[Note: I shared this mental model with my email subscribers on Nov 20, 2016. If you want to receive a new mental model every week, join the club.]
What it is:
We use maps, principles, mental models, learnings from experience, etc. to help us navigate the world around us. But it’s important to remind ourselves – the map is not the territory.
The map doesn’t include every feature of the territory. Even a very detailed map of London won’t include every thin street.
The territory is different: Sounds banal, but a map of London won’t help at all, if you’re in Mumbai.
The territory may have changed. An 1850 map of London won’t help you in 2016 London.
This sounds trite, but we often forget this, as we see in the following examples.
Examples in business:
Just because there’s a formula for something doesn’t mean the formula is perfect. The Black-Scholes option pricing equation bankrupted Scholes’ hedge fund. And, as Taleb says, the misplaced concreteness of Value-at-Risk has caused a lot of financial crashes.
Apple’s slow slide illustrates four key principles of business strategy:
1. The S-Curve of Company Growth: Any successful company inevitably goes through a life-cycle of stuttering beginnings, rapid growth, and then gentle maturation – an S-curve. This has been true both in the Internet era and before, as Ben Evans illustrates in The best is the last. Apple is no different. Apple may be the next Microsoft.
2. Limited Window of Optionality: There is a way to prolong your growth arc, though. Keep transforming your business, when your previous product is succeeding, and the wind is at your back. Jobs leveraged this limited window of optionality successfully, with the iPod, then the iPhone, and then the iPad. Larry Ellison did it at Oracle too.
But Tim Cook hasn’t been able to lead such pivots at all.
3. The Visionary Leader – Executor Follower Conundrum: Steve Jobs was a visionary (duh). And he built a strong team of executors around him, to implement his vision. So, guess who succeeded him? A superb executor, but short on vision. Tim Cook is great at delivering on an existing strategy, but he just hasn’t kept pace with a fast-changing world.
4. The Jobs-to-be-done Framework: There’s another interpretation of Tim Cook’s non-success. And it comes from Clayton Christensen’s second big theory – jobs-to-be-done. As he says, consumers buy products that complete specific jobs for them.
“People don’t buy quarter-inch drills, they buy quarter-inch holes.”
[Note: I shared this mental model with my email subscribers on Oct 23, 2016. If you want to receive a new mental model every week, join the club.]
Who do you think will win the war between Google and Apple?
That was a trick question. There really doesn’t need to be a war between the two companies.
Apple makes money when people buy its products, while Google makes money when people use its services. Apple is a vertical company, while Google is a horizontal player.
But don’t feel bad for missing the trick. Google missed it too, when they framed the fight as Google vs. iPhone. When it was really Samsung vs. iPhone.
Why did they make this mistake? Why did they, for example, release turn-by-turn navigation on Maps only for Android, and give Apple a reason to launch its own Maps?
Didn’t think from first principles
As Ben Thompson explains in Google and the Limits of Strategy, they got too caught up in the Android-iPhone us-them framing, without realizing that they’re fundamentally different companies, with no need to compete!
When making an important decision, examine your beliefs first. Start with a simple question: “What do we know to be absolutely true?”
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[Aside: First-principles thinking is useful when raising capital for your startup too, as I mention in Fundraising Mistake #7: Describing your startup as “Uber of X”]
Strategy consultants are a much maligned lot in the startup and business world. Over the five years I spent at the Monitor Group (a strategy consulting firm started by Michael Porter), I heard various complaints:
How can a young consultant say anything useful to an industry veteran?
What’s the use of a plan that’ll take five years to execute?
Consultants don’t do anything except make slides.
You don’t know how to make decisions. Sure, you can advise people…
You never put your money where your mouth is. (I think Paul Graham meant this, when he called management consulting a version of ‘gaming the system’).
I heard many such comments during my tenure, from friends, relatives, and chatty fellow travelers on long flights. And seeing how we addressed these complaints at Monitor – while advising large conglomerates in established industries, paradoxically enough – prepared me for starting up.
