Small companies should seek niches in which they can justify premium prices for their products or services, except in special circumstances. According to Jones, any new business needs to deliver to its customers a Goodness Factor of three or better, meaning three times the customer benefits at the same price or provide the same benefits at one-third the price of the existing competition. The reason to change has to be irrefutable. For the startup entrepreneur, this Goodness Factor is often achieved by the quality of personal service. A proprietary technology that delivers measurable customer benefits is another common source of competitive advantage, yielding an attractive Goodness Factor .
Many entrepreneurs underestimate the importance of proper pricing.
Many assert that due to their lower cost and overhead structure, they can compete against larger companies with lower prices. This is often the first step to ultimate disaster. What larger companies take on in terms of overhead, they may more than make up through economies of scale, purchasing discounts, operational experience, and financial resources. A small company has a much smaller margin for error than a big company. A small company operating on thin margins may not be able to survive a poorly performing advertisement or poorly selling inventory, for example.