The creation of the 7 Strata of Strategy framework was inspired by a book written by Walter Kiechel III, a former Fortune editor and Harvard Business Publishing editorial director. Titled Lords of Strategy: The Secret Intellectual History of the New Corporate World , it chronicles the relatively short 50-year history of corporate strategy and the four men who were the pioneers in the field. For leaders interested in the topic of strategy, it’s an invaluable resource documenting, in one easy-to-read package, the frameworks used by Boston Consulting Group, Bain & Co., McKinsey & Co., Porter Consulting, and many others.
If you focus on only one of the 7 Strata, this first one is the most important in driving revenue. The rest help you defend your niche, simplify execution, and turn your revenue into huge profit.
Here are the 7 Strata:
Words You Own (Mindshare)
Since 87% of ALL customers (business, consumer, and government) search the Internet to find options for purchasing products and services, you need to dominate these search engines. The key is owning words that matter the ones people think about and use to search for your products and services.
“The key is owning words that matter.”
Dominating the search engines isn’t the only test. The key is piking a niche and owning (or creating) the words in the minds of the people you wants as your core customers.
Sandbox and brandpromise
There are four key decisions to make on stratum 2:
- Who/Where are your (juicy red) core customers?
- What are you really selling them?
- What are your three Brand Promises ?
- What methods do you use to measure whether you’re keeping those promises? (We call these the Kept Promise Indicators, a play on the standard definition of KPIs .)
Bloom and Conti, authors of The Inside Advantage, implore companies to get crystal clear about Who and Where their juicy red core customer is the customer from whom the business can mine the most profit over time. Their warning is to define customers beyond a pure demographic.
Once you know more specifically Who they are, it’s much easier to know Where to find them. The performance fuelers can be reached locally on a few key trails and via a couple of popular news sites and blogs.
Bloom and Conti suggest that the primary mistake companies make in describing What they sell is to focus on the benefits and features. All sales are emotional, initiated through the heart (“No one was ever fired for buying IBM”) and then justified logically by the head. That’s why established brands play on people’s fear of purchasing from a new entry in the marketplace.
Job to be done, by Clay Christensen
So why should she/he buy from you vs. its competitors? There have to be some compelling reasons that are evident from the moment she/he visits your’s website. We call these reasons the Brand Promises. Most companies have three main Brand Promises, with one promise that leads the list. The key is to define the company’s Brand Promises quantitatively so they can be measured and monitored.
Refrain from using the words “quality,” “value,” or “service” as Brand Promises. They are too vague. Their definitions may vary, depending on the group of customers you’re facing.
KPIs (Kept Promise Indicators)
A promise has no weight if you don’t keep it, resulting in lost customers and negative word-of-mouth publicity. Thus, it’s critical that you know how to measure daily whether you’re keeping your promises.
Brand Promise Guarantee (Catalytic Mechanism)
It needs to hurt to break a promise; otherwise, it’s too easy to let the moment pass. This is why Collins labeled what we call a Brand Promise Guarantee “a catalytic mechanism.” The Brand Promise Guarantee also reduces customers’ fear of buying from you.
Elon Musk promises to power up South Australia in 100 days
KEY RESOURCE: Jim Collins’ Harvard Business Review article “Turning Goals Into Results:The Power of Catalytic Mechanisms”
One-PHRASE Strategy (Key to Making Money)
The first three Strata owning mindshare, making and keeping promises, and backing them up with a guarantee are expensive to accomplish. Making matters worse, in trying to address ever-increasing customer demands, the marketplace ends up “want, want, wanting” your margins away as the competition ramps up the “feature set and added services” war. This is why it’s critical to identify your One-PHRASE Strategy. This phrase represents the key lever in your business model that drives profitability and helps you choose which customer desires to meet and which ones to ignore.
