Peter Drucker's Entrepreneurial Strategies: Fustest With the Mostest, Creative Imitation & Entrepreneurial Judo Explained

Peter F. Drucker's "Entrepreneurial Strategies" outlines three distinct approaches entrepreneurs can employ to achieve leadership and dominance in a market or industry. Drucker notes that while "strategy" in business is a relatively recent concept, entrepreneurial strategies are unique and different from general business strategies. He debunks the popular belief that "Fustest With the Mostest" is the only or even the dominant entrepreneurial strategy.

Here are the three entrepreneurial strategies discussed:

1. "Fustest With the Mostest"

This strategy involves aiming for leadership, if not dominance, in a new market or new industry from the very beginning, with the goal of achieving a permanent leadership position.

• Characteristics and Requirements:
  • Requires an ambitious aim, as it is bound to fail otherwise. It typically targets creating a new industry, a new market, or a highly unconventional process.
  • Demands extreme concentration of effort on a single goal, with all resources focused on it.
  • The innovator must be prepared to mobilise resources massively as soon as the effort begins to produce results.
  • After initial success, it requires substantial and continuing efforts to retain leadership, including ongoing innovation on a large scale, higher research budgets, finding new uses for the product, and identifying new customers.
  • A critical demand is the ability to make one's own product or process obsolete before a competitor can, by immediately starting work on the successor with the same intensity.
  • The entrepreneur who achieves leadership must systematically cut the price of the product or process to discourage potential competitors. Examples include Du Pont with Nylon, Alfred Nobel's Dynamite Cartel, Wang with word processors, Apple with computers, and 3M with its products.
• Examples:
  • Hofmann-LaRoche with vitamins in the 1920s, then sulfa drugs and tranquilizers (Librium and Valium).
  • Du Pont with Nylon.
  • Dr. An Wang with the "Word Processor".
  • Apple Computer.
  • Companies like 3M Company and Johnson & Johnson which aim for dominant, medium-sized enterprises in their markets.
  • Public-service institutions like the University of Berlin (1809), the Mayo Clinic, and the "March of Dimes" for polio research.
• Risks and Challenges:
  • It is considered the greatest gamble among entrepreneurial strategies and is unforgiving, allowing no mistakes or second chances.
  • There is only one chance; if it doesn't work right away, it leads to total failure.
  • Success stories often appear to be successes only in hindsight, with failure sometimes being very close. For instance, Du Pont's Nylon success was partly due to World War II interrupting Japanese silk exports.
  • It is prone to failure if the will is lacking, efforts are inadequate, or sufficient resources are not deployed to exploit success.
  • This strategy is too risky and difficult for anything but major innovations due to the required costs, efforts, and resource investment.
• Key Insight: Non-experts and outsiders may even have an advantage in this strategy because they are not constrained by what "everybody within the field knows" cannot be done.

2. "Creative Imitation"

This strategy is an "imitation" in its substance, where the entrepreneur does something someone else has already done, but it is "creative" because the entrepreneur understands what the innovation represents better than the original innovators. It also aims at market or industry leadership or dominance.

• Characteristics and Requirements:
  • It involves waiting until someone else has introduced the new product or service, often in a limited way.
  • The creative imitator then rapidly comes out with what the new offering "really should be" to be useful, satisfy the customer, and meet demand, thereby setting the standard and taking over the market.
  • It exploits the success of others, particularly when original innovators fail to fully understand or capitalise on their own success.
  • The creative imitator perfects and positions the product or service, addressing its initial shortcomings such as lack of additional features, proper market segmentation, or positioning.
  • It is market-focused and market-driven, starting with markets and customers rather than products and producers. For example, IBM's success with the personal computer was due to offering programs, software, and diverse distribution channels, not just technical features.
  • Requires a rapidly growing market and aims to satisfy existing demand rather than create new demand.
  • Demands alertness, flexibility, willingness to accept market verdicts, hard work, and massive efforts.
• Examples:
  • IBM abandoning its own computer design to creatively imitate the ENIAC for business applications, then repeating this with the personal computer against Apple.
  • Procter & Gamble in soap, detergent, and toiletries markets.
  • Hattori Company (Seiko watches) with quartz-powered digital watches, which became standard timepieces while Swiss competitors hesitated.
  • Johnson & Johnson with Tylenol, which was promoted as a safe, universal painkiller after another acetaminophen brand had introduced the concept of an aspirin alternative.
• Risks and Challenges:
  • It is less risky than "Fustest With the Mostest" because the market is already established and accepted.
  • There is a risk that the original innovator might do it "right the first time," thus preempting the market (e.g., Hofmann-LaRoche with vitamins, Du Pont with nylon).
  • Dangers include splintering efforts and misreading market trends.
  • A potential risk is being "too clever," as exemplified by IBM's office automation products, which despite individually leading in their areas, are diverse and incompatible, hindering a unified approach to the "Office of the Future".
• Key Insight: This strategy is highly effective in "high tech" areas because innovators in these fields are often technology- and product-focused, leading them to misunderstand their own success and fail to fully exploit the demand they create.

