PowerPoint Presentations for Small Business Management: Launching and Growing New Ventures, Fifth Canadian Edition Adapted by Cheryl Dowell Algonquin College

Chapter 2 Start-up and the Need for Competitive Advantage

LOOKING AHEAD After studying this chapter, you should be able to: 1.Give several reasons for starting a new business rather than buying an existing firm or acquiring a franchise. 2.Identify several factors that determine whether an idea for a new venture is a good investment opportunity. 3.Distinguish between the different types and sources of start-up ideas. 4.Define competitive advantage and assess features of the environment and organization itself that support competitive advantage. Copyright © 2013 by Nelson Education Limited 2-3 continued…

LOOKING AHEAD After studying this chapter, you should be able to: 5.Evaluate the feasibility of a business. 6.Identify and compare strategy options for building and sustaining competitive advantage. 7.Define market segmentation and its related strategies. 8.Explain the concept of niche marketing and its importance to small business. Copyright © 2013 by Nelson Education Limited 2-4

THE START-UP: CREATING A NEW BUSINESS Copyright © 2013 by Nelson Education Limited Starting from “scratch” WHY? – based on a recently invented or developed product/service – take advantage of an ideal location, equipment, product/service, employees, suppliers, and bankers – avoid undesirable precedents, policies, procedures, and – legal commitments of existing firms 2-5 LO 1

THE START-UP: NEXT STEP IS TO ASK Copyright © 2013 by Nelson Education Limited 2-6 What are the different types of start-up ideas you might consider? What are some sources for additional new business ideas? How can you identify a genuine opportunity that promises attractive financial rewards? How should you refine your business idea? What could you do to increase your chances that the start-up business will be successful? What competitive advantage could your business have over its rivals? LO 1

IDENTIFYING START-UP IDEAS Copyright © 2013 by Nelson Education Limited meet a clearly defined market need timing must be right Market factors a product or service that customers perceive to be superior to those of its competitors Competitive advantage profitable growth potential Economics a good fit between the entrepreneur and the opportunity appropriate skills and experience to operate the venture Management capability no fatal flaw in the venture Fatal flaws 2-7 LO 2

TYPES OF START-UP IDEAS Copyright © 2013 by Nelson Education Limited Type A – providing customers with an existing product not available in their market Type B – involving new ideas, involving new technology, centered around providing customers with a new product Type C – providing customers with an improved product 2-8 LO 3

TYPES OF IDEAS THAT DEVELOP INTO START-UPS Copyright © 2013 by Nelson Education Limited 2-9 LO 3

SOURCES OF START-UP IDEAS Copyright © 2013 by Nelson Education Limited 2-10 LO 3

USING INTERNAL AND EXTERNAL ANALYSIS TO EVALUATE AN OPPORTUNITY SocioculturalTechnologicalEconomic Political / Legal BuyerSupplierSubstitutes Existing Competition New competition Copyright © 2013 by Nelson Education Limited 2-11 LO 3

CORE COMPETENCIES AND ASSESSING THE ORGANIZATION Copyright © 2013 by Nelson Education Limited Core Competencies – Value-creating organizational capabilities that are unique to a firm Resources versus Capabilities – Resources are basic inputs that a firm uses to conduct business (capital, technology, equipment, employees, etc.) intangible and tangible resources – Capabilities are the integration of several resources which are deployed together to the firm’s advantage 2-12 LO 4

VENTURE FEASIBILITY SCREENING MODEL Copyright © 2013 by Nelson Education Limited Stage 1: Back-of-the-Envelope concept – Potential customers, technology available, match to entrepreneur, financial feasibility – Decision: go or no go Stage 2: Research and Verification – Detailed analysis of customers, competition, HR required, technical and financial feasibility – Decision: go or no go Stage 3: Refine the Concept – Detailed business plan – Decision: go or no go The Leap of Faith 2-13 LO 5

COMPETITIVE ADVANTAGE FACTORS Competitive Advantage Unique Service Features Notable Product Attributes Customer Service Accessibility Price / Value Copyright © 2013 by Nelson Education Limited 2-14 LO 5

SELECTING STRATEGIES TO GAIN COMPETITIVE ADVANTAGE Cost Advantage WestJet Airlines Ltd ING Direct Marketing Advantage Arctic Glacier STRATEGY Copyright © 2013 by Nelson Education Limited 2-15 LO 6

SUSTAINABLE COMPETITIVE ADVANTAGE LIFE CYCLE Copyright © 2013 by Nelson Education Limited Launch Exploitation Erosion Sustainable Competitive Advantage 2-16 LO 6

Copyright © 2013 by Nelson Education Limited Market Segmentation MARKET SEGMENTATION AND ITS VARIABLES 2-17 LO 7

MULTISEGMENT MARKET STRATEGY Copyright © 2013 by Nelson Education Limited 2-18 LO 7

NICHE MARKETING STRATEGIES Copyright © 2013 by Nelson Education Limited 2-19 Restricting focus to a single market segment Limiting sales to a single geographical region Emphasizing a single product or service Concentrating on the superiority of the product LO 8

NICHE MARKETING EROSION 1.Focus strategy is imitated 2.Target segment becomes structurally unattractive because of erosion of the structure or because demand simply disappears 3.Target segment’s differences from other segments narrow 4.New firms subsegment the industry Copyright © 2013 by Nelson Education Limited 2-20 LO 8