Entrepreneurial Strategies, Part 5

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.

Successful practitioners of “Fustest with the Mostest” and “Hitting Them Where They Ain’t” can become big and highly visible companies. Successful practitioners of the ecological niche take the cash and wallow in their anonymity. The whole point of the ecological niche strategy is to be so inconspicuous that no one is likely to try to compete in the same segment.

To practice an ecological niche, Drucker outlined three distinct niche strategies, each with its requirements, its limitations, and its risks:

  • The toll-gate strategy
  • The specialty skill strategy
  • The specialty market strategy

The companies which practice the specialty skills have established the products that are considered the “standard” in their industry. They may not be the household names, but they are the leader in their respective niches. These companies established their controlling position when the industry was in its infancy. But once these companies had attained their controlling position in their specialty skill niche, they retained it.

Unlike the toll-gate companies, the specialty skill company occupy a large niche, yet it is still unique. Those companies develop the highly-regarded skill at a very early time. Such specialized skills put these companies so far ahead in their field that it was hardly worth anybody’s while to try to challenge them. They had become the “standard.”

Timing is critical in establishing a specialty niche. Those companies establish the niche at the very beginning of a new industry or a new market. To attain a specialty niche always requires something new, something added, something that is genuine innovation. In the early stages of major new development, the specialty skill niche offers an exceptional opportunity.

There are several points to note about the specialty skill companies. First, companies rarely find a specialty skill niche by accident. The entrepreneur intentionally looks for the place where a specialty skill can be developed and can give a new enterprise a unique controlling position. Therefore, in the early stages of a new industry or a new market, there is the opportunity to search systematically for the specialty skill opportunity—and then there is usually time to develop a unique skill.

Second, the specialty skill niche does require a skill that is both unique and different. The business that establishes itself in a specialty skill niche is therefore unlikely to be threatened by its customers or by its suppliers. Neither of them wants to get into something that is so alien in skill and temperament.

Third, a business occupying a specialty skill niche must constantly work on improving its skill. It must stay ahead. It must make itself constantly obsolete.

While the specialty skill niche has unique advantages, it also has severe limitations. One is that it inflicts tunnel-vision on its occupants. To maintain themselves in their controlling position, they must learn to look neither right nor left, but directly ahead at their narrow area, their specialized field. The second, serious limitation is that the occupant of a specialty skill niche is usually dependent on somebody else to bring his product or service to market. It becomes a component. Finally, the greatest danger to the specialty niche manufacturer is for the specialty to cease being a specialty and to become universal.

The specialty skill niche, like all ecological niches, is limited in scope and in time. Species that occupy such a niche, biology teaches, do not easily adapt to even small changes in the external environment. And this is true, too, of the entrepreneurial skill species. But within these limitations, the specialty skill niche is a highly advantageous position. In a new industry or a new market, the specialty skill strategy offers an optimal ratio between opportunity and risk of failure.