1. It doesn’t matter who you are or what you know. You need to have a hypothesis, and be ready to learn.
When I started in strategy consulting, the first thing that struck me was the novel, hypothesis-based approach.
Coming from an engineering background, I was used to the deductive approach – start from what you know, and proceed towards conclusions. But a hypothesis-based, inductive approach starts from the other end – you make some predictions, and then proceed to test them (and modify them as needed). This data-driven learning approach is a great complement to industry understanding. That’s why companies hire strategy consultants – to hold up a mirror to their beliefs, test them, and help company executives understand how the industry’s evolving.
Performing this process – of making predictions, being proved wrong, and correcting them – repeatedly over multiple projects gives you a healthy appreciation of your own ignorance. I’ve found this invaluable when starting up – I may not know the right answer, but I know how to test my beliefs and work my way there.
[Tweet “I may not know the right answer, but I know how to test my beliefs and work my way there.”]
2. You need to be OK with uncertainty.
One of the differences between strategy and operational consulting is the timeframe – strategy is more long-term. The industry trends you bank on may play out over 3-4 years – some may not have even started yet. So there will be ambiguity. But you still need to make some bets, and find creative ways to validate (or invalidate) them – talk to industry experts, observe trends in related industries and evolution of similar economies, etc. But none of these will give you the perfect answer – you need to ‘satisfice’. Thus, not only do you not know the answer starting out, but you also may never know the answer with certainty.
And it’s the same at my startup – I don’t know if my product is going to be loved, hated, or worst of all, ignored – first by early adopters, then by followers, and then the rest (if I get that far). But I’ll keep plugging away, and figure out ways to run small tests often to ensure I’m on the right track.
3. Serving your clients’ needs is your foremost objective.
Ignoring the double entendre for a bit, client service is the priority in consulting – I heard this all the time from Partners at Monitor. Whether it’s sudden weekend work or an ill-timed field visit, you do it if it benefits the client.
Today, I have a consumer-facing Android app. Every once in a while I get a caustic review, or a needlessly harsh 1-star rating. But it’s not my place to rail against unreasonable users – if I focus on serving them well, then I hopefully won’t have to worry about these ratings in the future.
4. Brevity is the soul of communication.
Naysayers are true when they say consultants make a lot of PowerPoint slides. Boy, did I make a LOT! But the thing about slides is that, unlike a Word document, there’s limited space. So you need to make your point succinctly. And you need to say first up why that message is important(or as they say at Monitor, you need to bring out the ‘so whats’).
I’ve done my 10,000 hours of slide-making. I’m still far from a genius at it (Gladwell was wrong), but knowing how to deliver the key message upfront and in as few words as possible is a very useful skill at a startup. Whether it’s in crisp emails to potential clients, high-impact copy for Facebook ads, or elevator pitches to investors with short attention spans, brevity is invaluable to startups.
5. Ideas are worthless. Execution is key.
I know this sounds very ‘global’ (and it is – I won’t lie), but project after project has taught me that the best-articulated strategy can stop making sense once you start implementing. There was one case where we designed the strategy and left, and the client came to us after a few months saying everything is shot to hell and can we please come back and help them. We could definitely have done better – it was our responsibility to devise a plan that the client could implement, and explain it to the client’s team.
But the larger learning for me was that your plan doesn’t matter so much; it probably wasn’t rocket science to begin with. But you need to be able to execute on it effectively. It needs to be ‘actionable’.
[Tweet “Your plan doesn’t matter – it probably isn’t rocket science. You need to be able to execute on it.”]
In the same article where Paul Graham says that management consulting is gaming the system, he also mentions the similarity to college. And while I may not fully agree with his first comment, his second is spot on. A strategy consulting firm is one of the best finishing schools you can go to, if you want to build a business of your own someday.
What do you think? Did these learnings resonate with you? And did I miss anything? I’d love to hear what you think – mail me at firstname.lastname@example.org, tweet at @jithamithra, or just comment here.