The Never-Ending Battle
IN NOVEMBER 2010, ANDREW MASON, FOUNDER AND CEO OF Groupon, had an offer on the table for his company. As one of the hottest sites on the Internet since its founding in 2008, Groupon was at the top of its game. Its business model was simple: It offered consumers a daily deal at a local or national company. That was it. Mason was feted by the national media for such a ridiculously simple idea. He was on the cover of Forbes under the headline THE NEXT WEB PHENOM.1
It was precisely at this point, when everything seemed to be going so well, that Google offered Mason $6 billion for his company. As I’m sure you know, Mason turned it down. And that’s when nothing seemed to go right. In June 2011, Groupon went public with a $12 billion valuation—double what Google had offered. But in February 2012, Groupon posted a $42.7 million loss for the previous year. By August 2012, the company’s market value was just over $3 billion, which is half what Google had offered.2
Now, I’m not saying that Mason should have taken Google’s offer. I’m also not saying he shouldn’t have. Groupon is still around, albeit struggling, in a sea of competition, such as Google’s own Google Offers—announced just months after Mason turned down the deal. I wish Groupon all the success in the world and hope it can weather these difficult times. But the Groupon example is a classic case of a business strategy that thrives as an early start-up but proves inadequate when it reaches for the next level.
Another way to look at it is that when it comes to developing and executing successful strategies, ninjas embrace the military adage that no strategy survives the very first contact with the enemy. Even the best strategies cannot fully anticipate what the competition will do, how rapidly they will do it, and how effective they will be. For your team to win after its very first contact with the competition, it must be talented and nimble: talented enough to recognize quickly what parts of your strategy are working well, working poorly, or not working at all, and nimble enough to adjust effectively. And the more thoroughly you have already thought through strategic contingencies, the more quickly you can adjust with a response that the competition doesn’t expect or can’t defeat.
And speaking of rapid, unexpected responses, I had an early lesson in that strategy that has served me well ever since. One day, while still of elementary school age, I was walking alone down a street and encountered the school bully. I don’t recall quite how it happened, but seconds after he hit me, I punched him, giving him a black eye. From that day, he avoided me, which today I would define as effectively eliminating a competitor.
Psychologists say that bullies, like the cowardly lion in The Wizard of Oz, behave as they do in part to disguise a lack of confidence in who and what they are. Knowing this can be powerful, enabling you to respond in ways that your would-be tormentors never expect. One of my favorite personal examples occurred in the late 1980s, when Texas congressman Jack Brooks chaired the House Judiciary Committee. Chairman Brooks was known for being one of the most difficult members of Congress to deal with, and the fact that he had become chairman of such a powerful committee meant that he had won many more political battles than he had lost. With his bushy eyebrows and mustache, he reminded me of the outrageously funny and outrageously grumpy mid-twentieth-century comedy star “Groucho” Marx, whom most everyone recognized at the time.
At one point, Brooks was intent on quickly ramming through the House a so-called antitrust bill that would have needlessly hurt manufacturers and retailers across many industries. True to form, he refused to listen to our concerns, so I realized that I was facing another type of bully and would have to disarm him before he understood what was happening. So, I took a chance to be slightly outrageous myself by sending him and each of the twenty-one congressmen on his committee a “gift” that would certainly provoke a response—a then-famous plastic Groucho mask consisting of an outrageously prominent—and instantly recognizable—nose, eyeglasses, eyebrows, and mustache (they’re still available today). Each mask was accompanied by a short letter that described why the legislation was ill conceived. My maneuver, in retrospect, a somewhat bold but definitely risky move, provoked an instant reaction from the committee members, with most of them doing the appropriate thing by reading Brooks’s bill and considering our reasonable objections to it. In fact, I received many telephone calls from the members and their staff asking good questions about the dispute. And, as often happens, the bully’s reaction when challenged was swift.
Less than a day after our Groucho Marx masks hit the congressional desks, Chairman Brooks called me into his office. Although our visit was not entirely pleasant, we quickly struck a deal: I agreed to support his legislation (with changes) in the House but was free to oppose it in the Senate. In return, we agreed that the other legislation that I supported would have to pass his committee. As a postscript, the deal I cut caused a bit of controversy among a few of CEA’s corporate members, and their D.C.-based representatives tried to reverse the deal and get me fired. Fortunately for the legislation and me personally, such reps are rarely positioned to see the entire picture nor empowered to make decisions by themselves. Compared to some other trade associations, CEA works diligently to avoid putting lobbyists on our governing board, and our board has the final word about everything we do. Also, fortunately for me and CEA, my entire board of directors supported me in this high-stakes tussle. I was praised for cutting a deal that gave up to Chairman Brooks nothing but the “sleeves off my vest,” as our board chairman, Joe Clayton (current president and CEO of DISH Network), described it at the time. Ninjalike, our legislative strategy was swift, bold, tightly targeted, and ultimately effective.
