Entrepreneurship, Second Edition

4.3. Formulating a Winning Strategy

Winning strategies include some combination of the following attributes: better, cheaper, and faster. Your business needs to create some value for which people are willing to pay. P'kolino, the children's playroom furniture company mentioned earlier, is pursuing customers with better design. The company expects parents and grandparents to pay more for a unique product that encourages creative play. Pete Lescoe, founder of FoodShouldTasteGood, Inc., is pursuing a better product strategy. His company makes chips with all natural ingredients baked right into the chip rather than adhering to the industry standard of spraying on flavored seasoning. We would expect to see their competitive advantages reflected in the business models of both these firms. P'kolino should achieve high gross margins because parents—and more specifically, financially well-off parents—are willing to pay a premium for well-designed children's furniture. Its margins may be offset somewhat by the distribution channels the firm uses. If, for example, it uses Pottery Barn, the prestigious and powerful retailer may appropriate more of those gross margins. While P'kolino might be able to retain stronger gross margins by selling directly to parents, it would incur higher operating costs such as marketing and fulfillment infrastructure costs. Entrepreneurs can capture the trade-offs between different approaches by examining their relative impacts on the net income margin. FoodShouldTasteGood's ...