The Four Strategies

How to understand the essence of any business

There’s really only four competitive strategies:

  1. Broad + differentiated
  2. Broad + low cost
  3. Niche + differentiated 
  4. Niche + low cost

Of course, this might strike you as a wild oversimplification. But I want to convince you that it’s not.

In fact, I believe this lens is one of the most powerful tools that any founder, operator, or investor can have. Because it cuts to the core of the two most important challenges every business has to overcome in order to succeed: why would anyone buy your product, and how can you make money selling it?

Understand that, and everything else a business needs to do clicks into place. Overlook them, you’re in grave danger of losing your way.

It’s important to know that this “four strategies” framework wasn’t just something I made up. It was created by the most cited author in the fields of business and economics, Michael Porter. He introduced it in his book, Competitive Advantage, and it’s been a staple in business schools and in practice ever since.

Navigating the market without this framework is like trying to navigate the world with no concept of north, south, east, and west. It’s possible — our ancestors certainly did it! — but those equipped with a compass can go much further and faster without getting lost.

This essay is split into five major sections. The first four sections cover each of the four strategies. These all contain one main example, three shorter examples, and some additional commentary on how to make the strategy in question work. The final section covers a special case: strategy for monopolies.

Companies examined include:

  • Dollar General
  • Blue Nile
  • Southwest Airlines
  • Costco
  • Slack
  • Pfizer
  • Blue Bottle
  • Eight Sleep
  • Smile Direct Club
  • Bird, Lime, etc
  • Planet Fitness
  • Redbox
  • Superhuman
  • The Financial Times
  • Mizzen+Main
  • Canon
  • Facebook
  • Google
  • Amazon

Let’s get started :)

To read the rest of this 3,455-word essay, become a paying subscriber.

You’ll also get access to my other posts about Michael Porter’s work, including:

Subscribers get original explainers of the most important ideas in strategy (like these) every week. My loose roadmap for 2020 is to cover Michael Porter, Clay Christensen, and Hamilton Helmer.

Questions? Tweet me!

Read this next:


Bundle Magic

How to make 1 + 1 = 3

134 Apr 16, 2020 by Nathan Baschez


Why Content is King

How media creates power

345 Dec 18, 2020 by Nathan Baschez


How to Write Essays That Spread

Everything I’ve learned about writing on the internet

222 Feb 15, 2023 by Nathan Baschez

Chain of Thought

GPT-4: A Copilot for the Mind

Never forget what you read again

165 Mar 17, 2023 by Dan Shipper

Napkin Math

A Dearth of Secrets, an Excess of Capital: SVB’s Explosion

We may be entering a more ruthless era in tech

86 Mar 13, 2023 by Evan Armstrong


You need to login before you can comment.
Don't have an account? Sign up!

Understand AI

Get one actionable essay a day on AI, tech, and personal development


Already a subscriber? Login