André Michelin knew the problem: there weren't enough cars.
What was it now — 3,000 in the entire country? Less? Hardly enough to build a business around, particularly from the relatively small city of Clermont-Ferrand.
But along with his brother, Édouard, André was an innovator. Since taking over their grandfather's virtually defunct hose manufacturer in 1886, the duo had resurrected Michelin through a series of deft moves. Chief among them was Édouard's creation of the pneumatic tire, first for bicycles, then for automobiles. The younger brother's invention had proven a marked improvement on the status quo, making replacing and repairing wheels significantly easier. It became the cornerstone of the revamped company.
Still, the brothers kept running into the same problem: the market was too small. There were too few cars, and those that did exist weren't driving enough. Few used their automobiles to take the kind of long journeys that would produce significant wear-and-tear and precipitate the purchase of new treads.
So André hatched a plan unusual in its far-sightedness and obliqueness: the company would launch a guidebook designed to promote travel by car. In 1900, the Michelin Guide was born.
It proved to be an extraordinarily savvy business decision. Though it began as a free resource for motorists, featuring maps and automotive information, the Michelin Guide became a defining cultural and gastronomical resource. It succeeded in encouraging touring (and thus increasing the purchase of tires) and creating a story that others began to tell themselves to tie to their values and identity. In that respect, Michelin's move is perhaps the purest example of "soft power" applied to the corporate world. Rather than winning with might or money, the manufacturer appealed with its ideas.
As the tech sector grows more capitalized and professionalized, this kind of persuasion may become even more relevant. In the decade to come, we should expect startups of different sizes to develop soft power initiatives alongside their core offerings. Those that do will succeed not only in building distribution but popularizing the narrative that defines their business. They will create a story that wins. That can have wide-reaching effects, both tangible and vaporous.
In today's briefing, we'll explore the following:
- Defining soft power
- Differences between soft power and traditional marketing
- How the venture capital asset class accelerates the need for soft power
- How Robinhood, Stripe, a16z, and others are winning
- The future of soft power
An introduction to soft power
In the firmament of international affairs, few shine as brightly as Joseph Nye. Arguably, no thinker articulated power in the post-Cold War era better than the former dean of Harvard's Kennedy School. In a 1990 edition of Foreign Policy magazine, Nye described the new methods of influence open to nation-states, coining the phrase "soft power."
Nye's argument was, essentially, that independent action was often untenable in an increasingly interdependent world. The "hard power" of military force or economic clout had diminished in the face of multi-nodal complexity:
Although the United States still has leverage over particular countries, it has far less leverage over the system as a whole. It is less well-placed to attain its ends unilaterally, but it is not alone in this situation. All major states will have to confront the changing nature of power in world politics.
For Nye, there was a clear alternative to this approach. If hard power won through coercion, soft power sought to seduce through influence. In a later address, Nye explicitly outlined this new source of strength:
Hard power can rest on inducements ("carrots") or threats ("sticks"). But sometimes, you can get the outcomes you want without tangible threats or payoffs. The indirect way to get what you want has sometimes been called "the second face of power." A country may obtain the outcomes it wants in world politics because other countries admire its values, emulate its example, aspire to its level of prosperity and openness. This soft power—getting others to want the outcomes that you want—co-opts people rather than coerces them.
Though most closely associated with foreign policy, Nye believed in soft power applied to non-governmental organizations, including those in the private sector. While businesses didn't exercise hard power in the same way as a nation might — Apple does not kick your door down and force you to buy an iPhone — soft power functions similarly.
In the business world, smart executives know that leadership is not just a matter of issuing commands but also involves leading by example and attracting others to do what you want.
This passage highlights a critical distinction for Nye. Soft power is about attraction.
[S]oft power is more than just persuasion or the ability to move people by argument, though that is an important part of it. It is also the ability to attract, and attraction often leads to acquiescence. Simply put, in behavioral terms, soft power is attractive power. Soft power resources are the assets that produce such attraction.
This enunciation makes it easier to place soft power into a business context. In citing examples of corporate soft power on Twitter, a common refrain rose: How is this different from marketing?
