The PT Challenge

Traditional business strategy is Strategy from the Outside In. The key tool that traditional businesses use to aid this kind of thinking is called SWOT. Pronounced “swat,” this acronym stands for strengths, weaknesses, opportunities, and threats.

The SWOT process is based on examining two large sets of factors. The first is made up of the environment in which you operate, including customers in the market, competitors, regulators, availability of materials, the state of technology, and so on. By themselves or in combination, these factors offer opportunities to be taken advantage of and threats to be avoided. The other set of factors is your internal situation—your strengths and weaknesses—including your cash in the bank, your existing customers, your market position,  the skills your staff possesses, your intellectual property, your system and processes, and so on.

By matching the opportunities and threats that you perceive in the external environment with the strengths and weaknesses that you see in your internal situation, you are able to come up with a set of strategies to capitalize on the opportunities or mitigate the threats.

SWOT works, and when properly carried out, it can help you get the greatest return on your resources. Also, because SWOT is a systematic way of looking at your world, you may see opportunities on which you can capitalize. It is a very reasonable way to organize your resources.

SWOT gives you a set of strategies based on what is probable. By definition, it looks at what already exists, and it enables you to take the best advantage of things that are already in play.

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Strategy is defined as selecting and arranging your potentially scarce resources to best achieve your most important objectives. So the first step is to figure out what those objectives are. In setting your strategic objectives, you can consider the world in terms of what opportunities are available and what is likely to happen, or you can decide what you think might be possible for you to accomplish in the world, and then look for ways to make that happen. This leads to two different approaches to crafting your business strategy:

• Strategy from the Outside In, or the Strategy of Probability
• Strategy from the Inside Out, or the Strategy of Possibility

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The nineteenth-century Prussian general Helmuth von Moltke said, “No battle plan survives first contact with the enemy,” and he was right. Von Moltke was talking about the famous “fog of war.” During a battle, smoke from cannon and rifle fire obscured a commander’s view of the battlefield, and the general chaos made it very hard to understand anything beyond the present moment. More importantly, von Moltke understood that the enemy he was fighting was not some static thing, but a group of responsive human beings whose actions he could not predict with any great certainty. He knew that battle plans had to be fluid and plastic. In the space of an hour or a day, new tactics would have to be substituted for old, and the whole arrangement of forces might need to be resculpted.

You cannot know what is going to happen, but since you are not ignorant and have some experience with  the players—or at least you think you do—you make educated guesses.That is the basis of strategy. Because things are highly likely to change once it all gets going, the unreasonable definition of strategy is

Selecting and arranging your potentially scarce resources to best
achieve your most important objectives.

This definition presupposes a few things.

First, it presupposes that some resources are scarce, and for most of us they are. Time is often scarce—and by scarce I mean that you could use more of it than you have. For many businesspeople, money is scarce. Whether it’s in your budget or your bank account, you generally would like to spend more than you have available. People with the right skills are often scarce. For some companies, customers are scarce. Raw materials can be scarce. As you can see, scarcity, even for those of us with “unlimited resources,” is a way of life.

Second, it presupposes that you have real, important objectives, but then anyone who is reading a book like this, one that promises unreasonable solutions, probably has big things to accomplish; things so big that he can’t get them done the easy way.

Third, it presupposes that there is something out there— whether it’s a competitor, an “enemy” of some kind, or perhaps something more abstract like a goal or a vision—that you want to conquer. It further presupposes that your objective or opponent is more powerful than you and might even have access to
unlimited—or at least more abundant—resources.

Guerrilla fighters present the clearest example of strategy in action, which is why Jay Conrad Levinson, author of Guerrilla Marketing, chose that name for his small business approach to marketing. Guerrilla fighters battle against a larger, richer, better- equipped enemy. Because they themselves are ill equipped,
they have developed methods of combat that avoid direct confrontation and make maximum use of the limited food, weapons, ammunition, and technology that they have at hand.

Guerrilla fighting stresses deception and ambush rather than mass confrontation, just as guerrilla marketing stresses direct marketing tactics, one-to-one marketing, and word of mouth over advertising and broadcast promotion. Guerrillas succeed best in irregular, rugged terrain—much like niche markets. They employ
hit-and-run skirmishes instead of sustained battles—like their business counterparts who execute a single time-limited campaign and evaluate the results. Each of these guerrilla approaches exemplifies positioning resources, putting them in action, understanding the outcome, and repositioning them for the next engagement.

