Jan 21, 2024 · 1h 49m · lennys-podcast
Good Strategy, Bad Strategy | Richard Rumelt
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Renowned strategist Richard Rumelt deconstructs the myths of corporate planning, defining true strategy as a problem-solving action agenda centered on diagnosing the crux of a challenge, focusing asymmetric leverage, and executing coherent actions.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Lenny holds 13.2% of the talking time here. How this is scored →
Lenny as informed peer 3.6 Guest teaching 6.3 Guest disagreement 2.6 Lenny pushing back 0.1
speaking balance: gold is Lenny, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 1:15:45 Mocking Modern Leadership Self-Help
Rumelt scathingly critiques corporate management literature, mocking the idea that leaders merely project rays from their heads to avoid the uncomfortable reality of commanding and choosing.
Hardest push from Lenny ▶ 40:25 Testing the Rule of ThirdsLenny attempts to pin Rumelt down on an exact structural number for strategic actions, suggesting a rule of three, prompting Rumelt to clarify that focus is about discipline rather than rigid numerical rules.
Biggest teaching moment ▶ 18:15 Diagnosis Missing in Education PolicyRumelt dissects standard policy blunders by pointing out that identifying a drop in test scores is only an observation, whereas leaping directly to funding college without diagnosing root causes produces useless strategy.
Lenny holds their own ▶ 40:22 Connecting 7 Powers and Twitter's MoatLenny demonstrates his product strategy domain knowledge by directly connecting network effects and Hamilton Helmer's 7 Powers framework to Elon Musk's radical restructuring of Twitter.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Lenny as informed peer | Guest teaching | Guest disagreement | Lenny pushing back | Why |
|---|---|---|---|---|---|---|
| Hook: Redefining Strategy as an Action Agenda | 0 | 0 | 1 | 0 | Introductory teaser clip and host monologue introducing Richard Rumelt along with sponsor reads. Host is presenting alone with no direct interaction. | |
| Sponsor Message: Miro | 3 | 5 | 1 | 0 | Following the Miro ad read, Lenny warmly welcomes Rumelt and asks for a fundamental definition of strategy. Rumelt provides historical etymology from ancient Greek strategoi to ground the concept in high-stakes problem-solving. | |
| The Strategy Kernel: Diagnosis, Guiding Policy, and Action | 3 | 7 | 4 | 0 | Rumelt deconstructs academic strategy dogma, dismissing classic 2x2 matrices and Five Forces as mere analysis rather than true strategy. He lays out his famous strategy kernel (diagnosis, guiding policy, coherent action) while mocking executive laundry lists of 17 priorities. | |
| Real-World Strategy: Microsoft's AI Approach vs. Portfolio Assembly | 4 | 8 | 5 | 0 | Lenny asks how to spot bad strategy, and Rumelt provides sharp critiques of corporate goal-setting masquerading as strategy. He cites his work with the Department of Defense's 17 intelligence agencies and criticizes education policy for jumping to solutions without diagnosing root causes. | |
| The Power of Focus: Lessons from Camp and Geopolitics | 4 | 6 | 2 | 0 | Lenny summarizes the kernel framework and quotes Rumelt's adage that every yes risks creating bad strategy. Rumelt uses a summer camp magnifying glass anecdote to illustrate how power requires intense focus on an addressable target. | |
| Sources of Strategic Power: Leverage and Asymmetry | 4 | 7 | 2 | 0 | Lenny prompts Rumelt to explain what constitutes power and how teams can uncover their strategic advantage. Rumelt explains asymmetry and leverage, citing Lou Gerstner's turnaround of IBM as an exploitation of customer relationships. | |
| Network Effects and Modern Competitive Dynamics | 5 | 6 | 2 | 1 | Lenny brings up Hamilton Helmer's 7 Powers framework and references Twitter's resilience as modern evidence of network effects. Rumelt explains historical network effects from telecom to Gates's Basic, Amazon, and modern generative AI data moats. | |
| Grounding Strategy in Realism: Lessons from Afghanistan | 4 | 8 | 4 | 0 | Rumelt explains where power integrates into strategy, pointing out that opening a restaurant without structural asymmetry is mathematically irrational. He analyzes the strategic failures of the Afghan War, noting how uncoordinated, conflicting objectives doomed nation-building. | |
| Historical Precedents: The Great Depression Case Study | 3 | 8 | 3 | 0 | Lenny asks how historical study informs strategic thinking. Rumelt illustrates his thesis on the Great Depression, showing how primary historical accounts reveal sudden drops in automobile capital goods adoption rather than conventional economic dogma. | |
| Sponsor Message: Vanta | 4 | 7 | 3 | 0 | Following the Vanta sponsor read, Lenny asks how an individual product manager should practically write out a strategy. Rumelt advises rejecting the word strategy entirely in favor of action agenda filtered through addressable ambitions. | |
| Mastering the Crux: Design Insights from Engineering and Architecture | 3 | 8 | 2 | 0 | Rumelt illustrates the concept of the crux through rock climbing and design engineering, describing I.M. Pei's Louvre glass pyramid, SpaceX's reusable booster landings, and Voyager's Jupiter navigation challenge. | |
| Organizational Politics: Fragmented Agendas and Leadership Myths | 4 | 8 | 5 | 0 | Lenny asks how to navigate internal politics and competing priorities. Rumelt recalls his discussion with Donald Rumsfeld about warring departmental agendas, and lambasts the management literature industry for replacing tough decision-making with self-help leadership mantras. | |
| The Decider's Role and Nokia's Downfall | 4 | 7 | 3 | 0 | Lenny references George W. Bush's 'the decider' quote. Rumelt expands on how organizational paralysis occurs, using Nokia's failure to react to the iPhone due to matrix organization diffusion and replacing engineers with lawyers. | |
| Startup Strategy: Hypotheses, Truffle Hounds, and Pivots | 4 | 7 | 2 | 0 | Lenny asks whether early-stage founders even need a strategy. Rumelt defines startup strategy as forming an explicit hypothesis and acting like a truffle hound willing to pivot rapidly when market reality contradicts the initial bet. | |
| First-Principles Innovation: Value Denial and the Perfect Window | 4 | 6 | 2 | 0 | Rumelt shares exercises he used with students to spur innovation, including value denial and designing the perfect window, demonstrating how first-principles problem exploration uncovers startup opportunities. | |
| The 'Don't Do That' Principle: Eliminating Bad Habits | 5 | 5 | 2 | 0 | Rumelt proposes his book idea 'Don't Do That' based on a ski instructor's brutally simple method of breaking bad habits. Lenny connects this to Bob Newhart's classic comedy sketch about a therapist shouting 'stop it'. | |
| Lightning Round: Books, Telescopes, and Writing Lessons | 4 | 5 | 1 | 0 | During the lightning round, Rumelt recommends biographies over dry business theories, shares his enthusiasm for smart telescopes, gives marriage advice, and talks about storytelling lessons learned from his novelist daughter Cassandra. | |
| Strategy Foundries: Rumelt's Executive Problem-Solving Workshops | 3 | 6 | 2 | 0 | Rumelt explains his Strategy Foundry methodology, contrasting his three-day intensive executive problem-solving workshop with traditional management consulting firms that deploy ten people for three years. |
Statements from this episode (23)
Business analysis frameworks and two-by-two matrices are analytical tools, not strategy
“These are analytical tools for analyzing the problem, for thinking about things, for looking at competition, but they're not strategy.”
