I had an opportunity to speak with Clayton Christensen about starting companies and he had some startling things to say.  According to Christensen’s research there are essentially two ways to start a viable company:

(1) Use innovation to get out in front of the industry leaders and sell-out to them quickly before they crush you.

(2) Innovate in a way that allows you to compete with industry leaders on cost.  Start by focusing on low-margin products (e.g. rebar in the steel industry).  Build your company slowly by moving up-market as quickly as possible.

(If you’re not familiar with Christensen’s work on disruptive innovation, I refer you to his website http://www.claytonchristensen.com/ )

If you start a company selling low-margin products, you can compete against industry leaders by taking over the low-margin end of their business.  You will not face serious competition from them because they will rationally exit the market to improve their product mix as they focus on the higher margin areas of their market.  Over time, you can build your business further my moving up-market into higher and higher margin areas.

The take-away here is that there is a completely non-intuitive method of developing your beach head marketing strategy.  Consider low-margin products over high-margin products to improve your chances of success by providing your business with better protection against competitive response.