Framing the inquiry in the world of this article, the question becomes: is the Michelin Guide just content marketing? Or is it somehow different? Is every corporate Medium account an example of soft power, or is more needed to attain that descriptor?
Let us try and answer the question.
Differences from marketing
In Against Interpretation, Susan Sontag argues that modern hermeneutics have destroyed our understanding of art. Rather than grapple with form — a work's physicality and structure — we have become obsessed with content. This has left us incapable of genuinely seeing art, relying instead on short-hand interpretations, vision clouded by theory.
To distinguish between soft power and traditional marketing, we must look at both content and form.
Let's begin with content. The concept of "attractive power" helps make a differentiation here (after all, how "attractive" is the average Medium banality), as does one of Nye's later passages. In an attempt to reckon with the age of the internet, Nye remarks, "Politics in an information age may ultimately be about whose story wins."
While Nye is speaking about politics here, it implies a personality for soft power that assists in disambiguating the content of soft power and marketing. That difference is roughly the distance between a sales pitch and a story.
By definition, marketing content seeks to sell. The text is scripted, geared toward producing a specific outcome. Its content makes a demand: will you do this? Language seeks an explicit end. For example, Michelin's marketing content looks something like this:
It focuses on the product, enunciates its benefits, and seeks to drive toward a purchase.
Soft power acts more gently, like a story. No explicit demand is made of the listener, and as a result, a state of openness is achieved. The content of soft power is more symbolic or metaphorical, enforcing values and norms through narrative. Browsing a Michelin guide, by contrast, operates subtly. Few references to tires are made; it is possible to peruse many of them without making a connection between guide and parent company.
Rather than trying to drive a specific outcome, then, Michelin guides' content bolsters the parent company's story, its worldview. That might be summarized as: the world is smaller than you think. Magic is within reach. If that story sticks, you may prove to be the kind of car-driving traveler ideally suited for Michelin tires.
Though there may be occasional blurred lines, marketing and soft power rely on fundamentally different content types. One is a sale, the other, a story.
Marketing and soft power initiatives differ when it comes to form, too. Each may demand a different vehicle.
Since marketing looks to drive a specific outcome, it is often best when tied closely to the company. It might make sense to pump out content marketing on the business's blog page if you're trying to optimize for subscribers or commercial inquiries within a specific timeline. You're trying to create a funnel from content to commerce that can be improved upon over time. Similarly, marketing initiatives may make most sense when explicitly branded by the company — if prioritizing brand recognition or website visits, visibility is preferable.
We can usually feel when we are being sold to, and we don't like it much. In that respect, soft power initiatives may work best when sitting orthogonally to the central business, seemingly unconcerned with driving a specific outcome. Books or short films feel so out-of-kilter with modern digital marketing that it's almost hard to take them seriously as attempts to generate tangible ROI. That makes them the perfect, disarming vehicle for a soft power play.
Through the disambiguation conducted above, we arrive at a practical definition of soft power, distinct from marketing. It is the combination of an attractive story (content) and an indirect vehicle (form).
Beyond that, we can say that soft power looks to operate on a longer time horizon and pursues intangible value creation. That raises a new question: is it worth the trouble?
It hardly sounds like the most enticing endeavor: complex, high-effort, and with an uncertain outcome. Why does anyone bother with soft power?
The truth is that in the search for an edge, in a quest to influence customers, companies may have few better options. That's thanks to the erosion of four strategic advantages upon which startups could once rely:
- The availability of funding has weakened capital advantages.
- The popularity of startups and availability of wisdom has diminished first-mover advantages.
- The rationalization of performance marketing has hamstrung acquisition advantages.
- The noisiness of social channels has impeded distribution advantages.
Money is more available than ever, making it harder to build up a capital advantage. That has been caused by the growth in the venture capital asset class. In 2008, investors allocated just $53 billion toward startups; in 2020, the figure reached $300 billion. That's created an environment in which similar businesses accumulate massive funding in a relatively short amount of time.
Brex ($1.2 billion raised) might have been early to providing startups credit, but Ramp ($310 million), Rho ($120 million), and others have quickly given chase. While hundreds of millions of dollars once looked unassailable, now it's merely validation.
