Good Strategy, Bad Strategy | Richard Rumelt

Richard Rumelt (00:00:00):
Don't call it strategy, call it an action agenda. It's huge numbers of people out there willing to sell you advice on mission and your vision and your values, all these things that have to be in place before you can have strategy. That's not true. Begin to try to identify the one or two key challenges that can actually be addressed and what are we going to do about it? What are the coherent actions we're going to do to take these on? Okay, we're going to go after this and here's the action steps we're going to take to do that. That's the essence of what you're doing when you're thinking strategically.

Lenny (00:00:42):
Today my guest is Richard Rumelt. Richard is an absolute legend in the world of strategy. It was such an honor to have him come on the podcast. He's the author of Good Strategy Bad Strategy, which I've gifted to countless people who wanted to become more strategic. He's been mentioned so many times on this podcast. He's also the author of The Crux, his most recent book, which some consider his best book, which delves even further into his advice on how to craft a winning strategy.

(00:01:08):
Richard was a longtime professor at UCLA Anderson School of Management, was on the faculty of Harvard Business School, and he's consulted on strategy with companies like Microsoft, Apple and Intel, and also with government organizations like the US Army Special Ops Command, and folks like Donald Rumsfeld. In our conversation, Richard shares the concrete elements that make a good strategy, why we'd be better off calling them action agendas rather than strategies, why every great strategy starts with a clear diagnosis of the biggest challenge that you face. Also, how to actually lay out a strategy, why organizational dynamics are often the biggest hindrance to winning strategies and so much more. I could keep going, but let me just say we cover a lot of ground in this episode and Richard shares incredibly thoughtful and deep answers to each question. I'm excited to bring you Richard Rumelt, after a short word from our sponsors.

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(00:04:29):
Richard, thank you so much for being here and welcome to the podcast.

Richard Rumelt (00:04:33):
Thank you for having me, Lenny.

Lenny (00:04:35):
It is such an honor to have you on this podcast. So many guests on the podcast have mentioned you and mentioned the book. I probably bought your book for, I don't know, dozens of people over the years, and it is just so cool to have you on and to get to delve into the stuff that you teach. So thank you again for being here.

Richard Rumelt (00:04:51):
Thank you.

Lenny (00:04:51):
I thought we'd start at the beginning and then work our way up and kind of see where the conversation goes. What is the simplest way to understand a strategy? What is a strategy, and then what are the essential components of a good strategy?

Richard Rumelt (00:05:05):
Well, a strategy is a design for overcoming a high-stakes challenge. It's a mixture of policy and action designed to deal with a challenge. The challenge could have an upside. It could be, "Oh geez, we were fooling around in the back 40 and we discovered oil, what we do?" Or it could be negative, could be that new innovation is driving us out of the market. But a challenge is the hardest strategy. The work comes from Strategos, which is Greek. The Greeks elected 10 Strategoi to serve as strategic leaders at Athens. And they were elected and they dealt with issues of the day, the Persians are invading, there's a plague in town, we need money for a new temple. And that's where the word comes to us from. It isn't just military, it wasn't in Athens. So strategy is always about dealing with an issue, a challenge, a problem. What are we going to do about global warring? What are we going to do about China wants to reunify with Taiwan?

Lenny (00:06:24):
You obviously have these very infamous famous elements of a good strategy, something you call the colonel. Can you just talk through those pieces?

Richard Rumelt (00:06:33):
Right, sure. So when I used to teach strategy for many years at Harvard and then at UCLA and other places, there's lots of ways of looking at strategy. And so years and years ago, we used to look at the [inaudible 00:06:51] and the matrix and the five forces and all of those kinds of analytical tools. And it began to dawn on me at some point that this is a strategy. These are analytical tools for analyzing the problem, for thinking about things, for looking at competition. But they're not strategy. Strategy is, one, and I started to write a book and the first chapter of the book was... the first part I wrote was the David and Goliath strategy story. And my point in writing about David and Goliath was that the surprise that David is able to beat this giant warrior, and that's a strategy story. Strategy story is about discovered strength.

(00:07:43):
It's about, oh wow, look at how they did that. Look at how he got made in five moves. That's a strategy story. Look at how Steve Jobs changed the world when people couldn't expect it. That's emotionally what a strategy story is. So I want to write about strategy. And my wife Kate asked me, "Well, do you define strategy?" I said, "Oh, it's really hard. I can't define it." And she said, "Well, you can't write a book about it if you can't define it." Because I said I had this other conceptual scheme in my head that all teachers and writers had, which is that there's a bunch of analytical tools. And this is back in 2005, 2004.

(00:08:31):
And I gradually came to the realization all strategy is problem solving. It's a form of dealing with challenges, and that was a basic idea going in the book. So if that's the core of it, what's the basic activity? What are you doing when you create a strategy? Well, you're diagnosing the situation. You're trying to figure out what's going on here. What's the nature of reality that you're dealing with? Now, humans can't understand all of reality. No one can. So part of what a diagnosis is, is a decision about what you're going to pay attention to and the hypothesis for several hypotheses about what's going on, how do things connect together. And that's beginning of the diagnosis. And so diagnosis is an understanding of the situation that you're in. Well, that's not novel. And you can use any of those tools that are famous for that and you can try to find forces. You can do any one of a number of things to try to comprehend the situation. The world is more complicated than 2x2s, unfortunately. I was educated as an electrical engineer and my early years were spent designing spacecraft for NASA. And when I got into looking at business and business strategy stuff, I was always amazed at how unintellectual it was, that I was struggling to master Z-transforms and multiple, and yet these people are looking at 2x2s and little diagrams [inaudible 00:10:19], oh, that's what the company's about. So a rich diagnosis of the situation, but then a guiding policy.

(00:10:28):
The guiding policy is what are we going to do? Now, it's a simple thing to say, a guiding policy, and the guiding policy is sort of the strategy. It's the core of it. It's here's how we're dealing with the situation. And yet, when I say that, it flies in the face of, as I was writing that, I had a client who had 17 priorities. This is what we're doing. We have 17 priorities. And that's the opposite of policy. That's a laundry list of all the things we wish would happen over the next year. We're going to gain market share in China, we're going to cut our emissions, we're going to save energy, we're going to become safer, we're going to cut costs, all these different things that we're going to do. And they're all priorities. Now, lots of people need misuse the word priority when they're trying to do all that. You wouldn't want to be in a commercial airplane and hear the tower say to the pilot, "I'm giving priority to the following three planes on runway five." Right away, you know there's something wrong.

(00:11:50):
Well, that's the word priority, it means the first. It doesn't mean the grab back everything that you can think of that might matter. It means what's first. And so the guiding policy is sort at that level of what do we really have to do here and what are we doing and what are we not doing to deal with the diagnosis that we created?

(00:12:14):
And then the most important part of a strategy, the part that it's so easy to leave out because people like to think of strategy as this high level conceptual thing, is the coherent action. You have to do something. And what you do has to be coherent in several ways. The first way is it has to deal with the problem or the diagnosis and the guiding policy, it has to implement. It has to be coherent in that you shouldn't do things that fight each other.

(00:12:51):
You shouldn't say, "Oh, we are going to burn less oil and at the same time we're going to import more oil." It doesn't make any sense to do things that are self-contradictory. And yet, people do it. Most companies have strategic goals of increasing growth and increasing profit. Magically, that can happen in some cases. Growth and profit, they battle each other. Let's say we define profit as return on equity. If you're going to increase growth and increase return on equity, how do you do that? Because you're basically trying to invest less to get your return on equity up. Or you're going to grow and get your profit margin up. Well, how are you going to do that? You get your profit margin up and grow faster.

(00:13:52):
This is baby talk, but CEO after CEO will stand up and say, "Well, we're going to grow and we're going to make a profit." And so having coherent actions, actions that dump milk on one another is an important part of strategy. All three elements have to be there. There has to be an understanding of the situation. There has to be a guiding policy, how are we going to deal with it? And that could be a long-term sense of how we could change. You don't have to change your strategy every five minutes or every five years. If you're making Almond Joy candy bars or something, you don't really change your strategy constantly. If you're in the tech business, of course you have a shorter time horizon. And then the coherence and action is critical. And so these are the three, what I call basic elements, the kernel that if anyone in three is missing, something's wrong. It's not really a strategy, it's something else.

