Initial Postings: Read and reflect on the assigned readings for the week. Then post what you thought was the most important concept(s), method(s), term(s), and/or any other thing that you felt was worthy of your understanding in each assigned textbook chapter.
Your initial post should be based upon the assigned reading for the week, so the textbook should be a source listed in your reference section and cited within the body of the text. Other sources are not required but feel free to use them if they aid in your discussion.
Also, provide a graduate-level response to each of the following questions:
[Your post must be substantive and demonstrate insight gained from the course material. Postings must be in the student's own words – do not provide quotes!] [Your initial post should be at least 450+ words and in APA format (including Times New Roman with font size 12 and double spaced).
Entrepreneurial Strategy and Competitive Dynamics
Copyright Anatoli Styf/Shutterstock
After reading this chapter, you should have a good understanding of:
8-1 The role of opportunities, resources, and entrepreneurs in successfully pursuing new ventures.
8-2 Three types of entry strategies – pioneering, imitative, and adaptive – commonly used to launch a new venture.
8-3 How the generic strategies of overall cost leadership, differentiation, and focus are used by new ventures and small businesses.
8-4 How competitive actions, such as the entry of new competitors into a marketplace, may launch a cycle of actions and reactions among close competitors.
8-5 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.
Need for Entrepreneurial Strategy
Consider . . .
New technologies, shifting social and demographic trends, as well as 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 and sustain a competitive advantage?
New ventures often face unique strategic challenges if they’re going to survive and grow. Whether the firm is an entrepreneurial startup, a small business, or an existing business entering a market or industry for the first time, it must rely on sound strategic principles to be successful. Entrepreneurial activity influences a firm’s strategic priorities and intensifies the rivalry among an industry’s close competitors. Even with a strong initial resource base, entrepreneurs are unlikely to succeed if their business ideas are easily imitated or the execution of the strategy falls short. Not only is it important for a firm to recognize an entrepreneurial opportunity, a firm must understand the competitive dynamics that are at work in the business environment in order to succeed with a growth opportunity. It’s important to have an effective competitive strategy. Note that here we focus on entrepreneurial strategy – the actions firms take to create new ventures in markets – but there’s also a related issue – how established firms can build or reinforce an entrepreneurial mindset as they strive to be innovative in markets in which they already compete. This will be covered in Chapter 12.
Recognizing Entrepreneurial Opportunities
Entrepreneurship involves value creation and the assumption of risk.
New value can be created in many contexts.
Ideas and opportunities can come from many sources.
Change or chance can uncover unmet customer needs.
Entrepreneurship = the creation of new value by an existing organization or new venture that involves the assumption of risk. Even though entrepreneurial activity is usually associated with startup companies, new value can be created in many different contexts. Startup 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 (1 of 4)
Three ingredients are critical in order for an entrepreneurial startup to be successful. What are they?
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
Answer: B. See the discussion that follows.
Entrepreneurial Opportunity Analysis
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.
For an entrepreneurial venture to create new value, three factors must be present – an entrepreneurial opportunity, the resources to pursue the opportunity, and an entrepreneur or entrepreneurial team willing and able to undertake the opportunity. The entrepreneurial strategy that an organization uses will depend on these three factors. Thus, beyond merely identifying a venture concept, the opportunity recognition process also involves organizing the key people and resources that are needed to go forward.
Entrepreneurial Opportunity Recognition
Entrepreneurial opportunities require opportunity recognition.
Two phases of activity:
Becoming aware of a new business concept
Analyzing the opportunity to determine whether it is viable or feasible to develop further
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. Changes in the external environment can lead to new business creation, but the discovery of these new ideas is not enough. They then need to be evaluated to find out if they’re strong enough to become new ventures. Entrepreneurs must go through a process of identifying, selecting, and developing potential opportunities.
Entrepreneurial Opportunities: Discovery
Discovery phase – Becoming aware of the new business concept. Ask: Where are the new venture opportunities? What might be a creative solution to a business problem?
Can be spontaneous and unexpected
Can also result from a deliberate search
Are there frustrations with current products or processes?
Do stakeholders have unmet needs?
What do other markets or industries do?
Can we revive old ideas?
