How to learn from rivals and copy what works

1 The bottom line

Study rivals and other industries constantly, borrow what works, then adapt it to your own context and execute it harder than the source. Copying is cheap education, but only execution and fit turn a borrowed idea into an advantage.

2 Key takeaways

• Look for what rivals do right, not what they do wrong. A competitor's flaws comfort you, while their strengths teach you.
  • After studying Sol Price's warehouse club in January 1983, Walton took Sam's Club from 3 clubs at the end of 1983 to 105 clubs and over $5 billion in sales by 1990 Sam Walton, Walmart19:30.
• Look outside your own industry for proven models. Other fields have already solved your problem, often more cheaply.
  • Beauty and the Beast grossed $330 million on a $25 million budget after Disney borrowed Broadway structure The Walt Disney Company28:34.
  • Prime, built from Costco's membership idea, brings in over $20 billion a year Jeff Bezos, Amazon3:26:30.
• Move fast once demand for someone else's idea is visible. Proven demand removes the biggest risk, so speed is what is left to win on.
  • GoTo had 8,000 advertisers by mid 1999, while Google's AdWords beta launched in October 2000 with 350 Larry Page and Sergey Brin, Google2:04:34.
  • Zuckerberg planned to build an acquired rival's mechanics into Facebook within 12 to 24 months Mark Zuckerberg, Meta4:14:55.
• Adapt what you borrow to your own context instead of cloning it. A straight copy of a leader who is moving on leaves you behind.
  • Ferrari's 355, a classic look made easy to drive, was 70% of sales by 1997 Luca di Montezemolo, Ferrari1:55:00.
  • Google+ copied Facebook and the real cost was a miss on messaging Google3:26:53.
• Execution decides who wins with a shared idea. The originator can lose to the better operator.
  • Price Club had a 7 year head start on Costco and Sam's Club, yet both out-expanded it Sol Price, Price Club48:40.

We're really not concerned with what they're doing wrong. We're concerned with what they're doing right.

Sam Walton, Walmart

2.1 Make studying others a habit

The best borrowers study constantly, in stores, in books and against rivals who are better than they are.

• Visit rivals and hunt for what they do well. Sam Walton, Walmart38:07
  • Walton told managers to check every competitor, because one good idea is one more than they walked in with.
  • He took notes in rivals' stores and went through dumpsters for receipts.
  • Keep learning when others reject you. After Ben Franklin executives blew up at his franchising idea, he was in a Kmart the next day on his hands and knees looking under a display cabinet Sam Walton, Walmart24:35.
  • He rode an overnight bus to Minnesota to see self-service stores. He opened Walton's Five and Dime in 1950 as the third self-service variety store in the country, and sales hit $90,000 in year one against $32,000 the year before Sam Walton, Walmart38:07.
  • Bezos sits in the same retail lineage. Amazon cloned eBay and used Barnes & Noble's own cafe for meetings Jeff Bezos, Amazon4:06:26.
• Read the whole subject before you build. Thomas Edison14:55
  • Before an experiment, Edison lay on the floor among piles of books and read everything on the topic, so his work began from all prior work.
  • Herb Kelleher read history above all, and told people to study the airline industry's past as a cautionary tale Herb Kelleher, Southwest Airlines8:20.
  • On automatic telegraphy, Edison went through a five-foot pile of books, ran 2,000 experiments in six weeks and produced a working solution Thomas Edison14:55.
  • Kelleher's reading helped Southwest avoid the debt and market share traps that repeatedly sent rival airlines into bankruptcy Herb Kelleher, Southwest Airlines8:20.
• Let a better competitor reset your standards. David Packard, Hewlett-Packard44:14
  • HP's circuit board failure rate was about 4 in 1,000, which matched the industry, so it seemed good enough.
  • A Japanese manager, Kenzo Sasaoka, reached 10 failures per million. HP studied how, found meticulous care in every adjustment, and spread the standard across divisions.
  • Test your product against the best rival. Luca di Montezemolo had drivers run a Honda NSX against Ferrari's weak 348, and the NSX won easily Luca di Montezemolo, Ferrari1:55:00.
  • The Japanese unit was 400 times better than HP, and the division grew faster than ever the next year David Packard, Hewlett-Packard44:14.
  • Honda used racing as floating research and moved what he learned straight into production engines Soichiro Honda, Honda42:47.
• Start by improving what already exists. Thomas Edison26:00
  • Edison's second invention refined the existing stock ticker, sold to speculators who needed faster financial information.
  • Larry Ellison found his first product in IBM's published research papers and used them as a blueprint Larry Ellison, Oracle20:37.
  • Early products imitate earlier ones until the founder understands enough to create. That path led from telegraph improvements to the phonograph, the electric light and early movies Thomas Edison26:00.

2.2 Look outside your industry

Other industries hold ready answers on cost, structure and customers that your rivals have not seen.