Lenny (00:15:04):
Awesome. Okay. Is there an example that you could give that makes these even more concrete of just, I don't know, something that comes to mind that's a quick example of a strategy that illustrates these three components?

Richard Rumelt (00:15:17):
If you're Microsoft right now and you're trying to adapt to AI, you have a diagnosis. Well, what's going on? You see the challenge of how do we adapt to it? You create a guiding policy that you're going to invest in one of the major leaders and that you're going to begin to incorporate that into your search engine. And then you have coherent actions. You actually do some of these things. It's not rocket science. The difficulty is that companies don't do that.

(00:15:55):
There are companies that say, "Well, our future is"... let's say something that's not in a software business. That's industry 4.0 for 5.0 that we're going to have... we're investing in the future of robotics and AI and even computer vision and all that. That's going to be our future. And then you see what they're doing. They've bought this company, they've bought this company, they've bought this company, and that's it. It's strategic assembly without any synthesis. So strategy's not mysterious. What's mysterious to me, what was mysterious to me and what remains mysterious to me is how so many organizational leaders don't do it. They create bad strategy. They do something that they say is strategy and then it's not.

Lenny (00:16:55):
You have a whole chapter on this, on what is a bad strategy. Can we just touch on a few of the things you see as signs that your strategy is bad or maybe it doesn't even exist?

Richard Rumelt (00:17:05):
Sure. When I wrote Good Strategy Bad Strategy, a lot of people resonated with the bad strategy. Part of the book, they wrote emails and saying, "Oh my God, thank goodness someone just finally said that these long and terminal meetings I sit through are not actually strategy." Or these documents that the company produces are not actually strategy. And they're not. Bad strategy, the standard bad strategy for a corporation is a set of profit goals or performance goals. A set of goals. Goals are the engineering of how companies work to some extent. But abstract, high-level goals, they're not strategy, they're something else. They're ambitions. And ambitions are not a strategy. A list of all the different things you wish would happen is not strategy.

(00:18:13):
I was asked to help part of the U.S. Department of Defense create a strategy for what's 17 different intelligence agencies.

Lenny (00:18:26):
Wow, how cool.

Richard Rumelt (00:18:29):
Yeah. There's 17 different intelligence agencies. And the strategy basically that these people had written said the 17 agencies should work together more effectively. Now, you don't have to be a Russian spy to see that what they're really saying is these guys aren't working together effectively and it's a problem. But they didn't say that. They said the strategy is they're going to work together more effectively. Just like the RV always comes out with our strategy is join us, meaning we're having trouble with coordinating.

(00:19:08):
But then there's nothing there about that other than this is what should happen, there should be more effective coordination. And oh, we'll have an office of coordination, put a person in charge of coordination. But there's no sensible... why is it hard to coordinate? What are the barriers to this? This has been going on for 34 years now. What's holding it back? What is a problem we have to solve? It's not there.

(00:19:37):
So I was hired to do a foundry for a company and they said, "Well, our diagnosis is not growing fast enough." Okay, let's get into that because that's not a diagnosis, that's a statement. It's a statement of value, you would like to grow faster than you are. I'd like to be taller than I am. I'd like to have more hair. You want to grow faster. Okay, so what's holding you back? And from [inaudible 00:20:19]. But saying, okay, we're going to grow, that's not a strategy.

(00:20:23):
Bad strategy also is fluff. People will use fancy words to describe their situation. Since I wrote that, the term word salad has become common. And there's a lot of word salad writing that people try to use to describe their situation. It sounds more abstract perhaps more abstract. Therefore, it's more strategic, incoherent stuff where we're going to do A, and we're going to B and those two things obviously fight one another. All those things are part of bad strategy. Bad strategy is a document or a set of intentions or a set of verbalizations where it's not a strategy. There's no diagnosis. Of course, I don't doubt that. Started out saying where United States is falling behind in education. And he's looking at the piece of the PISA test scores of 15 year olds around the world. And it's true, the United States is down, number of 30 countries in terms of the scores of our 15-year-old, in math and in general knowledge. Okay, correct statement, we're falling behind. A real diagnosis would say, because. We jumped immediately to therefore, we're going to have more people go to college than any other country. Well, having more people go to college doesn't solve the problem of 15 year olds not being able to do elementary math. Hopefully it doesn't screw up colleges everywhere. So that kind of gap, it's there, where you don't do the diagnosis. Why do we have this? We argue over diagnosis as part of politics and part of organizational politics. That's what we do, and that's important. To do a strategy, you have to resolve the argument. Why do we have a homeless explosion in Portland or Seattle or Los Angeles? And people argue about that. Some people say, "Oh, strokes." Some people say, "Oh no, housing is too expensive." There are different diagnosis. But to deal with the issue, you have to decide on the diagnosis. The politicians right now sort of decided for a few years that the problem is housing's too expensive, we're going to build housing at $700,000 a unit and give it to the all people. Okay. If you build it, they will come.

(00:23:28):
But then the next problem is, well, can't seem to build a housing. And so again, you need a new diagnosis. Why can't you build a housing? You're a rich, powerful country. Why can't you build some housing? So diagnosis is critical to understanding it. And in public policy, we argue over the diagnosis. And in organizations we argue. And unless you resolve it, you can't act. So lacking diagnosis is one of the key reasons for bad strategy. The other, the fluff and the incoherent actions are fun to describe, but they're less common. The second major source of bad strategy is mistaking goals for strategy, saying these goals are our strategy. And that leaves out so many of the important aspects.

Lenny (00:24:22):
Amazing. So just to summarize somewhat, if you're missing a diagnosis, trying to explain what exactly is wrong, it's a sign your strategy is incomplete or bad. If you're missing concrete actions, it's a sign that your strategy is incomplete or bad. There's also I think an element of coherence. The actions have to connect and there have to be a few, very few of them. I always like to think of three as a good number. Is that something you think about, the rule of thirds for actions you want to take or even the guiding policy, or is there a number that you think about just like no more than this?

Richard Rumelt (00:24:53):
A few. A few. Not too many. Not 17. It's hard. Numbers. We work best when we concentrate. We're more effective when we concentrate on a few things, a few people, a few... focus, it's the fundamental source of power and strategy. Trying to do too many different things is defocusing.

Lenny (00:25:18):
I think there's this quote in your book that I think is, and this may be paraphrasing, each time you say yes, you risk turning a nascent good strategy into a bad strategy.

Richard Rumelt (00:25:28):
Yes. Focus is... when I was nine years old, I was at summer camp and I had my parents sent me a magnifying glass and I was out there using the sun to try to cook a piece of wood. I think I had a piece of cloth that I was trying to burn, wasn't having much luck. The magnifying glass focuses the sun's rays on the spot. Counselor came over and he said, "Try this," and he pulled out a black thread from his T-shirt, put it down. And I focused the sun's rays hard, popped out. So stupid little story. But to burn that black thread, there has to be a source of power, the sun. There has to be a focus, that's the magnifying that to the power. And it has to be a target that can be affected. It has to be a black thread, not white thread. And that sequence is part of strategic action. You need a source of power. I say power, I don't say advantage or efficiency.

(00:26:53):
I say power because there are different ways in which power is exhibited and you have to focus the power on a target that can actually be affected or achieved. And this is real simple logic, but it's a discipline to focus power on a target that you can affect. Take American power and say we're going to change China's trajectory and Russia's trajectory and our own and to name all the 30 countries around the world that we're trying... we're diffusing our efforts because they're not the same. They're going in different directions. Obvious when you say it, not so obvious as you live it, because like any organization, like any big organization, US government has different interests. They're pursuing different interests funded for different purposes with different clientele. And so there's gradually a diffusion-

Richard Rumelt (00:28:00):
And so there's gradually a diffusion of effort. One of the big issues in strategy is simply the organization, complex organizations particularly. You have a hard time focusing energy because of all the different interests.

