Chapter 8

Report
Entrepreneurial
Strategy and
Competitive
Dynamics
chapter 8
Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
.
Learning Objectives
8-2
After reading this chapter, you should have a
good understanding of:
LO8.1 The role of opportunities, resources, and
entrepreneurs in successfully pursuing new ventures.
LO8.2 Three types of entry strategies – pioneering,
imitative, and adaptive – commonly used to launch a
new venture.
LO8.3 How the generic strategies of overall cost
leadership, differentiation, and focus are used by
new ventures and small businesses.
Learning Objectives
8-3
LO8.4 How competitive actions, such as the entry of
new competitors into a marketplace, may launch a
cycle of actions and reactions among close
competitors.
LO8.5 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.
Entrepreneurial Strategy
8-4
Consider…
New technologies, shifting social and
demographic trends, and sudden changes in
the business environment can create
opportunities for entrepreneurship.
However, business opportunities can
disappear as quickly as they appear.
What do new ventures and entrepreneurial
firms need to do to achieve a competitive
advantage?
Entrepreneurial Strategy
8-5
 Entrepreneurship
involves value creation
and the assumption of risk
 New value can be created in many
contexts:
 Startup
ventures
 Major corporations
 Family owned businesses
 Nonprofit organizations
 Established institutions
Entrepreneurial Strategy
8-6
 Start-up
venture ideas can come from
 Current
or past work experiences
 Hobbies or suggestions by friends or family
 For
established firms, opportunities can
come from
 Existing
customers
 Suggestions by suppliers
 Technological developments
 For
all firms, change or chance events can
uncover unmet consumer needs
Question?
8-7

Three ingredients are critical in order for an
entrepreneurial startup to be successful. What
are they?
A.
B.
C.
D.
Good ideas, a team of investors, and a business
plan.
A viable opportunity, available resources, and a
qualified and motivated founding team.
An opportunity, a marketing plan, and office
space.
Management, marketing, and money.
Entrepreneurial Strategy
8-8
Exhibit 8.1 Opportunity Analysis Framework
Source: Based on Timmons, J.A., & Spinelli, S. 2004. New Venture Creation (6th edition). New York: McGraw
Hill/Irwin; and Bygrave, W.D. 1997. The Entrepreneurial Process. In W.D. Bygrave (Ed.), The Portable MBA in
Entrepreneurship (2nd edition). New York: Wiley.
Entrepreneurial Opportunities
8-9
 Entrepreneurial
opportunities require
opportunity recognition
 Two
phases of activity
 Discovery
 Becoming
aware of a new business concept
 Evaluation
 Analyzing
the opportunity to determine whether
it is viable or feasible to develop further
Entrepreneurial Opportunities
8-10
 Discovery
phase - Becoming aware of the
new business concept
 Can
be spontaneous and unexpected
 Can
also result from a deliberate search
 Where
 What
are the new venture opportunities?
might be a creative solution to a business
problem?
Entrepreneurial Opportunities
8-11
 Evaluation
phase - Analyzing the viability
of an opportunity
 Talk
to potential target customers
 Identify
operational requirements
 Conduct
 What
 Is
a feasibility analysis
is the market potential?
the idea strong enough to create value, and
therefore profits ?
Entrepreneurial Opportunities
8-12
 Viable
opportunities have the following
qualities:
 They
are attractive
 They
are achievable
 They
are durable
 They
are value-creating
Example:
The Feasibility of Frozen Treats
8-13






