What's so terrible about having low gross margins?

Many managers of small companies think they will succeed against the “big boys” by offering lower prices to customers. The secret to low prices, however, is lowering your costs! It is not generally trying to survive on lower margins. Wal-Mart maintains extremely low gross margins on all its products; it succeeds because it squeezes out all its COGS and passes the savings on to customers. Only naïve managers think they can survive on low margins as their primary business strategy. Yes, you can have low overhead when you are working for no salary and in your basement, but that model does not scale!