The 5C Strategy Framework: Why Most Companies Suck at Strategy

No Guts, No Strategy - If Your Strategy Doesn't Scare You, You Don't Have a Strategy

As an employee, I’ve never worked at a company with a real strategy.

Hard to believe, I know. But you read it right: never. I’m not exaggerating.

That isn’t even the real problem. The real problem is that almost every company believes they do have a strategy.

Sounds strange?

Well, let’s dial up the strangeness: most companies don’t have a real strategy, just like, most likely, you’ve never tasted real wasabi.

The Taste of Wasabi Strategy

Take a look at the picture below. Have you ever been served that with your sushi?

I've got news for you: unless you're Japanese or frequent super-fancy sushi establishments, you most likely haven’t.

By now, you’ll probably object. I have eaten sushi with wasabi before. You know, that green and spicy paste that comes with the sushi.

Except that green stuff is almost never real wasabi. This is most likely what you’ve been served instead:

What in your world passes for wasabi is horseradish, where they add artificial green coloring to produce the illusion of wasabi.

This cheap, green, and spicy concoction tastes nothing like wasabi made from the Wasabia japonica plant.

You might be wondering: why don’t they serve real wasabi instead of fake wasabi? Wasabia japonica is extremely difficult to grow, expensive, and difficult to obtain outside of Japan.

Just as rare as getting Wasabia japonica with your sushi is a company with a real strategy.

Most people, when they talk about strategy, talk about artificially colored horseradish and not wasabi. They are talking about Wasabi Strategy, something that doesn’t come close to a real strategy, but we like to pretend it’s the same.

So, how do you tell whether your company has a Real Strategy or a Wasabi Strategy?

Let’s explore strategy by telling the story of Dunstan Low.

What Does a Real Strategy Look Like?

Dunstan Low, a British marketer working in IT, bought a six-bedroom house in 2011 for £435,000 in 2014 and spent £150,000 on renovations. He had invested more than £585,000 in the house.

When his business collapsed, he decided to put his property up for sale in 2014.

When his house was listed for £800,000, he received zero offers. In December 2016, he put it for sale again at £845,000. He received one viewing and zero offers. At some point, he even dropped the asking price down to £500,000, which meant he would be selling at a significant loss. He still didn’t receive any offers.

Imagine you’re Dunstan and you want to sell the house. What would you do?

• Drop the price even further?

• Increase the price?

• Pay lots of money for ads?

• ??? Open a baby goat yoga retreat next door to attract attention.

Welcome to the lovely realm of strategy. Where the possibilities are infinite and all the tough choices are up to you.

We will analyze the choices Dunstan made using the 5C Strategy Framework I invented, which you can use to dissect your strategy. It will also help to tell if it’s a real strategy or a Wasabi Strategy:

• Challenge

• Constraints

• Concessions

• Courage

• Clarity

Let’s kick it off with the Challenge:

• Because he struggled to sell his house for a reasonable price the normal way for many years, he wanted to find a different way to sell his house for a reasonable price.

The crucial part of strategy is framing the Challenge you’re trying to overcome with your strategy. Framing the wrong Challenge, or framing it incompletely or in the wrong way, or not even having one that is clearly defined will set you up for failure.

To overcome the challenge, he decided to introduce a Constraint:

• His house would be sold through a raffle with £2 tickets.

There was one slight hitch: he didn’t have a gambling license. You’re not allowed to run a commercial raffle without a gambling license. To circumvent problems with the gambling commission, he needed his raffle to be a game of skill, instead of a game of gambling.

Upon careful consideration of the gambling laws and the risks involved, he created the following Constraints:

• His house would be sold through a raffle with £2 tickets.

• People could participate for free in the raffle and also pay to participate. With an equal chance to win. This ensured he would evade the thunderous wrath of the Gambling Commission.

• And this was the stroke of brilliance: if not enough tickets were sold to cover the minimum price the house was worth, then the money made from ticket sales would become the prize money instead of the house.

A strategy without constraints is not a strategy. And because introducing constraints often comes with concessions, you must be keenly aware of the repercussions all the concessions you’re be making and willing to accept them, or find a way to reduce their risk.

All these Constraints came with the following Concessions:

• He was no longer in control and at the mercy of the raffle gods when it came to selling the house, though he had created clear guard rails.

• The worst-case scenario, is that he would not sell his house and have organized a raffle for free.

• The second worst-case scenario would be that he would sell his house for the minimum price it was worth, which was acceptable but still not great.

• The best scenario was, that he would make a significant profit, which is what he was betting on.