• Benchmark every part and price against other industries. Elon Musk, SpaceX and Tesla42:37
  • Musk pressed SpaceX to source from non-aerospace companies. A NASA latch cost $1,500, and a modified bathroom stall latch cost $30.
  • When a cooling system was quoted at $3 million, he asked what a house air conditioner costs, which is about $6,000.
  • Cranes quoted at $2 million ended up costing $300,000, and obsolete Air Force safety rules on cranes were revised Elon Musk, SpaceX and Tesla42:37.
• Import the structure of another craft. The Walt Disney Company28:34
  • Katzenberg recruited Broadway lyricist Howard Ashman, who saw a link between animation and musical theater.
  • Ashman applied stage structure, such as the third song where the heroine says what she wants, and the goal was musicals that happen to be cartoons.
  • Larry Page applied academic citation logic to web links, treating a link as a citation, and the ranking worked almost immediately Larry Page and Sergey Brin, Google18:46.
  • The Lion King grossed $750 million on a $45 million budget The Walt Disney Company28:34.
  • Phil Knight saw Japanese cameras undercut Leica and reasoned the same would work against Adidas and Puma, then bluffed his way into Onitsuka in 1963 Phil Knight, Nike12:00.
• Turn a mentor's model from another business into your own strategy. Jeff Bezos, Amazon39:00
  • After meeting Costco's Jim Sinegal, Bezos told his S team that Amazon's pricing was incoherent and should move to everyday low prices.
  • Sinegal explained a roughly 14% markup cap, and that a membership fee is a one-time pain while value is reinforced at every visit.
  • Amazon cut prices on books, music and videos by 20 to 30% that July and made low prices a third pillar after selection and convenience.
  • Bezos combined Sinegal's insight that a fee makes customers more loyal with engineer Charlie Ward's costing of two-day shipping, and got Prime. Unlike Costco, Amazon still earns profit on the goods Jeff Bezos, Amazon3:26:30.
  • Jobs took Larry Ellison's advice to add a services group at NeXT, which gave insight into competitors. NeXT then made its first profit, $1 million on revenues of almost 50 million, after 9 years of losses Steve Jobs, NeXT42:56.

2.3 Move fast once demand is proven

When someone else has shown that customers want something, copy or buy it quickly and take the risk out of your bet.

• Embrace a behavior users already love, then extend it. Microsoft15:35
  • Jay Allard's January 1994 memo said to embrace the Mosaic browser and extend it into Windows.
  • There was no demand risk, because adoption was already visible, and Microsoft could fit it into its existing Windows business model.
  • Test a rival's category cheaply. In 1948 Kamprad saw competing mail order firms adding furniture and tried three small pieces in his catalog Ingvar Kamprad, IKEA28:20.
  • Allard's memo was written months before Netscape existed Microsoft15:35.
  • Kamprad's test furniture sold in huge amounts, so within months he dropped other goods to focus on furniture Ingvar Kamprad, IKEA28:20.
• Take the best idea and make it better. Larry Page and Sergey Brin, Google2:04:34
  • GoTo, later Overture, showed in 1998 that keyword auctions with pay-per-click billing worked.
  • After seeing it earn $100 million in its first year, Larry and Sergey rebuilt it, adding ad quality and a second-price auction.
  • The hosts see this willingness to take the best idea, wherever it came from, as a second superpower.
• Buy the proven invention before others can. Hans Wilsdorf, Rolex34:44
  • Two Swiss inventors' waterproof seal patent was published in May 1926. Wilsdorf bought it in July and it became the basis of the Rolex Oyster.
  • Rockefeller let others experiment, waited for a profitable market, then bought every producer John D. Rockefeller, Standard Oil51:30.
  • With pipelines, Standard let a rival prove the concept, then took over and expanded it John D. Rockefeller, Standard Oil1:45:12.
  • Buying the patent made the innovation exclusive to Rolex Hans Wilsdorf, Rolex34:44.
  • Standard sold over 50 byproducts and invented none, paying high prices for patent-protected ones John D. Rockefeller, Standard Oil51:30.
  • Standard owned the leading pipelines after Tidewater sold a minority stake in March 1880 John D. Rockefeller, Standard Oil1:45:12.
• Buy a rival to buy time, then copy its mechanics. Mark Zuckerberg, Meta4:14:55
  • In a 2012 email about Instagram, Zuckerberg argued there are a finite number of social mechanics, and network effects protect whoever wins one.
  • The acquired company kept running while Facebook built its mechanics into core products. Either the acquired product or Facebook's version would win.
  • When Snap would not sell, Instagram copied stories as a ranked row of heads, where Facebook's ranking expertise made it more engaging than Snapchat's list.

2.4 Adapt it, do not clone it

Borrow the principle, then change it to fit your customer, your strengths and where the market is going.