Arguably, first-mover advantages have diminished in recent years. As tech has increased in popularity, industry information and parochial wisdom have spread. This makes it easier for willing entrepreneurs to identify exciting business ideas in the market and fast-follow, leveraging existing playbooks. For example, within a year of GPT -3's release, a wave of AI copywriting tools have emerged, notably Copy.ai and Copysmith.
Faced with a pitched battle, startups often turn their resources toward acquisition. Here too, competition has sanded away edges. Whereas once Facebook and Instagram marketing represented a relatively untested channel, making it particularly rewarding for those that mastered it, the world has caught up. Every well-backed business can afford to hire a performance marketing guru to run and optimize campaigns, making it ever-harder to outperform competitors.
As the author of a Forrester report on the ad industry noted:
It's harder to reach audiences, the cost of marketing is going up, the number of channels has exponentially proliferated, and the cost to cover all of those channels has proliferated.
Rising costs and competition have prompted some businesses to look to build up social distribution. Rather than relying on paid marketing, companies seek to build organic followings. This is a form of content marketing exercised within the confines of a particular channel, whether that be Twitter or TikTok. While there is less of a precise formula here, particularly on newer platforms like TikTok, the noisiness of these platforms presents a problem in itself. While ad dollars ensure some degree of visibility, no such promise exists for organic social posting. Companies often find themselves lost in a sea of brighter, funnier, more authentic voices.
Narrative and magnetism
To present soft power as simply a last resort would be misleading, though. Though traditional advantages may be disappearing, exercising soft power represents an opportunity irrespective of their health.
That's because companies that popularize a compelling story about themselves achieve a kind of magnetism. By distilling its worldview into a phrase or meme (in the Dawkinsian sense of the word), companies earn enduring mindshare and create a sense of destiny or mythology.
Think, for example, of Stripe. What is the first phrase that comes to mind?
I would guess some variation of "increasing the GDP of the internet." That you know it at all is remarkable — how many payments companies have a story that rolls off the tongue? That framing is part of a larger story Stripe is telling, bolstered by soft power initiatives. (We'll discuss them a little later.)
What has been the effect of that one articulation?
Stripe would be successful without it, of course. There is much more to that business than a tagline. But distillations like this can, I believe, subtly alter the trajectory of a company. It's a narrative that is magnetic to investors (simplifying the complexity of the product and enunciating an unusual, precise view of the internet), talent (advancing a desirable mission that feels worth working on), and the broader ecosystem (signaling this is not just a payments company).
This is a slightly uncomfortable argument to be making, of course, in that it's so utterly unprovable. And yet, if that phrase — and the rest of the story Stripe is telling — has simplified recruitment by just a few percentage points or convinced a few key investors, it will have had an extraordinary impact. As Nye noted:
If a state can make its power seem legitimate in the eyes of others, it will encounter less resistance to its wishes.
Ultimately, soft power provides a smoothing of the terrain in front of you, a greasing of the wheels. To date, few have mastered it.
We have by now established the composition of soft power and impact. Why then do so few tech organizations seem to have aced this art?
Soft power is a subtle dance that requires skill and patience. Many may find themselves consumed with more urgent priorities. Others may need convincing of its importance. Even those with time and will can struggle to land on a good story and may find it equally challenging to develop a suitable vehicle for that message.
In today's landscape, three organizations stand out as modern masters: Robinhood, a16z, and Stripe. Each has a straightforward story and a powerful vehicle through which to share it.
(It's worth saying that the discussion of these company's stories is just my interpretation. While I have developed it by reviewing public materials and positioning, it is by no means definitive. Those with intimate knowledge may be able to refine my articulation, which I'd be glad to hear.)
With an IPO around the corner, Robinhood's soft power chops have come into sharper focus. While the company may not know whether it's a social app or fintech company, it has a clear worldview and has found a suitable form to express it.
The story Robinhood wants to tell is this: capitalism is for everyone. No matter who you are, you should be able to participate in the markets and have a good time in the process.
