1. Entrepreneurship and New Venture Creation Rui Baptista
Masters in Engineering and Management of Technology Masters in engineering Design
Entrepreneurship and New Venture Creation
Rui Baptista

2. Market Research and Structural Analysis of Industries

3. Opportunity and Market
Potential market: a significant group of people with a need that is not being satisfied adequately
Potential for an opportunity:
There is a technology that allows us to supply an effective solution to satisfy that need
Alternatives being offered by competition are inferior or more costly
It is possible to develop, produce and place the product in the market at a cost which is lower than what consumers are willing to pay
Entrepreneurship - Rui Baptista

4. Drawing Industry Boundaries: Identifying the Relevant Market
What industry is BMW in:
World Auto industry?
European Auto industry?
World luxury car industry?
Key criteria: GEOGRAPHY and SUBSTITUTABILITY
On the demand side :
Where are the buyers located? Are they willing to substitute across countries?
Are buyers willing to substitute between types of cars?
On the supply side :
Where are the manufacturers located? Are they able to switch production across countries?
Are manufacturers able to switch production between types of cars?
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5. Entrepreneurship - Rui Baptista
The Target Market
Entrepreneurship - Rui Baptista

6. Questions Raised by Market Research
What are the main differences between customer groups/market segments
How to identify customers in each segment?
What are the costs to make the product known and place it next to the relevant market?
How much are the consumers willing to pay for the product?
What is the minimum size required for the market to be profitable?
Entrepreneurship - Rui Baptista

7. Existing market/product
Market Assessment
Existing market/product
New market/product
Market research philosophy
Statistical analysis, segmentation
Intuition
Information gathering techniques
Questionnaires, direct interviews, observation of relevant potential consumers
Industry specialists, industry tendencies,
Entrepreneurship - Rui Baptista

8. Entrepreneurship - Rui Baptista
Concepts in Strategy
Core Competencies resources and capabilities available to the firm that are indispensable to produce and commercialize its products and that are not easily replicated by competitiors
Competitive Advantage distinct competencies held by a firm that allow it to attain a favorable position in the market - commercialize better and/or cheaper products
Sustainable Competitive Advantage occurs when the distinct competencies held by a firm that allow it to attain a favorable position in the market are not easily replicated by competitiors
Entrepreneurship - Rui Baptista

9. Sources of Competitive Advantage
Competencies
Efficiency – low costs per unit produced
Innovation and product improvements
Quality/reliability
Diversification/customization, access to consumers
Process innovation
Establishment of a critical mass of consumers
Examples
Ryanair; easyJet; Ibis/Accor; Zara; Alcoa; Wal-Mart; Worten
Intel, Nokia, Motorola; Pfizer; Eli Lilly; 3M; Apple; Audi; BMW
Mercedes; IBM; JP Morgan
Hewlett Packard; Disney; General Electric; Dell; Amazon.com
Toyota; McDonald’s; Ikea
Microsoft; Adobe; SAP; Oracle; Armani; Ralph Lauren
Entrepreneurship - Rui Baptista

10. Defining the Business Model
Target market
Who are the customers? How important is our product in their total consumption expenditure?
Value for the customer
What benefits for the customer are offered exclusively by our product?
Competitive advantage and differentiation
How can we protect the distinct, key competencies and featires that make our product unique? How sustainable are those competencies?
Product development and value chain analysis
What are the activities required for the development and commercialization of our product and what is their cost? Which activities should be developed in-house and which can be outsourced?
Competencies to develop
What are the technical, market and professional abilities and experiences required to be successful?
Organizational structure
How should the activities to be carried out be organizes? How are activities and responsibilities divided?
Revenue generation and profits
How to generate revenues from commercialization? Which competencies allow the firm to charge prices above unit costs? How sustainable are those competencies
Entrepreneurship - Rui Baptista

