Why a Good Strategy Beats Operational Excellence

[00:00:00] Richard Gaffin: hey folks. Welcome to the E-Commerce Playbook Podcast. I'm your host, Richard Gaffin, director of Digital Product Strategy here at Common Thread Collective. And of course, I'm joined as I always am by Mr. Taylor Holiday, who is the CEO of CTC Taylor. How you doing today?

[00:00:14] Taylor Holiday: A little tired, a little hungry, but uh, ready to chat.

[00:00:18] Richard Gaffin: Okay, good. That's right. Right. Well, so yeah, in the Maslow's hierarchy of needs, you're sort of down in the, the more basics right now, but what we're talking about is something a little bit more heady, which is strategy versus operational execution I'm trying to think of an analogy here like I don't know if eating or something is operational execution here and I don't really know how that

[00:00:36] Taylor Holiday: What you eat is the strategy Yeah Yeah There's 

[00:00:39] Richard Gaffin: Yeah, exactly

[00:00:40] Taylor Holiday: probably some system design questions there Yeah

[00:00:42] Richard Gaffin: right So so this topic came up sort of in our pre-discussion before we hit record here we've been talking for a while on this podcast now almost ever since we began hosting it about the idea of you know building for the long term Is now mission critical right In the past you could get a quick return you could build for short term profit and that would've been fine but that's no longer an option But one word that hasn't really come up yet is this idea of strategy We talk a lot about creative We've talked about brand recently We've talked about using the right metrics and using more maybe frameworks rather than tactics But what we haven't talked to really is use use the S word strategy here

And so part of our discussion was this idea of I Maybe I'll frame it this way and I'll just say this should probably find out where I got it but I received this book, in the mail mysteriously recently This is from Harvard Business Reviews It's their book on strategy which is a series of definitive articles as they say about strategy And the very first essay in this book called what Is Strategy by Michael E Porter Um the very first chapter is called operational effectiveness is Not Strategy And it's interesting cuz that dovetails very, very closely I think with something that you've been thinking about recently which is this idea Exactly that that operational excellence not only is not strategy it's also ought not to be the main focus because a bigger strategic lens to view your business is actually what's really critical right now So maybe speak to that a little bit Taylor How did you start thinking about . This relationship between these two things

[00:02:21] Taylor Holiday: very simple lesson has been learned from me in the process of four by 400 running our brands And we went back to the if we go back to the very beginning of the way that we structured and set up that entity okay It was a HoldCo where we had a various set of subsidiary brands and we kept the entrepreneurs on the cap table When we acquired the brands we wanted them to have incentive to continue to grow the individual entities and that strategic decision created a foundational problem that we have been dealing with for 10 years and we cannot operationalize ourselves out of that fundamental strategic failure And I have and then, secondarily inside of one of the subsidiary brands bamboo Earth For a long time we had a level sort of of operational production and capacity that I would say mimics what we have now Maybe it was a little less efficient Few more people that you could argue uh existed in the system than maybe were necessary but there was a strategic problem around understanding the correct unit economics and efficiency and management of the ad account that caused cash to deteriorate in a negative way Time and time again Cdc I've seen very similar ideas pop up where as much as we want to focus on the how we're doing um the what we're doing on a day in day basis and trying to prove it make it more efficient if the underlying strategy that's guiding the op the it's, sort of the a trellis that operations gets built on top of right If there's a flaw in None of the operational excellence matters and one of the things I experience a lot right now from brands when they come to us at CTC is that they believe the solution to their problem is an operational one We need more creative If we just had landing pages and creative then we would get X Y and Z If we did more if we out had greater output the problem would be solved But when I go look in their There's a fundamental strategic problem that they either don't understand the specific unit economics and they're running contribution at a negative level inside of their paid media and they're or they you know they're not utilizing the correct cost controls and things that we would believe that's a strategic flaw that's actually causing any amount of creative to sort of be spinning in circles A lot of times we see like They're selling the wrong products that their ad accounts driving because it's on lowest cost to too low of o v items which is deteriorating their margin da da There's an inventory purchasing problem that created a, need for massive discounting These are all strategic initiatives that sort of create operational problems now I'm sure some of this is a little semantics and people are gonna argue oh that's that is operational excellence would be forecasting accurately and okay So there's probably some blurred lines where strategy and operations begin But I really believe and have personally experienced that a great strategy is the foundation Um That pre meditates and necessitates operational excellence Like you cannot disassociate these things.