Lenny (00:28:21):
Yeah. Actually I want to talk about both those things, so I'm glad that you teed them up. Let's talk about power. What is this idea of power and how does that play into strategy? Why is it so important? And then what are some examples of power that people can think about when they're trying to think about implementing and adding a power to their strategy?

Richard Rumelt (00:28:40):
Well, in a competitive situation, the fundamental aspect of power is something that's going to give you some sort of advantage. Usually it's in asymmetry of some kind. If two fighters are equally balanced or two horses are equally fetched or two armies are equally... And they meet in competition, it's 50/50. Who knows what will happen. For a strategy you need to exploit in asymmetry of some kind. You hear a little faster. Or they're a little... Something has to be different between now and between things. So that's the beginning of power, is asymmetry. We can think of it as leverage, but sometimes think first is a source of power.

(00:29:43):
Being first to recognize something can be a source of power. Having a reputation of a certain kind gives you some power that someone doesn't have that reputation doesn't have. On the other hand, having a well-established reputation of a certain type can be the opposite of power because people don't expect you to be able to do something new. They expect you to be able to do this, but not that. Having relationships can be a source of power. When Gerstner took over IBM as it was failing in the face of the microprocessor revolution, he recognized that their primary asset, their source of power, was that they were respected and they had [inaudible 00:30:38] into every large corporation on the planet. Nobody else had that as an actual producing company. And so he said, we're going to embrace our customers. Bear hug our customers. We're going to serve our customers.

(00:30:58):
That's our source of our power. That's our leverage. That's the synergy. Now the world begins to change and computing begins to move to the cloud. And IBM's customers, the largest companies in the world, are the most hesitant to do that, because they've got the big IT departments that don't want move to cloud. And so small companies move to the cloud and the big companies are, well, it's insecure in the cloud. We'd have to lay off people. We have these big machines we like to run.

(00:31:39):
And so IBM then becomes disadvantaged in the new world because it inherits this big company orientation and that lagging behind. So the opposite side of power is what you inherit. From [inaudible 00:32:01] can be the wrong thing. But a source of power is that. A source of power can be an invention, a source of power can be a particular customer base that you have identified. It doesn't last forever, power, but all the different sources of advantage that are sometimes transitory and sometimes permanent are sources of power that a company has to use to compete and survive.

Lenny (00:32:35):
I imagine people listening are just like, oh man, I got to figure out the power, the advantage that I have with my business. Is there any advice you could share about helping people figure out where their power might lie?

Richard Rumelt (00:32:46):
That's a good question, Lenny. So how do you figure it out? So I start, as I said earlier, with the symmetries. In what way is my company different than other companies? In what way is my team different? What do we know that other people don't know? What do we possess that other people don't possess? So there has to be some asymmetry to create competitive power, there has to be something different.

(00:33:17):
Sometimes you have to redefine your space down small amount. Then you can actually see it, particularly a smaller company that doesn't have worldwide power, has power in a certain marketplace or a certain set of customers or sometimes it's not customers. Sometimes the power isn't who you can bring in and hire. So if you invented ChatGPT, you can bring in the smartest AI people for a year or two because all the smart AI people want to work at the cutting edge with the current winner.

(00:33:58):
Then they'll start to arguing with each other and in fight and there'll be all sorts of embarrassing personnel things going on and someone else can grab that position, if it's not well managed. Business is exciting in that sense that it's not stable. It's not just as it was when I was first studying it. It's not just IBM and Sears and AT&T forever. There's a constant changing of the guard.

Lenny (00:34:30):
For better or worse.

Richard Rumelt (00:34:32):
For better. Because if you look at government, there is no changing of the guard and they get stultified.

Lenny (00:34:38):
Makes sense. So in your book, you have this whole list of types of power. I'll just read them real quick. Leverage, proximate, objectives, chain link systems, design, focus, growth, advantages, dynamics, inertia, entropy. There's also the book, obviously The Seven Powers, that a lot of people are aware of. I guess how do you think about just the spectrum of types of power you can have? Is this it? Are there others?

Richard Rumelt (00:35:02):
I started to make a list there in the book and I wrote up a bit about chain link systems and today, I mean the power that new business models are exploiting is the power of the user base. What we called years ago, network effects, where the more users you have, the more useful a product is. So I think the idea of network effects first arose with the telehealth system, which the idea was that you don't want to be connected to a telephone system that only connects to two other people. It's not all that useful. It's got to connect to the world to be useful.

(00:35:43):
And my colleague Marvin Lieberman was taking the economics course at Harvard University at the same time that Bill Gates was a student in that classroom. Professor's going on about network effects and of course that's what catapulted him, had his software, MS DOS at the time. Not MS DOS, he had something called basic that... The network effect was huge. He got angry about the network effect because people wouldn't pay him. They kept stealing it and using it and pretty soon everybody in the microcomputer industry had M Basic.

(00:36:27):
Then we get the network effects from not just software, but user base is now with the internet and so you get network effects with big social media. No one wants to be on a social media if only three other people are on. So having a large network...

(00:36:50):
Amazon. Get big fast because the economics are amazing. So we used to say, well, in a department store, economics are that you're saving people the cost of going out of the store and walking down the street to another store. So now it's all in one place. Supermarkets, the same thing. But look at a thing like Amazon where there the ease of shopping on Amazon keeps people from leaving it and going to another website. Now other websites have gotten better and better and some of that is less strong than it used to be and this is a constant struggle with it. Nevertheless, the size of the user bench there is an important source of a symmetry and power for the people that have come out ahead and won that battle for this round, this five years to 10 years. How long does it last before some other thing begins to take precedent. And now we have two-sided markets, whether it's credit cards or places where both buyers and sellers get together.

(00:38:01):
And so here these big forces that companies are playing with right now are these network effects.

(00:38:10):
And when the new generative AI, we have the possibility of stronger effects than we've ever seen before, but we don't know yet. But the suspicion is that size is what matters, that the size of the data that you could put into the learning algorithm is going to make your AI better. And so again, a big... It's going to matter.

(00:38:43):
Just think of Google and their ability to improve search based upon all the searches that go on on their base every day. It's very hard for Bing to catch up because Bing doesn't have as much data to train on. And so unless there's some new innovation there that isn't just the amount of data, the leader again has this asymmetry working for it. Now, the way you get around all that is by being specialized, by owning a particular approach that isn't the market leader's approach. And it's always been that way in business, but our attention is often attracted by these giants.

(00:39:34):
So yeah, sources of power today where we look at the new business models that are part of the fabric are these network effects and things like that that are very, very strong. And people are trying to get those in startups and in small firms within a certain market space and build it as fast as possible to get ahead of others. There's been venture capital available to try those experiments and some of them work and some of them don't, but that's this new age we're in now, where the speed of building a market position with network effects is a dominant game in the tech space.

Lenny (00:40:25):
I feel like Twitter is the ultimate example of the power of network effects, especially recently where if you think about it, everything about Twitter has changed and it still continues to run. You laid off 80% of people at the company, they changed the name, they changed the domain basically, the algorithms changed. I don't know what is still the same.

Richard Rumelt (00:40:45):
How can you lay off 80% of the people and it still runs? I mean you got to wonder.

Lenny (00:40:49):
I love Twitter. I'm on there all the time. I feel like it's never been better, which is kind of wild.

Richard Rumelt (00:40:54):
Twitter's fascinating. I mean I tune into it every couple of days and see what's going on and it is just an amazing rumble of opinions and statements. It's much more interesting than it was five years ago.

Lenny (00:41:11):
There's a lot of diagnosing and not a lot of concrete actions. But anyway, I wanted to come back to the element about power. I think when people are thinking about power, it may not be clear where that plugs into the diagnosis, the guiding policy and the coherent actions. Where should you be thinking and implementing this idea of where my power is when you're laying out your strategy?

Richard Rumelt (00:41:35):
To undertake a strategy that you think will work, you've got to have a reason that it makes sense and that reason is derived from some source of power, some source of advantage. Ultimately, your power or your advantage is something based in history that has the feel of reputation, or institutional skill, or it's some kind of symmetry or knowledge that you have that others don't have. So it's a resource that you can use that your competitors or others don't have equal access to because you've either have mastered it or you own it or you inherited from the past.