The discovery phase refers to the process of becoming aware of a new business concept. Many entrepreneurs report that their idea for a new venture came through some unexpected insight, often based on their prior knowledge, that gave them an idea for a new business. The discovery of new opportunities is often spontaneous and unexpected. Opportunity discovery may also occur as the result of a deliberate search for new venture opportunities or creative solutions to business problems. Viable opportunities often emerge only after a concerted effort. To stimulate the discovery of new opportunities, companies often encourage creativity, out-of-the-box thinking, and brainstorming. A more structured search for entrepreneurial ideas can come from looking at what’s bugging you – what frustrations do you have with current products or processes? Or from talking to suppliers, customers or front line workers to see how needs aren’t being met, or borrowing ideas from other markets or industries, or being inspired by history and reviving good ideas that have slipped out of practice, but might be valued in the market again.
Entrepreneurial Opportunities: Evaluation
Evaluation phase – Analyzing the viability of an opportunity
Talk to potential target customers.
Identify operational requirements.
Conduct a feasibility analysis.
What is the market potential?
Is the idea strong enough to create value, and therefore, profits ?
Viable opportunities have the following qualities:
They are attractive.
They are achievable.
They are durable.
They are value-creating.
The evaluation phase occurs after an opportunity has been identified, and involves analyzing this opportunity to determine whether it is viable and strong enough to be developed into a full-fledged new venture. Ideas developed by new product groups or in brainstorming sessions are tested by various methods, including talking to potential target customers and discussing operational requirements with production or logistics managers. Feasibility analysis is used to evaluate these and other critical success factors. This type of analysis often leads to the decision that a new venture project should be discontinued. Only if the venture concept continues to seem viable would a more formal business plan be developed. Among the most important factors to evaluate is the market potential for the product or service. New ventures must first determine whether a market exists for the product or service they are contemplating. For an opportunity to be viable, it needs to have four qualities. The opportunity must be attractive in the marketplace; that is, there must be market demand for the new product or service. The opportunity must also be achievable: it must be practical and physically possible. The opportunity must be durable or 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. And finally the opportunity must be value-creating and potentially profitable; that is, the benefits must surpass the cost of development by a significant margin. If a new business concept meets these criteria, two other factors must be considered before the opportunity is launched as a business: the resources available to undertake it, and the characteristics of the entrepreneur pursuing it.
Resources are essential for entrepreneurial success.
Resources are an essential component of a successful entrepreneurial launch. For startups, the most important resource is usually money because a new firm typically has to expend substantial sums just to start the business. However, financial resources are not the only kind of resource a new venture needs. Human capital and social capital are also important. Many firms also rely on government resources to help them thrive.
Entrepreneurial Financial Resources
Financial resources depend on the stage of venture development & venture scale.
Initial, startup financing
Personal savings, family, and friends
Bank financing, angel investors
Commercial banks, venture capitalists equity financing
Entrepreneurial firms must have financing. In fact, the level of available financing is often a strong determinant of how the business is launched and its eventual success. Cash finances are, of course, highly important, but access to capital, such as a line of credit or favorable payment terms with the supplier, can also help a new venture succeed. The types of financial resources that may be needed depend on two factors: the stage of venture development and the scale of the venture. The majority of new firms are low-budget startups launched with personal savings and the contributions of family and friends, and can also appeal to the public through a crowdfunding website such as Kickstarter. (See Case: Kickstarter) Crowdfunding = funding a venture by pooling small investments from a large number of investors, often raised on the internet. Angel investors = private individuals who provide equity investments for seed capital during the early stages of a new venture. These outside investors favor companies that already have a winning business model and dominance in a market niche. Once a venture has established itself as a going concern, other sources of financing become readily available, such as commercial loans taken out by the business. Venture capitalists = companies organized to place their investors’ funds in lucrative business opportunities. Through venture capitalists, entrepreneurs can raise money by selling shares in the new venture. Businesses with extensive development costs or firms on the brink of rapid growth are likely to turn to venture capitalists.
Entrepreneurial Human, Social & Governmental Resources
Strong, skilled management
Extensive social contacts & strategic alliances
Technology, manufacturing, or retail alliances
Federal, state, & local government resources
Loan guarantee programs
Training, counseling, & support services
Bankers, venture capitalists, and angel investors agree that the most important asset an entrepreneurial firm can have is strong and skilled management. Managers need to have a strong base of experience and extensive domain knowledge, as well as an ability to make rapid decisions and change direction as shifting circumstances may require. Startups with multiple partners are more likely to succeed. New ventures founded by entrepreneurs who have extensive social contacts are also more likely to succeed. In addition, strategic alliances can provide a key avenue for growth. By partnering with other companies, through technology, manufacturing, or retail licensing agreements, young or small firms can expand or give the appearance of entering numerous markets or handling a range of operations. In the United States, the federal, state, and local government provides support for entrepreneurial firms in two key areas – financing and government contracting. Through government contracting, small businesses have the opportunity to bid on contracts to provide goods and services to the government. Regarding financing, the small business administration (SBA) has several loan guarantee programs designed to support the growth and development of entrepreneurial firms. The government itself does not typically lend money but underwrites loans made by banks to small businesses, thus reducing the risk associated with lending to firms with unproven records. Local offices offer training, counseling, and support services.
