Entrepreneurial Strategy and Competitive Dynamics Chapter 8 Role of opportunity recognition Nature of the opportunity Resources Characteristics of entrepreneur Entry strategies New (specific to start-ups) Generic Competitive dynamics

Recognizing Entrepreneurial Opportunities Entrepreneurship the creation of new value by an existing organization or new venture that involves the assumption of risk. New value can be created in: Start-up ventures Major corporations Family-owned businesses Non-profit organizations Established institutions 8-2

Terms Franchises Family Businesses Home-Based Businesses Small Businesses Entrepreneurial Businesses

Opportunity Analysis Framework 8-4

Entrepreneurial Opportunities Opportunity recognition the process of discovering and evaluating changes in the business environment, such as a new technology socio-cultural trends shifts in consumer demand that can be exploited 8-5

Entrepreneurial Opportunities Discovery phase the process of becoming aware of a new business concept. May be spontaneous and unexpected May occur as the result of deliberate search for new venture projects or creative solutions to business problems 8-6

Entrepreneurial Opportunities Start-Ups Established firms Current or past work experiences Hobbies that grow into businesses or lead to inventions Suggestions by friends/family Chance events Trade shows Newspapers College classes Change Needs of existing customers Suggestions by suppliers Technological developments that lead to new advances Change 8-7

Opportunity Recognition Process Opportunity evaluation phase involves analyzing an opportunity to determine whether it is viable and strong enough to be developed into a full-fledged new venture. Talk to potential target customers Discuss it with production or logistics managers Conduct feasibility analysis 8-8

Characteristics of Good Opportunities Attractive. - market demand for the new product or service. Achievable. - must be practical and physically possible. Durable. -must be attractive long enough for the development and deployment to be successful; that is, the window of opportunity must be open long enough for it to be worthwhile. Value creating. - must be potentially profitable; - the benefits must surpass the cost of development by a significant margin. Attractive Achievable Durable Value creating 8-9

QUESTION The majority of entrepreneurial start-ups are financed with  A. Bank financing B. Public financing C. Venture capital financing D. Personal savings and the contributions of family and friends 8-10

Financial Resources The types of financial resources that may be needed depend on two factors: the stage of venture development and the scale of the venture. To obtain funding for rapid growth, firms often seek venture capital. 8-11

Entrepreneurial Resources Human capital Social capital Government resources Small Business Administration Government contracting State and local governments 8-12

Entrepreneurial Leadership Launching a new venture requires a special kind of leadership Courage Belief in one’s convictions Energy to work hard Three characteristics Vision Dedication and drive Commitment to excellence 8-13

Entrepreneurial Leadership Vision may be entrepreneur’s most important asset Ability to envision realities that do not yet exist Exercise a kind of transformational leadership Able to share with others 8-14

Entrepreneurial Leadership Dedication and drive are reflected in hard work Patience Stamina Willingness to work long hours Internal motivation Intellectual commitment to the enterprise Strong enthusiasm for work and life 8-15

Entrepreneurial Leadership To achieve excellence, venture founders and small business owners must Understand the customer Provide quality products and services Pay attention to details Continuously learn Surround themselves with good people 8-16

Example: 10 Management Lessons It’s all about perseverance Understand the value of mentorship and teamwork Stick to your niche Stay on top of news that affects your clients Communication is key Capitalization is crucial Communicate unwavering honesty and integrity Stay on top of the curve Take ownership in your clients’ success Never stop marketing Source: Pierce, Sarah. “10 Management Lessons From a Young Entrepreneur,” www.entrepreneur.com. December 17, 2003. 8-17

Opportunity Analysis Framework 8-18

Section #2 Entrepreneurial Strategies Unique to new businesses Generic strategies

Entrepreneurial Strategy Best strategy for the enterprise will be determined to some extent by: Opportunity Resources Skilled and dedicated entrepreneurial team Other conditions in the business environment 8-20

Entry Strategies Pioneering new entry radical new product / highly innovative service changes the way business is conducted Imitative new entry Products/services that capitalize on proven market successes usually has a strong marketing orientation Adaptive new entry Product/service that is somewhat new and sufficiently different to create value for customers by capitalizing on current market trends 8-21

