5 key lessons I’ve learned in my half 20s: (3) [Strategy] Position and Combination

Chess

At early afternoon in November 15th last year, I was in working room of my boss, LP, co-founder and MD of VI Group as well as my ultimate mentor in VI Group.  We were having a discussion about modelling the production scenarios for the factory’s new product.  We wanted to find key components of cost structure and how they might change under different scenarios; ranging from changing raw materials input price to different production methods.  The deal we were doing was a tough one.  As the way he put it, we had done a quite lot of things HBS (Harvard Business School) would want to write case studies for (he is a HBS alum, among the first Fulbright generation in Vietnam).  We had fierce partnership level fighting at the beginning.  We had the hostile buy-out.  We restructured raw material supplying industry and changed the rules of how the industry compete.  We did R&D since the first day we stepped into the industry and found new products that made the waste of the main product makes more profit than the original product itself – that put the whole industry upside down and basically changed forever the cost structure that had existed for nearly 30 years.  This deal taught me was how distressed investment similar to start-up.  Cash was low, bankruptcy risk was high, and management needs to act in a great deal of uncertainty and needs to have a strong tendency for actions.

Then by the near-end of the discussion, he started to shared with me about his life in Russia and how he played chess.  We had a lot of sharing sessions like that and it could happen anytime during endless deal meeting.  In retrospect, I miss those good old days at VI Group very much when a good chunk of my learning happened just like that on the sideline of the battlefield.  Back to the day, LP put his hands behind his head, swung his chair, looked into the ceiling – “… you know, basically in chess there is only two groups of strategy: position and combination, and it is also similar in business world…”

Categories:  Strategy
Time of realization:  Late 2013
On Ventures:  Board Member of Vietnam Organics, Investment Analyst of Vietnam Investments Group

Position as a beyond critical strategic dimension

Right at this morning, few hours ago in Startup Asia Singapore 2014 conference, Le Hong Minh from VNG has just shared VNG survival stories in the past 10 years and his view about Mobile Messaging and how Zalo chooses its angle to compete with Viber and other Mobile Messaging platforms.  “Positioning” happens everywhere in his session, running from as high as high-level strategic view to as low as detail execution of Zalo with its war in Vietnam.  Minh also shared his view about the myth “number one” of the market that I found tremendously satisfy to hear because I hold the same view.  It’s not that Zalo wants to be “number one” in the market at general but Zalo wants to locate itself to a specific position in user behavior and owns firm into that position.  In strategy, the problem with “number one” is that largest market share does not guarantee to be good all of the time.  First of all, the business owners will want to identify what the cost and benefit to put the business at “number one” position.  There are many advantages of being market number one such as economy of scale and scope, bargaining power toward suppliers and buyers.  However depends on the industry, these benefits are not always hold and with not the same appealing magnitude.  On the other side, aggressive gaining market leadership position may require large investment into production, aggressive marketing spending and sales commission, aggressive credit policies, that in the end hurts profitability, cash flow from operation, and most dangerous of all sustainability of company-wide strategic position.  Therefore, on the same fashion, Minh said with Mobile Messaging platforms there are many angles to view about “number one” – that depends on the geographical, features (free call in case of Viber, make new friends in case of WeChat, etc) so users doesn’t have to use only one Mobile Messaging platform, they can exist together; the question is what app will own what position in user’s behavior: in free call, in text messaging, in voice messaging, in finding new friends, and in playing games, etc.  This view can be seen as finding and penetrating a market position that is favorable for the company to defend against rivals and other forces (suppliers, clients, etc).

However, there is a larger view on position.  Remembering the time my boss started to play chess, because he was a math-centric student, he approached the game as a series of problems for him to solve.  He set traps so that the chess game becomes a series of battles in that he got a little bit of advantage over army (for example a trap to exchange a Castle for a Queen) after each trap and end the game with a dominating force – this is called “Combination” play.  Over time, he shifted his strategy to a more board-wide, and besides building traps along the way, he tried to allocate his army to strategic positions in the board and created pressure across the table.  That was what he called “Position” play.

Chess, like a lot of other similar to games that I play, is about thinking in advance, gathering and processing information, understand opponents, react to the situation, and try to gain advantages over time.  Strategy is a road map to solve the mission: defeating the opponent.  Positioning strategy in my boss’ view is a large-scale (not trying to gain advantage over small battles) to gradually penetrate all critical strategic positions (locations) in the board that creates pressure to the opponents and put the player to be in the most favorable positions for a final strike to kill the king.  I feel this even more significant in the game igo (or “go” – a chess-similar game in Japan), a good move will not only (1) enlarge the player’s territory, but also (2) threaten opponent’s territories and (3) attack opponent’s troops and (4) defend player’s troops.  The more such moves are made, the more advantageous the player.

Think back, positioning was also my favorite strategy in games.  I was once an international-level player of Age of Empires II during 2003-2004 and played with top-level players around the world, including MIDORI of China (No1 world after a L-Clan’s cup somewhere in 2003/2004), PL_PeEl (No1 Poland), and many others: Turkey, Japan, etc.  My strategy was to upgrade town hall to the next stage (Feudal Age) slightly quicker vs. my opponents around 1 minute (in this game, advantages are gained in time unit of seconds).  Afterward, I will bring 4 of my villagers across the map to rival’s base and find a favorable position to build my military base.  Wood camp is a critical resource during the game’s early stage and I would almost always target into it with infantry and skirmishers to harass rival’s economy.  The defining moment to win in an early-stage, aggressive attack (terminology: “Forward Strategy”) is to successfully build and defend a tower behind the wood camp and completely force all villagers of rivals out of it.  One of the most important implications of position strategy everywhere is that savvy players will know that the important point for you is also the important point for them to defend.  That’s why in chess, igo, or in Age of Empires, battles around the critical points are always fierce and definitive.

Combination is the right way to think of problem solving

One of the most annoying fallacy in people’s thinking to me is that people are so in love with the idea of a holy grail of one single-something can solve the problem that they care about.  Obviously life doesn’t work that way.  Smart is not enough.  And connections will become awkward if after making the connection you don’t have talents or any service to offer.  Being nice and get love from other don’t make things done.  To get something, we will need a combination with many factors that cover all of the important facets of the problem in a MECE way (McKinsey’s invention of Mutually Exclusive and Collectively Exhaustive).  We can think of it as a framework.  Framework like SWOT analysis, PEST analysis, Porter Five Forces are combinations that breakdown the problem into smaller categories and approaches those categories to solve problem.  After identifying a problem, people try to approach it in a scientific way and develop initial frameworks.  Through time the frameworks are tested and if they stand, they become the best practices.

In the end, took his hands off his head and returned to reality after wandering through past stories, my boss closed the conversation on how to harmonize between position and combination.  Combination can support very well to position.  To archive a strategic position in the board, a set of combination developed.  Position is high-level, strategic thinking.  Combination is more like detail-level, tactical thinking.  Finally, strategy is only making sense if all of high-level thinking is reflected into value-added detail activities at operational level.  And, that, is among the most difficult thing to do in business.

4:15 PM – May 8th 2014, Singapore, Singapore – Tech in Asia Start-up Conference Singapore 2014

Tri Ton

Businessperson with private equity expertise. Interested in strategy and investment.

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