0:00 are not the same thing. One shows strategic understanding and the other shows weakness. Today on Business Lessons from the Military, great leaders always hold something back.
0:18 >> Who are you?
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0:21 >> And where are you going?
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0:26 >> What do you want?
0:34 >> Hello and welcome to Business Lessons from the Military. I'm your host Kevin Bemel and I'm here every Tuesday at 10:00 a.m. Pacific time to talk about military history, doctrine, and leadership practices and then turn them into lessons that we can use in our businesses and professional practices. So, today I'm going to be talking about holding something in reserve. So, one of the biggest mistakes that inexperienced leaders make, whether it's on the battlefield or in a business, is
1:10 committing every available resource at once. And it feels decisive. It feels bold. But, throughout military history, great commanders understood something different and that is that victory often belongs to the leader who still has options when everyone else has exhausted theirs. So, we in the military we call this the reserve. A reserve is a force and or material withheld from the
1:47 initial action and kept under the commander's direct control and it's ready to influence the battle at the decisive moment. So, it is not a sign of timidity. It's actually a sign of discipline and foresight. So, the US Army doctrine uh holds that reserves are a means of exploiting success and responding to unexpected developments or restoring the situation when events take an unfavorable turn. And this is critically
2:25 important in a business environment where the enviro- where things can change so rapidly and so unexpectedly that it can cause tremendous havoc in in our company, in in just the marketplace in general. And so, when we optimize our businesses to so that so they're spending every dollar and every employee is working to their limit all the time,
3:01 what we've done is we've created fragility in our company and an inability to properly respond when something needs to change. And so, holding a reserve is not a sign of weakness, it is in fact a sign of strength. So, from a military standpoint,
3:28 >> [snorts]
3:30 >> we have to acknowledge the battlefield is inherently unpredictable. So, no First of all, no commander begins any battle with perfect information. And in fact,
3:44 >> [snorts]
3:44 >> oftentimes, while the commander may think he has good intelligence when he starts a battle, typically soon thereafter he he finds out just how flawed that information is. And and part of that is because until the enemy is attacked, no one can really be sure how they will respond, the the extent of the resources they have to respond. And so there are limits to what pre-battle
4:19 intelligence can tell a commander. And then so even even with all of the high-tech uh communications and spying systems that we have, satellites and all of that, right? Uncertainty remains unavoidable. So we can't know the enemy's intentions, we can't predict weather, logistics, morale, terrain, breakdowns in communication, and initial assumptions often times just even within hours are proven wrong,
4:56 sometimes even within minutes, right? So a reserve gives the commander the ability to respond to the unexpected rather than essentially becoming a prisoner of the original plan. So uh Carl von Clausewitz Clausewitz and I've I've talked about his book on war on on an another episode of the show. So he called this phenomenon friction. And he wrote that war is filled with countless unforeseen events that make even simple
5:32 tasks difficult. And so a reserve is one of the military's primary ways for overcoming friction. Right? So uh among the most important things is a reserve preserves freedom of action. So, a a military operation, a battle, often is not decided by who starts out the strongest, but by who can still act decisively after conditions change, right? And we
6:09 see this playing out in the war in Iran right now. So, there's no question that the United States has the stronger military. For that matter, Israel has a stronger military than Iran does. But,
6:24 >> [clears throat]
6:24 >> the fact that the United States started out with a stronger military
6:29 >> [clears throat]
6:30 >> doesn't mean ipso facto it will win, right? So,
6:37 >> [clears throat]
6:38 >> as as as the battlefield has changed, as geopolitical considerations have become more important to or have I should be should say have become impacted by the war in Iran, right? This changes the power calculation that both sides are making, right? And this is what I think is leading to people saying, "Well, there's a stalemate." Or Iran is winning. I mean, I don't think either one of those are true. I think what's going on is the
7:14 normal friction that is experienced in a war as each side does its best to determine what really can it accomplish. And and the fact of the matter is it appears that both sides are holding onto reserves. Certainly the United States is, but it appears that Iran is as well. That's why they don't shoot off massive numbers of missiles that would completely deplete their available armaments
7:52 because they know that their ability to rebuild them has been severely depleted. And so, if they fire everything off, now they are completely vulnerable to American power, right? And so, part of the question is like, how much uh are they holding in reserve? And that's not an easy question to answer even with modern technology, right? And so, by by um holding a reserve, um um what you know, a a commander, he can he
8:29 can reinforce a breakthrough, he can counter an unexpected attack, he can replace exhausted front-line units, and he can he can exploit an unforeseen opportunity. But most importantly, he can stay in the fight, right? And sometimes winning a battle is just lasting longer than your opponent, right? So, without a reserve, every new problem forces a commander into improvisations with already committed
9:06 forces. So, with a reserve, the commander maintains the initiative, right? And so, military doctrine consistently emphasizes maintaining options because preserving freedom of action is central to successful operations. And so, what we find is timing often matters more than size. So, many people assume that victory belongs to the largest
9:43 military force. But but that's not necessarily the case, and we've seen that oftentimes. I'm going to give an example of that, an historical example in in in a moment. But the decisive question really is when should additional combat power be committed? That That is the crucial question that every commander has to face. If [snorts] he has no reserve, he can't even ask the question. If he does have reserve, so
10:19 now he has preserved his options, and so he can get down to the business of figuring out, "Okay, I've got these reserves, when do I commit them? Or when do I commit part of them? Where do I commit them?" etc.
