Fear Is Not a Strategy

The Chinese government has done a phenomenal job in shepherding the economy to where it is today—a legitimate contender to be the largest economy in the world. China will almost certainly be the world’s largest economy if it isn’t already. Invariably, there’s usually a mistake measuring GDP, so by some measures we don’t know which country has the largest economy right now.

As China has grown, sometimes we overestimate its abilities and sometimes we underestimate them. Sometimes we decide we don’t want to play in a sector because the Chinese are too strong. And sometimes we underestimate them and say we can’t play in the sector because the Chinese are never going to enter it.

Fear cannot be a strategy. You can’t make a decision not to do something because you think someone is too strong—unless you’re certain they’re too strong and you’re certain you can’t respond to that.

You see this often when companies make decisions. They’ll say something like company X is very innovative, very creative, the world leader in its field, and it has a reputation for harnessing artificial intelligence, the internet of things, cloud capabilities, blockchains. They’re very good at it, so we’re not going to compete there.

But you’ll find that in any period, whether it is after financial crisis, whether it is post COVID, a few companies tend to do well, and everyone talks about them like they are perfect. They overestimate their abilities. A lot of people choose not to compete with them because the general media says they’re invincible, but a few choose not to listen to the press and compete anyway. While many companies and individuals will never say that their framework and thinking involves this, their strategy’s biggest consideration is their fear of a competitor. They’ll couch it in words like this company is very innovative, very entrepreneurial, very agile, but you can sum it up as, “We are afraid to take on this company.”

If you have the ability to raise the capital, if you have the ability to harness your employees, if you have the ability to think creatively, but you’re afraid to act, then your strategy is predicated on a principle of fear. Most strategies are done that way. When I was a senior partner, I spoke to many clients, and although they wouldn’t say it initially, many of them were afraid if you read between the lines. When I served a lot of financial services, many of those companies were afraid of how American tech giants were going to come into financial services. I know of insurance companies and banks that chose not to enter certain markets or compete in certain product lines because they were certain that American tech companies were going to do it. They would never say it, and they would have the analysis to show otherwise—but fear is what drove their strategy.

The insight is that when you’re thinking about strategy and interpreting all those numbers, you need to be aware that fear is going to drive your decision making. The way you interpret numbers is your judgment, and fear is a component of that. If you make a decision in strategy because you’re afraid, you are making a decision from a basis of fear. That’s not rational thinking. That’s emotive positioning, and it’s never going to be right. Yes, you need to be aware of competitors, you need to be scared about them, but your strategy cannot be predicated on the idea that because I’m afraid, I can’t compete. How is your fear stopping you from competing? If you’re the CEO and you’re afraid, maybe the solution is to get a new CEO who’s not afraid and then balance that bold CEO with a board that will check what he’s doing so he doesn’t squander money.

Remember that fear cannot be a component of strategy.