Reframe the Game: Why the Best Companies Don’t Stay in Their Lanes

By the early 2000s, Amazon had become the dominant player in online retail. But that growth created its own problems. To meet demand, teams found themselves rebuilding the same infrastructure, from data centers to databases. To reduce costs, Amazon decided to build shared internal services so developers could access computing power and storage on demand. That’s when Jeff Bezos and his team had a realization. Amazon was quickly becoming one of the world’s largest providers of technology infrastructure. Maybe other people could use what Amazon had built.

That insight gave birth to Amazon Web Services, and created one of the most consequential business expansions in modern history. What started as a toolkit for internal developers became a product for the rest of the world. AWS grew to be the most profitable part of Amazon’s empire, with an annual run rate at $132 billion. Today, Amazon makes a lot more money from selling computing power than it ever did from selling books.

Every successful company has to play its game better than competitors. But great companies also find new games to play. Those new games can reignite growth. They can help a company move into a more profitable sector. And occasionally, they can help a company reinvent itself for generations to come.

Rethinking Where to Play

IBM started out making weighing scales for grocery stores. It eventually expanded into punch card machines, then vacuum-tube computers, mainframes and PCs. Today, IBM is a professional services giant and leading provider of AI enterprise solutions.

Other companies have made similar transformations. Toyota began life making textile looms. Samsung was a trading company that sold dried fish and noodles. Nintendo got its start making playing cards. Nokia started out as a paper mill. Those shifts helped those companies to stay relevant as the world changed. And they helped create outsized returns that wouldn’t have been possible in the old businesses.

Michael Porter was one of the earliest proponents of rethinking where a company plays, not just how it wins. A professor at Harvard Business School, Porter was an industrial economist. His work showed that competing on the same ground – the same products, same customers, same cost structures – inevitably drives companies toward price competition and margin erosion.

Porter’s key insight was that if you’re locked into a particular market, you’ll forever be a hostage to its competitive forces, squeezed profit margins, and limited running room. If you were Smith Corona bestriding the market for typewriters in the 1950s, no amount of operational efficiency or pricing strategy was going to save you from what was coming next.

By contrast, the companies that create the most value are those that break away from head-to-head competition and redefine the space they operate in. They choose new arenas to leverage their strengths and increase their profitability.

They reframe the game.

Of course, most leaders don’t think like that. Execs spend most of their time focusing on how to win in their existing game. They don’t rethink where to play. That’s understandable. From the perspective of one business, it can seem crazy to contemplate a second. The CEO of a large bank I was advising once joked to me that there was a limit to how far he would go in considering new markets. “Yeah, we should figure out how we can grow. But let’s be clear, we’re not going to start making men’s suits, right?” That seemed reasonable. But a bank that shifts to suit making isn’t any crazier than a bookstore that shifts to AI infrastructure.

It’s no coincidence that tech firms are the most consistent and smartest where-to-play practitioners. Because they own relatively few physical assets, like factories and machinery, they suffer less from loss aversion – the big psychological and financial block that prevents many leaders from moving on to new games. 

While sticking to your core feels safe, it can actually be the more dangerous path. Whatever business you’re in, the future is coming to change, undermine, and eventually destroy it. The best leaders understand that it’s imperative to shape-shift based on their reading of the coming opportunities and threats. 

To be sure, exploring new places to play can have its share of failures. A decade after AWS, Jeff Bezos decided to make a mobile phone and go head to head with Apple and Samsung. The Amazon Fire Phone would be stacked with cutting-edge features and showcase everything Amazon had to offer. A year after its launch, the Fire Phone was given a merciful death.

Where-to-Play decisions need to be aligned with your company’s core capabilities. They need to reinforce and complement your existing businesses. And they need to develop new opportunities, not just existing markets.

Leverage Your Abilities

The most important factor in deciding where to play is knowing your abilities. What are we actually good at? A company’s abilities – the things its people know how to do better than others – should guide its journey into new realms.

