Category: Strategy
Oct 9, 2025
The Three Foundational Rules of Strategy: A Framework for Sustainable Growth
Strategy can feel overwhelmingly complex. Frameworks proliferate, consultants offer conflicting advice, and the business landscape shifts beneath our feet. Yet beneath this complexity lie three fundamental truths that govern how companies grow, compete, and ultimately succeed or fail. Understanding these rules doesn't just clarify strategic thinking, it transforms how you make product decisions, allocate resources, and position your business for the future.
The Strategic Trinity
Every successful strategy rests on understanding three distinct dimensions of competition. These aren't sequential phases but interconnected levers that work in concert. Master them, and you gain a mental model for evaluating every significant decision your business faces.
Rule 1: Understand the Price of Entry
Rule 2: Grow Market Share Through Experience Differentiation
Rule 3: Expand Addressable Market by Solving New Problems
Let's examine each in depth.
Rule 1: The Price of Entry—Solving Core Problems
Every target market customer approaches your product with a job to be done. They have problems that demand solutions, needs that must be satisfied. This is the foundation, the bedrock beneath everything else. Your competition understands these needs too, and they're working to address them just as you are.
These core needs represent the price of entry, the minimum viable offering required to even be considered by your target customer. Fall short here, and nothing else matters. Your superior user experience won't save you. Your innovative adjacent features become irrelevant. You're simply not in the game.
Consider our example: small business owners selling on platforms like Etsy and eBay in the United States. What do they fundamentally need from accounting software? They need to track income from their sales. They need to track expenses. They need to calculate profit. These aren't nice-to-haves or differentiators, these are the core problems that define the category.
The strategic imperative here is ruthless clarity. You must deeply understand what constitutes a must-have versus a nice-to-have for your specific target customer. This requires genuine customer insight, not assumptions. It demands that you resist the temptation to project your own beliefs about what customers "should" want onto the market reality of what they actually need.
Getting this wrong has catastrophic consequences. Build a beautiful product that solves the wrong problems, and you've built nothing at all. Conversely, understanding this foundation allows you to make confident decisions about where to invest and, equally important, where not to invest.
Rule 2: Growing Market Share—It's How You Solve Problems
Here's where strategy becomes fascinating. Once you've established the price of entry, you face dozens of competitors who can all track income, expenses, and calculate profit. The core problems are solved. So how do you win?
The answer isn't solving more problems, it's solving the same problems better. This is the realm of customer experience, and it's where market share battles are won and lost.
Let's return to our Etsy and eBay sellers. Why don't they simply use Excel? Excel can track income and expenses. It can calculate profit. It satisfies the core needs we identified in Rule 1. Yet they're willing to pay for dedicated software instead.
The answer reveals the power of experience differentiation. Perhaps your software connects directly to their bank accounts, automatically downloading transactions. Perhaps it intelligently categorizes common expenses without manual input. Perhaps it provides real-time profit calculations that update instantly as new sales come in. Perhaps it handles sales tax automatically for their jurisdiction.
None of these capabilities solve a new problem. The problem, tracking finances and knowing profitability, remains the same. But the experience of solving that problem transforms entirely. What once required hours of manual data entry now happens automatically. What once demanded spreadsheet expertise now requires no technical knowledge at all. What once happened weekly now happens in real-time.
This distinction is crucial: you're not adding new functionality to solve new needs. You're reimagining the experience of satisfying existing needs. This is how you steal market share from competitors. This is how you justify premium pricing. This is how you create products that customers describe as "game-changing" even though the underlying job to be done hasn't changed at all.
The strategic questions become: What aspects of the customer experience create friction? Where do competitors force customers to do unnecessary work? Where can automation eliminate manual processes? Where can intelligent defaults remove the need for configuration? Where can better design make the complex feel simple?
Market share growth through experience differentiation requires continuous investment in polish, refinement, and thoughtful UX. It's often harder than adding new features because it demands discipline, the discipline to perfect what exists rather than chase what's new.
Rule 3: Expanding Addressable Market—Solving New Problems
Now we arrive at the final strategic lever: growing your addressable market by solving new problems for your target customers. This is fundamentally different from Rules 1 and 2. You're not competing for a fixed pool of existing customers, you're expanding the pool itself.
Imagine a customer asks you to support additional currencies in your accounting software. For your current target market of US-based Etsy and eBay sellers who receive payment exclusively in US dollars, this solves no existing problem. It doesn't improve their experience of tracking finances. It doesn't make existing features work better.
What it does is unlock an entirely new segment: sellers who operate internationally or sell on global platforms. These potential customers have the same core needs (Rule 1) and would benefit from the same experience advantages (Rule 2), but they've been excluded from your addressable market by a missing capability. Currency support solves a new problem—handling multi-currency transactions, and in doing so, expands who can use your product.
