be given for granted today yet they were not at all back in 2001.
This manifesto represents the founding document for the Scrum methodology.

What are the benefits of using Scrum?

The benefits of using Scrum can be linked to the advantage of using an agile development
methodology. Organizations that have adopted agile Scrum should experience:

● Happier customers due to more responsive to development requests by the software

development company
● Higher returns are given by the ability of the software developer to focus on high-
impacting features
● Better organization of work based on the team’s ability to work together
● Reduced time to market due to the more efficient organization

The Scrum elements

The Scrum methodology comprises three main components and a set of rules.

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The Scrum Team

Within the team, there are three primary roles. It is important to remark that there is no
hierarchy in the Scrum methodology. But each of the team members will be accountable for
a specific part of the project.

● The Product Owner: this person is primarily accountable for managing the completed
increments of work.
● The ScrumMaster: this person does anything possible to help the team perform at the
highest level.
● The Development Team: There are no titles in the Development Team. The main aim is
to break down the product into items that can be incrementally implemented

Scrum Events (so-called Ceremonies)

● The Sprint: 2-4 weeks period in which a specific part of the work is completed
● Sprint Planning: those are meetings to assess which part of the product can be
completed
● The Daily Stand-up: it is a short meeting of no more than 15 minutes to evaluate the
progress of the project
● The Sprint Review: a demonstration to present the work completed during the sprint
● The Retrospective: final team meeting to assess what worked and what didn’t to
improve the process

Scrum Artifacts
● Product Backlog: outlines every requirement for a system, project or product. It can be
a to-do list consisting of work items
● Sprint Backlog: list of items to be completed during the sprint
● Increment: is the list of items completed after the last software release

Scrum Rules
The team will define those rules according to the organization’s values and expectations. Thus
there isn’t a simple set of rules to follow.

Scrum guide
You can start right now to learn everything you need to know about Scrum from the official
Scrum online guide.

Key takeaways
The Scrum methodology is based on the Agile Manifesto created in 2001. It is a project
management process whose primary aim is to make complex product development more
effective. This methodology that has mainly been used for software development can be
applied to startup project management processes. The important aspect of Scrum is that there
are not hierarchical structures or roles.

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Switching Costs As Friction For Your Product Adoption

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Switching costs consist of the costs incurred by customers to change a product or service
toward another similar product and service. In some cases, switching costs can be monetary
(perhaps, improving a cheaper product), but in many other cases, those are based on the effort
and perception that it takes to move from a brand to another.

Why switching costs matter

When launching a new product on the market, it’s critical to look at existing alternatives, as
your solution might work, only if it is convenient (either in times of money, effort, or else) for
existing customers. Indeed, for customers to change brands, and use your product there will
be an element of friction, defined as switching cost.

Switching costs go beyond price and money

Let’s imagine a simple example. You use Google as a primary search engine, and Google
Chrome as a browser. With Google and Chrome, you get a set of advantages and products (for
instance, the Chrome extensions marketplace enables you to download any app to do
anything within your browser). Even if those services are free it’s still very hard to switch to any
other search engine or browser, as the effort it takes to get used to a new combination of
search engine, browser, extensions and so forth is too “expensive” psychologically to take the
leap.

Building up moats
Companies that are able to create high switching costs (either through cost leadership,
differentiation, or else) will also be able to create a competitive advantage. A higher friction for
customers to change toward a new product or service might help the company to “lock them
in.” Yet, this strategy to be successful it also needs to offer a great customer experience across
the several products. Thanks for instance the case of Microsoft Office that bundles up its
products to create a lock-in experience for users to prevent them from switching (together
with Office, customers also get other services that go from email to company’s chat like
Microsoft Teams). This closed environment might make it harder for users to switch to a new
brand. Yet, the experience can be also frustrating and limiting if those products don’t work
extremely well.

Monetary switching costs

A lower price can help as switching costs in those categories where products and services are
more commoditized, therefore, the price will have a higher impact and importance on
customers’ behaviors. A lower price will also be more attractive. In those cases, building up
switching costs becomes harder. Imagine the case of the gas station selling gasoline. If it is
able to offer a lower price compared to the gas station half a mile away, consumers will prefer
it, as it might not make much of a difference where to fuel the vehicle, if not the price.

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Non-monetary switching costs

Other non-monetary switching costs can be classified in several ways. Some key switching
costs require:

● Effort: it might take the time or mental energy to move from a product to another.
Think of the case to change the software that costs less, and yet it’s more complicated
to use, therefore requiring more time and effort to learn. The user might still stick with
the other more expensive software if that perceived as more comfortable to use.
● Perception: other switching costs are more related to perception. Let’s take two cases:
○ Branding and status quo: imagine you can buy a pair of shoes from a less known
brand, which costs less. Who is passionate about shoes knows that those are
fashion statements, not just things to cover your feet. Therefore, the more
recognized brand or the brand that is more in line with the perception of the
individual will be the preferred one, independently from price (or at least price
is less critical).
○ Branding and reliability: imagine the case of a person buying a laptop from a
known brand vs. an unknown brand. At the same time, the unknown brand‘s
laptop might be cheaper, more performant, and overall better. The customer
might not switch to it as she/he fears it won’t be reliable.
○ Offering an alternative: think of the case of DuckDuckGo, a search engine
prioritizing on privacy. Even if that might not be as good as Google, it will still be
the preferred choice for those switching to it due to privacy. And those people
will stick around.

Low vs. high switching costs

The inability to create high switching costs (either through pricing, better and simpler product,
brand, or all these) might prevent the company from creating a long-term competitive
advantage.

The Experience Curve

The Experience Curve argues that the more experience a business has in manufacturing a
product, the more it can lower costs. As a company gains un know-how, it also gains in terms
of labor efficiency, technology-driven learning, product efficiency, and shared experience, to
reduce the cost per unit as the cumulative volume of production increases.

Understanding the experience curve

The Experience Curve was developed in the 1960s by The Boston Consulting Group who
observed the phenomenon in the manufacture of semiconductors. They found that the value-
added production cost declined by as much as 20 to 30% each time the total manufacturing
output doubled. In this context, manufacturing output was directly related to experience. In
theory, experience then allows a company to further reduce production costs and gain a

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competitive advantage in the process. In terms of the fundamental core processes that power
the Experience Curve, consider the following:

● Labor efficiency – employees who perform the same job repeatedly will naturally
become more skilful and efficient. Confidence also grows and as a result, they make
fewer errors which increases productivity.
● Standardization and specialization – skilled employees with experience then
contribute to standardizing processes. They also streamline the use of required tools,
techniques, and materials.
● Technology-driven learning – with more time, streamlined processes are fed into
technology, further increasing the level of experience that a business has in
manufacturing a product.
● Product efficiency – when a company has enough experience to bulk produce goods
and services, they achieve product and thus cost efficiency.
● Shared experience effect – at this point, the company can apply their skill and
experience in manufacturing one product into the manufacture of a related product.
This potentially shortens the learning curve and fast tracks their ability to reduce costs
with experience.

