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A Dozen Things I’ve Learned About Strategy, Business and Investing From Michael Porter

1. “In many companies strategy is built around the value proposition, which is the demand side of the equation. But …it’s [also] about the supply side.” “Hey people, *supply* matters too when it comes to generating a profit.” It’s that simple. If you have too much supply, then price drops to a point where there is no long term industry profit above the company’s cost of capital.

2. “If there are no barriers to entry… you won’t be very profitable.” Michael Porter calls a company’s barriers to entry a “sustainable competitive advantage.” Warren Buffett calls it a “moat.” Yes, innovate and deliver exceptional value for customers. No, that is not necessarily enough for sustainable profitability.

3. “It’s incredibly arrogant for a company to believe that it can deliver the same sort of product that its rivals do and actually do better for very long.” Porter teaches: “if customers have all the power, and if rivalry is based on price… you won’t be very profitable.” He adds: “Produc[ing] the highest-quality products at the lowest cost or consolidate[ing] their industry [is] trying to improve on best practices. That’s not a strategy.”

4. “Competition for profits goes beyond established industry rivals to include four other competitive forces as well: customers, suppliers, potential entrants, and substitute products.” What you pay for inputs into what you make as a product or service determines whether you will have a profit.

5. “Change is faster now than it was 10 or 15 years ago. Does that mean you shouldn’t have a direction? Well, probably not.”

6. “Strategy is about making choices, trade-offs; it’s about deliberately choosing to be different…. “The essence of strategy is choosing what not to do.” One of the hardest things for many people in business is to not do something.

7. “Operational effectiveness is about things that you really shouldn’t have to make choices on; it’s about what’s good for everybody and about what every business should be doing.”

8. “You don’t have to have all the answers up front. Most successful companies get two or three or four of the pieces right at the start, and then they elucidate their strategy over time.”

9. “Strategy can be seen as a set of relationship to profitability. Profitability is revenue minus costs.”

10. “Successful companies do not skate to where the puck will be—they define it.”

11. “Continuity of strategic direction and continuous improvement in how you do things are absolutely consistent with each other. In fact, they’re mutually reinforcing.”

12. “If people in the organization don’t understand how a company is supposed to be different, how it creates value compared to its rivals, then how can they possibly make all of the myriad choices they have to make?”.

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