(00:42:45):
All those things are sources of the power that you use to make it not an even bet. So when you walk into a casino, well maybe if you play poker with skill, you can expect to make some money, but the general casino games, you're going to expect to lose. And in business, statistically, if you come to me and you say, I'm going to open a new restaurant. What should my strategy be? My answer would be don't open a restaurant. Invest in the S&P 500 because the statistics are that new restaurants fail. So what makes you think that you can succeed? Oh, I really want to succeed. Not good enough. I trained under a chef who's been very successful. Oh, that's interesting. Tell me more.

(00:43:50):
So there, where's the asymmetry here? Where's the source of power where you go from the odds... The standard odds in this game are against people where you think the odds are in your favor.

(00:44:05):
That's the source of power we're looking for. We're looking for this information, this skill, this thing in the field, the way the resources are arranged, that's going to give you this edge. And some of that is sort of part of the situation and some of it's how you shape and focus your actions. Strategy tends to be surprising when we see it, when we see it work, and surprising because we don't expect it. We expect people to bumble around. We expect Arby's to bumble around. We expect nation states to bumble around. We don't expect them to execute coherent strategies.

(00:44:54):
The United States went to Afghanistan and it wanted to catch Osama bin Laden, but at the same time they didn't want to put an army in the shield to actually catch him because it would the embarrassing to have that many Americans in the field. That's what happened in Tora Bora. The Secretary of Defense said, no, we don't want to make it look like we're taking over the country, so they didn't try to catch him as hard as they could.

(00:45:22):
And we want to have the education of women and we want to have a democracy and we want to have a long list that we would have no opium production, but at the same time, our allies are the opiate producers. It was the Taliban that got rid of opiate. Americans didn't do it.

(00:45:44):
So we had all these different objectives. It doesn't work. You need to have a focus on something achievable. What's achievable? [inaudible 00:46:03] Nation-building is hard stuff. It takes a century. Afghanistan, I'm off on a tangent here with Afghanistan, but it's a really interesting subject. Afghanistan was a warlord society, a bunch of different warlords running the place. Well, what's a warlord society? Where else do we look for an analogies? Well, we look at [inaudible 00:46:32] in 1650. You look at France in 1300. You can look at Japan before the modern era. These are warlord societies. Well, how did they go from that to being a coherent government that maybe wasn't democratic at first, but still, there was a government instead of just as much war. It took some [inaudible 00:46:59] to conquer all the rest.

(00:47:02):
And then it took a long time for them to put in the structure itself of government and then maybe became a democracy. Maybe not, but that's the process. It's not like you just go in there and say, you're now no longer a warlord with society because we've decreed it.

(00:47:19):
I don't know. You're going to ask me more questions about what it is people should know and how do you get these sources of power? How do you get these insights? I'm a big fan of history. I'm a big fan of knowing things about what happened. Business history, biographies, war history.

(00:47:42):
If you don't have access to other times and other places and other things that have happened, it's very hard to think strategically about the situation you're in because there isn't a science of strategy. It's not like physics. It's not like engineering where we can write down the equations of stress on a beam and say, how thick does the beam have to be? It's not like that. A lot of it is based on analogy to previous human experience.

Lenny (00:48:16):
That is an amazing insight. Is there anything you find most rich and valuable in terms of history periods, empires, stories that you find most connects as an analogy? Is there anything you find consistently is useful or is it just read as much as you can and you'll often find something in there?

Richard Rumelt (00:48:36):
Yeah, the further back we go in history, the leaner. It's less rich. The best histories are written by the people at the moment it's happening or very soon after. History books and things like that are someone's opinion. But our own history here in the United States, we have pretty good documentation about what went on in the Indian War, why we had these big cycles of economic growth and then depression. We had depressions in 1840 and after the Civil War and there was another huge panic depression in the 1890s. [inaudible 00:49:26]. A lot of people don't even know that these things happen. How did they happen? And of course everybody knows about the Great Depression of 1929, 30's, but go back and how did that happen? When did that happen? And you'll hear professors opine about why it happened, but there's no agreement. The biggest economic fact of the last 150 years, you don't know why it happened.

(00:49:58):
Go back and you can go online and look at the Wall Street Journal of the New York Times from that era and start in September of 1928 and just look at the front page every day, which I've done, and you can see it unfold and it's a surprise to everyone. There goes, well, Ford just laid off the people, but it's temporary. They'll hire them back. This economist says, well, it's a temporary this. It'll come back. And it gradually gets worse and worse and worse and there's no understanding of it. There's not a lot of analysis. And so you got Milton Friedman saying, oh, it's monetary. They didn't loosen up the money supply. You got other people saying things. But put yourself back at that moment in time and see what people saw and realize that no one understood what was happening and to form their own opinions.

(00:51:10):
That's the diagnosis skill or that's the feeling. Now, let's suppose you fall off a boat. You're on a cruise ship and you fall and you're now in the ocean. It's terrifying and it's confusing and there's waves and there's water and I don't want to drown. And you look around and you see, oh, here's a floating piece of wood. Let me grab it. Wow, that feels a lot better. That's how it feels when you look at a confusing situation and the first idea of how to understand it comes to mind. Oh, yeah, I've got this piece of wood. Now I'm not drowning. But is it right?

(00:52:05):
The most important intellectual tool we have is to think again, to say, okay, I came up with this diagnosis because I thought this and I thought this. Is there another way to look at this situation? Is there a bigger piece of wood over there than I can grab onto? That's the hard thing. When I looked at the Great Depression what I saw is the [inaudible 00:52:35]. So if you look at capital goods, most capital goods that the public buys, the adoption curve goes up like this, it peaks, and it declines and then it comes back up again. Because there comes a point where everybody who can afford one has got one, and then the new sales drop off. And in my mind, that's what I saw. 1929, everybody could afford a car, had a car, and the auto industry began... First signs of the Great Depression were in the auto industry.

(00:53:15):
So that was my play that I read. Now I don't see anybody else writing about that, but that's the exercise and to exercise your mind about trying to understand complex situations. It's best to go back. You don't have to [inaudible 00:53:34] to the great Depression, but you can go and try and find situations that other people have to deal with and look at as much data as you can and to practice that. That's what education should be in a business school. It's not. They teach theories now because it's so much easier to teach a theory than intellectual structure.

Lenny (00:53:58):
It's also a lot more work, reading a lot of books and history and studying and thinking.

Richard Rumelt (00:54:04):
Oh, [inaudible 00:54:05]. I had a colleague at UCLA who assigned a book to MBA students and they went to the dean and had him kicked out of the course because of a book. He wants us to read a book.

Lenny (00:54:16):
Oh man. It sounds like you have another book in you writing about the Great Depression and what really happened there.

Richard Rumelt (00:54:22):
Maybe.

Lenny (00:54:23):
Oh, man. Exciting.

(00:54:26):
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(00:55:24):
I wanted to zoom back in on something very tactical. So say you're a product manager listening to this that has to write a strategy for their team. Say it's like they're working on the onboarding experience of their product and they're about to sit down and start to write out the strategy for their team. And say they have a general idea of what they want to do. Do you have any advice for just how to lay out a strategy? As you talk I think of there's a section. Diagnosis, a section. Guiding principles, a section. Actions, and then there's power in there and the guiding policy. Is that how you lay it out? Do you have any advice for how to write this out?

Richard Rumelt (00:55:59):
I wrote the crutch because I felt that.

Richard Rumelt (00:56:00):
The Crux because I felt that that kernel was not sufficiently sharp enough for peak. And even in The Crux, if I could rewrite The Crux book, I would, maybe, write it a little differently today, a whole couple of things I would change. First, it's really important to understand the challenge, the problem. Diagnosis is not merely understanding the world, it's understanding the challenge you face. What makes it hard? So the question I ask client is exactly that. What makes it hard? Client will tell me, "Oh, we want to open up business in Australia. It's a market we haven't tapped." And I'll say, "Okay, so why are you and I talking about that? You're the CEO. Just tell somebody to do it. What makes it hard?" "Oh, well, we don't know anybody in Australia and they kicked us out." If you push, he'll tell you why it's hard.

