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An entrepreneurial perspective
Sri Sai Business Publishers
Interpretations for modern day entrepreneur and business based on aphorisms of Sun Tzu’s Art of War
Popular representation of Sun Tzu
Art of War Art of War is a set of teachings that has come from Chinese Antiquity from more than 1000BC. Art of War is a collection of aphorisms from the teachings of Ancient Chinese sages, which was later consolidated into the Chinese way of life. This ‘Way’ is much similar to Taoism, which literally means Way (Tao = Way). Art of War described the collection of aphorisms as it dealt with War and strategies. Art of War is very much relevant in present day as it was during the era of Sun Tzu, the author and compiler of these percepts circa 600BC. Art of War is a prescribed teaching course in almost all military academies and with higher ranking promotions dependent on the person being able to understand, assimilate and interpret the Art of War correctly. The concepts of Art of War however are not confined to battlefields alone. Expert can adduce these percepts into any walk of life, as these were fundamentally meant to be so. Here we try and describe what Art of War would state for mergers and Acquisitions, the new-age battle field of corporate world. Currently, we do not align to understand all the concepts of Art of War for M&As, as it would be an exhaustive material. We therefore restrict ourselves to an entrepreneurial perspective of these. Let us chalk out the scope of this booklet. Every entrepreneur and business persons, and not limited by any size, have to make decisions on what businesses can be pursued and what businesses can be ignored. This is a highly frustrating decision especially during diversifying ones businesses. Art of War has some Aphorisms which can effectively help us in understanding how we can deal with this situation.
The main theatre of Art of War is battlefield; hence all our interpretation of Art of War has to be in conjunction to its equivalent value. Venturing in to new businesses might be regarded in Art of War language and context and entering and conquering a new territory or country.
Art of War and Type of terrains Art of War gives aphorisms or percepts on capturing six types of terrains. We can say there are therefore six types of businesses that we can venture, acquire or diversify into. Great Sun Tzu (pronounced - Soon Tsu), gives the importance and the strategies to deal with these types of terrains. 1. First type of Terrain is called Accessible Ground. In simple words, an accessible ground is a place or territory that is easily accessible to you as well as your enemy. Therefore the entry barriers in these types of businesses are very less, and hence you will find yourself quickly grappling with competitors. Since, these types of businesses are very open, lots of time and energy is taken up in protecting the turf. Sun Tzu advices us not to concern with the accessible terrains if they are not of strategic importance. They may constitute some part of our portfolio of businesses but these can never be solely cash flow. The risks in these types of businesses are very high and hence care should be taken in differentiating ourselves from the competition. A popular example of this business is that of Social Media Consultant. Over past few years, every body seems to have become an expert in Social media. Hence for a new entrant capturing the mind space is very difficult and what ever mind space is captured can be quickly eroded if care is not taken. There are not clear differentiating factors which separate people competency and hence it is an open ground.
2. The second type of Terrain Sun Tzu describes is termed Entangling Ground. Though the Chinese translation of the term is close to the word Entangling, it appears to be a bit of misnomer. The correct meaning of this term would be close to Ground of Advantage. These types of ground or businesses are the types, which once established gives you a lasting advantage over the rivals. In other words, these types of businesses have serious business entry barriers and give the businesses a very good monopoly or oligopoly situations. Sun Tzu advices us never to quit these ground, or to quit these ground only under direst of the circumstances. The reason being, once the hold on these ground/ territory is given up we loose substantial advantage to the enemies and would have a hard time to recapture, if at all be able to recapture, the market. The classic example of this type of ground can be the war between Microsoft and IBM. Though it was IBM which popularized the personal computers, Microsoft took very advantageous position of holding on to its ground. Thus, IBM slowly lost out on the Computer Operating system race. Once Microsoft was able to entrench itself, any player finds it difficult to dislodge the giant. The same principle can be applied to Google in Search engines (where Yahoo and Microsoft were rivals) and Twitter in Social Media (where Google and Microsoft’ effort were lost) The lesson for us is when we want to enter any space but we have an entrenched competitor which we may find it to dislodge, we should not try and capture the space unless it is of critical and strategic in nature. If these new spaces do not offer any strategic or crucial benefits, do not waste your efforts in taking over the fort. If you do want to, you can do so by employing stratagems (i.e. do not take them on head-on) and being ready to pay high price.
