Sun Tzu's Six Principles- Wait- 2,500 year old strategy still works today? Yes, It does

Timeless, spot on and still studied today, 2500 years later.  Sun Tzu wrote a lot about Strategy and Leadership, but these six principles are the cornerstone of his teachings, and continue to apply to business today.

First, here they are:

1. Win all without fighting
2. Avoid Strength, Attack Weakness
3. Deception and Foreknowledge
4. Speed and Preparation
5. Shape your Opponent
6. Character-based Leadership

Now, let's look at their application in today's business world:

Principle 1- Win all without fighting

1. Gain business and/or market share without:
1. Spending large sums on gaining that share-eg., advertising; advertise cleverly and use social media for your advantage;
2. Compromising your product by reducing price and/or quality
3. Do not use price as a strategy- fashion merchandising which makes your offering special will get you an advantage (Inditex)
4. Analyze costs of growth- more business does not necessarily mean more spend (Think Big, Be Small)

Principle 2- Avoid Strength, Attack Weakness

1. Find your Market NICHE- what separates you from your competition?
2. Don’t try to COPY dominant product- IMPROVE or REINVENT it;
3. Find a customer who has not been served or served properly;
4. Find a new Geography- eg., urban vs. rural
5. Fill a need- eg., Untuckit
6. Incumbents have more money than you so do not compete head on;
7. Incumbents may not have the will to enter a new market segment-it will cost you less to start up than it will them.

Principle 3- Deception and Foreknowledge

1. THOROUGHLY research and know your market, your customer- what they have, what they need, what their shopping habits and fashion choices (Untuckit);
2. Never stop research and discovery-even for a day;
3. Use all available resources provided by technology (AI, CDP, Social media);
4. Always be first-do something new every day
5. There is no limit on disruption (Amazon)
6. Keep your competition guessing;
7. Know your capabilities- don’t bite off more than you can chew;
8. FOCUS on what you do best;
9. Have better fashion insight than your competitors- hire the team that can see the future.

Principle 4- Speed and Preparation

1. Speed to Market- be faster better cheaper (maybe)
2. Gather the best information available
3. Never give yourself too much credit for what you did yesterday;
4. Prepare your offering with Common Sense;
5. Use the best technology available for information and customer service;
6. Have better and faster service than your competitor;
7. TALK to your customer;
8. Be decisive- sometimes you will fail, but not if you don’t try;
9. Shorten your design/delivery cycle;
10. Think It Through.

Principle 5- Shape Your Opponent

1. Make your competitors chase you- not the opposite- make them play in YOUR sandbox;
2. Second is last- be FIRST
3. Update/change/grow your offering faster than the competition (Apple)
4. Your fashion and product/brand image should be an EXAMPLE your competitors want to follow;
5. Your offering must be simple, accessible, easy to understand and buy.

Principle 6- Character-based Leadership

1. Hire PEOPLE, not RESUMES;
2. Hire by CHARACTER fit, with at least the following characteristics:
1. Courage
2. Will to Succeed and Win
3. Intelligence
4. Loyalty
5. Likability
3. A leader will only succeed with a strong TEAM whose skills complement each other;
4. Build Great Captains, whose character and skills will help you as you grow;
5. Challenge to change and react, never sit;
6. Original Thinking-the Fashion Industry is build on CHANGE;
7. Open- Minded Management
8. Humility- Never get too impressed with yourself;
9. Lead By Example-all the above won’t work if it is not part of your style.

Sounds simple, right? How many of you business leaders can state with perfect honesty that the above is exactly your management philosophy, style and execution? (I can)

When we attend the funerals of those brands and institutions that have passed on, we can look at the above and always find the causes.

Study it. Learn it. Succeed. Or don't.

The Nouns and Adjectives of Our Times

"Like Sands Through the Hourglass, So Are the Days of Our Lives" (opening line of NBC Soap opera series, now in its 54th season, since 1965)

That phrase would suggest that once time, or the past, has flowed through the hourglass, that it is gone baby gone.

Is that true for marketing today? The lessons and principles that got us to this point are totally changing, due to the unstoppable march of technology? So, for example, if we are teaching or learning Digital Marketing, let's focus on the SEOs and Analytics. Forget that Four P's stuff, right?

