Stratagem 30:Openly Repair the Walkway;
Secretly March to Chen Cang
“To pin down the enemy, expose part of your action deliberately, so that you can make a surprise attack somewhere else.”
—From The Thirty-Six Stratagems
Marc Benioff, chair and CEO of Salesforce.com, showed from childhood a tendency toward the unorthodox path. In his teenage years in San Francisco, while his friends occupied their free time with sport, Benioff started a business producing and selling programs and games for the Commodore 64 computer. Long before his college peers at the University of Southern California had chosen the subjects they wished to major in, Benioff says, he had already decided he wanted to leave his mark on the computer industry. After graduating from university in 1986, he chose Oracle Corporation as the platform from which he could innovate.
Though Oracle was still considered a rebel by its peers, the company had grown into the world’s second-largest software company. Benioff soon felt constrained. He spent his early career working on small PC and Internet-based businesses, none of which came to fruition. However, in 1996, a decade after joining Oracle, Benioff had an epiphany. While sitting at his desk surfing through Amazon. com, he found himself wondering why customers weren’t able to access business software, such as that produced by Oracle, in the same way that customers of Amazon.com could access the shopping site via a Web browser. In the 1990s, it was quite common for software to be installed on company servers and computer desktops, yet Amazon.com users could access powerful technology without having to install anything. Why couldn’t someone do the same thing for larger programs?
For the next three years Benioff persisted at Oracle, eventually becoming a senior vice president reporting directly to the company’s chair, Larry Ellison. Despite his importance at Oracle during that time, Benioff’s idea—that software could be delivered through a browser—was not embraced.
When a company restrains good ideas, the ideas usually win out in the end. In 1993, for example, an Oracle employee named Tom Siebel conceived the concept that came to be known as customer relationship management (CRM). He had recognized the potential of software to help companies automate and integrate their customer-facing processes. With one CRM solution, a company could efficiently find, win, and retain customers across diverse channels such as phone, fax, e-mail, and face-to-face interaction. By linking software used by the sales force with software used by the call center and the company’s Internet engine, which tracks customer log-ins, for example, a company could get a full picture of one customer, regardless of when and how that customer interacted with the company. It is because of CRM software that the customer service representative helping on the phone knows that you requested technical help online last week and so may be following up on the same problem.
Rather than pursue his CRM idea through Oracle, Siebel left the company and cofounded his own, Siebel Systems, with Patricia House in 1993. Together they created the CRM market, which grew to $10–$12 billion by 2005.
Benioff decided to follow Siebel’s lead. Although he was not yet sure how he would capitalize on his vision, Benioff was nonetheless committed to it, and he left Oracle in 1999, embarking on a sabbatical to contemplate his options and form a plan. The year he returned he launched Salesforce.com, a service he created to help companies manage their sales forces more effectively, and that would, according to Benioff, put an “end to software” for good. Ironically, his decision to focus on sales force automation positioned him as a direct challenger to his fellow Oracle rebel, Siebel.
Benioff’s approach to business was different from that of his competitors. For a start, he set up shop above a trendy restaurant in San Francisco, he often wears a Hawaiian shirt to work, and one of the company’s most famous employees is its “Chief Love Officer,” Benioff’s golden retriever.
However, beneath these superficial differences lies a larger and more fundamental one. Microsoft, Oracle, SAP, Siebel, and other leading software companies all follow an orthodox path to the user, packaging software and loading customer databases on company-owned computers. Benioff did not fixate on this orthodox approach. As is often the case with highly competitive entrepreneurs, he recognized his competition was stuck, preoccupied with the expected, orthodox path. He used this insight to take his competition off-guard. He chose the unorthodox approach, crossing over to the customer in an entirely different way by putting the software and databases on Salesforce.com servers and allowing customers to access information through a Web browser.
As a result, Salesforce.com can adopt an entirely different fee model. For while Benioff’s larger competitors sell multimillion-dollar software packages that take months to install, users of Salesforce.com need install nothing. Similarly, while Siebel and its peers charge companies large licensing fees, Salesforce.com charges a simple fee per user (currently about $65). This means that companies can decrease or increase their sales force automation cost in response to changes to their employee base. This is an attractive proposition when you consider that companies that are tied to a traditional software model must continue to pay heavy licensing fees to software companies, even if their business is suffering and they are being forced to lay off staff. With Salesforce.com those companies can simply pay for fewer users, providing instant cost savings.