Examples of the Experience Curve

Perhaps the most well-known example of the Experience Curve can be seen in the
development of the Model T Ford. With the benefit of 11 years of assembly experience, Ford cut
production costs of the Model T and increased its market share from 10% to 55%. This was
achieved by modernizing plants, vertical integration and eliminating model changes. Ford
even went as far offering the Model T in black only, since black paint dried the quickest and
therefore increased the speed of production. Contact lens maker Bausch & Lomb consolidated
their market position by computerizing lens design and expanding their plant to facilitate
greater productivity. Arc welding supply company Lincoln Electric also encouraged
experienced employees to create policies that would increase efficiency.

Limitations to the Experience Curve

The Experience Curve does suffer from limitations, particularly if certain aspects of the business
are mismanaged. Potential limitations include:

● A lack of mentors or skilled employees who can contribute their experience to

improving company processes.
● Mistaking the Experience Curve with future potential. While the curve does lead to
reduced costs, it does not make any guarantees. Companies with poor management
who suffer from negative external factors may find it difficult to reduce costs
significantly.
● Reliance on product relevance. When a product becomes obsolete or falls out of favour
with consumers, any cost reduction the company previously enjoyed will be eroded
due to falling sales and lower profits. The company must then start the process again.

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Key takeaways:
● The Experience Curve refers to the graphic representation of the inverse relationship
between the total value-added cost of a product and the experience the company has
in manufacturing it.
● The Experience Curve is powered by at least five fundamental mechanisms that
emanate from a skilled and experienced workforce.
● The Experience Curve has several limitations because it relies on a skilled workforce and
favourable product sales.

Tipping Point Leadership For A Strategic Shift

Tipping Point Leadership is a low-cost means of achieving a strategic shift in an organization

by focusing on extremes. Here, the extremes may refer to small groups of people, acts, and
activities that exert a disproportionate influence over business performance.

Understanding Tipping Point Leadership

Tipping Point Leadership was created by researchers W. Chan Kim and Renee Mauborgne to
show how leadership can work in business. When new ideas spread quickly through an
organization, Chan and Mauborgne argued that this would only happen when a critical mass
of people became engaged in the idea. To institute change however, the critical mass must
consist of people who make strong and robust arguments for change. These people
concentrate on what matters most and have a unique ability for mobilising others in support
of a cause. Importantly, they only comprise a small fraction of the total workforce. Indeed,
Tipping Point Leadership contradicts conventional wisdom around organizational change
which suggests that it can only be achieved through the resource-intensive conversion of the
majority of employees.

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The archetypal example of Tipping Point Leadership

This strategy is perhaps best demonstrated by reflecting on the example of the New York City
Police Department (NYPD). When Police Commissioner William Bratton took the helm in 1994,
the NYPD was notoriously difficult to manage. The city itself had also experienced three
decades of escalating crime rates. It’s important to note that Bratton faced the same hurdles
that any business manager might face, such as:

● Organizational dependence on the status quo.

● Opposition from vested, political influences.
● Limited resources.
● Unmotivated staff due to low wages and dangerous work conditions.

However, Bratton used the Tipping Point Strategy to turn New York City into one of the safest
large cities in the United States. Remarkably, he achieved this in under two years and without
a budget increase. Bratton focused on the resources he did have. Notably, he secured the
commitment of key players in the NYPD. Players that could help Bratton mobilise change and
turn even the most seasoned pessimists. This is how Bratton overpowered hurdles to change
and in the case of the NYPD, improvement. We can examine his methodology by looking at
how he handled each of the four key hurdles common to most scenarios.

The four key hurdles of Tipping Point Leadership

1. Cognitive hurdles
The most difficult step in overcoming hurdles is convincing others to agree that problems exist
in the first place. The best way of convincing managers of the need for change is in exposing
them to the problems firsthand. After the NYPD was issued with excessively small patrol
vehicles, Bratton invited the general manager for a district tour, picking him up in one of the
small patrol cars. After two hours with little legroom, the manager understood the problem
and Bratton received a fleet of much larger cars.

2. Resource hurdles
Even when a critical mass of people understands the need for change, they are often met with
resistance from leaders who cite a lack of resources. Instead of losing heart, Bratton decided
to make the most of the resources he did have by using them in high impact areas.
Bratton’s response to a transit unit which had an excess of cars and limited office space was
ingenious. He simply traded with another division that had an excess of office space but a
limited number of cars.

3. Motivational hurdles
Managers who do eventually see the need for change often try to incentivize others to get
them motivated. This is a resource-intensive option that takes time and is often not effective.
Bratton instead identified the 76 most influential commanders in his area and interviewed
each of them about the area’s performance. This gave him a bigger picture view of how

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thousands of employees were being managed and why they were so unmotivated to change.
Importantly, it helped him create a new culture.

4. Political hurdles
Business politics are best silenced by setting a good example and presenting the relevant
personnel with undeniable facts that refute their ways of thinking.
Bratton, now extremely well-informed, used both to overcome the political hurdles endemic
to the NYPD.

Key takeaways
● Tipping Point Leadership is a suite of principles that allow business managers to
overcome hurdles to institute change in a low-cost manner.
● Tipping Point Leadership was popularized by William Bratton, who overcame
institutional hurdles in New York City policing to lasting change.
● Tipping Point Leadership is most commonly used to overcome four hurdles that are
common to most businesses.

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TQM Framework To Align Employees And Customers

The Total Quality Management (TQM) framework is a technique based on the premise that
employees continuously work on their ability to provide value to customers. Importantly, the
word “total” means that all employees are involved in the process – regardless of whether they
work in development, production, or fulfillment.

Understanding the TQM framework

The TQM framework was developed by management consultant William Deming, who
introduced it to the Japanese manufacturing industry. Today, Toyota is perhaps the best
example of the TQM framework in action. The carmaker has a “customer first” focus and a
commitment to continuous improvement through “total participation”. Indeed, the focus of
the TQM framework is the continual improvement of all processes with an organization –
regardless of whether they have a direct or indirect impact on customer satisfaction.
Improvement comes from identifying and then removing or reducing errors. Errors commonly
occur in supply chain management, manufacturing, employee training, and customer
experience. Regardless of the cause, all employees must work toward problem-solving and
adding value to the customer experience.

8 principles of Total Quality Management

While there is no universal approach to implementing a TQM framework, many businesses use
the following eight principles. Many of these are evergreen principles that can be applied to
any industry and are incorporated in more modern management techniques.

1. Customer-focused
The TQM framework acknowledges that the customer is the final determiner of whether
company processes are sufficiently high quality. If the customer is not satisfied, then the

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company must refocus its efforts on understanding consumer needs and expectations on a
deeper level.

2. Employee engagement
Engaged employees are empowered employees who are not fearful of their jobs. As a result,
they have the confidence and experience to suggest and implement continuous
improvement across many systems.

3. Process approach
Refining process is a fundamental component of the TQM framework. Here, refinement means
processes are followed in a logical order to ensure consistency and increased productivity.
Flowcharts and visual action plans can be produced so that employees understand their
responsibilities.