This is where strategy becomes chess, not checkers. Adding features to expand addressable market isn't inherently good or bad, it requires careful strategic evaluation:
Does it meaningfully expand total addressable market? Currency support might add thousands of international sellers. Supporting enterprise organizations might multiply your market tenfold. But some features appeal to such niche segments that the expansion hardly justifies the cost.
What's the opportunity cost? Every feature that expands addressable market is a feature you're not building to improve experience for current customers (Rule 2). If you're losing market share to competitors with superior experience, expanding addressable market may be premature. You'll just expose more potential customers to an inferior product.
Does it compromise the core experience? Currency support might clutter the interface for your US-only sellers, introducing complexity they don't need. This taxes your existing customers for the benefit of hypothetical future ones. Sometimes this trade-off makes sense. Often it doesn't.
Can you execute well in the new market? Expanding addressable market isn't just about features—it's about go-to-market capabilities. International sellers may require different support, different pricing models, different partnerships. Do you have the organizational capacity to serve them well?
Does it introduce technical complexity? Multi-currency support isn't just a UI change, it affects data models, reporting, tax calculations, and integration points. This complexity can introduce instability that affects all customers. The technical debt may compound over time, slowing future development.
The most sophisticated companies think about market expansion sequentially. They establish dominance in an initial segment through superior experience (Rule 2), then carefully expand to adjacent segments that share similar characteristics. Stripe began with simple online payment processing for developers, perfected that experience, then methodically expanded to serve different types of businesses with different needs. Each expansion was calculated, not opportunistic.
Bringing It Together: Strategic Decision-Making in Practice
These three rules provide a framework for evaluating nearly any strategic decision:
When a competitor launches a new feature, ask: Is this solving a core problem (Rule 1), improving how problems are solved (Rule 2), or expanding their addressable market (Rule 3)? Your response should differ dramatically based on the answer. If it's Rule 1 and you lack it, you must match them immediately. If it's Rule 2, you need to evaluate whether it actually improves experience or is superficial. If it's Rule 3, you must assess whether that market expansion aligns with your strategy.
When customers request features, the same framework applies. Sort requests into these three categories. Unmet core needs demand immediate attention, you're failing at the price of entry. Experience improvement requests should be evaluated against your market share goals. New problem requests require careful assessment of market expansion strategy.
When allocating development resources, balance across all three rules based on your competitive position. If you're an insurgent challenging an established leader, you likely over-index on Rule 2, you need superior experience to steal share. If you're a leader defending your position, you may focus more on Rule 1 (maintaining parity on core features) and Rule 3 (expanding market before competitors can).
The Dangers of Confusion
Most strategic mistakes stem from confusing these three rules. Companies chase market expansion (Rule 3) while failing to deliver core features (Rule 1). They pile on capabilities while delivering mediocre experiences (Rule 2). They mistake activity for progress, features for strategy.
I know this because I've made these mistakes myself. Our strategy meetings became feature discussions, endless debates about what to build next. We hoped each new capability would be the breakthrough that drove growth. We never consciously thought about these three rules. We didn't ask whether a feature satisfied a core need, improved the experience, or genuinely expanded our market. Mostly, these features were expensive distractions.
Our fundamental failure was treating our customers as a monolith when they were anything but. We had a range of customers all using the same type of product, but they had vastly different needs and problems to solve. Some needed simplicity. Were budget driven. Some valued localization. Others wanted technical leadership. Yet we marketed to them as if they were identical. We created proposals as if they had the same pain points. We designed features as if one size could fit all.
The result was predictable: we added dozens of features trying to serve everyone, and our core product experience deteriorated. We won the theoretical ability to serve new segments while losing the ability to satisfy any segment well. We ended up with a bloated, complex product that pleased no one.
The Foundation Beneath the Foundation: Why Segmentation Comes First
Here's what I wish I'd understood earlier: these three rules don't apply to "your product" in the abstract. They apply to each distinct target segment. This isn't a minor detail, it's the foundation beneath the foundation.
When I said we had a range of customers with different needs, I'm talking about fundamentally different segments using the same product category. Small boutique sellers on Etsy have different needs than high-volume eBay power sellers. Solo entrepreneurs working from home have different needs than small teams managing multiple storefronts. International sellers have different needs than domestic-only operations.
The critical insight: what constitutes Rule 1, 2, or 3 depends entirely on which segment you're addressing.
Consider multi-currency support in our accounting software example. For US-only sellers, this is pure Rule 3, solving a new problem to expand addressable market. But for international sellers, currency support isn't market expansion; it's Rule 1, the price of entry. Without it, you're not even in consideration. The exact same feature occupies completely different strategic positions depending on the segment.
