Entrepreneurial Strategies, Part 3

In his book, Innovation and Entrepreneurship, Peter Drucker presented how innovation and entrepreneurship can be a purposeful and systematic discipline. That discipline is still as relevant to today’s business environment as when the book was published back in 1985. The book explains the challenges faced by many organizations and analyzes the opportunities which can be leveraged for success.

Drucker wrote that entrepreneurship requires two combined approaches, entrepreneurial strategies and entrepreneurial management. Entrepreneurial management is practices and policies that live internally within the enterprise. Entrepreneurial strategies, on the other hand, are practices and policies required for working with the external element, the marketplace.

Drucker further believed that there are four important and distinct entrepreneurial strategies we should be aware of. These are:

  1. Being “Fustest with the Mostest”
  2. “Hitting Them Where They Ain’t”
  3. Finding and occupying a specialized “ecological niche”
  4. Changing the economic characteristics of a product, a market, or an industry.

These four strategies need not be mutually exclusive. A successful entrepreneur often combines two, sometimes even three elements, in one strategy.

“Hitting Them Where They Ain’t” manifests in one of the two ways: creative imitation and entrepreneurial judo.

Amongst the entrepreneurial strategies, Drucker believed that entrepreneurial judo is the least risky and the most likely to succeed.

Entrepreneurial judo aims first at securing a beachhead by designing a product or a service which is specific to a given market segment and optimal for it. Once the newcomers have an adequate market and revenue stream, they can move on to the rest of the “beach” and finally to the whole “island.” The newcomers take advantage of the situation where the established leaders ignore them or beat them to this game before the newcomers have taken over the leadership and acquired dominance.

There are three situations in which the entrepreneurial judo strategy is likely to be successful.

  • The common situation is in which the established leaders refuse to act or overlook it altogether.
  • The second situation is where a new technology emerges and grows fast. But the innovators who have brought the innovation to the market do not know or refuse to behave as a “benevolent monopolist.” A benevolent monopolist cuts his prices before a competitor can cut them. And he makes his product obsolete and introduces a new product before a competitor can do so. But if the leader uses his leadership position to raise prices or to raise profit margins except by lowering his cost, he sets himself up to be knocked down by anyone who uses entrepreneurial judo against him.
  • Finally, entrepreneurial judo works as a strategy when market or industry structure changes fast. Entrepreneurial judo is always market-focused and market-driven.

To use the entrepreneurial judo strategy, we start out with an analysis of the industry, the producers and the suppliers, their habits, especially their bad habits, and their policies. Next, we look at the markets and try to pinpoint the place where an alternative strategy would meet with the greatest success and the least resistance.

Entrepreneurial judo requires some degree of genuine innovation. It is not good enough to offer the same product or the same service at a lower cost. There must be something that distinguishes it from what already exists.

Like being “Fustest with the Mostest” and creative imitation, entrepreneurial judo aims at obtaining a leadership position and eventually dominance. But it does not compete with the leaders head-on — or at least not where the leaders are aware of competitive challenge or worried about it. Another word, entrepreneurial judo “Hits Them Where They Ain’t.”