The Counter-Positioning Strategy

I recently read 7 Powers, which is now my favorite book on business strategy. Historically, I'm not a big fan of books on this topic, as most of the advice is abstract and frequently written by consultants vs. people in the trenches building stuff.

While 7 Powers is written by a consultant, it lays out major strategic choices a business can make in a way that's easy to understand. One of the chapters outlines a specific strategic choice called counter-positioning.

This was by far one of the most interesting chapters, so I wanted to document it and remember it.

The author, Hamilton Helmer, defines counter-positioning as the following:

"A newcomer adopts a new, superior business model which the incumbent does not mimic due to anticipated damage to their existing business."

In other words, a startup attacks the incumbent's business model in a new way; from what I can tell, this frequently revolves around aligning oneself more closely to customer needs.

The book describes how Vanguard offered low-cost mutual funds vs. the industry norm of charging high fees. At first, the incumbent might watch Vanguard and think, "this business is too small, it's not worth emulating. We already make a ton of money doing things our way."

Then over time, the new entrant (Vanguard) gobbles up more market share. The more market share the new entrant gobbles up, the more the incumbent starts getting worried and needs to make a decision. It looks like the following choices:

• Do we continue on with business as usual, giving up market share to the entrant?
• Do we adopt the new business model that the new entrant has, risking our existing business and loss of revenue?

At this point, there is no easy answer. The lost of revenue is known if the incumbent decides to change course, while adopting a new business model requires a ton of internal change AND also signals "failure", which is embarrassing for leadership.

What I find hilarious about this strategy is that to some extent, it's self inflicted. An incumbent CEO will oftentimes downplay the new entrant publicly. For example, look at what the CEO of Blockbuster thought about Netflix:

"At least initially, they thought we were a very small niche business. Gradually over time, as we grew our market, his thinking evolved but initially they ignored us and that was much to our advantage."

Imagine if the CEO of Blockbuster had to backtrack on these comments? He would look like an idiot in public. Who wants to look like an idiot in public? No one.

In conclusion

As an entrepreneur, I think counter-positioning is a wonderful strategy to use. Look for ways to deliver more value or shift the narrative vs. competitors. Attack the the core value of their product in a new way.

Just make sure you are delivering more value to the customer vs the incumbent, as that's the key to making this strategy work.