This is where feature prioritization becomes genuinely difficult. That currency support feature? It's essential for one segment and irrelevant clutter for another. Enterprise reporting capabilities might be Rule 1 for teams and Rule 3 for solopreneurs. What looks like smart market expansion to serve one segment looks like feature bloat to another.
Our mistake was trying to serve multiple segments with one strategy, one set of messaging, one product vision. We couldn't understand why some customers loved certain features while others complained about complexity. We couldn't figure out why our marketing resonated with some prospects and fell flat with others. The answer was simple: we were treating segments as if they were interchangeable.
The strategic implication is profound: you must choose your primary target segment before you can meaningfully apply these three rules. Otherwise, you're building features in a vacuum, hoping they matter to someone. You're competing everywhere and winning nowhere.
This doesn't mean you can only serve one segment. But it means you need clarity about which segment you're optimizing for, and conscious decisions about when you're willing to compromise their experience to serve others. Stripe started with developers. Slack started with software teams. They succeeded in adjacent segments later precisely because they dominated their initial segment first.
When you're clear about your target segment, the three rules become actionable:
Rule 1 becomes specific: What are the must-haves for this segment?
Rule 2 becomes measurable: How do we deliver a better experience for this segment?
Rule 3 becomes strategic: Which adjacent segments share enough characteristics to serve without compromising the core?
A note on emergence: Sometimes the boundaries between these rules blur in beautiful ways. You might invest in dramatically improving how you solve a problem (Rule 2), making your software so intuitive that non-technical users can operate it, and accidentally discover you've expanded your addressable market (Rule 3). You've lowered the expertise barrier, opening new segments you didn't initially target. This isn't a problem with the framework; it's a feature. The framework still helps you understand what happened and why it created value. Just remain open to pleasant surprises when experience improvements cascade into market expansion.
Conversely, I've seen companies so focused on experience polish for their existing customers that they wake up five years later to discover their addressable market is too small to build a significant business. They perfected a solution for too narrow a problem.
The art of strategy lies in knowing which rule to emphasize when, and how to balance investments across all three over time. This requires honest assessment of your competitive position, deep understanding of your market, and the discipline to make difficult trade-offs.
Conclusion: Strategy as a Practice
These three foundational rules don't eliminate the complexity of strategy, they provide a structure for thinking through it. They won't tell you which features to build or which markets to enter. But they will help you ask better questions and evaluate opportunities with greater clarity.
Strategy isn't a destination but a practice. It requires constantly reassessing which problems are truly core to your customers, how you can deliver superior experiences, and which new problems are worth solving. The companies that master this practice don't just grow, they compound their advantages over time, building businesses that become increasingly difficult for competitors to displace.
Start by asking yourself: Do I truly understand the price of entry in my market? Am I winning or losing on experience differentiation? And are my market expansion efforts strategic or merely opportunistic?
The answers to these questions will tell you everything you need to know about where to focus next.
Strategy can feel overwhelmingly complex. Frameworks proliferate, consultants offer conflicting advice, and the business landscape shifts beneath our feet. Yet beneath this complexity lie three fundamental truths that govern how companies grow, compete, and ultimately succeed or fail. Understanding these rules doesn't just clarify strategic thinking, it transforms how you make product decisions, allocate resources, and position your business for the future.
The Strategic Trinity
Every successful strategy rests on understanding three distinct dimensions of competition. These aren't sequential phases but interconnected levers that work in concert. Master them, and you gain a mental model for evaluating every significant decision your business faces.
Rule 1: Understand the Price of Entry
Rule 2: Grow Market Share Through Experience Differentiation
Rule 3: Expand Addressable Market by Solving New Problems
Let's examine each in depth.
Rule 1: The Price of Entry—Solving Core Problems
Every target market customer approaches your product with a job to be done. They have problems that demand solutions, needs that must be satisfied. This is the foundation, the bedrock beneath everything else. Your competition understands these needs too, and they're working to address them just as you are.
These core needs represent the price of entry, the minimum viable offering required to even be considered by your target customer. Fall short here, and nothing else matters. Your superior user experience won't save you. Your innovative adjacent features become irrelevant. You're simply not in the game.
Consider our example: small business owners selling on platforms like Etsy and eBay in the United States. What do they fundamentally need from accounting software? They need to track income from their sales. They need to track expenses. They need to calculate profit. These aren't nice-to-haves or differentiators, these are the core problems that define the category.
