1. Entrepreneurial Strategy: Generating and Exploiting New Entries
Chapter 3
Entrepreneurial Strategy:
Generating and Exploiting
New Entries
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Learning Objectives
To understand that the essential act of entrepreneurship involves new entry
To be able to think about how an entrepreneurial strategy can first generate, and then exploit over time, a new entry
To understand how resources are involved in the generation of opportunities
To be able to assess the attractiveness of a new entry opportunity

3. Learning Objectives
To acknowledge that entrepreneurship involves making decisions under conditions of uncertainty
To be able to assess the extent of first-mover advantages and weigh them against first-mover disadvantages
To understand that risk is associated with newness, but there are strategies that the entrepreneur can use to reduce risk

4. New Entry Includes: Entrepreneurial strategy
New product in an established or new market
Established product in a new market
A new organization
Entrepreneurial strategy
Set of decisions, actions, and reactions that generate, and exploit, a new entry over time

5. Figure 3.1 - Entrepreneurial Strategy: The Generation and Exploitation of New Entry Opportunities

6. Generation of a New Entry Opportunity
Resources
Inputs into the production process
Source of competitive advantage
Basic building blocks to a firm’s functioning
Can be combined in different ways
Provide capacity to achieve superior performance when they are:
Valuable
Rare
Inimitable

7. Generation of a New Entry Opportunity
Creating a resource bundle that is valuable, rare, and inimitable
Entrepreneurial resource
Ability to obtain, and recombine, resources into a bundle that is valuable, rare, and inimitable
Drawn from the unique experiences and knowledge of the entrepreneurs
Market knowledge
Information, technology, know-how, and skills that provide insight into a market and its customers

8. Generation of a New Entry Opportunity
Technological knowledge
Provides insight into ways to create new knowledge
Assessing the attractiveness of a new entry opportunity depends on:
The level of information
Willingness to make a decision without perfect information

9. Generation of a New Entry Opportunity
Information on a new entry
More knowledge ensures:
Entrepreneur starts from a position of less ignorance
Less time is spent on information search
Window of opportunity: Favorable environment for entrepreneurs to exploit a new entry

10. Generation of a New Entry Opportunity
Comfort with making a decision under uncertainty
Likelihood that the window of opportunity will close leads to the dilemma of choosing between
Error of commission: Negative outcome from acting on the perceived opportunity
Error of omission: Negative outcome from not acting on the new entry opportunity

11. Figure 3.2 - The Decision to Exploit or Not to Exploit the New Entry Opportunity

12. Generation of a New Entry Opportunity
Decision to exploit or not to exploit the new entry opportunity
Assessment of a new entry’s attractiveness

13. Figure 3.3- Factors That Influence the Decision to Enter the Market Now or to Delay Entry

14. Entry Strategy for New Entry Exploitation
Environmental instability and first-mover (dis)advantages
Firm performance depends upon the fit between external environment and resources
First movers are unaware of key success factors
Emerging industries

15. Entry Strategy for New Entry Exploitation
Demand uncertainty: Difficulty in estimating:
Potential size, growth, and the key dimensions along which a market will grow
Technological uncertainty: Difficulty in assessing whether:
The technology will perform
Alternate technologies will emerge and leapfrog over current technologies
Adaptation
Persistence and determination can inhibit the ability to adapt

16. Entry Strategy for New Entry Exploitation
Customers’ uncertainty and first-mover (dis)advantages
Uncertainty for customers
Difficulty in accurately assessing whether the new product or service provides value
Overcome customer uncertainty by:
Informational advertising
Highlighting product benefits over substitutes

17. Entry Strategy for New Entry Exploitation
Creating a frame of reference for potential customers
Educating customers through demonstration and documentation
Lead time and first-mover (dis)advantages
Lead time
Grace period in which the first mover operates in the industry under conditions of limited competition

18. Entry Strategy for New Entry Exploitation
Lead time can be extended by:
Building customer loyalties
Building switching costs
Protecting product uniqueness
Securing access to important sources of supply and distribution
Switching costs: Must be borne by customers if they:
Stop purchasing from the current supplier
Begin purchasing from new supplier

19. Risk Reduction Strategies for New Entry Exploitation
Probability, and magnitude, of downside loss
Derived from uncertainties over:
Market demand
Technological development
Actions of competitors
Strategies to reduce uncertainties
Market-scope strategies
Imitation strategies

20. Market Scope Strategies
Scope: Choice about which customer groups to serve and how to serve them
Narrow-scope strategy
Offers small product range to a small number of customers to satisfy a particular need
Focuses on:
Producing customized products
Localized business operations
High level craftsmanship
High-end of the market

21. Market Scope Strategies
Broad-scope strategy
Offers range of products across different market segments
Helps gain better understanding of the whole market
Opens the firm up to many different “fronts” of competition
Reduces risks associated with market uncertainties
Increases exposure to competition

22. Imitation Strategies Copying practices of other Advantages
Help develop skills necessary to be successful in the industry
Provide organizational legitimacy
Reduce costs associated with R&D
Reduce customer uncertainty over the firm
Make the new entry look legitimate from day one

23. Imitation Strategies Types of imitation strategies Franchising
Acquiring a “proven formula” for new entry from a franchisor
“Me-too” strategy
Copying exist products and attempting to build an advantage through minor variations

24. Risk Reduction Strategies for New Entry Exploitation
Liabilities of newness
Negative implications arising from an organization’s newness
Arise from:
Costs in learning new tasks
Conflict arising from overlap or gaps in responsibilities
Informal structures of communication

25. Risk Reduction Strategies for New Entry Exploitation
Assets of newness
Positive implications arising from an organization’s newness
Learning advantage