Chapter D2
Rule2– Redeploy Captured Resources
Any commercial venture, not just war, is limited by the resources you have to feed its appetite. It is not possible to run a big business with little funding. There are of course ways around it. I call these Resource Multipliers.
In the last chapter, we examined strategy as a resource multiplier. We found that you can fashion a strategy that takes few resources and yet has a high probability of getting you the win. Naturally, you do not need to be resource poor to be qualified to look for a resource multiplier strategy! No one wants to spend money for nothing. In all that we do in the commercial world, we ask ourselves what we are buying for the money we blow. The real magic of a resource multiplier strategy truly reaches its pinnacle though when you are able to find a way to capture your enemy’s direct and indirect resources and use them against your enemy.
What do we mean by the expression “direct and indirect resources”?
When we speak of “direct resources”, we mean capturing resources directly owned by the opponent. Simply put, you shoot your enemy with his own gun. This is not difficult to do. When a tenant refused to pay rent or hand back possession of a commercial property, he uses income generated from that property to finance litigation against his own landlord. Doubtless, judgment day will come but litigation is fraught with uncertainty. The system moves slowly but equally, the landlord may not have the money to sustain a long fight and may give up the rent and perhaps grant a grace period before the tenant has to vacate. In fighting such litigation, the tenant has used few if any of his own resources and has instead directly used resources belonging to the landlord.
The case of the Ecological Solutions Center is a unique, unorthodox and very good example of using the enemy’s resources to defeat the enemy in a non-corporate context.
Ecological Solutions Case
Recall that the Ecological Solutions Center (‘ESC’) was financed by ‘Participating Institutions’ and built over several years. Once they had paid, these institutions didn’t want to wait for possession and pay rent elsewhere for years. It made sense for ESC planners to build the offices first and hand over possession as quickly as possible with the conferencing and hospitality facilities to follow later. The plan made sense but in the meantime, how were the basic F&B needs of the office goers to be met?
Soon after Khanna signed up to run the hospitality facilities, he offered to run a small canteen for the 500 or so office goers who worked there. It was a win-win for everyone because there wasn’t a market within a mile of the ESC. Khanna hired the staff, purchased the equipment and started to run a slick if modest café serving snacks and lunch at an amazing price point.
When the dispute erupted, Khanna immediately obtained a stay order restraining ESC from terminating his contract. His was a great achievement, so far as it went but it meant that he now had high litigation costs to finance and no source of income to fund it. Clearly, he needed to cut his losses, perhaps even find a way to convert his losses into an opportunity. Could Khanna find a way to use ESC’s resources to fund his litigation against the Centre?
He could! Khanna soon asked the court to let him run his canteen till the dispute was decided. He made a great case of it. What was the point of shutting down a facility that was good for everyone? Five hundred people worked at ESC. They needed meals, hot and cold beverages, light snacks? Why should they be denied basic amenities only because he had a disagreement with ESC? Especially, why should they be denied these facilities when he had already set up the infrastructure and logistics to provide the service? The balance of convenience lay in letting him run the canteen. He was paying large amounts in staff salaries. He was bearing operation costs, even brand and marketing costs. Why should all these people lose their livelihood only because he disagreed with ESC? He argued that if he was unable to cover his costs, everything he had created would collapse. If that happened, even if he won the case, between the accumulated losses and the mobilization costs of starting afresh, he would never be able to get the Hospitality Facility off the ground. He would have won the legal case but would still lose the business case. He asked the court to protect his future while it decided his case.
It was truly powerful stuff, ingenuous, inventive and emotionally appealing. It sounded so completely reasonable. Not that there wasn’t another viewpoint. If Khanna had been stopped dead in his tracks, the Society could easily get another contractor to come in very quickly and start supplying the samosa, chicken burger, egg sandwiches and chole bhatura type lunches Khanna was slapping together and serving in his canteen. As for his losses, what kind of high-tech labor do you need to make and sell samosas? It was artfully presented rubbish but its appeal was undeniable.
The Court saw his point and gave him his order. Curiously, the Court did not simultaneously direct him to share his revenues with ESC or pay his running costs. Think about it. ESC provides the space, the electricity, the water, the tables, the chairs, the gas burners, the refrigerators, the cups, the saucers and the plates but he gets to keep all the income he receives! In the result, ESC loses money every day he runs his canteen and he has an income. As argued in court, it is projected as a ‘stay alive’ measure. In truth, it was an ingenuous scheme by which ESC’s money transferred slowly to Khanna and Khanna took that money and used it to finance litigation against ESC. Brutally put, ESC paid for Khanna’s litigation.
The larger implication of this order was Khanna’s continuing presence at ESC. Presence brought visibility, acceptance, and then approval. It was the perfect public relations ramp. People pay fortunes to have a flag ship store on high street. Such stores never bring in enough income but they do bring high-profile visibility: the ultimate brand building force multiplier. Brands don’t care if you still go to the local Walmart in the end to buy the products you saw in the high street store. They need their products to be talked about. Khanna had other restaurants and hotels. Nothing stopped him from putting pamphlets touting the virtues of his other businesses on the counters of his canteen. It was cheaper than buying advertising space in the local city newspaper. In truth, it was free.