• Ask what each lesson means for your own company. Jensen Huang, Nvidia33:00
  • Jensen treats business books and other companies as free education, from competitors to unrelated industries.
  • Then ask what it means in your own context, given your company's age and capability, and make your own strategy.
  • Ferrari's 355 kept the look of classic Ferraris and race cars but was far easier to use on the street Luca di Montezemolo, Ferrari1:55:00.
  • The 355 was priced at $127,000 Luca di Montezemolo, Ferrari1:55:00.
• Copy a model, then change who it serves. Sol Price, Fedmart19:30
  • A client took Price to Fedco, a membership store for federal employees only. About 5,000 members from San Diego drove 200 miles round trip for its prices, which signaled demand.
  • Fedco refused a joint venture, so Price built Fedmart himself as a membership store for all.
  • Price later saw Macro in Amsterdam, a membership warehouse for business owners, and made Price Club a no frills warehouse for small businesses at a $25 annual fee Sol Price, Price Club17:00.
  • Fedmart opened with about $50,000 raised and did three times the million dollars projected in its first year Sol Price, Fedmart19:30.
  • Ellison avoided the conservative IBM mainframe market and aimed at minicomputers, where competition was lighter Larry Ellison, Oracle20:37.
• Do not copy a leader who is already moving on. Google3:26:53
  • Google launched a desktop-first Facebook rival with Circles in 2011, while Zuckerberg was buying Instagram and WhatsApp.
  • Social was splitting into public media and private messaging, so Google+ copied yesterday's shape.
  • Eric Schmidt told his Stanford class that the miss was on messaging, and the hosts say Google had no consumer breakthrough until Gemini.
• Sometimes a copy is the wrong move. Ray Kroc, McDonald's22:10
  • Asked why he did not just copy the McDonald brothers, Kroc said it never crossed his mind. He saw a complete package he could sell as a salesman.
  • He signed a contract in 1954 for the plan and the name, because he sensed the McDonald's name was exactly right.

2.5 Execute harder and keep improving

A borrowed idea wins only through relentless iteration, and pride about a rival's product can cost you.

• Ship a rough copy, then listen and iterate to quality. Microsoft2:16:20
  • Microsoft often copied rivals' products and kept Lotus 123 shortcuts so users kept their habits.
  • Windows 1.0 and 2.0 were weak, but Microsoft listened to customers and improved them.
  • Let customers pull you toward ideas you dislike. Schultz disliked the Frappuccino, but customers wanted it and a Santa Monica manager reformulated it Howard Schultz, Starbucks1:22:30.
  • Microsoft did not beat Lotus until a platform shift favored it, and Apple's copyright suit failed because its own license covered future Windows versions Microsoft2:16:20.
  • Starbucks started with no cold drinks and about 70% of drinks are now iced. Customization lifts ticket size, with about 100,000 variations made Howard Schultz, Starbucks1:22:30.
• Never wave off a rival's product out of pride. Steve Jobs, Apple29:36
  • In 1981 Gates asked whether the IBM PC was a big deal and nobody at Apple seemed worried.
  • Jobs believed no discerning buyer would choose an IBM over Apple's craftsmanship, and success had inflated his ego.
  • Jobs then had three commercial failures in a row, the Apple III, the Lisa and the Macintosh, while the Apple II still supplied 70 to 80% of revenue years later.
• Out-execute the originator. Sol Price, Price Club49:53
  • Price Club grew tentatively while Costco and Sam's Club expanded aggressively into its markets.
  • Price Club's management opened locations where rivals were already established and made decisions reactively. Price had lost the initiative he gained as pioneer.
  • Price shared his model so freely that Bernie Marcus visited in 1978 and opened Home Depot in 1979 Sol Price, Price Club48:40.
  • Walton and Sinegal were two of the best operators in history and ran Price's model harder than he did Sol Price, Price Club48:40.
• Spread a proven standard through others. John D. Rockefeller, Standard Oil49:00
  • The Rockefellers took the Johns Hopkins four-year medical model and paid for it at other universities, rather than building one more school of their own.
  • Tens of millions of dollars went into university medical schools, which created modern practical medicine.

2.6 Where they differ

Founders disagree on whether to share, whether to copy outright, and whether to watch rivals or customers.

• Share your playbook, or guard and absorb.
  • Price explained his model to Walton over dinner and mailed back Walton's confiscated tape recorder. He seemed untroubled because he was growing along different routes Jim Sinegal and Saul Price, Costco1:06:25.
  • Charlie Litton gave Packard and Hewlett his shop and hosted seminars, and never saw HP as a competitor but as a compatriot David Packard, Hewlett-Packard22:36.
  • Rockefeller and Wilsdorf instead bought the proven winners to keep them John D. Rockefeller, Standard Oil51:30, Hans Wilsdorf, Rolex34:44.
  • Openness cost Price his lead, so it fits founders who can out-execute the people they teach.
• Copy it outright, or learn without imitating.
  • Walton said that if rivals had something good, they copied it Sam Walton, Walmart19:30.
  • Jensen Huang says to learn from everyone but not imitate, and to build your own strategy Jensen Huang, Nvidia33:00.
• Watch your rival, or your customer.
  • Brad Stone's framing is that Amazon is customer-focused where it leads an emerging market and competitor-focused where it is behind in a crowded one Jeff Bezos, Amazon4:06:26.
  • Ellison went where rivals were not, saying the bigger the apparent risk the fewer people will try Larry Ellison, Oracle20:37.
  • Sinegal said some of his best Costcos sit across the parking lot from a Sam's Club Jeff Bezos, Amazon4:06:26.