I believe the answer can be found in the grammatical structure of the names we have given to most of our university courses: Digital Marketing, Global Marketing, Competitive Strategy, International Finance, etc.

As a refresher, above graphic is what we learned in Grade School:

So that means, for example, Digital is the adjective that describes the noun Marketing. So Marketing is still the thing and Digital is a way of doing it, right?

That logic calls upon us to have a thorough understanding ofMarketing first.

And, in studying marketing, do we focus on the funnels and fishes of today and never mind the basics like the Four P's? No. Marketing has been going on since the Agora of Ancient Greece, and maybe before. Has it fundamentally changed? No. I want you to buy my stuff, so how do I convince you to do that? And at what price can I sell it to hopefully make a profit? Finally, who wields the power? The Customer.

Am I oversimplifying this? I don't think so. 

In the classes that I teach, such as Digital Marketing and Competitive Strategy, I respect not only the fundamentals of the Noun, but the timeless nature of some of the principles (like the soap opera mentioned above). In Competitive Strategy, we must understand the nature of Strategy first, then we will explore how to be Competitive. Not the other way around.

And, I give proper respect to the masters of the art, despite the era of their origin.

For example, Sun Tzu wrote about 2500 years ago. Here are his Six Principles:

1. Win all without fighting
2. Avoid Strength, Attack Weakness
3. Deception and Foreknowledge
4. Speed and Preparation
5. Shape your Opponent
6. Character-based Leadership

I think it is easily seen how these principles relate to business today. In case there is any doubt, please refer to my article "Sun Tzu's Six Principles- Study Them and Succeed" , also published here on Sourcerer's Blog

As another example, British General Basil Liddell Hart wrote extensively on Strategy and Leadership. His 1954 book Strategy remains a textbook for all time.

And, of course, Michael Porter, whose books, like Competitive Strategy andCompetitive Advantage, and concepts such as the Five Forces and The Value Chainare still taught as the foundations of the study of strategy at every university level. But, Porter wrote in the 1980's, with little or no concept of a digital, global future.

THAT is where the adjectives come in. Digital and Global are how we achieve our goals today. But without a thorough understanding of the main, enduring concepts, we will surely fail to execute with today's technologies and tools.

One course/study name defies the grammatical logic of noun/adjective: Customer Relationship Management. What? Three NOUNS? Does this destroy my argument? 

Of course, I don't think so. I believe the title gives equal weight to all three nouns, telling us that they are all equally important. But here, the true meaning of the subject can be found in the order in which the nouns appear: The Customer is first, the development of a Relationship is next, and if we want to be successful in keeping that relationship, we better learn Management . At the end of the day, Customer relationships are no different than Personal Relationships. Agree?

So the moral of this story is, while time passes (like sands through the hourglass) and things change due to technology, some things never change and we better learn and respect what got us here.

The most important thing that has not changed: we are PEOPLE selling to PEOPLE.  And the people what has the power is the CUSTOMER.

Toys 'R Us "Reimagined": What will be different this time? Or, is this another investor scheme to milk the asset?

This is what Geoffrey looked like a couple of months ago. Now reports state that he has found a new home and master. Bloomberg reports:

"About a year after shuttering U.S. operations, the remnant of the defunct toy chain is set to return this holiday season by opening about a half dozen U.S. stores and an e-commerce site, according to people familiar with the matter."

Wow. How and why? We don't really believe it is because of the opening line in the article, do we?

"Maybe American kids will only have to live through one Christmas without Toys “R” Us."

More likely, this is the reason:

"This group tried to sell the intellectual property, but opted to keep it to garner a better return. As owners of the intellectual property, they have been collecting licensing and other fees from the units still operating and selling them private-label goods. "

Greedy Investors played a large part in killing Toys 'R Us the first time (see my article....), so no surprise they can't let the dead rest in peace. 

What we need to understand is, will they succeed or not and why?

Here are some of the facts/questions that need to be asked:

1. Consumers have moved on- not since it has been gone, but much before that- so why would TRU figure in their shopping plans next holiday when they just can buy it from Amazon or Walmart BOPIS (Buy Online, Pickup In Store)?

