It has been a fascinating week, with seven talks in three days in four cities throughout California. At each stop, as I walked participants through the Outthinker Process, what stuck out for me most--beyond marveling at Red Bull’s unique U.S. headquarters, which is constructed around a giant skateboarding ramp--was how differently the executives from billion-dollar companies and those of entrepreneurial startups saw the world.
Davids and Goliaths naturally operate by different playbooks. If you can understand how these playbooks differ, you can better your chances of winning, no matter what size you are. If you are small and want to take down a bigger player, you want to understand how they think. And if you are big, being attacked from below, you want to understand how the entrepreneurs might use your size against you.
The Bully’s Playbook
Follow the path of any great company and you will see their strategies shift. What got them big is not what kept them big. They eventually adopt some form of what I call the “bully’s playbook.”
If you ever stepped onto a playground between the ages of 10 and 17, you know what I’m talking about. The bully uses size to his advantage. He pushes smaller kids around. His methods are powerful but predictable.
When businesses grow into bullies, they inevitably adopt a predictable playbook composed of just three sources of advantage:
1. Lock up customers: Large companies will use their size to try to close the door on customers, keep them captive, and prevent you from reaching them. This is how cable companies defeated TiVo and Vonage and Comcast will likely take down Netflix.
2. Sell cheaper: Large companies have bigger factories and deeper pockets, and so will try to sell at a price you cannot keep up with. Coca-Cola and Pepsi, for example, have built such massive sales that it is almost impossible now to compete with them selling cola in the U.S.
3. Remove resources: Large companies will try to “control the diamond mines” and play a game with you to compete for the critical resources you need to compete. This is like De Beers buying up diamond mines, China slowly strengthening its control of key minerals, or Apple locking up hard drives when it launched the first iPod.
None of these strategies are fair. But at least they are predictable. As soon as a company can do so, it will try to use one or more of these against the competition. This predictability gives you an advantage.
I studied the strategies that 100 companies used to take on and take down larger competitors. Using narrative analysis I categorized the moves they used to displace larger adversaries. In Chapter 11 of my latest book, Outthink the Competition, I list the 14 most commonly used and most effective. Here are five of my favorites:
1. Partner with someone unexpected: Find someone outside of your market or industry who would benefit by your success and partner with them to surprise your competition.
2. Borrow the road: If you cannot get or cannot afford to build direct access to your customer, borrow the road of someone who already has the road or access.
3. Strategically retreat: Identify where you cannot win and retreat from those battles so that you have the time and money to invest in battles you CAN win. Commerce Bank, for example, recognized it could not provide both great rates and outstanding customer service, so it chose one. It recognized its target customers cared more about wait times and store hours than the returns on their checking deposits, so it reduced the rates it paid customers to close to the lowest in the industry so it could afford to offer outstanding service.
4. Loot a burning house: When you see competitors running away from a situation, assess whether they are really running away because of the danger or whether they are just running away because other people are running away. Carlos Slim, the richest man in the world, has built his career by buying companies and assets during crises in times that others were running away in fear.
5. Take the unorthodox path: When your competitors come to fixate on one path to the customer, create a new path. This will surprise your competition. This is like Dell going direct or Salesforce.com adopting software as a service.
You can read all 14 strategies in my book. In the meantime, I hope these five will give you ideas for how to take down a larger competitor or, if you are large, defend yourself against smaller attackers.
[Image: Flickr user Nate Grigg]