There is something else important to note about guerrilla strategy. While we often do not agree with their philosophy, aims, or goals, guerrilla fighters are in every case inspired by a sense of possibility. They have compelling personal reasons to fight. They fight not for salary, or as a result of conscription, but because of a sense of purpose. They fight for what they believe is a better way of life or a better future for their families. They are often trying to defend their right to run their own countries; some are even trying to change the world.

This is a very important thing to consider, because in the history of warfare,

Guerrilla fighters always win.

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Why Is Strategy Important?

Being unreasonable is doing what is unexpected and unpredictable, and going beyond what is normal. Most people either think of strategy as “the big plan” or use the word as a synonym for a way of doing things.

To unreasonable people, strategy is neither of these things. Unreasonable strategists know that things change without reason, and that since most people act irrationally, you can’t really predict what they’re going to do. Economists like to talk about efficient markets and perfect information; this means that everybody knows everything all at once, and that since people are rational, you can predict the choices they are going to make. That’s really a nice idea, but it bears little relation to reality.

Markets are chaotic, competitors are sneaky and duplicitous, consumers are undereducated and irrational, and the whole environment is surrounded by a fog of disinformation known as promotion, publicity, and advertising. There is an investment theory called random walk that says that the past movement of stock
prices cannot be used to predict the future prices. Random walk can be applied to the market players as well. Since we are not mind readers, we have no idea what anyone is going to do. Not really.

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What is called reasonable—doing what others have done before, following the norms, aligning yourself with the conventional wisdom, basing your decisions on available statistics, all in an attempt to produce great business results—may be the craziest thing that you can possibly do. In your quest for stellar profits and brilliant outcomes, being reasonable is most likely going to lead you to mediocrity. How could being reasonable do anything other than revert your results to the mean when your decisions are guided by the lowest common denominator—either yours or someone else’s?

Instead, act unreasonably. It may be the only “reasonable” thing to do. Find new ways to think, ways that are beyond the bounds of normalcy, outside the common wisdom, and perhaps even offensive to the crowned heads in your company. Unreasonable thinking must always take you outside the realm of the common.

But be careful; unreasonable does not mean idiotic. Being unreasonable is no guarantee of success, and a bad unreasonable idea could take you in the downward direction just as easily as in the upward one. But once your ideas make sense—which means that you think they have a strong shot at working better and getting you what you want—they don’t have to make sense in terms of history; they just have to make sense now.

Develop a concrete sense of reality—yours, not someone else’s—and base your actions on that. Develop a concrete sense of “now-ness” and use that to determine what makes sense right now. Do what needs to be done for its own sake, not to satisfy some strictures placed on your operations by what was decided long ago.

Now that you’ve decided that it’s OK to be unreasonable, you’re going to have to figure out how to approach things. Once you’ve decided to leap off the bridge, you want to make sure that the water is deep enough and that there’s a way to get back onshore somewhere downstream. That’s where strategy comes into play. The purpose of strategy is to select and arrange your resources in a way that will give you the best possible outcome and achieve your vision.

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There is one more source of apparent reasonableness that leads companies to make disastrous decisions: best practices. Best practices are based on the unreal notion that a method that is effective for one successful company will be equally effective for another and will lead to the same success. Of course, that assumption does not take into account differences in staffing, skill sets, underlying products and technology, distribution networks, relationship with and loyalty of customer base, capital base, and hundreds of other variables.

In fact, there is almost nothing to support the concept of best practices, except as a point of information or as a point of departure for your own thinking. Best practices are as ridiculous as the notion that one size fits all. It doesn’t, and it never will. Of course, there are general guidelines for what is right and wrong in an industry, and the list of what has worked for others may be something with which to familiarize yourself. But best practices? As a guide, maybe. As a prescription, definitely not.

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Being unreasonable does not mean being unrealistic. It does not mean basing your business in fantasy. Instead, it works best when you are grounded in reality.

If you’re going to base your business on something new, it’s helpful to truly understand what has gone before. If you’re going to base your business on what’s possible, you need a way of understanding what’s possible. If you think that 73 percent annual growth is possible because that’s the industry average, it helps to know if that is really true. Too many bad business decisions have been supported by false, misleading, or even ridiculous data.

