In 2000, Netflix was a $36 million company losing money mailing DVDs in red envelopes. Blockbuster ran about 4,300 stores and booked close to $5 billion a year. Reed Hastings flew to Dallas and offered to sell Netflix to Blockbuster, or to run Blockbuster’s online arm while the stores promoted Netflix. The room laughed him out of the building. The decision looks insane now. It was not insane then, and understanding why it was not is one of the most useful things a product manager can learn about strategy.
Blockbuster did not ignore Netflix because its executives were stupid. They ignored it because responding would have cost them more than ignoring it did, right up until the moment it killed them. Late fees made up roughly half of Blockbuster’s revenue. Netflix’s entire pitch was no late fees. For Blockbuster to copy the model, it had to take a hammer to its own income statement on purpose, with no guarantee the replacement revenue would ever show up. So it hesitated, dabbled, and lost.
This pattern has a name. Hamilton Helmer, the strategist who advised Netflix and Adobe, calls it counter-positioning in his book 7 Powers. It is the most underused idea in product strategy, and it is the one I keep returning to after two decades of watching incumbents sit on their hands in telecom and IT operations.
What counter-positioning actually is
Helmer defines counter-positioning as a position where a newcomer adopts a new, superior business model that the incumbent cannot adopt without damaging its existing business. Two conditions have to hold at the same time.
The first is the benefit. Your model has to produce genuinely better economics: higher margins, lower costs, less capital tied up, or some combination. A cheaper version of the same business is not counter-positioning. That is a price war, and against a bigger balance sheet you will usually lose it.
The second is the barrier, and this is the part most people get wrong. The barrier in counter-positioning is not a patent, a trade secret, or technology the incumbent can’t build. They can see exactly what you are doing. The barrier is that copying you would force them to cannibalize a profitable business they already own. What protects you is not that they can’t follow. It is that they won’t, because the math on their own balance sheet tells them not to.
That second condition is what makes this so different from how most PMs think about defensibility. We are trained to ask, “What can we build that competitors can’t?” Counter-positioning asks a sharper question: “What can we build that competitors won’t, because following us would hurt them more than it hurts us?”
The cases that prove the point
The cleanest example is Vanguard. When Jack Bogle launched low-cost index funds, the technical barrier was zero. Fidelity could have launched its own index funds any Tuesday it wanted. It chose not to, again and again, because passive funds charging almost nothing would have cannibalized the rich fees Fidelity earned on actively managed funds. The capability was never the issue. The collateral damage was. By the time low-cost indexing was undeniable, Vanguard owned the position.
Dollar Shave Club ran the same play against Gillette. A direct-to-consumer razor subscription was not hard to build. The problem for Gillette was that it sold through Walmart, Target, and the drugstore shelf, and those retail partners would have been furious if Gillette had launched a model that routed around them. Gillette was trapped by the very distribution that made it powerful. Unilever bought Dollar Shave Club in 2016 for a reported $1 billion when it was doing around $225 million in sales.
I watched a smaller version of this for years in regional telecom. A scrappy entrant would show up with a lower-cost service model, and the established carrier had every resource needed to crush it: more engineers, more capital, an installed base. And it would do nothing meaningful, because the entrant’s pricing sat below the margin the incumbent had promised its own leadership and, in public companies, its shareholders. Matching the entrant meant repricing the whole base downward and explaining a worse quarter on purpose. Nobody volunteers for that. So the incumbent protected this quarter and surrendered the next five years. I sat in rooms where that decision was made, in almost those words, more than once.
Why incumbents really freeze
It is tempting to chalk this up to incumbents being slow or dumb. Helmer’s point is the opposite: their inaction is usually a thoughtful, rational calculation, and that is exactly what makes it reliable. A few forces stack up.
The loss is certain; the gain is a guess. If the incumbent matches you, it knows precisely what it surrenders: the margin on its current business. What it gains is speculative. Certain pain weighed against uncertain upside almost always loses inside a large organization.
The new model signals that the old one was a mistake. Committing to your model is an admission, internally and to the market, that the cash cow has a shelf life. Leaders who built careers on the old model are not eager to ring that bell early.
Half-measures feel safer than they are. The incumbent usually puts a toe in the water. Blockbuster eventually launched an online service. It just refused to wound its store business enough to make the online business win. Dabbling looks like a response and functions like a surrender.
When you understand these forces, you stop hoping your competitor will be incompetent and start engineering situations where their competence works against them.
Where this breaks, and it does break
Here is the part the strategy-book version usually skips. Counter-positioning is not a permanent moat. It is a head start that lasts exactly as long as the incumbent’s cannibalization math stays unfavorable. When the threat turns existential, that math flips, and incumbents will eat the cannibalization rather than die.
Robinhood is the cautionary tale. Commission-free trading was textbook counter-positioning against Schwab, E*Trade, and TD Ameritrade, all of whom earned real money on per-trade commissions. For years they did not match it. Then in October 2019, Schwab cut commissions to zero, and within days E*Trade, TD Ameritrade, and Interactive Brokers all followed. The incumbents finally decided that protecting commission revenue was worth less than losing a generation of customers, and they swallowed the loss in a single week. The disruption was real enough that it helped trigger the Schwab and TD Ameritrade merger soon after.
Two lessons sit inside that story. First, counter-positioning buys you time, not safety. Robinhood used the runway to build a brand and a base, which is exactly what you are supposed to do with the head start. Second, the moment your wedge stops being a niche the incumbent can dismiss and starts looking like their whole future, expect them to absorb the pain. Plan for the response. Do not assume permanent paralysis.
How to actually use this as a PM
You do not need to be founding a company to put counter-positioning to work. You need it any time you propose a bet that a larger competitor could obviously copy.
When you pitch a strategy, run the collateral-damage test on your rivals before you run it on yourself. Ask, specifically, what the dominant competitor would have to give up to match this move. If the honest answer is “nothing, they would just do it,” you do not have a defensible position; you have a feature they will ship in their next release. If the answer is “they would have to cannibalize their highest-margin line, blow up a channel relationship, or repudiate their own positioning,” you may have found something durable.
Then pressure-test your own benefit. Counter-positioning fails the instant your model is merely cheaper rather than structurally better. A real position usually shows up as a different cost structure, a different revenue model, or a different relationship with the customer, not a discount. If you cannot name the structural advantage in one sentence, you probably have a price cut wearing a strategy costume. This is the same discipline behind treating pricing as a core part of product strategy rather than a number you set at the end.
Finally, look at it from the other chair. If you work inside the incumbent, counter-positioning is the threat model nobody wants to name in the planning meeting. The entrant you are dismissing as a toy is often counter-positioned against your best business, which is precisely why your instinct is to dismiss it. The uncomfortable move is to ask whether you would be willing to cannibalize your own margin before someone else forces you to at a worse price. That is the real subject of cannibalize or be cannibalized, and it is where most incumbents discover their courage about three years too late.
The thing I want you to take from Blockbuster’s laughing executives is not that they were fools. It is that smart, well-resourced, rational people will watch you win and choose to do nothing, as long as fighting you costs them more than losing to you. Strategy is partly the craft of building the kind of advantage that turns their competence into your protection. When you find a position your strongest competitor could copy but will not, you have found something far more durable than a feature, and far rarer than most roadmaps admit.
If you want to sanity-check whether your current position has any of this defensibility built in, the competitive position check is a useful place to start, and winning the smallest market you can actually defend first is how most counter-positioned companies got their footing before anyone took them seriously.