Examples of Adaptive New Entrants 8-22

Generic Strategies Overall cost leadership Simple organizational structures More quickly upgrade technology and integrate feedback from the marketplace Make timely decisions that affect cost Differentiation Use new technology Deploy resources in a radical new way Focus Niche strategies fit the small business mold 8-23

Combination Strategies Entrepreneurial firms are often in a strong position to offer a combination strategy Combine best features of low-cost, differentiation, and focus strategies Flexibility and quick decision-making ability of a small firm not laden with layers of bureaucracy 8-24

Section #3 Competitive Dynamics New businesses = New competition  Competitive dynamics

Competitive Dynamics Competitive dynamics Intense rivalry, involving actions and responses, among similar competitors vying for the same customers in a marketplace. 8-26

Model of Competitive Dynamics 8-27

Threat Analysis Threat analysis A firm’s awareness of its closest competitors and the kinds of competitive actions they might be planning. Market commonality The extent to which competitors are vying for the same customers in the same markets. Resource similarity The extent to which rivals draw from the same types of strategic resources. 8-28

Motivation & Capability to Respond Seriousness of attack Intent of response Blunt the attack Opportunity to enhance competitive position Firm Age & Size Innovative capabilities 8-29

Why Do Companies Launch New Competitive Actions? Improve market position Capitalize on growing demand Expand production capacity Provide an innovative new solution Obtain first mover advantages 8-30

Five “Hardball” Strategies Devastate rivals’ profit sanctuaries Plagiarize with pride Deceive the competition Unleash massive and overwhelming force Raise competitors’ costs Exhibit 8.8 8-31

Types of Competitive Actions Strategic Actions Major commitments of distinctive and specific resources Tactical Actions Refinements or extensions of strategies Guerilla offensives Defensive actions 8-32

Types of Competitive Actions Exhibit 8.9 Examples Strategic Actions Entering new markets New product introductions Changing production capacity Mergers/Alliances Make geographical expansions Expand into neglected markets Target rivals’ markets Target new demographics Imitate rivals’ products Address gaps in quality Leverage new technologies Leverage brand name with related products Protect innovation with patents Create overcapacity Tie up raw materials sources Tie up preferred suppliers and distributors Stimulate demand by limiting capacity Acquire/partner with competitors to reduce competition Tie up key suppliers through alliances Obtain new technology/intellectual property Facilitate new market entry Tactical Actions Price cutting (or increases) Product/service enhancements Increased marketing efforts New distribution channels Maintain low price dominance Offer discounts and rebates Offer incentive (e.g., frequent flyer miles) Enhance offering to move upscale Address gaps in service Expand warranties Make incremental product improvements Use guerilla marketing Conduct selective attacks Change product packaging Use new marketing channels Access suppliers directly Access customer s directly Develop multiple points of contact with customers Expand Internet presence 8-33

Types of Competitive Actions Strategic Actions Entering new markets New product introductions Changing production capacity Mergers/Alliances Tactical Actions Price cutting (or increases) Product/service enhancements Increased marketing efforts New distribution channels 8-34

Types of Competitive Actions – Strategic Actions Examples Entering new markets New product introductions Changing production capacity Mergers/Alliances Make geographical expansions Expand into neglected markets Target rivals’ markets; Target new demographics Imitate rivals’ products; Address gaps in quality Leverage new technologies Leverage brand name with related products Protect innovation with patents Create overcapacity Tie up raw materials sources Tie up preferred suppliers and distributors Stimulate demand by limiting capacity Acquire/partner with competitors to reduce competition Tie up key suppliers through alliances Obtain new technology/intellectual property Facilitate new market entry 8-35

Types of Competitive Actions – Tactical Actions Examples Price cutting (or increases) Product/service enhancements Increased marketing efforts New distribution channels Maintain low price dominance Offer discounts and rebates Address gaps in service Make incremental product improvements Change product packaging Use new marketing channels Access suppliers/customers directly Expand Internet presence 8-36

Likelihood of Competitive Reaction How a competitor is likely to respond will depend on three factors Market dependence Competitor’s resources The reputation of the firm that initiates the action (actor’s reputation) 8-37

Choosing Not to React Forbearance a firm’s choice of not reacting to a rival’s new competitive action Could be best option Co-opetition A firm’s strategy of both cooperating and competing with rival firms. Avoid collusion 8-38