CHAPTER 4

TRADE-OFF
Which Problem Do I Want?

STRATEGY IS ABOUT MAKING CHOICES, TRADE-OFFS. IT’S ABOUT DELIBERATELY

CHOOSING TO BE DIFFERENT.

—Michael Porter

Imagine you could go back to 1972 and invest a dollar in each company
in the S&P 500. Which company would provide the largest return on
your investment by 2002? Would it be GE? IBM? Intel? According to
Money magazine and the analysis they initiated from Ned Davis
Research, the answer is none of the above.1
The correct answer is Southwest Airlines. This is startling because the
airline industry is notoriously bad at generating profits. Yet Southwest,
led by Herb Kelleher, has consistently, year after year, produced
amazing financial results. Herb’s Essentialist approach to business is
central to why.
I once attended an event where Herb was interviewed about his
business strategy.2 It was a great talk in many ways, but when he began
to talk about how deliberate he was about the trade-offs he had made at
Southwest, my ears perked up. Rather than try to fly to every
destination, they had deliberately chosen to offer only point-to-point
flights. Instead of jacking up prices to cover the cost of meals, he decided
they would serve none. Instead of assigning seats in advance, they would
let people choose them as they got on the plane. Instead of upselling
their passengers on glitzy first-class service, they offered only coach.
These trade-offs weren’t made by default but by design. Each and every
one was made as part of a deliberate strategy to keep costs down. Did he
run the risk of alienating customers who wanted the broader range of
destinations, the choice to purchase overpriced meals, and so forth? Yes,
but Kelleher was totally clear about what the company was—a low-cost
airline—and what they were not. And his trade-offs reflected as much.
It was an example of his Essentialist thinking at work when he said:
“You have to look at every opportunity and say, ‘Well, no … I’m sorry.
We’re not going to do a thousand different things that really won’t
contribute much to the end result we are trying to achieve.’ ”
At first, Southwest was lambasted by critics, naysayers, and other
Nonessentialists who couldn’t believe that this approach could possibly
be successful. Who in their right mind would want to fly an airline that
traveled only to certain places and didn’t serve meals, no matter how
cheap tickets were? Yet after a few years it became clear Southwest was
onto something. Competitors in the industry took notice of Southwest’s
soaring profits and started trying to imitate their approach. But instead
of adopting Kelleher’s Essentialist approach carte blanche, they did what
Harvard Business School professor Michel Porter terms “straddling” their
strategy.
In the simplest terms, straddling means keeping your existing strategy
intact while simultaneously also trying to adopt the strategy of a
competitor. One of the most visible attempts at the time was made by
Continental Airlines. They called their new point-to-point service
Continental Lite.
Continental Lite adopted some of Southwest’s practices. They lowered
their fares. They got rid of meals. They stopped their first-class service.
They increased the frequency of departures. The problem was that
because they were still hanging onto their existing business model
(Continental Lite accounted for only a small percentage of flights offered
by the airline) they didn’t have the operational efficiencies that would
allow them to compete on price. So they were forced to skimp in other
ways that ended up compromising the quality of their service. While
Southwest had made conscious, deliberate trade-offs in key strategic
areas, Continental was forced to sacrifice things around the margins that
weren’t part of a coherent strategy. According to Porter, “A strategic
position is not sustainable unless there are trade-offs with other
positions.”3 By trying to operate by two incompatible strategies they
started to undermine their ability to be competitive.
The straddled strategy was enormously expensive for Continental.
They lost hundreds of millions of dollars to delayed planes, and,
according to Porter, “late flights and cancellations generated a thousand
complaints a day.” The CEO was eventually fired. The moral of the story:
ignoring the reality of trade-offs is a terrible strategy for organizations. It
turns out to be a terrible strategy for people as well.
Have you ever spent time with someone who is always trying to fit