The strategic imperative here is ruthless clarity. You must deeply understand what constitutes a must-have versus a nice-to-have for your specific target customer. This requires genuine customer insight, not assumptions. It demands that you resist the temptation to project your own beliefs about what customers "should" want onto the market reality of what they actually need.
Getting this wrong has catastrophic consequences. Build a beautiful product that solves the wrong problems, and you've built nothing at all. Conversely, understanding this foundation allows you to make confident decisions about where to invest and, equally important, where not to invest.
Rule 2: Growing Market Share—It's How You Solve Problems
Here's where strategy becomes fascinating. Once you've established the price of entry, you face dozens of competitors who can all track income, expenses, and calculate profit. The core problems are solved. So how do you win?
The answer isn't solving more problems, it's solving the same problems better. This is the realm of customer experience, and it's where market share battles are won and lost.
Let's return to our Etsy and eBay sellers. Why don't they simply use Excel? Excel can track income and expenses. It can calculate profit. It satisfies the core needs we identified in Rule 1. Yet they're willing to pay for dedicated software instead.
The answer reveals the power of experience differentiation. Perhaps your software connects directly to their bank accounts, automatically downloading transactions. Perhaps it intelligently categorizes common expenses without manual input. Perhaps it provides real-time profit calculations that update instantly as new sales come in. Perhaps it handles sales tax automatically for their jurisdiction.
None of these capabilities solve a new problem. The problem, tracking finances and knowing profitability, remains the same. But the experience of solving that problem transforms entirely. What once required hours of manual data entry now happens automatically. What once demanded spreadsheet expertise now requires no technical knowledge at all. What once happened weekly now happens in real-time.
This distinction is crucial: you're not adding new functionality to solve new needs. You're reimagining the experience of satisfying existing needs. This is how you steal market share from competitors. This is how you justify premium pricing. This is how you create products that customers describe as "game-changing" even though the underlying job to be done hasn't changed at all.
The strategic questions become: What aspects of the customer experience create friction? Where do competitors force customers to do unnecessary work? Where can automation eliminate manual processes? Where can intelligent defaults remove the need for configuration? Where can better design make the complex feel simple?
Market share growth through experience differentiation requires continuous investment in polish, refinement, and thoughtful UX. It's often harder than adding new features because it demands discipline, the discipline to perfect what exists rather than chase what's new.
Rule 3: Expanding Addressable Market—Solving New Problems
Now we arrive at the final strategic lever: growing your addressable market by solving new problems for your target customers. This is fundamentally different from Rules 1 and 2. You're not competing for a fixed pool of existing customers, you're expanding the pool itself.
Imagine a customer asks you to support additional currencies in your accounting software. For your current target market of US-based Etsy and eBay sellers who receive payment exclusively in US dollars, this solves no existing problem. It doesn't improve their experience of tracking finances. It doesn't make existing features work better.
What it does is unlock an entirely new segment: sellers who operate internationally or sell on global platforms. These potential customers have the same core needs (Rule 1) and would benefit from the same experience advantages (Rule 2), but they've been excluded from your addressable market by a missing capability. Currency support solves a new problem—handling multi-currency transactions, and in doing so, expands who can use your product.
This is where strategy becomes chess, not checkers. Adding features to expand addressable market isn't inherently good or bad, it requires careful strategic evaluation:
Does it meaningfully expand total addressable market? Currency support might add thousands of international sellers. Supporting enterprise organizations might multiply your market tenfold. But some features appeal to such niche segments that the expansion hardly justifies the cost.
What's the opportunity cost? Every feature that expands addressable market is a feature you're not building to improve experience for current customers (Rule 2). If you're losing market share to competitors with superior experience, expanding addressable market may be premature. You'll just expose more potential customers to an inferior product.
Does it compromise the core experience? Currency support might clutter the interface for your US-only sellers, introducing complexity they don't need. This taxes your existing customers for the benefit of hypothetical future ones. Sometimes this trade-off makes sense. Often it doesn't.
Can you execute well in the new market? Expanding addressable market isn't just about features—it's about go-to-market capabilities. International sellers may require different support, different pricing models, different partnerships. Do you have the organizational capacity to serve them well?
Does it introduce technical complexity? Multi-currency support isn't just a UI change, it affects data models, reporting, tax calculations, and integration points. This complexity can introduce instability that affects all customers. The technical debt may compound over time, slowing future development.
The most sophisticated companies think about market expansion sequentially. They establish dominance in an initial segment through superior experience (Rule 2), then carefully expand to adjacent segments that share similar characteristics. Stripe began with simple online payment processing for developers, perfected that experience, then methodically expanded to serve different types of businesses with different needs. Each expansion was calculated, not opportunistic.
