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13-2 Recognizing Opportunities and Creating New Ventures McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Chapter thirteen Part 3: strategic implementation

13-3 Learning Objectives  After reading this chapter, you should have a good understanding of:  The role of new ventures and small businesses in the U.S. economy.  The importance of opportunity recognition, as well as the role of opportunities, resources, and entrepreneurs, in successfully pursuing new ventures. McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

13-4 Learning Objectives McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  After reading this chapter, you should have a good understanding of:  The role of vision, dedication, and commitment to excellence in determining the quality of entrepreneurial leadership.  The different types of financing that are available to new ventures depending on their stage of development

13-5 Learning Objectives  After reading this chapter, you should have a good understanding of :  The importance of human capital and social capital as well as government resources in supporting new ventures and small businesses.  The three types of entry strategies— pioneering, imitative, and adaptive— that are commonly used to launch a new venture. McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

13-6 Learning Objectives  After reading this chapter, you should have a good understanding of:  How the generic strategies of overall cost leadership, differentiation, and focus are used by new ventures and small businesses McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

13-7 Categories of Entrepreneurial Ventures McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Distinctions (with strategic implications) among entrepreneurial firms  Size  Age  Growth goals  Entrepreneurial firms generally favor growth  Entrepreneur may sell shares to support growth

13-8 Elephants, Mice, and Gazelles McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Elephants  Large  Older  Cannot change direction quickly  Have laid off more people than hired in the past 25 years  Can be hard chargers  Can move rapidly because of power in the marketplace  Commands respect  Can influence marketplace and business conditions Elephants

13-9 Elephants, Mice, and Gazelles McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Mice  Small firms that power the U.S. economy  Small retailers, manufacturers  Small service firms, auto repair shops, plumbers, restaurants  Don’t have much market power  Can change direction quickly in response to changes in business conditions  Many do not aspire to grow large  Maintain profitability  Some, however, aspire to grow Mice

13-10 Elephants, Mice, and Gazelles McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Gazelles  Seek rapid growth and above average profitability  May be listed in the Inc. 500 or Entrepreneur Hot 100  Grow at least 20% a year for 5 years, from a base of at least $100,000 in revenues  Doubles in size during the 4-year period  Value proposition often includes radical innovation or implementation of new technology  Seek growth rather than control  Create many jobs in the economy Gazelles

13-11 Types of Entrepreneurial Ventures McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Definition: A family business is a privately held firm in which family members have some degree of effective control over the strategic direction of the firm and intend for the business to remain within the family.  Scope: Comprise 80 to 90% of all business enterprises in North America, 30 t0 35% of the Fortune 500 companies and majority of enterprises internationally. Fifty percent of the U.S. GDP (over $3.3 trillion) is generated by family-owned businesses. Family businesses TypeCharacteristics Adapted from Exhibit 13.2 Types of Entrepreneurial Ventures

13-12 Types of Entrepreneurial Ventures McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Definition: A franchise exists when a firm that already has a successful product or service (franchisor) contracts with another business to be a dealer (franchisee) by using the franchisor’s name, trademark and business system in exchange for a fee  Scope: Accounted for $1 trillion in annual retail sales in the United States in There are about 320,000 franchise businesses, employing more than 8 million people in 75 different industries. Franchises TypeCharacteristics Adapted from Exhibit 13.2 Types of Entrepreneurial Ventures

13-13 Types of Entrepreneurial Ventures McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Definition: a home-based business, also referred to as SOHO (Small Office/Home Office), consists of a company with 20 or fewer employees, including self-employed, free agents, e-lancers, telecommuters, or other independent professionals working from a home-based setting.  Scope: Approximately 20 million businesses are home-based. The U.S. Commerce Department estimates that more than half of all small businesses are home-based. Home- based businesses TypeCharacteristics Adapted from Exhibit 13.2 Types of Entrepreneurial Ventures

13-14 Opportunity Recognition: Identifying and Developing Market Opportunities McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Opportunities come from many sources  Start-ups  Current or past work experiences  Hobbies that grow into businesses or lead to inventions  Suggestions by friends or family  Chance events  Change

