“Thus, what is of supreme importance in war is to attack the enemy's strategy.”
It is hard to imagine how someone could start an HDTV company in 2002 to compete with Sony, Samsung and Sharp. And start it with less than $1M in total capital ($600,000 to be exact)!! Can’t be done!
William Wang did it. In just 7 years Vizio became the second largest supplier of televisions in North America. He didn’t just compete with the giants, he won! I am not going to spend time recounting the journey. A couple good links to the William Wang story are below:
What I will observe is that William understood the disruptive business environment in the 21st century and the opportunity it created. Old business models are increasing vulnerable. This is spectacularly evident in industries like music, media, newspapers, travel etc. where old businesses are collapsing. The common thread is that contemporary cost structures are radically lower than they were in the past. William recognized that this opportunity also existed in consumer manufacturing and he created the most successful and visible model (so far) for this sector.
The keys to his success:
He understood his strategic opportunity.
He knew what he HAD to do himself and outsourced everything else.
He recruited partners (not just suppliers) and distributed the risk and reward.
He built a culture that conserves cash and delights customers.
Deliver a lower cost product by building a lower cost company. Focus on quality and customer service. Control and promote the brand.
Build a lower cost company by outsourcing everything to partners who have scale. Scale yields low unit cost. Ride on the partners scale while the business is small. Outsourcing to large partners helps create a fundamentally lower cost structure. Further, outsourcing supports easier scaling and provides better flexibility to respond to changing market circumstances. Keep direct control of customer service and the brand. William Wang built a $2 billion business with fewer than 100 employees.
Recruit partners who have a critical interest in participating in your opportunity and are willing to take some of the risk in return for some of the reward. This reduces the capital requirements and is key to getting the benefit of the partners scale when you are small. The partners make an investment in the business either directly or through advantageous business relationships that conserve capital and reduce costs. We will address the difference between a partner and a supplier/distributor in later posts.
To create a low cost company, you must create a low cost culture. EVERYONE must embrace the premise - in words attributed to Tom Perkins - that “Cash is more important than your F#$%^@& mother”. There are no deep pockets around to put in more money. The company has to pay its bills with the money it receives from its customers. Culture can focus on the company stock price or on the company cash flow. The employees can be "Traders" or "Owners". Ask yourself - do the employees of your company care more about the share price or the weekly cash flow? Venture Capital has created a pervasive Trader culture among management and employees in the technology sector. Owner and Trader cultures result in huge differences in the attitudes, behaviors and actions of the people who make up the company. We will focus further on Owner and Trader cultures in future posts.
By innovating and executing in these key areas, William Wang not only created a company which beat the incumbents, he created a cultural, operational and financial competitive advantage that his competition cannot overcome. He defeated the enemy's strategy!