CHAPTER  |  TWENTY-FIVE

Drucker's Four Approaches to Entrepreneurial Marketing

Years ago, Peter Drucker wrote a book on entrepreneurship. I was not surprised at the timing because it was 1985, and entrepreneurship was all the rage. I had even written several books on the subject myself. What did surprise me was Drucker's writing a book on that subject. I had never known him to be interested in entrepreneurship. However, there were lots of things that I hadn't learned about Peter Drucker, even after my doctoral work with him and our becoming friends afterwards.

But I shouldn't have been surprised, because Peter Drucker knew a lot about a lot of subjects. I soon found out that he had taught entrepreneurship in New York in the 1950s. His book Innovation and Entrepreneurship is fascinating, and I recommend it to anyone interested in the subject.¹ Some months later, I wrote a review of the book for a business publication.²

Peter Drucker, Entrepreneur

Drucker was himself an entrepreneur, and in many ways, in every way, he promoted entrepreneurial approaches for all business functions, entrepreneurial or not. Most well known is his suggestion that any manager ask himself “What business are you in?” This question applies to both entrepreneurial and nonentrepreneurial activities, to all specialties, and even to the most junior-level employees as well as the CEOs.

Equally applicable to all situations are Drucker's entrepreneurial ideas about success in business. He named four general approaches for success in entrepreneurship, each having its own prerequisites and its best fit for certain situations:

1. Achieving dominance
2. Supplying the missing ingredient
3. Finding and occupying an “ecological niche”
4. Changing economic characteristics

Let's take a look at each of these.

Achieving Dominance

Drucker gave this approach the rather imaginative title of “Fustest with the Mostest,” a phrase he attributed to a Confederate cavalry general during the Civil War. The general was Nathan Bedford Forrest, one of the wealthiest men in the South at the start of the war. Unfortunately, Forrest's wealth came mostly from the slave trade. He rejected a commission in the new Confederate Army and enlisted as a private. Yet he finished the war as one of the Confederacy's most successful generals. Forrest had mastered the secret of concentrating his force at a decisive position to achieve superior combat power before his adversary could do so, and thus his men dominated the battlefield. Let's translate this into business terms.

Example: Howard Schultz and Starbucks

Starbucks opened in Seattle, Washington, in 1971, with a single outlet selling one product, roasted coffee that someone else had brewed. Fifteen years later, in 1986, the company had grown to six stores. The following year, the founders sold out to former Starbucks employee Howard Schultz. Only two years afterwards, Schultz had expanded to forty-six stores; and three years after that, he went to 140 stores. By 1994, the number had doubled to 280. Schultz clearly knew how to dominate a market, and he did so.

Like any business, Starbucks has had its ups and downs since Schultz took ownership. But no one can deny his successful strategy of being “the fustest with the mostest.” Today, Starbucks is the largest coffeehouse company in the world. It has no fewer than 20,366 stores in 61 countries.³

Supplying the Missing Ingredient

Here's Drucker's colorful name for this: “Hit ’em where they ain't.” These words came from baseball Hall of Famer Wee Willie Keeler. At 5 foot 4 inches, Keeler was one of the shortest guys ever to play for a major league team. Despite his height, his .385 career batting average after the 1898 season remains the highest career average in history at season's end for a player with more than 1,000 hits. His strategy was simple: Hit the ball to parts of the field not well protected by opposing players. Wee Willie described this batting style as “Hit ’em where they ain't.”

You can use this approach in different ways. The most obvious is by fulfilling a need that a competitor is not fulfilling. However, you can also interpret the strategy as fulfilling a need that no one else in your company or organization is fulfilling. That's an effective approach to success, too, on a more personal level. So, Drucker's insights had a wider application than only the marketing function.

Finding and Occupying an “Ecological Niche”

In nature, an ecological niche is the place or function of a given organism within its ecosystem. Drucker differentiates this approach from the first two points just discussed by contrasting it: positional occupation and control versus grappling with competition or potential competition. According to Drucker, occupying an ecological niche can make a company immune from competition.

The whole point is to be inconspicuous, or to be working in some area that appears to have only limited potential. Drucker recommended three distinct ways for implementing this strategy of occupying an ecological position.

The Toll-Gate Position

Gain a toll-gate position, which means that you control an essential piece of something else that's needed, so that would-be competitors cannot do business without buying what you supply. That's the brilliance of creating a product or service that requires use of another product or service that only you supply, and offering it at low cost. King Gillette and his Blue Blades for the inexpensive razor he sold is a good example of this strategy (see also Chapter 28). He made millions, not on the razors, which he sold at a near loss, but on the blades for those razors.

The Keurig K-Cup machines are another, more recent example. These machines are designed to quickly brew a single cup of coffee or other hot beverage. Everything comes in a prepared, single-serving plastic cup, called a K-Cup. The user simply inserts a K-Cup into the machine, presses a button, and in short order the beverage is ready. If you buy the machine, the toll gate is the use of the K-Cups. In essence, you're paying something like $35 a pound for the coffee, if you compare the amount by weight. Still, people like the convenience and the perfectly measured amount for a good brew.⁴

The Specialty Skill or Specialty Market

The other two ways to occupy a specialized ecological niche is either to have a specialty skill or to work in a specialty market. Life is so focused today that it is not so difficult to acquire a specialty with which few can compete in a specific market.

At one time, a chiropractor was a chiropractor, and a doctor of internal medicine was a doctor of internal medicine. This is no longer an accurate description of either of these professions. For example, if you want a board-certified upper-cervical chiropractor, there are fewer than fifty in all of the United States. One man I know travels hundreds of miles each way several times a year to get these services, flying his own airplane. If you need specialized work, and have a small plane and pilot's license, you might do the same.

If you are familiar with Cesar Millan, the “Dog Whisperer,” on television, you are watching an individual who has combined a specialty skill with a specific market. Cesar has mastered the art of handling dogs of all breeds. He knows the individual characteristics of each breed and how to deal with each of them. At the same time, he has limited the practice of his specialty to troubled dog owners. “I train people and rehabilitate dogs” is his tagline.

Changing Economic Characteristics

Drucker's fourth approach is the only one that does not require the introduction of an innovation. Here, the strategy is the innovation, since you change certain economic characteristics of what you provide to others.

Years ago, when I studied economics at the University of Chicago, I learned that “utils” was shorthand for “utilities” or “utility,” and that utility in turn was a measurement of relative customer satisfaction. So, the idea is to change things by increasing customer satisfaction.

For example, the ice cream cone might fall into this category. Although stories abound as to who came up with the idea, the first patent was issued in 1903 to an Italian immigrant by the name of Italo Marchiony. He did not invent ice cream; however, as early as 1896 he came up with the idea of a wafer cup to hold the ice cream. This solved the problem of his customers’ breaking or walking off with the glassware that he had used previously to serve the ice cream. He also increased their “utils” by enabling customers to eat the container as well.⁵

The U.S. Post Office made it easier to ship packages by providing free boxes of various sizes for priority shipping and charging a flat rate according to box size instead of by weight. Their “utils” advantage is described in the slogan, “If it fits, it ships.” These five words dramatically increased sales by changing how their service was viewed by potential customers.

Creating “utils” is easy. All you need to do is ask yourself what would truly make things easier or better for your customers or for the other organizations in your company that you support.

Want to be successful? Try following Drucker's four approaches to entrepreneurial success. They'll work whether you are an external entrepreneur or a manager trying to perform at your peak potential.