Businesses often use sports analogies to describe business strategy. One aspect of sports is the concept of “home field advantage.” Home field advantage refers to the fact that sports teams are more likely to win games played at their own field or court than they do playing at the opponent’s field. Let us see how this principle applies to the business world in the following story.
I knew a retailer that had a very successful retail concept, which had been expanded to a large section of the United States. Virtually everywhere the retailer built these stores, it quickly gained significant market share and became very profitable. There was one significant exception to this pattern. When the retailer expanded into one particular city in the United States, it ran across a competitor that it could not beat. In fact, the stores the retailer built in this city did so poorly that they were quickly closed.
This rival competitor was a much smaller company with far fewer resources. Yet this smaller competitor was starting to expand into the area held by my retail friend. Given the overlapping expansion plans for both companies, it was becoming obvious that these two competitors were destined to compete again in the future.
This left my retail friend with a choice:
- Does he allow the competitor to come into his geographic stronghold and fight the battle here; or
- Does he aggressively go into the stronghold of the competitor and fight the battle there?
The first choice would be like playing a sports game at home, while the second option would be like playing an away game.
My retail friend used to be a professional sports athlete. Relying on his sports background, he chose the option of playing the game at home and let the competitor come into his stronghold. His figuring was that, like in sports, he was more likely to win on his home territory, so this was the better place to have the contest.
What my retail friend failed to realize was that the competitor had increased prices in its own retail stronghold in order to fund the battle against my friend. This competitor started attacking some of my friend’s most profitable markets with a small handful of stores. Although I’m sure those new stores were not very profitable for the competitor, they wiped out a larger amount of profitability for my friend, since he had more stores in the market and these were some of his most profitable stores.
With some of his most profitable markets in shambles, my friend’s overall chain results were noticeably down. Not wanting to disappoint his shareholders with bad results, he started raising the prices in his remaining markets to cover the losses in the contested markets. All that served to do was make those uncontested markets less competitive and even more vulnerable for attack. Since the competitor was still making good profits in his stronghold markets, he was able to fund an increase in attacks. All the while, he was getting stronger, while my friend was getting weaker.
To make a long story short, in the years since this competitive battle began, my friend has had to retreat to the point where virtually the only place where the business makes money anymore is in the original home city. By contrast, the competitor is much larger, much stronger, and competes over a much larger territory. It looks like the home field advantage was not much of an advantage after all.
The Analogy
Although there are many parallels between sports and business, the battles are not identical. The analogy between sports and business breaks down because business is not played one game at a time. In team sports:
- The entire contest takes place at a single location against a single opponent.
- The entire battle typically falls within the confines of a timed event. When the time runs out, the team with the most points wins.
- After the game is over, the next game is played as if that last game never occurred. The points do not carry over. You both start out the next game tied at 0-0.
By contrast, in the business world:
- The business plays in multiple locations at the same time against multiple opponents. Resources can be moved between battles in the middle of the battle.
- The battle does not end when time runs out. It either ends when one side is so devastated that it gives up, or when both sides find a way to peacefully co-exist.
- After the battle is over, the strengths and weaknesses continue into the next game. If you ended the last battle in weakness, you start the next battle in weakness.
As a result, many of the reasons why home field advantage works in the sports world do not work in the business world. In fact, the opposite is often true—there is often a home field dis-advantage.
As we saw in the story above, my friend tried to move the business battle to where he thought he would have home field advantage. As a result of that decision, he ended up losing the overall battle against this competitor. The disadvantages of “playing the game at home” where one already has a strong position are as follows:
- In business, if you win a game at home, you are no better off than when you began. You have only defended to achieve what you already had. In fact, even if you win, you may be further behind than when you started, because of the resources spent to defend your position. However, if you lose at home, it is a real and major loss of a profitable portion of your business that does not come back once the contest is over. Hence, there is little upside and a big downside to playing at home where you are strong.
- A loss at home in the business world leaves you in a weakened position when the contest is over. The loss permanently reduces one’s available resources to use in the next battle. Unlike sports, the loss carries over in the next game, making it harder to win future games. Even if you win a battle at home, it does not necessarily make you any stronger against the next opponent. You just stay even. Hence, a loss at home creates the potential for a long-term downward spiral across many battles, whereas a win just helps you maintain the status quo.
The opposite occurs when a business “plays an away game” in the heart of where the opponent is strongest. If you win, you gain greatly—you have gained a stronghold in a new area as well as greatly weakened an opponent. You have moved the balance of power more in your favor by adding new profit opportunities for yourself while taking profit opportunities away from your opponent. If you lose, most of what you have lost is just the opportunity to gain more ground.