just one more thing in? Such people know they have ten minutes to get
to a meeting that takes ten minutes to walk to, but they still sit down to
answer a couple of e-mails before they go. Or they agree to put together
a report by Friday, even though they have another huge deadline that
same day. Or maybe they promise to swing by their cousin’s birthday
party on Saturday night, even though they already have tickets to a
show that starts at the exact same time. Their logic, which ignores the
reality of trade-offs, is I can do both. The rather important problem is
that this logic is false. Inevitably, they are late to the meeting, they miss
one or both of their deadlines (or do a shoddy job on both projects), and
they either don’t make it to their cousin’s celebration or miss the show.
The reality is, saying yes to any opportunity by definition requires saying
no to several others.
Trade-offs are real, in both our personal and our professional lives,
and until we accept that reality we’ll be doomed to be just like
Continental—stuck in a “straddled strategy” that forces us to make
sacrifices on the margins by default that we might not have made by
design.
In an insightful op-ed for the New York Times, Erin Callan, the former
CFO of Lehman Brothers, shared what she had sacrificed in making
trade-offs by default. She wrote: “I didn’t start out with the goal of
devoting all of myself to my job. It crept in over time. Each year that
went by, slight modifications became the new normal. First I spent a
half-hour on Sunday organizing my e-mail, to-do list, and calendar to
make Monday morning easier. Then I was working a few hours on
Sunday, then all day. My boundaries slipped away until work was all
that was left.”4 Her story demonstrates a critical truth: we can either
make the hard choices for ourselves or allow others—whether our
colleagues, our boss, or our customers—to decide for us.
In my work I’ve noticed that senior executives of companies are
among the worst at accepting the reality of trade-offs. I recently spent
some time with the CEO of a company in Silicon Valley valued at $40
billion. He shared with me the value statement of his organization,
which he had just crafted, and which he planned to announce to the
whole company. But when he shared it I cringed: “We value passion,
innovation, execution, and leadership.”
One of several problems with the list is, Who doesn’t value these
things? Another problem is that this tells employees nothing about what
the company values most. It says nothing about what choices employees
should be making when these values are at odds. This is similarly true
when companies claim that their mission is to serve all stakeholders—
clients, employees, shareholders—equally. To say they value equally
everyone they interact with leaves management with no clear guidance
on what to do when faced with trade-offs between the people they serve.
Contrast this with how Johnson & Johnson bounced back from the
tragic cyanide murder scandal in 1982.5 At the time Johnson & Johnson
owned 37 percent of the market and Tylenol was their most profitable
product. Then reports surfaced that seven people had died after taking
Tylenol. It was later discovered that these bottles had been tampered
with. How should Johnson & Johnson respond?
The question was a complicated one. Was their primary responsibility
to ensure the safety of their customers by immediately pulling all
Tylenol products off drugstore shelves? Was their first priority to do PR
damage control to keep shareholders from dumping their stock? Or was
it their duty to console and compensate the families of the victims first
and foremost?
Fortunately for them they had the Credo: a statement written in 1943
by then chairman Robert Wood Johnson that is literally carved in stone
at Johnson & Johnson headquarters.6 Unlike most corporate mission
statements, the Credo actually lists the constituents of the company in
priority order. Customers are first; shareholders are last.
As a result, Johnson & Johnson swiftly decided to recall all Tylenol,
even though it would have a massive impact (to the tune of $100
million, according to some reports) on their bottom line. The safety of
customers or $100 million? Not an easy decision. But the Credo enabled
a clearer sense of what was most essential. It enabled the tough trade-off
to be made.
 We can try to avoid the reality
of trade-offs, but we can’t
escape them.

