This article presents an innovative approach to phylogenies based on the reduction of multistate characters to binary-state characters. We show that the reduction to binary characters’ approach can be applied to both character- and distance-based phylogenies and provides a unifying framework to explain simply and intuitively the similarities and differences between distance- and character-based phylogenies. Building on these results, this article gives a possible explanation on why phylogenetic trees obtained from a distance matrix or a set of characters are often quite reasonable despite lateral transfers of genetic material between taxa. In the presence of lateral transfers, outer planar networks furnish a better description of evolution than phylogenetic trees. We present a polynomial-time reconstruction algorithm for perfect outer planar networks with a fixed number of states, characters, and lateral transfers.