Sun Tzu & The Art of Business

Sun Tzu commanded a 30,000-man army at the Battle of Boju to defeat rival Chu forces that were ten times greater in size.

( Chinese Population Is Lesser But Is Controlling The Economy – Despite Smaller Market )

The New England Patriots’ Bill Belichick, coaches, players and scouts do better than their competitors at building capabilities over time, preparing for each game and adjusting to game circumstances to put themselves in a position to win. And win they do – more frequently than any other NFL team. ( Uses Sun Tzu )

It’s easier to find business practitioners like Larry Ellison, former Oracle CEO and Marc Benioff, founder and CEO of Salesforce, who speak of how they applied Sun Tzu with great success. It would certainly be interesting to hear their success stories.”

Coach Felipe Scolari expects his charges to do a little homework, if his successful 2002 campaign is anything to go by. That year, he handed out photocopies of extracts from Sun Tzu’s “The Art of War” to his players in the dressing room. He may want to reprise that one. Such dictums of the great Chinese strategist as “do not linger in dangerously isolated positions” would certainly be sound advice for his flying fullbacks.

Sun Tzu’s Art of War is required reading for all US Marine Corps and US Navy SEAL officers

Both Kobe Bryant and Lebron James studied Sun Tzu’s Art of War to improve their basketball game.

General Vo Nguyen Giap applied Sun Tzu’s strategies to victory over French and American forces that were far superior in resources.

The book of choice for America’s third richest man, Larry Ellison, is Sun Tzu’s Art of War

General George Patton, one of the most effective military leaders in American history, studied Sun Tzu’s Art of War

It is widely believed Napoleon Bonaparte read Sun Tzu’s Art of War while a student at the Ecole Militaire in Paris. The translation by Amiot was a best seller in France at the time.

Ronald Reagan studied Sun Tzu’s Art of War when he was a young man trying to learn the way of the world

Takeda Shingen, perhaps the most brilliant Japanese military leader who ever lived, was so infatuated with Sun Tzu’s Art of War that he formed his armies and banners based on the concepts of the book.l

1) Capture your market without destroying it

“Generally in war, the best policy is to take a state intact; to ruin it is inferior to this….For to win one hundred victories in one hundred battles is not the acme of skill. To subdue the enemy without fighting is the acme of skill.” Sun Tzu

Sun Tzu calls this the need to “win-all-without-fighting”. Since the goal of your business is to survive and prosper, you must capture your market. However, you must do so in such a way that your market is not destroyed in the process. A company can do this in several ways, such as attacking parts of the market that are under-served or by using subtle, indirect, and low-key approach that will not draw a competitor’s attention or response. What should be avoided at all costs is a price-war. Research has shown that price attacks draw the quickest and most aggressive responses from competitors, as well as leaving the market drained of profits.

The Western approach to warfare has spilled over into business competition, leading many companies to launch head-on, direct attacks against their competitor’s strongest point. This approach to business strategy leads to battles of attrition, which end up being very costly for everyone involved. Instead, you should focus on the competition’s weakness, which maximizes your gains while minimizing the use of resources. This, by definition, increases profits.

This is the principle of ‘win without a fight‘. It is suggested that one must capture the market without destroying it. For a business to flourish in the market, adopt ahead on a strategy where, in the end, the company must not be left devoid of profit or lack a customer base. This move can be achieved by several means, for example, target under-served or poorly-served market sectors or by using subtle, low-key process which allows the startup to be hidden from the competitors, yet, piercing in strongly into the market. The market pricing war must be avoided as this could trigger a retaliation, leaving the market dry and without profits.

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2. Avoid Strength and Strike Weakness ( Blue Ocean , Niche )

Amazon adapted this principle to emerge as the crowned king of book retailing industry.

AS AMAZON CEO, JEFF BEZOS SAYS, “AMAZON SHOULD APPROACH THESE SMALL PUBLISHERS THE WAY A CHEETAH WOULD PURSUE A SICKLY GAZELLE.”

This quite, low key approached helped Amazon to remain camouflaged from the competitors and eventually, reached the pinnacle.

“An army may be likened to water, for just as flowing water avoids the heights and hastens to the lowlands, so an army avoids strength and strikes weakness.”

The second principle of warfare can very easily be spilled over into the business world. The entrepreneur should avoid the strongest points of the competitor and instead, attack his weakness. Challenging the strongest point of the competitor, head on, will land you in a pool of attrition, which is unnecessarily expensive and will lead to a quick drain of your financial resources. Attacking the big fish’s weakness will increase your gains while decreasing the utilization of resources. This, by definition, increases the profits.