4. System integration
System integration means that every single employee in a given company has a reasonable
understanding of policies, standards, and objectives. It is vital that employees understand their
roles and how they contribute to the greater success of the company – no matter how indirect
these roles may seem.

5. Strategic and systematic approach

A business must develop strategies that are quality-centric. Company mission statements and
their associated goals and values should also reflect the quality-first approach to customer
satisfaction.

6. Continual improvement
Continual improvement is important in developing a competitive advantage and also in
meeting stakeholder expectations. Toyota’s model for continual improvement places a high
emphasis on employee participation, eliminating waste and reducing bureaucracy. These
factors increase innovation and reduce costs, which ultimately flow to the consumer.

7. Decision-making based on facts

Informed decisions are derived from a deep understanding of a business’s market and their
target audience. Wherever possible, data should be collected to support employee experience
and intuition concerning creating value for consumers.

8. Communication
Communication is an often overlooked yet vitally important part of any successful company. It
plays a key role in clarifying expectations while also increasing employee morale and
motivation. It also increases collaboration and innovation between previously separate
departments in a single company.

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Key takeaways:
● The TQM framework is an approach to long-term success by increasing customer
satisfaction through the reduction or elimination of errors.
● At its core, the TQM framework emphasizes a total commitment to long term change
through a cohesive and collaborative approach to employee problem-solving.
● The TQM framework utilizes eight principles with a focus on customers,
communication, employees, and incremental improvements.

Transitional Business Models To Gain First-Stage Traction

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A transitional business model is used by companies to enter a market (usually a niche) to gain
initial traction and prove the idea is sound. The transitional business model helps the company
secure the needed capital while having a reality check. It helps shape the long-term vision and
a scalable business model.

Tesla: from electric sport’s car to everyone’s electric car

It was 2006, when Tesla, with his co-founder Martin Eberhard, launched a sport’s car which
broke down the trade-off between high performance and fuel efficiency. Tesla, which for a few
years had been building up an electric sport’s car ready to be marketed, finally pulled it off. As
Elon Musk would explain Back in 2012: “In 2006 our plan was to build an electric sports car
followed by an affordable electric sedan, and reduce our dependence on oil…delivering Model
S is a key part of that plan and represents Tesla’s transition to a mass-production automaker
and the most compelling car company of the 21st century.”

Tesla had to find an effective market entry strategy that would enable it to validate the market.

The transitional business model in a nutshell

When companies like Tesla start to roll out their business models, they go through a phase of
what I like to call the “transitional business model.”
A transitional business model is a model used for traction, in a market that doesn’t have to be
big, or initially scalable. If we break down business strategy in three core parts:

● Market entry (or go-to-market) requiring initial traction (also in a niche market).
● Growth and market share acquisition, requiring expansion (from niche to broader).
● And business model renewal, requiring integration, consolidation, or innovation (you
either acquire, merge, or place bets).

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A transitional business model is a model that will serve the purpose of gaining initial traction
and market validation. Therefore, it will help for the sake of the market entry and it will also
help shape the long-term vision as it gets rolled out. A transitional business model might seem
obsolete in hindsight, yet that is the same model, which proves the viability of the idea while
keeping it alive. A transitional business model might not be scalable. Yet, that is the model that
will help create an initial positioning, and get the funding (revenues, or capital) needed to roll
out the scalable business model. A transitional business model might not have a long-term
vision, and yet it will help shape it. Thus, a transitional business model works in the short-term
to validate the market, to enable the technology and its ecosystem to mature while still having
a reality check. This is the core premise of a renewed business playbook, that doesn’t just rely
on growth capital. It moves by (also) securing growth capital, but then it validates the market,
step by step. There are plenty of examples of transitional business models:

● Facebook, a former college social network would open up to anyone just later on, as it
gained substantial traction.
● Netflix, moved from DVD rental company to streaming platform, only much later.
● Google, before building the most powerful advertising machine ever built, it sold
advertising through its salespeople.

Key takeaway
Strategies take years to roll out entirely, and they might seem trivial only in hindsight. A
transitional business model helps validating a strategy, before it starts to get rolled out.
As strategies take years to fully release their potential. Before committing a whole business to
the desired path, a transitional business model helps to understand whether that is the right
direction.

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Triple Bottom Line (TBL) To Build A Sustainable Business Model

The Triple Bottom Line (TBL) is a theory that seeks to gauge the level of corporate social
responsibility in business. Instead of a single bottom line associated with profit, the TBL theory
argues that there should be two more: people, and the planet. By balancing people, planet,
and profit, it’s possible to build a more sustainable business model and a circular firm.

Understanding the Triple Bottom Line

Sustainability in business is often difficult to understand. How is it measured or defined? How
does a business make sustainability financially viable? The Triple Bottom Line theory seeks to
address these questions by making sustainability a key performance metric. Fundamentally,
the TBL theory holds businesses accountable for their actions and provides a holistic approach
to doing business that is not primarily concerned with profits.

The three Ps of the TBL theory

Companies must work simultaneously on the three bottom lines of:

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1. People
This encompasses the wide range of people that a business comes into contact with. “People”
include employees, suppliers, distributors, and the wider community. Triple bottom line
companies ensure humane working conditions and pay their staff a reasonable wage. They
also give back to the community. For example, 3M uses their scientific background to solve the
world’s toughest challenges. The company has, among other things, funded STEM education
around the world to improve and empower local communities.

2. Planet
For businesses, the planet bottom line means finding ways to reduce their ecological footprint.
Broadly speaking, this means manufacturing products that are not harmful to the planet while
also reducing wastage, natural resource dependence, and greenhouse gas emissions. Apple is
a clear leader in planet-driven initiatives, with over 93% of its energy coming from renewable
sources. Its large and resource-intensive data centers are also certified by the U.S. Green
Building Council.

3. Profit
Profit is the traditional measure of corporate success. But increasingly, businesses are realizing
that people and the planet do not have to compromise profitability. Swedish furniture giant
IKEA maintains profitability and sales in the billions of dollars while focusing on green
initiatives. For example, the company recycles much of its waste back into some of its
bestselling products. In fact, 98% of their home furnishing products (including packaging) are
derived from renewable or recyclable materials.

Advantages and disadvantages of the Triple Bottom Line theory

Advantages
● Resilience. Businesses who adopt the TBL theory are more resilient to environmental
stressors such as climate change.
● Public relations. Businesses who see people and the planet as important parts of their
strategy moving forward enjoy better relations with consumers. In other words, they
are likely to be seen as progressive and sustainable organizations with the best interests
of others at heart. This has positive effects on brand equity and profit generation.
● Legitimacy. The TBL theory gives theories of sustainability and social responsibility
more weight, especially as they are adopted by increasing numbers of influential
businesses.

Disadvantages
● Accountability. Since the TBL theory is rather vague and has no specific guidelines,
businesses can preach they are using the theory without backing up their words with
actions.
● Capitalist slant. In some respects, the TBL theory espouses the benefits of people and
planet if (and only if) they help increase profits. Capitalism for the sake of the

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environment is still capitalism, and some have argued that people and the planet
should be given higher priority than making money.

