A few times a month, I listen to Lenny’s podcast. The interviews are great, but the one I heard recently is a must listen: His interview with Jag Duggal, the Chief Product Officer of Nubank.

Jag has this mantra, “We’re in the business of being fundamentally different, not incrementally better”, that I’m going to unpack. BTW,  Nubank is a decacorn bank founded in Brazil. It’s valued at over $30 billion! It’s bigger than Bank of America. 80% – 90% of their growth is driven by word of mouth.

Anyway, let me unpack this for you.

Most companies are trapped in the optimization game. They chase faster loading times, cheaper prices, and slightly better features; they think 10% improvements will somehow compound into breakthrough success. They’re wrong.

Here’s the hard truth: incremental improvements keep you alive, but they rarely make you irreplaceable. While your competitors are fighting over marginal gains in the same tired playbook, the real winners are rewriting the rules entirely.

The Problem: Everyone’s Swimming in the Same Lane

Walk into any boardroom and listen to the strategy discussions. You’ll hear the same language repeated like gospel:

• “We need to be 20% faster.”
• “Our pricing should undercut them by 15%”
• “Let’s add three more features to match their offering.”

This is incremental thinking, and it’s a trap. When you compete on incremental improvements, you’re accepting someone else’s definition of the game. You’re fighting for scraps in a crowded market where differentiation becomes impossible and margins get compressed to nothing.

BlackBerry mastered this trap perfectly. They continued to build incrementally better phones with physical keyboards, faster email, and enhanced security. Each release was objectively superior to the last; each release also became increasingly irrelevant. Why? Because while they optimized within their existing framework, Apple was busy redefining what a phone could be.

The Analysis: Why Incremental Fails and Fundamental Wins

The mathematics of customer behavior reveals why incremental improvements rarely drive meaningful growth:

1. The Switching Cost Barrier
Customers don’t switch for “slightly better.” The friction of change, learning new systems, breaking habits, and risking disappointment, outweighs marginal improvements. You need to offer something so different it feels like a leap forward, not a tiny step.

2. The Comparison Problem
When you’re incrementally better, you invite direct comparison. Your 10% improvement gets weighed against their 8% price advantage. You’re stuck in a features arms race where everyone eventually catches up. Fundamentally different products escape comparison because they change the criteria entirely.

3. The Asymmetric Payoff Structure
Incremental improvements deliver predictable, linear returns. Fundamental differences create the possibility of exponential outcomes: new market categories, pricing power, and defensive moats that competitors can’t easily replicate.

Consider Southwest Airlines. They didn’t become successful by offering slightly better service than American or Delta. They fundamentally reimagined what an airline could be: no assigned seats, no hubs, no frills, but dramatically lower costs and higher frequency. They weren’t competing for the same customers; they were creating new ones.

The Solution: A Framework for Fundamental Differentiation

Stop asking “How can we be better?” Start asking “How can we be different?”

Here’s how to think about it systematically:

1. Identify Your Current Game
What rules are you unconsciously following? What assumptions does your entire industry share? List the “obvious” ways your market operates; these are your constraints to break.

Example: Netflix looked at video rental and saw everyone fighting over store locations, inventory management, and late fees. They asked: What if there were no stores, no inventory limits, and no late fees?

2. Find the Fundamental Lever
Look for changes that alter the core equation of your business:

• Cost structure: Can you eliminate major cost centers that others can’t?
• User experience: Can you remove friction that others consider necessary?
• Distribution: Can you reach customers through completely different channels?
• Business model: Can you monetize differently than everyone else?

3. Test Your Differentiation
Apply this simple filter: If you disappeared tomorrow, would the market lose something truly unique, or just another version of what already exists?

If customers could easily replace you with a competitor, you’re not fundamentally different enough.

4. Embrace the Discomfort
Fundamental differentiation feels risky because it is risky. You’re betting that your different approach will create new value, not just rearrange existing value. This uncertainty separates the truly strategic leaders from the optimization crowd.

The Practical Implication: Use Both, But Know the Difference

I’m not suggesting you abandon incremental improvements entirely. Incremental keeps you in the game; fundamental helps you win it.

Use this mental model:

• Incremental improvements = better sameness
• Fundamental differences = different game

Spotify understood this perfectly. They made incremental improvements to their streaming quality and recommendation algorithms, necessary to compete. But their fundamental difference was the shift from ownership to access, from purchasing individual songs to unlimited streaming for a monthly fee. That fundamental shift, not their incremental improvements, created their moat.

Your Next Move

Before your next strategy session, write these questions on the whiteboard:

1. What game are we currently playing that we didn’t choose to play?
2. What would we build if we started from scratch today?
3. What “impossible” thing could we make possible for our customers?

The companies that survive the next decade won’t be the ones that perfect yesterday’s solutions. They’ll be the ones bold enough to make yesterday’s solutions obsolete.

Stop optimizing someone else’s game. Start creating your own.