Business Strategy
There is a lot to business strategy. There are countless books and ideas about it. Like the master strategist Sun Tzu said, “ There are five primary colors and yet, in combination, they produce more hues than can ever been seen.” In business strategy, there are basic strategies that can be combined in so many ways that no book can ever cover the entirety. One famous entrepreneur said, “Business is like a game of basketball. It's not so difficult to learn how to play the game. The real challenge is in learning how to do it better than everyone else.”
Great business strategies are often counterintuitive, simple, and powerful. Some of the more important parts of business strategy are the art of deception, knowing when to compete, game theory, and positioning.
Art of Deception
Sun Tzu said that, “All warfare is based on deception.” The first part of business strategy is to get your head out of the clouds. There are a lot of honest people out there that have a problem with this strategy. It is uncomfortable and against human values of honesty and rightness. Christian values teach that it is a serious sin to lie and yet all war is based on deception. There is a real conflict here.
Think about war as a matter of life and death. If you do the right thing, you will win. If you do the wrong thing you die. Should you call the enemy and tell them to show up to the fight with only machine guns, on Friday at noon. War doesn't work that way. Both sides do whatever they can to win because the stakes are so high. Nobody is willing to give away their life for free (except Jesus).
The way to win a war is to deceive the enemy. An enemy that knows you are coming will prepare for you. They will get in a great position that is built up with ramparts and ditches. If you want to win, it is much better to surprise the enemy. Since the enemy will do everything in their power to win, war doesn't really have any rules. The only rule is that you must win.
In business, deception is used all the time. How do you know a salesperson is lying? You can tell they're lying, if their lips are moving. This joke shows the nature of business. There is a lot of deception out there. Does the deception suck. Yes it does! The problem with always telling the truth is that you will never make any money. This may not seem true to some, but these people have probably never had their own successful business. Many of the wealthiest companies out there are making a living off of selling lies. Some of these companies sell cash value life insurance and annuities.
The business owner has one main goal and that is to make money. The business owner is not there to help lots of people, work really hard, and eek out a tiny profit. People do not like this reality, but that is how capitalism operates. A business is not a social function. The business must make money. If the business doesn't make money, the owners and workers may lose their homes, families, and anything else. Like war, the stakes are very high. If you do not think this system is moral, you are basically a socialist. And, while it has its flaws it does get a lot of stuff done.
Many small businesses take the higher ground of pure honesty, hard work, and eek out tiny profits. In fact, less than 10% of small businesses make over 50k per year. All the money is being made by the large corporations. What is the difference? In many cases, the large companies are masterful at deception and use that to obliterate the small companies.
It would be better to be purely honest and not make any money. You will be a better person. However, you should realize that your chances of winning are slim. Could you still support your family? In some industries yes and in others no.
Knowing When to Compete
So many people are so cocky. They think they can do anything. The truth is that there are a lot of battles that shouldn't be fought. There are roads that shouldn't be traveled. Many smaller companies try and take on huge companies with more talent, better operations, and a lot more people. In these situations, no matter how smart or how hard you work, you are going to lose the battle.
One of the most interesting parts of business strategy is knowing when to compete and when to rest. You should only compete when you know that you have an advantage and that you can win. If you unsure about winning, you should not compete.
You should never attack someone that has more people than you do. The larger force will most always win. You should not attack someone that has higher ground. They will be able to inflict heavy casualties.
In business, this is pretty simple. If you want to compete, find something that is small enough that you can handle it. You should compete on a level that is equal to someone else, but preferably that you have an advantage to. The higher ground is that of intellectual property. Don't try and compete with someone that is protected legally and that has a lot of patents in that part of the field. They will be able to easily beat you. Instead, look for a different part of the business that you can get your own patents and intellectual property. Once you have some intellectual property behind you, it then makes sense that you can compete on a much larger scale.
Game Theory
A lot of books have been written on this. It is a simple idea. You take a punett square with two outcomes in each square. The outcomes can be win win, lose lose, win lose, and win lose. The theory is explained in a prisoners dilemma.
Suppose two criminals are caught. The police pull them aside for questioning. The police tell them that if they tell on themselves and their partner that they will get a light sentence. If they do not talk or lie, then they will get a harsh sentence. If both criminals keep quiet, they may both be able to go free because there isn't enough evidence to convict them.
The result of the experiment is that the criminals always tell because they are afraid they other person will tell. Even though it is a win win for the criminals to both keep quiet, it just doesn't happen. The most common scenario is win lose. The first guy to tell on the other guy wins and the other guy loses.
The main point of the theory is that everybody screws everybody. Even though it makes sense to shoot for win win solutions, one party will always do something to the other party for a short term gain. The problem is that most situations are only win win in the long term. In the short term, doing something against someone else will get you a short term gain. And, capitalism is all about taking in short term gains. To state it more simply, people are short term focused. They don't trust others and because of that they do not look for the long term win win strategy.
There are really thick books about this subject. There are countless examples. The bottom line is that people will screw you over, if given the chance. This sounds really bad. In business, all it means is that a competitor will take the opportunity to put you out of business and make short term profits at your expense. It doesn't matter what you agree to before hand. People will do whatever benefits them short term. This is the nature of capitalism. Some cultures have more of a long term view. Japan is one country that has a long term view of things.
What game theory teaches you is not to make win win long term scenarios unless all factors can be absolutely controlled. If you can't control for behavior, then you must use defensive strategies, offensive strategies, and deception to win.
Positioning
Sun Tzu said, “There are some positions that should never be attacked.” and he also said,”All soldiers prefer the high ground and sunny spots.”
The way to really make money, in a business is to have high ground. The high ground is a great advantage. A smaller force can defeat a much larger army. There are a lot of casualties involved with trying to overtake higher ground.
In business, high ground are the barriers to entry for a business. For example, does the company have patents and legal protection. Does it take a lot of money to get started? Are there business secrets that make it difficult to copy? Are there supply chains that will be difficult for a competitor to get into. These are all things to consider. The high ground means you are well protected. Someone can't just come in and overtake you easily. The only way a competitor can beat you is with a lot of resources and persistent strength.
The worst businesses are commodity businesses. The product is basically sold for a common price that you do not have much ability to change. The only real selling advantage is price. Each business is basically a price taker. In a commodity business, there will not be money for anyone. Each firm has only price as a selling point and so the price gets so low that it isn't profitable for anyone. A commodity business is that of the low ground. One type of commodity business is cleaning homes. All you need is a vehicle, some cleaning products, and a few hours of training. The business is actually competing with the homeowner. You can make some money doing this type of job, but it will never be really profitable. The ground isn't high enough.
Final Thoughts
If you have absolute high ground and positioning, you do not need to use deception. You can maintain your position on strength alone. However, if you are a smaller business without resources, clever strategies will make a large difference in your final outcome. The most important thing is to know which battles you can win. You should only compete in something that you know you can win at. The battles are won before the fighting begins because the planning and strategy are what wins the battles.
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