Frei and Morriss’ overarching point is that great brands don’t try to please everyone. They focus on being the absolute best at meeting the needs/wants of a small but fanatical group of customers, and then dare to be the absolute worst at everything else. In turn, competitors, in striving to be the best in everything for everyone, actually achieve greatness in nothing and end up as just average players in the industry.
The book Uncommon Service will give you a myriad number of examples and walk you through how to both “be bad” the right and highly profitable way and “be great” via a few Brand Promises. It takes real guts to ignore or even alienate 93% of customers, focusing instead on the 7% of the market that is fanatical about you and willing to put up with the trade-offs.
Differentiating Activities (3 to 5 Hows)
Underpinning the One-PHRASE Strategy is a set of specific actions that represent HOW you execute your business differently from the competition. According to well-known strategist Michael Porter at Harvard Business School, it’s at the “activity” level of the business where true differentiation occurs and the business model is revealed.
NOTE: This is the first time the term “differentiation” has been used. Competitors can pursue owning the same words, make the same Brand Promises, and offer the same guarantees. However, it’s HOW you deliver on your promises where differentiation occurs. Adds Kevin Daum, author of ROAR! Get Heard in the Sales and Marketing Jungle: A Business Fable, “a true differentiator can only be defined as something your competitor won’t do or can’t do without great effort or expense. Often these can take years to develop since if it can be done cheaply, easily and quickly it provides little or no competitive advantage.”
Establish a set of activities “how” you run the business that is different from the norms of the industry, helps you drive profitability, and blocks the competition. This is a lot for a handful of activities to accomplish, but this is the source of your differentiation. Do the work! As Porter summarizes, “A company can outperform rivals only if it can establish a difference that it can preserve.”
KEY RESOURCE: Michael E. Porter’s classic 1996 Harvard Business Review article titled “What Is Strategy?”
X-Factor (10x-100x Underlying Advantage)
X-Factor a 10x-100x underlying competitive advantage over its rivals. Normally invisible to customers, this edge underpins the strategic activities described above and blocks competitors from even trying to copy you. And it typically addresses a huge, established choke point in an industry.
Once you have such an advantage, it will usually let you decimate the competition, allowing you to sustain the kind of rapid growth that will have sustain for more than a decade.
So how do you figure out an X-Factor? Start by asking: What is the one thing I hate most about my industry? What is driving me nuts? What is the choke point constraining the company? It could be a massive cost factor. It could be a massive time factor. The challenge is that you’re often too close to the situation and as blind as everyone else to the real problems that have been accepted as industry norms.
One clue to the source of the X-Factor is going back to your last 10 trade association meetings and gathering the titles of the various breakout sessions. Put them in an Excel spreadsheet, and see if there are any patterns of challenges facing your industry over the past decade. By focusing on these roadblocks, and figuring out a 10x to 100x advantage, you’ll have a huge leg up on the competition.
Profit per X (Economic Engine)
The Profit per X metric represents the underlying economic engine of the business and provides the leaders with a single KPI they can track maniacally to monitor the progress of the business (a great luxury to have). Though the numerator can be any metric you like profit, revenue, gross margin, pilots, routes, etc. the denominator is fixed and represents your company’s unique approach to scaling the business. And it generally ties back to the One-PHRASE Strategy (all of this stuff links together).
Big Hairy Audacious Goal (BHAG®)
As leaders set the ultimate long-term, 10-to 25-year goal for their companies, we see a lot of sloppy work a random number or statement of aspiration with no real connection to a company’s underlying strategy.
Collins placed the BHAG® in the center of his Hedgehog Concept, noting that it must fully align with all the components of your strategy. It’s why we’ve made it the seventh and final stratum. And we’ve discovered that the best unit of measure for the BHAG® is the X from the Profit per X.
NOTE: Your BHAG ® should be measured in the same units as the X. This is a key point.
The Profit per X and the BHAG ® need to align very tightly . The BHAG® must also align with the Purpose of the company, as we explain in the chapter on the One-Page Strategic Plan.