10:36 >> [snorts]
10:36 >> So, if the commander commits them too early, and and he commits all of them too early, he he loses flexibility. If he commits them too late, the opportunity can disappear. So, if he commits them at the right moment, so sometimes, oftentimes even, a relatively small force can produce decisive results. And so, great commanders synchronize the reserve in with the battle's turning
11:12 point, and they watch very careful. That's why experience is crucial. So, uh less experienced, typically younger commanders, they don't have the same feel for combat that more experienced, more mature commanders do. And one of the things they need to learn is is to have that feeling so they can sense when is the decisive moment coming and when to put the reserves in into battle. Okay. So, [snorts] what what one of the things it's I think
11:48 it's important to to understand is holding a reserve back requires confidence, right? It's very easy to just make an all-out push,
12:02 >> [snorts]
12:02 >> right? Because then you know, I'm making maximum effort. I'm doing everything I can to win. It's harder to basically say, "I'm going to hold part of my military power back." First of all, it seems like you may be putting an undue burden on the part of your forces you're initially committing to the battle. And and a commander may be opening himself up to to complaints that he was not decisive enough in the beginning.
12:37 Especially if those initial forces are pushed back, right? If only he had committed all of his forces, he we could have broken through. That [snorts] isn't necessarily the case. Uh it's it's always easy to be easier to be an armchair general, as they say. Right? And so, when the battle begins, the the commander is is really, you know, tested, if you will, to commit every available unit, and resisting that
13:12 temptation requires discipline. So, leaders have to learn to tolerate uncertainty. They have to resist emotional decision-making. They have to accept temporary criticism. And they have to trust their overall strategy rather than reacting to every development. And so, the reserves represents confidence in long-term success rather than immediate reassurance and emotional gratification. So,
13:47 famous uh uh example of the use of reserves is in the Battle of Austerlitz. Um in December of 1805, Napoleon's French army faced a combined Austrian and Russian force and that that outnumbered him and outnumbered him quite a bit. And so, Napoleon decided, rather than fighting defensively, he would intentionally create the appearance of weakness on his right flank. So, he
14:24 appeared to abandon the strategically important Pratzen Heights, and this encouraged the Austrians and the Russians to think that they had identified his vulnerability. So, uh and and so, the um the uh Allied commanders um saw this and they basically took the bait. And so, they believing that Napoleon was preparing to retreat, they shifted a substantial part of their off uh of their army away from the center um uh the the center of where
15:01 they were attacking the French to the right flank. Okay? And this is exactly what Napoleon anticipated they would do. And so, he had deliberately withheld the forces of Marshal Soult's Fourth Corps. And by not committing it immediately, he had this reserve force waiting while he saw if the Russians and Austrians took the bait of this sort of fainting
15:37 um movement on his right. And as the Allied center became ever weaker, Napoleon issued one of his most historic battlefield orders, and that was one sharp blow and the war is over. And indeed, uh uh Soult's core advanced into the Pratzen Heights, and it split the Allied army into two isolated wings. And once the Allied armies were divided, they could
16:12 no longer support each other, and the battle rapidly turned into a decisive French victory. And indeed, a smaller force ended up defeating a much larger force. So, Napoleon later described Austerlitz Austerlitz as uh his greatest victory because it demonstrated that disciplined timing could overcome numer- numerical inferiority. And and this is a crucial lesson for us
16:47 to learn in business. So, so often we think that because another company is larger or has more resources than than we do, that we cannot compete. And Napoleon's example at Austerlitz proved that that is not necessarily the case. So, why did Napoleon holding reserves make such a difference? Well, had Napoleon committed Soult early, the Allies would have encountered stronger resistance, but they they never would have opened their they never would
17:23 have opened up their center to the the sort of counterattack that Napoleon was able to launch that enabled him to separate that their army into two parts. And so this decisive opportunity uh would have uh disappeared from Napoleon's standpoint. By waiting, while he he may have frustrated his soldiers in the field, he forced the enemy to create its own weakness. And then, he took concentrated fresh
17:59 combat power at exactly the decisive point, split the Russian and Austrian army, and was able to mop them up and attain victory. So, this this is one of the clearest examples from history where not having a a reserve almost surely would have meant that Napoleon was defeated. And so, by by holding something back, Napoleon showed him to be show showed himself to
18:34 be a great army commander. Okay, so let's take a quick break and then let's look at some lessons we can learn from this.
