Small businesses can leverage deception to confuse and disrupt their competitors. You can even allow the misperceptions of competitors to work against them and in your favor. You know that the current business cosmos offers unprecedented opportunity for forward-thinking start-ups and virtual businesses to create and shape a perception that allows them to survive and thrive among big business adversaries. Should small businesses puff up how they are perceived in order to look bigger than they are? Or should they fly under the radar until it’s time to leverage a well-timed assault? Or can the answer for your business be a combination of both?
My focus in this chapter is on ethical ways of leveraging deception, misinformation, and intelligence to wage business. I’m not suggesting dishonestly because it’s not how I do business. War, on the other hand, is a different matter.
All warfare is based on deception.
Deception is a keystone of The Art of War. But what does this quintessential, oft-cited passage from Sun Tzu mean for small-business leaders today?
Sun Tzu instructs that the superior general will shape how his forces are perceived by the adversary, and that he will keep his plans hidden. In “Spirit” (Chapter 13), we studied his direction on how to be like wind, forest, fire, mountains, dark, and thunder in your actions. Remember this mandate:
Let your plans be dark and impenetrable as night, and when you move, fall like a thunderbolt.
Beyond keeping our plans out of the reach of adversaries, Sun Tzu calls for controlling how the enemy perceives us:
When able to attack, we must seem unable; when using our forces, we must seem inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near.
The example I use in Sun Tzu for Women to illustrate this principle of appearing to be something we’re not is still my favorite. Marsha Serlin started United Scrap Metal Inc., in 1978, with only $200 and a rented truck. She was repeatedly underestimated in those early years, the lone woman in a boys-only club. After the novelty wore off as far as the competition was concerned, she flew under the radar, Sun Tzu style. Her operations were run out of a ramshackle old building she said was reminiscent of the Sanford and Son set. The façade was intentional. As the business grew, Serlin clandestinely purchased all the property behind it. She successfully turned the devious to the direct. Today, United Scrap processes 140,000 tons of steel a year and achieved $250 million in revenue in 2012.
Another excellent example of a business shaping perception is Carnival Cruise Lines, the largest cruise line in the world. Yes, the brand has had some very public disasters, and we’ll see how smooth the sailing is for the company in the near and long term. But Carnival’s early days provide some useful illustrations of shaping perception, as well as forging mighty alliances, as mentioned in Chapter 6. When the cruise line started, it had one ship and no real capital. Because it could only afford to paint one side of the ship, Carnival docked it with the painted side facing out.1
Sun Tzu is a proponent of creating the outward appearance of chaos and confusion to lure in the adversary. This strategy brings with it certain risks to businesses operating in an open and transparent world. You don’t want any appearance of weakness or confusion to influence your customers, partners, or potential investors.
The story of United Scrap Metal’s early days once again illustrates what Sun Tzu says about the appearance of chaos:
Amid the turmoil and tumult of battle, there may be seeming disorder and yet no real disorder at all; amid confusion and chaos, your array may be without head or tail, yet it will be proof against defeat.
But creating such an appearance of disorder and weakness requires strength and discipline:
Simulated disorder postulates perfect discipline, simulated fear postulates courage; simulated weakness postulates strength.
Sun Tzu is saying that only the structured, strategic, and strong leader can successfully demonstrate the appearance of chaos and weakness to the adversary—and use it to his advantage. This is a much more nuanced consideration for your small business, however. Appearances of weakness, disorder, and fear should never be allowed to damage the public perception of your business, unless it is for a very short period of time and with the victory close at hand. The balance of power must quickly shift back in your favor. No matter how well or how poorly you are doing, what matters most is how well your customers and market influencers think you’re doing. Employees, of course, matter too.
Thus one who is skillful at keeping the enemy on the move maintains deceitful appearances, according to which the enemy will act. He sacrifices something, that the enemy may snatch at it.
This advice is easiest to apply at the interpersonal level. I knew the owners of a small firm that was facing a shrinking customer base in an unfavorable economy. They were looking to sell the business. The value of the business for a buyer wasn’t significant, but they conceived of one way to maximize it. They contacted the owner of a competing firm who they well knew made decisions based on ego and characteristic insecurity. They had worked with him in the past and understood his motivations. They were able to get an amount several times over the value of their business in this acquisition by appealing to the competitor’s ego and helping make him feel like a big shot.
Hold out baits to entice the enemy. Feign disorder, and crush him.