2. Buying online takes away from the experience for the kids? As a former kid, I can say that the real experience is when you have that toy in your little hands...

3. Smaller Store Size?It is said that the new plan foresees stores of 10,000 square feet which will be focused on "events." The old stores were 30,000 to 70,000 square feet. So now we plan to cram inventory and happy, active kids in a store 1/7 the size?

4. The new plan includes an ecommerce site-This to compete with Amazon and Walmart. We know that there are TWO main paradigms for online success, a la Amazon: 1. Price 2. Selection.

So, what is the chance that the new TRU will:

            a.Reduce prices to compete with Amazon and Walmart?This decision is not very likely to be made by investors (who will be running the company despite who they put in front) that are already losing money and have taken a risky investment to recover it;

            b.Be able to afford a bigger (I doubt if better) selection than Amazon and Walmart?So, who wants to bet on this one?

5. How much credit will the industry extend to the revived TRU? How many vendors will decline to sell to them at all? At best, this will be very restricted. Toy suppliers have suffered due to the expiration of the old TRU, and they will almost certainly want to put their money on a winner.

6. How much will Prime Day take out of the holiday toy business? Don't underestimate this- Now Prime Day is not just an event for Amazon, it is an event for the entire US ecommerce world. And this year it will doubtless be bigger than ever. If you are a Mom or Dad trying to compile an impressive Christmas Tree, you will be laser focused on the Prime Day toy bargains. So TRU could open into a market that has already spent a chunk of its Christmas Toy money. 

Conclusion:

There is no doubt that the US market, especially the toy market that has not changed in years, is open for disruption. That being said, there is no indication that the new TRU will do anything disruptive, much less enough to get noticed.

This is more likely an attempt to get the last milk out of the cow before putting it out to pasture. Is this cynical? I would offer that it is just reality that either nobody is facing, or they are just not telling...

Repost: Toys ‘Rnt Us- From Category Killer to Comatose

June, 2019. Media reports that Toys 'R Us will reopen for the 2019 Holiday season. In another article, "Toys 'R Us 'Reimagined': What will be different this time? " I analyze the information about the revived company and its chances for success. More likely, what killed it the first time is the reason TRU will stay dead.

Of all the sad retail stories I have heard this year,  this has to be the saddest. Not because the firm has gone from Category Killer to near death; the sad part is just how long the illness has been allowed to continue. Not all the sequence of failure is clear to me-but information and statistics from research into the company’s  and the industry’s history since 2004 keeps leading me to one persistent suspicion: The company was killed (it is all but dead now) by greed of executives and financiers who could not see through their own pockets to make changes that would help the company get back on its feet.

Toys R Us declared bankruptcy in September of 2017. But the story of its decay goes back at least as far as 2004.  Weighted under unpaid debts of around $800 million including $400 million in interest payments that it had been laboring under since a leveraged buyout in 2005. Here’s the first greed part:

Judge Keith Phillips approved $21 billion in bonuses for Toys "R" Us executives, garnering public criticism. The U.S. trustee assigned to the case, Judy A. Robbins, said the idea of big bonuses for a bankrupt company “defies logic and wisdom.”

(Seeking Alpha, https://seekingalpha.com/article/4139668-toys-r-us-announces-store-closures-list)

Understatement: Logic and Wisdom. What good use could $21 billion have been put to? And what is the justification for an executive who is ostensibly a person who cares about the company to ask for a bonus in  that situation at all, much less a salary? Where I grew up, “bonus” is for when you do good-and only then.  OMG.

There are definitely MOAT issues that attributed to the slow and painful death of Toys R Us. We will discuss those below. But beyond that, there had to be management and process failures going back to 2004. At that time, Toys R Us and Amazon were embroiled in a lawsuit where Toys R Us claimed that Amazon breached a contract between the two for TRU to be more or less the exclusive retailer and manager of Toys on the Amazon website. In its counterclaim,

Amazon, of Seattle, denies that it breached its agreement with Toys "R" Us, saying the language of their contract allows for exceptions that permit Amazon and other merchants to sell products that compete with offerings from Toys "R" Us. Amazon further alleges that it urgently needs other merchants to list competitive products on Amazon because Toys "R" Us has failed to keep toys and other items in stock. During key holiday-shopping weeks, Amazon alleges, Toys "R" Us has been out of stock on more than 20% of its most popular products. Amazon also alleges that Toys "R" Us has failed to provide Amazon with a comprehensive selection of toys for sale on the Amazon site -- in particular, low-priced toys (Wingfield, Nick. Wall Street Journal, Eastern edition; New York, N.Y.[New York, N.Y]29 June 2004: B.7.

