Stratagem 10:Remove the Firewood from under the Pot.
“When confronted with a powerful enemy, do not fight them head on but try to find their weakest spot to initiate their collapse. This is the weak overcoming strong.”
—From The Thirty-Six Stratagems
Throughout history, corporate battles have been waged over the issue of supply. When Apple launched its first iPod, for example, it signed an exclusive agreement with Toshiba, which prevented competitors from following quickly. Toshiba had developed a revolutionary
new hard drive that would allow Apple to introduce an MP3 player that approximated the size of flash-memory-based players but held ten times the number of songs. By locking up Toshiba’s supply, at least temporarily, Apple made it impossible for competitors to match the iPod’s performance.
To hinder its adversary, Pepsi, Coca-Cola attempted to “lock up” corn syrup supply by signing large long-term supply contracts with corn syrup manufacturers. To strengthen its competitiveness
selling consumer media devices in the late 1980s, Sony purchased Columbia Pictures and CBS to ensure these companies would not deny content to Sony.
Perhaps the best-known application of this tactic involves Minnetonka, the maker of Softsoap. The small company realized that if its new Softsoap products were successful, more powerful consumer
goods companies such as Procter & Gamble and Colgate-Palmolive would quickly introduce their own liquid-soap products and leverage their marketing and distribution muscle to overtake Minnetonka. So the company signed large long-term contracts with the manufacturers of the pumps that were needed to produce liquid-soap products.
By locking up a large share of the pump supply, Minnetonka hindered P&G’s and Colgate-Palmolive’s attempts to follow with competing products (because these companies could not get
enough pumps). This strategy afforded Minnetonka sufficient time to establish a defensible position. While most small companies that go head-to-head with P&G and Colgate-Palmolive fail, Minnetonka survived.
In each of these cases, the attacker targeted its enemy’s source of power. This approach allows a more efficient application of power than does the traditional approach of attacking the enemy directly.
Remove the Patents
In 1993, Barr Pharmaceutical was an average generic drug manufacturer, indistinct from hundreds. Years of struggling with the FDA for product approval had pushed back the company’s revenues
to $58 million in revenue, down from $70 million three years prior. But that year, the company changed its strategy. Once it began focusing on the “fire” rather than on the “pot,” the company
started growing again. Over the ten years ending 2006, the company grew revenues 560 percent to $1.3 billion while stretching its operating margin to 41 percent from just 6 percent.
The company triggered growth by systematically removing inputs large drug companies depended on to protect against competition: patents. In March 1993, Barr settled a patent challenge with
Zeneca Inc. over a breast cancer treatment drug called tamoxifen citrate. Zeneca vigorously defended its right to exclusively market the drug but eventually gave in by giving Barr nonexclusive rights to distribute a generic version of this drug in the United States. With that news, Barr’s stock immediately rose 30 percent.22 The drug grew to produce about 75 percent of the company’s sales.
This success in attacking Zeneca’s patent, led Barr to shift its focus toward patent litigation. In 1993, Barr’s CEO stepped aside to allow a former litigator, a partner at the law firm that represented Barr, to take over. The litigator-turned-CEO launched a strategy challenging select patents of large drug companies. The company challenged Glaxo Wellcome’s patent of the AIDS drug AZT. It attacked DuPont Merck’s rights to warfarin sodium, an anticoagulation agent.
In just ten years, Barr Pharmaceutical lurched out of a crowded pack to become one of the largest generic drug companies in the world. It did so by systematically removing the patents big drug companies depended on to compete.
Han Starves Rebels
In 154 BC, nine states collaborated to stage a rebellion against the ruling Han empire in China. The Han general calculated that he did not have the power to quell this uprising head-on. So he attacked the rebels’ supplies lines.
He ordered his primary troops to assemble as if preparing for battle while he led a smaller group of lightly armed troops around the battlefield. This smaller group raced behind the massing rebel forces and took up position on a key route on which the rebels would later depend for supplies.
The Han general then ordered his primary troops to engage the rebel force without launching a genuine attack. The main forces engaged. The rebels were pleased that they were sustaining the
“attack” so well; after some time, however, they realized their supply lines had been cut. Their soldiers grew hungry and thirsty, but no food or water came to recharge them. Forced to fight on, the soldiers lost first their passion, then their energy, and finally their will to rebel. In this way, Han ended the rebellion with little cost or effort.