Dippin’ Dots was based on an
innovative idea
In 1987, product testing showed it was
attractive to consumers
Operational facilities were developed to
maintain the low temperatures necessary
for production
By 2007, competitors such as Frosty
Bites (Mini Melts) had stolen market
share – the product idea was no longer
that innovative
By 2011, Dippin’ Dots was bankrupt
Ice cream of the future??
Entrepreneurial Resources
8-14
 Resources
are essential for
entrepreneurial success
 Financial
resources
 Human capital
 Social capital
 Government resources
Entrepreneurial Resources
8-15
 Financial
resources depend on stage of
venture development & venture scale
 Initial,
start up financing
 Personal
savings, family, and friends
 Crowdfunding
 Early
stage financing
 Bank
 Later
financing, angel investors
stage financing
 Commercial
financing
banks, venture capitalists equity
Entrepreneurial Resources
8-16
 Human
capital
 Strong,
 Social
skilled management
capital
 Extensive
social contacts & strategic alliances
 Technology,
manufacturing, or retail alliances
 Federal,
state, & local government
resources
 Government
contracting
 Loan guarantee programs
 Training, counseling, & support services
Entrepreneurial Leadership
8-17
 Entrepreneurial
leadership is needed
 Courage
 Belief
in one’s convictions
 Energy to work hard
 Leadership
characteristics
 Vision
 Dedication
and drive
 Commitment to excellence
Question?
8-18

Why is vision such an important element of
entrepreneurial leadership?
A.
B.
C.
D.
Because the entrepreneur has to envision realities
do not yet exist.
Because a vision statement must be part of the
documentation used to obtain venture financing.
Because organizations cannot function without a
detailed and operational vision.
All of the above.
Entrepreneurial Leadership
8-19
 Vision
is an entrepreneur’s most
important asset
 Requires
transformational leadership
 Ability to envision realities that do not yet
exist
 Ability to share this vision with others
Entrepreneurial Leadership
8-20
 Drive
& dedication are necessary
 Involves
internal motivation
 Intellectual commitment
 Patience
 Stamina, willingness to work long hours
 Enthusiasm that attracts others
Entrepreneurial Leadership
8-21
 Commitment
 Commit
to excellence is required
to knowing the customer
 Providing quality goods and services
 Paying attention to details
 Continuously learning
 Connecting the dots
 Hiring people smarter than themselves
Example:
Lessons from a Young Entrepreneur
8-22
Create massive value
 Trust people, but verify credentials
 Psychology is important – don’t ignore
personal needs
 Be willing to make the tough decisions
 Be a manager, not a technician
 Invest back into the company
 Integrity is everything


Get comfortable being uncomfortable
Entrepreneurial Strategy
8-23
 New
ventures require an entrepreneurial
strategy
 What
are the industry conditions?
 Five-forces
 What
is the competitive environment?
 Retaliation
 What
 Entry
analysis - barriers to entry?
by established firms?
are the market opportunities?
strategies
 Generic strategies
 Combination strategies
Entry Strategies
8-24
 New
venture entry strategies need to:
 Quickly
generate cash flow
 Build credibility
 Attract good employees
 Overcome the liability of newness
 Pioneering
new entry
 Imitative new entry
 Adaptive new entry
Entry Strategies
8-25
 Pioneering
 Creating
new entry
new ways to solve old problems
 Meeting customers’ needs in a unique new
way
 Will it be accepted by consumers?
 Will it be disruptive to the status quo of an
industry?
 Will it be sustainable?
Entry Strategies
8-26
 Imitative
new entry
 Imitators
have a strong marketing orientation
 Capitalizing on proven market successes
 Introducing the same basic product or
service in another segment of the market
 Can we do it better than an existing
competitor?
 Will someone then imitate us?
Entry Strategies
8-27
 Adaptive
new entry
 Capitalizes
on current market trends
 Offers a product or service that is somewhat
new and sufficiently different
 Creates new value for customers
 Captures market share
 Is it sufficiently unique and different?
 Can it be easily imitated?
 How can we continue to keep it fresh and
new?
Entry Strategies
8-28
Exhibit 8.3 Examples of Adaptive New Entrants
Source: Bryan, M. 2007. Spanx Me, Baby! www.observer.com, December 10, np.; Carey, J. 2006. Perspiration Inspiration. Business
Week, June 5: 64; Palanjian, A. 2008. A Planner Plumbs for a Niche. www.wsj.com, September 30, np.; Worrell, D. 2008. Making Mint.
Entrepreneur, September: 55; www.mint.com; www.spanx.com; www.underarmour.com; Buss, D. 2010. The Mothers of Invention. Wall
Street Journal, February 8: R7; Crook. J. 2012. Mint.com Tops 10 Million Registered Users, 70% Use Mobile. Techcrunch.com, August
29: np.; and www.plumorganics.com.
Generic Strategies
for New Ventures
8-29
 Overall
cost leadership
 Simpler
organizational structure
 Quicker decision-making to upgrade
technology & integrate marketplace feedback
 Differentiation
 Using
new technology
 Deploying resources in a radical new way
 Focus
 Using
niche strategies that fit the small
business mold
Question?
8-30

