Discuss the how the generic strategies of cost leadership, differentiation and focus may be used by new ventures and small businesses.

Question

What will be an ideal response?

Answer 1

One of the ways entrepreneurial firms achieve success is by doing more with less. By holding down costs or making more efficient use of resources than larger competitors, new ventures are often able to offer lower prices and still be profitable. Thus, under the right circumstances, a low-cost leader strategy is a viable alternative for some new ventures. The way most companies achieve low-cost leadership, however, is typically different for young or small firms. Both pioneering and adaptive entry strategies involve some degree of differentiation. That is, the new entry is based on being able to offer a differentiated value proposition. In the case of pioneers, the new venture is attempting to do something strikingly different, either by using a new technology or deploying resources in a way that radically alters the way business is conducted. Often, entrepreneurs do both. Focus strategies are often associated with small businesses because there is a natural fit between the narrow scope of the strategy and the small size of the firm. A focus strategy may include elements of differentiation and overall cost leadership, as well as combinations of these approaches. But to be successful within a market niche, the key strategic requirement is to stay focused.