In short, the worst-case scenario is that he would be organizing a raffle where he invested a lot of time and energy and he would end up in exactly the same place where he was before: not being able to sell his house for a reasonable price.

Making the decision to accept these concessions requires Courage.

This is the exact moment where most people decide to call it off. I already would get stressed at the thought of organizing a raffle for selling my house.

Most people would consider the constraints and concessions to be too risky and not worth the effort. Luckily, Dunstan had courage, as he was exhausted from waiting for offers that never arrived.

As a result, Dunstan now had Clarity. He had a clear course of action: he had to figure out a way to sell hundreds of thousands of raffle tickets to make money on his house.

An internet marketer by trade, he was able to generate significant buzz around his raffle contest. He had entries from as far as China, Russia and even Mauritius.

He triggered an avalanche of publicity and sold a gazillion tickets. The unsellable house was ultimately raffled for £900,000.

Not bad for a house he was willing to sell for nearly half the amount a few months earlier.

What Can We Learn From Dunstan Low?

If your strategy doesn’t scare you and keep you up at night, you don’t have a strategy. A strategy that doesn’t require courage, because of the constraints you’re introducing and the concessions you’re making, is not a strategy.

All the concessions baked in your strategy, increase risk, and may even increase your odds of losing.

In fact a great strategy comes with constraints that are guaranteed to make you lose something, no matter if the strategy is a success or not.

That’s exactly what makes it super scary. You must be willing to cut off one of your limbs, with the conviction it will help you obtain something much better further down the road.

That’s the paradox of strategy. You must be prepared to lose to have a chance at winning big.

You’re betting the concessions you’re doing in the short-term, will be offset by the benefits you’ll be receiving in the long-term.

And that, my friends, is why almost nobody has a strategy: having a strategy takes lots of guts.

Let’s walk through some real-world examples using the 5C strategy framework.

Real-World Examples of Strategy Viewed Through the 5C Strategy Framework

A real strategy expresses the Challenge your company is facing.

• Nintendo was competing in a red ocean battle with Microsoft’s X-box and Sony’s Playstation. The console wars where a race to the bottom where everybody was bleeding money to produce the console with the best graphics and best each other. Nintendo realized it couldn’t compete with Sony and Microsoft, as for two reasons: 1. They didn’t have as deep pockets and 2. The GameCube at the time only had a market share of roughly 10%.

• Nespresso was facing an business extinction level event: the patent of their coffee capsule was expiring in 2012. The expectation was that the market would be flooded with cheaper third-party capsule competitors, resulting in a race to the bottom for the lowest prices, which would wreck their business.

• Netflix was making 99% of their revenue from selling DVDs. Almost nobody wanted to rent DVDs from them, despite pushing their DVD rental at extremely high costs when people bought new DVD players. They knew Amazon was going to start selling DVDs soon, which most likely would mean that their DVD sales revenue would be obliterated.

Your strategy is informed by your unique perspective on the challenge your company is facing. Without an opinionated and informed perspective on this challenge, you can’t have a strategy.

One of the most difficult parts of strategy is coming up with most important challenge you’re facing. Pick the wrong challenge, and your strategy will be dead on arrival.

The next step after identifying your challenge, is coming up with a Constraint that will help you overcome the challenge you’re facing:

• Nintendo decided to focus on fun and affordable over graphical prowess. This ultimately resulted in the Nintendo Wii. The Nintendo Wii was at least four times less powerful than Sony Playstation and X-box consoles.

• Nespresso decided to not compete on price, but to position themselves as a luxurious lifestyle brand.

• Netflix decided to completely stop selling DVDs and focus on making DVD rental work.

These self-imposed constraints, came attached with expensive Concessions. If your constraint doesn’t come with concessions, then you didn’t pick a good constraint and it won’t help you gain leverage in other situations.

This was the end result of these intentional concessions:

• Nintendo would lose the hard-core gamers demographics and they would never have the best console in terms of raw performance ever again.

• Nespresso would lose the large majority of their market share and no longer serve customers in the lower-end segments.

• Netflix would lose 99.9% of their Revenue and no longer compete on the online DVD sales market.

The Challenge + Constraint + Concessions require Courage. I recently read the book That Will Never Work, by Netflix co-founder Marc Randolph, which talks about the birth of Netflix in great detail. The book gives a unique insight in strategic decision-making and the courage it took to arrive at the decision to stop selling DVDs:

“Should we focus on selling DVDs, which is bringing in 99 percent of our revenue, but will slowly – inevitably – evaporate as competitors crowd the field? Or should we throw our limited resources behind renting DVDs – which, if we can make it work, could be a hugely profitable business, but at this point is showing absolutely no signs of life?

