Stratagem 7

“It is wiser to launch an attack against the enemy force when they are dispersed than to fight them when they are concentrated. He who strikes first fails, and he who strikes late prevails.”

—From The Thirty-Six Stratagems

Until recently, the local coffee shop was a meeting place for coffee drinkers in the United States. Like the corner grocery store or tavern, the local coffee shop was a product of its neighborhood. Its
brand extended no farther than its home area. It drew customers from within its neighborhood’s borders and so did not compete with nearby coffee shops.

Today this landscape has shifted. The coffee shop is no longer a local phenomenon. Starbucks has trespassed on the local shops’ neighborhoods, creating a chain that spreads across the United
States, into Europe, and even Asia. The company has injected new growth in the market, growing U.S. coffee shop revenues by 20 percent a year between 1997 and 2001. It has captured a disproportionate share of this expansion, growing its own revenues by 27 percent a year over the same period. Starbucks transformed the once sleepy, local-centric market into a high-growth market of national and international scope. It has done so by applying the principle Besiege Wei to rescue Zhao.

To see Starbuck’s method at work, imagine three neighborhood coffee shops in three neighborhoods equidistant from one another. These coffee shops do not compete with one another. The coffee, food, and ambiance are equivalent, and the locations do not bring these businesses into competition because they are not in the same neighborhoods. A customer has no reason to travel out of her way to visit another coffee shop, so her neighborhood coffee shop is content.

Now imagine that two of these three shops merge and coordinate their operations. When one buys coffee, for example, it buys for two stores instead of one and so buys at a lower price. When it places an advertisement, it does so for two stores instead of one and thus can expect a larger return on its investment.

If the two coffee shops share the same name, even more advantages present themselves. By approaching customers on two fronts (i.e., customers see the same name twice a day as they pass through neighborhoods on their way to work instead of just once), they can attract new customers to the market. This two-front attack also allows them to capture a larger share of the market: When one coffee shop wins a new customer, that customer becomes loyal to the sister shop as well and will be more willing to walk out of his way, even walk past a competing coffee shop, to visit the sister coffee shop whose name he recognizes. Loyal Starbucks customers, for example, will walk blocks to find a Starbucks. This loyalty cuts into the market share of competing neighborhood coffee shops (though in the case of Starbucks, neighborhood coffee shops often experience sales growth because overall market growth overcompensates for their market share losses).

The local coffee shop that once lived in relative balance with its competitors must now battle on two fronts. Similarly, customers who once were loyal to one coffee shop are now drawn to others on two fronts.

The outcome that results from applying this tactic is powerful. This stratagem gave both Starbucks and Wal-Mart seemingly unstoppable growth. Starbucks uses its stores to market for one another. Wal-Mart achieves economies on the backend: all the stores in a given area coordinate their supply schedules so they can share the same truck fleet, thereby reducing the cost of keeping their stores stocked. No stand-alone business can match these kinds of efficiencies. In city after city, two or more Starbucks coffee shops teamed up to beat a local competitor; two Wal-Marts teamed up to share distribution costs and beat out a local retailer.

“Appear at points which the enemy must hasten to defend; march swiftly to places where you are not expected.”

—Sun Tzu, The Art of War13

Virgin Besieges British Airways

By 1984, numerous start-up airlines had failed in their attempts to challenge British Airways in the UK. British Airways held nearmonopolistic power that seemed to make competition futile. So
when the Virgin Group launched Virgin Atlantic, most industry experts were incredulous.

Virgin faced numerous disadvantages. It had less money, capacity, political clout, and experience, and it had no control of the reservation system. Its defeat seemed inevitable.

But Virgin could place a piece on the game board that its predecessors never had. By putting its brand into play, Virgin introduced a powerful new ally. Virgin flustered British Airways and set a
course for victory.

Because of its size and reputation, British Airways could deal with almost any direct competitor. But Virgin presented an enigma: It had already developed a strong brand in the music industry. Not
only would British Airways have to deal with Virgin Atlantic, but it also would have to deal with Virgin Records. Each record Virgin Records sold helped win over passengers for Virgin Atlantic.

Virgin further complicated British Airways’ position by expanding into the radio, television, and hotel businesses. British Airways, under attack from disparate directions, was unable to dispose of
Virgin Atlantic with the ease it had put other start-up airlines out of business. In just five years, Virgin Atlantic grew to £10 million in profits. And just five years later, it expanded to Asia and Australia. Virgin learned that using one business to protect another rarely drains resources. Usually both businesses benefit.

The stratagem Besiege Wei to rescue Zhao strengthens with use, as Richard Branson, the founder of the Virgin Group, observed:

as well as protecting each other they [the companies] have symbiotic relationships. When Virgin Atlantic starts a flight to South Africa, I find that we can launch Virgin Radio and Virgin Cola there. In the same way, we can use our experience in the airline industry to make buying train tickets easier and cheaper. We can draw on our experience of entertaining people on planes to entertain people on trains. We can use the cinemas to have people sample our Virgin Cola. We can use our vast stock of entertainment at the Virgin Megastores to make trips to Virgin Cinemas more fun.14

Virgin’s relatively loose conglomeration of companies provides any individual company an enviable stock of internal “allies” from which to borrow support. Just as a neighborhood coffee shop cannot
compete with only one neighborhood Starbucks but must also contend with those in other neighborhoods, businesses taking on Virgin cannot compete with just one Virgin company but must simultaneously combat sister firms battling from entirely different industries. Competing against Virgin requires fighting on multiple fronts.

When Two Plus Two Is Greater Than One

In 354 BC, the Chinese state of Wei laid siege to its enemy, the state of Zhao. The weaker Zhao was unable to ward off its aggressor and appealed for help to an ally, the state of Chi, which was led by a strong general named Tian and a wise strategist named Sun Bin.

General Tian assembled his troops and, together with Sun Bin, planned his strategy. They discussed their options. There were many to consider. Chi’s army could supplement Zhao’s in any number of ways, such as by fighting alongside Zhao’s soldiers or by flanking Wei’s solders. Each defensive option had its merits, but Sun Bin offered a superior tactic.

Since Wei’s troops were at Zhao’s doorstep, Wei’s city was left exposed. Sun Bin calculated that bignoring Wei’s soldiers— indeed, by avoiding them entirely—Chi could both save Zhao and capture Wei. Although General Tian found Sun Bin’s tactic unorthodox, Sun Bin had demonstrated his strategic skill many times before by using such unconventional tactics. General Tian accepted the plan and attacked the state of Wei directly.

Chi’s attack on Wei forced Wei’s army to abandon its siege of Zhao and to return home in its city’s defense. But the journey tired Wei’s soldiers. They arrived home unprepared and disorganized;
they lacked the normal advantages of defense. As a result, Chi defeated them and saved Zhao in the process.

Like lions, which often attack in pairs to fluster their target, Chi and Zhao trapped Wei in an impossible dilemma. When implemented correctly, one plus one becomes greater than two.