Most brands I think because especially this is the last thing I'll say and I'll like take it back to you, is I believe that the, ecosystem of Twitter and DTC culture is so built around the operator as the hero the archetype persona and operators by definition are people who just output and they learn through trial and error and they evolve And we've elevated that premise really high and they're the loudest voices in the community but often that the, the amount of errors that they make along the way reflect poor strategic thinking that could be offset with wisdom and experience and knowledge that I think if we stopped a little bit and sell and created more space for a great strategy then of course there's like a trial and error that gets layered on top of it I think we could be in a better place.

[00:06:13] Richard Gaffin: Yeah So I think like one thing that's kind of interesting and, something that you pointed out in our discussion as well was that um, lack of a strategy is isn't it ends up being a strategy in and of itself Correct So the idea like maybe concept that we can tie this back to is this idea of. Like a strategy to my mind anyway begins with establishing your core business goal Like what are you trying to do with your business and why are you trying to do it Which is a question that not many entrepreneurs can answer with Maybe uh can't give like a definitive, concrete answer to other than maybe I I want to do X revenue because why not you and so I think what happens is that your strategy actually always ends up being to be short-term profitable as often as possible all the time So even if you have no articulated strategy your strategy probably if you're coming to us and saying like Hey we just need a lot of creative your strategy probably is just functionally it's de fact to hit your profit numbers this month or something like that or hit your revenue numbers whatever right.

[00:07:12] Taylor Holiday: are so right that this begins very much at the root level of what is the entrepreneur doing this for Like what is the business strategy here What is the end that this whole thing serves And 

[00:07:25] Taylor Holiday: the reality that 

[00:07:26] Taylor Holiday: early on it primarily just serves like survival Like just the ability to generate a life and live and then all of a sudden that sort of need gets and you're left with this bigger question about like okay what do I want What is enough What is the outcome Is it a billion dollar sale Is it that this exists forever Is it an experience that I'm having And most founders myself many days included are not clear on what the point of this whole thing is And this sort of overall operations of the thing reflect that ambiguity And so you're right the strategy begins with a foundational purpose That the business exists for And without that you will run in circles days doing all sorts of things uh operationally

[00:08:12] Richard Gaffin: Yeah Yeah Right And I think it's also important to note that there's, a couple different tiers of that that main strategic goal So one is like maybe the stated so I feel like a lot of entrepreneurs if you were to ask them this question they would sort of give the thing that's like maybe on the our mission page or something on their website which fine like that's probably part of it but also like I think to that point that startup phase, your strategy or your goal actually is to survive That's not gonna be on your website. So, you know, to, at least To yourself be honest about that But at this point like what is your now that things are maybe more locked down for you like what, what are you trying to do with it Right What you know, what sort of is the basic thing that you're trying to make happen? So I I wanna read this one little little bit this essay specifically, which I think is really interesting Uh So this is about the, contrast between operational effectiveness and strategy The myriad activities that go into creating producing selling and delivering a product or service are the basic units of competitive advantage Operational effectiveness means performing these activities better that is faster or with fewer inputs and defects rivals company companies can reap enormous advantages from operational effectiveness as Japanese firms demonstrated in the seventies and eighties with such practices as quality management continuous improvement blah blah blah as all competitors in the industry adopt them However the productivity frontier, the maximum value a company can deliver shifts outward lowering costs and improving value at the same time um such competition produces absolute improvement in operational effectiveness but relative improvement for no one. And so That's kind of the core premise there is right Like if everybody as especially as you're pointing out too like as AI gets better and better everybody is going to become equally good at operations or at least at the sort of various inputs that go into operations but the differentiator is going to be what are you doing with that operational effectiveness