(00:57:18):
But that understanding hasn't been percolated into a strategy. Part of the problem is that the concept of strategy has been so beaten up by thousands, hundreds of books, and thousands of more websites that people have a hard time trying to figure out how to create a strategy, because they're drawn up, down, left, right. So my two pieces of advice, anybody that's actually trying to do this is, A, state the problem, and, B, don't call it a strategy, call it an action agenda, that you're not creating a strategy, you're creating an action agenda. What are we going to do about this problem? That's essence of what you're doing. When you're thinking strategically, you're recognizing the problem and you have an action agenda to deal with it. It's not five years out and 10 years out. It's not your general mission to build a better world, it's none of that.

(00:58:43):
All of that is a different literature form. There's huge numbers of people out there willing to sell you advice on how your mission, and your vision, and your values, and all these things that have to be in place before you can have a strategy. And that's not true. It's a different model. I start now with ambitions because people want to put ambitions in place. They get angry with me. I don't allow them to talk about their ambitions. So we start with ambitions, and okay, you have all these ambitions. I write in The Crux that when I was 25, I wanted to be a top business school professor. I wanted to be on Fortune directors. I wanted to drive a Morgan Drophead Plus 4. I wanted to climb the great mountains of the world. I wanted to learn to fly an aircraft. I wanted to marry a beautiful woman and have successful children. I wanted to have a townhouse on the [inaudible 01:00:00] of Paris. All and all, I had a lot of ambitions.

(01:00:05):
That's not strategy. We all have ambitions, and every company should have ambitions. If we look at all those ambitions, and let's say I'm 25 years old, well, what's keeping me from reaching them all? "Well, I'm not ready to join Fortune directors. I'm not experienced enough." Okay, so I put that over here. "I can't afford the pen." Okay, put it over here. "How about the ambitions that you have any chance of making progress?" So now, well, beautiful woman. "Yeah, I don't know any, maybe I ought to meet a few." "Well, you can do something about that."

(01:00:52):
So which of your ambitions can you begin to make progress towards reaching, and what's holding you back? What are the barriers? What are the problems? So I approach the question of the problem now through the filter of the ambition, that these ambitions, fine, let's accept them all, and which one can you actually make some progress on today? And what's making that hard? What are the challenges? So you're choosing a challenge. You're choosing, of the possible challenges you could face up to, you can't do them all. So there's a focus thing. You're choosing which challenge to focus on, and that challenge has to be, A, important, and, B, it has to be achievable.

(01:01:48):
It has to be something that you can address. It has to be an addressable challenge. And so the search for an action agenda, I'm not calling it a strategy, is this balance between problems that are important because they're close to your ambition and problems that you can actually address and do something about. And that overlap then becomes the choice you make. "Okay, we're going to go after this and here's the action steps we're going to take to do that." And if it's a big company, the action steps may extend over two or three years. Smaller company, took [inaudible 01:02:32] year, six months to a year. These are things we're going to do, not goals we're going to achieve. These are things we're going to do, action steps. That's sort of the way I put it together today, which is slightly different than the way it's put together in The Crux.

Lenny (01:02:49):
Yeah, I love this advice. That's such a simpler way of thinking about strategy. It's an action agenda. "Here's the things we're actually going to do." And then it starts with the challenge. And just to talk about The Crux briefly, The Crux is named after this concept in mountain climbing of the hardest point of the mountain climb where people, if they get past that, it's all downhill. And I think basically the point there is focus on the most challenging, like the biggest challenge that you need to overcome to achieve these ambitions you're describing. Is that roughly the way to think about it?

Richard Rumelt (01:03:21):
Yeah, yeah, and the idea comes from a design, and it comes from climbing, because I used to be a climber, a rock climber, and a snow climber, and a crux in a climb is the hardest part, the hardest pitch or a pitch, the hardest move is the crux of that piece. And then the basic advice to a climber is if you can't do the crux, don't do the climb, because you're going to fall off there. Now that's not exactly true, because you can try it over and over again until you get it. But in general, particularly if you're looking at an alpine climb, you better not take it on a climb where you can't handle the crux. That's why people go bouldering. The [inaudible 01:04:06] still up to him [inaudible 01:04:08] crux.

(01:04:11):
And so that's what the concept of the crux comes from. Now in business, the crux is the hardest part of the problem. And from the design point of view, the skilled designers, whether they're an engineer or an architect, what else? There's usually a challenge. I. M. Pei was hired to take a look at the Louvre in Paris, and they had a dusty parking lot in the center of this giant palace that had become a museum, and they wanted an entrance to Louvre there. And the problem is he didn't want it, they didn't want a new building that would obscure the Louvre itself. The building itself is part of the story, it's part of the scene. And yet at the same time, they needed to have an entrance, because the entrance at that time was off on the side wall.

(01:05:24):
And you looked at the situation, and the competing needs, and the [inaudible 01:05:31]. And he had an insight into, "Well, build a transparent building, build a building out of glass, so that you see through to the Louvre, it doesn't obscure." And of course, if you can build a rectangular building out of glass, the top will get dirty. So [inaudible 01:05:55] out of glass. Now, that design insight is something that software engineers, hardware engineers, mechanical engineers, base science engineers like I was, experienced, when we look at a dilemma and we try to focus on what makes this hard. And then by focusing on the difficulty, we see a way around it. Elon Musk focused on, "Well, why is it so hard to reuse a rocket?" And it's so hard because as it comes back into the planet at 18,000 miles an hour, it burns up in the atmosphere, or we have to spend a lot of money on heat shields. And at some instant, he said to himself, "Well, why not, like science fiction, just turn it around and have it land on its rocket?" "Well, there's not enough fuel." "Well, why aren't we carrying more fuel?" So SpaceX, when I was designing, I was a conceptual designer, but machine that became Voyager and went out past the planets into interstellar space where it's floating around right now. Well, one of the problems is how do you know where Jupiter is? " It's right there." "Okay, but how do you know where it is, plus or minus 100 miles? How do you know exactly where it is? When we set a mission to Mars, we were off by 500 miles. So Jupiter, how do we know exactly where it is?" Because we can look at it through our telescopes so we can look at it from the right side of our orbit and the left side of our orbit. But still, there was a couple thousand miles error in that. That's too much. And then studying that problem, the simple solution suddenly flashed, and I wish I could claim it was mine, and it wasn't, which is, "Oh, take a picture of it once we're halfway there. We'll send that picture back and we'll see it against the distant stars. And now we'll have a triangulation, know where it is." So designers experience this sense of focusing on the crux of the problem, the hard part, and then seeing a way through. And that's strategy. Strategy isn't picking a strategy out of a list of common strategies. It's looking at the problem, what makes that problem hard, and seeing a way to solve it.

(01:08:54):
Now it's called insight, and insight is scary. It's scary because it's not guaranteed to happen. We want to innovate, but we're scared of insight. We want to be the first, but we'd like to pick our strategy out of a list of common strategies for being first. We want to beat the market, but we don't want to study enough to have an insight. So insight is critical. Insight is not magical. It comes from immersing yourself in the nature of the problem. And you will have, at some point, an insight about how to deal with it. It doesn't always come when we want it to. It can come while you're driving the car, it can come the next day. It can come in the shower. Charles Darwin reports that his insight into the nature of revolution came as he stepped off a carriage into the village green somewhere. Boom, suddenly, he said, "Oh, yeah, it's obvious." It's like how we raise animals, we breed the strongest. "Sure, why was that so hard for me to see?"

Lenny (01:10:14):
So I think one of the big takeaways here is that if you want to get better at strategy or be more successful with how you think about strategy, spend a lot more time on diagnosing the problem and finding the biggest challenge that is keeping you from what you're trying to achieve. And your insight might come the more you immerse [inaudible 01:10:30].

Richard Rumelt (01:10:30):
Yeah, and call it an action agenda, "Here's what we're going to do." Not, "Here's all the things we wish would happen."