Key takeaways
● The Triple Bottom Line theory is a measure of an organization’s ultimate sustainability.
● The TBL theory argues that companies must work on the three bottom lines of people,
planet, and profits.
● While the TBL theory improves company resilience and brand equity, it can be difficult
to quantify and thus is vulnerable to exploitation.

Unique Selling Proposition To Differentiate Your Product

A unique selling proposition (USP) enables a business to differentiate itself from its
competitors. Importantly, a USP enables a business to stand for something that they, in turn,
become known among consumers. A strong and recognizable USP is crucial to operating
successfully in competitive markets.

Understanding a unique selling proposition

A unique selling proposition allows a business to stand for something specific that they
become known for among their consumers. This is in direct contrast to businesses that stand
for nothing in particular. They take a generalist approach to marketing and product
development and thus do not allow a point of difference to develop in the market. In
attempting to become known for everything, they become known for nothing.

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A strong USP which encompasses a specific consumer benefit has the ability to:

● Attract (and retain) new customers, reducing customer churn rate.

● Build customer loyalty.
● Reduce costs associated with customer acquisition.
● Focus core marketing strategy and subsequent messaging, branding, and copywriting.

Elements of a strong USP

If nothing else, a USP must answer the question that every consumer has when encountering
a business: what makes this business different from the competition? It’s important to note
that simply being unique is not a valid characteristic in itself. The point of difference must
target something that resonates with the target audience. The USP must also be bold and
assertive in its point of difference, informing consumers that the business has the confidence
to stand behind its brand. Lastly, the unique selling proposition should be more than just a
slogan. Often, slogans are catchphrases whose benefits are vague and hard to put into
practice. If a business must use a slogan, then it should ensure that every aspect of the business
operation can embody its message in reality.

Examples of successful unique selling propositions

Death Wish Coffee

There is no shortage of competition among coffee merchants. However, Death Wish Coffee
has managed to make a mark in this industry with their claim of selling the world’s strongest
coffee. Death Wish Coffee backs up their claim by showing how their coffee is made and where
it is sourced from. But they also offer dissatisfied customers a full refund. In this way, the
success of the company is directly tied to its ability to deliver on its USP. Importantly, the
business embodies this USP through every aspect of their branding and marketing strategies.

Voodoo Doughnut
A similarly competitive market can be seen in selling donuts. Boston donut business Voodoo
Doughnut has created a unique selling proposition through a diverse and varied menu. The
company’s USP is further strengthened by its vintage pink décor and late-night opening hours.
While two varieties of donut that contained cold and flu medication attracted attention from
the Food and Drug Administration, the overall exposure to the Voodoo Doughnut brand was
beneficial.

Key takeaways:
● A unique selling proposition defines what a business stands for in relation to its
competitors. The point of differentiation must involve benefits the consumer can
identify with.

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● A strong and compelling USP resonates with the target audience by selling benefits
and is an accurate representation of how an organization does business.
● Confident, bold, and assertive unique selling propositions sometimes allow businesses
to penetrate extremely competitive markets.

Value Stream Mapping To Build A Solid Supply Chain

Value stream mapping uses flowcharts to analyze and then improve on the delivery of
products and services. Value stream mapping (VSM) is based on the concept of value streams
– which are a series of sequential steps that explain how a product or service is delivered to
consumers.

Understanding value stream mapping

Value stream mapping enables businesses to analyze each step and whether it is adding value.
Importantly, value stream mapping also allows intelligent, holistic refinement of the whole
process. In other words, it assigns value to a step on the condition that the value it obtains does
not come at the expense of another step. All VSM initiatives have start and end points known
as fence posts, which differ according to predetermined goals and objectives. As a result, VSM
can be utilized for any individual product or service for any type of business. For example, the
process of a car dealership delivering a new car to a customer might have 35 steps. After
mapping out the process using VSM, company executives found that only 10 added any real
value to the consumer. By focusing on the 10 steps in more deals, the dealership was able to
streamline its delivery process and reduce consumer wait times.

Three components of every value stream map

Each map typically consists of three sections:

1. Information flow. This component illustrates the communication of information or the

transmission of data crucial to the process. In the case of the car dealership, a sales
manager may accept applications for financing and then forward approved requests
to the finance company.

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2. Product flow. This component documents the steps required to take a product or
service from concept to delivery. However, value stream mapping can also be used to
“zoom in” on particular steps of the product development process. Indeed, there is no
limit on the level of detail that can be analyzed for each step.
3. Time ladder. Although rather simplistic, the time ladder provides a visual
representation of the value stream timeline. Time ladders denote the time that a
product spends on each step, known as the process time. They also denote waiting
time, or the amount of time a product has to wait before proceeding to the next step.
Ultimately, both are used in the calculation of lead time – or the total amount of time it
takes between receiving a consumer order and the fulfillment of that order.

Advantages and disadvantages of value stream mapping

Advantages
Value stream mapping is still relatively new in the business world, so there is potential that
early adopters gain a competitive advantage. It’s also a powerful method for identifying
wastage in a process. Wastage often refers to manufacturing, but in VSM it more generally
refers to any step that does not add value to the consumer. With a focus on providing
consumer value, the business can align with its core values and brand identity. Value is of
course something that consumers are willing to pay for, so businesses should utilize the
incremental improvement capability of VSM wherever possible.

Disadvantages
There is somewhat of a learning curve to creating a VSM framework. It often requires a
substantial investment of time and money initially, and if not prepared correctly can become
a source of wastage in itself. As with most things, the potential rewards of virtual stream
mapping must outweigh the risks. Smaller businesses with less capital and less complicated
processes may derive little to no benefit from using VSM principles.

Key takeaways:
● Value stream mapping is a visual flowchart strategy that provides a thorough analysis
of the steps leading to the delivery of a product or service.
● Value stream mapping is a holistic evaluation of delivery processes with a focus on
consumer value and a reduction of time or resource wastage.
● With its focus on value, VSM encourages businesses to channel their efforts toward
serving their customers. This increases consumer satisfaction, brand loyalty, and
company profitability.

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Value Disciplines For A Solid Business Model

After researching successful companies such as Dell and Sony, the authors, Michael Treacy and
Fred Wiersema proposed that a business must be competent in the three key areas
mentioned at the outset. Importantly, businesses who aspire to be market leaders must also
excel in one of the key areas.

The three key areas of the Value Disciplines Model

Customer intimacy
Customer intimacy encompasses customer service and customer attention. To excel, a
business must wherever possible personalize customer service. It must also develop a range
of customizable products that meet different customer needs in great detail. The customer
service team of shoe company Zappos not only keep their customers happy but also surprise
them too. When a best man ordered shoes from Zappos for a wedding that were later lost in
postage, the company overnighted a new pair of shoes to him and gave a full refund anyway.

Product leadership
Product leadership means that a business offers products that are market leaders. This often
requires a large investment in research and development, but the rewards are obvious.
Leadership is easier said than done. It requires creative thinking and a rapid commercialization
process to beat the competition. Products must also be continually updated to avoid
obsolescence. Apple’s continued devotion to innovation and product updates has seen then
remain as leaders in the tech space for decades.

