Frameworks for competitive strategy
This post was first published on my newsletter, Delightful
This is called operations.
But most agencies don’t know how to approach the market.
This is called positioning.
You need both to create a competitive strategy.
Operations is how you do the things you do. Positioning is what things you offer, to whom, and why.
The latter captures attention and converts it to work.
The former captures that work and converts it to profit.
Agencies compete to be more efficient since, by their nature, services businesses are lower margin (your product is highly paid people).
The more efficiently an agency provides those services, the larger their margin. Do a nickel’s of work for a dime’s worth of pay. That’s how you keep the carnival going.
At the end of the day efficiency (+/- some other stuff!) is measured in profit: did you make more money than you spent?
To increase your profit you can always do things like:
This is why agencies overwork staff, hire freelancers in remote cities with lower day rates, try to win awards to get famous, specialize in work few others can do, or go fully remote and stop buying snacks for the kitchen.
If an agency based their strategy solely on the efficiency of its operations, their choices would look like this:
Specialize
Provide a differentiated and bespoke service. For example, part of my former agency’s business was creating executive keynote PowerPoints for live events. The service was bespoke. The creation process was torturous and slow. But there are few agencies who specialize in that service (and for that market, which we’ll get to down below). So it’s expensive.
Minimize
Provide a commodity service at a lower price. Do what everybody else does, maybe don’t do it as well, but definitely do it below market rate. A good option when the market is already established.
Generalize
Provide a commodity service for a majority of the market. This is what large agencies do. They compete on the efficiency of their scale combined with the quality of their work (or reputation).
Maximize
Provide a differentiated service. What a boutique agency might do. The winners are the ones with the highest-wattage talent and/or reputation for unique process work.
Each of these efficiency strategies can work! But, taken alone, they’re not a competitive strategy. They’re only one half of a competitive strategy. Any competitor could copy each operational approach. To have a defensible position, you must combine them with other, more unique and un-copyable activities. Here’s why.
[Quick note before continuing: I originally drew the graph above with “more expense” on the x-axis. My friend/supercomputer Noah Brier suggested “efficiency” would present a more fundamental argument; a consequence of that change is that the graph becomes more similar to product strategy lessons found in Jobs to Be Done.]
Many agencies will say that their core differentiator is “our unique and proven process". For the great majority, this is not true. The great majority do roughly the same thing as their competitive set with roughly the same tools. They’re pretending their process is different and trying to sell the mystique.
And even if their process is unique, they’re still trying to do exactly what any good agency would tell a brand not to do: selling features rather than benefits.
Saying you have a unique process is like saying "Everybody else has a Flurgle but we have a Even Flurglier Flurgle!".
Ultimately if you only focus on Flurgle efficiency, two things will happen.
You’ll raise the bar for productivity, but the gains will be captured by your customers who can now choose among many efficient agencies who use your same process. If you think that’s not true, google Design Thinking. Or agile development.
Outsourcing work? So is everybody else. Merging with other agencies? So is everybody else. Thinking about working remote? So is everybody else.
But the precision of your work must be combined with precision in targeting the correct customers. You have to “yes, and” your operations.
That is, you have to match how you do the work (efficiency) with what work you’re offering to whom (positioning). This allows you to capture the right kind of attention for the type of service you offer.
The simplest way to visualize this is, yes, a 2x2— but in a lazy attempt to distract you from the simplicity of my one trick, this 2x2 has a different look:
This is a (very) reductive framework, but it contains a powerful (basic) lesson. By choosing a quadrant in which to compete, you do two things:
Here it is with some random, real-world agency examples:
Consider Work & Co. They provide interactive experiences. They don’t do white papers, they don’t make tv commercials, they don’t do social strategy. They only offer interactive experiences—but, they do that for many different types of brands. You could call them a horizontal specialist.
Consider Altitude. Altitude provides a variety of marketing and advertising services—but they only offer those services to B2B brands. You could call them a vertical specialist.
Accenture, meanwhile, will do almost any kind of work for almost any kind of brand. They’re not a specialist, unless their specialty is being able to spend more money than you.
I want to be clear: This is not a new idea! This is a very old idea! But it’s an idea that seems to get lost among agencies: the key to competitive strategy is to combine a specific way of working (efficiency) with a specific target customer and service offering (positioning).
When you do that, you make it easier on yourself to make every strategic decision, from customers to target, to talent to hire, to services to sell. You create a unique value chain that provides competitive advantage. That makes it more difficult for competitors to copy you, which means by definition you have a defensible competitive position.
The alternative, of course, is to generalize your services and compete for every customer possible by using your non-unique process and inconsistent referral pipeline in a race to the bottom on price as you jostle with larger agencies.
Hope you have deep pockets.
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