Introduction
Entrepreneurial judo aims to capture a "beachhead" first, that is, a link that is ignored or despised by leading companies.
There are five fairly common bad habits of incumbents that allow new entrants to adopt entrepreneurial judo strategies against these established firms and wrest industry leadership from them.
1. The first bad habit is what American slang calls "I didn't invent it." This kind of arrogance can make a company or industry think that if a new thing is not invented by itself, it has no value. In this way, new inventions are treated lightly. That's how American electronics manufacturers treat transistors.
2. The second bad habit is skimming from the market, i.e. focusing only on high-profit areas. It was thanks to this approach by Xerox that photocopiers became a target for Japanese imitators. Xerox targets large customers – buyers of mass equipment or expensive high-performance equipment. It doesn't turn away other customers, but it doesn't actively look for them. In particular, it did not consider it appropriate to provide services to those clients. Eventually, small customers are dissatisfied with Xerox's service (or no service at all) and turn to competitors.
The practice of "skimming" violates the basic principles of management and economics, and will always end up being punished by losing the market. It is true that Xerox's success is tremendous and well deserved, but the business is not rewarded for past achievements. "Skimming" is an attempt to profit from past achievements. Once this habit is formed, if the company continues to do so, it will be vulnerable to the attack of the entrepreneurial judo strategy.
3. The third, even worse bad habit, is superstition about "quality." The "quality" of a product or service is not something that the supplier puts in, but something that the customer can take advantage of and is willing to pay for. Many manufacturers believe that the difficulty and high cost of manufacturing are "quality". Not really. That's incompetence. Customers will only pay for what they can use and bring value. In terms of "quality", there is nothing else.
In the 50s of the 20th century, American electronics manufacturers were convinced that a radio with a great vacuum tube was a product of "quality". That's because, after 30 years of hard work, they were able to make more sophisticated, larger, and more expensive radios. The whole process requires a lot of technology, which gives the vacuum tube radio a higher "quality". Transistor radios, by contrast, are so simple that they can be produced by just unskilled assembly line workers. However, from the consumer's point of view, transistor radios are of a higher "quality". It's light enough to take with you to the beach or to a picnic. It also rarely fails and does not require transistor replacement. It has a much lower price. In terms of range and effect, it quickly surpassed the superheterodyne radio with 16 vacuum tubes. What's more, always when it's time to use the radio, those vacuum tubes will burn out one or two.
4. The fourth bad habit is closely related to "skimming" and "quality", which is the illusion of "high price". "High prices" are easy to create competitors.
For more than 200 years, since the early 19th century, when Say lived in France and David Ricardo in England, economists generally believed that the only way to make high profits other than monopolies was to reduce costs. Raising prices to make high profits is often self-defeating. This provides a "protective umbrella" for competitors. The incumbent leaders appear to be making high profits, but they are actually subsidizing new entrants. After a few years, these new entrants will overthrow the leaders and replace them. "High prices" are not a way to enjoy a win, nor is it a way to raise the stock price or price-to-earnings ratio, it can lead to aggressive behavior and threats.
Although "high prices" may provide opportunities for competitors to adopt entrepreneurial judo, obsessing over "high prices" for high profits is still a common behavior.
5. The last bad habit is to maximize rather than optimize. This bad habit is common in existing businesses, and it can lead to business failure, and Xerox is a good example of this. As the market evolves, incumbents tend to try to meet the needs of each customer with the same product or service.
For example, a new type of analytical instrument for testing chemical reactions, initially had a limited market and was assumed to be an industrial laboratory. Subsequently, university laboratories, research institutes, and hospitals began to purchase the instrument, but their needs were slightly different. As a result, in order to meet the needs of different customers, manufacturers have increased the functionality of their products several times, until the original simple instrument becomes extremely complex. Manufacturers maximize the functionality of their instruments, but in the end they can't meet anyone's needs. In an attempt to meet everyone's needs as best as possible, it backfired. Such instruments have become very expensive and difficult to operate and maintain. The manufacturer takes pride in this, listing 64 features of the instrument in a full-page advertisement.
There is no doubt that this manufacturer will fall victim to the entrepreneurial judo strategy. What it perceives as its strengths will hinder its development. New entrants will launch instruments that target specific markets, such as hospitals. It doesn't have all the features that a hospital doesn't need, but it has all the features a hospital needs. Moreover, it is more complete than a multi-function instrument. Subsequently, this new entrant will successively launch special instruments for research laboratories, government laboratories, and industrial laboratories. Soon, relying on these customer-specific instruments, new entrants will take over the market. It is based on the philosophy of optimisation, not maximization.
