Many leaders use the term “strategy” without giving much thought to what the word really means. It often becomes a shorthand way to elevate the significance of an otherwise ordinary business initiative. Let’s be clear about how strategic leaders think and act, remembering two of the most iconic examples from the modern business era: Steve Jobs and Jeff Bezos.
Fundamentally, a business strategy should answer two questions: Where do we compete? and How do we win? These two questions, while seemingly simple, are in fact very difficult to answer. Determining where to compete and how to win should require vigorous debate and careful deliberation. The easier and more common approach is simply to expand the scope of one’s ambition in proportion to one’s growing sense of what seems commercially viable.
Strategic leaders resist that temptation. They are clear about what they’re giving up and why they accept the potential downside. Strategists understand what could be lost in choosing one path over another, but they embrace this choice because they believe that winning in the market requires an all-in focus.
When Jobs returned to lead Apple in 1996, it was by no means obvious he was destined to succeed. He had been abruptly ousted from the firm 11 years prior, on the heels of an unseemly power struggle. Since then, Apple leadership had overextended itself and the company was on the verge of bankruptcy, its stock sitting at less than a dollar per share. At the time, there were so many Apple product variations that consumers were getting confused. Sales had been declining for months.
Jobs’s unusual strategic strength, according to biographer Walter Isaacson, was the ability to focus. “Deciding what not to do is as important as deciding what to do,” Jobs is reported to have said. “That’s true for companies, and it’s true for products.” His iconic turnaround moment was a boardroom session in 1997 with Apple’s key technical leads, in which he reduced the complexity of their current product line to a simple matrix. Above two columns he wrote “Consumer” and “Pro.” Beside the two intersecting rows, he wrote “Desktop” and “Portable.” Apple’s job, he said, was to make four great products—one for each quadrant. The audience was flabbergasted. Many of them were effectively being told their babies were ugly. But that moment of truth was what started the company’s fabled reversal of fortune.
Jobs had unambiguously addressed the first part of strategy (Where do we compete?) and he was just as clear on the second (How do we win?). The key to market dominance, he believed, was simplicity. This was more than a pragmatic calculation. It emerged from his own artistic disposition. Far from being just a canny marketing ploy, simplicity represented Jobs’s philosophy on business and life:
Simplicity isn’t just a visual style. It’s not just minimalism or the absence of clutter. It involves digging through the depth of the complexity. To be truly simple, you have to go really deep. For example, to have no screws on something, you can end up having a product that is so convoluted and so complex. The better way is to go deeper with the simplicity, to understand everything about it and how it’s manufactured. You have to deeply understand the essence of a product in order to be able to get rid of the parts that are not essential.
Jeff Bezos was also impressively clear about where to compete and how to win. But while Jobs leaned toward simplification, Bezos favored optimization. According to biographer Brad Stone’s, Bezos was fanatically methodical about everything. This becomes clear in reviewing the choices and trade-offs he made in deciding where Amazon should compete. His goal was always to create “The Everything Store,” but his initial focus was on books. Of all the potential product categories, why were books the commercial beachhead for Amazon? What was the basis for taking such a highly specific first step? There were at least three reasons:
• Substitutable Product: Books are non-perishable commodities. A book in one store is practically identical to the same book carried in another. Buyers could plausibly be persuaded to purchase a book that interested them if a new entrant could materially reduce the retail price.
• Dependable Supply: There were two primary distributors of books in the U.S. at that time, Ingram and Baker & Taylor, which accounted for the vast majority of distribution volume. A new retailer like Amazon wouldn’t have to approach each of the thousands of book publishers individually. Bezos could depend on a simple and secure supply channel, allowing him to redefine the demand side of the book business.
• Retail Opportunity: At the time of Amazon’s launch, there were more than 1.5 million English-language books in print, but even superstores couldn’t stock more than 10 percent of those titles. As a digital platform, Amazon offered a way to eliminate most of the physical barriers to unlimited selection. In addition, Amazon could capture more value from millions of small-run books than from the few international bestsellers that were popular at any given time.
That’s how Bezos determined where to compete. Having carefully staked out a place in the market, he was equally intentional about how to win. Whereas other companies were preoccupied with competition, he would obsess over the customer. Whereas they would focus on things that paid dividends over two or three years, he would remain long-term oriented. Whereas they would safely follow technology trends, he would prize continuous invention. These were the conscious choices and trade-offs he made to build a unique competitive advantage.
Thinking clearly about where to compete and how to win was the lead domino for Jobs and Bezos as they built their respective behemoths. They were quintessential strategists. As leaders, we should regularly return to these core truths, ensuring we separate the petty from the pivotal in our company’s agenda.