[00:10:08] Taylor Holiday: That's exact So I put out this with the other day that so production costs think of it as a proxy for operations are on a freight train to $0 and infinite volume you're gonna be able to produce a million ads that are beautiful in an instant By speaking to a system right? Like that's Customer service reps They're just gonna give beautiful thoughtful answers in any tone that you design in any voice that you want on the phone at basically zero cost right That's like the direction of all things operations Well given those tools okay What will separate the winners from the losers in a world of perfect operational efficiency of something Well it's going to be the strategy and the utilization of it Think of it as like right now the big term is like prompt writers Well, prompts are functionally strategic utilization of a tool So if you if the gr you know the example of the guy that blew up creating hustle G p T right He writes this prompt to chat G BD saying You are now hustle G P T I have a hundred dollars We're gonna you know you're I'm your human liaison to the physical world and we're gonna go uh make money and it blows up He gets 20 million impressions He's on tv he's on podcast Same tool same capacity for output strategic utilization of it that separates him from anybody else trying to make a tweet thread about it this is the case is that like, it when you get to this level where Tools are commoditized right Like if and I think that so much of the e-commerce stack this is what has happened is that Shopify fundamentally in in many ways commoditizes operations right Like they they take what was a really laborious process of building a cart and integrating all of these features And they basically d uh they they in the process of arming rebels they commoditize it and make it available to everyone at an equal You know and I think that is often actually seen as like a value proposition for a business but that cannot be your competitive advantage And Michael Porter it's funny I didn't realize he was the first person you were referencing there So he's famous because he wrote a book called Competitive Strategy which is one of the ones I reference in my post That's like one of the first books you read in business school and the these are the kinds of points that he's often referring to And you it's funny I got an email from this SEO white label partner the other day that was sending me an email and the value proposition was to Our service is so easy to set up that we are powering the SEO offering of hundreds of agencies and I was like there is nothing in the world that could be less of a value proposition to me than that same service as everyone else at a great price It's like that is the definition of operational efficiency as your competitive advantage That I think is like doomed to to failure as a strategy right Because you cannot fundamentally at any point offer any difference between me and you And when that happens you know what the differentiator is Price And that gets driven all the way down to zero cuz somebody will be willing to take less and less and less and less On the same service because their cost is functionally zero if it's an outsourced thing until eventually the category just disappears And so in this moment to actually be strategic about the way you design and implement and build product the way you think about deploying your media is all where the advantage lies in my opinion

[00:13:24] Richard Gaffin: Yeah So maybe let's go into what the components are of a good strategy or of just strategy at all and I think there's an interesting side discussion here about like why emphasizing strategy over operations is sort of Seems kind of controversial still, or not like super popular but um maybe we can get into that later because I I think yeah So let's start just talking about what's what strategy is So in this particular essay what Porter talks about is um essentially what he's talking about is positioning yourself as doing things differently or for different people really than your competitors And so simply it's like, Yeah this is just sort of brand positioning 1 0 1 which is like uh for instance X company We only serve the niche needs of a very wealthy clientele or we serve the niche needs of a broad group or we serve the broad needs of a very niche group Like there's there's sort of these different categories that it falls into And then of course that plays out into brand strategy Look who is this What is this look and feel for And of course it sort of all comes down Essentially, um how does he strategy requires you Here I'm I'm quoting strategy requires you to make trade-offs in competing to choose what not to do Some competitive activities are incompatible thus gains in one area can be achieved only at the expense of another area. For example Neutrogena soap is positioned more as a medical product than as a cleansing agent. So you say no to sales based on deodorizing which gives up a huge amount of And you sacrifice man manufacturing efficiencies However Neutrogen is a very successful brand because they position themselves and they strategically give up certain things And maybe that's part of what the difficulty is or the reason why It's just sort of so knee-jerk difficult to make that type of decision because you're saying no to a huge amount of sales volume.

[00:15:10] Taylor Holiday: That's right and there's a level of insecurity In obligating yourself to strategic thinking which is that it forces you to have an opinion ahead of time And there's this there's this idea that the more no the more nobler task is just test and find out think that in many cases a lot of that has been done already Like you don't actually need to go replicate work that previously exists to answer questions You need to spend some time thinking and to lean on the mountains of people that have come before you to stand on some of the shoulders of giants by taking the time to think about it And this is what I like I'll give you another example for me is that so building c t ctc I for many years especially like last year when we got into our like peak of size I felt like I was like a wanderer in this foreign wilder Outer space in a place that nobody had ever been before And everything I was trying to do felt so novel and I was so insecure and it was all trying failure And then I found this book called Managing the Professional Services Firm and reading it was like a portal to a new world where everyone had already experienced my problems and there was this discovery that there was nothing novel at all about my circumstance But instead what it was was that I just hadn't tapped into or interacted with the people who had that experience in a way that could share them with me Wisdom and strategy for dealing with it And so here I was just sort of flitting about in this world and I think this is why so often you'll see these entrepreneurs that like when they get into these like peer groups it feels like this like magical thing that they have found a space Where people share their experience as if they like couldn't but like that they've discovered a new land Right And the reality is there's almost nothing new under the sun especially with what we're trying to do is business builders You know And so there there's a lot of wisdom to be gleaned and there's a lot of that formulates better strategic thinking about how to do what you're trying to do versus just trying more things space to stop and reflect