Toys R Us won this lawsuit, garnering a $51M settlement from Amazon (http://abcnews.go.com/Technology/story?id=78306080)(Amazon don’t do that (exclusives or let anyone control their website business, or even pricing) nowadays, and this may have been one of the key lessons learned). But Amazon’s claims seem very real, in view of what is happening now, 13 years later.

Inexplicably, the next year, three hotshot VC’s (considering what happened since, remind you that VC once stood for Viet Cong) KKR, Bain and Vornado took Toys R Us private with a buyout of $7.5 billion, from which point the company was saddled with the above mentioned $400 billion in debt payments. On this subject, and not knowing how the debt was structured, I can’t help but get a feeling that someone made money on this deal.

Just two months after the above article, the WSJ reported, “Toys 'Were' Us?; Undercut by Big Discounters, Toys 'R' Us Is Indicating It May Get Out of the Business.”  The article reports that TRU’s MOAT had been breached by Walmart and “In a surprise move, the once-dominant toy retailer said it is exploring a sale of its core 1,200-store toy chain” and reported an analysis that said, “Given the competitive threat of Wal-Mart today, Toys 'R' Us will not be able to continue as a going concern in the long term without drastic structural changes." (Joseph Pereira, Rob Tomsho and Ann Zimmerman. Wall Street Journal, Eastern edition; New York, N.Y.[New York, N.Y]12 Aug 2004: B.1.

The sale happened. And then what? Was Toys R Us somehow frozen in time between 2004 and 2017 when they finally declared bankruptcy? How many billions were collected by the VCs and the company’s executives while the company died a slow death?

Let’s look at where the distribution of the toy business is today:

So what is evident here? First, WM and the mass merchants  now dominate the toy business. Why go to a shop to buy toys and only toys? Here is the sad part—the answer, in Toys R Us heyday, was NOT the prices, which is the only weapon WM can use to penetrate their moat. It was the EXPERIENCE. Kids dragged their parents to TRU because it was FUN. I don’t care who you are, Walmart is not FUN.

So here’s screwup number 1, TRU. In your sadness about the declining sales and challenges, you let Geoffrey the Giraffe become Bad Santa. You had the experience nailed, and you let it die. Now you are.

Next- If I am a category killer in a category that is dying or declining or flat, what should I do?

Clearly, find something else to sell. Babies stuff is a difficult business with birth rates not growing and economy not healthy. So what? 1. Pet Toys- Pet ownership has skyrocketed in US and globally during the period. 2. Grown up kids toys like Xbox etc. 3. Expand your target audience and maybe change your name to Fun Stuff R Us or something better than that. What not to do? Nothing, and that is what you did.

I know. You think that kids nowadays are not interested in toys. I thought so too.

Suprisingly, the facts state otherwise:

While toy sales have declined, the percentage is really not that much since 2005.  So let’s forget that excuse.

What is true is that, since TRU broke up with Amazon, they forfeited the online business to them. As has most everyone else:

Note to self: see Target lurking there in the grass. Watch who eats the carcass of TRU.

So, like everything else, about 50% of the online commerce is forfeited to Amazon. Now it seems to me like the hierarchy of jungle cats where all must genuflect to the leader. Until, that is, someone has the balls to challenge. Not rocket science.

So what will become of the toy business after Toys R Us is only a story? Anybody with half a brain will see that the toy business now is inextricably connected to the current world of technology, and that children who grow up in the tech world only want to play with stuff that is in synch with the world around them. I think that this is a virgin business; nobody has thought this through. I see a future that is fun and in sync with Alexa.

As far as Toys R Us, they could be part of this future because they still have about 1500 locations. Let’s be clear: there are only two things that Amazon envies: 1. Brick and Mortar and 2. International Business. But that would require a selfless quest on the part of management.