Lenny (01:10:39):
I love it. You mentioned this point that some of the biggest challenges to executing a strategy is organizational dynamics, and politics is a part of that. Is there anything you could share for folks to help them through that? You talked about one of the biggest challenges, people just want to keep adding more priorities. There's all these needs. Everyone wants to include their thing in the strategy. Is there anything people can do to improve how this works?

Richard Rumelt (01:11:04):
Typically, I'll say typically, we need hierarchy of power, because there has to be some mechanism for deciding what we're going to do. And there's people with different interests and different private interests and public interests. And somehow, there has to be a choice about putting some of these aside and doing this, that you can't say, "Our strategy is to do everything that everybody wants to do." That's what happens when you form a committee in a city and you say, "What's our city strategy?" They say, "Oh, we're going to paint the park benches. We're going to clean up the grass, we're going to build a new this, we're going to..."

(01:11:49):
They have a [inaudible 01:11:49] that stuff, everything they're going to do with that. And anybody who raised their hand and says, "Well, what about the birds? Can we..." "Oh, yeah, let's put that in, too," that doesn't go anywhere. So we, inside organizations, people have different opinions. So that's part, they have interests that they may not state clearly.

(01:12:24):
I interviewed Secretary of Defense, Donald Rumsfeld, while we were invading Iraq, second time, and I was actually interviewing about budget matters, but he asked me, "Well, what do you do, professor?" And I said, "Well, I do strategy." And he said, "Well, strategy, that's a hard subject." He said, "I've got people here in the Defense Department who have an expert on anything. You want to know the clan structure in Iraq, we've got people who know. We want to know the weather, we've got people to know. You want to know how many [inaudible 01:13:05] we can fly in 24 hours, people who know. I got anything you want to know, we've got someone who knows about it, but they all disagree. And each have their own private agenda. They have a contract they want to get, they have a company they want to support, they have a conceptual idea they want to push."

(01:13:25):
So every little bit of information comes with an agenda, sometimes obvious, sometimes hidden. And how do you put all this stuff together to come up with a strategy? He says, "Do you academics have a solution to this?" And I said, "No, we don't. We don't know much more than, what, 2,000, 3,000 years ago, which is you put five to eight smart people in a room and you tell them to come up with something." But his question is at the heart of what I call a foundry, which is how do you get a group of people to coalesce around an action agenda?

(01:14:11):
And what process would you use and how do you do that? It's a different question than, "What should our strategy be?" The question is, "Well, how should you go about creating a strategy? Should you ask the product manager to write an account, or should you ask the CEO to come up with it? Should you hire a consultant? How do you do this?" In my experience, working with companies, is that the senior executives have to do this. And my experience is that the senior executives know pretty much everything you need to know to do this, that you don't need consulting firms to come in and analyze everything that you do. Yes, you'll gain some insight if they come in and do a competitive analysis, and a customer analysis, and all of that. But the basic issues, the challenges you're facing, they know that. It's not mysterious. They know all that stuff, but they disagree about the importance of different things. And more importantly, they occupy positions of power that, if we go this way, this is going to be hurt. And if we go this way, they're [inaudible 01:15:34] more money for that.

(01:15:36):
And so their interests are not aligned, which is part of what Phil was referring to. And so the problem of strategy inside an organization is diversity of interest and fear of action. Because action, when you do something in an organization of any size, it involves people changing what they do. It involves changing power relationships among humans in some way, that someone who's been the alpha maybe is not the alpha anymore, someone else is the alpha. This is heavy stuff. And this is why we have a hierarchy, because someone in the end has to say, "It's going to be this way." And people are hesitant to do that, CEOs are hesitant to do that. More so today than when I was a young man. It's become hard for people to do this. If you go to the bookstore and look at the management section in bookstore, most of it's about leadership.

(01:16:56):
And the leadership is mostly about perfecting yourself. It's not about beating anybody, but the theory is that if you perfect yourself and somehow rays come out of your head and people will follow you, because you're so magnetic, and you're so perfect, and you're so wonderful, and you're so insightful, and that people will follow you, you won't ever have to say, "[inaudible 01:17:19], do that." It's so embarrassing to tell somebody what to do.

(01:17:24):
And so this is the world we live in today, where one of the problems in doing strategy is that it's somehow been displaced by this literary form about mission, and management is being displaced by leadership, which is the idea that the leader has a vision and people... It happened in the '80s. There's a whole literature there about transformational leadership that is percolated through the system, and those, I'm not against leadership, but you have to tell people at some point, "We're going to do this, and we're going to do it this way, and Bob's going to be in charge of this aspect, and Joan's going to be in charge of that aspect." And there's a hesitancy to make those choices, because that's part of the action agenda.

Lenny (01:18:23):
So the takeaway there is essentially have a decider. It makes me think of, actually, of George Bush. You talked about Rumsfeld, but George Bush's famous quote, " I'm the decider." I don't know if you remember that?

Richard Rumelt (01:18:33):
Yeah, that's true. One of the things we see in government particularly is presidents have a hard time getting advice, because they surround themselves with people who want to please them. Number one, we rarely.,, It used to be, I remember during Woodrow Wilson's administration, when he decided to take some hard action, the [inaudible 01:18:58], and he had to do something, [inaudible 01:19:00], and the Secretary of State disagreed and quit. "Right, that's it. Quit. I disagree." Wow, don't see that so much anymore. All the people, organizations get frozen because of the difficulty of changing positions of interest and power in [inaudible 01:19:29].

Lenny (01:19:30):
Humans are complicated.

Richard Rumelt (01:19:34):
Well, if you look at Nokia, one of the big examples of strategic errors, Nokia was the leading phone maker in the world world, and then somehow it lost its ability to compete. And interesting question, there's been a fair amount of research on this, is how did that happen? One way it happened was they replaced the engineers who used to run the company with lawyers and accountants. Nothing wrong with lawyers and accountants, but they didn't have a feel for this hardware, software set of issues. And another was they put in a matrix organization that so diffused power inside the organization that nobody was actually in charge of anything in particular. I'm exaggerating, but the CEO kept pounding the desk and saying, "Apple's coming out with a smartphone and you have a touchscreen, and somebody here should make one of those." So there was no one in authority to do such a thing.

Lenny (01:20:40):
Maybe a final question on the other end of the spectrum, from an Nokia, from a startup founder's perspective, what is a strategy and what should a strategy look like if you're just a founder, pre-product market fit, just trying to figure out where you want to go? What should a strategy look like there? Do you even need a strategy?

Richard Rumelt (01:20:57):
Well, you're dealing with a lot of uncertainty When you're a founder in a startup, you're making a bet. You're making a bet like an oil well [inaudible 01:21:09] say, "I bet there's oil under this ground. We're going to drill, we're going to find it." There's a certain amount of bet that's going on, and you should be clear about the nature of the bet. The reality is going to be revealed to you in bits and pieces as time passes, whether a certain approach is going to work or not. What we find doing research on startups, Silicon Valley startups, is they start out typically aiming at a particular product market solution. And the idea that you have in your head is, "There's a set of customers who want A, would like to have A, are being denied A, but we have a way of giving them A," something, a product or a service.

(01:22:02):
Now, some people, they aren't that even advanced. They basically say, "I know how to make something and I'm going to try to sell it." You know, [inaudible 01:22:10] approach. Well, if you have any chance of succeeding, you have [inaudible 01:22:17], you have target market, and you have a solution to the target market's problem in mind, and now you're going to go after it. And the research that we have done on the startups is that generally it doesn't work.

(01:22:33):
But the ones that survive and prosper switch. They say, "Well, it isn't that customer, it's a different customer. You should walk from that customer. Oh, and that customer wants a slightly different product," and they switch over a period of a year or two period, bang, bang, until something begins to click, and they begin to grow, and begin to add functions and assets. So there's a search, there's a search like a truffle hound searching for the truffle that's going on.

(01:23:05):
And you've got to be able to think, you've got to be of two minds. Like so many things in business, when you're doing this, you've got to be of two minds. You've got to be convinced of the certainty that you're going to win, and you've got to be willing to shift when things aren't working, and that's a double-jointed exercise that some people can do and some people can't. It's almost a human skill to both commit and to be willing to move. But it's a bet. You should be clear in your own mind about the nature of the situation, the technology that you're betting on. Now, sometimes it's evolving so fast, like generative AI is right now, that you can't be sure.

