In Three Moves Ahead, venture capitalist and chess player Bob Rice shows how strategies devised for combat between black and white can keep your business out of the red.
"Chess,” declared George Bernard Shaw, “is a foolish expedient for making idle people believe that they are doing something very clever, when they are only wasting their time.”
Seated by the antique cherry wood chessboard in his Short Hills living room, entrepreneur Bob Rice, 53, offers proof to the contrary. “The more you look at the business world,” he writes in his new book, Three Moves Ahead: What Chess Can Teach You About Business—Even if You’ve Never Played, “the more you see that successful companies and the people who run them use chess strategies routinely (whether they know it or not).” By his lights, chess can help business strategists defend turf, attack competitors, open new markets, manage people, and allocate resources.
A case in point was his own pivotal move as head of business development for a small graphics software company. At a meeting with Microsoft, his counterpart informed him his choice was to walk away or to surrender ownership of his software for no payment at all.
Rice took the deal. It nearly cost him his job. To colleagues, he had abandoned the company’s sole source of income—licensing software to a modest pool of subscribers. Rice, though, envisioned far greater returns by having Microsoft bundle his software on tens of millions of home computers—if his company could find a way to exploit its broadened market presence.
“We had to go for it—what chess players would call an exchange sacrifice—trading one kind of advantage for a completely different sort, even though the exact benefits can’t be calculated,” Rice writes. Fortunately, an enlightened chairman sided with Rice.
The sacrifice paid off in the long run. Rice’s company was swallowed up by a public company, which morphed into Viewpoint and installed Rice as CEO. The technology Rice had licensed to Microsoft put Viewpoint at the forefront of Internet advertising, a business not foreseen as lucrative when the Microsoft deal closed. Rivals who stuck to licensing limped or folded. “The point being,” says Rice, “managers must do what chess players do—leverage something good into something unclear.”
If anyone knows business and chess, it’s Rice. A one-time corporate attorney, he left Viewpoint in 2005 to help launch and become a managing partner of Tangent Capital, which develops investment ideas for hedge funds.
Back in 1990, Rice created the Wall Street Chess Club, which became a haven for high-powered business execs and chess Grand Masters, each eager to learn from the other. With world chess champion Garry Kasparov, Rice also launched the colorful but short-lived Professional Chess Association.
As Rice sees it, chess furnishes abundant business analogies. He likens pawns to employees, who can move mountains when their potential is unleashed. In chess, the bishop is a moderately powerful piece analogous to a middle manager. When bishops work in tandem from strong central squares (in business terms, secure market positions) they can be devastating. But when they get pushed to the margins or hemmed in, they become “bad bishops.” Rice equates these with execs who are unable to function at peak levels because of corporate policies.
Like chess players who castle early, fledgling companies should secure intellectual property (the king) and assign a skilled team (pieces) to strategic positions (squares) before pressing attacks. Never unleash powerful ideas (the queen) until the way has been paved.
Companies in midlife should funnel investment to “the markets that companies can dominate” (strong squares) before pursuing new ones. To a Grand Master, analysis is often less valuable than the ability to imagine new tactics and positions. What works in chess, works in business: Before each move, determine what has changed, check for traps masked as opportunity, and anticipate an opponent’s response.
Companies entering new markets would do well to study the classic King’s Gambit, an aggressive opening strategy for white. Sacrificing pawns to gain positional advantages is central to the King’s Gambit. But there is a hitch: once begun there is no turning back.
“It’s more fun,” admits Rice, “but most times you lose.” In business, it can succeed when being first at any cost locks up a market and blows rivals away. YouTube’s founders employed an exemplary King’s Gambit. They burned resources, took huge losses, and spent lavishly on infrastructure to establish their business. Had they been challenged, they would have lacked means to counterattack. For YouTube, being first paid off, and the founders cashed out as billionaires.
Cautious entrepreneurs might contemplate the Ruy Lopez, “an up-tempo, pressurizing opening that exploits the first-mover advantage,” says Rice. White, which always moves first, stakes a claim to a center square without seeking a fast knockout. No sacrifice is offered. “The business lesson is this. You really can be aggressive and parsimonious at the same time.” In business practice, Rice says, a Ruy Lopez approach represents “well-paced spending in line with development and getting and using feedback to constantly readjust the plan.”
