2. Entrepreneurial Strategy and Competitive Dynamics8
Entrepreneurial Strategy and Competitive Dynamics
McGraw-Hill/Irwin
Strategic Management: Text and Cases, 4e
Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

3. Learning Objectives
After reading this chapter, you should have a good understanding of:
The role of opportunities, resources, and entrepreneurs in successfully pursuing new ventures.
The role of new ventures and small businesses in the U.S. economy.
Three types of entry strategies—pioneering, initiative, and adaptive—commonly used to launch a new venture.
How the generic strategies of overall cost leadership, differentiation, and focus are used by new ventures and small businesses.

4. Learning Objectives
After reading this chapter, you should have a good understanding of:
How competitive actions, such as the entry of new competitors into a marketplace, may launch a cycle of actions and reactions among close competitors.
The components of competitive dynamics analysis—new competitive action , threat analysis, motivation and capability to respond, types of competitive actions, and likelihood of competitive reaction.

5. Recognizing Entrepreneurial Opportunities
Entrepreneurship – new value creation
New value can be created in:
Start-up ventures
Major corporations
Family-owned businesses
Non-profit organizations
Established institutions

6. Opportunity Analysis Framework
Adapted from Exhibit 8.2 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).

7. Question What is the starting point for any new business venture?
A) The resources to pursue the opportunity
B) The presence of an entrepreneurial opportunity
C) An entrepreneur or entrepreneurial team willing and able to undertake a social responsibility
D) The creation of a business concept
Answer: B

8. Entrepreneurial Opportunities
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

9. Entrepreneurial Opportunities
Opportunities come from many sources
Established firms
Needs of existing customers
Suggestions by suppliers
Technological developments that lead to new advances
Change

10. Entrepreneurial Opportunities
Discovery phase
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

11. Opportunity Recognition Process
Opportunity evaluation phase
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

12. Characteristics of Good Opportunities
Good Business Opportunity
Value creating
Attractive
Achievable
Durable
Before launching opportunity as a business
Consider the resources available to undertake it
Consider the characteristics of the entrepreneur pursuing it

13. Entrepreneurial Resources
Major challenge for entrepreneurial firm is lack of resources
Money
Human capital
Social capital

14. Entrepreneurial Resources
Financial Resources
Early-stage financing
Personal savings, family, and friends
Bank financing, public financing, venture capital
Debt
Equity

15. Financing New Ventures
Exhibit 8.4 How different types of new ventures are financed: Informal investment versus venture capital

16. Entrepreneurial Resources
Financial resources (Going Concern)
Later-stage financing
Angel investors
Venture capital
Equity financing
Commercial banks

17. Example
The challenge of financing a business venture significantly increases if you are a 20 year old entrepreneur.
The key to successfully raising capital is to open your mind and expand your choices.
Look beyond your parents or personal credit cards
A solid business plan and a good business concept will attract some business angels.
Source: Advani, Asheesh. “Can Young Entrepreneurs Get Funding?,” February 13, 2006.

18. Entrepreneurial Resources
Human capital
Social capital
Government resources
Small Business Administration
Government contracting
State and local governments

19. Entrepreneurial Leadership
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

20. Entrepreneurial Leadership
Vision may be entrepreneur’s most important asset
Ability to envision realities that do not yet exist
Exercise a kind of transformational leadership
Able to share with others

21. Entrepreneurial Leadership
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

22. Entrepreneurial Leadership
To achieve excellence, venture founders and small business owners must
Understand the customer
Provide quality products and services
Pay attention to details
Continuously learn
Surround themselves with good people

23. Example
Here are 10 management lessons from a young entrepreneur, Scott Smigler, the founder of Exclusive Concepts Inc.:
It’s all about perseverance
Understand the value of mentorship and teamwork
Stick to your niche
Stay on top of news that affects your clients
Communication is key
Capitalization is crucial
Communication unwavering honesty and integrity
Stay on top of the curve
Take ownership in your clients’ success
Never stop marketing
Source: Pierce, Sarah. “10 Management Lessons From a Young Entrepreneur,” December 17, 2003.

24. Entrepreneurial Strategy
Best strategy for the enterprise will be determined to some extent by
A viable 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

25. Entry Strategies 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

26. Entry Strategies Getting a foothold in 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

27. Generic Strategies 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

28. Combination Strategies
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

29. Question Why do companies launch new competitive actions?
There are several reasons:
Improve market position
Capitalize on growing demand
Expand production capacity
Provide an innovative new solution
Obtain first mover advantages

30. Model of Competitive Dynamics
Sources: Adapted from Chen, M-J Competitor analysis and interfirm rivalry: Toward a theoretical integration. Academy of Management Review, 21(1): ; Ketchen, D.J., Snow, C. C., Hoover, V.L Research on competitive dynamics: Recent accomplishments and future challenges. Journal of Management, 30(6): ; and Smith, K.G., Ferrier, W.J., & Grimm, C.M King of the hill: Dethroning the industry leader. Academy of Management Executive, 15(2):

31. Five “Hardball” Strategies
Devastate rivals’ profit sanctuaries
Plagiarize with pride
Deceive the competition
Unleash massive and overwhelming force
Raise competitors’ costs
Exhibit 8.7 – Five “Hardball” Strategies

32. Strategic and Tactical Competitive Actions
Entering new markets
New product introductions
Changing production capacity
Mergers/Alliances
Price cutting (or increases)
Product/service enhancements
Increased marketing efforts
New distribution channels
Strategic Actions
Tactical Actions
Exhibit 8.8 – Strategic and Tactical Competitive Actions

33. Likelihood of Competitive Reaction
How a competitor is likely to respond will depend on three factors
Market dependence
Competitor’s resources
The reputation of the firm that initiates the action (actor’s reputation)