Bringing It Together: Strategic Decision-Making in Practice
These three rules provide a framework for evaluating nearly any strategic decision:
When a competitor launches a new feature, ask: Is this solving a core problem (Rule 1), improving how problems are solved (Rule 2), or expanding their addressable market (Rule 3)? Your response should differ dramatically based on the answer. If it's Rule 1 and you lack it, you must match them immediately. If it's Rule 2, you need to evaluate whether it actually improves experience or is superficial. If it's Rule 3, you must assess whether that market expansion aligns with your strategy.
When customers request features, the same framework applies. Sort requests into these three categories. Unmet core needs demand immediate attention, you're failing at the price of entry. Experience improvement requests should be evaluated against your market share goals. New problem requests require careful assessment of market expansion strategy.
When allocating development resources, balance across all three rules based on your competitive position. If you're an insurgent challenging an established leader, you likely over-index on Rule 2, you need superior experience to steal share. If you're a leader defending your position, you may focus more on Rule 1 (maintaining parity on core features) and Rule 3 (expanding market before competitors can).
The Dangers of Confusion
Most strategic mistakes stem from confusing these three rules. Companies chase market expansion (Rule 3) while failing to deliver core features (Rule 1). They pile on capabilities while delivering mediocre experiences (Rule 2). They mistake activity for progress, features for strategy.
I know this because I've made these mistakes myself. Our strategy meetings became feature discussions, endless debates about what to build next. We hoped each new capability would be the breakthrough that drove growth. We never consciously thought about these three rules. We didn't ask whether a feature satisfied a core need, improved the experience, or genuinely expanded our market. Mostly, these features were expensive distractions.
Our fundamental failure was treating our customers as a monolith when they were anything but. We had a range of customers all using the same type of product, but they had vastly different needs and problems to solve. Some needed simplicity. Were budget driven. Some valued localization. Others wanted technical leadership. Yet we marketed to them as if they were identical. We created proposals as if they had the same pain points. We designed features as if one size could fit all.
The result was predictable: we added dozens of features trying to serve everyone, and our core product experience deteriorated. We won the theoretical ability to serve new segments while losing the ability to satisfy any segment well. We ended up with a bloated, complex product that pleased no one.
The Foundation Beneath the Foundation: Why Segmentation Comes First
Here's what I wish I'd understood earlier: these three rules don't apply to "your product" in the abstract. They apply to each distinct target segment. This isn't a minor detail, it's the foundation beneath the foundation.
When I said we had a range of customers with different needs, I'm talking about fundamentally different segments using the same product category. Small boutique sellers on Etsy have different needs than high-volume eBay power sellers. Solo entrepreneurs working from home have different needs than small teams managing multiple storefronts. International sellers have different needs than domestic-only operations.
The critical insight: what constitutes Rule 1, 2, or 3 depends entirely on which segment you're addressing.
Consider multi-currency support in our accounting software example. For US-only sellers, this is pure Rule 3, solving a new problem to expand addressable market. But for international sellers, currency support isn't market expansion; it's Rule 1, the price of entry. Without it, you're not even in consideration. The exact same feature occupies completely different strategic positions depending on the segment.
This is where feature prioritization becomes genuinely difficult. That currency support feature? It's essential for one segment and irrelevant clutter for another. Enterprise reporting capabilities might be Rule 1 for teams and Rule 3 for solopreneurs. What looks like smart market expansion to serve one segment looks like feature bloat to another.
Our mistake was trying to serve multiple segments with one strategy, one set of messaging, one product vision. We couldn't understand why some customers loved certain features while others complained about complexity. We couldn't figure out why our marketing resonated with some prospects and fell flat with others. The answer was simple: we were treating segments as if they were interchangeable.
The strategic implication is profound: you must choose your primary target segment before you can meaningfully apply these three rules. Otherwise, you're building features in a vacuum, hoping they matter to someone. You're competing everywhere and winning nowhere.
This doesn't mean you can only serve one segment. But it means you need clarity about which segment you're optimizing for, and conscious decisions about when you're willing to compromise their experience to serve others. Stripe started with developers. Slack started with software teams. They succeeded in adjacent segments later precisely because they dominated their initial segment first.
When you're clear about your target segment, the three rules become actionable:
Rule 1 becomes specific: What are the must-haves for this segment?
Rule 2 becomes measurable: How do we deliver a better experience for this segment?
Rule 3 becomes strategic: Which adjacent segments share enough characteristics to serve without compromising the core?
A note on emergence: Sometimes the boundaries between these rules blur in beautiful ways. You might invest in dramatically improving how you solve a problem (Rule 2), making your software so intuitive that non-technical users can operate it, and accidentally discover you've expanded your addressable market (Rule 3). You've lowered the expertise barrier, opening new segments you didn't initially target. This isn't a problem with the framework; it's a feature. The framework still helps you understand what happened and why it created value. Just remain open to pleasant surprises when experience improvements cascade into market expansion.