Snacks has proven an excellent vehicle for this story. After purchasing the media company in 2019, Robinhood has expanded its audience to reach 32 million subscribers. The witty, playful banter of the Snacks' podcast hosts invites involvement in business issues but makes no direct sell. (There are regulatory restrictions that would make this thorny territory, too.) Instead, Snacks spreads the gospel of participatory capitalism. Just as the Michelin Guide fortified the parent company's message that the world is smaller than you think, thus prompting tire sales, Snacks' demonstration that it's fun to be a part of the markets encourages investing.
Though venture capitalists have spent much time and money on branding exercises and content marketing, definitive philosophies are uncommon. Plenty of websites are adorned with information on the kind of founders a firm seeks out or the help they offer. But it's unusual to see a VC articulate what they believe about the world. (Thesis-driven funds sometimes get close, but these usually map out a commercial opportunity rather than disclose an overriding ontology.)
A16z is the rare VC with an attractive, crystalline story: technology is good. Entrepreneurship and innovation are what move the world; those that build are worthy of high esteem.
This is a simple, powerful message to which many organizations might wish to lay claim. A16z effectively makes it “theirs” by dint of their impressive reputation and talent for storytelling. "Software is eating the world" and "It's time to build" are masterful in their concision; both feed into the suprastory of tech-optimism and intertwine a16z with this narrative.
The firm has an exceptional content arm that produces podcasts, videos, live shows (via portfolio company Clubhouse), and written work. But it is in its newly-minted media division, Future, that a16z may have found the best interpreter for its story. The name (and domain: future.com) hammer home a16z's belief system that tech can make the future extraordinary. While other media outlets often focus on the industry's foibles, Future elevates its most valuable work. This is not conveyed with Panglossian naivete but is thoughtfully articulated and curated. Few connections are made to a16z directly, with the site focusing on the writing itself.
At last, we turn to Stripe. As discussed in our coverage, Stripe is one of the most adventurous interpreters of soft power. Like Robinhood and a16z, the fintech company has a story: progress is not an accident. The concerted effort of great builders and thinkers propels humanity.
This encapsulates memorable positioning, including "Increasing the GDP of the internet," as well as "Ideas for progress." The company disseminates values associated with this story through three vehicles: Increment magazine, Stripe Press, and Indie Hackers.
Increment is the least relevant here. A digital and print magazine about building software, the publication is beautifully produced yet seems too close to Stripe's milieu. In its practicality, it also calls on the figurative world less explicitly. Even though it's nearly devoid of any connection to Stripe, it still feels more like content marketing.
Despite its direct affiliation, Stripe Press provokes an entirely different feeling. It's an example of how form affects soft power. By focusing on actual, physical books — and giving them a loving, literary treatment — Stripe shows this is a project situated firmly outside the world of "marketing." Rather, this is a place for Stripe to demonstrate its ideological affinities and reinforce its philosophical positioning. The affection this project has earned suggests it has found distribution.
Indie Hackers (IH) is the final piece of Stripe's soft power architecture. While the company created the previous initiatives in-house, Stripe acquired IH in 2017. Patrick Collison's rationale for the purchase echoed a familiar logic:
[O]ur goal in acquiring Indie Hackers is to simply ensure that the site becomes as successful as possible. The Stripe upside we're hoping for is that more companies get started and that they're more successful. We already see a very large fraction of new internet companies choose Stripe; we're mainly hoping that Indie Hackers can help us grow the overall number rather than to grow our fraction. (Our product has to do the latter part.)
Just as the Michelin brothers launched guides to increase automobile usage, Stripe's incorporation of IH is aimed at expanding the market.
In the four years since, IH has retained its sense of independence, with Stripe's benevolent ownership serving as a reminder that what matters to this company is progress, above all.
How can companies address deficits in soft power? The answer may come from the creator economy.
As those that have followed this newsletter know, the last few years have given rise to an unbundling in media. Platforms like Substack have drawn talent from traditional outlets while spawning a new generation of creators. This has allowed many to make an income from their abilities, but it is a tricky business. As Dave Nemetz highlights, succeeding in this world requires a mix of "creativity," "audience building," and "operational excellence."