Finally, the canteen became for Khanna what social media has become for politicians now. It became a place to build narratives. As suave eco-habitat types drifted in looking for a bite, Khanna hung about flashing his inimitable smile, throwing out his hands expansively, looking benign and weaving a tale of victimization. He befriended everyone of any consequence from every institution, molding public opinion, creating prejudice. He sowed dissension in the enemy’s camp by reminding them endlessly of the inconvenience of not having proper hospitality facilities at ESC. He tugged at their emotional cords, made himself into the ultimate victim and created an environment of sympathy which he ultimately used to pressure ESC to settle with him. In just a few weeks, everyone agreed that ESC was run by a dodgy character who was probably shaking down Khanna for a payoff.
This is a classical case of employing the enemy’s direct resources to attack the enemy. You actually take something that belongs to the enemy and use it against the enemy. Not every case gives you that opportunity. Most frequently, you can’t get hold of what your enemy has. The story changes when you extend your strategy to indirect resources.
Indirect resources come in two categories. First there are resources over which you have some amount of indirect ownership even though there are other co-owners, including perhaps your enemy. If you own a controlling equity block of shares in a joint venture company, you are able to control that company even if your enemy is also its part owner. In many cases, even a controlling block is not necessary. A promoter of a listed company usually has ‘indirect control’ over his company even though the banks, the public, and his enemy together own the majority of the shares of the company. If such a promoter engages in a legal war, the resources of the company become his exclusive resource even if he doesn’t exclusively own the company.
But ‘indirect resources’ come in another avatar as well. These are the resources that neither you nor your enemy own or control but your enemy depends on them to make his living. No one is an island. In getting through life, or running a business, we rely on networks of people, communities of interests and the benefits of a variety of indirect resources. If you can get your enemy’s indirect resources to start working against him, your strategy would have reached a superlative. Again, this is not as difficult as you may think.
For instance, every products company works through a dealer network. If you can persuade the company’s dealers to work against the company, you can bring the promoter under great pressure. Other typical examples of such indirect resources are financiers, suppliers, marketers, allies, business partners, even a sympathetic bureaucracy or press. If you capture and persuade these resources to work against your enemy, you can quickly undermine both his business confidence and his ability to wage war. How many businessmen have managed to fight their enemies by fostering labor unrest in the factories of their competitors? How many have used social media to destabilize their competitors’ loyal supporters and make them rethink their priorities so to speak? How many have managed to rattle movie star brand ambassadors and made them refuse to lend their names to the products of competitors?
Let us look at a case where the enemy’s indirect resources were captured and used against the enemy.
The Metro Cable Case
Recall once again the case of Metro Cable. This pan national company operated in partnership with local cable signal distributing companies. Metro owned 51% of one such local company A.P Cable. For a partner, they picked Sai Reddy, a local strongman. Reddy was AP Cable’s MD, ran the company and controlled its bank accounts. For its office, AP Cable rented a building from Reddy, who in turn had rented it from its owner. As far as the local cable operators were concerned, Reddy was Mr. AP Cable and Mr. Metro Cable combined!
When the saga began, Reddy had for some time been collecting monthly subscriptions from local Cable operators but hadn’t deposited these moneys in AP Cable’s bank accounts. As a result, AP Cable ran up losses even as Reddy got richer. Metro tried to talk to Reddy about this but Reddy threatened to move these local cable operators to a competitor if he wasn’t allowed to operate freely. Metro didn’t know these local cable operators and didn’t know what it could do about it. From a purely business standpoint, these local cable operators were the customers: that’s where the money came from. Taking control of AP Cable really meant taking control of these customers, and then using them against Reddy.
It used strategy to achieve this objective.
As soon as Metro took physical control of AP Cable’s office, its new MD immediately called a meeting of local cable operators. The MD introduced himself, informed them of this change of control and read out the list of outstanding dues owed by each of them. The cable operators protested. They had paid Reddy most of this money. The MD pretended to be shocked. Then his tone softened as he put on his most benign kindly face. He made a generous commercial offer. If these local cable operators could furnish documents to show they had paid Reddy, he would write off those sums. Would the cable operators help him retrieve the money from Reddy by signing affidavits swearing they had paid Reddy? If they swore these affidavits, he added, he would also defer payment of any remaining outstanding for six months. He added almost as an after thought that if they did not cooperate, AP Cable would file criminal cases against Reddy with these cable operators as co-conspirators!
It was an offer they could not refuse. The choice between being loyal to Reddy and ending up accused in a criminal court and signing a piece of paper and getting a credit extension was no choice at all. Practically all cable operators accepted this offer! In no time, AP Cable had masses of paper work to prove Reddy’s defalcation. There was no way Reddy was going to find his way out of this any time soon. Metro cemented its control over AP Cable, leaving Reddy no room to come back in. In this way, Metro killed three birds in one shot. It robbed Reddy of a mission critical business resource, collected documentary proof enough to keep Reddy out of the business, and secured its customer base for the foreseeable future.
Capturing the enemy’s key indirect resources and using them against the enemy is a key element of litigation strategy. This strategy is used to weaken the enemy but equally, it is used to expand your own resource base and materially tip the balance of power in litigation. Such a strategy helps win legal wars.