[00:17:17] Richard Gaffin: Yeah I mean I think that there's like because I remember earlier days of C T C when I was there the first time like that was certainly the attitude which was like, let's test and find out Don't go off your sort of initial gut instinct Um just test and see what works and you'll find out And if there's definitely value to that because oftentimes our gut instincts sort of poor barometers of what's actually true However I think what we have sort of discovered is that like yeah you have to have a reason that you're doing what you're doing before you start testing Otherwise you're not going to get anywhere cuz there's not really a direction that you're headed in the first place

[00:17:48] Taylor Holiday: I think what you're saying is exa is like the idea if if there's any value to us as an agency at all Okay If there's any value at all it would be predicated on the idea that 12 years of doing this across tens of billions of dollars in revenue Would lead to the formulation of strategies that could be deployed on your behalf And if, if that isn't true then there is no value of us other than our operational efficiency and excellence relative to some other place that you can source it And so, there certainly has to be And and and I I know that When I watch people crave advice and wisdom from people who have experienced things like I built and sold native deodorant and so Moise Ali is an amazing source of knowledge or Patrick from Supply sold his business and so he's gonna now coach and provide wisdom I know that we understand this premise that the ability to provide from experience strategic direction about what you should do is of the utmost but yet somehow there are moments when we just sort of toss it aside rush into an instance with the idea that the only thing that matters is the ability to do it and then to learn and to refine and to do it again and again I it's not to say that there isn't merit but there is so much opportunity to be able to lean on and provide a strategic roadmap on which great operational efficiency can create a better impact

[00:19:15] Richard Gaffin: That makes sense yeah I think your analogy about the scaffolding makes a lot of sense Like if you're if you were testing and sort of running trying things, but, but there's the scaffolding as rickety or whatever, then you're just gonna collapse anyway. So it, just like doesn't matter ultimately even if you're sort of gathering a lot of learnings if like in, in if the initial premise was wrong then there's no point in doing it I think another thing that like, or another way I practically like I feel like This plays out a lot and I deal with this in sort of my capacity or my role as the person who sells digital products for us there's this idea that like we think about our distribution channels, we think about essentially the framework that we have in place to distribute content, to sell it For instance what's on our website What you know look let's look at our email list What ads can we run against this Whatever Right And a lot of the times the discussion and you know we do a pretty good job of correcting ourselves on this I think But I you know I found this to be the case when I was working for clients as well is that we're talking about landing pages a lot We need a landing page for this We need a landing page for that We need for this. We need an ad campaign for that. But no discussion of what should be on the landing should the landing page be about What are we saying about this product.

And I think that's like, That's the kind of stuff that you know you can't operationalize that You have to sit down and be vulnerable enough to say like we are going to bank on the idea that say this product is only for X person and We're going to think about the way the look and feel is and what we say about it because we believe this is actually like the value proposition and that's where you start And then you say oh okay well we know that Like a landing page that looks like this is helpful or whatever You know what I mean?

[00:20:55] Taylor Holiday: Yeah I think we're in the middle of this right now too Richard Like cuz it's sort of like okay well what's the point And I think what you're describing is exactly it is that I would It's sort of like writing an outline for a presentation before you do it it forces you into this question of like why what's the goal What's the intended action What's the outcome that would mean that it's successful That sort of strategic roadmap to the operations is important I think about like our, our funnel we're running right now with the DDC Index So for those of you that don't know CTC has a tool that's like an aggregate view of the industry performance 