Conversely, I've seen companies so focused on experience polish for their existing customers that they wake up five years later to discover their addressable market is too small to build a significant business. They perfected a solution for too narrow a problem.
The art of strategy lies in knowing which rule to emphasize when, and how to balance investments across all three over time. This requires honest assessment of your competitive position, deep understanding of your market, and the discipline to make difficult trade-offs.
Conclusion: Strategy as a Practice
These three foundational rules don't eliminate the complexity of strategy, they provide a structure for thinking through it. They won't tell you which features to build or which markets to enter. But they will help you ask better questions and evaluate opportunities with greater clarity.
Strategy isn't a destination but a practice. It requires constantly reassessing which problems are truly core to your customers, how you can deliver superior experiences, and which new problems are worth solving. The companies that master this practice don't just grow, they compound their advantages over time, building businesses that become increasingly difficult for competitors to displace.
Start by asking yourself: Do I truly understand the price of entry in my market? Am I winning or losing on experience differentiation? And are my market expansion efforts strategic or merely opportunistic?
The answers to these questions will tell you everything you need to know about where to focus next.
Strategy can feel overwhelmingly complex. Frameworks proliferate, consultants offer conflicting advice, and the business landscape shifts beneath our feet. Yet beneath this complexity lie three fundamental truths that govern how companies grow, compete, and ultimately succeed or fail. Understanding these rules doesn't just clarify strategic thinking, it transforms how you make product decisions, allocate resources, and position your business for the future.
The Strategic Trinity
Every successful strategy rests on understanding three distinct dimensions of competition. These aren't sequential phases but interconnected levers that work in concert. Master them, and you gain a mental model for evaluating every significant decision your business faces.
Rule 1: Understand the Price of Entry
Rule 2: Grow Market Share Through Experience Differentiation
Rule 3: Expand Addressable Market by Solving New Problems
Let's examine each in depth.
Rule 1: The Price of Entry—Solving Core Problems
Every target market customer approaches your product with a job to be done. They have problems that demand solutions, needs that must be satisfied. This is the foundation, the bedrock beneath everything else. Your competition understands these needs too, and they're working to address them just as you are.
These core needs represent the price of entry, the minimum viable offering required to even be considered by your target customer. Fall short here, and nothing else matters. Your superior user experience won't save you. Your innovative adjacent features become irrelevant. You're simply not in the game.
Consider our example: small business owners selling on platforms like Etsy and eBay in the United States. What do they fundamentally need from accounting software? They need to track income from their sales. They need to track expenses. They need to calculate profit. These aren't nice-to-haves or differentiators, these are the core problems that define the category.
The strategic imperative here is ruthless clarity. You must deeply understand what constitutes a must-have versus a nice-to-have for your specific target customer. This requires genuine customer insight, not assumptions. It demands that you resist the temptation to project your own beliefs about what customers "should" want onto the market reality of what they actually need.
Getting this wrong has catastrophic consequences. Build a beautiful product that solves the wrong problems, and you've built nothing at all. Conversely, understanding this foundation allows you to make confident decisions about where to invest and, equally important, where not to invest.
Rule 2: Growing Market Share—It's How You Solve Problems
Here's where strategy becomes fascinating. Once you've established the price of entry, you face dozens of competitors who can all track income, expenses, and calculate profit. The core problems are solved. So how do you win?
The answer isn't solving more problems, it's solving the same problems better. This is the realm of customer experience, and it's where market share battles are won and lost.
Let's return to our Etsy and eBay sellers. Why don't they simply use Excel? Excel can track income and expenses. It can calculate profit. It satisfies the core needs we identified in Rule 1. Yet they're willing to pay for dedicated software instead.
The answer reveals the power of experience differentiation. Perhaps your software connects directly to their bank accounts, automatically downloading transactions. Perhaps it intelligently categorizes common expenses without manual input. Perhaps it provides real-time profit calculations that update instantly as new sales come in. Perhaps it handles sales tax automatically for their jurisdiction.
None of these capabilities solve a new problem. The problem, tracking finances and knowing profitability, remains the same. But the experience of solving that problem transforms entirely. What once required hours of manual data entry now happens automatically. What once demanded spreadsheet expertise now requires no technical knowledge at all. What once happened weekly now happens in real-time.
This distinction is crucial: you're not adding new functionality to solve new needs. You're reimagining the experience of satisfying existing needs. This is how you steal market share from competitors. This is how you justify premium pricing. This is how you create products that customers describe as "game-changing" even though the underlying job to be done hasn't changed at all.