Walmart is a perfect example of this principle. The retail giant chose to start in smaller cities, rather than focusing on a metropolitan area. This low-key approach helped Walmart to eliminate local, weaker competition while simultaneously, growing stronger.

( Media – Rev Asia vs Traditional Media , Carsome , Ramly vs Mc Donald ,  )

3. Use foreknowledge & deception to maximize the power of business intelligence.

“Know the enemy and know yourself; in a hundred battles you will never be in peril” Sun Tzu

To find and exploit your competitor’s weakness requires a deep understanding of their executives’ strategy, capabilities, thoughts and desires, as well as similar depth of knowledge of your own strengths and weaknesses. It is also important to understand the overall competitive and industry trends occurring around you in order to have a feel for the “terrain” on which you will do battle. Conversely, to keep your competitor from utilizing this strategy against you, it is critical to mask your plans and keep them secret.

Business intelligence involves knowing your competitor’s strengths and weakness and a deep understanding of your own abilities. It is also imperative to understand the market demand, supply and trends. A thorough investigation of the ‘battle terrain’ will lead to victory. As you step out to understand how deep the competition waters are, conceal your plan well to ensure that your strategy is not turned against you by your competitor.

The ‘burger war’ between McDonald’s and Burger King serves as a good example. During the ongoing war, Burger King decided to attack the rival’s famous French Fries. Upon learning of this assault, the CEO of McDonald’s immediately wrote a letter to all the restaurants of the chain informing them of this advancement. The letter which included detailed instructions of frying the potatoes helped the fast food jumbo to stop the enemy at his tracks and recapture the market as the King of French Fries.

Knowing yourself is equally important. McNeilly introduced McDonald’s failed entry into the European luxury hotel market that ended in 2003 as an example of the importance of knowing yourself. McDonald’s forgot who they were: a fast-food brand known for affordability. In no way could that align with the concept of a high-end hotel. Additionally, in Germany, where their hotel was named “The Golden Arch Hotel,” the word “arch” is slang for a person’s posterior.

4. Use speed and preparation to swiftly overcome the competition.

“To rely on rustics and not prepare is the greatest of crimes; to be prepared beforehand for any contingency is the greatest of virtues.” Sun Tzu

To fully exploit foreknowledge and deception, Sun Tzu states that you must be able to act with blinding speed. To move with speed does not mean that you do things hastily. In reality, speed requires much preparation. Reducing the time it takes your company to make decisions, develop products and service customers is critical. To think through and understand potential competitive reactions to your attacks is essential as well.

Use speed and preparation to swiftly overcome the competition.

“To rely on rustics and not prepare is the greatest of crimes; to be prepared beforehand for any contingency is the greatest of virtues.” Sun Tzu

( Media )

This principle illustrates the value of preparation. Stepping into the business market unprepared or ill-prepared is the perfect recipe for failure. Foreknowledge of rival’s strategies and working will reduce the time to make decisions and hence, will enable you to act swiftly. Just like war, the scenario in a market is ever changing. A company which is unable to adapt quickly to this changing environment, will eventually, perish. Speed is instrumental in first to market, empowering the business to take advantage of floating opportunities and keeping the competition off balance. Preparation and analysis of your rival’s reactions to your attacks will ensure that you sing the tune on which the competitor dances.

Move swiftly to overcome the opposition.

“Speed allows you to bring products to market more quickly, exploit opportunities and build momentum, keep the competition off balance, and reduce your resources,” McNeilly said. GM’s Saturn project tried to combat the Japanese auto market in the small car category, but it took a total of ten years for them to have their first car roll off the lines, which proved to be too late.

5. Use alliances and strategic control points in the industry to “shape” your opponents and make them conform to your will.

“Therefore, those skilled in war bring the enemy to the field of battle and are not brought there by him.” Sun Tzu

“Shaping you competition” means changing the rules of contest and making the competition conform to your desires and your actions. It means taking control of the situation away from your competitor and putting it in your own hands. One way of doing so is through the skillful use of alliances. By building a strong web of alliances, the moves of your competitors can be limited. Also, by controlling key strategic points in your industry, you will be able to call the tune to which your competitors danceo fully exploit foreknowledge and deception, Sun Tzu states that you must be able to act with blinding speed. To move with speed does not mean that you do things hastily. In reality, speed requires much preparation. Reducing the time it takes your company to make decisions, develop products and service customers is critical. To think through and understand potential competitive reactions to your attacks is essential as well.