The owners didn’t seek to crush the competitor, but to sell their firm and move on to other pursuits. They sacrificed personal pride in stroking his ego, but in the end, they received more money than they would have otherwise and were able to tie a tidy bow on the business and that era of their careers. The better you know the enemy, the better you are able to give him the lure he will take.
Keeping the enemy on the move also means shifting appearances to keep him guessing about your true next steps:
By altering his arrangements and changing his plans, he keeps the enemy without definite knowledge. By shifting his camp and taking circuitous routes, he prevents the enemy from anticipating his purpose.
Salesforce CEO Marc Benioff clearly isn’t afraid to antagonize the industry giants, including Microsoft, and keep them guessing as to his firm’s next move. But when Microsoft shot back with its “I didn’t get forced” Segway promotion at a Salesforce conference (using wordplay on its competitor’s name), Salesforce responded as if it had been lying in wait for Microsoft’s attack. When the adversary falls into your trap, even if it’s a trap you construct seemingly on the fly, be ready to capture him. Sun Tzu’s direction to use “a body of picked men” is instructive. An effort like this should only be left to the most conscientious, responsive, sharp players. Otherwise, it can’t be trusted to be effective.
Don’t allow adversaries to understand your plans or gain insight:
On the day war is declared, close off all borders, destroy all passports, and do not allow their envoys to pass.2
Think about how your borders may be open to those seeking to gain intelligence for your competition. Are you vulnerable? Are your intellectual property, trade secrets are secret maneuvers at risk. If so, these mistakes could jeopardize your future.
If a secret piece of news is divulged by a spy before the time is ripe, he must be put to death together with the man to whom the secret was told.
Okay, that may be a bit drastic for business. But the idea is important. Penalties for leaking information and violating the organization’s trade secrets and inside information on movement should be severe. Short of putting traitors to death, all businesses, including small ones, should take the proper legal precautions. Nondisclosure agreements (NDAs) help protect your business’s private information. NDAs establish confidential relationships with subcontractors, new employees, business partners, and anyone and everyone who has any behind-the-scenes access to any of your competitive information.
Noncompetes and nonsolicitation documents prohibit employees from leaving their jobs to start competing businesses. Depending on the agreement, it can also prevent employees from working for competing employers for a specific period of time. Nonsolicitation agreements prevent employees from wooing away your customers for their own purposes. They may also restrict employees from soliciting coworkers from your company to join an employee’s new competing venture. Consider all of these risks as you develop legal protection for your small business.
I worked with a small software development firm that either didn’t have noncompetes in place or thought it would never need one for its all-star employee. This company didn’t have a nonsolicitation with its clients to keep them from hiring away employees, either. Then, the inevitable happened. The company’s largest client hired away its most talented software developer. This event was devastating to the young business, caused irreparable damage to the client relationship, and led to a steep reduction in the project value. These were dark days for that company. Learn from its very costly mistakes and have these agreements in place.
Unity, too, is an essential element for Sun Tzu. While you unite your forces, how can you divide your enemy’s? By keeping him guessing as to where you’ll fight next, you keep the adversary on the defensive:
The spot where we intend to fight must not be made known; for then the enemy will have to prepare against a possible attack at several different points; and his forces being thus distributed in many directions, the numbers we shall have to face at any given point will be proportionately few.
Here again is the call to keep the enemy insecure about how, where, and when you’ll strike:
Therefore, if we can make the enemy show his position while we are formless, we will be at full force while the enemy is divided.3
Formlessness is an advanced principle in some martial arts. Here again, we use water to connote suppleness and the ability to adapt to a situation. The goal is “flowing” with an attacker. Let me share an example.
My jujitsu instructor, Randy Hutchins, is a difficult person to put a joint lock on. He’s mastered flowing so that locking him is like, well, locking water. Just when you think you have him, he relaxes whatever it is you think you have a good hold on, then he shifts and redirects. You end up on your posterior, generally accompanied by a significant amount of pain and, if you have a sense of irony, appreciation.
He’s also a very difficult person to escape from, once he has a hold on you. I can counter joint locks from others, but from him, it’s a whole different story. Until one day, when I nailed it. He had me in one of his famous wristlocks, when I surprised myself by finally doing what he’d been telling me to do, and relaxed and slipped out. It was effortless. Formless. Like water.
I was amazed. It worked! I think he was more pleased than surprised, as he had waited for me to finally “get” that concept. In a show of congratulations, he extended his hand. Thrilled with myself, I happily shook it. And he locked the [choose your expletive] out of me. It was priceless.
