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.