In his classic book, Innovation and Entrepreneurship, the late Peter Drucker gives us the four basic forms of entering new markets. Twenty two years since its publication, this simple yet powerful way of thinking about new ventures is still the best way to understand the strategic options for market entry.
"Fustest with the Mostest"
In today's entrepreneurial world, this is the domain of many venture capital deals. The strategy is one of entering a a market with an aggressive plan and deep pockets. The goal is to get in fast, catching as much market share as possible, before other possible competitors have a chance to react. Your goal is to dominate and control the market. Drucker's perspective on this type of entrepreneurial strategy is that it is high risk, high reward. Given the small number of high potential deals that even get any venture capital funding, and the even smaller percentage that succeed in meeting investors' expectations, Drucker's theory still holds for this category.
"Hit 'em where they Ain't"
This strategy is a bit more cautious. The basic approach here is to watch and learn from the mistakes and lessons of the early entries into the market. Don't go in first, but when you do go in give the market what it really wants. The theory is that we often miss the mark when we first go into a market. There is a steep and expensive learning curve. Drucker says that this strategy is based on the notion that you should let other entrepreneurial ventures bear the cost of that learning curve, and to enter when you can have lower start-up costs and less risk. A variation of this strategy is to take a concept that has been developed and tested by someone else in another market into a new market where it has not been introduced.
The Niche
The most common entry strategy for entrepreneurs is the market niche. In a niche strategy, the entrepreneur finds a small part of a market that is not being served or is significantly under-served. A niche strategy gives the entrepreneur a safer market with less competition and a more dependent market.
Generally, a niche strategy is a good way to enter the market for a new business. It usually takes fewer resources for the start-up, due to lower marketing costs and the ability to start on a smaller scale. Success rates tend to be higher for niche businesses since they have less direct competition. Without much competition, niche businesses can charge higher prices, which allows for quicker positive cash flow during start-up and better margins once profitable.
Changing Values & Characteristics
In this final strategy, the entrepreneur takes an existing product or service and changes its value or some of its core features. This is not a simple tweaking around the edges -- it creates fundamental change. It can include both additions to, but sometimes deletions of features. My favorite example, although dated, was the shift from full-service gasoline filling stations to self-service gas stations. The realization was that what people really wanted was a full tank of gas. All the other stuff, cleaning the windows, checking the oil, etc., were taken away from the "product". People soon viewed the simpler alternative as having better value.
When thinking of a new business, make sure to keep Drucker's strategies in mind when formulating your own market entry strategy.