Hence he does not strive to ally himself with all and sundry, nor does he foster the power of other states. He carries out his own secret designs, keeping his antagonists in awe. Thus he is able to capture their cities and overthrow their kingdoms.
We discussed this passage in the study of building alliances in Chapter 6. But remember it, too, in the context of deception. In addition to choosing allies who play a clear role in your strategic objectives, you must be sure they are loyal. Be sure to remind them on an ongoing basis that you are a powerful partner, and working with you is very much in their best interests. Gaining strong allies to your side further helps keep antagonists in awe. But remember: Leveraging allies to dominate your market isn’t about collecting partnership agreements or a batch of logos. If you share the same allies and partners with your competitors, how does that represent an advantage to your business?
Spies are indispensable resources for Sun Tzu:
It is only the enlightened ruler and the wise general who will use the highest intelligence of the army for purposes of spying and thereby they achieve great results. Spies are a most important element in war, because on them depends an army’s ability to move.
Let’s look further at just how important this intelligence is. Sun Tzu says:
What enables the wise sovereign and the good general to strike and conquer, and achieve things beyond the reach of ordinary men, is foreknowledge. Now this foreknowledge cannot be elicited from spirits; it cannot be obtained inductively from experience, nor by any deductive calculation. Knowledge of the enemy’s dispositions can only be obtained from other men.
These “other men” are spies, “the most important element in war.” Let’s look at Sun Tzu’s classifications of spies.
Sun Tzu tells us of five types of spies:
1) Local spies; 2) inward spies; 3) converted spies; 4) doomed spies; 5) surviving spies.
Here, then, are Sun Tzu’s descriptions of each of them, with commentary on the application to your business.
1. For local spies, we use the enemy’s people.4 They can be the employees of your competition who have little loyalty but useful information.
2. Having inward spies, making use of officials of the enemy. Officials can apply to executives and senior-level personnel. They can provide information publicly or privately, from unguarded conversations to statements they make in the press and social media.
3. Having converted spies, getting hold of the enemy’s spies and using them for our own purposes. This description can apply to former employees and business partners of the competition. It can also describe friendly suppliers and vendors. But beware, naturally, that just as suppliers may share information with you, they may also share information with the competition. This is all the more reason to be selective: Choose reputable, high-integrity vendors and partners and treat them with dignity and honor.
Converted spies can lead to even more resources:
It is through the information brought by the converted spy that we are able to acquire and employ local and inward spies.
4. Having doomed spies, doing certain things openly for purposes of deception, and allowing our spies to know of them and report them to the enemy. Doomed spies are those who have no value to you and who you can’t trust. They can be useful in carrying false signs to the enemy, which he can use to draw erroneous conclusions.
5. Surviving spies, finally, are those who bring back news from the enemy’s camp. For your purposes, surviving spies are similar to local spies. The difference is that surviving spies are perhaps competitors’ very poorly treated employees, or even vendors and partners, who will be highly motivated to share intelligence with you.
Remember always that the smart small-business leader is one who recognizes the value of having trusted friends, and who knows the cost of creating enemies.
Sun Tzu follows his descriptions of the five types of spies with this passage:
Therefore, of those close to the army, none is closer than spies, no reward more generously given, and no matter in greater secrecy. Only the wisest ruler can use spies; only the most benevolent and upright general can use spies, and only the most alert and observant person can get the truth using spies.5
Clearly, intelligence gathering is serious business that requires secrecy, generosity, benevolence, and alertness. It also requires the ability to offer worthy rewards. Sun Tzu says you are wise to keep these informants close to you.
Proper care and feeding of intelligence sources is essential for Sun Tzu:
The enemy’s spies who have come to spy on us must be sought out, tempted with bribes, led away and comfortably housed. Thus they will become converted spies and available for our service.
Sun Tzu calls for particularly generous care of converted spies:
The end and aim of spying in all its five varieties is knowledge of the enemy; and this knowledge can only be derived, in the first instance, from the converted spy. Hence it is essential that the converted spy be treated with the utmost liberality.