11. Entrepreneurship - Rui Baptista
The Basic Framework of Strategy: the Link Between the Firm and Its Environment
THE FIRM
Goals &
Values
Resources &
Capabilities
Structure &
Systems
THE
INDUSTRY
ENVIRONMENT
Competitors
Customers
Suppliers
STRATEGY
STRATEGY
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12. Objectives of Industry analysis
To understand how industry structure drives competition, which determines the level of industry profitability.
To assess industry attractiveness
To use evidence on changes in industry structure to forecast future profitability
To identify opportunities to change industry structure to impose industry profitability
To identify Key Success Factors
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13. From Environmental Analysis to Industry Analysis
The natural environment
The national/ international economy
THE INDUSTRY
ENVIRONMENT
Suppliers
Competitors
Customers
Demographic structure
Technology
Government
& Politics
Social structure
Social structure
The Industry Environment lies at the core of the Macro Environment
The Macro Environment impacts the firm through its effect on the Industry
Environment
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14. Determinants of Industry Profitability (Revenues-Costs)
3 key influences:
The value of the product to customers
The intensity of competition
Relative bargaining power at different levels within the value chain
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15. The Spectrum of Industry Structures
Perfect
Competition
Oligopoly
Duopoly
Monopoly
Concentration
Many firms
A few firms
Two firms
One firm
Entry and Exit
Barriers
No barriers
Significant barriers
High barriers
Product
Differentiation
Homogeneous
Product
Potential for product differentiation
Information
Perfect
Information flow
Imperfect availability of information
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16. Porter’s 5 Competitive Forces Framework
SUPPLIERS
Bargaining power of suppliers
INDUSTRY
COMPETITORS
Threat of
substitutes
POTENTIAL
ENTRANTS
Threat of
new entrants
SUBSTITUTES
Rivalry among
existing firms
Bargaining power of buyers
BUYERS
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17. Threat of Potential Entrants
New entrants’ threat to industry profitability depends upon the height of barriers to entry. The principal sources of barriers to entry are:
Capital requirements
Economies of scale
Absolute cost advantages
Proprietary product differentiation (e.g. brand identity)
Access to channels of distribution
Government Policies: legal and regulatory barriers
Threat of retaliation
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18. Threath of Substitutes
Extent of competitive pressure from producers of substitutes depends upon:
Switching costs
Buyers’ propensity to substitute
Price-performance characteristics of substitutes
Network externalities
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19. Bargaining Power of Buyers
Buyer’s price sensitivity
Relative bargaining power
Switching Costs
Cost of purchases as % of buyer’s total costs
How differentiated is the purchased item?
How intense is competition between buyers?
How important is the item to quality of the buyers’ own output?
Size and concentration of buyers vs. sellers
Buyer volume
Buyer’s information
Ability to backward integrate
Note: analysis of supplier
power is symmetric
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20. Rivalry Between Incumbents (Established Competitors)
The extent to which industry profitability is depressed by aggressive price competition depends upon:
Industry growth – product/technology life cycle
Concentration (number and size distribution of firms)
Diversity of competitors (differences in goals, cost structure, etc.)
Product differentiation
Excess capacity and exit barriers
Cost conditions
Extent of scale economies
Ratio of fixed to variable costs
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21. Applying 5 Forces Analysis
Forecasting Industry Profitability
Past profitability is a poor indicator of future profitability
If we can create or foresee changes in industry structure we can induce changes on competition and profitability
Strategies to Improve Industry Profitability
What structural variables affect profitability?
Which of those variables can be changed by individual or collective strategies?
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22. Entrepreneurial Industry Evaluation
Entrepreneurship - Rui Baptista

23. Entrepreneurship and Dynamic Competition
Porter’s framework assumes:
industry structure drives competitive behavior
Industry structure is stable
But competition also changes industry structure
Schumpeterian Competition:
A “perennial gale of creative destruction” where innovation overthrows established market leaders
Hyper-competition:
intense and rapid competitive moves, creating disequilibrium through continuously creating new competitive advantages and destroying, neutralizing or making obsolete opponents’ competitive advantages—overlapping product/technology life-cycles
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24. Entrepreneurship - Rui Baptista
Applying the 5 Forces to Digital/E-Business Markets
The more unstable is industry structure—the less
helpful is analysis based upon industry structure
Taking account of time—willingness to endure losses
today in order to reap profit tomorrow
General structural features of digital, networked
industries:
Low Entry Barriers + Extreme Scale Economies + Network
Externalities = Winner-take-all markets = Intense competition
Entrepreneurship - Rui Baptista

25. Porter’s Framework in the Knowledge Economy
Network externalities:
the suppliers of
complements create
value for the industry
and can exercise
bargaining power
SUPPLIERS
Bargaining power of suppliers
INDUSTRY
COMPETITORS
Threat of
substitutes
POTENTIAL
ENTRANTS
Threat of
new entrants
SUBSTITUTES
Rivalry among
existing firms
Bargaining power of buyers
BUYERS
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26. Identifying Key Sucess Factors
Pre-requisites for success
Pre-requisites for success
What do customers want?
How may the firm survive competition?
Analysis of competition
What drives competition?
What are the main dimensions of competition?
How intense is competition?
How can we obtain a superior competitive position?
Analysis of demand
Who are our
customers?
What do they want?
What drives competition?
What are the main
dimensions of competition?
How intense is competition?
How can we obtain a
superior competitive position?
KEY SUCCESS FACTORS
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27. Entrepreneurial Industry Evaluation
Factors
Attractiveness
High
Low
Rivalry/Competition
Costumer Power
Supplier Power
Barriers to Entry
Substitute and Complementary Products
Entrepreneurship - Rui Baptista