Entrepreneurial Strategy and Competitive Dynamics Chapter Eight McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

Recognizing Entrepreneurial Opportunities Entrepreneurship the creation of new value by an existing organization or new venture that involves the assumption of risk. 8-2

Recognizing Entrepreneurial Opportunities New value can be created in: Start-up ventures Major corporations Family-owned businesses Non-profit organizations Established institutions 8-3

U.S. Small Companies by Industry 8-4

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. 8-5

Opportunity Analysis Framework 8-6

QUESTION The majority of entrepreneurial start-ups are financed with  A. Bank financing B. Public financing C. Venture capital financing D. Personal savings and the contributions of family and friends Answer: D. Personal savings and the contributions of family and friends 8-7

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 8-8

Entrepreneurial Opportunities Established firms Needs of existing customers Suggestions by suppliers Technological developments that lead to new advances Change 8-9

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 8-10

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 8-11

Characteristics of Good Opportunities Attractive Achievable Durable Value creating • 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. 8-12

Financial Resources The types of financial resources that may be needed depend on two factors: the stage of venture development and the scale of the venture. To obtain funding for rapid growth, firms often seek venture capital. 8-13

Financing New Ventures 8-14

Entrepreneurial Resources Human capital Social capital Government resources Small Business Administration Government contracting State and local governments 8-15

Entrepreneurial Leadership Launching a new venture requires a special kind of leadership Courage Belief in one’s convictions Energy to work hard 8-16

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 8-17

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 8-18

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 8-19

Entrepreneurial Strategy Best strategy for the enterprise will be determined to some extent by A viable opportunity, resources, and skilled and dedicated entrepreneurial team Other conditions in the business environment 8-20

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. 8-21

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. 8-22

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. 8-23

Examples of Adaptive New Entrants 8-24

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. 8-25

Generic Strategies Overall cost leadership Simple organizational structures More quickly upgrade technology and integrate feedback from the marketplace Make timely decisions that affect cost 8-26

Generic Strategies Differentiation Focus Use new technology Deploy resources in a radical new way Focus Niche strategies fit the small business mold 8-27

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 8-28

Competitive Dynamics Competitive dynamics Intense rivalry, involving actions and responses, among similar competitors vying for the same customers in a marketplace. 8-29

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 8-30

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 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. 8-31

Question Aircraft makers Boeing and Airbus have a high degree of __________ because they make very similar products and have many buyers in common.  A. Dynamic capabilities B. Market commonality C. First mover advantages D. Equity funding Answer: B. Market commonality 8-32

Five “Hardball” Strategies Devastate rivals’ profit sanctuaries Plagiarize with pride Deceive the competition Unleash massive and overwhelming force Raise competitors’ costs 8-33

Strategic and Tactical Competitive Actions 8-34

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) 8-35

Choosing Not to React Forbearance Co-opetition 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. 8-36