There are a plethora of Sun Tzu–inspired methods that your small business can deploy to outmaneuver the competition. Here are some ideas you can consider adopting or enhancing:
Hiring your competitors’ salespeople is a smart way to gain intelligence about what they’re selling and how they’re positioning it. It’s also a tool for capturing competitors’ outstanding performers for your business’s benefit. Jay Abraham has narrowed this idea down to a science. He says to determine your gross incremental profit for a first-time sale (i.e., profit before all amortized overhead) after hard direct expense. Then, once you know that number, go to your competitors’ top salespeople. Offer to hire them and give them 100 percent of the profit (or more) for all new accounts they bring in, provided they switch employers and come to you, and stay for an agreed-on period.6
Felix Dennis has said he’s never known a single person in a rival organization, even one well paid and cared for, who wouldn’t meet him for a quiet drink after hours. He put these meetings to very good use. “I’ve discovered more about what rivals have been up to in this manner than any other. And I poached the good ones,” he said in his autobiography.7
If your customers like you, and especially if they don’t like or respect your competitors, they’ll show you your adversary’s sales materials, presentations, and even proposals. It is ethical? It depends on who you ask. Are penalties against this practice enforceable? Probably not.
Gather intelligence in pitch meetings, too. Find out who you’re up against, and as much as you can about how they’re selling against you. Again, if your prospects like you better than the other candidates, you’ll be surprised how much they may share with you. I frequently have been.
When you win find out why. What was it about you that stood out above the competitors? Why does the customer think you’re the superior choice? Be careful here: The question isn’t why you think you’re the superior choice. It’s why the customer says they think you are.
And while it’s less enjoyable, when you lose, it’s just as important to find out why. It may even be more important to find out why you lost than why you won. I’m consistently surprised at the number of sales professionals who don’t ask about the businesses they’re up against and the players they lose to. The worst thing your prospects can tell you is that they won’t tell you. But if you ask the right questions the right way, you stand to gain high-value intelligence. Relationships are everything. Consider taking key would-be clients out to lunch or drinks to get the most information, even for business that you lose. People are much more forthcoming in settings outside of the office and after one simple drink.
Do a lost-case analysis. When you lose customers, don’t simply turn inward and listen to what your team tells you. There are almost always far too many assumptions here. To find out why you lost customers, you should have an independent party conduct a study so that you can get to the real reasons. Taking this step is virtually guaranteed to illuminate some weaknesses in your organization of which you’re probably completely unaware. It’s more costly not to do this analysis than to do it.
Keeping tabs on known competitors and learning about newcomers through the media is nothing new. Long before search engines ruled the day, companies would hire clipping services to track the press. Today, it’s easier than ever to get access to media stories, but with the myriad business media outlets available, it’s difficult to digest all the information you find. Set up Google Alerts for your business, your key competitors, customers, and other market keywords. If you’re in a competitive space and need to monitor players, include local business journals and dailies from your competitors’ regions. Companies may be less guarded in what they say to their local reporters than they would be with a national trade outlet or high circulation daily.
Trade shows are an exceptional way to generate leads. But what small businesses often don’t fully appreciate is that shows are also an outstanding way to gain intelligence. You can send employees and even business partners, allies, and customers to listen in on booth chatter and watch demos. The wife of the CEO of a health IT company I worked with is a nurse. She went to many industry trade shows to gather intelligence from competitors, and, as a nurse, she had unfettered access to competitors’ unguarded sales pitches. Be sure your “spies” are equipped with the right questions to gain useful intelligence, and that they don’t simply come back with the same brochures everyone else gets.
Join your competitors’ mailing lists so that you’ll know of news and product announcements. Sign up for webinars and download white papers and demos to gather as much information on the competition as possible. Because of the actions of competitors, I always suggest that companies make access to substantive information permission-based so that you can at least attempt to screen out rivals.
If your competitor is in retail sales with a physical location, you should make it a point to have an employee or hired gun walk the aisles and observe as much as possible about the facility, its customers, and its staff. You can call the company’s order and support lines and evaluate the strength of their customer service. You can hire a mystery shopping firm, too, to pretend to be a prospect. I’m not a big fan of this tactic since it’s openly dishonest, but it’s also pretty common practice. You should be aware that it’s done and remain vigilant against it in your small business.
Five Guys uses a smart way to shop for secrets—within its own business. The restaurant chain conducts audits of each store, every week. A secret shopper goes in, under the guise of a customer, and rates the crew on bathroom cleanliness, courtesy, and food preparation. Unlike secret shopping of competitors, this is fair game. Employees are aware of the policy, which is used to keep them sharp and to contribute to a culture of exceptional service. Winning crews are incentivized with cash rewards. CEO Jerry Murrell said the company pays as much as $12 million out annually to winners of these inspections.8 If you see this as a cost, your thinking is limited.