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19:22 or visit magnumprops.com. Okay. So, let's look now at some business lessons we can learn from this idea that great leaders hold something back. First of all, and and this hopefully is obvious now, never commit every resource in your business. So, successful organizations deliberately maintain reserves. And not just reserves of people. First of all, they retain cash reserves so for
19:57 for drawdowns or acquisitions or to respond to some kind of shift in the market that requires maybe some additional marketing expenditures or may require some other kind of strategic, operational, tactical shift that that for which capital is necessary. So, uh uncommitted production capacity um they they I'm sorry. They also maintain un- some uncommitted production capacity in order to meet a sudden surge
20:33 in demand. So, how often do companies um not anticipate that their marketing campaigns are going to be more successful than they thought. And so, they're already at the it they're they're at the the extent of what they can produce and all of a sudden they have a huge influx of sales that can't be met, right? And they end up losing out on those opportunities, right? So, by holding some production capacity in slack, they preserve the ability to respond to that sudden demand. They also
21:12 um keep some hiring flexibility. So, they make sure that that not every role or not every employee is working to maximum capacity. And and and that they have some flexibility in hiring, so that they need to bring in more people, they can. And finally, they make sure that senior leadership time has some reserve in it for strategic thinking instead of having to be constantly firefighting
21:48 uh on the essentially on the front lines. So, it the top leadership needs some time away from day-to-day activities in order to take that longer view and figure out where the business needs to be headed. And so, organizations that consistently operate at 100% of capacity have little or no room to respond to changes in circumstances, okay? And so, a smart business holds something in reserves.
22:25 Number two, a business smart businesses pre-preserve some strategic flexibility. And that is really what holding reserves That's why holding reserves is important is to maintain options, okay? So, uh businesses businesses should uh not lock in every dollar into long-term obligations. They should keep some funds that are uncommitted, so that if they see an
23:01 opportunity coming up, they have the the financial resources to take advantage of it. They should keep some investment capital available for in current for emerging opportunities. Maybe they have an opportunity to acquire another company um that could significantly enhance their ability to grow. But if they don't have the capital available to even, you know, tie up company a a company you know, the acquisition of another company, they're not going to be able to take advantage of that
23:36 opportunity. Right? They also develop employees with transferable skills so that they can shift between priorities. Right? And this is this can be difficult because a lot of times an employee, they just want to do their job. They don't want the um uh the the the the the sort of um challenges that come from having to shift from what they do every day to something different. They don't want to have to take on uh the mental challenge of learning something new. They just
24:11 want to do their jobs and go home. And and in some areas that may be fine, but throughout the company, there needs to be employees strategically placed who can make these shifts and make them quickly, who are trained to do so so that again, opportunity can can be uh maximized. And finally, um companies preserve strategic flexibility by building sup- uh supplier and partner relationships that provide alternatives
24:46 during disruption. Right? And so you know, strategically smart companies don't squeeze every penny out of their suppliers, right? They build relationships with their suppliers that are mutually beneficial, so that if there's a crisis or a particularly good opportunity, they can turn to those suppliers and say, "Hey, here's here's the opportunity for us, you know, can you jump on this, right?" If we're working with suppliers where
25:22 we've squeezed them down to the point where they have no reserves, either, they're not going to be able to support us when we have an opportunity to exploit, right? So, flexibility becomes a competitive advantage uh when markets change unexpectedly. Third, patience is often more valuable than speed, right? I was thinking about this earlier today. Uh so, I have a colleague who who absolutely believes in,
25:57 you know, push ahead as fast and as hard as possible, always. And I I I've come to while while I it initially I thought, "Yes, that makes sense. That's the way to handle things." Over the last couple of years, I've realized, "No, that is not the right strategy." So, uh many leaders equate action with progress, and those are not the same thing. Military history teaches otherwise. We can be taking actions with