Process, Process, Process
OF COURSE, MOST BUSINESS STRATEGIES TAKE MUCH LONGER TO play out and regularly produce surprises that have to be dealt with quickly, before all the facts are in, thus increasing the risks of almost any reaction. I had another illustrative experience that involved the president of the United States in which I took a gamble that fortunately turned out well for him and me. It started when I received a call from a friend, Major General Mark Rosenker, who at the time was director of military affairs at the White House and was responsible for several thousand people who operated Camp David, Air Force One, and the critical, highly secure communications complex necessary for the president to stay connected with the world. Mark explained that then-president George W. Bush was leaving for Europe the next day on Air Force One and that the aircraft had a brand-new DVD player installed but no DVDs had yet been stocked. Evidently, he thought the head of the Consumer Electronics Association would have a warehouse full of DVDs at his fingertips. I assured Mark that I would immediately take care of the problem. We had a lending library through which our employees exchanged DVDs, and I knew that provided a basis for us to offer some movies to the president.
But I also went a step further. I wanted to provide the president with movies that he would actually enjoy. Unfortunately, the guidelines from the White House were a bit too broad: violence was okay, but no sex. So I called our librarian and asked her to research all information on the movie preferences of President Bush. She quickly provided suggestions, and then I went to Amazon and plugged in his favorite movies and received the Amazon recommendations for more current movies. I then took the list and drove to a nearby Best Buy and bought almost forty movies. Later that day I delivered to Mark a box of DVDs, carefully selected to meet the president’s preferences.
If that were the end of the story, I would probably just save it for dinner parties. But for whatever reason—whether the White House staff was impressed with the quick response or whether President Bush really enjoyed the movies I selected, I’ll never know—I received another call shortly afterward that would have decidedly more serious consequences.
The caller, Tom Campbell, Special Technology Advisor to the White House, explained that the Roosevelt Room across the hall from the Oval Office needed audio-video equipment and conference communications capabilities to be used in the event of any emergency, and asked if I could help supply state-of-the-art technologies. I quickly called senior executives at more than twenty CEA member companies who agreed to supply the necessary equipment as a donation to the National Park Service for the White House. We had to wait for President Bush to make a short visit to his Texas home before the workers could descend en masse to install everything, and they finished the job just minutes before he returned.
Only a few days later, on September 11, 2001, we were attacked by terrorists. The president had everything he needed to stay abreast of developments and communicate with almost anyone, anywhere in the world. Amazing timing? Perhaps a bit, but White House staff had the tools they needed in part because of CEA’s version of a “quick-reaction strike force.”
The reason I relate this story is that it illustrates one of the most important things that I’ve learned about strategic planning: Although your “final” strategy is important, it almost certainly will have to be revised again and again. For this reason, I think that your strategic planning process is even more important because, if done well, it helps prepare the team for the inevitable revisions. Because I knew my team and CEA members well from years of working together, I could rely on them to deliver great results in record time. Although I head the association itself, CEA’s strategic power ultimately comes from the collective efforts of our members, especially members with CEOs who visibly lead and shape effective teams. Which brings me to another strategic success story that is amazing in very many ways.
Overcoming the Odds
NOEL LEE IS A FIRST-GENERATION AMERICAN WHO BEGAN HIS PROFESSIONAL career as a physicist working at the Lawrence Livermore National Laboratory in California. Before too long, he got tired of the grind, moved to Hawaii, and joined a rock band. That didn’t go very well, but working with audio cables gave him an idea. So he returned to the mainland and decided to create a new company that would pioneer a new electronic product. He brashly named the company Monster Cable and gave himself the official title of head monster.
Before Monster arrived, people connected their component audio and video equipment with cheap, unbranded, generic cables. Noel believed that consumers did not recognize that their entertainment systems were only as good as their weakest link, the cheap cables, so he set out to upend the market with several innovations. First, relying on his physics background and high-quality raw materials, he created a line of cables that promised better, clearer sound and images. Second, he created a business model that enables retailers to earn much more by selling his cables compared to the generic ones. Third, Noel and his team (who are all available twenty-four hours a day) invest heavily in training retail salespeople on the benefits to consumers of using Monster cables.
