CH 8 – Entrepreneurship Strategy

Entrepreneurship

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

Entrepreneurship

Now only new organizations: Start-up ventures  Major corporations  Family owned businesses  Non-profit organizations Established institutions

Opportunity Discovery

Spontaneous and Unexpected: based upon the thoughts, ideas, and innovation 

• profitability is VERY variable 

Deliberate Search: based upon research and analysis of under-served areas and how to capitalized off of that lack of  competitors 

• more predictable and taking into account of consumers = profit

Opportunity Viability

• Attractive: there is market demand

• Achievable: practically feasible to realize — operations angle 

• Durable: large enough window of opportunity — competition angle 

• Value Creating: benefits must surpass costs — financial implications/angle

The Challenges of Startups

Customers often do not know what they like. They can’t articulate their needs properly. Startups must not only find the customers’ untacked needs but help the clients discover their needs

Startups face the LIABILITY OF NEWNESS, which is higher difficulty accessing resources than established companies 

• accessing resources is difficult when you are new to the scene rather than being established 

  • those with more connections, resources, establishment, etc. hold more POWER

Top Reason for Startup Failure: OVERESTIMATION of customer value

3 Entrepreneurial Resources

Financial

Crowdfunding: The New Frontier 

Human Capital Social Capital, Government Resources

Financial

Angel Investors: private individuals who provide equity investments for seed capital during the early stages of a new venture

Venture Capitalists: companies organized to place their investors’ finds in lucrative business opportunities — provide training, decision making assistance, etc.

• Smaller venture are micro-ventures

Crowdfunding: The New Frontier 

funding a venture by pooling small investments from a larger number of investors, often raised on the internet

Human Capital

the manager could be more important than the idea for investors

Social Capital

entrepreneurs’ networks give exposure and legitimacy to ideas 

Government Resources

Small Business Administration (SBA) gives loans, training, counseling, and support for your ideas

Entrepreneurship Leadership: What it Takes to be A Great Entrepreneur?

Vision: your strongest asset. Your idea to change the world

Dedication and Drive: patience, stamina, willingness to work hard, commitment in the face of poor luck

Commitment to Excellence: commit to knowing customers, paying attention to detail and continuously learning

3 Entry Strategies

Pioneering

Imitative

Adaptive

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 

• the more likely a product can be protected by a patent, the more likely it is to implement pioneering strategy

Pioneering Pros and Cons

Advantages	Disadvantages
Meet customers’ needs in a unique way Little direct competition	Risk that product is not accepted by customers  Competitors with more resources could successfully imitate

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 — 

• imitate what someone else is doing, but themselves not doing well, and capitalize off their shortcomings  

  • ANALYZER competitors: use of business intelligence – department to “spy” and monitor competitors and other brands — leverage the information they get from others and improve it within their own company and turn success

Imitative Pros and Cons

Advantages	Disadvantages
Fill a marketplace where the need had been previously filled inadequately	Risk that imitators do not have resources or skills to better do the job

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  

• take what others are already doing, change it just enough, and promote it to the market as an innovation 

  • built upon the model and info. of other companies ; cost effective innovations

Adaptive Pros and Cons

Advantages	Disadvantages
A compromise between the previous two entries	Risk that customer do not perceive the product as unique enough Competitors’ imitation

Entrepreneurship and Generic Strategies

Differentiation

used in pioneering and adaptation entry; however, establishing the brand could be expensive

Overall Cost Leadership

firms cannot use economies of scale but could beat costs or large firms due to faster and simple decision making

Focus

effectively used by many small businesses as they can effectively focus on market niches

Combination

firms can effectively use flexibility of small size to simultaneously pursue cost leader and differentiation