Adaptive new entry involves offering a radical new product or highly innovative service.

Entrepreneurial Strategy and Competitive Dynamics

Chapter Eight

McGraw-Hill/Irwin

Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives

After reading this chapter, you should have a good understanding of:

LO8.1 The role of new ventures and small businesses in the U.S. economy.

LO8.2 The role of opportunities, resources, and entrepreneurs in successfully pursuing new ventures.

LO8.3 Three types of entry strategies—pioneering, initiative, and adaptive—commonly used to launch a new venture.

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Learning Objectives (cont.)

LO8.4 How the generic strategies of overall cost leadership, differentiation, and focus are used by new ventures and small businesses.

LO8.5 How competitive actions, such as the entry of new competitors into a marketplace, may launch a cycle of actions and reactions among close competitors.

LO8.6 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.

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Recognizing Entrepreneurial Opportunities

Entrepreneurship

the creation of new value by an existing organization or new venture that involves the assumption of risk.

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Recognizing Entrepreneurial Opportunities

New value can be created in:

Start-up ventures

Major corporations

Family-owned businesses

Non-profit organizations

Established institutions

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Entrepreneurial Opportunities

Start-ups

Current or past work experiences

Hobbies that grow into businesses or lead to inventions

Suggestions by friends or family

Chance events

Change

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Entrepreneurial Opportunities

Established firms

Needs of existing customers

Suggestions by suppliers

Technological developments that lead to new advances

Change

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U.S. Small Companies by Industry

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Exhibit 8.1

Entrepreneurial Opportunities

Opportunity recognition

the process of discovering and evaluating changes in the business environment, such as a new technology, socio-cultural trends, or shifts in consumer demand, that can be exploited.

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Opportunity Analysis Framework

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Exhibit 8.3

QUESTION

The majority of entrepreneurial start-ups are financed with

 Bank financing

Public financing

Venture capital financing

Personal savings and the contributions of family and friends

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Answer: D. Personal savings and the contributions of family and friends

Entrepreneurial Opportunities

Discovery phase

the process of becoming aware of a new business concept.

May be spontaneous and unexpected

May occur as the result of deliberate search for new venture projects or creative solutions to business problems

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Opportunity Recognition Process

Opportunity evaluation phase

involves analyzing an opportunity to determine whether it is viable and strong enough to be developed into a full-fledged new venture.

Talk to potential target customers

Discuss it with production or logistics managers

Conduct feasibility analysis

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Characteristics of Good Opportunities

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• Attractive. The opportunity must be attractive in the marketplace; that is, there must

be market demand for the new product or service.

• Achievable. The opportunity must be practical and physically possible.

• Durable. The opportunity must be attractive long enough for the development and

deployment to be successful; that is, the window of opportunity must be open long

enough for it to be worthwhile.

• Value creating. The opportunity must be potentially profitable; that is, the benefits

must surpass the cost of development by a significant margin.

Sources of Capital for

Start-Up Firms

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Exhibit 8.5

Entrepreneurial Resources

Human capital

Social capital

Government resources

Small Business Administration

Government contracting

State and local governments

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Entrepreneurial Leadership

Launching a new venture requires a special kind of leadership

Courage

Belief in one’s convictions

Energy to work hard

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Entrepreneurial Leadership

Three characteristics

Vision

Dedication and drive

Commitment to excellence

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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

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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

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Entrepreneurial Leadership

To achieve excellence, entrepreneurs must

Know the customer

Provide quality products and services

Pay attention to details

Continuously learn

Surround themselves with good people

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Example: 10 Management Lessons

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

Communicate unwavering honesty and integrity

Stay on top of the curve

Take ownership in your clients’ success

Never stop marketing

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Source: Pierce, Sarah. “10 Management Lessons From a Young Entrepreneur,” www.entrepreneur.com. December 17, 2003.

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Entrepreneurial Strategy

Best strategy for the enterprise will be determined to some extent by

A viable opportunity, sufficient resources, and skilled and dedicated entrepreneurial team

Other conditions in the business environment

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Entry Strategies

Pioneering new entry

a firm’s entry into an industry with a radical new product or highly innovative service that changes the way business is conducted.

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Entry Strategies

Imitative new entry

a firm’s entry into an industry with products or services that capitalize on proven market successes and that usually has a strong marketing orientation.

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Entry Strategies

Adaptive new entry

a firm’s entry into an industry by offering a product or service that is somewhat new and sufficiently different to create value for customers by capitalizing on current market trends.

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Examples of Adaptive New Entrants

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Exhibit 8.6

Elements of a Blue Ocean Strategy

Create uncontested market space

Make the competition irrelevant

Create and capture new demand

Break the value/cost tradeoff

Pursue differentiation and low cost simultaneously.

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Generic Strategies

Overall cost leadership

Simple organizational structures

More quickly upgrade technology and integrate feedback from the marketplace

Make timely decisions

that affect cost

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Generic Strategies

Differentiation

Use new technology

Deploy resources in a radical new way

Focus

Niche strategies fit the small business mold

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Combination Strategies

Entrepreneurial firms are often in a strong position to offer a combination strategy

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

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Competitive Dynamics

Competitive dynamics

Intense rivalry, involving actions and responses, among similar competitors vying for the same customers in a marketplace.

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Model of Competitive Dynamics

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Exhibit 8.7

Why Do Companies Launch New Competitive Actions?

Improve market position

Capitalize on growing demand

Expand production capacity

Provide an innovative new solution

Obtain first mover advantages

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Threat Analysis

Threat analysis

A firm’s awareness of its closest competitors and the kinds of competitive actions they might be planning.

Market commonality

Resource similarity

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market commonality

the extent to

which competitors

are vying for the

same customers in

the same markets.

resource similarity

the extent to which

rivals draw from the

same types of strategic

resources.

Question

Aircraft makers Boeing and Airbus have a high degree of __________ because they make very similar products and have many buyers in common.

Dynamic capabilities

Market commonality

First mover advantages

Equity funding

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Answer: B. Market commonality

Five “Hardball” Strategies

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Types of Competitive Actions

Strategic actions

Major commitments of distinctive and specific resources to strategic initiatives.

Tactical actions

Refinements or extensions of strategies usually involving minor resource commitments.

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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)

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Choosing Not to React

Forbearance

a firm’s choice of not reacting to a rival’s new competitive action.

Co-opetition

A firm’s strategy of both cooperating and competing with rival firms.

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Answer: D. Personal savings and the contributions of family and friends

• Attractive. The opportunity must be attractive in the marketplace; that is, there must

be market demand for the new product or service.

• Achievable. The opportunity must be practical and physically possible.

• Durable. The opportunity must be attractive long enough for the development and

deployment to be successful; that is, the window of opportunity must be open long

enough for it to be worthwhile.

• Value creating. The opportunity must be potentially profitable; that is, the benefits

must surpass the cost of development by a significant margin.

Source: Pierce, Sarah. “10 Management Lessons From a Young Entrepreneur,” www.entrepreneur.com. December 17, 2003.

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market commonality

the extent to

which competitors

are vying for the

same customers in

the same markets.

resource similarity

the extent to which

rivals draw from the

same types of strategic

resources.

Answer: B. Market commonality

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