Entrepreneurial leadership needs:
Belief in one’s convictions
Energy to work hard
Leadership personality traits:
Higher self-confidence, conscientiousness, openness to new experiences, emotional stability
Dedication and drive
Commitment to excellence
Launching a new venture requires a special kind of leadership. Entrepreneurial leadership = leadership appropriate for new ventures that requires courage, belief in one’s convictions, and the energy to work hard even in difficult circumstances, and that embodies vision, dedication and drive, and commitment to excellence. Entrepreneurs tend to have the following personality traits that distinguish them from corporate managers: higher self-confidence; a higher degree of organization, persistence and hard work in pursuit of goal attainment; more intellectual curiosity; a higher ability to handle ambiguity, less likely to be overcome by anxieties; and lower agreeableness, typically looking out for their own self-interest, willing to influence or manipulate others for their own advantage. However, ventures built on the charisma of a single person may have trouble growing “from good to great” once that person leaves. Thus, the leadership that is needed to build a great organization is usually exercised by a team of dedicated people rather than a single leader. The leadership team must attract members who fit with the company’s culture, goals, and work ethic. For a venture’s leadership to be a valuable resource and not a liability it must be cohesive in its vision, drive and dedication, and commitment to excellence.
Question (2 of 4)
Why is vision such an important element of entrepreneurial leadership?
The entrepreneur has to envision realities that do not yet exist.
A vision statement must be part of the documentation used to obtain venture financing.
Organizations cannot function without a detailed and operational vision.
All of the above.
Answer: A. See the discussion that follows.
Entrepreneurial Leadership: Vision, Drive & Dedication
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
Drive & dedication are necessary.
Involves internal motivation
Calls for intellectual commitment
Stamina, willingness to work long hours
Enthusiasm that attracts others
Vision may be an entrepreneur’s most important asset. Entrepreneurs envision realities that do not yet exist. With vision, entrepreneurs are able to exercise a kind of transformational leadership that creates something new and, in some way, changes the world. In order to develop support, get financial backing, and attract employees, entrepreneurial leaders must share their vision with others. Drive and dedication are reflected in hard work. Drive involves internal motivation; dedication calls for intellectual commitment that keeps an entrepreneur going even in the face of bad news or poor luck. They both require patience, stamina, and a willingness to work long hours. The dedicated entrepreneur’s enthusiasm is also important – it attracts others to the business to help with the work.
Entrepreneurial Leadership: Commitment to Excellence
Commitment to excellence is required.
Commit to knowing the customer.
Provide quality goods and services.
Pay attention to details.
Connect the dots.
Hire people smarter than themselves.
Excellence requires entrepreneurs to commit to knowing the customer, providing quality goods and services, paying attention to details, and continuously learning. Entrepreneurs who achieve excellence are sensitive to how these factors work together. The most successful entrepreneurs often report that they owed their success to hiring people smarter than themselves.
New ventures require an entrepreneurial strategy.
What are the industry conditions?
What are the barriers to entry? (Five-forces analysis)
What is the competitive environment?
Might there be retaliation by established firms?
What are the market opportunities?
How should the firm actually enter a new market?
Firms must choose how to compete,
Once an opportunity has been recognized, and an entrepreneurial team and resources have been assembled, a new venture must craft a strategy. Entrepreneurial strategy = strategy that enables the skilled and dedicated entrepreneur, with a viable opportunity and access to sufficient resources, to successfully launch a new venture. To be successful, new ventures must evaluate industry conditions, the competitive environment, and market opportunities in order to position themselves strategically. However, a traditional strategic analysis may have to be altered somewhat to fit the entrepreneurial situation. For instance, a five-forces analysis can be applied to the analysis of new ventures to assess the impact of industry and competitive forces. First, the new entry needs to examine barriers to entry. A second important factor is the threat of retaliation by market incumbents. Part of any decision about what opportunity to pursue is a consideration of how a new entry will actually enter a new market, and, once it’s there, how it will compete. Given the condition of the overall market, what entry strategies, generic strategies or possible combination strategies are most appropriate?
