Page 235 - ENTREPRENEURSHIP Innovation and entrepreneurship

53231_Innovation and Entrepreneurship.qxd 11/8/2002 10:50 AM Page 228

228 ENTREPRENEURIAL STRATEGIES

it did not go after them. In particular, it did not see fit to give them serv-
ice. In the end it was dissatisfaction with the service—or rather, with
the lack of service—Xerox provided for its smaller customers that
made them receptive to competitors’ machines.
“Creaming” is a violation of elementary managerial and econom-
ic precepts. It is always punished by loss of market.
Xerox was resting on its laurels. They were indeed substantial and
well earned, but no business ever gets paid for what it did in the past.
“Creaming” attempts to get paid for past contributions. Once a busi-
ness gets into that habit, it is likely to continue in it and thus contin-
ue to be vulnerable to entrepreneurial judo.
3. Even more debilitating is the third bad habit: the belief in “qual-
ity.” “Quality” in a product or service is not what the supplier puts in.
It is what the customer gets out and is willing to pay for. A product is
not “quality” because it is hard to make and costs a lot of money, as
manufacturers typically believe. That is incompetence. Customers
pay only for what is of use to them and gives them value. Nothing
else constitutes “quality.”
The American electronics manufacturers in the 1950s believed
that their products with all those wonderful vacuum tubes were
“quality” because they had put in thirty years of effort making
radio sets more complicated, bigger, and more expensive. They
considered the product to be “quality” because it needed a great
deal of skill to turn out, whereas a transistor radio is simple and
can be made by unskilled labor on the assembly line. But in con-
sumer terms, the transistor radio is clearly far superior “quality.”
It weighs much less so that it can be taken on a trip to the beach
or to a picnic. It rarely goes wrong; there are no tubes to replace.
It costs a great deal less. And in range and fidelity it very soon
surpassed even the most magnificent Super Heterodyne with six-
teen vacuum tubes, one of which always burned out just when
needed.
4. Closely related to both “creaming” and “quality” is the fourth
bad habit, the delusion of the “premium” price. A “premium” price is
always an invitation to the competitor.
For two hundred years, since the time of J. B. Say in France and of
David Ricardo in England in the early years of the nineteenth century,
economists have known that the only way to get a higher profit mar-
gin, except through a monopoly, is through lower costs. The attempt
to achieve a higher profit margin through a higher price is always self-