The strategic questions become: What aspects of the customer experience create friction? Where do competitors force customers to do unnecessary work? Where can automation eliminate manual processes? Where can intelligent defaults remove the need for configuration? Where can better design make the complex feel simple?
Market share growth through experience differentiation requires continuous investment in polish, refinement, and thoughtful UX. It's often harder than adding new features because it demands discipline, the discipline to perfect what exists rather than chase what's new.
Rule 3: Expanding Addressable Market—Solving New Problems
Now we arrive at the final strategic lever: growing your addressable market by solving new problems for your target customers. This is fundamentally different from Rules 1 and 2. You're not competing for a fixed pool of existing customers, you're expanding the pool itself.
Imagine a customer asks you to support additional currencies in your accounting software. For your current target market of US-based Etsy and eBay sellers who receive payment exclusively in US dollars, this solves no existing problem. It doesn't improve their experience of tracking finances. It doesn't make existing features work better.
What it does is unlock an entirely new segment: sellers who operate internationally or sell on global platforms. These potential customers have the same core needs (Rule 1) and would benefit from the same experience advantages (Rule 2), but they've been excluded from your addressable market by a missing capability. Currency support solves a new problem—handling multi-currency transactions, and in doing so, expands who can use your product.
This is where strategy becomes chess, not checkers. Adding features to expand addressable market isn't inherently good or bad, it requires careful strategic evaluation:
Does it meaningfully expand total addressable market? Currency support might add thousands of international sellers. Supporting enterprise organizations might multiply your market tenfold. But some features appeal to such niche segments that the expansion hardly justifies the cost.
What's the opportunity cost? Every feature that expands addressable market is a feature you're not building to improve experience for current customers (Rule 2). If you're losing market share to competitors with superior experience, expanding addressable market may be premature. You'll just expose more potential customers to an inferior product.
Does it compromise the core experience? Currency support might clutter the interface for your US-only sellers, introducing complexity they don't need. This taxes your existing customers for the benefit of hypothetical future ones. Sometimes this trade-off makes sense. Often it doesn't.
Can you execute well in the new market? Expanding addressable market isn't just about features—it's about go-to-market capabilities. International sellers may require different support, different pricing models, different partnerships. Do you have the organizational capacity to serve them well?
Does it introduce technical complexity? Multi-currency support isn't just a UI change, it affects data models, reporting, tax calculations, and integration points. This complexity can introduce instability that affects all customers. The technical debt may compound over time, slowing future development.
The most sophisticated companies think about market expansion sequentially. They establish dominance in an initial segment through superior experience (Rule 2), then carefully expand to adjacent segments that share similar characteristics. Stripe began with simple online payment processing for developers, perfected that experience, then methodically expanded to serve different types of businesses with different needs. Each expansion was calculated, not opportunistic.
Bringing It Together: Strategic Decision-Making in Practice
These three rules provide a framework for evaluating nearly any strategic decision:
When a competitor launches a new feature, ask: Is this solving a core problem (Rule 1), improving how problems are solved (Rule 2), or expanding their addressable market (Rule 3)? Your response should differ dramatically based on the answer. If it's Rule 1 and you lack it, you must match them immediately. If it's Rule 2, you need to evaluate whether it actually improves experience or is superficial. If it's Rule 3, you must assess whether that market expansion aligns with your strategy.
When customers request features, the same framework applies. Sort requests into these three categories. Unmet core needs demand immediate attention, you're failing at the price of entry. Experience improvement requests should be evaluated against your market share goals. New problem requests require careful assessment of market expansion strategy.
When allocating development resources, balance across all three rules based on your competitive position. If you're an insurgent challenging an established leader, you likely over-index on Rule 2, you need superior experience to steal share. If you're a leader defending your position, you may focus more on Rule 1 (maintaining parity on core features) and Rule 3 (expanding market before competitors can).
The Dangers of Confusion
Most strategic mistakes stem from confusing these three rules. Companies chase market expansion (Rule 3) while failing to deliver core features (Rule 1). They pile on capabilities while delivering mediocre experiences (Rule 2). They mistake activity for progress, features for strategy.
I know this because I've made these mistakes myself. Our strategy meetings became feature discussions, endless debates about what to build next. We hoped each new capability would be the breakthrough that drove growth. We never consciously thought about these three rules. We didn't ask whether a feature satisfied a core need, improved the experience, or genuinely expanded our market. Mostly, these features were expensive distractions.
Our fundamental failure was treating our customers as a monolith when they were anything but. We had a range of customers all using the same type of product, but they had vastly different needs and problems to solve. Some needed simplicity. Were budget driven. Some valued localization. Others wanted technical leadership. Yet we marketed to them as if they were identical. We created proposals as if they had the same pain points. We designed features as if one size could fit all.
