Key principles for success in business and investment today can be extracted from the writings of each of these great warriors. For Musashi, the dueler and sensei, who writes in detail of state of mind, focus, footwork and rhythm, it is the principle of disruption of the opponent or the battlefield. For Sun Tzu, the commander of armies, it is the principle of maneuver and understanding.
Each writes with great specificity about the conflicts and weapons of their day, but the following few quotes from their writings clearly indicate the relevance these two key principles today:
From Musashi on disruption:
- “Do not forget about the possibility of disorder in times of order.”
- “Fluster an opponent with unexpected moves.”
- “Disrupt others’ defenses.”
- “Always contrive to put your adversary at a disadvantage. Seize the initiative.”
- “The science [of martial arts] is all about how to win by getting your opponent to take the initiative, using tactical ploys as your basis, launching various preliminary blows, and shifting strategically.”
- “In a stand against many opponents, attack the first who comes forward. Do not wait.”
From Sun Tzu on maneuver and understanding:
- “If you know the enemy and know yourself, you need not fear the result of a hundred battles.”
- “What enables the wise sovereign and the good general to strike and conquer, and achieve things beyond the reach of ordinary men, is foreknowledge.”
- “To ensure that you withstand the brunt of the enemy’s attack and remain unshaken, use maneuvers direct and indirect.”
- “There are armies that must not be attacked, positions that must not be contested.”
- “If [the enemy] is in superior strength, evade him.”
- “He who can modify his tactics in relation to his opponent, and thereby succeed in winning, may be called a heaven-born captain.”
- “Avail yourself of any helpful circumstances over and beyond the ordinary rules and modify your plans accordingly.”
- “Attack [the enemy] where he’s unprepared, appear where you are not expected.”
- “The skillful leader subdues the enemy’s troops without any fighting.”
There are many examples of successful application of these two principles. One is Skype, the provider of phone services with Voice over Internet Protocol (VoIP), a technology that is disrupting the long distance sector of the telecommunications industry. Another is SouthWest Airlines, which has made profits in the dismal airline industry by offering services that do not compete directly with the major airlines.
Talk is Cheap
Skype, a variant of VoIP, is a peer-to-peer software-based phone system that connects users directly via the Internet using their computers, cell phones, PDAs or other devices. The Skype software is downloaded for free, and users talk for free when connected Skype-to-Skype.
Skype commenced operations in August 2003, and one year later it had more than 9.5 million users with at least 500,000 connected at any given time. Michael Powell, a Skype user and then the Chairman of the U.S. Federal Communications Commission, said at a telecom conference in 2004, “I knew [the traditional telephone system] was over when I downloaded Skype . . . . The world will change now inevitably.” Today Skype has more than 100 million users with at least three million of them connected at any given time.
Skype utilized a Musashi stratagem – employing a disruptive technology to seize a critical advantage in a rapidly changing industry, and it is moving swiftly to provide services that will actually earn it money, such as enabling users to connect to land lines for as little as two cents per minute (“SkypeOut”). Seeing Skype’s potential, eBay acquired Skype for a breathtaking $2.6 billion in October 2005.
SouthWest Airlines launched its operations in 1971 with a strategy of avoiding direct competition with its many stronger and larger rivals. Its business model focused on short haul, high frequency, point-to-point routes, with low fares and friendly service but few luxuries (no first class or business class seats and no in-flight meals).
Herbert Kelleher, now SouthWest’s chairman, started the airline with this notion: “If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline.” This folksy statement was a rather simplistic variation of a Sun Tzu stratagem: win by understanding the opposition and avoiding direct competition with stronger rivals.
SouthWest Airlines has been a profitable investment for its founders and shareholders alike. While many airlines have failed or entered bankruptcy in recent years, in 2005 SouthWest completed 33 consecutive years of profitability and was named by Fortune magazine as one of “American’s Most Admired Companies” for the ninth year in a row.
Skype and SouthWest Airlines are two prominent examples of these principles, but there are many others. Indeed, Musashi’s and Sun Tzu’s principles are applied every day as businesses are formed and managed and as investments are made.
Consider Doctors’ Choice, a homecare business serving senior citizens in the San Francisco, California, Bay Area. In 2004, Philip Lee, its founder and operations director, made the strategic decision to narrow the company’s focus to serve one of the most difficult types of patients to care for: senior citizens with Alzheimer’s or dementia. “In an industry that is all about individual care, we’ve found that customers won’t settle for a big company trying to be all things to all people,” says Lee. “By specializing, we may never be the biggest homecare provider, but our high scores on customer satisfaction, retention, and word-of-mouth growth speak for themselves. We expect to continue to have healthy growth and satisfied customers for a long time to come.”
