Today’s episode further explores topics discussed in this week’s essay. In the preamble to that essay I said that there would be no content next week. I am going to reverse that. Next week will be an excerpt from Peter Fader’s new book. Stay tuned!
Peter: Ed, I love your piece on strategy versus tactics at Disney, Twitter and Dominion Cards. I love the way that you're weaving together a narrative that's taking three of the super hot, interesting topics and a fourth one that most people don't know about.
Edward: It's funny, the whole Dominion Cards thing. I've been, I started playing this card game back in 2011. I went to the national Championships in 2012. And I just really enjoy it. It's like the only game I can think of where you actually need to figure out a strategy at the beginning of every game.
I've been sitting on this idea of dominion cards as a way to talk about strategy versus tactics for many, many years now. And I've never felt really found the right kind of hook to put it in. And then when this thing happened at Disney on Sunday, I was like, aha, the hook is here. It's time to pull this out of the filing cabinet.
Peter: Love it. Well, as a, reader of the column and as someone who thinks about these issues, there's kind of two natural questions that just has to be asked. I wanna get your take on it. So, first. How do you define or where do you draw the line between strategy and tactics?
Edward: I think strategy is figuring out what you should be doing and it's trying to figure out what the end point is of where you're going for, and tactics is all the stuff that gets you there. Strategy can be done a bit in isolation. You can go back into your ivory tower and think about what the dynamics are coming out with your strategy and then tactics are going to be very much based on what's happening on the ground. What's happening at any given moment, how the competition is reacting, how economics is changing what type of people you have on your team and any given moment. Those are all tactical decisions like that a consultant is not going to be able to help you with unless he's actually there on the ground.
Peter: So I always have a hard time with it, to be honest. Maybe this is just me being narrow minded or something. It's not just the next move is it the next three or four moves. Be specific about strategy versus tactics in chess, and then let's branch out to these other real world stories.
Edward: I'm not an expert in chess. I'm actually teaching my kids how to play now, I'm learning along with them. But I think in chess there is a correct strategy. I think strategy in chess is things like control the center of the board would be a strategy. Be willing to sacrifice your piece in order to gain position in the board, or, move your pieces in such a way that you're able to castle fairly early in the game. Those would all be strategies, things that you're working towards over a longer period of time. Tactics are, given what my opponent has just done, what should I do next? And tactics can, you can look far into the future for tactics. There's nothing that stops you from looking nine moves ahead to the right tactic would be in that particular situation. But I think strategy stays in chess at least. I think strategy stays the same. There are correct strategies into chess and there are incorrect strategies in chess. Whereas tactics are gonna change every given game depending on what your opponent does.
Peter: So let's take that, and again, it's still little fuzzy. I mean, you're being more specific, but still, and I'm not gonna press you on exactly where one begins and ends, but Disney. Disney. Disney. Disney. It seems like the narrative as you said is Iger had the strategy. Chapek's job is to come in and execute on it. Few missteps here and there. Expand on that beyond what you've said in the piece about that trade offering strategy and tactics.
Edward: I think most people are agreed, even the disgruntled shareholders, is that Iger's strategy was the correct one or is the correct one, which is that the cable bundle is getting hammered and Disney in the past basically had a huge amount of leverage over the cable providers and was able to extract large amounts of money from the cable providers by the fact that they had this differentiated content both the traditional Disney content, but also the sports they had with ESPN. And that was a great place for Disney to be and it still is, frankly, they still extract a huge amount of money from the cable providers, but that is not the future. Clearly we see more and more people, especially young people cutting the cord, not going with cable television and moving into streaming. And it was really a question of when did Disney need to move in that direction and how long could they keep their pound of flesh from the cable companies and hold onto that as long as possible?
So the strategy then becomes let's move on. Let's go direct to consumer and scale up our Disney Plus product. There's tactical problems in doing that because, Disney bought Fox, which came with 20th Century Fox, which allowed them to add a whole ton of more content to get like the breadth required to win in a streaming war. They got control over Hulu, but they didn't get full ownership of Hulu. And so Comcast still owns a chunk of Hulu in the US which makes all sorts of challenges for Disney on a tactical level on how to actually get to the place where they wanna be. But I think the strategy is clear. It's we wanna get to the point where we are owning that direct to consumer relationship. We are monetizing through a subscription product. We are monetizing through additional add-ons that people can do on top of that. And we are monetizing through our vast aray of merchandising, theme parks, cruise ships, and everything else to allow people to spend more and more and more with us. That strategy is still where they're going the last two big things Iger did before he left, were launching Disney Plus and buying Fox,
Peter: LEt's be clear that Chappek isn't against any of those things. Strategically as you've pointed it out, he's on the same page. It's all just tactics not being quite the same as what Iger might have done or might now do.
