Ever Heard of Strategic Intelligence?

Hint. It has nothing to with foreign policy or world politics.

Sheen Levine, a professor at the University of Texas, Dallas, is featured in an article entitled Why Entrepreneurs Are Like Good Poker Players. Prof. Levine calls “strategic intelligence” the “secret sauce—the ability to anticipate competitors’ behavior and preempt it.”

The focus of the article is why entrepreneurs are exceptionally good at beating the competition, yet they appear to have no clear advantage at the outset. The key, according to Prof. Levine, is that innate ability to anticipate.

Two successful entrepreneurs are used as examples. Billionaire Eli Broad was a 23-year-old accountant in Detroit earning $67.40 a week in 1956. He got together with a carpenter, Don Kaufman, and started building homes. Broad’s idea to cut costs was to offer the homes without basements. They somehow got enough money together to build two model homes and purchased 15 empty lots. The home sold out in a weekend.

But what happened next?  One would think the competitors would see the opportunity in the market and follow suit, but they didn’t.  They kept doing it the same old way.  In a little over 20 years, KB Home became the first homebuilder listed on the New York Stock Exchange, and eventually made it to the Fortune 500.

Prof. Levine analyzes why Broad and Kaufman succeeded. He says that conventional wisdom attributes success to two sources: (1) a monopolistic position and (2) hard-to-imitate resources. Yet KB Home had neither. Prof. Sheen attributes their success to the “secret sauce” or strategic intelligence, which is the ability to anticipate competitive response and preempt it.

Prof. Sheen goes further and says our research suggests that it (strategic intelligence) can boost performance, even for traders in hypercompetitive markets or startups with little upfront advantage.

He gives another example, Kevin Plank, 20-somethng year old who was a college football player who dreamed of a new kind of underwear. He entered he athletic wear market in 1995 when it was dominated by Nike and Adidas.  Working in his grandmother’s basement, he started making underwear from synthetic fiber—light and moisture wicking, which means the fabrics draw moisture away from the body without absorbing the moisture. Plank used easily available yarn so he hardly had a monopoly, and the raw materials were readily available. The result: UnderArmour. Competitors were slow to catch on, and thus strategic intelligence won the day.

Back to the poker analogy, Prof. Levine says: “Most of what we study, from kindergarten to university, involves solving problems, engaging in backward induction, employing contemplative thinking, understanding match and statistics. As hard as such problems can be they don’t require strategic intelligence. Strategic intelligence is what is needed to outsmart a cunning rival.

To understand the difference, consider what it takes to predict the stock market performance vs. guessing the hand of a rival poker player. The stock market may be unpredictable, yet is it not actively trying to deceive you. A worthy (poker) opponent is doing just that.”