The Golden Circle attempts to explain how certain businesses can inspire others and differentiate themselves in the market. Originally developed by author Simon Sinek, the concept helps businesses identify their purpose and then communicate that purpose to consumers in a meaningful way so that the brand can be highly differentiated in the marketplace.
Understanding The Golden Circle
The Golden Circle is represented by three concentric circles, with each circle, in turn, representing a particular facet of market differentiation.
The outermost circle denotes the “what” or the particular product or service a business offers.
Next is the “how,” or the steps involved in delivering that product or service.
At the center of the three concentric circles is the “why,” which is the most important part.
This circle describes the purpose, cause, or belief of a business. It is the very reason that a business exists – aside from profit generation.
In his book Start With Why: How Great Leaders Inspire Everyone to Take Action, Sinek notes that too many businesses start with product creation and then determine their purpose afterward.
To differentiate themselves, he instead argues that they start with “why” and then move through to the “how” and “what” of product creation.
When a business starts by identifying its purpose, it can inspire consumers to take action and align with their brands.
This is primarily achieved by tapping into certain parts of the human brain that govern trust, loyalty, and decision-making.
The Golden Circle in digital marketing
Since purpose is closely related to branding in digital marketing, it is helpful to look at The Golden Circle in the context of three brand characteristics.
Tesla is vertically integrated. Therefore, the company runs and operates the Tesla’s plants where cars are manufactured and the Gigafactory which produces the battery packs and stationary storage systems for its electric vehicles, which are sold via direct channels like the Tesla online store and the Tesla physical stores.
Brand mission (Why)
Tesla’s brandmission is to accelerate the transition to sustainable transport and energy.
CEO Elon Musk reiterates the importance of revolutionizing vehicles and the impact of global warming on the world’s citizens: “If a car emits toxic gas, it’s bad for your health.”
Brand character (How)
Tesla has the unenviable job of producing electric vehicles at prices that appeal to the mass consumer market.
The company also needs to counter stereotypes that EVs are slow, aesthetically dull, lack performance, and cannot be driven far without requiring a recharge.
Before the Model 3 reached mass uptake, Tesla started with the low volume/high price Roadster and mid-volume/lower-priced Model S and Model X.
This produced enough sales volume that other car makers were inspired to establish their electric vehicle departments and generate buzz around the industry.
Brand identity (What)
Tesla’s brand identity is personified in the Model S more than any other vehicle in its range.
The car offers faster acceleration than some expensive petrol models, which validates Musk’s comment that “At Tesla, we don’t do slow cars.”
The Model S also offers a 5-star safety rating and has a range of 215 miles on a single charge.
This exceeds the range of competitor EVs from Nissan, Mercedes, Fiat, and BMW.
Home Depot’s brandmission in the home improvement industry is to provide “the highest level of service, the broadest selection of products and the most competitive prices.”
The company also adheres to eight core values with most centered around people.
These include building strong relationships, creating shareholder value, taking care of our people, excelling in customer service, and respect for everyone.
It expanded paid leave for hourly employees and provided additional paid time off for those over 65 who were deemed a higher risk of contracting the disease.
The company also distributed weekly bonuses, doubled overtime rates, and extended dependent care benefits schemes.
Home Depot’s culture is based on an inverted leadership pyramid where employees and customers come first.
The company’s commitment to the latter has also seen employees trained in construction skills so that the advice they offer in-store is as detailed, accurate, and helpful as possible.
Brand identity (What)
One physical manifestation of the Home Depot brand is the Home Depot Foundation.
This organization improves the lives and homes of returned servicemen and offers support to communities impacted by natural disasters.
The company’s consistent ability to put people, customers, and communities first has established it as one of America’s most trusted and profitable home improvement chains.
Key takeaways
The Golden Circle is a concept that explains how a business might provide maximum value to consumers by changing the way it thinks.
The Golden Circle advocates businesses starting with why they are in existence and then developing a product to suit – as opposed to the reverse.
The Golden Circle is useful in branding because it is closely related to purpose and the story or message that a business wants to tell.
Economic or market moats represent long-term business defensibility. Or how long a business can retain its competitive advantage in the marketplace over the years. Warren Buffet who popularized the term “moat” referred to it as a share of mind, opposite to market share, as such it is the characteristic that all valuable brands have.
The circle of competence describes a person’s natural competence in an area that matches their skills and abilities. Beyond this imaginary circle are skills and abilities that a person is naturally less competent at. The concept was popularised by Warren Buffett, who argued that investors should only invest in companies they know and understand. However, the circle of competence applies to any topic and indeed any individual.
The 5 Whys method is an interrogative problem-solving technique that seeks to understand cause-and-effect relationships. At its core, the technique is used to identify the root cause of a problem by asking the question of why five times. This might unlock new ways to think about a problem and therefore devise a creative solution to solve it.
First-principles thinking – sometimes called reasoning from first principles – is used to reverse-engineer complex problems and encourage creativity. It involves breaking down problems into basic elements and reassembling them from the ground up. Elon Musk is among the strongest proponents of this way of thinking.
Second-order thinking is a means of assessing the implications of our decisions by considering future consequences. Second-order thinking is a mental model that considers all future possibilities. It encourages individuals to think outside of the box so that they can prepare for every and any eventuality. It also discourages the tendency for individuals to default to the most obvious choice.
Lateral thinking is a business strategy that involves approaching a problem from a different direction. The strategy attempts to remove traditionally formulaic and routine approaches to problem-solving by advocating creative thinking, therefore finding unconventional ways to solve a known problem. This sort of non-linear approach to problem-solving, can at times, create a big impact.
Moonshot thinking is an approach to innovation, and it can be applied to business or any other discipline where you target at least 10X goals. That shifts the mindset, and it empowers a team of people to look for unconventional solutions, thus starting from first principles, by leveraging on fast-paced experimentation.
The concept of cognitive biases was introduced and popularized by the work of Amos Tversky and Daniel Kahneman in 1972. Biases are seen as systematic errors and flaws that make humans deviate from the standards of rationality, thus making us inept at making good decisions under uncertainty.
Bounded rationality is a concept attributed to Herbert Simon, an economist and political scientist interested in decision-making and how we make decisions in the real world. In fact, he believed that rather than optimizing (which was the mainstream view in the past decades) humans follow what he called satisficing.
The Dunning-Kruger effect describes a cognitive bias where people with low ability in a task overestimate their ability to perform that task well. Consumers or businesses that do not possess the requisite knowledge make bad decisions. What’s more, knowledge gaps prevent the person or business from seeing their mistakes.
Occam’s Razor states that one should not increase (beyond reason) the number of entities required to explain anything. All things being equal, the simplest solution is often the best one. The principle is attributed to 14th-century English theologian William of Ockham.
The Mandela effect is a phenomenon where a large group of people remembers an event differently from how it occurred. The Mandela effect was first described in relation to Fiona Broome, who believed that former South African President Nelson Mandela died in prison during the 1980s. While Mandela was released from prison in 1990 and died 23 years later, Broome remembered news coverage of his death in prison and even a speech from his widow. Of course, neither event occurred in reality. But Broome was later to discover that she was not the only one with the same recollection of events.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