26:34 our forces, and all it's doing is diminishing them. We're not obtaining any tactical, operational, strategic objectives, right? So, business leaders should recognize that they oftentimes need to wait for the right acquisition, rather than grabbing the first available one. They need to sometimes delay product launches until quality standards are met or until the launch can be properly supported both on the marketing and on the production side. They need to
27:10 resist reacting emotionally to competitors announcements and they need to recognize that timing frequently frequently return uh determines return on investment, right? So uh I I know for myself um the often times for example, I'll be selling an asset, piece of real estate or something and I'll get an offer and of course the person who brought the offer, who's mating offer, they're pressing very hard. Accept accept accept. And I've learned that patience
27:48 is truly a virtue. Okay. Just a small example of this just recently uh I sold a property uh of an estate and the decedent's car was still on the premises. And the person buying the house offered me $2,000 for the vehicle. Okay? Now, I didn't have the keys to it. I didn't have the registration to it. Um it wasn't a new vehicle by any stretch of the imagination. Hadn't been driven in quite some time, right? Um and you
28:23 know, $2,000 maybe wasn't a bad offer. Um and I was getting pressed by the agents in the sale to to essentially to you know, do you want to take it? Do you want to take? I said and and I reached out to a company that specializes in buying cars that are owned by estates. And lo and behold by taking an extra week to figure this out, I actually ended up getting twice as much. Now, you say, "Oh, it's only another $2,000." Well, okay. Yeah, but
28:58 it's still an extra $2,000, right? Now, this is the This is the benefit of patience, right? I was never going to have perfect information, but I was able to take a little more time, get some better information, and make a decision that that that in the end will benefit all of the heirs to the tune of, you know, a few hundred dollars each, okay? So, disciplined patience is not inactivity. It is strategic restraint. And that's
29:36 That's what we need to keep uppermost in our minds. We should not be acting just to do something. You You know, those of you watch the show, you know I talk about that. There's always this this pressure. Do something. No. No. Never be Never in business feel pressured to just do something. If you're being urged to act in that fashion, that's the best indicator that additional patience is probably required. Okay, number four. Um
30:11 opportunities often appear after others have overextended themselves. So, Napoleon won at Austerlitz because his opponents exhausted themselves first, right? So, businesses can uh can benefit from this same principle. So, we can enter a market after competitors have spent heavily educating consumers, right? If you look at the example of
30:48 Starbucks, right? Everybody thought that Starbucks was going to just decimate the coffee house business. And in fact, it did not. It expanded it for everybody. And smaller companies were able to compete with Starbucks because they were in essence able to piggyback on Starbucks educating consumers about the delight of really good coffee served in a pleasant atmosphere, right? And and and and having this sort
31:25 of what became kind of an inexpensive luxury for a lot of people, right? So, you know, that I think it's kind of an object lesson in I'm not saying that Starbucks over extended necessarily, although as it turns out I think, you know, they they they they have at different points in their history, but smaller competitors have been able to keep their businesses thriving because they were able to take advantage of the market that Starbucks was creating
32:01 presumably just for itself. Okay. Sometimes businesses can acquire distressed assets after an economic downturn. So, if if a business has held some financial resources in reserves, right? While other businesses have spent all their money trying to stay alive and now they just they can't, right? They've they've overcommitted themselves in essence. Now, a smart business that has held reserves can come in and pick up at you know, at a bargain basement price,
32:37 assets that it can then use to grow and to perhaps take over the market that that has been lost by these companies that did not act as intelligently. Uh they can also sometimes recruit the employees that competitors have had to lay off because again, they they overextended themselves and now they're having to retrench, right? That's a sort of a classic move on the part of a business who that's held something in reserves. And finally, they can invest