3. The third type of ground that Sun Tzu describes is termed as Temporizing Ground. This is a ground, which unlike an Accessible ground, enables fortifications but at the same time does not offer any firstmover to gain significant advantage in the space. In this type of grounds, first mover only has a slight advantage over the rival. This slight advantage is the only fortification from turning the ground into Open Ground. War trenches are a good example of such temporary advantages but which can become critical advantages. A good example for this may be strategy of price cuts. When all the players have a stable price regime, it does not benefit one company to upset the cart and reduce the prices. This is because even though the first-mover has a razor thin advantage, he is easily caught up by the rivals and hence a long term loss. The nature of telecom industry is an apt example for this type of scenarios where one player cutting the price leads to entire industry do the same, and hence general lower prices and profits for all the players. The same is the case for computer hardware industry. However, one notable example might be the industries where the network effect is critical to growth. For example, companies like Twitter, Pay Pal or Linkedin have definite first-mover advantage; which is hard to overtake by rivals. The lesson for us is to keep away from aggressive posturing in the markets if such a move is harmful or does not add much value over a long term. If such a move does not help you capture and substantially differentiate from your rivals this would be a very bad move to make. For example, as an entrepreneur do not venture into something that can easily be managed by any others. Therefore, if you do venture, ensure that you create enough differentiators and always keep the product pipeline coming and
surprising your rivals. Only way to stay in this game is to keep pulling away from your chasers every so often.
4. Narrow Passes is the fourth type of Terrain Sun Tzu discusses in Art of War. Narrow passes in contrary to Temporizing ground, gives strong and significant advantage to the first-mover. The examples of Twitter, Linkedin, Adobe, Pay Pal, and Ebay may be apt here. Sun Tzu advises if there is any opportunity which will give you a strong advantage in the battlefield, be the first to move to such a place. It is hardly surprising all innovative companies start numerous ventures, even though they are well aware only few would succeed. But strategically, it is significant that they have presence in as much possible domains as possible, to tap, entrench and gain advantage of first-movers.
Narrow Passes: Advantage once gained is long retained
These types of ground are usually the grounds where the leading player is able to dictate and set the direction for the rest of people to follow. For example, in media space, Google Ad Programs pretty much defined the entire industry. It is significant to note that Google was not the first player in the market with the program but captured some significant positions, in this case its search engine based businesses. When entering the businesses where advantage can be gained, move first. The valuations of these companies are much higher in the initial stages and may later dissipate. These are the companies that will usually be found on the rising hype cycle.
5. Precipitous heights are the next terrain described by Sun Tzu. We can describe this as a combination of Entangling Ground and Narrow Passes. The army chooses such a position that it gives itself almost unassailable position and its victory is assured. This is the best position to be in. It is aggressive while being defensive, the best of the combinations. Most of these companies are monopolies and are just impossible to reach by ordinary efforts. For example, to create a Fortune 50 company would be virtually impossible for the players. Exxon Mobil or Wal-Mart would not face any serious threat from a new entrepreneur, in the game where Exxon Mobil and Wal-Mart are kings. Sun Tzu envisions this position as a hill top fort, which is very hard to capture. The attack up the hill is strictly forbidden by Sun Tzu as a foolish act. To take on Wal-Mart, for instance, in its own game is not possible. But there would be places and methods by which you may be able to take on Wal-Mart in
instances, as an entrepreneur understand your strengths and match them over the enemies’ weaknesses.
Attacking Precipitous Heights is a hard effort 6. The final terrain described by Sun Tzu is “Positions at great distances.” In Art of War, Sun Tzu repeatedly chastises attacking places which are great distance away from your fortifications. This is because, when a great endeavor is taken, the army becomes weak and gets exposed in many ways. There fore as an entrepreneur, unless, you are able to withstand the “great distances’ and its challenges you will face in accomplishing these, do not attempt it. Perhaps the best example for such a case is Napoleon’s invasion of Russia. A company trying to build a car company overnight would be a good example. It is a great endeavor and would need sacrifices and new venture may also put pressure on the existing ones, hence avoid it. The reasoning also being, if the enemy is at great distance, the chances are also that enemy would not attack your ground.
The valuation of the company that diversifies with ventures that are “positions at great distances” would undoubtedly go down. And if the nature of the venture succeeds regain its valuation, but the initial sacrifice is part of the package here.
Conclusion: Sun Tzu’s book of aphorisms, collected quotations from many centuries of wisdom, is essential reading for our present day world. Whatever be the nature of the business that we engage in be it a social media, a pro blogger, a web property founder, or application developer, we all can learn effectively from what Sun Tzu has to tell us. In the nature of Sun Tzu, this book too is intended to create ideal atmosphere for such a meditation. An entrepreneur faces lots of challenges in business, but if the business itself is a mistaken venture, no
amount of effort can reliever him or her. Avoid all such pitfalls by reading, understanding and mediating on the percepts of learned sage Sun Tzu.
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