This fee model also allows Salesforce.com to derive profits from those customers its competitors ignore. For while leading software companies focus their efforts on the “enterprise market” (generally companies with more that $1 billion in sales), Salesforce.com’s flexible pricing model of $65 per user makes it an ideal package for smaller companies. Salesforce.com is able to serve such customers profitably because its servers and software are already paid for (and thus constitute sunk costs), so adding a new user costs close to nothing.
Salesforce.com’s competitors have been slow to respond, perhaps because by copying Salesforce.com’s Web-based model, Siebel and other large players would risk damaging the lucrative core of their business: selling and installing large software solutions. Even those companies that have developed lower-cost Web-based solutions have struggled to manage the awkward task of promoting such offerings while reassuring existing customers, who pay large licensing fees, that the Web-based offering is inferior to their chosen software.
By finding an unorthodox path to the customer, Salesforce.com has revolutionized the software business. Siebel, Salesforce.com’s most direct competitor, hit financial difficulties and agreed to be sold to Oracle in 2005. Meanwhile Salesforce.com went public in 2003 and then grew 600 percent in the following three years, from $50 million in 2003 to $310 million in annual revenue in 2006. Its net income grew from a loss of $10 million to a gain of $30 million over the same period. While the scale of its competitor’s figures may dwarf Salesforce.com’s, the company is currently growing much faster than any major software company in its market. In the words of Marc Benioff, founder and CEO of Salesforce.com, “We will destroy Oracle and SAP because they won’t be able to respond to the innovation we are about to unleash.”81
The Circuitous March Eastward
In 207 BC, the Qin dynasty was in rebellion. Two rival rebel leaders struggled for control of Guanzhong, a strategically important kingdom of the Qin dynasty. One rebel leader, Liu Bang, had originally conquered the kingdom. But another stronger rebel leader, Xiang Yu, wanted the territory as well. Because Xiang Yu’s forces outnumbered Liu Bang’s, Liu Bang was forced to concede the kingdom.
Despite his capitulation, Xiang Yu remained wary of Liu Bang’s ambitions. So he devised a plan to keep Liu Bang as far away from Guanzhong as possible. He divided the kingdom into eighteen parts and appointed Liu Bang as the leader of a remote area at the west end of the kingdom. To further insulate himself against Liu Bang’s potential threat, he divided the area between the capital and Liu Bang’s fiefdom into three parts and appointed three generals as leaders of each part. One of the fiefdoms was called Cheng Cang.
Liu Bang was already upset at having to give up the kingdom he initially conquered. He was now even angrier for being banished to a far corner of the region. As he and his soldiers marched out of Guangzhong’s capital, one of his advisors suggested that they destroy the wooden road that connected their new home in the west with the capital. This would put Xiang Yu at rest by assuring him that Liu Bang had no intention of returning eastward to seek revenge. Liu Bang agreed, and so his soldiers destroyed roads and bridges as they traveled.
Once he established his new base, Liu Bang ordered his general to rebuild the army. When the army was so strong that Liu Bang felt it could defeat Xiang Yu’s, he summoned his general. They discussed how best to march eastward and retake the kingdom. Two barriers stood in their way. First, three generals ruled the territory surrounding their new fiefdom that lay between them and the capital. Second, the wooden road that led to Xiang Yu was in ruins. However, Liu Bang and his general were wise men. They crafted a clever strategy to overcome, even draw strength from, these barriers.
Liu Bang ordered a contingent of men to set about rebuilding the wooden walkway. This impacted Liu Bang’s adversaries in two ways. First, it put them off-guard. Liu Bang’s work force was so small that it would take years for them to complete job—or so his adversaries thought. Second, his plan focused his enemies on the “obvious” path. Both Xiang Yu and the general of neighboring Cheng Cang saw that if Liu Bang ever did rebuild the walkway, they could easily block his attack by concentrating their forces at the mouth of the narrow passage.
But Liu Bang had no intention of using his walkway. His construction project was merely a diversion. He planned to attack Xiang Yu by a different, unorthodox route.
While his opposition watched the walkway, Liu Bang ordered his troops to attack Cheng Cang, his neighboring state. He surprised Cheng Cang’s general and took the fiefdom. This move caught Liu Bang’s adversaries off-guard and broadened Liu Bang’s base of power. It laid the foundation for a campaign in which Liu Bang sequentially expanded his growing power base, defeating the states standing between him and Guangzhong’s capital, until he reached Xiang Yu. Liu Bang ultimately won back control of Guangzhong, took command of the rebel movement, unified China, and became the founding emperor of the Han Empire.
