A pastiche (Tarantino) approach to strategy development
Original Publish Date: May 14, 2020
“What has been will be again, what has been done will be done again; there is nothing new under the sun.” – Ecclesiastes 1:9
I can see myself being a movie director in a different universe. There’s something inspirational, enigmatic, half-crazy in taking a story and characters on a piece of paper and turning it into visual art that moves people across ages and cultures.
Different directors have very identifiable styles that impact the way they tell stories. One such director is Quentin Tarantino. A lot of his movies stand out given its snappy dialogue, diverse soundtracks, offbeat settings, to name a few. Tarantino often pays homage to classic movies sometimes even rare movies from different eras. Business Insider created a video sometime back talking about his style of movie making and referred to it as a “pastiche”.
“Good artists copy. Great artists steal.” – Pablo Picasso
Tarantino often borrows certain scenes from classic movies as he pieces together his movie. It draws on his lack of experience as a film student and actual time working at a video store. Yet, despite borrowing from his many influences, Tarantino’s movies are entirely his own work and stand perfectly on its own merit.
What can we learn about strategy development from Tarantino’s pastiche approach?
One answer seems clear to me. Cross-pollinate your strategy influences. Be willing to borrow strategic choices from different companies, industries, business situations to weave together a “strategy tapestry” that helps you succeed in your endeavor.
Following are few examples to reiterate my point about cross-pollinating strategy choices. You’ll start to notice that there are many more examples in the business world as you read through these.
Pairing low & high margin products
The oft-cited razor blade strategy always couples a core product that’s priced at a low margin or at a loss or sometimes given for free with a high margin consumable good of some sort. This strategy has been so resilient over the decades that it featured prominently in the gaming console wars at the start of the 21st century.
We’re also seeing applications of this strategy for pretty much every app you download these days. Popularly known as the “freemium” model; the app company offers basic level services for free to reduce customer acquisition costs while escalating time spent by an average user on the app. In due time, users quickly realize that they need to shell out money to unlock additional features and benefits. The breakneck speed of app development also ensures that the user is forever in the hook for paying to get add-ons, specialized services, increase usage limits, etc.
This idea of leading with a low margin core product and tacking on “consumable” products is no longer restricted to the consumer sector. You’re starting to see this philosophy bleed into high capex industries too.
Companies that manufacture capital equipment always struggle to create the “recurring” customer due to their typical ‘one-time purchase’ products. One way some of these companies are fighting against this is by offering the core equipment at a low margin and adding on high margin services like equipment monitoring, analytics, consulting to name a few. These high margin services also ensure that they collect enough info on the customer to create opportunities for equipment retrofits and upgrades in the future.
Recurring revenue streams
“Firms that are single and constantly need to be attractive to strangers to repopulate their customer base, are valued at a multiple of profits. Firms in monogamous relationships (recurring revenue) are valued at a multiple of revenues.” – Scott Galloway
Software-as-a-Service (SaaS) is very popular these days to offer software solutions on a subscription basis. Salesforce grew into a multibillion-dollar business by solving costly implementation of customer relationship management systems for small to mid-size businesses initially. The limited competition during the first few years and barriers due to capex costs for businesses helped Salesforce further solidify its recurring revenue streams.
The push for subscription pricing in some cases work to fight “goliath” incumbents. Take the many Direct to Consumer (D2C) companies peddling every kind of product under the sun. The classic case in this context belongs to Dollar Shave Club that stole sizeable market share from Gillette through low monthly subscription prices and deploying smart marketing campaigns. The product may or may not be better, but Dollar Shave Club won customers with a simple promise and above average customer service. A subscription-based company must really go off base to lose a customer after holding on to them for the first few months.
An alternate method to create recurring revenue streams is the membership model. Costco is the absolute best in implementing this system. The company charges an annual membership fee to its customers that adds switching costs while also working as the “price of entry” to shop at its stores. Recent estimates place the revenue from just the membership fees amounting to $3-4B.
Similarly, Amazon continues to build on its recurring revenue opportunities. Amazon Prime comes to mind at first. I like to point to a simple feature called “subscribe and save” that anyone can notice while purchasing regular household items. The beauty of this feature is that it helps customers bypass their need to place orders frequently for regular household items. Besides that, Amazon can also negotiate volume discounts from its suppliers by solidifying purchase orders (in effect) ahead of time through this small feature!
Monetizing underutilized assets
Amazon Web Services (AWS) offers cloud infrastructure services that replaces high capex costs of physical computing technology with low variable (“pay as you go”) costs for cloud computing power. This lets any business scale up as their growth occurs. AWS dominates the cloud computing space and is way ahead in market share compared to its rivals in Microsoft, Google.
There’s some debate on the details of the origin story. But, one thing is clear, AWS was the byproduct of Amazon trying to revamp their IT infrastructure in the early 2000s. The business model for AWS was to “rent out Amazon’s existing IT infrastructure to other tech ventures” and solve their computing needs.
Let’s briefly look at the birth of Airbnb from more than a decade ago. The founders struggling to pay their rent jumped at the opportunity of making few extra dollars by renting some apartment space to folks struggling to find lodging for a conference. This idea of “unused space” taken to scale through a platform leads to the current iteration of the company which connects hosts with guests looking for short-term lodging.
Now, transfer the story of AWS and Airbnb to warehouse space and you get the genesis of Flexe. As it proudly markets, Flexe “provides on-demand warehousing, fulfillment, and logistics services to the world's most forward-looking retailers and brands”. This becomes a game changer for many D2C brands that don’t have to take on huge capital costs when they’re ramping up operations. As anyone can guess, for a startup moving into growth mode, every dollar in the cash outflow section stings deep.
I want to offer a simple challenge for strategy development given these examples.
Keep an eye on what’s happening in other industries and innovative companies beyond your familiar set. There’s a bias for executives to look inward within their own company, maybe even study the past, or look at their peer companies to craft strategy. Sometimes the smartest strategy might be to borrow effective strategies from other industries and make it your own. You don’t have to reinvent the wheel always!