The result was predictable: we added dozens of features trying to serve everyone, and our core product experience deteriorated. We won the theoretical ability to serve new segments while losing the ability to satisfy any segment well. We ended up with a bloated, complex product that pleased no one.
The Foundation Beneath the Foundation: Why Segmentation Comes First
Here's what I wish I'd understood earlier: these three rules don't apply to "your product" in the abstract. They apply to each distinct target segment. This isn't a minor detail, it's the foundation beneath the foundation.
When I said we had a range of customers with different needs, I'm talking about fundamentally different segments using the same product category. Small boutique sellers on Etsy have different needs than high-volume eBay power sellers. Solo entrepreneurs working from home have different needs than small teams managing multiple storefronts. International sellers have different needs than domestic-only operations.
The critical insight: what constitutes Rule 1, 2, or 3 depends entirely on which segment you're addressing.
Consider multi-currency support in our accounting software example. For US-only sellers, this is pure Rule 3, solving a new problem to expand addressable market. But for international sellers, currency support isn't market expansion; it's Rule 1, the price of entry. Without it, you're not even in consideration. The exact same feature occupies completely different strategic positions depending on the segment.
This is where feature prioritization becomes genuinely difficult. That currency support feature? It's essential for one segment and irrelevant clutter for another. Enterprise reporting capabilities might be Rule 1 for teams and Rule 3 for solopreneurs. What looks like smart market expansion to serve one segment looks like feature bloat to another.
Our mistake was trying to serve multiple segments with one strategy, one set of messaging, one product vision. We couldn't understand why some customers loved certain features while others complained about complexity. We couldn't figure out why our marketing resonated with some prospects and fell flat with others. The answer was simple: we were treating segments as if they were interchangeable.
The strategic implication is profound: you must choose your primary target segment before you can meaningfully apply these three rules. Otherwise, you're building features in a vacuum, hoping they matter to someone. You're competing everywhere and winning nowhere.
This doesn't mean you can only serve one segment. But it means you need clarity about which segment you're optimizing for, and conscious decisions about when you're willing to compromise their experience to serve others. Stripe started with developers. Slack started with software teams. They succeeded in adjacent segments later precisely because they dominated their initial segment first.
When you're clear about your target segment, the three rules become actionable:
Rule 1 becomes specific: What are the must-haves for this segment?
Rule 2 becomes measurable: How do we deliver a better experience for this segment?
Rule 3 becomes strategic: Which adjacent segments share enough characteristics to serve without compromising the core?
A note on emergence: Sometimes the boundaries between these rules blur in beautiful ways. You might invest in dramatically improving how you solve a problem (Rule 2), making your software so intuitive that non-technical users can operate it, and accidentally discover you've expanded your addressable market (Rule 3). You've lowered the expertise barrier, opening new segments you didn't initially target. This isn't a problem with the framework; it's a feature. The framework still helps you understand what happened and why it created value. Just remain open to pleasant surprises when experience improvements cascade into market expansion.
Conversely, I've seen companies so focused on experience polish for their existing customers that they wake up five years later to discover their addressable market is too small to build a significant business. They perfected a solution for too narrow a problem.
The art of strategy lies in knowing which rule to emphasize when, and how to balance investments across all three over time. This requires honest assessment of your competitive position, deep understanding of your market, and the discipline to make difficult trade-offs.
Conclusion: Strategy as a Practice
These three foundational rules don't eliminate the complexity of strategy, they provide a structure for thinking through it. They won't tell you which features to build or which markets to enter. But they will help you ask better questions and evaluate opportunities with greater clarity.
Strategy isn't a destination but a practice. It requires constantly reassessing which problems are truly core to your customers, how you can deliver superior experiences, and which new problems are worth solving. The companies that master this practice don't just grow, they compound their advantages over time, building businesses that become increasingly difficult for competitors to displace.
Start by asking yourself: Do I truly understand the price of entry in my market? Am I winning or losing on experience differentiation? And are my market expansion efforts strategic or merely opportunistic?
The answers to these questions will tell you everything you need to know about where to focus next.
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NeWTHISTle Consulting
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Copyright © 2025 NewThistle Consulting LLC. All Rights Reserved
NeWTHISTle Consulting
DELIVERING CLARITY FROM COMPLEXITY
Copyright © 2025 NewThistle Consulting LLC. All Rights Reserved
NeWTHISTle Consulting
DELIVERING CLARITY FROM COMPLEXITY
Copyright © 2025 NewThistle Consulting LLC. All Rights Reserved