You know to search public places online for information on your competitors. But do you know about the hidden pages you can find? Google searches by file format (filetype:doc, or pdf, xls, and ppt) and site or domain searches (site:companyname) can uncover data or presentations. Competitors or others who have these resources may post them to a link they believe is hidden, and may even forget about them.9
This effort can be more than a little tedious, but there may also be a wealth of valuable information about your competitors’ people on social networks. It’s possible that a competitor may have one or two key salespeople who are particularly chatty. Salespeople also like to share their excitement over hot leads and new customers, hoping this spirit is contagious. They may brag about new wins or upcoming pitch meetings, or otherwise give clues as to who they’re selling to on their personal social media sites. Yes, it takes a while to mine this data, but under the right set of circumstances it can uncover gold.
Use social media to engage customers and gain intelligence. Go beyond the transaction and truly involve your customers. The dominant player in your market may spend a lot of money on think tanks, focus groups, and other studies. You can reap similar gains, but at a much lower cost than your big-budget adversaries. Instead of incurring that hefty price tag, build a successful social media presence. You can then have thousands of people willing to tell you exactly what they want and why they will buy it from you, as you grow your audience. How are you leveraging these channels to gain intelligence for your small business?
Online job aggregators are excellent places to keep tabs on your competitors’ hiring requirements. Watch the skills a company may be hiring for, and you can see what new initiatives may be coming. Of course, you can check your competitors’ websites too, but they may be less public about strategic changes.
Some time ago I received an e-mail from my colleague at Sun Tzu Strategies, Mark McNeilly, with a link to an article on Manoj Bhargava, the founder of 5-Hour Energy. That link was to a Forbes piece by Clare O’Connor that, until that point, was the most substantive public information on Bhargava. The entrepreneur does few interviews and remains somewhat enigmatic. (On the basis of that one interview, many other articles on him were written.) Mark was intrigued by how much this monk-turned-businessman exemplified many characteristics of Sun Tzu. He got our attention.
As noted in Chapter 9, “Focus,” 5-Hour Energy is a picture of many principles of Sun Tzu. The company took the less direct route in creating a new category with its energy shot, rather than competing for fridge space with Coke, Pepsi, and Red Bull. It shut down rivals completely and has driven some of them out of business. Also-rans like 6-Hour Power and 8-Hour Energy have been sued or otherwise knocked out of the market by lawyers at Living Essentials, the parent company of 5-Hour Energy.
But it may be under the (ethical) deception banner where Sun Tzu is seen most vividly. Throughout the rise in popularity of the product, Bhargava stayed under the radar. He was a mystery. He barely registered on web searches. He was able to make his moves without drawing attention from competitors large or small.10
Despite the illustration of deception, the customer is the last person Bhargava, or any other intelligent business person, wants to deceive. As he told O’Connor in that Forbes article, “It’s not the little bottle. It’s not the placement. It’s the product. You can con people one time, but nobody pays $3 twice.”
Sun Tzu writes of how a wise general will turn disadvantage to advantage. But Phaneesh Murthy, founder and former CEO of iGATE, took it one step further. Like Netflix did to Blockbuster, he turned his competitors’ advantages to their disadvantage. Headquartered in Silicon Valley, iGATE is an Indian-owned IT firm that has grown to $1 billion in revenue from $300 million in under five year. It’s regularly lauded as one of the best Indian companies to work for. As Murthy told Kaihan Krippendorff, author of The Way of Innovation, he came from Infosys, one of two firms that transformed India into the IT outsourcing powerhouse that it is today. Infosys did it by taking what competitors saw as an asset and turning it against them. The big-tech consulting giants saw their legions of consultants as their top advantage. However, Infosys transformed how software is built and opened the door to an entirely new consulting model.11
Murthy applied that same pattern at iGATE and turned the advantage of that firm’s competitors upside down as well. Peers, including his former employer, have legions of developers. Murthy turned this perceived asset into an opportunity for iGATE. The idea he put forth was to learn each customer’s business so that iGATE can make improvements unlike any traditional IT company. For example, iGATE applied this logic to consumer loans, which are typically done manually by highly skilled underwriters. iGATE demonstrated that the underwriters could be replaced with a set of rules that reduced loan approval turnaround time from forty to seventeen days, on average.12
Unlike almost every other IT consulting firm, iGATE doesn’t charge by the hour. This model, said Murthy, brings with it “diametrically opposed objectives . . . the customer always wants to reduce and company wants to increase.” I can attest to this paradoxical reality, because my own business is based in Washington, DC, the consulting capital of the world (or at least a healthy territory). Instead, iGATE bills for performance.13