The results have been spectacular—for the company, its customers, its team, and its retailers. In fact, it’s not much of an exaggeration to say that Monster retailers love Noel, his brand, and his merchandising wizardry, which includes a live rock concert for them at every International CES show in Las Vegas. (Some dreams should never die.) Among Noel’s triumphs is that he was the first to partner with the famous Dr. Dre to launch the large-headphone craze that has swept the world.
Also amazing is that Noel became disabled by a spinal condition that requires him to use a Segway to get around, but it doesn’t stop him from traveling the world and navigating vastly different international cities, most of which are not as disabled-friendly as the United States. And he generously supports a foundation that provides Segways to our military veterans. I’m proud to say that when we first met, Noel was not pleased with something we at CEA had done, but together we worked it out. Now he is one of our best supporters and continues to be a font of innovative ideas.
I think the ninja lesson here is more a life strategy than any specific tactic Noel devised for Monster—although those tactics are clearly working. Noel went from a physicist, to a musician, to a businessman producing audio equipment. One can surely trace the progression here, but what’s remarkable to me is that Noel never stopped revising his life strategy. Ever restless, always learning, Noel, a child of immigrants, transformed what would trip up lesser individuals—a personal disability and relative failure at a chosen profession—into motivators. When his strategy met the enemy and it didn’t work, he changed his plans. It’s no wonder Monster Cable is the success that it is today.
The Great Ones
WRITING ABOUT NOEL REMINDS ME THAT, UNLIKE HIM, MOST PEOPLE don’t react well to change and try to resist it, and the same is true for businesses. But lives—and markets—are constantly evolving, so people and companies have to adapt or suffer the consequences. And, obviously, those who correctly anticipate transformations and prepare themselves are likely to be better off than those who have to scramble to adapt to changes already upon them. In consumer electronics, we repeatedly see the unfortunate differences. One company will successfully introduce a new technology and before too long other companies react by introducing similar products that offer little or no unique value to consumers and so are not successful, whether success is measured by market impact or returns to shareholders. I mentioned the tablet PC market in chapter 4 as an example of being prepared for battle. But what happened following the introduction of the iPad is also instructive for this chapter.
After Apple introduced its iPad in January 2010, more than fifty other companies introduced, or at least demonstrated, their own tablets. I saw them all at the 2011 International CES. In nearly every interview I gave about the show I fielded questions about the future of the tablet PC market. While I highlighted the explosion of iPad knockoffs as a great testament to the agility of the free market, I also predicted that only a few of those follow-on products would survive. History has verified that prediction. Of the dozens that were on hand, today consumers have a choice between perhaps five or six manufacturers. Why did so many of the others fail?
One reason is that most competitors are looking at the same markets, analyzing the same data, seeing the same trends, and coming up with the same answers. It sounds trite, but it is painfully true that it takes a special vision to spot opportunities, a rare courage to pursue them, and a uniquely skilled team to succeed. I vividly remember one firm (which will remain nameless) that was fortunate to have a CEO who, in his twenty years at the helm, increased the company’s market value by forty times. In the ten years after he retired, the company’s value essentially fell flat. Is it possible that one person can have that massive an impact on an already very large and diverse company? Yes, but only someone who has very rare talents.
That CEO was renowned for several trademarks, one of which was the quality of the firm’s strategic planning. Unlike so many other executives, he knew that the only good reason for looking into the future was to do a better job today. His process forced timely decisions about which new ideas to pursue, which old ones should be abandoned, and which projects didn’t need major changes yet. And the strategic thinking in his firm was a constant process, not merely a once-per-year exercise.
The late Peter Drucker, who may have been the world’s greatest strategic management consultant, had one cardinal message for CEOs: “There is only one valid definition of business purpose: to create a customer. Because its purpose is to create a customer, the business enterprise has two—and only these two—basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are ‘costs.’”3 In turn, creating a customer requires providing them with some value unavailable elsewhere. This is the core of competitive advantage and the essence of business strategy. I regularly think about this, and to me it is obvious that very few companies have found a way to create competitive advantages repeatedly. Take, as a current prime example, Amazon.