Several years ago, a software developer client planned to segue into a niche market adjacent to the one it already controlled. On one level, the move made sense, as the two markets utilized similar production technology and required a similar approach to data management. I asked the management team what the
company hoped to gain from doing this. They regaled me with all sorts of numbers regarding the size of the market, the demographic distribution by revenues, and the large underserved portion—all of whom they hoped to gain as customers. They had gotten their information from speaking to an “industry expert,” who had gotten the information (supposedly) from “industry sources.” It all seemed pretty reasonable, except that I doubted their assessments. I ended up acquiring some U.S. Census Bureau information on the client’s behalf to get the official count of how many companies of what size there were in this market.

Thank goodness I did, because it turned out that the client had overestimated the market size by a factor of 4! This ill-conceived move would have ruined the company. Talk about reasonable.

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Long ago, when more things like tables were made of wood, a carpenter would mark the length of an object on any free edge of his workbench, making a tick with some sharp object. He did this so that the next piece—say the next table leg—would be the same length. This became known as a benchmark. Now we use the term benchmark to mean an objective reference standard against which to measure performance.

Benchmarking seems like a good idea, especially when your company wants to set a new performance level and isn’t sure what that level should be. Often we turn to a known benchmark, like a competitor’s performance or an industry average, and benchmark against that. And that too seems reasonable.

Except that it isn’t. First, even if the data are accurate—which they often aren’t—they are taken out of context. We might know how much money our competitor is spending for marketing and benchmark against that, but without understanding its sales compensation program or the rest of its cost structure. We might benchmark against an industry-derived revenueper- employee number, but not know the capital expenditure
needed to support it.

Second, the benchmark itself may be just plain false. Just like statistics gleaned from the media, industry benchmarks are often published to promote a particular agenda, and competitors’ benchmarks may even be disinformation. Imagine that.

Use the same caution when approaching external benchmarks as you do when considering media statistics. They can be valuable guidelines for formulating your own business plans, but they are just as likely to be reasonable-seeming nonsense that will lead your business down a garden path lined with rattlesnakes.

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Many people, in attempting to ground themselves in reality, turn to one of the great sources of its opposite: statistics from the media. Let’s clear something up. All media outlets, whether conservative or liberal, left or right wing, social commentary or business commentary, share the same business model: get people reading their publications and expose them, early and often, to advertisers. Once you accept this as true, everything  else about the media starts to seem false. Fact checkers at the most respected publications accept low standards of proof, and the evidence of veracity is usually quite thin. For the most part, it’s all good, clean fun, except when you are using reported “statistics” for your business decisions.

I’m not sure what Mark Twain was referring to when he wrote about “lies, damn lies, and statistics,” but his point was clear. You can make seemingly factual data support any argument you like, if you massage them properly. You can leave outlying numbers “out” or put them in. You can use averages, means, medians, or
modes. You can use a chi-square, Bayesian, normal, or any other kind of distribution. And if none of these things works, you can change your interview questions. Or your sample size. Or switch among multiple choice, true or false, and fill in the blanks. You can select aided or unaided recall. You can use random sampling or a panel of respondents. You can even use disproportionate stratified random sampling to make your case. And if you’re not happy with any of these, you can always find an expert to provide an opinion.

You may not know precisely what these things mean, but you should get the point. The statistics from the popular media that you rely on are just as much a fantasy as your own forecast of your company’s next 12 months’ performance.

Earlier in my career I worked for a market research and strategy firm and was discussing project parameters with an executive from a client, a large computer manufacturer. The outcome of the project was predetermined: my client wanted data to support what was already a foregone conclusion. Sample size? Methodology?

These were mere details. What mattered was a cogent set of statistics that could be used to strengthen his recommendation to senior management. Statistics can make your case, or they can break your case. They can be used to substantiate almost any argument you care to make.

This is not meant to be an argument against statistics, just a recommendation that you exercise caution when interpreting them and be aware of their origin. And you should never, ever, base your conclusions about what is reasonable and what isn’t on someone else’s rundown of the prevailing reality.

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When I was in business school, we were taught, quite seriously, that when you needed an estimate of a rate (for anything), 10 percent was a safe number to use. Not because there was any scientific or statistical foundation for it, but because people would almost always accept 10 percent as reasonable. No one would challenge you. Never mind if the 10 percent wildly overstated or seriously understated your results—your calculations would have the ring of authenticity about them, and your reports would be accepted. This was career counseling, not advice on accuracy.

Over time, I have seen people use 10 percent for estimation when they’ve had no business doing so; I do it myself all the time. You need a number—any number will do, so why not use one that won’t raise eyebrows? The only problem is that it’s total fiction, and any conclusions drawn from it are similarly fiction. You’re just as well off plucking the answer out of thin air.

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