Everybody loves a good fight
This holiday season’s biggest cinematic draw was the riveting collaboration of Mark Wahlberg and Christian Bale in the David O. Russell-directed docudrama The Fighter. It allows us to witness the surprising rise of Massachusetts-born, junior welterweight title winner “Irish” Micky Ward, who was considered by the boxing world as a “stepping stone” fighter. Meaning he was a player that one usually beat in order to rise up the ranks until you got a title fight. His loyal half-brother, Dicky, played by the magnificent Christian Bale, a once-gloried boxer whose career went down due to his voracious appetite for crack cocaine, saw to Micky’s triumph despite his weaknesses. Irish Micky was the underdog brother, but with determination and making the right choices he rose from a plethora of tragic defeats to win both the WBU Intercontinental Lightweight title and the WBU Light Welterweight title.
There is no permanence to being on top. History has shown us that champs who rest on their laurels are quickly defeated and replaced by hungrier and more driven challengers. Dicky was a natural boxing talent with a staggering boxing IQ. His brother Micky was considered a mortal in the boxing world. However, in the pages of history, it is the determined and hardworking Micky who will be noted. Dicky, despite his gift, will take the road that many savants like him brook and take their gift for granted and make poisonous life choices. The best things in life are not free.
Boxing always fascinated me as a young boy. I saw it as a science. I appreciated its techniques and the form that was required to be a proper boxer. It wasn’t just about brawn; it was a unique mix of talent and method. There will always be those wastrels at the top like the heartbreaking Mike Tyson and the worthy underdogs.
For every Max Baer there is a James Braddock. There will always be a Cinderella Man out there.
The concept of champ versus a challenger also exists in the business world.
Benchmarking is a critical component of the champ-versus-challenger simulation. Your game plan or strategy must be based on using your strengths to exploit your opponent’s weakness. While not a complete list, the following can serve as a guideline for benchmarking (I advise entrepreneurs to also do Porter’s Five Forces analysis):
• Product/service comparison: When doing a blow-by-blow comparison, arguably the most important question is what makes your product or service different? What is the unique value proposition? What does your product/service offer customers that other competitors do not?
Some companies compete based on price. A price advantage is also a value proposition (aside from quality). These are basically body shots until they knock down the competition. RC Cola did this successfully in the Philippines when taking on global giant and market leader Coca-Cola. For a similar product, they offered it to consumers at a much lower price. Due to the price sensitivity and demographic of that market, the pricing advantage resulted in a large segment of the market switching to RC Cola.
Fighting based on quality is akin to knocking out your opponent with a headshot. Take it all the way to the top and beat them at their own game. Nothing is more sensational than this type of knockout. Consumers love it as it raises the bar for their own consumption experience while it pushes the benchmark forward and advances expectations of that product category down the line. My favorite example for this is Google. Remember the plethora of search engines in the early days of the Internet? Alta Vista, Ask Jeeves, Excite-Lycos, and even the dominant Yahoo at that time. AOL also had their own “proprietary” search engine at one point. All these companies were knocked down based on Google’s ability to deliver more accurate and relevant search results. Google raised the standard for search results. The other search engines were not able to meet this standard and hence were competitively eliminated.
Any challenger coming in to “challenge” the champion has to have a very clear and sustainable value proposition that is better than the champ’s. This takes precedence over all else and should be considered first and foremost although other areas described below are equally important when looking at the whole.
• Financial analysis, balance sheet analysis: Sun Tzu preached that to win a battle or war, you must understand your enemy as well as yourself. When looking at taking on the competition, it is important to know their strengths and weaknesses. One of the most important components of this analysis is the financial one. Look at the size of the company, their asset base, revenues, and profits. It is also important to evaluate any existing debt and credit obligations. By understanding the financial state and health of the competition, you can better predict the reaction of competition, and whether they will be able to match your offering or even eventually beat it.
As with any fight, be careful to punch above your weight class. The mythical fight between David and Goliath is great in terms of inspiring the notion that size is not everything. However, in the real world it does matter and a multi-billion company can wipe out a much smaller competitor by matching price at a level that drives the smaller competitor out of business, they can outbid the smaller competitor for supplies, locations or management, or can also squeeze distribution channels or retailers so they do not carry the competitor’s products. If you decide to punch above your weight class, be sure that you have such an incredible or disruptive proposition that you gain sufficient traction to reach “critical mass.” Reaching critical mass means as a challenger you have gained enough market share to have carved out a sustainable niche that you can defend against competitive threats. This means you have a sufficient number of loyal customers, allied distributors and retailers, and suppliers.
My absolute favorite example of this is local hero and champ Jollibee. Jollibee is the only locally homegrown company in the world to have beaten global behemoth and market leader McDonald’s at its own game. Jollibee is the No. 1 fast-food company in the Philippines and No. 1 burger chain as well. Despite competition from a much larger and well-established competitor, Jollibee was able to reach No. 1 positioning in the market by doing the most important thing better than McDonald’s: Jollibee delivers a product and service that the Filipino consumer is looking for. Jollibee appealed and fulfilled this expectation better than McDonald’s.
• Management or cultural mindset: This is probably the most underrated and under-emphasized component of benchmarking and champ vs. challenger simulation. However, when done right can create an important competitive advantage as the challenger can predict accurately the reaction of the current champion for which it can prepare the appropriate response. One will have to look at the historical responses the champ has had on new entrants and competition. It is also important to look at the mindset of the management and key leaders of that company to predict their biases in terms their strategic response to new competition.
• Critical Supplier Relationships: In many industries, — depending on the industry — the champ can be dethroned by a challenger gaining access and the favor of critical supplier relationships. This is very much true for retailing and businesses with any major distribution aspect to it. Whether tires, diamonds, or commodities (cotton, chicken, metals, etc.), this principle holds true. A credible challenger can further erode the market positioning of the champion by winning over critical supplier relationships.
NetEase did this to The9 in China. The9 was No. 1 or No. 2 in the online games industry due to the success of World of Warcraft (WOW). WOW represented over 80 percent of The9’s business. WOW was licensed to The9 by Blizzard (a US game developer). At the end of the initial licensing term, NetEase offered Blizzard an aggressive deal of 40-percent royalties (vs. the rumored 25 percent of The9) and won WOW distribution rights for China.
As I said, I love a good fight. There’s nothing like competition to keep one on their toes. Good luck to all the champs and challengers out there!
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Any questions? E-mail me at egtheplayer@gmail.com.
