Counter-Positioning is one of the 7 Powers, a book about competitive moats by Hamilton Helmer.
The basic structure of Counter-Positioning goes like this:
An upstart develops a superior, heterodox business model (or offering).
That business model (or offering) is able to successfully challenge well-entrenched and formidable incumbents.
The upstart accumulates customers steadily, all while the incumbent remains seemingly paralysed and unable to respond.
This is a rather common business pattern, originally described in Clayton Christensen’s The Innovator’s Dilemma. Helmer points out that the broad pattern appears in many industries: Vanguard (index funds) vs the active mutual fund establishment, Dell vs Compaq, Nokia vs Apple, Amazon vs Borders, In-N-Out vs McDonalds, Charles Schwab vs Merill Lynch, Netflix vs Blockbuster, and so on. In nearly all of these stories, the same outcome occurs: the incumbent responds either not at all or too late.
In a sentence, Counter-Positioning occurs when a newcomer adopts a new, superior business model which the incumbent does not mimic due to anticipated damage to their existing business.
Helmer is more rigorous than just ‘oh, the incumbent would be harmed if they go after the challenger’. He breaks it down further, saying there are basically three flavours of Counter-Positioning. All three flow from the following question, posed by an incumbent faced against a counter-positioned challenger: “Am I better off staying the course, or should I adopt the new model?” The exact breakdown of questions are as follows:
“Is this new business model an attractive stand-alone business?” If no, then there’s no counter-position to be had. If yes, then:
“If we adopt this new business model, would the joint NPV (that is, value) of our overall company be positive or negative?” If it is negative, then the incumbent would not be willing to enter the new business model. This is the flavour of Counter-Positioning that Fidelity faced against Vanguard — it had the capability to enter the index fund business by itself, but it didn’t want to, because that would have cannibalised the high fees it made from its actively managed funds. Helmer calls this flavour of Counter-Positioning the ‘Milk’ flavour, since the incumbent is more willing to milk an existing declining business instead of entering a new one.
If the answer to the previous question is that the joint NPV is positive, then the next question to ask is: “Can we accept the consequences of accepting this new business model?” This is where business leaves the realm of the concrete and enters the realm of the psychological. Helmer says that in his experience, management teams can fail in one of two ways: first, they may be a slave to history, because the new business model is uncertain, and the incumbent has ‘always done things a certain way’, and management believes ‘this is how the world works’. If the incumbent falls into this trap, then Helmer calls this Counter-Positioning flavour ‘History’s Slave’. The second way they might fail is if the incumbent’s management incentives are set up for the old world. In this case, the CEO would not be willing to go to the board and throw out his or her incentive structure, in exchange for unknowable upside in pursuing this new business model. Helmer identifies this as an agency problem, and calls this flavour of Counter-Positioning ‘Job Security’.
In the following cases, you should see variants of all three types of counter-positioning.