33:12 when valuations become more attractive, right? So, you know, I I was listening to a podcast earlier this morning and they were they were talking to uh I don't remember who the fellow's name was, but he was asking, you know, what do you think is really going to happen as a result of all of this AI stuff? You know, should we be hanging back, um waiting for a bunch of companies to fail like they did during the dot-com bust in the uh '90s, or or what? And it
33:50 was it was interesting because um he he said, you know, look, inevitably there's going to be some winners and losers. Said, the hard part is really determining now which companies are going to succeed. He said, I don't think we can do that now. And that's why we're seeing um so many companies spending, you know, putting spending so much uh capital on developing IA as a tool. So, you know, sometimes it's it it's hard to tell, you know,
34:25 is is Meta overextending? I I read a news report yesterday, uh it was sent to me by my banker that Meta is is paying uh a higher interest rate on its debt um than just sort of run-of-the-mill run-of-the-mill customers of the bank. My banker was saying, "I wish I could get this kind of interest rates on the loans that I make." So, does that mean that Meta is overextended? I don't know. It's an interesting question to ponder, right? But, the reality is that um if we have something
35:00 held in reserves, when we do discover that a business has overextended itself and is now collapsing, we may be able to make an investment at a much more favorable valuation than if we were impatient or worse, we weren't able to make it all because we were one of the overextended companies, right? So, organizations with reserves are positioned to capitalize on other opportunities uh uh on opportunities, I should say, that others cannot. And then finally, number five, build an
35:37 organization that can absorb surprises. So, uh uh this is one of the perennial lessons of of business lessons from the military. No plan survives first contact with the enemy. That is, you know, Von Moltke said that uh roughly what, 200 years ago or 150 years ago, something like that. It's as true when he today is is when he said it, right? So, in tre instead of trying to predict the future, right? Businesses should look to build
36:14 financial resilience, cross-train employees, maintain emergency operating procedures, uh preserve the decision-making capacity of senior leadership and should regularly test contingency plans through scenario planning. Right? So, the goal is not to eliminate uncertainty, which is a futile goal at best. The goal is to maintain effective operations despite uncertainty
36:51 and and maintaining that ability to to strategically respond to changes, to keep our options open. Okay. So, the reserves is one of the oldest concepts in milister in military strategy, but it remains absolutely relevant both in the military and in business. So, whether you're commanding an army in the field or you're leading a company,
37:26 the temptation is to commit all of your resources into one decisive strike. But, history suggests this is not the right thing to do. So, just like I talked about in Napoleon's victory at Austerlitz, success belongs to the leader who has in a disciplined way held something back, not out of fear, but out of confidence. And so, in business, your reserve is not an infantry core,
38:02 okay? But, it's the cash on your balance sheet, the unused production capacity, the flexibility of your workforce. All of these give you the opportunity to take advantages of shift in shifts in the marketplace and and build a build these sort of strategic flexibility that allows you to take advantage of opportunities. So, leaders who win the longest campaigns
38:39 are rarely those who exhaust themselves in the opening engagement. They're almost always the ones who persevere and preserve enough strength to dis- to seize a decisive opportunity when it finally appears. So, if you look down below you in the show notes, you'll see links to social media. I'm curious where where are you where do where do you maintain reserves or where
39:14 are you seeing as a result of listening to the show that you should be maintaining reserves? That's one question. And the second question, if you're willing to talk about it is where have you in the past mistakenly not held reserves and and what opportunity did you lose as a result of not holding those reserves? I'd be interested to hear your thoughts um and um always happy to respond to questions and comments. So, I thank you very much for joining me
39:51 today. Very quickly, schedule of shows, Mondays at 10:00 a.m. Pacific Time, Trust and Estates Weekly. Tuesdays, like today, at 10:00 a.m. Pacific Time, Business Lessons from the Military. Wednesdays at 10:00 a.m. Pacific Time, People Making Money. And every other Thursday at 5:00 p.m. Pacific Time, meet me at Jigger's Place and we'll have a cocktail and a schmooze. So, I wish you a wonderful rest of the day. Again, thank you so much for being with me today and signing off as I always do, Marie Darling. You are my bell. Courage
40:29 at all times, my friends.