Richard Rumelt (01:24:04):
... That you're going to take a position, where do you think things are going to be in a year? And that's very, very entrepreneurial, very edgy stuff, but it's not... Go back and read about the beginnings of the electrical industry or the beginnings of aviation or the beginnings of motorize this and beginnings of cars. People had to bet about what this industry would look like. The first cars were electric cars. The first car sold in quantity in the United States were electric delivery vehicles used downtown in cities, delivery [inaudible 01:24:49] produce. They were electric, ran on batteries. That was the bet.

(01:24:53):
All that changed with the First World War. The United States built thousands and thousands of gasoline powered trucks to go to Europe, wrestled through the mud, and people came back knowing how to fix those engines, and those trucks got sold off as wholesale to farmers, who used them on their fields, and we had the gasoline to take off like a rocket. So, you cannot predict the future. There's an Arab saying that I like that says, "He who forecasts the future lies, even if he tells the truth." We're making bets. That's what business is, we're making a bet. And if we're a rich company, we can make a bet and afford to be wrong. But if we're a startup, we have to be fast, we have to adapt as the information comes in, and that's the nature of the story. The action agenda has to be quick adaptation to changing conditions.

Lenny (01:26:06):
I feel like you have another book here where you could adapt a lot of this wisdom to startups. I'm looking at my notes from what we were talking about earlier, and you have this point of when you're trying to write out a... You call it an action agenda, not a strategy, you're basically on the hunt for a big problem and an important problem and an achievable problem. And essentially you can boil that down to that is the job of a founder to find an important problem and achievable problem and then solve it for a lot of people.

Richard Rumelt (01:26:34):
I like that. The other exercise I used to take my students through was what I called value denial. Now, what is it that you should be able to buy but you can't? And at the time I taught this stuff, I was upset because I would lose my baggage on a nonstop flight from Los Angeles to Paris, so I'd like to buy baggage... Sure, so I'd like to buy... How do you get your baggage not to be lost? Now, with security systems in place, it's less, let's call it. Can I find someone to help me remodel my home that's going to be on time and I'll bet you not available. Can't buy it at any price. If I live in Hong Kong and I'm going to the airport, I can drop my luggage off downtown and it arrives at the airport checked in. I don't have to lug it. Why can't I do that in the US? Value denial.

(01:27:44):
And then engineering, thinking about how something ought to be, a channel, salesforce.com got started was, "Well, how should this be? It shouldn't be a computer, it should be a webpage. It should be like Amazon where it has books." And so, that was the beginning of salesforce.com. I asked a group of students once to think about the perfect window because it's physical, something we could think about in the classroom without doing a lot of research. Well, what's the perfect window? A perfect window should be transparent, should let the sun in. All right, so it's let in the light, but not all the time. Sometimes you want to watch the television. So, it should also darken, drapes for shades. It should let in the air, good, but not the bugs, a screen. It should let in the air, but not the noise. That's a little harder.

(01:28:57):
So, you go down a list of things that a window should do. It should let in light, but not light. It should let in air, but not the noise. It should not let in air when we don't want it. It should not let in the bugs. It should maybe have shutters or not shutters. And so I said, "How could you design the perfect window? What would it look like?" And there's some kids at MIT that had developed this thing that lets in air, but keeps out the noise, these little auditory filters keep out noises in certain frequencies. Well, we don't have a perfect window, but think about it, windows could be better than they are.

(01:29:39):
And that's a real simple device that we're all familiar with, and look around you, look at everything you've got and say, well, "How shouldn't it be?" And there's opportunities there. Now, a lot of the times, the opportunities are blocked by the lack of certain materials or regulation. Regulators have decided that you can't sell a car in the United States unless it goes through a dealer. So, that holds back innovation in that business. And so plumbing, how should plumbing actually work?

(01:30:20):
Well, there's a whole surge of rules about how plumbing works and electrical things work. You can't innovate there very easily because of the underwriter's labs and the unions, and a lot of the stuff that's done in home construction is there to create jobs, not to reduce costs. So, how do you get around that? So, you have to look at places where it's possible to innovate first of all, but the idea of how do you make something better? How do you make it perfect? What would the perfect light switch look like, and so on? These are real simple, silly questions, but they lead to new businesses and new firms if you pursue them.

Lenny (01:31:03):
I love how full of startup ideas you are. I also think we came up with at least two new books that you can write. I think you're going to have a lot of work to do after this conversation. Final question, is there anything you want to leave listeners with or take away? Is there a final nugget you just want to share for folks?

Richard Rumelt (01:31:19):
I want to share with you that strategy's not mysterious, that I've spent my life studying strategy, pursuing it, consulting on it, writing about it. It's not mysterious. It's about solving problems. It's about solving the most important problem you're facing that you actually do something about. You don't have to be Sun Tzu to come up with a strategy, but you need to be focused on something doable and be consistent about it. I have a long list of things not to do. There's a fourth book that I'm thinking about writing called Don't Do That.

Lenny (01:31:59):
I would read that. I love that title.

Richard Rumelt (01:32:02):
Can I tell you a story?

Lenny (01:32:03):
Absolutely.

Richard Rumelt (01:32:05):
My wife Kate took up skiing when we got married 24, 25 years ago, and she had this stance that she couldn't get rid of. When you make a turn, you don't turn like that, you put the ski out the step. I made her ski on one ski, I did all sorts of things to her back, she couldn't fix it. And finally we signed up with an illustrious ski teacher in Aspen, a three-day intense program, guaranteed that she would lose her stance, exceeded them all.

(01:32:45):
And so we went there... On the second day, I followed behind the instructor and her to see what was going on, and they had been through some exercises on day one, but in day two they were focusing on this and she would put out her ski like that and he'd yell at her. He'd say, "Don't do that," and after a day of being yelled at, "Don't do that," she didn't do it anymore, she was fixed. So, the secret technique that they had in this program for curing your stance was to yell at you telling you, "Don't do that." And so I'm thinking about a book called Don't Do That about business things where I'm not sure it makes sense, but you have to noodle these things for a while before they begin to gel.

Lenny (01:33:34):
I love this idea. It reminds me, one of my friends is a therapist, and there's this video by Bob Newhart where he's a therapist and someone comes to him and they've got all these problems like, "I get really sad when I think about my mom and I have this chronic pain," and his advice, "Just stop it, just stop."

Richard Rumelt (01:33:50):
Don't do that, just stop thinking about your mom.

Lenny (01:33:50):
"Just stop it," that's the advice. And so, I feel like there's a lot of synergy there. All right, well, with that, we've reached our very exciting lightning round. Are you ready?

Richard Rumelt (01:34:04):
I guess so.

Lenny (01:34:07):
First question, what are two or three books you've recommended most to other people? I feel like this is going to be a challenging question, but what comes to mind?

Richard Rumelt (01:34:15):
It sort of is. The books that I'm... Clayton Christensen's stuff about The Innovator's Dilemma is always solid. Books on strategy that I recommend to other people on... There aren't that many. So, I like Playing to Win by Roger Martin. I really recommend other kinds of books, strategy books. It's easy to get a list of strategy books, but I think you should read biographies and histories. I think the book about Steve Jobs is brilliant. I like books about business leaders. I'd recommend Andy Grove's book Only the Paranoid Survive, and a few others, but I recommend that people read more broadly about people, Rockefeller's histories, it's fantastic.

(01:35:22):
The stuff about Rockefeller and how he put together... Rockefeller was a robber baron and he built an empire and all that, you learn that in school, but what you don't learn in school is he dropped the cost of a gallon of kerosene from $1 to 10 cents. That's the robber baron, and he made kerosene so inexpensive that he drove all the little mom and pop proprietors out of business, which is why they hated him. So, he was a vicious competitor, but he dropped the price of something by an order of magnitude, fascinating. So, it's important to understand stories, not just theories, but stories.

