Entrepreneurial Strategies, Part 7

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 are 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.

In addition to the four entrepreneurial strategies previously discussed, Drucker believed there is another approach for introducing innovation. This strategic approach focuses on customer creation, and we can implement the “customer creation” strategy in one of the four ways:

  1. Creating Utility

This strategy asks the very fundamental question of “What do the customers need for a product/service to be truly a service to them?” By answering this question, the entrepreneur can design the product or service for changing utility, values, and economic characteristics. Price is usually almost irrelevant in the strategy of creating utility. The strategy works by enabling customers to do what serves their purpose.

  1. Pricing

The pricing strategy takes one step further than simply adding up the costs of material for producing a product or service. Drucker used Gillette’s razor as the example of customers buying a shave, rather than a piece of metal. What is being paid in the end is structured to the needs and the realities of the consumer. It is structured by what the consumer buys. And it charges for what represents “value” to the customer rather than what represents “cost” to the supplier.

  1. Adaptation to the Customer’s Reality

In Drucker’s view, there are no “irrational customers,” rather, there are only lazy businesses. The customer has to be assumed to be rational because her reality is usually quite different from that of the business. This innovative strategy acknowledges and accepts these customer’s realities by designing products and services to satisfy the needs created by those realities. Whatever customers buy has to fit their realities, or it is of no use to them.

  1. Delivering True Value to the Customer

The last innovative strategy delivers what is “value” to the customer rather than what is “product” to the business. It is one step beyond the strategy of accepting the customer’s reality. Smart businesses understand the realities and create tailored value to match those realities. While a customer may be purchasing a tangible product/service, they are buying intangible values created by the product/service. And the “true value” is what the customers should be paying for.

 

Entrepreneurial Strategies, Part 6

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.

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Drucker wrote that entrepreneurship requires two combined approaches, entrepreneurial strategies and entrepreneurial management. Entrepreneurial management are 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.

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; and
  • the specialty market strategy.

Within the “Ecological Niche” strategy, the specialty market builds around specialized knowledge of a market. The specialty skill, on the other hand, builds around a product or service. Other than that difference, both specialty strategies are similar.

The specialty market is found by looking at a new development with the question, What opportunities are there in this that would give us a unique niche, and what do we have to do to fill it ahead of everybody else?

The specialty market niche has the same requirements as the specialty skill niche: systematic analysis of a new trend, industry, or market; a specific innovative contribution; and continuous work to improve the product and service. After the specialty market organizations achieve the leadership, they often could retain it.

And it has the same limitations. The greatest threat to the specialty market position is a success. In the early days of the specialty market’s success, the market was not large enough to tempt anyone else. Furthermore, running a specialty market organization often requires a specialized organization, which had to be maintained anyhow to service their customers. Nobody else had any reason to build one. Once the specialty market becomes a mass market, it gives incentives for outside competitors to invade the market and compete with the established leader.

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.

Entrepreneurial Strategies, Part 4

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 toll-gate strategy positions a firm as a leader in a market space that is so limited as to make it unattractive for any would-be competitor. The toll-gate position is thus in many ways the most desirable position a company can occupy, but it has stringent requirements.

The product must be essential to a process. The risk of not using it must be infinitely greater than the cost of the product. The market must be so limited that whoever occupies it first preempts it. It must be a true “ecological niche” which one species fills completely, and which at the same time is small and discreet enough not to attract rivals.

Such toll-gate positions can be difficult to find. Normally they occur only in an incongruity situation. The incongruity might be an incongruity in the rhythm or the logic of a process. Or it might be an incongruity between economic realities—between the cost of malfunction and the cost of adequate protection.

The toll-gate position also has severe limitations and serious risks. It is a static position. Once a company successfully occupies an ecological niche, there is unlikely to be much growth. There is nothing the company that occupies the toll-gate position can do to increase its business or to control it. No matter how good its product or how cheap, the demand is dependent upon the demand for the process or product to which the toll-gate product furnishes an ingredient.

The toll-gate position might be impregnable—or nearly so. But it can only control within a narrow radius. Once the toll-gate strategy has attained its objective, the company is “mature.” It can only grow as fast as its end users grow. But it can go down fast. It can become obsolete almost overnight if someone finds a different way of satisfying the same end use.

The company that deploys the toll-gate strategy must never exploit its monopoly. It must not abuse its monopoly to exploit, to extort, to maltreat his customers. If it does, the users will put another supplier into business, or they will switch to less-effective substitutes which they can then control.

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.”

Entrepreneurial Strategies, Part 2

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.

