A few years ago, I read a book on something called Judo Strategy by author David Yoffie.  Yoffie did a great job describing how smaller companies can identify and exploit large-corporation strengths-weaknesses described below.

People tend to become slaves to past decisions.  When I was young, my father detested vans.  He saw them as hippie-mobiles (yes, I grew up in the 60's & 70's), and so, when the minivan came on the scenes, he didn't want to have anything to do with one.  It took a long time, and a complete makeover of the "van" image in his mind, before he would purchase one.

Fortunately, nothing important to our family's survival depended on that decision.  But that isn't always true in business.

Corporations are hindered in the same way as individuals.  Their collective experiences, especially those learned painfully through major errors, become ingrained rules the organizations live by.  And large organizations, because of their size, accumulate these faster than small ones.  Eventually, they can become "rule-bound", unable to embrace new directions or ideas because of the way those things resemble the past.  When the world begins to change, these rules become chains, preventing large organizations from responding to new trends.

But rules are just one aspect of how history impacts the ability of the large corporation to respond.  There are also physical assets that have a huge impact on a firm.  What was once a prized asset that allowed the company to earn great returns and fend off competition (a unique IT capability, a distribution network, critical patents), ultimately can represent the seeds of destruction.

For example, imagine your company manufactures widgets.  These are not ordinary widgets, but are quite complex, and require a trained network of dealers to sell them to customers.  Your company is the number one widget company because they've wrapped up the best dang widget dealers in the world!

But then something happens.  Maybe widgets get simpler.  Or perhaps a killer site on the web is just as effective at convincing people buy as your dealers.  For whatever reason, now your network of dealers looks like an expensive way to bring the product to customers.  Your widget market share is falling with younger buyers.  But you can't enter the internet space yourself -- your dealers would have a fit.  And you can't completely switch over -- your current sales are coming precisely from those customers who haven't found the net.  You would be throwing out the baby with the bathwater!  So you sit.  Maybe conduct some experiments on the side.  Perhaps you try some things at small scale.  When you're finally ready to commit to a new direction, it's too late -- you've already lost the number one market position to a smaller competitor who could move more quickly.

It was your history that put you in the position -- your huge investment in the widget dealer network.  That and a series of short term decisions that were, in fact, best in the short term, but in the long term led to failure.

Small companies also have history tugging at them, but their history is usually shorter, less full of "rules" to follow, and include fewer mega-investments.  In this way, history, like the other factors I've mentioned in previous columns, tilt the business playing field in favor of the small and nimble companies.


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