“I’m not here to be number one in the market. I’m here to make money.”
It used to bother me working with clients who were unwilling to commit to winning. They thought they wanted to be the best in their class, but not really. They were unwilling to make the hard choices and sacrifices required to build an industry-leading product. I think I have been wrong this whole time. Clients don’t have to want to win and simply being the “best” product does not mean winning.
“The best product is the one people use.”
In Playing to Win, the first choice you make before even conceiving a strategy is a deliberate decision to win 1. Commitment to winning is hard. Winning requires hard sacrifices, trade offs, and usually a lot of hard work. I’ve learned some clients just don’t want to win. And that’s okay. They just want to survive. They have been surviving. How?
We are taught that only the best companies win and if we are to help our clients and companies thrive, we need to strive to be the best. But is that really true?
In a 1987 article titled “Competing on the Eight Dimensions of Quality”, HBS professor David Garvin describes how to use quality as a competitive edge. He starts by describing the history of Total Quality Management, and how the focus on quality was originally that of consistency in product delivery. Do people actually get what they were promised? He goes through each of the 8 dimensions:
- Perceived Quality
He starts along a similar line of thinking that I believe: “Consumers do not always have complete information about a product’s or service’s attributes; indirect measures may be their only basis for comparing brands. A product’s durability, for example, can seldom be observed directly; it usually must be inferred from various tangible and intangible aspects of the product.” Customers are making decisions without complete information, we both agree on that. But the general thread throughout the piece is that competing on product quality is the way to win. I want to argue that product quality is only one of many aspects that allows a company to survive.
Accepting Mediocrity into your life
Mediocrity can be hard to accept initially, but it’s a real strategy and one that can thrive. I used to ask myself “Why am I doing this if I’m not going to be the best at it?” It’s something I’m trying to get past. Venkatesh Rao describes, to my understanding this attitude as mediocrity. “Where the hero reluctantly accepts his own exceptional nature, the mediocre comic hero eagerly embraces his own unexceptional nature and schemes to gain rewards out of proportion with its potentialities. Where the hero embodies fight, the comic hero embodies flight. Where the hero puts in 110%, the comic hero gets by with 60%.” In some ways, he argues against the pursuit of excellence and for the pursuit of mediocrity. He states that “All excellence is exceptional, though not all that is exceptional is excellent.” Much like successful products, the ones that are successful are not always do to being “excellent” in a product context. He continues “Exceptionality can be attained by either being highly present and situated in a complex environment, or by being exceptional in any environment.” One thing I am starting to believe more and more is that many products and companies thrive simply be being in the right place at the right time, not from some a priori prediction that what you are building will be successful.
The predominate view of the best product wins presupposes pure rationality in consumers, something we know isn’t the case. There has been an explosion in recent years of books on Behavioural Economics, the most popular covering decision-making such as Thinking Fast and Slow. Paired with this has been an implosion, in some sense, of traditional economic thought of what people optimize for. Previously, economic value only considered monetary implications. Some people argue that what we previously called irrational was just us misunderstanding people’s optimizing function, while others are totally against believing optimization is the self-interest of humans. My view is more of the former: we were evaluating “value” and “optimization” in a much too narrow context.
In The Copernican Revolution in Banking , a very interesting paper by Frank Rotman about a potential future of the banking industry, there is a thought-provoking slide about the evolution of competition in a world of perfect information. It invites you to reevaluate your offering in light of increasing information-symmetry across buyer and seller.2
This is a very provocative thought and one that’s easy to attach yourself to. How many of our or our clients products would get chose if people knew everything about every product? While interesting to consider, I believe this is a fallacy for a couple reasons.
- Consumers will rarely3 have perfect information when making a decision.
- Consumers don’t decide based on that information.
To start, let’s look at perfect information. Perfect information is defined as “all consumers and producers have perfect and instantaneous knowledge of all market prices, their own utility, and own cost functions.” Looking at at simpler explanation, ecnmy states: Perfect information is when we know everything we need to make the best choice. Is this ever really attainable? What are all the things that impact our decisions, and how many of them do we really consider when making a decision?
This brings me to the second point. While perfect information has a very broad definition, I think our practical definition of “perfect information” is narrow compared to what people actually consider in their decision. We often believe factual information is what makes up perfect information, but the specs of a product are only one piece of the puzzle.
The best of anything is a dynamic entity, changing based on the person and their context. As a result, our understanding of other’s behaviour is hindered because we are looking for a universal explanation or compare it to our own. As I said in What is a Product?:
Generallywhen something doesn’t makessense, it’s likely due to your expectations and understanding of the world. There is an implicit “to me” missing from the end of the sentence “that doesn’t make sense”.”