Black’s arsenal includes the popular Sicilian defense. Instead of mounting a frontal assault, the Sicilian attacks from an angle to disrupt and destabilize the first movers. Netflix, for instance, shattered a standard revenue model in the video rental industry by doing away with late fees. Sicilian strategies also use service and convenience to outflank larger rivals (which Netflix pulled off with its order-on-the-Web and deliver-by-mail system). Another Sicilian-style defense is to sell stripped-down versions of rival products to grab market share, like Kodak’s disposable FunSaver camera.
Attending the 1990 World Chess Championship converted Rice from enthusiast to activist. Among fellow spectators at New York City’s Macklowe Hotel, where challenger Kasparov defeated Anatoly Karpov, Rice recognized bankers, analysts, fund managers, and top Wall Street executives. During breaks in the action he confirmed a hunch: Type-A aficionados like himself lacked a suitable place to play.
That same year Rice launched the Wall Street Chess Club. By pitching it as a novel form of business development, he convinced his law partners at Milbank, Tweed, Hadley & McCloy to let the club meet in the firm’s plush boardroom on the 60th floor of Chase Manhattan Plaza, with its sweeping view of Lower Manhattan.
Through the club Rice met Princeton University physicist Sacha Migdal, whose concept for a 3D camera gave Rice the impetus to switch careers. He planned to harness the first-mover effect—a “perfect example of the King’s Gambit,” Rice says, “in which you sacrifice a lot of material early and try to win the game before the other guy even gets out of the box.” Instead, the camera suffered technical setbacks, not least a tendency to distort faces in unflattering ways. “There was no market to control,” Rice concedes. “We got crushed.”
He regrouped. Within the troubled camera lay valuable software that could transmit high-density files swiftly over the Internet. AOL and then, fatefully, Microsoft became customers.
The title Three Moves Ahead was chosen for its irony. Most great players are satisfied to look one move ahead. Looking two moves ahead, much less three or four, probably exceeds human capability. In a typical position, each player has 40 possible moves. One move ahead, or the first 40 moves multiplied by 40 new moves, yields 1,600 possible positions; jump to three moves ahead and there are 4 billion possible positions—enough to cause even a computer to sweat.
Six different kinds of pieces moving in limited ways on a simple grid of eight by eight squares generate limitless possibilities. In business as in chess, the future is unknowable. So the title is Rice’s subtle reminder that the successful executive must be able to react quickly and decisively to changing and often unforeseen circumstances, without always knowing the immediate consequences. He has little regard for the dozens of business books that proffer four keys, seven strategies, five secrets, or other surefire recipes for success.
“Good chess players,” says Rice, “are much better than executives at one thing above all: acknowledging that they’ve missed something and adjusting accordingly.” Short of seeing three moves ahead, there is no better route to checkmate.
Bob Rice is author of "Three Moves Ahead: What Chess Can Teach You About Business—Even if You’ve Never Played"
Saturday, 19 December 2009
Business strategy is as difficult as chess
- Chess, a game of strategy, just like business
by Epsilica Consulting
“Follow the tactics of chess and reap the rewards” - The first mover gains immediate advantage
Chess: White always moves first
Business: First to market gainsmomentum through market share - The weakest are destroyed first
Chess: Pawns are small, move slowly and easier to remove
Business: Small companies with no protection fall quickly - Higher prominence gives more power
Chess: Control of the centre of the board gives tactical advantage
Business: Control of a market makes it difficult for opponents to penetrate - The best players think ahead
Chess: Experience allows you work out your opponents moves and your counter moves
Business: Strategic planning is all about what if’s, good ones plan for all eventualities - Opponents who have more experience tend to win
Chess: Chess is not about luck, novices make more mistakes
Business: It is harder for small businesses to compete - Experience is powerful
Chess: Experienced players learn how to avoid common mistakes (checkmate in 4 moves is a lesson never forgot)
Business: Learning from experience makes the company stronger - Gaining ground is followed by consolidation
Chess: Players who gain an advantage normally win if the advantage is protected
Business: Retaining competitor advantage makes the opposition more vulnerable - Some moves are just not logical (or are they) ?