Most importantly, by moving the battle to the opponent’s stronghold, you keep the battle from attacking your most profitable markets while you attack your opponents most profitable markets. It is easier for you to fund the battle when your core markets are protected, while it is harder for your opponent to fund that same battle when their core is under attack.
The Principle
In the business world, there are many ways in which you can have the option of either playing a home game or an away game. A home game is where you are relatively stronger. An away game is where your competition is relatively stronger. That strength can be in many categories. It could be a geographical strength, where in international business competition, you are stronger in some countries than in others. It could be a product category strength, where you have higher market shares in some categories than in others. It could also be a technology strength, a distribution channel strength, or a consumer demographic strength.
When developing strategy, you often have the choice of determining whether your competitive struggles take place predominantly at your position of strength or at the position of your competitor’s strength. Often, our initial reaction is to always set the battle to take place at our position of greatest strength. We think this will automatically give us “home field advantage.”
However, as we saw in the story above, home field can often be a disadvantage. There may be many times when it makes more sense to make the competitive battle an away game. There are two times when away games make more sense in the business world:
- When I am very large and resourceful while my competitor is much smaller with fewer total resources.
- When I am much smaller with fewer resources and my competitor is very large and resourceful.
In the first instance, the analogy would be like siege warfare. In siege warfare, an army with large resources would surround the castle of its enemy, cutting off its access to any resources beyond the castle. In a process of attrition, the larger force with the greater resources would outlast the weaker force in the castle, who eventually runs out of food and must surrender or starve.
Even though the “home team” in the castle is stronger in that particular area of business than the attacker, the attacker can draw upon resources from other businesses where it is overall much stronger. The strategy for the attacker becomes total resources against total resources, rather than weakness against strength in this particular area of business.
Relating this to the story mentioned at the beginning of this chapter, my friend could have attacked the stronghold “castle” market of the smaller competitor and outlasted him because my friend had far more resources. In a war of attrition, the competitor would have run out of resources first in defending its territory. The added benefit for my friend would have been that if he had held siege to the competitor’s castle, the competitor would have been unable to fund attacks into my friend’s territory. Unfortunately, he did not do this.
In the second example, the analogy would be guerrilla warfare. The strategic goal of guerrilla warfare is to make small, quick attacks on your stronger enemy—in their territory—in such a way that the damage to the opponent is greater than the damage to yourself. Over time, such attacks will gradually make the guerrilla stronger, while gradually making his opponent weaker. In time, the balance of power would change, and the formerly weaker guerrilla becomes the stronger of the two.
The assumption here is that, even if you are relatively weaker, you have some uniqueness in your overall strategic position so that you can win some of the guerrilla skirmishes. For example, even though you are smaller, you may be faster, more personalized, or provide better service. If you are both smaller and have no unique benefits to bring to bear, then it doesn’t matter what you do. You will lose no matter what you do.
Guerrilla warfare was the tactic the competitor effectively used against my friend in the story above. It worked well and my friend lost the overall battle.
Summary
Business strategy is often similar to sports strategy. However, not all sports analogies apply well to business. In particular, the idea of “home field advantage” in sports is often “home field dis-advantage” in the business world. When designing a business strategy, it can frequently make sense to move the location of the competitive battle away from your position of strength into your competitor’s position of strength.
If you are still having trouble seeing the benefit of playing an away game, here is something to consider. Over the last century, there have been numerous large, successful, established companies that eventually lost out to a small upstart firm. In almost every case, there was a point in time when the established company had enough relative power that they could have played an away game against the upstart and weakened it to the point where it would never have gained enough clout to eventually win.
A key part of strategy is determining who the next upstart is who might have the power to eventually beat you, and then playing an away game against them early, which keeps them from ever becoming meaningful in the marketplace. For example, in the early 1970’s, K Mart was one of the strongest and most powerful retailers on the planet. At that time, there was a small upstart retailer called Wal-Mart that was starting to grow out of it rural base. K Mart could have played an away game against Wal-Mart at that time in those rural markets and won. Instead, it chose not to do so. Today, K Mart is in bankruptcy and Wal-Mart is the largest retailer on the planet.
Final Thoughts
The irony of the story above was the fact that the basic idea of the home field dis-advantage was pointed out to my friend before he made his choice. He was told that the ideal strategy was to fight the battle at the opponent’s stronghold. His response was, “Don’t give me a strategy. Just tell me how to make money.”
When you play your business as an away game, you will suffer some financial loss at first. Your opponent, however, should suffer an even greater loss. In the long-run, this strategy will usually create much more wealth, even if there is a little pain at the beginning. To quote a famous sports adage, “No pain, no gain.”
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