Many companies, especially ones selling commodity products similar or identical to competitors, compete based on low price. The secret to competing this way is to have lower costs than competitors. To have lower costs than competitors, you must either have a lower cost of goods sold (i.e., a cheaper source of supplies), or lower operating expenses. As a general rule, a start-up is not going to compete with established companies with identical products and customer experience using just a low price strategy. You simply do not have the scale.

Although no business strategy is without pitfalls, relying on low price as your only strategy comes with a unique set of dangers: (a) you will likely have very small margins, so the slightest increase in costs will make you unprofitable; (b) if you are new to entrepreneurship, you likely have missed some significant expenses in your calculations; once those expenses appear on your radar, your low prices may no longer be feasible; (c) estab­lished companies struggle with cash flow all the time; even if you can remain profitable, you may not have enough cash to stay afloat; and (d) if you have in fact figured out a unique way to reduce your costs, what will happen when your competitors figure out the same way?

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