Unfortunately, too many entrepreneurs believe that all you need to do is to build a better mousetrap and the world will beat a path to your door. In other words, they believe if they offer a slightly improved product, they’ll gain market share. What usually happens is that if a product only offers marginal improvements, there will be no incentive for customers to switch from competing products.
Too often, entrepreneurs start up a company that competes too closely with a much larger and established rival. You may have a better mousetrap, but you’ll waste valuable resources trying to convince people that your product is superior. There can be only one leader in any given field, and if you’re not the leader, you’ll be just one of many also-rans picking up the crumbs that the leader leaves behind.
While it’s possible to knock off a leader, it’s far wiser (and less expensive) to become a leader in a new area where there is no clearly established winner. Essentially, you need only to define a new area of competition, but you define yourself as the new leader in that field at the same time.
For example, no startup has the resources to compete directly against IBM. However, back in the 80s, IBM sold mainframe computers (hardware) so Microsoft avoided competing against IBM’s strength by selling an operating system for personal computers (software). By skirting around IBM’s strength as the leader in mainframe computers, Microsoft carved its own niche.
Now that Microsoft is the undisputed leader of operating systems, no one would dare risk funding a startup that challenges Microsoft’s dominance in operating systems. However, other companies are still challenging Microsoft’s dominance in the operating system market by not trying to compete head-on.
Red Hat Software doesn’t rely on selling operating systems. Instead, the company generates its revenue by selling services for its version of the free operating system called Linux, which is popular on server computers typically used to run networks and web sites. Apple also doesn’t try to compete against Microsoft directly. Instead, Apple designs and controls its entire Macintosh computer. Although Apple makes its own operating system, Apple isn’t selling an operating system but a computer that just happens to have a different operating system.
Both Red Hat Software and Apple are dominating in their newly defined areas. Microsoft can’t compete against Red Hat Software since Red Hat gives away its operating system for free. Microsoft also can’t compete against Apple because Microsoft sells only software while Apple sells computers. With the old rules, you were expected to build a product and compete against everyone else based on the merits of your product. In today’s world, you simply cannot afford to compete directly against the products of a larger, more established rival. Instead, the key is to compete indirectly against a rival by finding your own market and establishing your leadership in that market.
http://jonbfisher.blogspot.com
http://www.amazon.com/Strategic-Entrepreneurism-Shattering-Start-Up-Entrepreneurial/dp/1590791894
Strategic Entrepreneurism