Creative imitation describes a strategy where the entrepreneur does something somebody else has already done, but the entrepreneur makes the innovation better than the people who innovated originally. The strategy of “creative imitation” waits until somebody else has established the new market, but only “approximately.” It then goes to work and, within a short time, comes out with something similar that would greatly satisfy the customer. The creative imitation has then set the standard and takes over the market.

Like being “Fustest with the Mostest,” creative imitation is a strategy aimed at market or industry leadership, but it is much less risky. By the time the creative imitator moves, the market has been established. There is usually more demand for it than the original innovator can supply, so the creative imitator perfects and positions it. As such, creative imitation starts out with markets rather than with products, and with customers rather than with producers. It is both market-focused and market-driven.

Creative imitation does not exploit the failure of the pioneers as failure is commonly understood. On the contrary, the pioneer must be successful. But the original innovators failed to understand their success completely. This failure gives room for the creative innovator to exploit the success of others.

The strategy of creative imitation also requires a rapidly growing market. Creative imitators do not succeed by taking away customers from the pioneers who have first introduced a new product or service. Instead, they serve markets the pioneers have created but do not adequately service. Creative imitation satisfies a demand that already exists rather than creating one.

The strategy has its risks, and they are considerable. Creative imitators are easily tempted to splinter their efforts in the attempt to hedge their bets. Another danger is to misread the trend and imitate creatively what then turns out not to be the winning development in the marketplace.

Entrepreneurial Strategies, Part 1

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.

Being “Fustest with the Mostest” (FwtM) is about establishing a leadership position. In this strategy, the entrepreneur aims at leadership. It always aims at creating a new industry, a new market or a quite different and highly unconventional process.

Being FwtM does not necessarily aim at creating a big business right away. In fact, not every FtwM strategy needs to aim at creating a big business, but it must always aim at creating a business that dominates its market.

Perhaps because FtwM must aim at creating something truly new, something truly different, nonexperts and outsiders seem to do as well as the experts, in fact, often better.

To use this strategy effectively, it requires thought and careful analysis. In fact, for this strategy to succeed at all, the innovation must be based on a careful and deliberate attempt to exploit one of the major opportunities for innovation.

Being FtwM requires an ambitious aim; otherwise, it is bound to fail. The strategy also must hit right on target or it misses altogether. Once launched, the FtwM strategy is difficult to adjust or to correct.

After the innovation has become a successful business, the strategy of FtwM demands substantial and continuing efforts to retain a leadership position. Otherwise, we have just created a market for competitors.

The entrepreneur must work even harder now to make his product or his process obsolete before a competitor can do it. Working on the successor to the successful product or process must start immediately, with the same concentration of effort and the same investment of resources that led to the initial success.

Being FtwM is the approach that many people consider the entrepreneurial strategy par excellence. Of all entrepreneurial strategies outlined previously, it is the greatest gamble. FtwM is also unforgiving, making no allowances for mistakes, and permitting no second chance. But if an entrepreneur is successful with FtwM, the strategy is highly rewarding.

The Three Conditions of Innovation

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.

In addition to discussing the five do’s and three don’t’s, Drucker also laid out three conditions for innovation. The innovators must always keep these guiding principles in mind as they tackle their work.

The three conditions of innovation are:

  1. Innovation is work; it requires knowledge.

The work of innovation is hard work, and it often requires great ingenuity. Also, innovators have a laser-like focus and rarely work in more than one area. Drucker pointed out that innovation, at its core, is hard, focused, purposeful work making very great demands on diligence, on persistence, and on commitment. No amount of talent, ingenuity, or knowledge can make up for the lack of the diligence, persistence, and commitment.

  1. To succeed, innovators need to build on their strengths.

While successful innovators look at opportunities over a wide range, they always ask this critical question. “Which of these opportunities fits me, fits this company, puts to work what we (or I) are good at and have shown capacity for in performance?” It is important for innovators to build on her strengths because of the risks of innovation and the demanding premium on knowledge and performance capacity required.

Also, just like any other venture, innovators have a “temperamental fit” with their innovative effort. Because innovation is hard work, businesses or people rarely do not do well in something they do not like or respect. Innovative opportunity must be important to the innovators and make sense to them. Otherwise, they will not be willing to put in the persistent, hard, frustrating work that successful innovation always requires.

  1. Innovation is an effect on the economy and society.

Another word, innovations result in changes. It could be a change in people’s behavior or a process. A change in the process can affect how people work and produce something. As a result, innovation always must be close to the market, focused on the market, indeed market-driven.