This principle states that the business strategy should be able to change the rules of the game and push the competition to adhere to your rules and desires. One way of taking over the reins is by forming alliances. A collective strong force will limit enemy’s moves and bar him from winning. Additionally, by controlling key strategic points, the market will become your playground.

The alliance of Microsoft and Facebook is no surprise to anyone in the technology world. In 2007, Microsoft took a $240 million equity stake in Facebook to form a strategic alliance, making it the exclusive third-party ad platform for Facebook. And as Microsoft acquired Skype, the Facebook users started enjoying free video chats across the world. This ‘gang’ of three virtually made Google+ lag behind in the race, as Facebook has emerged as the hub of personal cum professional tools. Interestingly, while Google is still struggling in social media space and burning millions of dollars every month to grab a sizable share of the pie, Microsoft is shooting at Google by placing the gun on the shoulders of Facebook.

( Luk Luk Truck , Burger , Hawker Stall ( Malacca Jonker Street )

6. Turn disadvantage into advantage ( david slash goliath )

The Art of War is “a text about being proactive, about being offensive; not about being defensive and waiting and seeing. It’s about taking initiative, it’s about taking advantage of every opportunity,” Sheetz-Runkle said.

This underlying theme is very much applicable to small businesses, she said.

Greek yogurt leader Chobani, for example, turned their disadvantage of being a “little guy” into an advantage by celebrating their small business culture in their TV advertisements. Today they’ve captured 17 percent of the yogurt market when Greek yogurt wasn’t even a piece of the pie in 2007.

7. Create unity

Using Sun Tzu’s advice, companies should strive to have a unified brand, theme and mission, Sheetz-Runkle said. Given that it is easier to build a consensus among a smaller group of employees, this is where smaller companies should have an advantage. “What must unite you is the dire consequences of losing,” Sheetz-Runkle said.

Online shoe retailer Zappos, Sheetz-Runkle said, started off with a singular focus on creating a culture of exceptional customer service with passionate employees and customers. They wanted to have a group of people so committed to being there that they offered their employees a $2,000 quitting bonus, with the thinking being that, “If you’d rather have the $2,000 today than the opportunity to be part of something bigger than you and to work for this organization, then we’d rather not have you,” Sheetz-Runkle explained.

Amazon bought Zappos in a deal valued at more than $1.2 billion in 2009.

8. Go where the enemy is not ( same like avoiding strength )

This goes hand-in-hand with the concept of avoiding attacking an enemy’s strengths and focusing on weaknesses. Striking the competition where it is most vulnerable, often through indirect methods, is crucial. “Sun Tzu said that just as water takes the path of least resistance, you need to take the path of least resistance in your strategy,” McNeilly said.

McNeilly cited the success of Netflix to illustrate this point. Frustrated by a $40 late fee on a copy of Apollo 13, Netflix founder Reed Hastings developed a rental model that is entirely different from the model used by Blockbuster and other brick-and-mortar stores. By creating the new mail-based method of renting movies without late fees, Netflix won without ever fighting Blockbuster directly. “The question is not how do you take on the opponent directly, but rather win without fighting?” McNeilly said.

Other “category creators” who created niche markets for themselves include: Samuel Adams, a premium microbrew American beer; Chobani, Greek yogurt for American consumers; and single-subject cable channels like CNN, ESPN, MTV and FOX News.

9.  Adapt and vary your plans.

Success can hinge on remaining open to unexpected changes in course.

Sheetz-Runkle shared the example of PayPal, which went through five major concept changes in its first fifteen months before landing on its current business model. In just under four years from the time they began, there were bought by eBay for $1.5 billion in 2002.

Coca-Cola continually brings out new products into the market to cater to the changing taste of the customers. This swift, but not hasty, move by the company in adapting to the changing environment retains the loyalty among the consumers, ensuring a year-round profit. In 2004, Coca-Cola India launched, the much advertised, Vanilla Coke. The flavour extension did not soothe the taste buds of Indians leading to a constant decline in demand, thus forcing the beverage honcho to pull out the product in mere 10 months after its launch. The reasons were several, but soon, the company revived its sales in the country and the losses incurred were nullified. ( Strategram 36 )

Looking again at Netflix as an example, the company split in two when it launched a streaming service that essentially competed against its DVD service, letting the customers decide which one they wanted.