There’s no easy answer.” - That Will Never Work: The Birth of Netflix, Marc Randolph

If all the stars align, and you pick the right Challenge, Constraint, and accepted your Concessions with Courage, then this will ultimately result in Clarity.

• Nintendo prioritized delight, fun and experience. Because they completely ignored graphical glitter, they could focus on all other aspects that make a game and a gaming console enjoyable.

• Nespresso realized anybody can copy their physical capsule, but the feeling of exclusivity and status from drinking Nespresso is much harder to copy. So they decided to double down on that.

• Netflix went all-in on DVD rental, because betting on two horses caused distractions and lack of focus. They now could give their complete and undivided attention to making rental work, ultimately resulting in Netflix DVD rental as a service.

If your strategy doesn’t result in clarity and focus, then it’s not a good strategy. It should equally inform you what you will be doing as what you won’t be doing.

In short a real strategy has the 5Cs of Strategy

1. Challenge. What is the biggest challenge we’re trying to overcome as a business?

2. Constraints. How can we limit our options in a way that potentially increases our chances of overcoming the challenge we’re facing?

3. Concessions. What are we losing snd giving away with the introduction of our constraint?

4. Courage. Does our strategy sufficiently scare us because of all the opportunities we’re leaving on the table and not pursuing?

5. Clarity. Do we have a clear course of action that provides focus by know what we will and won’t do?

If your strategy doesn’t make you scared, you don’t have a strategy. If it doesn’t introduce constraints and concessions, it’s not a strategy. If it ultimately doesn’t result in clarity on what you should be focusing on (and what not), it’s not a strategy.

Nintendo, Nespresso and Netflix were all super scared whether they would pull their gamble off. All the concessions baked into your strategy increase risk and may make you lose money on the short-term.

There’s another reason why it’s so hard to come up with a great strategy: the narrative fallacy.

Great Strategy Suffers From the Narrative Fallacy

In hindsight, the strategic moves of Nintendo, Nespresso and Netflix, seem perfectly obvious and competent. You would not think executing these strategies would require massive amounts of courage, as anyone with common sense could tell they would succeed.

This conclusion would be completely wrong. Working strategies are often perfect cases of the narrative fallacy, as explained by Nassim Taleb:

“Our tendency to create stories or explanations after the fact to make sense of the world — even when those stories are false, misleading, or overly simplified.” - Nassim Taleb, the Black Swan

Almost nobody saw World War II coming, while if you read the history books it often seems inevitable that the World War II would happen.

This is the strategic narrative fallacy in a nutshell. It’s easy to tell that a strategy works after the fact. It’s incredibly difficult to come up with a strategy that might work before you execute it.

If you want to have a great strategy, you must be prepared to take significant losses, for a massive pay-out you may or may not receive later.

We suck at strategy because our brain is hard-wired to value losses more than gains. We hate losing much more than we like gaining something. The end result of our loss aversion is that we become too scared to come up with a good strategy.

And that’s why, most companies settle for a strategy that sucks. Being scared and not sleeping at night feels unpleasant. The prospect of being guaranteed to incur losses haunts us.

In the short-term, a not having a strategy feels much better than having a real strategy. Not having a strategy feels much less risky, because it IS less risky.

I want to stress, it’s perfectly cool to not have a strategy. There’s zero shame in not having a strategy. I’ve worked at lots of highly successful companies without any strategy. I can attest from personal experience that companies can rake in billions of dollars without having anything that resembles a strategy.

Not having a strategy is not a barrier to being successful in any shape or form. I do believe that, with the right strategy, all the companies I’ve worked at could potentially have been 10X or 100X more successful.

If your company doesn’t have a strategy, please don’t feel ashamed. You’re in good company.

But if you don’t have a strategy, for the love of god, please don’t waste your time and energy pretending you do have one.

Don’t wave your Wasabi Strategy around like it’s anything but artificially colored horseradish to produce the illusion of strategy.

Diesel had a campaign many years back that my strange mind remembers somehow:

This ad perfectly depicts what makes a great strategy so darn difficult.

A great strategy requires you to be smart and stupid at the same time. You need to have the brains to see what’s possible and be stupid enough to leap when it scares the hell out of you.

Most companies have one or the other, but rarely do they have both balls and brains.

The end result is that most companies settle for the best they can come up with, which is a Wasabi Strategy.

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