Suvorov & business. Everlasting lessons from the russian master strategist. Yury Yavorsky
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could offer. That made it possible to bring the cost all the way down to RUB 2.1 million.
The tender opened at RUB 3.8 million, the price gradually slipping down and sometimes stalling, so far as was reasonable for Internet bidding. Our bids were lightning fast to show that we did not hesitate to drop the price; our competitor was faltering, each new bid taking longer. The longest halt came at RUB 3.1 million. We bid down once again and at RUB 2.9 million, the tender was ours.
…During another tender, for low-margin cash-in-transit vans I was able to do exactly the opposite. It was clear that the two other participants would fight to the bitter end; after all, the prize was an order for armored vans for a major Russian bank. A contract like this can easily mean full capacity utilization for 5—6 months even for a heavyweight.
In my operation, however, I have always valued profit margins over production output. To digress for a moment, I see that many start a business with a totally inexplicable vision in mind. For example, one of my competitors ran a company with profits lower than his employees’ pay and firmly maintained that the ultimate goal of business was to provide jobs and that he would never sack anybody. His business run was short: he dismissed everybody and left the market.
Back to the tender now, we did apply along with the others. I knew my production costs to the penny and had a rough idea of my competitors’ costs. Our companies differed in size. I employed three times as many staff, relied on own production of bulletproof glass, had laser cutting systems and CNC machines, and manufactured thousands of components in-house. The competitors preferred to buy up from numerous suppliers, which chipped away at potential profits and added to costs. With an average CIT armored van going for RUB 700,000—800,000, their production costs stood at RUB 550,000. Our cost was just under RUB 460,000.
The tender opened at RUB 770,000 and quickly reached RUB 670,000. We were silently biding the time. The downward trend started to slow down and halted at RUB 580,000. This would seem to be as low as it would go… We bid at RUB 570,000. Time passed. I was getting anxious: had I miscalculated? The thing was I did not want that contract. It would have taken over the production line with low-margin vehicles and prevent us from making complex VIP armored cars at a high profit, no Mercedes, no Lexus or the like…
The tender was seconds from closing when a RUB 560,000 bid came in and I was off the hook – it worked! I was able to ensnare a competitor into a low-margin contract that would not be profitable and, most importantly, close him off the VIP armored cars market that he had been aiming for. This was a long-term victory.
But that was not the end of the story. The winning bidder pleaded with the bank to top up the price by at least 10%. Failing to get that, he turned to his competitor asking for help to make good on the contract. The bank agreed to have two suppliers. At the end of the day, my two competitors first wrestled, plummeting the price to barely top the cost, and then ended up together in the low-margin segment where they ran down their production facilities and wasted time. And I used that time to conquer the VIP segment.
To this day, the RIDA-branded armored vehicles from Russia are known for their quality build and protection on a par with global big-league brands, such as GARD in Germany or CARAT in Belgium; RIDA armored vehicles sell to dozens of countries in the Middle East, Asia, Europe, and Africa.
SMART CALCULATION PAVES WAY TO VICTORY
Alexander Suvorov:
In offensive action, always rely on concerted efforts and swiftly attack the core forces of the adversary, with that, however, never fail to throw into disarray enemy troops that threaten your flank or rear guards.
Operating in a constantly changing competitive environment, it is vital to remember that business is akin to battle in some ways; it is a struggle for the market and clients. Once you are determined to act, there is no place for half-measures or doubt. Action must be swift and you must be fully engaged 24/7.
Swift offensive
Waterfall uproots rock
At the same time, you need to maintain a 360-outlook and proactively analyze changes in your competitors’ behavior, prices for their goods and services, and compare these changes against your target market.
Other than for reaping, why bring a sickle?
Other than for harvest, why ramble the fields with a scythe?
Flanking: isolate, cut, stack. Envelopment: seize, shear.
Suvorov’s strategy is pertinent to virtually any area of business or entrepreneur’s decision-making. Suvorov commanded rank-and-file soldiers, officers, and generals. His campaigns and battles reveal great managerial proficiency of a leader who made no exceptions applying his rules and principles with strictness and fatherlike justice.
There are accounts of one march rest when Suvorov dared a soldier to see who eats up a serving of porridge faster. Excited and humbled by such honor, although he was no raw recruit as military service was twenty-five years back then, the soldier started shoving in the hot porridge, encouraged by fellow troops. Suvorov took his time, scraping the porridge from around the bowl’s brim where it cools the fastest.
The soldier started choking on scorching mush with a third of the bowl to go, whereas Suvorov was already finishing the last spoonful with a shrewd smile on his face. He was not tall – the soldier towered two heads above and two times broader – but wisdom and strategy prevailed.
Suvorov’s incredible feat of crossing the Alps is known to many Russians from history textbooks and illustrations. For one, Suvorov was able to mount an offensive from behind the enemy lines, in that he also managed to come out victorious with limited resources, surrounded by enemy forces and greatly outnumbered. He lost 700 men wounded and killed. The French lost up to 6,000 and 1,200 of their troops surrendered. On that Swiss campaign, Suvorov ordered to stock up on rations in nearby villages for a number of troops greatly exceeding his army. Naturally, the French found that out. Over the three days that they were holding council, reinforcement had arrived at Suvorov’s location and the generalissimo had had time to arrange the disposition of forces, have each unit perfect their maneuvers, and drum up high morale, so that eventually the fierce attack of the Russian troops threw the enemy into panic. A clever ruse and smart calculation paved way for that victory. Nevertheless, Suvorov was never formulaic and always employed new tactics.
…A Moscow entrepreneur running a small retail shop decided to procure Italian shoes directly from the manufacturer. She went to Italy herself and found that designer shoes by high-street brands had a discount subsegment. These shoes sold cheaper due to minor production flaws or as older collections. The price tag was several times lower and topped out at 10—15 euro.
She bought a hefty batch of shoes, put it on display, and waited for a swarm of customers or lively trade at the very least. But… Sales dropped two or three times below average. A friend of mine, who told me this story, came by to visit the entrepreneur soon after. He found her in tears, on the brink of selling the shop and her business.
He gave her two tips. The first was to “throw in another zero on the price.” The shelves and inventory were swept clean within a month or two! The business lady went to Italy again and bought another similar batch. She tried to sell it at ten times the cost again, but on the second go, she did actually go broke. All because she did not hear or just did not want to heed the second tip. “Once you are sold out, never do this again!”
It is possible to trick the demand once or mislead the competition for a limited time, but you have to remember: in their ability to survive, evaluate