An additional benefit Lee found in narrowing his company’s focus was an ability to better understand his customers’ unique needs. This in-depth knowledge has allowed his company to develop proprietary approaches that larger companies often fail to see or have trouble justifying investment in. One such proprietary approach, using technology to collect relevant data, helps to coordinate and optimize the efforts of family members, doctors and healthcare professionals in caring for patients. “Our proprietary and patent-pending technologies are proving disruptive in what continues to be a staid, archaic and fragmented industry,” Lee says.
In another example of Musashi’s and Sun Tzu’s principles applied to the present day, Finpago Inc. of Conshohoken, Pennsylvania, is taking advantage of disorder in the healthcare and electronic payment industries, and using knowledge of those industries, to create a service of potentially broad application.
The focus of Finpago’s service is the process of clearing specific healthcare products and services for payment with consumers’ pre-tax funds under employers’ Flexible Spending Account plans (FSAs) and the government’s Healthcare Savings Account plans (HSAs). These plans permit consumers to buy qualifying healthcare products and services with pre-tax monies, deducted from their paychecks or contributed to an HSA, which would otherwise be taxed as income. The bottleneck is sorting out and accounting for what qualifies for credit or reimbursement under the plans.
Finpago has developed a patent-pending service – “FSAok” – that serves as a clearinghouse for the collection and application of purchase data that qualify consumers for credit or reimbursement under their FSA or HSA plans. Finpago’s technology collects from participating merchants (typically leading pharmacy, grocery and mass merchant retailers) the necessary data about product qualification and enables consumers to use their FSA or HSA accounts to make eligible healthcare purchases from merchants without later having to submit paper receipts to their FSA/HSA administrators for reimbursement. This service even obviates the chore of having to separate eligible products from non-eligible products in the cashier’s check-out line.
According to Fred Hawkins, the founder and CEO of Finpago, more than 11 million households are using FSA or HSA accounts and buy more than $30 billion eligible products annually, but currently systems that use FSA/HSA debit cards to automate those purchases are unable to automate 30 percent of qualifying purchases and typically do not even work for many eligible over-the-counter products. Moreover, consumers presently use their FSA/HSA debit cards for less than 50 percent of eligible prescription purchases and only seven percent of eligible over-the-counter products. “As consumer awareness grows, and as more merchants and FSA/HSA administrators utilize Finpago’s technology, this will be a huge market,” says Hawkins. “We expect that Finpago will have a big piece of it.”
Hawkins attributes Finpago’s promising potential to a thorough understanding the relevant industries and to application of a disrupting technology. Finpago’s technology is all the more disruptive, he says, because it cuts across many different markets and industries – consumers, merchants, providers and manufacturers.
Finally, consider an inspiring example in the manufacturing industry – MBA Polymers Inc. of Richmond, California. This company manufactures three important plastics used in the durable goods and electronics industries, and it does so using less than five percent of the oil used by companies that produce plastics from scratch, the “virgin plastics producers.” It also gets rid of discarded junk in the process. With patented processes, it extracts these plastics (polypropylene, acrylonitrile butadiene styrene – ABS, and polystyrene) from thrown-away computers, cell phones, TVs, VCRs, refrigerators, and various broken or obsolete products that are otherwise filling up dump sites these days.
Mike Biddle, the CEO of MBA Polymers, points out that most recyclers of plastics merely produce a simple product, polyethylene terephthalate (PET), from plastic bottles and the like. “The opportunities for us are immense. Less than four percent of the complex plastics found in discarded products are recycled, compared with 95 percent for steel and aluminum,” he says. “We are using disruptive technologies to take business away from the big virgin plastic producers. There’s no point in competing directly with them.”
The World Economic Forum in Davos named MBA Polymers one of its 2005 Technology Pioneers. MBA has an R&D and demonstration center and pilot line in Richmond, California, and world-scale recycling plants in Guangzhou, China, and Kematen, Austria. These plants are built for less than $23 million, which is less than half the cost of a typical virgin plastics plant, and they are twenty times as energy-efficient.
Martial Arts Rewards
These companies – Skype, SouthWest Airlines, Doctors’ Choice, Finpago and MBA Polymers – are just a few of the businesses that are benefiting from application of the principles of Miyamoto Musashi and Sun Tzu, two of the greatest martial arts teachers of all time. Founders, managers, employees and investors of all businesses, who follow these principles and who practice in their own business lives the precepts of martial arts – study, harmony, character building, discipline, self-control, respect and compassion – will become rich and successful by all measures.