We know this. We know that people have different tastes and priorities. And yet, we somehow think it’s the most important thing when designing, positioning, and building a product. As we enter build mode, we forget how people are making decisions about the things we make.
As it turns out, this is not a new notion. The prevailing view that the best product wins has been oft disputed in the startup world. The products with the best distribution network are the ones that win in the long run. “But, doesn’t that mean that bad products will win?” you might say. I have a couple caveats, although I’ll first acknowledge you’re already trying to use a universal description of bad product.
Distribution is the mechanism that gets people in the door. It’s the manner in which you attract and acquire new customers. Once in the door, it’s up to the product to keep them there. This doesn’t mean it has to be a “high quality” product, only meeting criteria past a baseline. Because of behavioural principles like consistency, you’re likely to stick with your first decision once you’ve made it. You’re likely to stick with it until the company or product loses your trust. Similarly, social proof will then influence the decision of others, compounding growth and putting a company into the lead. This is why distribution is such a powerful component, those who manage to grow quickly are hard4 to displace. If you believe existing customers bring new customers, it can be stated that new products are trying to bootstrap this social proof as quickly as possible.
I’ve found a helpful parallel is the restaurant industry. Do you ask your local coffee shop or shawarma joint why you should go there? Do you do any sort of comparison based on: Price, Taste, Amount of Food, Customer service? Do you even think about it?
Maybe. I doubt it.
My guess is—whether consciously or not—location and convenience are the driving factor in your decision-making process. When people ask, you might say “it’s not the best, but it’s closest to me/the most convenient.” Isn’t this why you go to Subway? Still this perpetuates the belief that product quality is what we are supposed to be basing decisions on. You probably chose that restaurant because it was the best for you at the time. All you wanted was coffee or food quickly. We make decisions based on what we value in our current context.
This seems obvious. We don’t question why yet another fast-casual spot opened right beside three others, but there’s a good chance they will be successful any. Maybe it’s because they are serving different food (targeting a niche). Maybe it’s because they are cheaper (low-cost play) or open longer (differentiation).5 Or maybe it’s just because they are there. They understand that by simply being available to anyone walking by, they will drive sales. Place can be more powerful than product.
Sidebar: At the movies
Why do people consistently say “That movie is so bad, but I love it.”? We equate artistic quality with an overall evaluation of the movie. There are times where we just want entertainment. It’s clear based on the above comment that we want to caveat our taste—measured by artistic quality—in social settings since others will judge us based on it. This is something is incredibly nitpicky, but indicative of the broader theme of this piece.
Systems at Play
It appears there are two phenomena at play here:
- Satisficing: An economic term to mean “Going with the good enough option”
- What you see is all there is6: A phenomena where availability is the primary evaluation criteria.
Smart companies often choose to compete on distribution and sales instead of their
“The battle between every startup and incumbent comes down to whether the startup gets distribution before the incumbent gets innovation.”Alex Rampell, a16z
I would argue that as long as you are in the consideration set for enough customers, you can have a successful business. Most customers aren’t aware of all alternatives and don’t think the time-cost of research is worth it. This is especially true with an audience who doesn’t value the decision enough to a spend additional time comparing. These people typically value convenience above all else.
Wait. My notion of value is wrong, again. I keep using it and then correcting myself. It’s hard to reorient my way of thinking to encompass “value” in its truer, broader sense. It’s not that people don’t value it—that’s applying your own priorities to their decision—it’s that what is important to them is different than you.
This is hard, but I’ll keep at it. The next time I am helping clients build a new product, I’ll remind myself of what people really care about and not impose my notions of quality upon them. In a podcast I listened to the other day, Venkat describes mediocrity as a way to see the world, as opposed to a way of being in the world. Where are you seeing mediocrity thrive?
- Winning in this instance is survival, not domination. ↩
- This is something platforms are trying to solve, in some ways. By centralizing information, it’s easier to access all relevant information at once. Over time, the behaviour of the masses will decide who rises to the top as most relevant. This introduces a new problem: information overload. If you google something, you can learn most of what you need about a topic to make a decision. In theory. But nobody is going to go through all 900,000 results for “Best Pizza” to find the right spot for them. ↩
- I would say never, but Never Say Never. ↩
- Hard, but not impossible. Most new innovations are replacing others. ↩
- These map nicely to Michael Porter’s generic strategies. ↩
- This expression comes from Thinking Fast and Slow by Kahneman and Tversky. It’s described in this passage: “The confidence that individuals have in their beliefs depends mostly on the quality of the story they can tell about what they see, even if they see little. We often fail to allow for the possibility that evidence that should be critical to our judgment is missing—what we see is all there is.” ↩