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Operational excellence
In the context of the Value Disciplines Model, operational excellence means a focus on price
and convenience. This means that a business should focus on removing common barriers that
prevent a consumer from making a buying decision. Dell was able to become market leaders
in desktop computers by offering computers delivered to order rather than to inventory. This
removed the middleman and reduced costs without sacrificing the product or service.

Limitations to the Value Disciplines Model

While adequate performance in each of the three areas is relatively easy, businesses will find
becoming a market leader by excelling in one area much more difficult. For smaller businesses,
there is the potential that they become disheartened at a rather binary approach to success.
Newer businesses might also become disillusioned at the broad and generic definitions of
success – particularly if these businesses do not have sufficient data to gauge success.

Key takeaways:
● The Value Disciplines Model defines success in the context of three generic value
disciplines: customer intimacy, product leadership, and operational excellence.
● Success in the Value Disciplines Model can be broadly measured by the degree of cost-
effectiveness, product or service quality, and organizational performance.
● The Value Disciplines Model is a long term strategy that requires a certain level of
maturation in a business. Without a solid understanding of their industry and a lack of
resources, some may find it difficult to define and then achieve market leadership.

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Vertical Integration To Cover The Whole Supply Chain

In business, vertical integration means a whole supply chain of the company is controlled and
owned by the organization. Thus, making it possible to control each step through customers.
In the digital world, vertical integration happens when a company can control the primary
access points to acquire data from consumers.

Vertical integration in the physical world

On FourWeekMBA, Luxottica business model is a great example of vertical integration,
Luxottica controls the whole supply chain, that goes from product development, to
manufacturing, and logistics. This helps it gain control over the quality of the final product, and
connect its product development processes with the distribution and customer experience.

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While this strategy is more expensive in the short-run, over the years can turn into a
competitive advantage. As the Luxottica case shows, the company grew and it integrated
more brands within its portfolio (iconic brands like Ray-Ban and Oakley are part of the
Luxottica Group), by both having Luxottica owned brands and by producing sunglasses for
other major luxury brands. By controlling the supply chain, and taking a step further to its retail
strategy, Luxottica can connect the dots between product development and final customers
to make sure quality and customer demand are aligned. This process is used also in the digital

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world, by players like Google or other tech giants, that over the years have developed products
and distributed directly to customers to gain control over the whole supply chain.

Google vertical integration explained

Google has a diversified business model, primarily making money via its advertising networks
that, in 2019, generated over 83% of its revenues, which also comprise YouTube Ads. Other
revenue streams include Google Cloud, Hardware, Google Playstore, and YouTube Premium
content. In 2019 Google made over $161 billion in total revenues. In early 2018, Sundar Pichai,
Google‘s CEO, highlighted how AI for humanity is more important and profound than what
fire was. To keep using an analogy, the real fuel that keeps the AI fire going is data. Indeed
when we go from atoms to bits, the strategic thinking behind an organization changes. For
instance, in a traditional company, one of the long-term successes of the organization is based
on keeping control of its processes and being able to control the whole supply chain.
While this strategy is expensive, it is also what drives sustainable growth. For instance,
traditional companies operating in “slower” sectors (think of Luxottica in the eyewear industry)
managed to gain control over the supply chain and also became world’s leaders in their
markets. In short, the idea is that the closer you get to the customer (in case you’re a
manufacturer) or the closer you get to the producer of a good or service (if you’re a retailer) the
more control you have over the whole experience. This, in turn, might allow you to dominate
your industry over time and keep tight control over processes, quality, and operations:

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While this is intuitive in the world of atoms. It gets a bit trickier in the bits world.

For the sake of understanding how vertical integration and supply chain work in the bits world
we’ll look at how Google is going up – or down (depending on where you look) the supply chain
of data.

Atoms vs. bits

As the web has become so ingrained in the way we interact with the world and with each
other, it is easy to forget between companies that operate purely in the atom world, compared
to that operating in the bits world. Just to keep a clear distinction a business based on bits is
mostly a software business or any organization that makes money primarily by selling digital
goods or services, compared to a traditional atoms business. It is important to remark that bits
businesses are not entirely so, as they rely on massive physical infrastructure (think of Google
data centers) which allow the company to operate. However, a bits company’s mission is to
provide goods or services, often at scale. Where in the world of atoms, a key ingredient for an
organization’s success is made of raw materials. In the bits world, that raw material is even
more critical. That is the crucial ingredient for their success, and the raw material in the bits
world is data.

Google and the supply chain of data

A classic supply chain moves from upstream to downstream, where the raw material is
transformed into products, moved through logistics and distribution to final customers. A data
supply chain moves in the opposite direction. The raw data is “sourced” from the
customer/user. As it moves downstream, it gets processed and refined by proprietary
algorithms and stored in data centers. Before understanding vertical integration in the bits
world, made primarily of data it is critical to understand how it flows to realize how tech
companies are trying to gain control of it. Often the supply chain of data needs to rely on the
physical supply chain and vice versa. Indeed, when you’re able to get your hardware in the
hands of users that is the best it can happen if you run a company that makes money based
on data it collects from its users. The reason being that data is first quality data, and it carries a
deep connection to the person using the device. That’s why when Google moves toward
hardware it isn’t just like Google is trying to dominate the smartphone market. That move
needs to be understood in terms of a supply chain of data. A manufacturer in the real world
starts to integrate its supply chain by getting control over the wholesale side and retail side
until it can finally access its consumers. On the other hand, the interesting part about data is
that a consumer is also the producer of data. Where the data collector goes up in the chain by
manufacturing the device sold to consumers, those devices also become the producer of raw

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data. That raw data gets assembled in multiple ways and sold to another side of the chain,
which is the business willing to spend money on advertising.

Google business of collecting data

At its core, Google is a data collecting organization. Indeed, in search, Google is the best
collector of users’ data to capture commercial intent sold as advertising. In recent research
made by Professor Douglas C. Schmidt, Professor of Computer Science at Vanderbilt
University, and his team it is interesting to see how Google collects way more data in the
ecosystem created by it, such as the devices using Android. Just as a quick reference from the
research, one of the key findings highlighted:

Google learns a great deal about a user’s personal interests during even a single day of typical
internet usage. In an example “day in the life” scenario, where a real user with a new Google
account and an Android phone (with new SIM card) goes through her daily routine, Google
collected data at numerous activity touchpoints, such as user location, routes taken, items
purchased, and music listened to. Surprisingly, Google collected or inferred over two-thirds of
the information through passive means. At the end of the day, Google identified user interests
with remarkable accuracy.

This ability to identify users’ interests with “remarkable accuracy” comes from Google
investments over the years in creating the proper infrastructure that could support its supply
chain of data. As voice search is approaching Google needs to be on top of the data game, and
that explains the next run to dominate the voice assistants devices market.

From the search page to the voice assistant

When you type something on Google’s search box, you’re making its search engine better and
better. That is the power of network effects. In short, the more users keep using Google, the
better its search engine can capture users’ commercial intent.