Survival/MOAT/Sustainable value growth is my business. I could make this happen. So I suppose TRU management could do. As it is, it is a big short.

REPOST: China Quality: Good Enough is NOT Good Enough

Repost: China Quality- Good Enough Is Not Good Enough

I posted this article almost 2 years ago. Recent events have proven to me that not much, if anything, has changed since I first wrote the below. Except tariffs and a further tarnishing of China's reputation in the US. IF China is to successfully make the transition from emerging economy to developed country AND a part of the world community, quality standards and mentality must be addressed. There is more than technical change needed; this calls for CULTURAL change. That can only come from the leadership...

Among the tens of thousands of factories in China, there is a wide variation of quality level, from very good to very bad. Factories who produce for domestic consumption typically have very little concern for quality; export-oriented factories generally need to be more conscious of quality, to meet their customer’s minimum requirement and not have their production rejected at final inspection. It is those factories we will examine here.

On average and in most cases, the customer’s minimum requirement is the sole operative standard; in very rare cases does a China factory have their own internal standard, or even a picture of what they expect their final product to reach. The operative benchmark is: good enough.

Think about it- how many well known China products can you think of that evoke an association in your mind that says, “ Oh yeah-that brand is really good quality.” Very few, and not well known, such as Haier or Huawei. Contrast this with Germany or Japan where most people can easily recite many brands they associate with good quality-and usually a commensurate higher price.

This mindset holds China back from reaching the level of quality that can raise it to the level where prices can be increased to match the higher costs of labour and materials-and be accepted by buyers and consumers for those reasons. A consumer in a store investigating a product finding out it is made in China usually produces eye rolling-what China wants is a smile of recognition. How can China achieve this change of perception?

In fact, the inability to raise quality standards amidst higher costs and market price pressure is having the opposite effect-factories will want to find a way to lower costs so they don’t lose money at lower prices-which usually means quality compromises. This may be conscious, or simply (as is the case most of the time) of rushing the production through the process to deliver on time, without spending time or money to pay attention to the quality standard of the product. Just making it through-sometimes with smoke and mirrors.

What compounds the problem is the cultural peer pressure put on the customer’s staff or representatives, who are almost always Chinese. As quoted before from Jim Mann’s Beijing Jeep, the Chinese are very good at purposely confusing friendship with business, viewing friendship as a relationship where friends “help” each other. Maybe in this case it would be letting them slide on marginal quality. What is more, the race card is often played with these staff- we are Chinese, you are Chinese- the foreigner is the outsider/enemy, even if they pay your salary. They hate me/they like me- very few Chinese can escape this guilt trip and realize that whether your factory likes you or not just does not matter in business. Business is business- not about emotions—just real things you can see. 

What needs to happen is:

1.    China factories need to develop their own internal quality standard.This should be a standard that supports the price they are asking for the product, and one they can be proud of.

2.   This standard should not be allowed to vary with the customer’s expectations or the price of the order. By definition, a standard is just that- a set of fixed points that a product should reach.

3.    Customers should clearly communicate their quality standard of excellence in product before any production starts and never, ever compromise for delivery or to be “nice.”Nice is emotion-products are real.

4.   Make it a practice of delighting the customer by exceeding expectations, not just getting by on good enough.  This will go far in getting new orders- and justifying higher prices.

5.    As I have said before, factories mustadopt a process-oriented quality system. Each process leading to the final product should have its own internal QC. This will pinpoint process problems early on, and prevent problems from wasting the factory’s money by reaching the final inspection stage.

6.    Factory should perform their own final QC before the customer shows up.Then, problems that do reach the final stage can be rectified before the customer is dissatisfied or rejects the order.

7.    Use the same quality standard for all materials and accessories.Producers cannot expect an excellent final product by addressing  only assembly.

8.   Most important- the antiquated mentality of getting by with what customers will accept-especially foreign customers-has got to change.Mentality that old and entrenched can only be changed if management is convinced it is in their short and long term interest. Good enough is not good enough.

This is not about cost of production. There is no doubt that efficient production costs less than careless muddling. This is about smiles- evoking that smile of recognition that Made in China means quality you can believe in. For China to advance in the world economy as it must, both quality systems and mentality must change. Then perception will also change.