The Four Strategies
How to understand the essence of any business
There’s really only four competitive strategies:
- Broad + differentiated
- Broad + low cost
- Niche + differentiated
- 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
- Blue Bottle
- Eight Sleep
- Smile Direct Club
- Bird, Lime, etc
- Planet Fitness
- The Financial Times
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:
- How Competition Works - why you should “compete to be unique” rather than “compete to be the best”
- Trade-offs are your friend - great strategies incorporate trade-offs in order to prevent copycats
- “The value chain” is the DNA of business - how to map your ecosystem and understand sources of competitive advantage
- Your actual competition - a guide to Porter’s “Five Forces” framework, through the lens of Spotify
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.
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