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TAC stands for traffic acquisition costs, and that is the rate to which Google has to spend
resources on the percentage of its revenues to acquire traffic. Indeed, the TAC Rate shows
Google’s percentage of revenues spent toward acquiring traffic toward its pages, and it points
out the traffic Google acquires from its network members. In 2017 Google recorded a TAC rate
on Network Members of 71.9% while the Google Properties TAX Rate was 11.6%. However, even
though Google has a high gross margin, people still have to keep going back to its search
pages. As I pointed out in Google TAC strategy, the company managed to keep having billions
of users each day going back to it thanks to a massive distribution network, both driven by
distribution agreements and its networks (like AdWords and AdSense). Yet that data is
precious; it is still coming from third parties. Therefore, Google is investing massive resources
to make sure that data can get acquired via its devices so that it can finally have control of the
overall chain. As I pointed out in Google’s hardware plans in January 2018, Google completed
the agreement with HTC with the acquisition of the team of engineers and a non-exclusive
license of intellectual property from HTC for $1.1 billion in cash. Another example is how Google
invested in KaiOS, an operating system, that transforms feature (dumb) phones in
smartphones, providing them also of a default voice assistant (KaiOS phones use by default
the Google Assistant). That works as a window into the Indian market, where Google can
access voice data, directly from those devices, thus bringing it closer to over a billion consumer
base, that in the future might turn into a great business opportunity.

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VMOST: From Short-Term Execution To Long-Term Vision

The VMOST Analysis is a tool that allows a business to evaluate its core strategies in terms of
whether the supporting activities of that strategy are being carried out. The VMOST analysis
tries to answer that by looking at five core elements: vision, mission, objectives, strategies, and
tactics.

Understanding the VMOST Analysis

The VMOST analysis divides a strategy into five different elements. Each element is analyzed
individually based on how well it aligns with the overall business strategy. In most cases,
VMOST analysis is performed so that a business can define current and future strategies,
organizational units, projects, and programs. Employees – as a part of the business or as
individuals – can also be assessed using this technique. Here is a look at each of the five
elements that give the VMOST analysis its name.

Vision
Vision encompasses ideas that summarize where a business sees itself in future. Where will it
operate? Which target audience will it serve? How will it position itself against the
competition? What does the business want to be known for?
The answers to these questions should inspire and challenge the business do to better without
being completely unattainable.

Mission
Mission is the series of steps which guide a business to carrying out its vision. To change old
and outdated ways of operating, missions must be adopted from senior management down
to the entry-level employee.

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Objectives
Objectives define whether a mission has been accomplished, usually quantified in the form of
key performance indicators (KPIs). To maximise the chances of meeting certain objectives,
businesses can adopt the SMART goal attainment strategy.
In other words, is the objective:

● Smart?
● Measurable?
● Attainable?
● Realistic?
● Time-sensitive?

Strategies
As objectives guide missions, so to do strategies guide objectives. If the goal of a taxi company
were to increase revenue by $10 million annually, a potential strategy may include expanding
the service into five new cities by the end of the year.

Tactics
Tactics encompass the specific, low-level actions that are taken for strategies to be fulfilled. If
we return to the example of the taxi company, possible tactics for expanding into 5 new cities
might include:

● Identifying competition in the form of ride-sharing across the proposed cities.

● Identifying areas in smaller cities where there are gaps in taxi coverage.
● Acquiring a fleet of new vehicles at a cost-effective price.

Advantages and disadvantages of the VMOST Analysis

Advantages
● Given the somewhat hierarchical nature of the VMOST structure, the analysis is easily
understood by various employees and stakeholders.
● The VMOST analysis provides clarity, agreement and focuses on the future direction of
the company. This discourages the formation of weak and vague strategies which
encourage disharmony and malaise within a company.

Disadvantages
● A well-constructed VMOST Analysis does not guarantee employee buy-in. Strategies
that are created by upper management with little employee involvement may be met
with inertia when presented to the whole company. Input must be sought by multiple
levels of the organization to counter this.

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● Some organizations start with missions and visions that are simply unachievable.
Despite perfectly sound objectives and strategies, they will find that they lack the
necessary resources to achieve their goals.

Key takeaways
1. The VMOST Analysis is a strategic planning tool that helps businesses focus on activities
that are aligned with their core visions.
2. The VMOST is composed of five separate elements that together deconstruct how a
business can align its words with actions.
3. The VMOST Analysis is a simple and effective framework that all key stakeholders can
understand. But it is nevertheless vulnerable to a lack of employee buy-in.

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VRIO To Identify Your Competitive Advantage

The VRIO framework is a tool that businesses can use to identify and then protect the factors
that give them a long-term competitive advantage. The VRIO framework will help assess
reality based on four key elements that make up its name (VRIO): value, rarity, imitability, and
organization. VRIO is a holistic framework to assess a business.

Understanding the VRIO framework

The VRIO framework is an acronym of value, rarity, imitability, and organization. Each of these
four components is traditionally approached in the style of a decision tree.
Following is the VRIO framework broken down into its constituent parts, with some important
questions that may be asked:

● Value – does the business offer a product or service that adds value to the lives of its
customers? Does this value offer the business a competitive advantage? Businesses
that answer yes to these questions can move to the next part.
● Rarity – does the business have ownership of rare resources or capabilities that are in
demand? Businesses that answer no to these questions may have value but lack rarity
and competitiveness and should go back to the first part.
● Imitability – is the rare and valuable product expensive to produce? Are there
alternatives and similarly rare and valuable substitutes? Most businesses that fail to
answer yes to these questions will have a competitive advantage, but only temporarily.
Maintaining this advantage will require considerable time and money that will
inevitably erode profit margins. The best solution for these businesses is to go back to
the start of the process and reassess.
● Organization – for businesses with the good fortune to offer something valuable, rare,
and difficult to imitate, they must next turn to their internal operations. Do such
businesses have the appropriate processes, structures, and culture to maintain their

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competitive edge? Businesses who answer no to this last part have unfulfilled potential.
That is, they do not have the required systems in place to take advantage of their
competitive advantage.

Those that answer yes to the last step have reached the ultimate goal of the VRIO framework
– sustained competitive advantage.

Examples of the VRIO framework in business

Google is perhaps the best example of the VRIO framework in action. Their data-driven
employment management system is valuable and rare. Indeed, no other company uses this
form of employee management so extensively. Because of the size of Google’s workforce, it
will prove prohibitively expensive for most companies to imitate. Google also invests heavily in
training for HR managers so that they can derive maximum value from their competitive
advantage. Unlike Google, Coca-Cola has managed to exploit a solid VRIO framework in what
is a very competitive market. The organization’s value lies in its high brand equity, or the
perceived value of a brand in the minds of consumers. Coca-Cola’s product is not rare, but its
presence in consumer lives is always associated with positive memories. This makes their
appeal hard to imitate because they have spent decades and billions of dollars in advertising
to earn this place in consumer’s lives. With a presence in 196 countries worldwide, it is easy to
appreciate Coca-Cola’s competitive advantage.

