Outlook 2009: Heeding advice of a Chinese general

After 2,500 years — and amid the worst economic crisis since the Great Depression — parts of the cla

Entrepreneurs have long striven to apply to business the warfare strategies outlined by the Chinese general and philosopher Sun Tzu.

Chief executive officers from Oracle Corp.’s Lawrence Ellison to General Electric Co.’s Jack Welch have attributed their success to the principles detailed in Tzu’s “The Art of War,” which was written in the 6th century B.C. On a much smaller scale, an Amsterdam energy drink company actually named itself after Sun Tzu and modeled its business plan around his book.

But after 2,500 years — and amid the worst economic crisis since the Great Depression — parts of the classical military treatise are increasingly looking inapplicable to many businesses. Particularly those regarding Sun Tzu’s emphasis on “conditions” and their importance to success.

“Thus a triumphant army will not fight until the conditions for victory are created; whereas an army destined for defeat will always fight its opponent first, in the hope that he will win by sheer good luck,” reads one translation of “The Art of War.”

For many CEOs and entrepreneurs confronted with shrinking revenues, the credit crisis and smaller work forces, the notion of creating favorable conditions in this environment seems improbable, if not ridiculous. Strapped for cash and unable to gain access to credit, some businesses lack the time or resources to create those conditions. And even the federal government’s trillion-dollar response to the recession increasingly seems to hinge on a little luck.

No less a philosopher than Lorelei Gilmore on the long-running “Gilmore Girls” sitcom nicely summed up that skepticism surrounding Sun Tzu’s treatise, saying: “It’s a classic Sun Tzu ‘Art of War’ maneuver. If you’re being attacked from the east, attack whoever’s to your west, and you were the west. I never read the book. It’s full of crap like that.”

“Crap” is the word a majority of business leaders would also use to describe the economy. A survey of 404 upstate New York CEOs conducted last autumn by the Siena Research Institute found that 58 percent of them fell into the category of “trying to survive.” They said their businesses were suffering and bound to encounter deeper problems in 2009.

Endangered species

However, the Loundonville pollster’s survey — commissioned by First Niagara Bank — found only 14 percent of CEOs fell into the “optimist” category.

CEOs in that minority group say they are better off from a year ago — so “their optimism is based on reality” — and expect business conditions to improve this year, said SRI Director Donald Levy. And unlike the survivalists who said they plan to weather the recession by cutting costs, the optimists’ 2009 strategy entails increasing the demand for their products or services.

“They’re not sitting there being defensive, bemoaning how unfair the economy has been. … They’re positioned to be prudently offensive,” Levy said.

This year, The Sunday Gazette’s annual Outlook section turns its attention to these offensive players in the greater Capital Region. The verdict is still out on how long the recession will last, but the businesses profiled in “Outlook 2009: Offensive Maneuvers” are not only trying to outlive the economic downturn, they are also jockeying to emerge at the front of the pack when the dust settles.

At the U-Start Business Incubator in Schenectady, Executive Director William “B.J.” Johnson said it will take banks another two to four quarters “to figure out what they’re sitting on” and resume lending to businesses at normal levels.

“Until we see the banks start lending, this isn’t going to turn around,” said Johnson.

Johnson said the dearth of start-up funding from bank, angel investor and government sources is forcing many entrepreneurs to extend their product launch time schedules. As a result, entrepreneurs are personally conducting work they would have hired other people to do.

Indicative of the lending slowdown in the 11-county region around Albany, the U.S. Small Business Administration approved 302 loans totaling $51.3 million during the fiscal year ending Sept. 30. A year earlier, the SBA backed 352 loans totaling $62.7 million.

“I don’t think it’s going to be a robust year. No one does. A lot of it depends on the effectiveness of the stimulus package and how it ripples through the economy,” said John Huppertz, an associate professor of management at Union Graduate College in Schenectady.

Confidence is key

At The College of Saint Rose in Albany, School of Business Dean Severin Carlson said: “The question is not where the economy is going. It’s how long and how deep?” And the key to those questions, he said, is consumer confidence.

Since the first quarter of 2007, consumer confidence in the Capital Region has been in free fall. By the fourth quarter of 2008, SRI’s index of local moods had fallen to 54.7 on a scale of 0 to 200. As recently as the fourth quarter of 2006, it stood at 86.4.

But the businesses featured in Outlook are not waiting for consumer confidence to bounce back.

“By being aggressive, the evidence shows, you are in a much stronger position than your competitors who weren’t when the economy turns around,” Huppertz said.

This year’s Outlook contains stories about the executives who made the hard decision of keeping or making their businesses lean when the economy was growing at an unsustainable pace. They positioned themselves, in Sun Tzu’s words, to “seek battle after the victory has been won.” Like First Niagara Financial Group, the Lockport bank holding company that spent 2006 and half of 2007 undergoing a painful restructuring. By the end of 2008, it emerged as one of the top-performing regional banks with a presence in this region.

In Outlook, there are stories about business owners who moved quickly to capture market share loosened from the grip of competitors by the recession, striking like a hawk that “breaks the body of its prey … because of timing.” Like Eric Mower and Associates, an Albany marketing and communications firm that merged with three rival firms in Albany, Atlanta and Sarasota, Fla. The combinations have enabled Mower to weather the recession by having its offices share services and work together on various accounts.

There are also stories about entrepreneurs who took big risks and followed Sun Tzu’s principle: “Generally, in battle, use the normal force to engage; use the extraordinary to win.”

And while it is too early to say when or how the recession will end, these might just be Sun Tzu’s “wise men,” who, “On the day of victory [are] “not blind to danger.”

Categories: Business

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