That’s why AWS was a more natural evolution for Amazon than it seemed. As it struggled to build the data centers and databases to handle its growth in the early 2000s, Amazon was developing unique expertise that Bezos realized had the makings of a new business. If Amazon was wrestling with this problem, so was every other e-commerce company.

The seeds of transformation are often right in front of you. AWS didn’t arise from a clever acquisition or a consulting firm’s advice. It came from recognizing an existing strength and imagining how to develop, apply, and commercialize it. AWS isn’t just a business offshoot – its outsized profitability, accounting for about 60% of Amazon’s total operating income, has made it a driving force for the whole Amazon empire. It enables the company to operate Amazon Prime at what is widely assumed to be a loss, putting unrelenting pressure on retail competitors like Walmart and Target.

Find New Life in Death Scenarios 

There’s a second fundamental question to ask before pushing into new markets: What’s coming to kill us? Many successful entries into new markets have resulted from leaders seeing a danger in the distance and taking action to avoid the threat.

In the early 2000s, UnitedHealth Group recognized that the traditional health insurance model was becoming unsustainable. Medical costs were increasing and were on track to blow past premium increases. While the company was trying to better manage costs, it lacked visibility into the clinical data that could help it manage costs and improve patient outcomes. In 2011, the company launched Optum, a separate business focused on data analytics, pharmacy benefit management, and healthcare operations.

Like Amazon with AWS, UnitedHealth Group was able to leverage and repurpose existing capabilities to support the new venture. It owned a business called Ingenix that had been providing data analytics and health information services since the 1990s. It had the data engineers, clinical informaticists, software developers, and predictive modelers that UHG needed for Optum. Optum has since become a major force across the U.S. healthcare system, accounting for nearly half of UHG’s revenues. What started out as a defensive move in response to a death scenario became an enormous new growth and profit engine for the company.

Look for Reinforcing Moves

Both AWS and Optum helped to make the core business stronger. AWS helped Amazon manage its growth. Optum helped UnitedHealth deal with skyrocketing costs. Optum Insight (the successor to Ingenix) uses analytics and automation to reduce claims leakage and fraud, helping UHG improve its efficiency and pricing accuracy. This reinforcement of existing businesses is a marker of how successful firms choose where to play. 

When the automobile revolution was getting underway in the early 1900s, General Motors realized that the high price of cars would be a significant barrier to adoption. So, GM started GMAC to provide dealers and drivers with credit. Over the next century, GMAC grew into a diversified financial services company, providing everything from insurance to mortgages. By the time GM sold its controlling interest in 2006, GMAC was generating nearly $2.4 billion in annual net income. Today, it’s the core of Ally Bank.

Look for Opportunities over Markets

The biggest reason why attempts to play elsewhere fail is that leaders focus on existing markets, rather than new opportunities. The standard business mentality is to try to break into markets based on pie charts showing their size, equating a bigger market with a bigger opportunity. But a big market means that people are already playing there. A successful where-to-play move often involves entering a new opportunity space where there isn’t a whole lot of existing market activity.

That was the problem with the Fire Phone. Amazon’s device wasn’t bad in terms of its capabilities. Its biggest problem was that it was entering a market already dominated by two giant sharks – Apple and Samsung. People’s smartphone needs were being well taken care of. And the Fire Phone didn’t offer anything dramatically different. Contrast that to AWS, which met a huge unserved need.

Reframe the Game

For leaders, the message is clear: widen your horizons and ask questions that take you out of your comfort zone. What capabilities do we have that could power an entirely new business? What threats demand that we reinvent ourselves now, not later? Where are the opportunity spaces our competitors can’t see? 

Start with the abilities you possess and what they could unlock. If you lack deep expertise in a new market, go in with a beginner’s mindset and give yourself the time to learn it. Prioritize moves that reinforce your core business, creating flywheel effects like Optum did for UHG. Above all, focus on unmet needs, not market size.  Lean into this, and your company has a much better chance of a long life, redefining itself and shaping the future instead of being swallowed by it.