By Seiki "Stan" Hirota
Originally published May 19, 2020 on LinkedIn
We often talk about “focus” in business, but should we really care about it? If we want to pursue focus in business, what approach should we take? I recently had a discussion on this topic with my business mentor and discussed frameworks that can help us deploy business resources more wisely to effectively win business in the market. One theory that we talked about is “The Lanchester Strategy”, which is a good classic theory to think about when you need to come up with a go to market approach in business.
The Lanchester Strategy is a battle tactic that has transitioned into the corporate world for companies that are looking for ways to penetrate market with less resources than the competitors. Fighting competitors in business and fighting military battles have many of the same qualities. In our battles in business, we need to get up every day, push hard and fight to gain market share, defend our grounds, and find new ways to innovate and provide more value to our customers to succeed. The battle that we are fighting in business is basically the same as a military battle.
The Lanchester Strategy comes from Frederick W. Lanchester, who was born on October 23, 1868, in London, England. After graduating from the Royal College of Science, he built England’s first gasoline-powered automobile at the age of 28. At the age of 31, he founded a consulting firm, The Lanchester Car Company, and was responsible for many of the significant inventions in the automobile industry at the time including disc brakes, power steering, four-wheel drive and fuel injection. His engineering competencies eventually found their way into aviation, and during World War I, he took an interest in the air war that raged over Europe. His curiosity in the results of the air battles convinced him of a need for a mathematical analysis of the relative strengths of the opposing forces to describe the effectiveness of the air battles.
After performing vast quantitative studies of the number of casualties on both sides in land, sea, and air battles, the Lanchester laws were laid out in a publication back in 1916. Lanchester explained that the size advantage on one side is equal to the square of the number of units in its force. For example, if two opposing armies go to battle and if there is a 2-to-1 advantage, the firepower of the bigger army is quadrupled thus inflicting four times the punishment. These laws were studied extensively by the Royal Air Force and more significantly, they were used as part of the basic military strategy by the United States with overwhelming success in World War II.
There are many prominent cases in history where a smaller force in sheer numbers has defeated a much larger army using this battle tactic of Lanchester Strategy. Two most famous examples are the Battle of Thermopylae and the Battle of Trafalgar. The Battle of Thermopylae was fought by the allied Greek states lead by King Leonidas of Sparta against Persian Empire of Xerxes. King Leonidas only had 1,400 soldiers, but he took a strategy to defend the only passage way and therefore concentrate the battle at a single point, rather than have his inferior army flanked all over by the Persians. With this strategy, King Leonidas was able to win over the Persians which had 50 times more soldiers of 70,000. Without the theory and strategy, it would have been impossible for him to win.
In The Battle of Trafalgar, British Lord Nelson led a fleet of 27 ships and were faced with an attack by the combined fleet of France and Spain, which had 33 ships. With the numerically inferior force, Lord Nelson divided his fleet into two, a group with 13 ships and a group with 14 ships, and maneuvered around to separate the enemy into three groups of 3 ships, 13 ships and 17 ships. Once he was successful in dividing the enemy into smaller groups, he deployed his 13 ships to first attack the enemy's smallest group of 3 ships. Then he had the 14 ships join these 13 ships to attack the enemy's next smallest group of 13 ships, then finally the last 17 ships. In this battle, France and Spain lost 22 vessels without a single British vessel being lost.
If you are a smaller company looking to take on the larger incumbents in an existing market to formulate a battle plan, the theory behind The Lanchester Strategy is something that you should think deeply about to figure out your focus and strategy. The theory behind The Lanchester Strategy is, how much “fire power” will it take to beat an enemy and how can concentrating forces into a smaller portion of an enemy be a better strategy for victory and to get traction in a quick manner to gain market share. After the World War II, an engineer, a statistician, and a business process improvement expert, W. Edward Deming, applied the laws of the theory to be used in business situations, to be used to formulate marketing plans and business strategies to attack and expand market share in an effective manner. Canon was one of the first companies to utilize this strategy in business on a global basis in their battles with Xerox in the 1970s and 80s. Today, the strategy is considered one of the best tools available for determining market type choices and penetrating markets to gain market share in an effective manner. The theory goes, that in order to steal market share from an established leader, you must first concentrate your resources to establish a beachhead on a single aspect of the market, in order to find a footing to grow and beat the market leader.
It has been proven that as long as the biggest player has less than 26% market share, smaller players still have a chance of dominating the market by carrying out a strategy based on The Lanchester theory. You do not want to take on the bigger competitor head on. Since their firepower will be equal to the square of the number of units they have in their larger force, this is a suicide, and you will never have enough cash to out spend the bigger competitor. Rather than attacking head on, it is critical to find a way of attacking a particular aspect of the business, for example, targeting an unloved demographic that is being ignored by the bigger competitor. If you can focus and establish yourself as the key leader for this specific demographic and secure at least 8% market share, you will be able to start leveraging on the evangelists of your company to acquire more market share in the surrounding markets and the next key demographic.
Too many companies try to beat an established market leader head on by fighting the battle on the enemy’s terms. In order to win the battle, you need to figure out how to define the battle. A battle that you can fight with concentrated resources, allocating 3 times more resources than competition to a smaller specific market. If you can figure this out, you are very likely to win the small battle, and when these small battles are aggregated over time, it will eventually lead to market dominance.