Brilliant on the Basics
OF THE IPAD COMPETITORS, THE ONE THAT IS DOING BEST APPEARS to be Amazon’s Kindle Fire. I’m not surprised. As I mentioned in chapter 2, Jeff Bezos is one of those rare, wildly successful entrepreneurs who, in 1994, actually did start his company in a garage. But what more can be said about someone whose passion is taking a wrecking ball to staid industries, whose name generates four and a half million Google hits, and whose company, in fewer than twenty years, rocketed from zero to $48 billion in annual revenues? Well, one thing that I’m struck by is that Jeff seems to embody some of the same personal traits found in ninjas. To begin with, Jeff is anything but flashy, though he radiates a quiet intensity and has been called ruthless. Add to this his comment “You don’t choose your passions, your passions choose you,”4 and his very existence seems to strike mortal fear in the hearts of his competitors; he certainly seems to have the soul of a warrior. Not only is he famous for having told his shareholders that “it’s all about the long term,” but he also consistently wins most of his short-term battles.
And yet, I think he exemplifies the ninja for a much more fundamental reason—his passion for getting the basics right:
We start with the customer and we work backward. We learn whatever skills we need to service the customer. We build whatever technology we need to service the customer. The second thing is, we are inventors, so you won’t see us focusing on “me too” areas. . . . And then the third thing is, we’re willing to be long-term-oriented, which I think is one of the rarest characteristics. If you look at the corporate world, a genuine focus on the long term is not that common.
There are two ways that companies can extend what they’re doing. One is they can take an inventory of their skills and competencies, and then they can say, “OK, with this set of skills and competencies, what else can we do?” And that’s a very useful technique that all companies should use. But there’s a second method, which takes a longer-term orientation . . . you ask, who are our customers? What do they need? And then you say we’re going to give that to them regardless of whether we currently have the skills to do so, and we will learn those skills no matter how long it takes. Kindle is a great example of that.5
Jeff is one of those all-too-rare CEOs who focus on knowing the customers they have and the new ones they want to gain. In fact, according to Jeff, Amazon’s explosive growth beyond books seems to have been triggered by its early customers: “We actually started to get e-mails from customers saying, ‘Would you consider selling music, because I’d really like to buy music this way, and DVDs, and electronics?’”6
Jeff is regularly described as brilliant, not only because of his native intelligence, but also because he has led Amazon to so many technological breakthroughs and prospered in tough times like the dot-com collapse in 2000. I think part of his secret is that he’s willing to challenge the status quo as well as shift his strategy when it’s required. In its early days, Amazon was notorious for posting net losses each year. Somehow, Bezos convinced Wall Street to stick with him. He also had the temerity to take on the biggest players in his industry—Barnes & Noble and Borders—and win. (B&N adapted with a shift toward online; Borders didn’t, and is extinct.) Now Amazon is knocking on the doors of other big names—Best Buy being the largest—because it wasn’t content to just be a bookseller. With a few exceptions, Amazon has whatever you need.
It’s a testament to Bezos’s great ninja skills—adapting his strategy before each engagement—that he is one of the principal founders of the explosion in e-commerce, a medium that only gobbles up more of the retail market each and every year. Perhaps one day Amazon will face an enemy it cannot best, but so far that day has not come.
War of the States
THE GREAT NINETEENTH-CENTURY MILITARY STRATEGIST CARL von Clausewitz famously observed, “War is the continuation of Politik by other means.” To close this chapter on the art of war, I want to discuss the impact of politics on ninja innovation. As we are painfully learning during our current, extended economic crisis, we need smart policies at the state level, not just on a national scale. I have some strong views about this because I’ve had a front-row seat watching policies work exceedingly well in the Commonwealth of Virginia, the home of CEA.
One of the virtues of our federalist system is that the states are left free (for the most part) to enact their own economic policies. What works in Vermont, for example, won’t necessarily succeed in Oregon. But this system also has the added value of creating competition between the states for business. Some states are winning the fight, and some states are losing.
To most residents, Virginia is probably a great place to live because of its charming cultural mix of modernity and iconic history. But looking deeper, I think most would also agree that Virginians have been fortunate to have had a uniquely effective, bipartisan political system. That system has promoted an excellent business environment, which of course is also an attractive employment environment, especially for businesses on the cutting edge of technological innovation, like the members of CEA.