3. "Entrepreneurial Judo"

This strategy involves using the established company's own "bad habits" or policies against them to gain a leadership position. It is considered the least risky and most likely to succeed among strategies aiming for dominance.

• Characteristics and Requirements:
  • Exploits the tendency of established businesses and industries to persist in habits even when these lead to loss of leadership or market share.
  • It is market-focused and market-driven, beginning with an analysis of the industry, its producers, suppliers, their habits (especially bad ones), and policies, then seeking areas where an alternative strategy would meet the least resistance and greatest success.
  • Requires some degree of genuine innovation – simply offering the same product at a lower cost is often insufficient. There must be something that distinguishes the newcomer's offering. For example, ROLM added computer-designed features to its PBX systems against AT&T, and Citibank's Familienbank offered innovative services like travel cheques and tax advice to consumers in Germany.
  • Aims to secure a beachhead in a market segment that established leaders either ignore or defend half-heartedly, then expands once that foothold is secured. Newcomers design products or services specifically optimised for particular market segments.
• Five Common Bad Habits of Established Businesses Exploited by "Entrepreneurial Judo":
  1. "NIH" (Not Invented Here): The arrogance that leads a company to dismiss new inventions not conceived internally (e.g., American electronics manufacturers ignoring the transistor, enabling Sony's entry).
  2. "Creaming" a Market: Focusing only on the high-profit segments and neglecting others, particularly regarding service. This violates elementary managerial precepts and leads to market loss (e.g., Xerox focusing on large users, creating an opening for competitors in smaller segments).
  3. Belief in "Quality": Defining quality by what the supplier puts in (e.g., effort, cost, complexity) rather than what the customer values and is willing to pay for (usefulness, value, simplicity). This opened the door for simpler, more functional products like transistor radios against complex vacuum tube models.
  4. Delusion of "Premium" Price: Attempting to achieve higher profit margins through higher prices, which serves as an invitation and subsidy to competitors by holding an "umbrella" over them. Sustainable higher profit margins come from lower costs.
  5. Maximising rather than Optimising: Trying to satisfy every user with the same product or service by adding numerous features, making it complicated, expensive, and ultimately satisfying no one. This allows newcomers to offer simpler, optimised solutions for specific market segments.
• Examples:
  • Sony acquiring the transistor license from Bell Labs and dominating the portable radio market, then repeating this pattern with televisions, digital watches, handheld calculators, and copiers against Xerox.
  • MCI and Sprint using AT&T's pricing structure to capture a significant share of the long-distance business.
  • ROLM taking a large part of the private branch exchange (PBX) market from the Bell System.
  • Citibank's Familienbank dominating German consumer finance by exclusively catering to consumers who were neglected by traditional German banks.
• Situations for Success:
  1. When established leaders refuse to act on the unexpected (success or failure), overlooking or dismissing it (e.g., Sony and the transistor).
  2. When innovators of a new technology or service behave like "classical monopolists," creaming the market and charging "premium prices" instead of acting as "benevolent monopolists" who cut prices and make their own products obsolete (e.g., Xerox).
  3. When market or industry structures undergo rapid change, creating new opportunities that established players fail to address (e.g., Citibank's Familienbank capitalising on the growing purchasing power of German consumers).

In summary, Drucker presents these three distinct entrepreneurial strategies as vital tools for achieving market leadership, emphasising that each has specific requirements, risks, and ideal conditions for application, moving beyond a singular focus on being the "first."