Edward: And even on tactics, I'm not sure, if you look at the things that have hurt the stock price and where Chap has taken ahead, like first of all, Disney Plus has grown faster than they ever thought they would. He over delivered on that. Whether that was his doing or the, the fact is the metric is much better than anyone expected, but there were mistakes along the way. He has fought. There's been lots of fights with the creative side of the organization. Chapek comes from the theme park side. He came into the CEO role and then immediately Covid hit and the theme parks all went to zero. So he was forced to figure out how to do Disney plus where all their revenues coming from for the foreseeable future. Now things have flipped and the theme parks are just minting money. They're doing really, really, really well. But he's pissed off a lot of people by raising prices dramatically. But again, I'm not sure what Iger would've done differently in that case because the demand for the theme parks has has gone way, way, way up. So in the short term, you can't go and build more theme parks. So supplies is what it is. And so you're left with two choices. Either you are raising prices or you are giving a poor consumer experience, either because the parks are just packed full, and they're just unpleasant, or you're turning away people at the door who have booked a vacation. And so none of those options seem great, and of those options, it feels like raising prices was probably the one that Iger would've done as well.
Peter: Exactly. So here's the big question. I agree completely with that. It might be that how things play out now tactically and strategically would be the same regardless of which Bob is at the helm, but just having Iger just seems to have this warm glow that will just make the same tactics, not only more palatable but downright genius because they're coming from Iger instead of Chapek. What do you think?
Edward: I think that's absolutely right. They're in such a tough spot right now. There's so much going on and it's super, super, super risky what they're trying to do. I think everyone knows that there's really no choice but to go down this path. But also everyone knows that it's a really hard path to go down. And so not only do you need to have the right strategy, which I think people think that is true. You need to have the right tactics, which frankly I don't think Chapek, if he messed up on tactics, it was on a marginal basis. But where there was a bigger mess up was a bunch of execution of those tactics. And so things like the Black Widow movie early on in the pandemic, they decided to take that out of the theaters and put it onto Disney plus. And I think that was a very rational tactical thing to do given the situation they're in. But in execution, Chapek got into a big fight with Scarlette Johansen, who really came down hard, sued Disney. They hurt their relationship with her. Now. Disney ends up hurting their reputation as a good place to go and work if you're a top tier creative. In the short term, maybe they make a little bit more money on the movie, but in the long run they damage the relationship with the very people that are creating the product that they need to excel with.
Peter: Fair point. All right, let's pivot from DS to SBF and FTX. There you say that, or at least you're quoting SBF saying strategy was fine. The tactics were at fault. You don't really mean that, you're just saying that's what he said, but you think otherwise.
Edward: I'm no financial expert, but I've been following it as closely as I can and it sure looks to me like there was all sorts of... So Fbf owned two companies. He had ftx, but he also had the trading arm, Alameda Research. And there was money traded back and forth between those two organizations. And what I understand is. So imagine if FTX had, I'm making up a number, 10 million tokens and they're sitting on them and those things are worth whatever someone's willing to pay for them and Alameda comes on and says, Hey, I'll buy one of your tokens for a thousand dollars. So now all of a sudden the stock value of those tokens is a thousand dollars times 10 million, which is a huge amount of money they're sitting on. And then they basically end up using that valuation as collateral to do all sorts of loans and leverage to go and do other things with their money. FTX then takes in a bunch of customer deposits and then loans those customer deposits over to Alameda. Alameda then is then sitting on a bunch of these tokens that they're using as collateral against the borrowing of that real money that people put into ftx. Alameda then loses a bunch of that money and it all comes tumbling down when they realize that their collateral is not worth anything. It's all made up collateral. That's my understanding of what happened. Nothing like that has happened exactly before, but things like that have happened before. It's effectively fraud. It's fraud and theft. SBF, however, went on and interviewed Kelsey Piper over at Vox, and his argument was hey, we were doing was great. We were doing all sorts of awesome things, but our record keeping was terrible. We just made a bunch of like rookie terrible, incompetent mistakes. The new CEO who came in to run the company, Is backing SPF up in that yeah, this whole thing is a mess. That everything here is. What was his quote? I quote, I quoted him on my piece. He said, never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. And this is from the guy who also oversaw the bankruptcy of Enron.
So it was a mess. They clearly, clearly, clearly were tactically incompetent and SBF is claiming that they didn't know they were stealing all these funds. It's entirely possible that he's right because they seemed like they didn't really know anything that was going on. And there was no financial backups and no guardrails for anything. But generally the overall strategy was built on a house of cards to begin with. So whether their tactics were correct or not maybe it wouldn't have collapsed as badly if they had great tactics, but it was gonna collapse one way or other.