Key takeaways:
● The VRIO framework determines whether a particular business has any resources or
capabilities that are valuable in a competitive context.
● The VRIO framework consists of the four constituent parts of value, rarity, imitability,
and organization. A business must satisfy each part before moving on to the next.
● Large, multinational companies with efficient systems are best placed to take
advantage of the VRIO framework – regardless of existing market competition.

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VTDF Framework To Dissect Any Tech Business Model

A tech business model is made of four main components: value model (value propositions,
mission, vision), technological model (R&D management), distribution model (sales and
marketing organizational structure), and financial model (revenue modeling, cost structure,
profitability and cash generation/management). Those elements coming together can serve
as the basis to build a solid tech business model.

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VTDF Business Model Template

Value model
In the value model we want to answer three core questions:

● Vision: What’s the long-term hard problem you’re solving?

● Mission: How do you get closer to achieve this hard problem in the short-term?
● Value Proposition: What use cases do we prioritize, as they are in target with our
customers’ needs?

It usually all starts by a value model which comprises:

● An opportunity: the size of the opportunity will be determined by whether the market
exists, it’s still building up, and its growth potential. From the opportunity, it’s possible
to evaluate the potential market size (usually tech companies look at TAM).
● A problem to be solved: a problem can be practical, or it can go beyond that.
Companies like Nike and Coca-Cola focus most of their efforts on-demand generation.
This also applies to tech business models. Before the iPhone people didn’t know they
needed a smartphone in the first place.

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● A set of value propositions: from the above a company will develop a core value
proposition. As it scales it will be able to satisfy a set of value propositions, which is the
glue that keeps together customers and the company.
● Mission and vision: as the company builds up its various models, it also develops its
own core beliefs, which are comprised in its mission and vision.

Value propositions

A value proposition is about how you create value for customers. While many entrepreneurial
theories draw from customers’ problems and pain points, the value can also be created via
demand generation, which is about enabling people to identify with your brand, thus
generating demand for your products and services.

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Mission and vision

A mission statement helps an organization to define its purpose in the now and communicate
it to its stakeholders. That is why a good mission statement has to be concise, clear to be able
to articulate what’s unique about an organization, thus building trust, and rapport with an
audience.

Technological model And R&D Management

Continuous Innovation: How do we handle engineering resources to sustain continuous
innovation for business model expansion? Breakthrough Innovation: How do we handle
engineering resources to promote breakthrough innovation for business model reinvention?
The technological model is the enhancer of the product, and it helps merge together the value
proposition with the distribution model. When engineering is done right, it helps bridge the
gap between what customers still miss, the product and the way the product is distributed.
The technological model will help satisfy the need of a larger and larger portion of the market.
From early adopters, to potentially laggards. This will determine the ability of the company to
scale up.

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In his book, Crossing the Chasm, Geoffrey A. Moore shows a model that dissects and represents
the stages of adoption of high-tech products. The model goes through five stages based on
the psychographic features of customers at each stage: innovators, early adopters, early
majority, late majority, and laggard. In the technological model, the way R&D is managed to
produce continuous innovation (to sustain the linear growth of the business) and
breakthrough innovation (to enable long-term success of the business) is critical.

Distribution Model
● Marketing & Sales: How do we communicate and sell the product to the right
audience?
● Product Engineering: How do we enable built-in features that help us distribute the
product?
● Partnerships: Who do we partner with to expand our audience?
● Deal Making: What deals do we close that help us get to our audience?

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A distribution channel is the set of steps it takes for a product to get in the hands of the key
customer or consumer. Distribution channels can be direct or indirect. Distribution can also be
physical or digital, depending on the kind of business and industry. The distribution model
helps to bring the product in the hands of customers. The company can leverage on
engineering, marketing, sales or all of them, to make the product fit with the market, via its
distribution. That is why, based on what problems the product solves and for whom, it will have
an organizational structure more skewed toward engineering and marketing, or engineering
and sales, or perhaps a mix of the three. Other things like partnerships and deal making are
also part of the distribution model.

Financial model
● Revenue Generation: How does the company make money?
● Cost Structure: How does the company spend money to make money? (cost of sales)
● Profitability: Is the company profitable?
● Cash Management & Generation: Is the company cash positive?

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In corporate finance, the financial structure is how corporations finance their assets (usually
either through debt or equity). For the sake of reverse engineering businesses, we want to look
at three critical elements to determine the model used to sustain its assets: cost structure,
profitability, and cash flow generation. The financial model is what enables the company to
keep generating enough cash to sustain its operations, not only in the short-term, but also
toward R&D and innovation. And it is made of several components:

● Revenue model.
● Cost structure.
● Profitability.
● And cash generation and management.

Revenue model

Revenue modeling is a process of incorporating a sustainable financial model for revenue

generation within a business model design. Revenue modeling can help to understand what
options make more sense in creating a digital business from scratch; alternatively, it can help
in analyzing existing digital businesses and reverse engineer them.

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Cost structure

The cost structure is one of the building blocks of a business model. It represents how
companies spend most of their resources to keep generating demand for their products and
services. The cost structure together with revenue streams, help assess the operational
scalability of an organization.

Profitability
From how the company generates revenues and its cost structure, profitability will be
determined. When the revenue model isn’t yet efficient enough to cover up or sustain the cost
structure in the long-term, there is when we have a lack of profitability. At the same time, it
might happen that a company is profitable but it lacks cash, given its overall financial model.
Or it might happen that a company has no profits, or very tight margins and yet it generates a
continuous stream of cash.

That is why it’s critical to look at the next element.

Cash generation and management

The cash flow statement is the third main financial statement, together with the income
statement and the balance sheet. It helps to assess the liquidity of an organization by showing
the cash balances coming from operations, investing, and financing. The cash flow statement
can be prepared with two separate methods: direct or indirect. Profitability doesn’t tell us the
whole story. We need to look at cash management. A company like Amazon has been running
at very tight profit margins for years, and yet generating massive amounts of cash, invested
back in its operations. A company like Netflix has been generating good profit margins, but
running with a cash negative model. This isn’t good or bad in absolute terms, but it gives us an
understanding of the company’s financial mode. Perhaps, Netflix, with a negative cash flow
model, it has been investing substantial cash in the development of original shows, which are
both critical to generate revenue and also essential to its brand‘s strategy. Thus, revenue
generation, distribution, and marketing come together here.