I once worked with an executive team that needed help with their
prioritization. They were struggling to identify the top five projects they
wanted their IT department to complete over the next fiscal year, and
one of the managers was having a particularly hard time with it. She
insisted on naming eighteen “top priority” projects. I insisted that she
choose five. She took her list back to her team, and two weeks later they
returned with a list she had managed to shorten—by one single project!
(I always wondered what it was about that one lone project that didn’t
make the cut.) By refusing to make trade-offs, she ended up spreading
five projects’ worth of time and effort across seventeen projects.
Unsurprisingly, she did not get the results she wanted. Her logic had
been: We can do it all. Obviously not.
It is easy to see why it’s so tempting to deny the reality of trade-offs.
After all, by definition, a trade-off involves two things we want. Do you
want more pay or more vacation time? Do you want to finish this next e-
mail or be on time to your meeting? Do you want it done faster or
better? Obviously, when faced with the choice between two things we
want, the preferred answer is yes to both. But as much as we’d like to,
we simply cannot have it all.
A Nonessentialist approaches every trade-off by asking, “How can I do
both?” Essentialists ask the tougher but ultimately more liberating
question, “Which problem do I want?” An Essentialist makes trade-offs
deliberately. She acts for herself rather than waiting to be acted upon. As
economist Thomas Sowell wrote: “There are no solutions. There are only
trade-offs.”7
Jim Collins, the author of the business classic Good to Great, was once
told by Peter Drucker that he could either build a great company or
build great ideas but not both. Jim chose ideas. As a result of this trade-
off there are still only three full-time employees in his company, yet his
ideas have reached tens of millions of people through his writing.8
As painful as they can sometimes be, trade-offs represent a significant
opportunity. By forcing us to weigh both options and strategically select
the best one for us, we significantly increase our chance of achieving the
outcome we want. Like Southwest, we can enjoy the success that results
from making a consistent set of choices.
I observed an example of this on a recent flight to Boston, when I
began chatting with two parents who were on their way to visit their son
at Harvard. They were clearly proud their son was there, and I was
curious about what strategy they and he had pursued in getting him
accepted. They said, “We had him try out a lot of different things, but as
soon as it became clear an activity was not going to be his ‘big thing’ we
discussed it and took him out of it.” The point here is not that all parents
should want their children to go to Harvard. The point is that these
Essentialist parents had consciously decided their goal was for their son
to go to Harvard and understood that that success required making
strategic trade-offs.
This logic holds true in our personal lives as well. When we were
newlyweds, Anna and I met someone who had, as far as we could tell, an
amazing marriage and family. We wanted to learn from him, so we
asked him, What’s your secret? One of the things he told us was that he
and his wife had decided not to be a part of any clubs. He didn’t join the
local lodge. She didn’t join the book clubs. It wasn’t that they had no
interest in those things. It was simply that they made the trade-off to
spend that time with their children. Over the years their children had
become their best friends—well worth the sacrifice of any friendships
they might have made on the golf course or over tattered copies of Anna
Karenina.
Essentialists see trade-offs as an inherent part of life, not as an
inherently negative part of life. Instead of asking, “What do I have to
give up?” they ask, “What do I want to go big on?” The cumulative
impact of this small change in thinking can be profound.

Nonessentialist Essentialist
Thinks, “I can do both.” Asks, “What is the trade-off I want to
Asks, “How can I do it make?”
all?” Asks, “What can I go big on?”

In a piece called “Laugh, Kookaburra” published in The New Yorker,

David Sedaris gives a humorous account of his experience touring the
Australian “bush.”9 While hiking, his friend and guide for the day shares
something she has heard in passing at a management class. “Imagine a
four-burner stove,” she instructs the members of the party. “One burner
represents your family, one is your friends, the third is your health, and
the fourth is your work. In order to be successful you have to cut off one
of your burners. And in order to be really successful you have to cut off
two.”
Of course, this was tongue-in-cheek; I am not here to suggest that
living the way of the Essentialist requires us to decide between our
families and our health and our work. What I am suggesting is that when
faced with a decision where one option prioritizes family and another
prioritizes friends, health, or work, we need to be prepared to ask,
“Which problem do you want?”
Trade-offs are not something to be ignored or decried. They are
something to be embraced and made deliberately, strategically, and
thoughtfully.