Lenny (01:36:22):
I love how this always comes back to just being steeped in history and this specific point about biographies is really interesting, and we'll link to all these books that you're mentioning in the show notes. Is there a favorite recent movie or TV show that you've really enjoyed?

Richard Rumelt (01:36:36):
Oh yeah, sure. Well, I like Yellowstone, like everybody else. I'm fascinated by it. Recent movies other than Yellowstone? I'm not sure. We don't have a TV in the house right now, so I'm not connected.

Lenny (01:36:51):
That's amazing, that's the dream. I wish I could do that.

Richard Rumelt (01:36:57):
There will be a TV, but that room is being remodeled.

Lenny (01:37:02):
I see, just a matter of time. Is there a favorite interview question you'd like to ask people you interview, maybe specifically around helping you get a sense of are they good at strategic thinking?

Richard Rumelt (01:37:14):
I like to ask people about, what have you done that was hard that you're proud of? What have you done that was difficult? And what was it and why was it difficult and how did you get it done? I like to ask people about what they think was an interesting strategy from any time in the past they want to call out. Depending on the person's background, I might ask them about a particular company or situation, let's say, why do you think this worked or why didn't it work? So, I don't tend to ask questions about theory, I tend to ask questions about things that happened and part of me, I'm looking, does this person have any knowledge about the world or are they just know what the professor said last year. So, that kind of thing.

Lenny (01:38:28):
Is there a favorite product you've recently discovered that you really like, whether it's an app, some you bought, some in the house, some on the road?

Richard Rumelt (01:38:36):
Well, we've got this new memory foam bed that we like, it's a pretty amazing innovation. I didn't think we'd like that, but we do. I really am fascinated by... I'm about to pull the trigger on buying one of these new smart telescopes.

Lenny (01:38:53):
Smart telescopes? I haven't heard of that. What makes them so smart?

Richard Rumelt (01:38:56):
It's a 12-inch reflected telescope, and it's too heavy to look around, it's too difficult to set up, but there are sort of new smart telescopes that run on a battery and you can put them outside. And the way they work is, first of all, they know where everything is in the sky, which has been around for a long time, but the new thing is, it's like astrophotography. They'll look at something for a minute, two minutes, 10 minutes, an hour, and form an image. You don't look through the telescope, you look at it on your phone or your computer, but you can see now the nebula that maybe the web telescope can see and you can see it now and you can see stuff out there that you couldn't before. And these are new things for $1,000 or $2,000 set that are remarkable in what they can do.

Lenny (01:39:56):
Excellent choice. Next question, do you have a favorite life motto that you often find yourself coming back to, sharing with friends, either in your work or in your life?

Richard Rumelt (01:40:05):
I used to have a final lecture I'd give to my MBA students about little pieces of wisdom, things not to do, things that offend people in other cultures. Don't do this if you're in Turkey, it means something else there. But I'd also say at some point your spouse or your partner will ask you, "Do you still love me?" And there's only one correct answer to that question, which is more than ever. And my wedding ring says that inside it, more than ever. So, I don't know if that's what you're looking for, but that's-

Lenny (01:40:57):
Absolutely.

Richard Rumelt (01:40:57):
... Getting a [inaudible 01:40:58] sense piece of wisdom.

Lenny (01:40:59):
That is really good advice, gave me tingles. I'm going to use that, 100%. Thank you for some marriage advice. Final question, your daughter Cassandra is a writer as well in fiction. She writes fiction. Is there anything that she taught you about writing that's helped you become a better writer?

Richard Rumelt (01:41:18):
Yeah, Cassandra is the... Oh my God, she's got like 25 books on the New York Times Bestseller list for teen fiction now. She started writing when she was 12 or 13. She had a talent for it. She's told me about the tension that you have to create and she writes novels and that it's not interesting unless there's... Well, we started talking about this when she was young, she was 14, and she asked me about, what is romance? I said, "Well, romance is a barrier. Romance is where there's a difficulty back to a couple, and there's some kind of..."

(01:42:12):
She said, "Oh, like he's rich and she's poor?" I said, "Yeah, like that." "Or he comes from the north side of town and she comes from the south." And I said, "Like that, yes." And she said, "Oh, like he's a vampire and she's not?" Okay, so she has alerted me and taught me about ways of creating that kind of tension in writing. It doesn't work as much in business writing as I'd like, but I try to create this sense of it's good strategy, bad strategy. It's a sense of there's a tension between the right way and a wrong way, or if not a right and wrong way, at least there's a tension between, should we go left or should we go right? It makes it interesting, otherwise it doesn't catch people's emotional court.

Lenny (01:43:14):
Amazing. Richard, thank you so much for being here. I think we're going to help a lot more people face bigger challenges and face them head-on and put together their action agendas and overcome this crux. Thank you so much for being here. Two final questions, where can folks find you if they ever want to try to reach out or learn more about the work you're doing these days? And then how can listeners be useful to you?

Richard Rumelt (01:43:37):
I have a little website called thecruxbook.com that has information about me and about the books, so there. Don't write to me at UCLA. I don't pay attention to the UCLA website anymore, but if you go to thecruxbook.com, there's some email addresses where I can be reached. My little company's called General Imagination. It's like General Motors, but a lot smaller. It's just me, and you can reach me at richard@generalimagination.com. You can help me out... Oh, tell me stories. Tell me stories about your experiences, trying to create strategies, particularly inside organizations. How's it worked for you trying to get something done inside organizations? I'm happy to add more stories to my repertoire. Oh, and hire me.

Lenny (01:44:46):
Wait, say more on that. What is it that people would hire you for?

Richard Rumelt (01:44:51):
At this point in my life, I do public speaking. I speak on strategy and growth, and just got back from Korea doing it, I taught there. I do a little bit of teaching, not much. Maybe for the military people, if they want me to come in and do a day on strategy and I do foundries. A foundry is where you commit to a problem-oriented approach to strategy where the organizational leader, the CEO, usually plus another seven or eight people take two to three or four days off and we meet and we try to come up with, in the end, an action agenda and it's an interpersonal exercise.

(01:45:52):
I'm the facilitator. I don't tell them what to do, but I urge them to look more deeply and to understand what these problems actually are. It's interesting to do a foundry. You get quite focused on problems, as I do at the beginning. I'll often get 25, 50 problems up on the board or Post-It notes around, and when people look at that, they'll say, "I haven't ever done this before." When they see the 25 different problems or challenges, they realize you can't do them all. And so, they begin to get this sense of, "Oh geez, we better focus. We better focus on something. We better do something about some of these." And so, then we begin to go through this thing, "Well, which ones are really important and which ones are really addressable?" Well, sometimes we don't know if they're addressable or not. Oh, well, is there anybody in the organization who does know? Is there someone we could fly in here or have some perspective on this? So, we begin to try to identify the one or two key challenges that can actually be addressed and what are we going to do about it? What are the coherent actions we're going to do to take these on? That's the exercise.

(01:47:16):
From time to time, after the foundries, they all say to me, "Well, where's the strategy? Where's the document with the mission, vision, all that?" No, that's not what we do. We're doing an action agenda and the foundry is time-consuming and a bit expensive to some extent, and most of the times we've had foundries, they really help the company gather its wits and its resources and do something, which I'm very pleased with how the foundries work. It's not so easy to figure out how to take the foundry concept and expand it. I've talked to a couple consulting firms about, "Well, the guys like learn how to do boundaries," and they say, "How does it work? It's one guy for three days? That's not what we do. We do 10 guys for three years." It's not a business model, but that's a nice symmetry for me because they're not going to compete with me.

Lenny (01:48:32):
I love that. I feel like you're about to get a flood of interest and requests. For everyone else, make sure to buy Richard's books, I got them right here, The Crux, Good Strategy Bad Strategy. Richard, again, thank you so much for being here.

Richard Rumelt (01:48:45):
Lenny, thank you for a really pleasant time chatting.

Lenny (01:48:49):
It was 1000% my pleasure. Bye, everyone. Thank you so much for listening. If you found this valuable, you can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. Also, please consider giving us a rating or leaving a review as that really helps other listeners find the podcast. You can find all past episodes or learn more about the show at lennyspodcast.com. See you in the next episode.