When an industry is mature, a _________ strategy
may be considered to be an effective approach
for a new entrant.
A.
B.
C.
D.
focus
differentiation
overall low-cost
small business
Combination Strategies
for New Ventures
8-31
 Pursuing
combination strategies
 Combine
the best features of low-cost,
differentiation, and focused strategies
 Hold down expenses by having a simple
structure
 Create high-value products & services by
being flexible & innovative
Competitive Dynamics
8-32
 New
entry threatens existing competitors
 Competitive dynamics helps explain why
strategies evolve and how to respond:
 New
competitive action
 Threat analysis
 Motivation and capability to respond
 Types of competitive action
 Likelihood of competitive reaction
Competitive Dynamics
8-33
Exhibit 8.4 Model of Competitive Dynamics
Source: Adapted from Chen, M.J. 1996. Competitor Analysis and Interfirm Rivalry: Toward a Theoretical
Integration. Academy of Management Review, 21(1): 100-134; Ketchen, D.J., Snow, C.C., & Hoover, V.L. 2004.
Research on Competitive Dynamics: Recent Accomplishments and Future Challenges. Journal of Management,
30(6): 779-804; and Smith, K.G., Ferrier, W.J., & Grimm, C.M. 2001. King of the Hill: Dethroning the Industry
Leader . Academy of Management Executive, 15(2): 59-70.
Competitive Dynamics
8-34
 Why
do companies launch new
competitive actions?
 To
improve market position
 To capitalize on growing demand
 To expand production capacity
 To provide an innovative new solution
 To obtain first mover advantages
 To strengthen financial outcomes & capture
profits
 To grow the business
Competitive Dynamics
8-35
 Competition
among incumbent rivals can
involve “hardball” strategies:
 Devastating
rivals’ profit sanctuaries
 Plagiarizing with pride
 Deceiving the competition
 Unleashing massive & overwhelming force
 Raising competitors’ costs
Competitive Dynamics
8-36
 Threat
analysis involves an assessment of
 Market
commonality
 Resource similarity
 How
serious is the threat?
 What is the intent of the competitive
response?
 What resources are needed to fend off a
competitive attack?
 Which action should I take?
Competitive Dynamics
8-37
Types of competitive actions include:

Strategic actions
 Entering
new
markets
 New product
introductions
 Changing
production
capacity
 Mergers/alliances

Tactical actions
Price cutting (or
increases)
▣ Product/service
enhancements
▣ Increased
marketing efforts
▣ New distribution
channels
▣
Competitive Dynamics
8-38
 Likelihood
of competitive reaction
 Market
dependence
 Competitor’s resources
 The reputation of the firm that initiates the
action – the actor’s reputation
 Choosing
not to respond
 Forbearance
 Co-opetition
 Working
together behind the scenes to achieve
industrywide efficiencies
Question?
8-39

Which of the following might best describe the
motivations and actions of small firms as they
respond to competitive attacks?
A.
B.
C.
D.
Because they lack legitimacy in the marketplace,
small firms need to signal their competitive
actions long before they launch those actions
Small firms typically have more resources
available as they undertake competitive attacks.
Small firms are more nimble and can respond
quickly to competitive attacks.
All of the above.
Competitive Dynamics &
Entrepreneurial Strategies
8-40
 Entrepreneurial
strategy involves new
value creation, which
 Threatens
existing competitors
 Changes the competitive dynamics of the
marketplace
 Entrepreneurial
 How
activity involves risk
should I enter a market?
 How should I compete?
 How should I deal with the competitor’s
reaction?

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