We wrote in a previous blog post that the greatest risk in strategy is to over or underestimate the risk.  This is why in the art of military strategy opponents work hard to deceive their adversaries.  Deception can cause adversaries to overestimate risk when they should not and underestimate risk when they should not, leading them to take actions that are against their best interests – for example attacking where you have prepared to receive them.

In business strategy we do not have the time, resources, or legal freedom of action to conduct ruses to influence competitor perception, or at least we should not.  Our focus is to win competition by winning customers.  We can leverage poor estimation on the part of competitors and seek to avoid it in our own deliberations.   

Underestimating competitors, the focus of this post, is a mistake that can have huge consequences to a business.  It can cause a business to leave vulnerabilities exposed that it could have closed.  A common way this mistake arises is when an incumbent underestimates the rise of a new player in the marketplace.  The rise, fall, and rebirth of Apple provide a personal favorite for examining how a body of underestimations can track the success of a company.

You may recall that Apple was once the alternative to IBM in the PC marketplace.  Apple arrived first, but IBM took a belated move to correct its underestimation of what the PC meant to its markets.  IBM had the opportunity to capitalize on its name and market share when it developed a PC of its own.  IBM’s method of correction, however, ceded control of operating software and the microprocessor.  This ultimately opened the door for Microsoft to become the dominant name in computing, and so Apple became the alternative to Microsoft instead of IBM.  Fast forward to the present, Apple has fundamentally changed music, telecommunications, and computing businesses to the point that “alternative” is no longer the operative word in its competitive positioning…and competitors and partners facilitated every one of those moves by underestimation the capacity of Apple to pull it all together.

Underestimating competitors becomes fully manifested as a mistake when rival businesses lock up the core of their business drivers as IP.  That IP becomes the castle in new found territory, offensively place and a challenge to either live with or dislodge.  Astute competitors will lock up IP in the background as they set their plans in motion and will capitalize on the underestimation mistake.

One of the first signals that you should worry about a competitor is when it has garnered enough attention for the higher ups to say we don’t need to worry about them.

(This is number 18 in our list of IP mistakes and how to avoid them.)

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