5 Surprising Business Lessons From Gladwell's Latest Book

The classic version of the David and Goliath story teaches us that the scrappy underdog can perform miracles and beat the giant.

But in Malcolm Gladwell's new book, he explains that in the true historical account of the battle, the reason David beat Goliath is no miracle at all.

It makes perfect sense.

You see, the real Goliath was a giant, powerful infantry soldier whose expertise was hand-to-hand combat. David, a shepherd, was smaller and scrappier. But that’s exactly why he won. David was a master slinger—an expert in the slingshot. And sure, if he were to fight Goliath in hand to hand combat, he would have been the underdog. But in reality, his incredible accuracy with the sling was no match for Goliath’s enormous and slow body. David’s strength came from his ability to break the assumptions of the battle that size equals power. Just because someone looks like the underdog, there’s more to the situation than meets the eye.

Malcolm Gladwell’s latest book, David and Goliath: Underdogs, Misfits, and the Art of Battling Giants, examines the surprising principles behind how underdogs beat out giants. Like most of Gladwell’s books, he shares lessons that are not only wildly thought-provoking, but also unavoidably true in the business world…

1) Use Your Competitor’s Success Against Them?

In the 1990s, Microsoft had more success than they knew what to do with. They hired more people, created more departments—they were the most valuable company in the world. At the same time, Apple Computers appeared to be in its dying days.

But then something happened. Apple switched gears and revolutionized how we listen to music with the iPod and iTunes. Apple’s venture into music remains one of the greatest successes in tech history. But shouldn’t have that win been Microsoft’s? They had the deepest pockets. They hired all the best people. What went wrong?

According to Gladwell, “it is good to be bigger and stronger than your opponent. It is not so good to be so big and strong that you are a sitting duck for a rock fired at 150 miles per hour.”

It was because Apple was in such bad shape, because they were the underdogs, that Steve Jobs was able to take such a risk and venture into the music industry.

The other computer giants at the time were doing so well that they kept growing, adding bureaucracy, slowing innovation—to the point that it made them sitting ducks when Apple shot back. In the first quarter of 2008 alone, Apple sold 10.6 million iPods – fives times Microsoft’s cumulative sales to date.

Sometimes your competitor’s pockets are so deep, so heavy—that they can barely stand up and move in a new direction. Use that in your favor.

2) Never Forget the “Principle of Legitimacy”

Starbucks CEO Howard Schultz was in a tough situation during the recession. His company’s stock price was plummeting and shareholders called for a cut to the company’s $250 million in employee healthcare benefits. But with a mission statement to “inspire and nurture the human spirit” of the customer, how could Shultz justify not doing the same for his employees? How could he expect his baristas and store managers to put people over profits, if he couldn’t do the same? Schultz had to decide between his short-term economic interests and his long-held beliefs. He kept the benefits.

Since January 2008, Starbucks’ stock has increased over 250% and has shown that you can still do well financially while standing for what you believe in.

Gladwell writes that, “when people in authority want the rest of us to behave, it matters - first and foremost - how they behave.” He calls this the Principle of Legitimacy. In David and Goliath, he explains that, “legitimacy” is based on three things, one of which is that the rules of conduct have “to be predictable. There has to be a reasonable expectation that the rules tomorrow are going to be roughly the same as the rules today.”

Have there been moments when you’ve been in a position of authority and you didn’t operate at to the level you expected of others? Those slips are bigger that you think—and they can lead to the downfall of any giant.

3) Never Mistake Size for Power

When Tony Hsieh became the CEO of Zappos.com, the online retailer had zero revenue. Hsieh believed that his underdog company could one day reach $1 billion in sales. But in order to do so, he would have to change the company’s operating model.

Zappos made a bold move and abandoned drop shipping, which accounted for 25% of their revenue, and began housing all products in its inventory. “I wanted us to have a whole company built around [customer service] and we couldn’t control the customer experience when a quarter of the inventory was out of our control,” Hsieh wrote in a column for BusinessWeek.

The decision paid off. The company earned $184 million in gross sales in 2004 and hit $1 billion by 2008, two years earlier than the company had aimed for.

In the battle against giants like Amazon and Walmart, Zappos was powerful in it’s own right—not because it was the biggest company, but because it found strength in other forms: by it’s ability to take bigger risks, by shattering industry conventions, by wowing customers with unrivaled customer service. Just like Gladwell writes in his book, “Power can come in other forms as well - in breaking rules, in substituting speed and surprise for strength.” Just because your competition is bigger than you, doesn’t make them more powerful.

Are you pursuing your business model simply because it’s the safest option? Is there a better way to serve your market that the big-guys are too afraid to try? Don’t be afraid to change your business model—a business’s size doesn’t equal its power. Speed, nimbleness, and the ability to take risks are more powerful that most can see.

4) Choose to be a Big Fish in a Little Pond

Entrepreneur Elon Musk said, “I recommend that people consider arenas outside of the Internet.” Instead of starting another Internet company like most entrepreneurs, Musk entered fields in which few people are crazy enough to venture to: a rocket ship company (SpaceX) and an electric sports car company (Tesla).

He didn’t have to compete in the same exact game as Google or Apple—he chose a different pond. In David and Goliath, Gladwell explains the Big Fish-Little Pond effect. He proves that there can be greater value in being part of a smaller category than joining the big guys in the crowd. He says that the people who choose the little pond “wouldn’t get lost in the crowd, because there wouldn’t be a crowd.”

Have you been tempted to pursue a field simply because you saw others striking it rich? Or have you ever had an idea but were too afraid to make it a reality because it was so different? Just because there are plenty of successful entrepreneurs in a certain field doesn’t mean you have to follow their lead. When you innovate in a smaller niche, not only do you get more attention from media and investors, but you also give yourself the gift of operating in a space with less competition—less fish. As Musk discovered, there are significant advantages to being a Big Fish in a Little Pond.

5) Your Visible Disadvantage Is Actually Your Hidden Mega-Advantage

"I never felt like a victim," director Steven Spielberg said of his dyslexia in an interview with the Los Angeles Times. Spielberg channeled his disadvantage into an advantage by honing his skill of visual storytelling. "Movies really helped me... kind of saved me from shame, from guilt... Making movies was my great escape." Other dyslexics such as Richard Branson had to make up for his disadvantage by honing his verbal communication skills and charisma. What was once his biggest disadvantage eventually led to his biggest mega-advantage.

Gladwell proves that not only do many successful people have dyslexia, but that they have become successful in large part because of having to deal with their difficulty. Those diagnosed with dyslexia are forced to explore other activities and learn new skills that they may have otherwise pursued. “What is learned out of necessity is inevitably more powerful than the learning that comes easily,” writes Gladwell.

Think of your business through the same lens. What is your visible shortcoming that can actually become your greatest strength? It exists somewhere within you—and sometimes it takes great adversity to force you to pull it out.

Gladwell makes it clear in David and Goliath that when it comes to the stories of underdogs—and the stories of business—things aren’t always as they seem. And it forces you to ask yourself: which of your disadvantages are actually your advantages? Which of your competitor’s advantages… are really their disadvantages? Let me know in the comments below.

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Alex Banayan is the author of a highly anticipated business book being released by Crown Publishers (Random House, Inc.) The book chronicles his five-year quest to track down Bill Gates, Lady Gaga, Warren Buffett, Steven Spielberg, and a dozen more of the world's most successful people to uncover the secrets to how they launched their careers.

To get exclusive content from the book and the latest from Alex's adventures, click here to join his Inner Circle email community.

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