[00:21:25] Taylor Holiday: called the DTC Index That we use 

[00:21:27] Taylor Holiday: as sort of a tip of the spear to one provide a product and opportunity for people to view data in a way that connects CTC to to that information But it also sets up an ability for us to enter into conversations to understand more of what is the kind of data that people are looking for And so there's a strategic plan That sort of first gets developed around how to use products in connection with an overall brand presence and idea of what CTC is and who we are and how we wanna position ourselves in the world That then leads to a set of operational actions that now yeah we have to go be excellent at and we're gonna test and we're refine and we're gonna ab split test and try different ads and duh da da da But it all sort of is rooted back to What is CTC 2.0 What is the new uh, identity Who are we trying to become Therefore what are the ads and message and funnel that would work Because it wouldn't make sense to just go say that The only rule is that the primary value proposition is it has to work because if that thing that worked wasn't connected to who we were in our value proposition more broadly our operational systems you would break the thing You know al

[00:22:25] Richard Gaffin: Yeah Yeah And it all hinges on what your definition of the word work is What does it mean for something to work? And I think all all too often we let other people give our give us the answer to that question which is to say like is it like is our C P a good or something like that Or is like ROAS good?

Or whatever And like that can't be the Is working You have to define that for yourself based on. your specific. I think like this, yeah, using ourselves as an example is, is a great idea because I think like what from you know my perusing of this particular article and then my also my just general experience figuring out what your strategy is is a question of figuring out what, who, and what you're going to say no to Right

Um, and I think find this when I used to run we had a short-lived branding department here at Common Thread Collective And one thing that I found really interesting is that in our conversations we would have these sort of we would have the kind of or the client go through this exercise where we would say our brand is not these adjectives Our brand is these adjectives

[00:23:22] Taylor Holiday: That's right

[00:23:23] Richard Gaffin: despite what I thought the thing that was most imp helpful was what we are not and explaining Actually gave us a lot of space Like if we can say we're not going to go there then we have the the room to create something new and something valuable in the space that's left behind.

And so I think like for us, like it's a question of like, who is, who's not? A good client for us, and we just have to say, I'm sorry. We will not accept your $20,000 this month because it's just not gonna work for us in the long run. And that's a difficult decision to make, but it's totally necessary.

[00:23:53] Taylor Holiday: Yeah. And is so critical to actually being able to compound the value of your thing over time by repeatedly moving in a consistent direction and to bring people on board with the ideas in a way that they can understand and participate in. As employees, as customers really, really helpful.

So, thinking, underrated production, possibly commodity and more and more so into the future. So what is your business strategy? We'd love to, to hear how you think about this. Or are we just high pollutant just nonsensical, Philosophers on the mountaintop here. Let us know.

[00:24:30] Richard Gaffin: Exactly. Cool. All right guys. Thanks for hanging out with us. Take care. We'll see you next week.

Thanks again for joining us on the E-Commerce Playbook podcast. Please remember to rate and review, of course, if you're watching on YouTube, like and subscribe. That stuff always helps us out. And, uh, since you've made it all the way to the end, I wanna use this as a, the opportunity to announce something very special.

 So next week, and I'm gonna say this now, And, uh, Corey can cut it out. , if this ends up not being the case, but we are releasing a new product and as director of digital product strategy, I'm very excited about this and it's called the e-Commerce Diagnostic Toolkit. And so the idea here, speaking of strategy, is to give you a sense of what your brand's biggest, weak points.

What your strong suits are. And then with that sort of combined knowledge, give you a sense of what your biggest opportunities are. So essentially what it is, is there's a, a manual that guides you through exactly what the metrics are that we're gonna be measuring, the philosophy behind what we're thinking about, how it fits into the, our broader framework.

And then it'll also have an interactive assessment portion where you enter really specific data about your. And at the end it'll spit out a special number that we've invented called the Growth Quotient or gq, which will give you a sense of like what the growth potential of your brand is right now, and then it'll break it down into the subcategories of exactly what you can do.

To affect that number, to bring it up and to pursue those opportunities right now. So that's coming out next week. We'll have a special podcast about it next week as well. But look out on that particular podcast for a special offer code just for our podcast listeners, to get a little bit of a discount on it for, as sort of an early bird offer.

We're really stoked about it, and we look forward to seeing you in the back end of that survey. Of course, you can always drop us a line at podcast@commonthreadco.com if you have any questions or comments about the world of e-com. So we hope to see you there, but until then, have a good one, and happy scaling.