Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Entrepreneurial Strategy and Competitive Dynamics chapter 8

Entrepreneurial Strategy  Entrepreneurship involves value creation and the assumption of risk  New value can be created in many contexts: Startup ventures Major corporations Family owned businesses Nonprofit organizations Established institutions 8-2

Entrepreneurial Strategy 8-3 Exhibit 8.1 Opportunity Analysis Framework Source: Based on Timmons, J.A., & Spinelli, S New Venture Creation (6th edition). New York: McGraw Hill/Irwin; and Bygrave, W.D The Entrepreneurial Process. In W.D. Bygrave (Ed.), The Portable MBA in Entrepreneurship (2nd edition). New York: Wiley.

Entrepreneurial Opportunities  Entrepreneurial opportunities require opportunity recognition  Two phases of activity Discovery Becoming aware of a new business concept Evaluation Analyzing the opportunity to determine whether it is viable or feasible to develop further 8-4

Entrepreneurial Resources  Financial resources depend on stage of venture development & venture scale Initial, start up financing Personal savings, family, and friends Crowdfunding Early stage financing Bank financing, angel investors Later stage financing Commercial banks, venture capitalists equity financing 8-5

Entrepreneurial Resources  Human capital Strong, skilled management  Social capital Extensive social contacts & strategic alliances Technology, manufacturing, or retail alliances  Federal, state, & local government resources Government contracting Loan guarantee programs Training, counseling, & support services 8-6

Entrepreneurial Leadership  Entrepreneurial leadership is needed Courage Belief in one’s convictions Energy to work hard  Leadership characteristics Vision Dedication and drive Commitment to excellence 8-7

Entrepreneurial Strategy  New ventures require an entrepreneurial strategy What are the industry conditions? Five-forces analysis - barriers to entry? What is the competitive environment? Retaliation by established firms? What are the market opportunities?  Entry strategies  Generic strategies  Combination strategies 8-8

Entry Strategies  New venture entry strategies need to: Quickly generate cash flow Build credibility Attract good employees Overcome the liability of newness  Pioneering new entry  Imitative new entry  Adaptive new entry 8-9

Generic Strategies for New Ventures  Overall cost leadership Simpler organizational structure Quicker decision-making to upgrade technology & integrate marketplace feedback  Differentiation Using new technology Deploying resources in a radical new way  Focus Using niche strategies that fit the small business mold 8-10

Combination Strategies for New Ventures  Pursuing combination strategies Combine the best features of low-cost, differentiation, and focused strategies Hold down expenses by having a simple structure Create high-value products & services by being flexible & innovative 8-11

Competitive Dynamics  New entry threatens existing competitors  Competitive dynamics helps explain why strategies evolve and how to respond: New competitive action Threat analysis Motivation and capability to respond Types of competitive action Likelihood of competitive reaction 8-12

Competitive Dynamics  Threat analysis involves an assessment of Market commonality Resource similarity  How serious is the threat?  What is the intent of the competitive response?  What resources are needed to fend off a competitive attack?  Which action should I take? 8-13

Competitive Dynamics  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 8-14 Types of competitive actions include:

Competitive Dynamics  Likelihood of competitive reaction Market dependence Competitor’s resources The reputation of the firm that initiates the action – the actor’s reputation  Choosing not to respond Forbearance Co-opetition Working together behind the scenes to achieve industrywide efficiencies 8-15