Indeed, I believe Virginia’s “brand” has come to mean “best of class” in all the ways that matter most to our citizens. Through bipartisan common sense, low tax rates, high-tech government services, right-to-work laws, great universities, and a highly skilled population, Virginia has supported and attracted businesses to the point that our unemployment rate is now consistently well below the national average, and Virginia is currently ranked number nine in employment among the fifty states (as of May 2012).7 Virginia has been named the best state for business by CNBC three times in the last five years, and leading American companies, including Northrop Grumman and Hilton Worldwide, have wisely relocated from the once-“golden” state of California to Virginia.
For decades, a bipartisan approach to fostering a business-friendly strategy has served the commonwealth well. Virginia has led the world in creating laws to promote commerce over the Internet. It also passed innovative laws encouraging funding of new Virginia businesses, and even used tax laws to support cloud-computing and data-hosting centers. Estimates show that half of the world’s Web traffic flows through Virginia.8
Virginia’s unique constitution has aided the creation and implementation of this strategy. Most significantly, the Virginia constitution limits and empowers the Virginia governor. Virginia is the only state that bars its governor from serving two consecutive terms. Although our governors may come to resent this restriction, it encourages them to lead decisively for four years, based on a long-term vision for the state’s health, and without having their policies unduly shaped to get them through another election. One result is that we have had several all-star Republican and Democratic governors, many of whom moved on to a national stage. In fact, Virginia has more living former governors than any state—except perhaps Illinois if you count those currently serving time in prison—with nary a hint of scandal among them. Some of the more notable former governors include the nation’s first elected black governor, Douglas Wilder; U.S. senators George Allen (R) and Mark Warner (D); and former national party heads Tim Kaine (D), Jim Gilmore (R), and 2009–2013 Governor Bob McDonnell (R). It can’t be mere luck that they’ve all strengthened Virginia.
Shortly before I started writing this book, I was in San Antonio, Texas, to attend and speak at an important technology convention. One of the reporters asked me what San Antonio’s leadership could do to enhance the city’s position as a technology center. “Simple,” I said:
It can follow the example set by former Virginia Governor Jim Gilmore, who made the state’s technology sector a priority of his administration from 1998 to 2002. Specifically, Governor Gilmore created the nation’s first state Secretary of Technology, established a statewide technology commission, and enacted the first Internet regulatory policy that essentially said: hands off. Now, Virginia is known as a tech mecca, largely because of Governor Gilmore’s foresight. San Antonio should pursue a similar strategy that puts city government on the side of businesses and innovators. This doesn’t mean central planning and picking winners and losers. Rather, it means focusing all policies toward the end of attracting investment and empowering innovators with the freedom and resources they need.9
Obviously, I believe this advice is what every state, city, town, and community should follow. Equally important, during Gilmore’s 1998–2002 term, he enacted a diverse range of policies that strengthened the state. Among the most economically significant were a substantial reduction in automobile taxes, reduced spending by every state agency except education, education reforms that helped increase student scores on state and national tests, and increased funding for two of Virginia’s primarily black universities. And, despite a national recession in 2001, Gilmore left behind $1 billion in the state’s “rainy day” fund when he left office. Governor Gilmore has the further distinctions of being a graduate of the University of Virginia’s undergraduate and law schools and a U.S. Army veteran (although not a ninja, he did serve as a counterintelligence agent during the Vietnam War).
I think it’s clear that Virginia is a well-run state that prides itself on operational efficiencies that help keep tax rates low and on the ability of its governors in certain respects to reallocate budget funds without having to return them to the legislature. Virginia is also a textbook example of how a state can abide by the First Amendment and allow unlimited campaign contributions by requiring strict disclosure of all such contributions. We also have a training ground for potential political leaders at the Sorensen Institute at the University of Virginia (UVA). And speaking of UVA, Virginia has also had a bipartisan mission to build world-class institutions of higher learning. UVA, Virginia Polytechnic Institute and State University (Virginia Tech), George Mason University, and the College of William and Mary are all public schools climbing up the national leaderboard, especially with the ranking of California schools threatened by their state’s out-of-control taxing and spending. (I’ll discuss California in a later chapter.)
Virginia, starting with the Gilmore administration, stands as a great government example of how to pursue the art of war. Knowing it was in a battle for business with other states—and seeing so many states succumb to dumb antibusiness policies—Virginia saw an opening to exploit. It followed through with a smart, focused strategy to turn itself into a tech state. That tactic is working and I have no doubt that Virginia lawmakers will continue to refine their blueprint for whatever obstacles arise in the future.
Oh, one more thing: It’s no coincidence that Virginia is one of two homes (the other being Coronado, California) to one of the best modern versions of ninjas, our U.S. Navy SEALs.