Highest Form of Leadership
To Sun Tzu, the highest form of leadership is to first: Balk the enemy's plans. And Second: Prevent the junction of the enemy's forces; and third: Attack in the field and fourth: Attacking a besieged city.
Balk the Enemy's Plans
In business, the highest form of leadership is to balk the competitions plans. For example, you might enforce a patent that requires the competition to cease production or pay heavy royalties or damages. You might find a weakness in the enemy supply chain and be able to buy out an important part of their supply chain. You might also invent something similar and sell it at such a low price that the competitor cannot gain momentum.
A great leader should look at the competition and look for ways to cause them to fail. Anything that will cause the competition problems can lead to your advantage. This method is much more effective than competing directly in open markets. Anytime there is open competition, there will be winners and losers (i.e. carnage).
Prevent the Junction of Enemy's Forces
Large companies are great at this one. They continually look for smaller companies to purchase. These smaller companies are not necessarily purchased for a good price, but for their add on value to the company. If two companies are directly competing, the one purchasing good smaller companies will be, in effect, joining forces. If managed well, the larger company becomes more powerful, more technological, and harder to beat. The wise general will try to prevent the joining of forces. The strategy might be to purchase the companies before the other company gets there. They may offer higher prices, to purchase companies, just to keep the competitors out. Some competitors have gone to the attorney general and complained that the joining of two large companies will make the competition monopolistic and unfair. Historically, there have been huge lawsuits over this. One example, is Microsoft versus Netscape.
Attack in the Field
On some level, all the great things you try may fail. The last result is to fight. If you are on equal ground and equal in force, then it makes sense to fight. You will lose a lot of money and men, but you must do it to protect what you have. Competition is a matter of life and death and must be taken seriously as such.
Attack a Besieged City
In business, newcomers or people without capital or essentially attacking a besieged city. Sun Tzu basically says it is a horrible idea and should be avoided. The reason is that your chance of winning is extremely small and you will certainly suffer more casualties than the opponents.
Small business has good ideas and are essentially trying to attack some of these large monopolistic or oligopolistic companies. Small business throws good ideas and plans at the market place. The industry giants will take two approaches. They will swoop in and copy the idea in much grander way with full capital backing or, if they feel you are too good, they will simply try to purchase you. The large company will typically try to control the whole entire market. Who wants to share anything? The large companies want to rule everything they touch completely. They want zero competition.
What happens is most small business owners go out of business and a few get bought out. Very few small businesses actually go long term and grow into large companies. It is just too difficult.
Sun Tzu was making the point not to attack a besieged city. In other words, don't try and beat Microsoft at Windows and maybe you don't want to go against Mcdonalds or Wendys, in hamburgers. It is much better to go for a niche that is small enough that you are fighting a fair battle, or better yet, you have found something that is protected and can perform without direct competition.
Many of the best small companies have technological innovations (i.e. intellectual capital). They may overtake a competitor by offering something that is much better and, because of legal patent protection, they can make obscene profits in the market for a number of years. In other words, they have balked the enemys plans with superior intellectual capital. This is one of the best ways for small businesses to make it.
Many small competitors make two fundamental errors: 1- They focus on a low price without any real innovation and 2- They join a commodity business without any real advantage. This is essentially trying to take over a besieged city. As Jack Welch once said, “We are all one innovation away from commodity hell.”
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