利用反定位（Counter-Positioning）攻击 incumbents

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Hi friends 👋,

Happy Thursday! We dropped a new notboring.com website this week, and this is our second essay of the week. Lock-in season.

This one is a continuation of the series arguing that strategy is important and moats matter. It’s still popular for startups to say that they don’t need them, that they’re just faster and better at product, that it’s too much to ask such young companies to have Network Effects or Scale Economies in place.

But startups don't get a pass on strategy because they're young. Luckily, there’s one moat that they can use to buy time. This is an ode to that one.

Let’s get to it.

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An Ode To Counter-Positioning

There are 7 Powers, but if you made me choose a favorite, I’d pick counter-positioning.

In his primer on Hamilton Helmer’s 7 Powers, Mind the Moat, Lindy CEO Flo Crivello defines it as “the practice of developing your business model such that incumbents have conflicting incentives preventing them to compete effectively.”

The definition contains the reason I enjoy it so much: before they’re old enough to access the other 6 powers, it’s the moat with which startups are able to attack incumbents. Incumbents have bigger businesses and more resources, and it is those advantages startups use to attack them. Their business is too good to mess with.

When I wrote about Ramp for the first time back in December 2020, I compared counter-positioning to the Five Point Palm Exploding Heart Technique from Kill Bill. When a startup hits them with counter-positioning, the incumbent might not realize they’re dead; take a step in the startup’s direction, though, and they topple over.

If incumbent corporate cards incentivized customers to spend more by giving them points, Ramp built its business on helping customers spend less. Incumbents couldn’t match that for a number of reasons, including the fact that they were nowhere as good at software, but mainly because if customers spent less, they made less, which their shareholders would not appreciate. Other startups like Divvy and Brex played the same game incumbents did, offering rewards and points for spend. They both had good outcomes: Bill.com bought Divvy for $2.5B and Capital One bought Brex for $5.15B. Today, Ramp is valued at $44 billion and launching a flotilla of products that help customers save time and money, including a model router.

If you come at the king, you best not [play their own game but with better technology].

I am thinking about counter-positioning today because of Base Power Company CEO Zach Dell’s conversation with David Senra on David Senra. At 16:18, discussing how he and Justin came to their business model, he gives a sermon on counter-positioning.

“If you’re going to take on an incumbent,” he says, “my view is the best way to do it is to have a counter-positioned business model.”

If I showed up and said, ‘I have... the best home battery on the market... and I’m going to sell it to you for 10% below the big guys,’ your margin is my opportunity, right? Like these big guys are going to compete on price. First they’re going to copy my product, then they’re going to drop their price and they’re going to run me out of business.

But if I show up and say, ‘I don’t sell batteries. I sell electricity,’ and we’re going to install this battery on your home, and because of our different business model, you pay 1/20th or even 1/40th of what you’d pay to own it outright, then I can win.

And if you want to compete with me and you’re one of the incumbents, you’ve got to completely change your business model, which as you know for a public company is very hard, right?

Base won’t be able to use counter-positioning forever. The moats it digs to protect its margins from competitors will come from the other powers: Scale Economies, Cornered Resources, Switching Costs, Brand, and perhaps even Network Effects and Process Power. But as Zach points out, there is no better way to start taking on an incumbent than by counter-positioning.

This is a theme that Ben and David bring up again and again on the Acquired podcast: “As Hamilton [Helmer] would put it, counter-positioning is usually a take-off phase power.” Helmer himself went on the pod and explained why: “It’s the only one that’s a partial source of power. If you want real durability… you want to have another source of power.”

Counter-positioning is here for a good time, not a long time. Which is part of what makes it so fun. It’s the trickster power. Counter-positioning buys you time against the incumbent — which is positioned in some way against which you can counter-position — but it doesn’t necessarily protect you against another startup. You need other moats for that.

Poetically, Helmer chooses Dell to make the point. Dell was counter-positioned against Compaq because Compaq’s dealer channel made direct sales painful. Eventually, though, everyone could adopt direct sales, and Dell’s counter-positioning power disappeared. By then, Dell had used the window to build Scale Economies around its direct, just-in-time model.

The Acquired canon is chock full of examples.

When Google launched Android, it could afford to give it away for free because the mothership made its money on search. It could afford to just subsidize the losses completely, but it also didn’t have to, because more mobile search on Google meant more revenue. Nokia, on the other hand, had to make money from the mobile stack itself; giving it away for free would have killed the business.

This is one good way to think about counter-positioning: can Challenger A do X because it makes its money somewhere completely different from Incumbent B?

It, to be clear, is easier to do if you have Google’s cash machine behind you, but it’s always worth thinking about how you can fuck with the way that your incumbent competitor makes its money.

Amazon, born on the internet, was built around direct-to-consumer fulfillment. Barnes & Noble was optimized around stores. For B&N to go all-in on Amazon’s model would have meant reallocating capital, executive attention, and distribution infrastructure, and tolerating lower near-term profitability from its existing stores. The Amazon model “would be less profitable for them… versus the hugely profitable stores,” Ben said. Amazon “counter-positioned against everyone whose cost structure was set up” for physical retail, David added.

This is another way to think about counter-positioning: the more an incumbent has invested in building out its infrastructure, the less able it is to adapt.

Startups with less money than Google can certainly use this form. My favorite example is Somos Internet. As I explained in Cable Caballero, Somos designed a new network architecture and built its own hardware to run it, and incumbent telcos can’t respond because doing so would require ripping up the billions of dollars of CapEx they’ve spent buying and upgrading third-party hardware in the old network configuration. You can see their stuckness. Plus, given their reliance on vendors, most don’t have the technical wherewithal or nimbleness with which to re-architect the whole thing anyway. Plus plus, they’ve used so much debt to finance the network buildouts that they can’t really lower prices to hurt Somos, let alone fund an uncertain new network buildout.