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Key takeaways
According to the VTDF framework a tech business model can be broken down in four sub-
models:
● Value model (value propositions, mission, vision), to answer questions, such as:
Vision: What’s the long-term hard problem you’re solving?
Mission: How do you get closer to achieve this hard problem in the short-term?
Value Proposition: What use cases do we prioritize, as they are in target with our customers’
needs?
● Technological model (R&D management), to answer questions such as:
Continuous Innovation: How do we handle engineering resources to sustain continuous
innovation for business model expansion?
Breakthrough Innovation: How do we handle engineering resources to promote
breakthrough innovation for business model reinvention?
● Distribution model (sales and marketing organizational structure), to answer
questions such as:
Marketing & Sales: How do we communicate and sell the product to the right audience?
Product Engineering: How do we enable built-in features that help us distribute the product?
Partnerships: Who do we partner with to expand our audience?
Deal Making: What deals do we close that help us get to our audience?
● Financial model (revenue modeling, cost structure, profitability and cash
generation/management), to answer questions such as:
Revenue Generation: How does the company make money?
Cost Structure: How does the company spend money to make money? (cost of sales)
Profitability: Is the company profitable?
Cash Management & Generation: Is the company cash positive?
From the balance and mixture of those four elements a viable business model is built

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Webrooming / Showrooming

Everywhere we look, it seems there are phenomena of business model innovation through
disruption. In this article, I want to highlight how change is in many cases, evolutive, rather
than disruptive. And how processes that are successful in the short-term, can be reversed.
Indeed, business model innovation often goes through changing consumers habits, and as
incumbents adopt new technologies to force new consumers behavior. Over time established
industries and organizations manage to take advantage of their traditional positioning to
reverse the consumers’ behavior in their favor. Let’s see the case of how brick-and-mortar
retailers have reversed a phenomenon called “showrooming,” which was eating up most of
their margins.

What is Showrooming?
Showrooming is the process in which a shopper goes to a physical store to browse for products.
However, before purchasing them, the consumer has access to reviews sites, e-commerce
platforms, and comparison sites, where she has the option to buy the same product at a lower
price. Thus, while the consumer makes a choice in the brick-and-mortar store, she eventually
finalizes the purchase on an online store. In this scenario, the physical retailer loses margins,
and it sees its business stolen by online players that make it easy for consumers to showroom
for products. We saw the Best Buy case and how the company had to adapt its business model
to survive. Interestingly enough innovation is an evolutive process, where more traditional
players learn how to take advantage of new and existing technologies to reverse the process
that tightened their margins in the first place.

What is Webrooming? Reverse showrooming in a nutshell

Webrooming is the reverse process of showrooming. Where in the showrooming process,
consumers browse for products in the physical store, to finalize the purchase on an online
platform at a lower price. With webrooming the consumer browses for the product on an

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online store, to complete the purchase on a physical store. While showrooming makes perfect
sense, as consumers can find products to buy at a lower price, why do people webroom?
People webroom for several reasons. For instance, because for items over a specific budget, it
makes sense to experience it on the physical store before making the final purchase. Or for a
specific category of products (for instance apparel or groceries) finalizing the purchase, in the
physical store might make more sense. Thus, webrooming is a weapon that physical stores can
leverage on to actually bring more people that browse online.

Is there a winner?
Consumer behavior is a complex issue. Thus, it is essential to notice that there isn’t a definitive
answer to what behavior will dominate, and probably both will curve their space. However, as
new technologies will allow consumers to simulate experiences (like trying shoes or sunglasses
through augmented reality), it becomes more challenging for physical stores to keep up with
online counterparts. However, if physical stores will be able to redefine their value proposition,
and redefine the way they make money, there might be a space to reverse the digital
processes that will inevitably bring more consumers to perform more and more actions online
or in an augmented reality.

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Speed-Reversibility Matrix To Prioritize Your Bets

The speed-reversibility framework is a simple matrix for decision-making to understand when

to analyze scenarios before making decisions. And when moving extremely fast instead. As you
dive into the entrepreneurial world, you might struggle to make things work. And as that
happens, you start looking for resources online to help you out throughout that process.
Chances are you’ll stumble on an article about making a sound decision by using data, and
you turn to a data-science degree, instead of focusing on growing your business.
For that sake of that, a simple matrix like the speed-reversibility matrix can help you out.
And we’ll start with three simple principles.

When do you need data?

In a world where data is available anywhere, it’s easy to draw in that. Thinking you always need
data to back up any decision. In reality, in many cases, your guts, your vision, and your deep
understanding of the kind of business you want to build might be your sharpest tools. In
general, for a short-term decision quantitative analyses, data might help you tune processes.
When it comes to long-term vision, you might want to rely on your guts.

Understanding optionality and reversibility

As an entrepreneur, you’re not trying to be right most of the time. You instead should make
sure to be right once and profit a lot from it. While avoiding the risk of massive failure.
For the sake of it, you need:

● Optionality: the leverage to have multiple options when a scenario is unraveling.

● And reversibility: the ability to survive if the worst-case scenario might materialize.

When you’re missing both these elements, you already know that data can help better
understand what you’re doing even if it slows down the decision-making process.

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Assessing the worst-case scenario

Another key element is about evaluating the worst-case scenario. What would happen if
things would turn out extremely bad?
Would this scenario be reversible? Would this imply a complete failure? Would I sacrifice all
the progress made so far?
Based on these elements, you might have four decision-making options.

Slow-decision making mode

When the worst-case scenario looks pretty grim, and that can’t be reversed. You better gather
as much data as possible about what you’re about to do.
Indeed, it doesn’t matter how large will be your payoff. If things will turn bad, you might have
too much to lose.

Gradual rollout mode

When the worst-case scenario doesn’t look bad, yet it’s not reversible, you might still want to
analyze. And gradually roll out the decision, rather than fully commit to it.

Multiple experiments mode

When the worst-case scenario is highly risky, but it can be reversed. You want to perform as
many small experiments as possible.

Fast mode
When the worst-case scenario doesn’t seem to be risky at all. And it is reversible. You can move
at full speed. In that case, you won’t need data. Rather the data will come to you as a result of
execution. In this mode, you can have as much fun as possible. Thus, the question might be,
“how do I find a low-risk worst-case scenario, which is reversible?”

Key takeaways
● Decision-making in the real world, according to the Speed-Reversibility matrix is based
on two core questions: 1. How big is the impact of the worst-case scenario? Is it going
to be low (not life-threatening) or high (life-threatening?) 2. Is the decision we’re
making reversible or not? In short, can we go back to the previous state?
● Based on the above we can have for states or decision-making modes: slow-mode (high
impact of the worst-case scenario which is not reversible), gradual roll-out (low impact
of the worst-case scenario yet not reversible), multiple testing (high impact of the
worst-case scenario and reversible), and fast mode (low impact of the worst-case
scenario and reversible decision).
● In a high impact worst-case scenario, which is not reversible, it’s the kind of decision we
don’t want to make. Or at least, we want to make it only if the potential of the outcome
is exponential, or we’re in a situation that is life-threatening for our business, and there
is no choice but to act.

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● In a low worst-case scenario impact and yet not reversible, before committing or going
all in with a decision we want to test our assumptions in multiple steps. So we first break
down the decision and we take it, step by step. Once validated we can move from there.
● In a high impact worst-case scenario where the decision is reversible, we want to craft
well the sort of experiments that can tell us whether the positive impact can be much
greater than the worst-case scenario.
● In the last hypothesis, where the worst-case scenario impact is low and the decision is
reversible, we want to move fast! This is the fast mode, and we can use it to make
decisions which are both low risk, with a potentially high impact, and yet reversible.

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Conclusions
Business strategy belongs to the real world, and for that, it requires continuous testing,
iteration, and experimentation. So now that you have all the tools that you might ever need
get your hands dirty and start building!

Other premium resources:

● The 100+ Business Models Book
● The BMI Course Bundle

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