1. Chapter 2Copyright © 2010 by Nelson Education Ltd. Start-up and the Need for Competitive Advantage 2 PowerPoint Presentation by Ian Anderson, Algonquin College

2. Chapter 2Copyright © 2010 by Nelson Education Ltd. 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. 2-2 Looking Ahead

3. Chapter 2Copyright © 2010 by Nelson Education Ltd. Looking Ahead 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 2-3

4. Chapter 2Copyright © 2010 by Nelson Education Ltd. Creating a New Business Entrepreneurs may start a new business from scratch due to several reasons: –A new product or service –Favourable conditions such as location, equipment, employees, suppliers or bankers –To capitalize on competitors’ weaknesses 2-4

5. Chapter 2Copyright © 2010 by Nelson Education Ltd. Evaluative Criteria – Market Factors 2-5 Source: Adapted from Jeffrey A. Timmons and Stephen Spinelli, New Venture Creation: Entrepreneurship for the 21st Century (Boston: McGraw-Hill Irwin, 2007), pp. 128–129. Exhibit 2-1a

6. Chapter 2Copyright © 2010 by Nelson Education Ltd. Evaluative Criteria – Competitive Advantage 2-6 Source: Adapted from Jeffrey A. Timmons and Stephen Spinelli, New Venture Creation: Entrepreneurship for the 21st Century (Boston: McGraw-Hill Irwin, 2007), pp. 128–129. Exhibit 2-1b

7. Chapter 2Copyright © 2010 by Nelson Education Ltd. Evaluative Criteria – Economics 2-7 Source: Adapted from Jeffrey A. Timmons and Stephen Spinelli, New Venture Creation: Entrepreneurship for the 21st Century (Boston: McGraw-Hill Irwin, 2007), pp. 128–129. Exhibit 2-1c

8. Chapter 2Copyright © 2010 by Nelson Education Ltd. Types of Ideas that Develop into Start-ups Exhibit 2-2 2-8

9. Chapter 2Copyright © 2010 by Nelson Education Ltd. Types of Start-up Ideas Type A –Start-up ideas centered around providing customers with an existing product not available in their market Type B –Start-up ideas, involving new ideas, involving new technology, centered around providing customers with a new product Type C –Start-up ideas centered around providing customers with an improved product 2-9

10. Chapter 2Copyright © 2010 by Nelson Education Ltd. Sources of Start-up Ideas Exhibit 2-3 2-10

11. Chapter 2Copyright © 2010 by Nelson Education Ltd. Competitive Advantage A firm offers a product or service that is perceived by customers to be superior to those of competitors, thereby promoting firm profitability To establish competitive advantage, a business owner needs to understand the nature of the environment –External – what business potentials exist –Internal – what the firm is able to do 2-11

12. Chapter 2Copyright © 2010 by Nelson Education Ltd. Assessing The Environment The Macroenvironment –A broad environment with its multiple factors that affect most businesses in a society STEP – Sociocultural, Technological, Economic Political/Legal Industry Environment –The combined forces that directly impact a given firm and its competitors 2-12

13. Chapter 2Copyright © 2010 by Nelson Education Ltd. Five Forces Model Concept by Michael Porter Bargaining Power of Buyers Threat of Substitute Products or Services Bargaining Power of Suppliers Rivalry Among Existing Products Threat of New Competitors Attractiveness and Profitability of a Target Market Fig 2.5 2-13

14. Chapter 2Copyright © 2010 by Nelson Education Ltd. Environmental and Organizational Impact on Opportunity Assessment 2 -14 Part of Exhibit 2-4

15. Chapter 2Copyright © 2010 by Nelson Education Ltd. Core Competencies and Assessing the Organization Core Competencies Value-creating organizational capabilities that are unique to a firm Resources versus Capabilities –Resources –Resources are basic inputs that a firm uses to conduct business (capital, technology, equipment, employees, etc.) intangible and tangible resources –Capabilities –Capabilities are the integration of several resources which are deployed together to the firm’s advantage. 2-15