Similarly, when Japan entered the photocopier market to compete with Xerox, they designed machines for specific customer groups, such as office copiers, which were particularly suitable for the small offices of dentists, doctors, and school principals. They don't expect products to have the features that Xerox is proud of, such as fast copying and high definition. They provide small offices with a product they desperately need, a simple photocopier at a low price. Once they have established themselves in this market, they move on to other markets, i.e., products designed specifically for each specific market segment.
Sony followed the same strategy, first entering the low-end radio market with low-cost portable radios with limited reception. Once it gained a foothold in this market, it began to move on to other segments.
Entrepreneurial judo aims to capture a "beachhead" first, that is, a link that is ignored or despised by leading companies. For example, when Citibank set up a family bank, the Federal Bank of Germany ignored it. Once the "beachhead" is captured, that is, once the new entrants have won enough market and made significant gains, they will expand to other "beaches" and eventually occupy the entire "island".
In each of these cases, the new entrant used the same strategy. They design products or services for a specific market segment to be optimized. Incumbent leaders rarely respond to the challenge, and rarely even manage to change their behavior until a new entrant takes the lead and dominates the market.
Employing entrepreneurial judo is particularly effective for the following three situations.
The first is a more common scenario where the leader ignores the unexpected, whether it is an unexpected success or an unexpected failure (either ignore it or turn it away). It was in this situation that Sony seized the opportunity.
The second scenario is the case at Xerox. A new technology emerges and develops rapidly. However, innovators of new technologies (or services) are like traditional "monopolists" – using their leadership positions to "skim" and sell "high prices" from the market. They may not know, or they may refuse, accept the established fact that only a "benevolent monopolist" (Schumpeter's claim) can maintain a position of leadership, let alone a monopoly.
The "benevolent monopolist" will voluntarily lower prices before competitors can afford to lower them. Before a competitor launches a new product, it will actively phase out its own products and launch new products. There are many examples that demonstrate the validity of this argument. DuPont has been doing this for many years. Bell Telephone Company also adopted this strategy before it went into decline due to inflation in the 70s of the 20th century. If a leader makes a profit by using leadership to raise prices rather than low costs, any implementer of entrepreneurial judo strategy can beat them.
Similarly, leaders in fast-growing new markets or technologies who seek to maximize rather than optimize can be attacked by those who implement entrepreneurial judo strategies.
The third scenario is a rapid change in the market or industrial structure, and start-up judo is particularly effective at this time, and this is the kind of opportunity that family banks seize. In the fifties and sixties of the twentieth century, the Federal Republic of Germany became increasingly prosperous, and in addition to traditional savings or mortgages, there was also a demand for other financial services from the general public. However, the Federal Bank of Germany stuck to its previous market.
Entrepreneurial judo is always market-centric and market-oriented. It may start with technology, such as Akio Morita travelling to the United States from Japan, which was just recovering from World War II, to license transistors. He was targeting the portable radio market. This is the market segment that is least satisfied by existing technologies, and the root cause is that vacuum tubes are bulky and fragile. He used transistors to design radios that were suitable for this market. This is a market made up of young people who have lower incomes and do not have high requirements for the range and sound quality of their radios. In other words, it's a market that older technologies simply can't adequately satisfy.
Similarly, a discount company for long-distance telephone services in the United States saw an opportunity to buy long-distance services in bulk from Bell Systems and then resell them to customers at retail prices. They start by serving a small number of businesses. These businesses are not large enough to build their own long-distance telephone systems, but they are large enough to pay high long-distance telephone bills. Once they have gained enough market share, they start to move on to large or small customers.
To adopt entrepreneurial judo, you must first analyze your industry, the habits of producers and suppliers, especially bad habits, and their strategies. Then, look at the market as a whole and try to find a breakthrough where the alternative strategy can be as successful as possible and the resistance will be minimal.
Entrepreneurial judo requires a certain level of genuine innovation. In general, it is not enough to simply offer the same product or service at a lower price. It has to be different from what exists.
Romanm's user-level switches (telephone switchboards for businesses and offices) designed to compete with AT&T have added features designed around small computers. These innovations are not high-tech, let alone new inventions. In fact, AT&T designed a similar feature, just didn't bring it to market. Similarly, when Citibank created a family bank in the Federal Republic of Germany, it offered some innovative services such as traveler's cheques or tax advice, which the Federal Bank of Germany does not normally offer to small depositors.
In other words, it is not enough for a new entrant to simply offer the same product or service as an existing business at a lower price or better service. They must be unique.
As with "all or nothing" and creative imitation, start-ups implement entrepreneurial judo with the aim of gaining leadership and ultimately dominating the market. However, it does not compete with leading companies, at least not into areas that make them feel threatened by competition. Entrepreneurial judo is to "attack its soft underbelly".
Author: Peter Drucker, the father of modern management
Source: Innovation & Entrepreneurship