Chess: Players sometimes sacrifice high value pieces for added advantage later
Business: The competition occasionally does something outlandish - Mistakes can cost you the game
Chess: A misjudged move can lead to checkmate
Business: An ill-judged decision can kill your business - Never play for a 50% share
Chess: Playing for a draw is a fallback position
Business: It’s a ruthless world there are always winners - The small ones occasionally win through
Chess: Pawns, the least powerful pieces on the board can become the most powerful with persistence
Business: Small companies occasionally gain the upper hand with perseverance (or luck) - One little challenge
Chess: Mate in 2
Business: Don’t cheat - This presentation was brought to you by Epsilica Consulting Ltd.
Epsilica provides specialist consulting services to startups, SMEs and multi-national companies across industry sectors.
http://www.epsilica.com
Chess Strategy For Business
If you’re not too familiar with chess, not to worry. Read on.
Chess has a long history. It’s been around for at least a thousand years in its current form. And for good reason. It’s been teaching Kings, Queens, Emperors and other power brokers about strategy since its inception.
It’s also a game that’s full of rich symbolism. Castles, Knights, Bishops, Pawns; every piece takes us back to thoughts of ‘the days of old’. I’m going to attach some symbolism to some of the pieces to get you thinking about how to approach a problem, and then I’m going to show you some of the key strategies that chess teaches.
These are all things that are applied by successful companies today.
Attacking A Problem, Piece By Piece
The Rook. Or castle, moves straight ahead, back, or side to side. It’s a forceful piece. Think of it as military power. In business, think of it as size and strength. The Rook is a great defensive piece. It’s not fearful, and offensively it can sweep in quickly and own a section of the board. Or a slice of the market, since we’re talking about business.
The Knight. Even today, if you own horses, it’s a good sign that you have money. A thousand years ago, having a stable full of horses meant great wealth. The Knight, or horse, is financial power. The knight moves in an L-shaped pattern and can jump over other pieces. It’s most effective in the center of the board. If you can drop a load of cash into the middle of a situation, you can have a say in what happens. Of course, with Knights and cash, you need to have a sound exit strategy, or you could lose them.
The Bishop. Politics, negotiation and influence all fall under the realm of the Bishop. In business, it’s about making connections. It’s about managing a situation or sweeping in to clean it up. The Bishop travels diagonally and often seems to come across the board out of nowhere. Oops, I didn’t know you knew so-and-so.
So those are the things you can leverage to your favour; size and strength, capital, and connections. Now on to the strategies.
Business Strategies From Chess
Keep the pressure on. With every move you need to force your opponent to make a predictable defensive move. This is how you stay in control of the situation and prevent them from taking action of their own. They’re constantly reacting. Putting out fires. Unable to execute their own strategy.
Every move counts. A bad move is a wasted turn. You lose time, ground, momentum. You run the risk of losing control of the situation and finding yourself on the run. Great chess players and business people are very conservative during the opening with what they do. But once they’ve gained some ground …
Every asset counts. In grandmaster chess, if you lose a piece and fail to take one on your next turn, it can cost you the game. Business can be that competitive. You need every asset that you have to gain an edge. Once a grandmaster is two pieces up on an opponent, victory is practically assured. The momentum picks up and it snowballs from there. Use everthing you’ve got. If you’re not using it, sell it and turn it into cash that you can use.
Chess teaches you to take complex situations and heavy pressure and deal with them. It teaches you strategies that are intrinsic. The value is in their very nature, sort of the way you can always count on gravity to make an apple fall on someone’s head. It just is.
I like to play Chessmaster occasionally. The game has a great interactive tutorial section put together and hosted by several chess grandmasters. And there are dozens of preset computer players with radically different styles to play against.
And when it comes to business, remember, the game’s chess not checkers.
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