“What we see too often in business, and what’s a losing strategy, is holding on to what’s not working because it’s what we’re tied to, it’s what we know, and it’s what’s worked in the past,” Sheetz-Runkle said. Netflix was able to grow as customers transitioned from DVDs to streaming because it allowed itself to move away from its original mission.

( Nokia )

10. When Failure is an Advantage

In war, then, let your great object be victory, not lengthy campaigns. ( Marketing )

More examples of when it’s ok to fail

Of course, my friend didn’t fail. He learned what didn’t work and he moved in a different direction. And he did so quickly and definitively. Another example of this is Boston Beer Company, the makers of Samuel Adams. They know how to make and market good beer. (I recently discovered their early spring seasonal Cold Snap. Wow!) But they also know that not every sudsy creation will be a hit. Over the years, they have had dozens of beers that didn’t catch on commercially. They accepted those losses and moved on quickly.

Co-founder and chairman Jim Koch isn’t afraid to fail because he keeps the big picture in focus. The formula is simple, he told CNN Money: “I’m just focused on making great beer and working hard to sell it. If we can get great beer into the mouths of our consumers, we’ll do just fine.”

Multinational networking equipment firm Cisco Systems has a similar outlook on focusing on what sells and cutting what doesn’t. They have a huge range of products. They’re driven not just to play in the markets, but they want to lead. Cisco has a minimum target of 40% share in all markets, and it will leave a market if its share drops below 20% percent.

Focus on what works

Sam Adams, Cisco and my friend all know that testing a market and failing is ok. At this point, you have minimal investment. The defeat, however, is in continuing to go down a failing path. Remember, as Sun Tzu said, the objective is victory, not lengthy campaigns.

In war and in business, put your energy behind what works and don’t waste precious resources on products and services that have no signs of promises.

“The Art of Maneuver Warfare” ( Structure , Formation )

 

PRIMARY SMALL-BUSINESS ADVANTAGES

The extent to which a business understands and leverages its competitive advantages will determine its success. While small businesses playing in competitive markets often find themselves at a stark disadvantage, collectively, they have general strengths that they must recognize and to which they must play. The most common advantages of small companies vis-à-vis larger entities, regardless of the industry they serve, are listed here. These advantages will be detailed and applied against the backdrop of Sun Tzu throughout the chapters that follow.

• Alliance building
• Agility and speed of movement
• Consensus-building ease
• Excitement and enthusiasm of new and young companies
and ideas
• Flexibility in processes and procedures
• Iconoclastic worldview and readiness to take on all comers
• Independence
• Intimate knowledge of customers
• Innovation and nurturing of ideas
• Niche exploitation
• Openness to taking risks
• Power of the unexpected
• Unity of purpose and commitment to mission

PRIMARY SMALL-BUSINESS DISADVANTAGES

Throughout my career as a strategic marketing and communications consultant and in working for ad agencies, I’ve supported hundreds of small-business leaders. Time and again, they fall into the same patterns of the crippling mistakes Sun Tzu warns against. To anyone familiar with the paradoxes of small business, it’s no surprise that some of the disadvantages listed here are also on the advantage list.

• Competitive job field with employees who can be wooed away by bigger companies
• Competitive partner and vendor field, with partners that may give their best to the industry leader
• Desire to close sales, even on products or services that aren’t profitable or part of a long-term plan
• Failure to consolidate gains due to lack of long-range focus
• Fear of standing out, putting a stake in the ground, and being “too different”
• Lack of organizational unified purpose
• Lack of structure and hierarchy
• Less cash flow
• Less developed processes and systems
• Less experienced leadership and management
• Limited resources
• Limited/underdeveloped understanding of the competitive field
• Decision making that’s based on false yet deeply held assumptions
• Perceived and real risk of doing business with a smaller firm
• Poor emphasis on strategy
• Priorities that shift continually with the pursuit of opportunities
• Small footprint within the industry and less clout

The Art of War for Small Business is the first major book to apply Sun Tzu’s wisdom to the small business arena. Featuring inspiring examples of entrepreneurial success, the book’s 12 timeless lessons reveal how to:

choose the right ground for your battles
prepare without falling prey to paralysis
leverage strengths while overcoming limitations
strike competitors’ weakest points and seize every opportunity
focus priorities and resources on conquering key challenges
go where the enemy is not
build and leverage strategic alliances

Knowledge Is Power

The crucial theme throughout the The Art of War is the power of accurate information.

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