Peter: In this case, it's not strategy versus tactics, as you say in the title of the piece, it's and. They're doing bad and both, and it's hard to, pin the blame on one type of decision or another.
Edward: The hard part of writing this piece was that given the fact that their strategy was so unethical and terrible and their tactics were so incompetent, how did they manage to get as big as they did so that they caused this disaster to happen.
Peter: It's crazy. But but then speaking of which, it takes us to our third character of the week, Elon Musk. Now, you and I had a conversation a couple weeks back. We were saying generally positive things about verification, badges and just the possibilities of getting the business model right. And of course it's too early to tell for sure. But, these couple of weeks since that conversation, well, things have gone differently.
Edward: Specifically the thing that we talked about, which was the Twitter blue, $8 a month to get certified.
Edward: Verified. Verified. And what happened was that the verification process was effectively just having a credit card. So it wasn't like they matched. Your name that you put on Twitter with the name on your credit card or check the address, or had you send a a driver's license with the verification, it was a matter of pay the $8 and you can name yourself whatever you want.
In terms of. Strategic idea, allowing people to pay $8 to get certified seems like a very valid idea and a very, I don't know if it's, it is the right strategy, but arguably, at least we argued a couple of podcasts ago, is that it was a good strategy. In execution what that allowed them to do because they didn't create any of those guardrails, they didn't have any verification process beyond paying the $8 is people impersonated all sorts of companies. They impersonated Elon Musk, they impersonated giant companies and had them say ridiculous things with a certification check next to them, and it became a big joke. And so an example of potentially a good strategy with very weak tactical execution.
Peter: And what about the broader issues? The way he's running the company, day to day tactics, strategy, whatever it is, it's not good, but what, which basket would you put it in?
Edward: I think there's an overlap. First of all, part of it seems like he's kind of changing his strategy on the fly. He's going back and forth and changing what his strategy is, but I think in general, his thesis going into the company was that this company was mismanaged. We need to eliminate a large number of people at the company and replace them with other people. We need to change the culture of this place from one of working from 10:00 AM until 3:00 PM to one where you're working from 7:00 AM until midnight and coming in on the weekends and turning into a hard driving startup type culture with a much smaller team that's much more dedicated and highly compensated. And it feels like that's his strategy. And he wants to go to create a company that ships product really quickly, makes mistakes, fixes them, and keeps going. That is something that I think most owners of most businesses would want for their companies. The challenge becomes how do you get there from here? And that's where there's been lots of flailing and failing. That doesn't mean the whole process is gonna fail, but there's been lots of mistakes made in that process of getting from A to B. In a situation we're getting from A to A to B is gonna be hard no matter what, even if you did it perfect.
Peter: So what's your longer term prognosis? Do you think that he'll get this strategy right and line up the tactics appropriately?
Edward: I don't know. It's so hard to know. I think the strategy is right. The question is whether the company will survive the process of getting them there. They're burning through cash. As an example, they laid off a bunch of people via email that work in Europe, and you can't actually do that. It's illegal to do that in Europe, so all those people that they fired in Europe actually aren't fired, they turned off their salaries. They're not making any money anymore, but all those people have a class action lawsuit that's going to go against Twitter and there's going to be a huge fine. That type of stuff matters in a situation where it, if they succeed, it's gonna be by the skin of their teeth. They're the Amazon in 2001 where we need to keep doing everything right and working our butts off to keep this plane flying over the treetops so that we can take off and circle the planet. But before we can circle the planet, we need to get over these trees. If they get over the trees, I think there's a good argument. Twitter's a fantastic, unique product that can do all sorts of incredible things and far more than the old team was doing. But he still has to get over the trees and that's where it's a lot unclear.
Peter: Yeah. So it takes us to kind of the bottom line, as you say, and I don't think anyone would disagree. Strategy becomes far more urgent in rapidly changing environments. Who could argue with that yet at the same time, in rapidly changing environments. We start rearranging deck chairs, which is far more tactical.
Edward: I think when things are going smoothly, when things are not changing, strategy frankly doesn't matter very much. Tactics matter a little bit, and execution matters a lot. When you're in a place where things are changing rapidly and you need to get to someplace new, all of a sudden strategy matters a lot. But that doesn't mean that tactics and execution matter less. They still matter a lot too. It just becomes like everything matters. It's becomes so easy to fail. You only need one chin in the chain to break and you're not gonna get there.
Peter: And I think all three of these cases show that interplay. So again, it's not strategy versus tactics, but focusing on the and, getting to sync up properly and, easier said than done.