Entry Strategies MBAX 6100 Entrepreneurship & Small Business Management Frank Moyes Leeds School of Business University of Colorado Boulder, Colorado

Entry Strategies Today’s Agenda  Entry strategies  ICEDELIGHTS case  NREL visit Feb 2 at 2:00pm

Entry Strategies Next Week  Opportunity Recognition  Read  BZ-2  M-1 & 2  K-2  Download Feasibility Plan  Tech Transfer Concepts  Visit from scientists

Entry Strategies  New Business  Develop a new product or service  Develop a similar product or service  Competitive approaches  Existing Business  Buying a business  Franchise  Joint venture – customer or supplier

Entry Strategies Develop a New Product or Service  Proprietary  First to market  Growth markets  Risks  High failure rate  Pioneer  Time to market – missionary selling  New design doesn’t work  Underestimate resources  One trick pony

Entry Strategies Develop a Similar Product or Service  Market is well defined  Customer understands the product & is already buying  Value chain is established  Risks  Can’t compete with the pros  Time to profitability  Underestimate the marketing required  Retaliatory action of competitors

Entry Strategies Competitive Approaches  Proprietary technology  Differentiation  Niche Strategy  Cost Superiority K. Allen, Launching New Ventures

Entry Strategies Proprietary Technology  Patents  Proprietary secrets  Copyright  Risks  Patent system  Expense  Time

Entry Strategies Differentiation  Distinguished by  Product/process innovation  Unique marketing or distribution  Creates brand loyalty  Substitute products less of a threat  Higher margins  Less price sensitive  Focus is not on the cost  Risks  Execution K. Allen, Launching New Ventures

Entry Strategies Niche Strategy  Select a segment of the market  Focus is on customer, product design, price, service, packaging, geography, distribution  Compete without going head-to-head with the major companies  Gives you time to develop & become stronger  Risks  Not sustainable over long term  If successful, will attract competitors K. Allen, Launching New Ventures

Entry Strategies Cost Superiority  Lean & mean  Tight cost controls  New production process/technologies  Quantity targets  Risks  Don’t have economies of scale  Don’t have infrastructure  Emerging industry – everyone has same disadvantage  Low overheads K. Allen, Launching New Ventures

Entry Strategies Buying a Business - Advantages?  Lower risk  Easier to assess  Track record  First two years are the riskiest  Invest fewer dollars  If can get seller to finance purchase  Favorable lending terms  Trade off with a higher purchase price  Acquire assets more cheaply  Expertise of employees  Training provided by the seller  Reduces time to get into a business  Must do the due-diligence  Risk  Price is too high  Pig in a poke

Entry Strategies Good Reasons for Selling?  Retirement  Other interests  Illness or death  Internal disputes  Business too complex  Inadequate capital  Exit strategy FASTTRAC, Planning and Growing a Business Venture

Entry Strategies Bad Reasons for Selling?  Deteriorating market  Product obsolescence  Loss of key people  Lease problems  Legal problems  Poor location  Competition  Problems with key suppliers  Dependency on key customer  Do you want to own a turn- around? FASTTRAC, Planning and Growing a Business Venture

Entry Strategies Where to Look  Network  Banks, accountants, attorneys  Newspapers  Industry trade magazines  Business brokers  Chambers of Commerce  SBA and development agencies  Bankruptcy listings FASTTRAC, Planning and Growing a Business Venture

Entry Strategies Franchising  “Arrangement in which an owner of a trademark, trade name, or copyright has licensed others to use it in selling goods or services.”   26% of small companies started   3,000 franchise chains   500,000 outlets Kuratko, Entrepreneurship

Entry Strategies Franchising Advantages?  Training and Guidance  Brand Name Appeal  Proven Track Record  Financial Assistance Kuratko, Entrepreneurship

Entry Strategies Franchise Agreement  Initial  Continuing  Territorial rights Spinelli, Portable MBA in Entrepreneurship, Bygrave & Zacharakis

Entry Strategies Franchising Fees  Celluland (cellular telephones)  Fee $25,000  Royalty 5%  Store Costs $80,000 to $250,000  Papyrus (greeting cards)  Fee $29,500  Royalty 6%  Store Costs $70,000 to $150,000 Kuratko, Entrepreneurship

Entry Strategies Franchising Fees  Valvoline (auto oil change)  Fee $35,000  Royalty 6%  Store Costs $55,000 to $100,000  Pizza Franchise $325,000  Starbucks? Noodles? Kuratko, Entrepreneurship

Entry Strategies Franchising Disadvantages  Franchise Fees  Dependent on Franchisor for product, services, training  Control exercised by the Franchisor  Advertising not free  Time consuming reports

Entry Strategies Franchising Risks  Concept may not be proven – franchisor is a start-up  Franchisor reputation and resources  Trade name with no drawing power  No assistance  Unfilled promises  Economics don’t work – can’t get the volume  Overlapping territories - Subway  You must get customers

Entry Strategies

Franchise Conclusions  Different kind of risk  Need to do due-diligence  Must write a business plan

Entry Strategies Entry Strategies Conclusions  Lots of ways  Must be proactive  Sentry strategy

Entry Strategies Alternative Entry Strategies  Sentry strategy  Observation of a need  Spin-offs  Company outsourcing  Customer in hand  Desperation – no job, no money  Hobbies  Home based business  Non-profit