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.