If I am – for lack of a less awful word – famous for anything, it is for being one of the so-called contrarians in the world of strategy. I suppose it is a result of a rather simple core belief – my analysis matters, if to nobody else than myself. Should the evidence point in a direction that goes against accepted wisdom or industry truth, exploring it has always appeared the intellectually honest thing to do.
For example, I have never really been convinced by positioning as traditionally argued for. For clarity, I am not referring to what one might call perceptive positioning; I will leave that for the marketing world’s most famous Australian-based professors to debate. No, I mean competitive positioning, as in defining how organisations, in comparison to their competitors, create value.
Whether a company can create a business advantage from competitive positioning depends on how its business model holds up against competition (advantages, in turn, can only exist relative to a baseline). However, as much as organisations would love to be able to delimit their competition themselves, it would be a fool’s errand in today’s marketplace to attempt to do so beyond the most fundamental factors (ie the core business idea).
Startups and incumbents such as P&G not only play by different rules, they barely play the same game.
Simply naming a market segment does not make it exist. A manufacturer of individually wrapped, chocolate-coated candy, say, does not merely compete with producers of identical confectionary, but a myriad of brands within a broader category. Other categories can provide competition too; all kinds of products and services can cover the same need and be sold across geographical markets with ease online.
Consequently, the competitive set against which companies position themselves on paper inevitably ends up being significantly wider in reality than they would like it to be – and perpetually in motion. Attempting to limit competition by narrowing it down in a strategy document does not magically make it possible to do so.
But more to the point, such positioning also hinges on the capability of strategists to see into their competitors’ inner workings. While the idea undoubtedly is flattering, it is also perhaps too generous; most employees have enough trouble trying to understand their own strategy, let alone those of the competition.
P&G’s dubious approach
To illustrate, take Marc Pritchard, legendary chief brand officer of Procter & Gamble (P&G). Admittedly not so much an employee as the most senior marketer on the planet, he recently declared that he is encouraging his marketing departments to act as if they were working for a startup.
For reference, I have worked with plenty of startups of various sizes and shapes. I have had clients who brought me in because they were struggling, unable to secure capital. I have had clients where I have taken the founder all the way from business strategy to successful exit. I have had clients where the overall valuation of the organisation increased by billions.
To be blunt, the idea that big brands should act like them is, with apologies to Pritchard, nonsensical. Startups and incumbents such as P&G not only play by different rules, they barely play the same game.
Just as system properties change with scale, so does the behaviour of an organisation. It is not so much a result of optionality but obligation; companies largely act the way that they do because they have to.
Startups have to be nimble and quick on their feet, as they are subject to larger change both in terms of frequency and variance. The reasons why are manifold, ranging from not having established whether there is actually a demand for the product or service provided, to not knowing the best way for the company to operate on a day-to-day basis and anything/everything in-between. Familiarity with an industry’s past successful actions is inherently time-dependent, which means that younger firms are at a disadvantage.
Of course, naïveté can undoubtedly lead to novel thinking and the big brand hope is that imitating such startup processes can solve a key challenge in ‘intrapreneurship’: how does one create entrepreneurial behaviour in an established company when one cannot afford the level of failure that an overall market can?
The problem is that incumbents often misjudge precisely how high that level is.
As it happens, the failure rate of startups in general sits at around 95% to 97%. Even among those who make it all the way to Series F funding, 75% are unable to secure more funding or exit. To take on such a risk profile for a large brand would be, for obvious reasons, wholly unrealistic.
Consequently, established companies look to those who made it against the odds and try to unearth their keys to their success – but in so doing forget about survivor biases in data and whether those who were not so lucky were doing the same. And, by and large, they were. Such is the case of ‘lean’, for example, which is one the methods that P&G is now employing.
That is not to say that incumbents cannot use emergent methods in certain contexts; on the contrary, external shifts and internal entropy make it necessary for organisations to constantly evaluate and evolve what they do. In fact, part of my work is helping large companies do precisely that.
But the key lies in understanding what those contexts are, even within marketing departmental functions, and the implications of size. Simply encouraging employees to act as if they are working for a startup is no more likely to work than painting ‘dinghy’ on the side of the hull of the Ever Given in the hope that it will enable it to clear the Suez Canal.
I am quite certain that Pritchard knows this, but his rhetoric is enforcing a stereotypical narrative that is damaging more than helping.
Big brands should not act as startups any more than startups should act as big brands.
And, either way, surely the dream of any startup business is to become precisely the kind of big, spectacularly successful company that he works for?
JP Castlin is a former consultancy executive turned independent strategy and complexity management consultant.