Acquiring ESSENTIAL Information Entrepreneurship 4 Acquiring ESSENTIAL Information

Introduction Many entrepreneurs who found new ventures to develop products or services do not do their homework: they fail to acquire essential information before beginning. Market information Who are the potential customers? How will potential customers react to the new product of service? What can you learn about specific markets or geographic areas?

Direct Techniques Survey / customer surveys Perceptual mapping Potential customers compare your product with existing ones Target group rates different dimensions of the product on a scale from low to high Perceptual mapping A map that reveals the key dimensions along which potential customers perceive products and evaluate them Focus groups Groups of 8 to 12 people similar to potential customers meeting for 1 to 2 hours to describe their perceptions of and reactions to relevant products Identify the key dimensions along which focus group members perceive and evaluate various products

Indirect Techniques Desk research Examines secondary data including Sales of competing products Demographic data Trends (economic, lifestyle, etc.)

External Analysis Collecting and Evaluating information from the external environment Firms do not exist in a vacuum but are part of a complex world (systemic view) Management should be continually aware of the external forces which: influence demand for existing products and services create opportunities for new products and services Scanning of the external environment to evaluate PLEST factors and Industry factors (Porter’s 5 forces model) Need also to monitor their respective trends

External Analysis Analyzing the dynamics of the industry in which an organisation intends to compete to help identify: Opportunities: conditions in the environment that a company can take advantage of to become more profitable Threats: conditions in the environment that endanger the integrity and profitability of the company’s business

External Environment General / Societal Environment – PLEST Includes environmental forces that are beyond the influence of the organization and over which it has no (or little) control. General forces that do not touch directly on ST activities of the firm General forces affecting LT decisions

External Environment Task Environment (5 forces) Includes environmental forces that are within the organization’s operating environment and may be influenced to some degree. Elements directly affecting the firm ( Porter’s 5 forces) Industry within which firm intends to operate

Scanning Societal Environment Political Forces Legal forces Economic forces Socio-cultural Forces Technological Forces

Political Forces Significant impact on level of competition & on success of strategies Limiting entry in selected sectors/markets Political stability Incentives Policies Attitude towards FDI Government policy Encouraging SMEs Conducive environment Business registration Permits and licences Tax rate

Legal Forces Antitrust regulations Laws protecting the environment Tax laws (Depreciation, Tax credits, etc.) Labour laws Foreign trade regulations Product Safety Equal employment opportunities Sex discrimination Occupational Safety and Health Act

Economic Forces Obvious impact on business activity GDP trends Interest rates Inflation Unemployment Wage/Price controls Business cycle Disposable income

Socio-Cultural Forces Lifestyle changes Attitudes & Expectations Demographics Constituents (and evolution) Age distribution Growth rate Environmental Awareness Social Classes & Mobility

Technological Forces Spending on R&D (Govt, Industry) Patent/Trademark Protection New products Productivity gains through automation ICT infrastructure Breakthrough Development Rate & Degree

Industry Analysis (Porter’s 5 Forces Model)

Threat of New Entrants Substantial Resources & New capacity Desire to gain market share Threats of entry – function of entry barriers & reaction of competitors E.g. – US – new local automobile co’s are rare due to High capital reqts. to build production facilities to develop dealer distribution network

Traditional Barriers to Entry Economies of scale (Intel – production & sale of microprocessors) High Advertising & Promotion to differentiate product (P&G) Capital Reqts. (Boeing & Airbus) Switching Costs Cost Advantages Independent of Scale Incumbents may have learning advantages, location advantages, etc. Access to distribution channels Government policy

Non-Traditional Barriers to Entry Strength of management team First-mover advantage Passion of the management team and employees Unique Business Model Inventing a new approach to an industry and executing the idea in an exemplary fashion

Rivalry among Existing firms No. of competitors Rate of industry growth Product/service characteristics Amount of fixed costs  Capacity (large increment only) Height of Exit barriers

Threat of Substitutes Different appearance but satisfying same need Fax machines and FedEx Bottled water & cola Tea & Coffee Low switching costs  Strong effect on industry Subs limit potential returns of an industry by placing a ceiling on price

Bargaining Power of Buyers Can force prices down Bargain for  quality, more services Play competitors against each other Powerful if Purchase of large proportion Potential to integrate backwards Alternative suppliers Changing suppliers costs

Bargaining Power of Suppliers Ability to reduce prices / quality Powerful if: Industry dominated by few (soft drink) Unique product/service (Windows) Subs not readily available (electricity) Ability to integrate forward (Intel can make PCs) Purchasing industry not important to supplier (lawn mower tyres)