13-15 Opportunity Recognition: Identifying and Developing Market Opportunities McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Opportunities come from many sources  Established firms  Needs of existing customers  Suggestions by suppliers  Technological developments that lead to new advances  Change

13-16 Opportunity Recognition Process McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Period when you first become aware of a new business concept  May be spontaneous and unexpected  May occur as the result of deliberate search for  New venture projects  Creative solutions to business problems Discovery phase

13-17 Opportunity Recognition Process McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Evaluating an opportunity (Can it be developed into a full-fledged new venture?)  Talk to potential target customers  Discuss it with production or logistics managers  Conduct feasibility analysis  Market potential  Product concept testing  Focus groups  Trial runs with end users Discovery phase Opportunity formation phase

13-18 Characteristics of Good Opportunities McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Good Business Opportunity Attractive Value creating AchievableDurable Before launching opportunity as a business  Evaluate readiness and skills of entrepreneurial founder or team  Consider availability and access to resources

13-19 Opportunity Analysis Framework McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Opportunity ResourcesEntrepreneur(s) Adapted from Exhibit 13.3 Opportunity Analysis Framework Sources: Based on J. A. Timmons and S. Spinelli, New Venture Creation, 6th ed. (Burr Ridge, IL: McGraw-Hill/Irwin, 2004); and W. D. Bygrave, “The Entrepreneurial Process,” in W. D. Bygrave, ed., The Portable MBA in Entrepreneurship, 2nd ed. (New York:Wiley, 1997).

13-20 Entrepreneurial Resources McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Major challenge for entrepreneurial firm is lack of resources  Money  Human capital  Social capital Resources

13-21 McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Entrepreneurial Resources Resources  Money (New-Venture Financing)  Early-stage financing  Personal savings, family, and friends  Bank financing, public financing, venture capital  Debt  Equity  Bootstrapping

13-22 Financing Young Firms McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Exhibit 13.4 How different types of young firms are financed: Informal investment versus venture capital

13-23 Entrepreneurial Resources McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Money (Going Concern)  Later-stage financing  Angel investors  Venture capital  Equity financing  Commercial banks Resources

13-24 Entrepreneurial Resources McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Human capital  Social capital  Government resources  Small Business Administration  Government contracting  State and local governments Resources

13-25 Entrepreneurial Leadership McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  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 Entrepreneur(s)

13-26 Entrepreneurial Leadership McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Vision may be entrepreneur’s most important asset  Ability to envision realities that do not yet exist  Able to communicate with a wide audience  Willing to make unpopular decisions  Determined to make sure your message gets through  Create and implement quality systems and methods that will survive Vision Entrepreneur(s)

13-27 Entrepreneurial Leadership McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  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 Vision Dedication and Drive Entrepreneur(s)

13-28 Entrepreneurial Leadership McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Vision Entrepreneur(s) Dedication and Drive Commitment to Excellence  To achieve excellence, venture founders and small business owners must  Understand the customer  Provide quality products and services  Manage the business knowledgeably and expertly  Pay attention to details  Continuously learn  Surround themselves with good people

13-29 Entrepreneurial Strategy McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Best strategy for the enterprise will be determined to some extent by  Unique features of the opportunity, resources, and entrepreneur(s)  Other conditions in the business environment  Can use various tools and techniques to determine strategic choices  Five Forces analysis  Value chain analysis

13-30 Entry Strategies McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  Getting a foothold in the market  Pioneering new entry  Creating new ways to solve old problems  Meeting customer’s needs in a unique new way  Imitative new entry  Strong marketing orientation  Introduce same basic product or service in another segment of the market  Adaptive new entry  Offer product or service that is “somewhat new and different”  Aware of marketplace conditions and conceive entry strategies to capitalized on current trends

13-31 Generic Strategies McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  How new ventures can achieve competitive advantages  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

13-32 Combination Strategies McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.  A key issue is the scope of a small firm’s strategic efforts relative to those of its competitors  Pursue combination strategies  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