1. PowerPoint Presentation by Charlie Cook The University of West Alabama Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. Part 2 Starting From Scratch or Joining an Existing Business Getting Started

2. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. Student 3–2 Looking Ahead After studying this chapter, you should be able to: 1. Identify several factors that determine whether an idea for a new venture is a good investment opportunity. 2. Give several reasons for starting a new business from scratch rather than buying a franchise or an existing business. 3. Distinguish among the different types and sources of startup ideas. 4. Describe external and internal analyses that might shape new venture opportunities. 5. Explain broad-based strategy options and focus strategies.

3. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. Student 3–3 Is It a Good Enough Idea? To represent a good investment opportunity, a product or service must meet a real market need with respect to its function, quality, durability, and price. The fundamental requirements for a good business idea relate to market factors, competitive advantage, economics, management capability, and fatal flaws.

4. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. Student 3–4 Why Entrepreneurs Are Who They Are Some entrepreneurs start businesses from scratch when they want to market a new product or service. Other entrepreneurs hope to tap into unique resources. Another reason that entrepreneurs start a new business from scratch is that they want to avoid undesirable features of existing companies. Still other entrepreneurs want the challenge of succeeding (or failing) on their own.

5. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. Student 3–5 Types and Sources of Startup Ideas Type A startup ideas are concerned with products or services that exist but are not present in all markets. Type B ideas involve new or relatively new technology. Type C ideas are based on new and improved ways of performing old functions. Sources of startup ideas include personal experience, hobbies, accidental discovery, and a deliberate search process.

6. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. Student 3–6 External and Internal Analyses Outside-in analysis considers the external environment, including the general environment and the industry environment. The major segments of the general environment are the macroeconomic, sociocultural, political/legal, technological, and global segments. The major forces that determine the level of competition within the industry environment are the threat of new competitors, the threat of substitute products or services, the intensity of rivalry among existing competitors, the bargaining power of suppliers, and the bargaining power of buyers.

7. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. Student 3–7 External and Internal Analyses (cont’d.) Opportunities arise for small businesses that are alert to changes in the general and industry environments. Inside-out analysis helps the entrepreneur to understand the internal potentials of the business. Tangible resources are visible and easy to measure; intangible resources are invisible and difficult to quantify. Capabilities represent the integration of several resources in a way that boosts the firm’s competitive advantage. Core competencies are those resources and capabilities that can be leveraged to enable a firm to do something that its rivals cannot do.

8. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. Student 3–8 External and Internal Analyses (cont’d.) A SWOT analysis provides an overview of a firm’s strengths and weaknesses, as well as opportunities for and threats to the organization.

9. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. Student 3–9 Strategy Options and Focus Strategies A competitive advantage can be created using broad- based strategy options—cost-based or differentiation- based strategies. A cost-based strategy requires the firm to become the lowest-cost producer within the market. Product differentiation is frequently used as a means of achieving superior performance. Focusing on a specific market segment is a strategy that small firms often use successfully.

10. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. Student 3–10 Strategy Options and Focus Strategies (cont’d.) A focus strategy may involve restricting focus to a single subset of customers, emphasizing a single product or service, limiting the market to a single geographical region, or concentrating on product/service superiority. The basic direction of the business is chosen when the entrepreneur makes a strategic decision and selects a particular focus strategy.

11. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. Student 3–11 Key Terms competitive analysis Type A ideas Type B ideas Type C ideas serendipity general environment industry environment resources tangible resources intangible resources capabilities core competencies SWOT analysis strategy cost-based strategy differentiation-based strategy focus strategy strategic decision