The word priority denotes one first item, not a list of goals
“The word priority means the first. It doesn't mean the grab bag of everything that you can think of that might matter. It means what's first.”
Simultaneously pursuing high growth and higher profit margins is inherently contradictory
“Growth and profit are, they battle each other. Let's say we define profit as return on equity. Well, if you're going to increase growth and increase return on equity, how do you do that? Because you're basically going to invest less to get your return on equit…”
A real strategy requires problem diagnosis, guiding policy, and coherent action
“All three elements have to be there. You have to be an understanding of the situation. There has to be a guiding policy. How are we going to deal with it? And that can be a long-term sense of how we compete. I mean, you don't have to change your strategy every…”
Acquiring a portfolio of companies is strategic assembly without actual synthesis
“There are companies that say, well, our future is, let's say, something that's not in a software business. That's an industry portfolio. We're going to have, we're investing in the future of robotics and AI and again, computer vision and all that. That's going…”
Abstract performance goals, profit targets, and wish lists are not strategy
“Bad strategy the standard bad strategy for a corporation is a set of profit goals or performance goals. A set of goals. Now goals are the engineering of how companies work to some extent, but abstract high level goals, they're not a strategy. They're something…”
The primary cause of bad strategy is lacking a proper problem diagnosis
“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 a strategy is mistaking goals for strategy.”
Effective strategy requires focusing organizational power onto a specifically achievable target
“And that sequence is part of strategic action. You need a source of power I say power. I don't say advantage or efficiency. I say power because there are different ways in which power is exhibited. And you have to focus power on a target that can actually be a…”
Strategic power fundamentally requires exploiting competitive asymmetries to create leverage
“For a strategy, you need to exploit an asymmetry of some kind. You're a little faster. Oh, they're alone. Something has to be different between the sort of things. So that's the beginning of power is a symmetry. We can think of it as leverage.”
Lou Gerstner's IBM turnaround leveraged its unmatched enterprise customer relationships
“When Gertzner took over IBM, as it was failing in the face of the microprocession revolution, He recognized that their primary asset, their source of power was that they were respected, and they had umptured into every large corporation on the planet. Nobody e…”
Breakthroughs like ChatGPT only offer a temporary one-to-two-year talent hiring advantage
“Yeah, so if you're, if you've invented ChatGBT, you can bring in the smartest AI people for a year or two. Because, you know, everybody wants, oh, oh, the smart AI people want to work at the cutting edge with the current winner. Then they'll start arguing with…”
Generative AI will favor scale as larger training datasets produce better models
“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 going to matter. That the size of the data that you could put into the learning algorithm is going…”
Business strategy is not a hard science; it relies on historical analogy
“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…”
Business schools teach abstract theories simply because they are easier to teach
“They teach theories now because it's so much easier to teach a theory than intellectual structure.”
Stop calling it a strategy; structure it as a problem-solving action agenda
“My two pieces of advice to 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 p…”
Formal mission and vision statements are completely unnecessary before creating a strategy
“Cause it's huge numbers of people out there willing to sell you advice on how to mission and your vision and your values and your, all these things that have to be in place before you can have a strategy. And that's not true.”
Senior executives do not need external consulting firms to formulate their strategy
“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, you know, consulting firms to come in and analyze …”
Corporate strategy usually fails due to conflicting internal interests and power struggles
“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…”
Modern leadership literature focuses on personal self-perfection rather than actually leading others
“If you go to the bookstore and look at the management section in the bookstore, most of it's about leadership. And the leadership is mostly about perfecting yourself. It's not about leading anybody.”
Nokia collapsed after replacing engineer executives with non-technical lawyers and accountants
“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…”
Regulation and standards in home construction primarily exist to protect industry jobs
“A lot of the stuff that's done in home construction is there to create jobs, not to reduce costs.”
John D. Rockefeller famously reduced kerosene prices from one dollar to ten cents
“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 a dollar to 10 cents.”
Consulting firms reject efficient problem-solving formats to protect their bloated staffing models
“I've talked to a couple of consulting firms about, well, you guys like to learn how to do Foundries, 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…”