Though the sector is awash with talent, much of it is untethered, learning to execute on the fly, trying to duct-tape together infrastructure in tandem with artistic expression. The result is a fractured, semi-professionalized ecosystem in which creators vie for consumer attention. While some will prefer to succeed on their terms, either learning or adding missing skills, many excellent storytellers may feel most effective when supported by a more mature business.
One solution could be patching on storytelling capabilities via acquisition.
Just as developers patch up weaknesses in their code, businesses can seek to address missing pieces through M&A. Bringing onboard a creator company can solve problems for both parties: providing security and liquidity for creators and bringing soft power to businesses.
In many ways, this might make more sense than seeing legacy media businesses bundling up the budding creator class.
For one thing, tech companies are likely in a better position to buy. Many are arguably over-capitalized, looking for creative ways to put money to work. Brex, for example, purchased a restaurant in San Francisco after it raised $380 million. Investing in narrative capabilities and distribution might represent a more impactful acquisition.
Secondly, tech companies are arguably in need of creators' abilities most. While media conglomerates already have distribution and narrative chops, this is considerably rarer in other businesses, as we've established. Neatly, an acquisition also solves the matter of obliqueness: while some companies can spin up soft power initiatives in-house that manage to operate with admirable subtly, it is a difficult needle to thread. Buying an existing creator business solves this problem — part of the reason Snacks and IH work so well is this slight remove.
Valuing these creator companies may present a particular challenge. While looking at traditional metrics offers one approach, the real question buyers ask themselves is: how does this impact the existing business? Given the intangibility of soft power, that query is tough to answer and rather idiosyncratic. And yet, to look only at the downside would be foolish — how might a cleaner narrative and inbuilt distribution change the magnetic field of a business?
Beyond Robinhood and Stripe, others have made such a gamble.
In 2020, marketing software company Hubspot acquired The Hustle for a reported $27 million, bringing onboard the eponymous daily newsletter, a premium research product (Trends), and the My First Million podcast.
Barstool Sports' sale can be seen similarly. After first selling a majority stake to the Chernin Group, Barstool sold 36% to Penn National Gaming, with ownership increasing to 50% by 2023.
Both look like savvy patches, adding narrative capabilities and distribution. They will certainly not be the last of such transactions.
In particular, those operating in commodified fields with highly variable outcomes may find a soft power patch critical. Venture capital fits this bill, of course. In a sea of undifferentiated funds, how revolutionary might it be to have a respected storytelling entity onboard? What effect would the addition of a creator business like the Acquired podcast, Out of Pocket, Not Boring, Lenny's Newsletter, Visualize Value or some other entity have on winning a deal? When the outcome of winning one great deal can be so monumental — returning a fund many times over — what is the value of an entity that raises your odds, across the board, by a few percentage points?
(This is not intended as a comment on the saleability of the creator companies mentioned above — I'm sure many would not want to sell. Only that they do outstanding work and have obvious soft power value.)
In this light, the solution to being storyless looks obvious: buy the storyteller.
"Power is also like love, easier to experience than to define or measure, but no less real for that."
Nye's words feel especially true of the type of influence he identified: soft power. While military and economic strength has obvious manifestations, stories, values, and shared beliefs are impossibly immaterial. And yet, as the man himself notes, that does not make them less real. Soft power is still power, after all.
As tech companies and capitalists find themselves constrained by an increasingly competitive, cacophonous environment, they may realize that exercising control is best managed through subtle means. That may see more organizations emulate masters like a16z and build in-house operations or follow companies like Robinhood and Stripe, patching storytelling abilities via acquisition.
It may work almost invisibly, but the age of soft power is here. It will be happy to go undetected.
*There is no good place to put this bit of trivia, but I can't, in good conscience, leave it out. In his native France, the Michelin Man's name is "Bibendum," taken from the Latin phrase, "Nunc est bibendum" or "Now is the time to drink." Not exactly the best name for a company equipping drivers. It was a reference to Michelin's promise to "drink up obstacles" it faced. Look at this nightmare.
The Generalist’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. Our work may feature entities in which Generalist Capital, LLC or the author has invested.
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