16. Chapter 2Copyright © 2010 by Nelson Education Ltd. Venture Feasibility Assessment Model 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 2-16

17. Chapter 2Copyright © 2010 by Nelson Education Ltd. Competitive Advantage Factors Unique Service Features Notable Product Attributes Customer Service Accessibility CompetitiveAdvantage Price/Value 2-17

18. Chapter 2Copyright © 2010 by Nelson Education Ltd. Strategic Terms Strategy –An action plan that guides resource investments to capitalize on business opportunities Strategic Decision –A decision regarding the direction a firm will take in relation to its customers and competitors. 2-18

19. Chapter 2Copyright © 2010 by Nelson Education Ltd. Strategies that Capture Opportunities Broad-Based Strategy Options –Seek an advantage in cost or marketing Cost-AdvantageCost-Advantage Strategy and Options  Requires the firm to be the lowest-cost producer »WestJet began as a low-fare, no-frills airline Marketing-AdvantageMarketing-Advantage Strategy  Emphasizing the uniqueness of the firm’s product or service »WestJet is moving to differentiate based on quality service 2-19

20. Chapter 2Copyright © 2010 by Nelson Education Ltd. An established, value-creating industry position that is likely to endure over time Results include superior profitability, increased market share, and improved customer satisfaction Sustaining Competitive Advantage

21. Chapter 2Copyright © 2010 by Nelson Education Ltd. Market Segmentation and its Variables Market Segmentation –division of a market into several smaller groups with similar needs or buying behaviour Market –a group of customers or potential customers who have purchasing power and unsatisfied needs 2-21

22. Chapter 2Copyright © 2010 by Nelson Education Ltd. Ingredients of a Market Ingredient 1 Customers: People or businesses Ingredient 2 Purchasing power: Money/credit Ingredient 3 Unsatisfied needs

23. Chapter 2Copyright © 2010 by Nelson Education Ltd. Market Segmentation Variables Segmentation Variables –The parameters used to distinguish one form of market behaviour from another Geographic Variables –Defining a market by its location, size, or extent Benefit Variables –Specific characteristics that distinguish market segments according to the benefit sought Demographic Variables –Specific characteristics that describe customers and their purchasing power Psychographic Variables –Lifestyle trends such as fitness, diet, political and sexual orientation 2-23

24. Chapter 2Copyright © 2010 by Nelson Education Ltd. Types of Market Segmentation Strategies Unsegmented Strategy (Mass Marketing) –A strategy that defines the total market as the target market Multisegmented Strategy –A strategy that recognizes different preferences of individual market segments and develops a unique marketing mix for each Single-Segmentation Strategy –A strategy that recognizes the existence of several distinct segments but focuses on only the most profitable segment 2-24

25. Chapter 2Copyright © 2010 by Nelson Education Ltd. Multisegmentation Market Strategy Exhibit 2-6

26. Chapter 2Copyright © 2010 by Nelson Education Ltd. Marketing Mix 1 Product:Felt-Tip Pen Price:$0.49 Promotion:Campus Newspapers Distribution:Bookstores Small Business (Community Writing Company) Market Segment A Students Market Segment C Executives Market Segment B Professors A Single- Segmentation Market Strategy

27. Chapter 2Copyright © 2010 by Nelson Education Ltd. Implementation of Niche Marketing Strategies Restricting focus to a single subset of customers not adequately serviced by competitors. Limiting the market to a single geographical region. Emphasizing a single product or service. Concentrating on superiority of product or service. 2-27

28. Chapter 2Copyright © 2010 by Nelson Education Ltd. Niche Market Potential Niche markets can quickly erode if: –The focus strategy is imitated. Price, Product, Design, Service, Packaging, etc. –The target segment is structurally unattractive. –The target segment’s differences from other segments narrow. –New firms sub segment the industry. 2-28