New venture entry strategies need to:
Quickly generate cash flow
Attract good employees
Overcome the liability of newness
Pioneering new entry
Imitative new entry
Adaptive new entry
One of the most challenging aspects of launching a new venture is finding a way to begin doing business that quickly generates cash flow, builds credibility, attracts employees, and overcomes the liability of newness. The entry strategy will vary depending on how risky and innovative the new business concept is. New entry strategies typically fall into one of three categories – pioneering new entry, imitative new entry, or adaptive new entry. 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. 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. 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.
Entry Strategies: Pioneering
Pioneering new entry:
Create new ways to solve old problems.
Meet 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 the advantage be sustainable against imitators?
New entrants with a radical new product or highly innovative service may change the way business is conducted in an industry. This kind of breakthrough – creating new ways to solve old problems or meeting customers’ needs in a unique new way – is referred to as a pioneering new entry. If the product or service is unique enough, a pioneering new entrant might actually have little direct competition. However, there is a strong risk that the product or service will not be accepted by consumers. A pioneering new entry is also potentially disruptive to the status quo of an industry. If it is successful, other competitors will rush into copy it. This can create issues of sustainability for entrepreneurial firms. For a new entrant to sustain its pioneering advantage, it may be necessary to protect its intellectual property, advertise heavily to build brand recognition, form alliances with businesses that will adopt its products or services, and offer exceptional customer service.
Entry Strategies: Imitative
Imitative new entry:
Imitators have a strong marketing orientation.
Capitalize on proven market successes.
Introduce 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?
Imitators usually have a strong marketing orientation. They look for opportunities to capitalize on proven market successes. An imitative new entry strategy is used by entrepreneurs who see products or business concepts that have been successful in one market niche or physical locale and introduce the same basic product or service in another segment of the market. See Strategy Spotlight 8.3 for how Casper Sleep has shaken up the mattress market. Sometimes the key to success with an imitative strategy is to fill a market space where the need had previously been filled inadequately. Entrepreneurs are also prompted to be imitators when they realize that they have the resources or skills to do a job better than an existing competitor. But success triggers imitation. See the example of Square.
Entry Strategies: Adaptive
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.
Does it do a superior job of meeting customer needs?
Can it be easily imitated?
How can we continue to keep it fresh and new?
Most new entrants use a strategy somewhere between pure imitation and pure pioneering. That is, they offer a product or service that is somewhat new and sufficiently different to create new value for customers and capture market share. Such firms are adaptive in the sense that they are aware of marketplace conditions and conceive entry strategies to capitalize on current trends. An adaptive new entry involves taking an existing idea and adapting it to a particular situation. However, unless potential customers believe the product or service does a superior job of meeting their needs, they will have little motivation to try it. Second, there is nothing to prevent a close competitor from mimicking the new firm’s adaptation as a way to hold onto its customers. Third, once an adaptive entrant achieves initial success, the challenge is to keep the idea fresh. If the attractive features of the new business are copied, the entrepreneurial firm must find ways to adapt and improve the product or service offering. An adaptive new entry approach does not involve “reinventing the wheel,” nor is it merely imitative either. It involves taking an existing idea and adapting it to a particular situation. Exhibit 8.3 presents examples of four young companies that successfully modified or adapted existing products to create new value.
Generic Strategies for New Ventures
Overall cost leadership – advantage due to:
Simpler organizational structure & smaller size
Quicker decision making to upgrade technology & integrate marketplace feedback controls costs
Differentiation – can compete by:
Offering a unique value proposition through innovation & superior use of new technology
Deploying resources in a radical new way
Focus – means ability to:
Use niche strategies that fit the small business model
A new entrant must decide what type of strategic positioning will work best as the business goes forward. Typically, a new entrant begins with a single business model that is equivalent in scope to a business-level strategy. One of the ways entrepreneurial firms achieve success is by doing more with less. By holding down costs or making more efficient use of resources than larger competitors, new ventures are often able to offer lower prices and still be profitable. Thus, under the right circumstances, a low-cost leader strategy is a viable alternative for new ventures. Compared to large firms, new ventures often have simple organizational structures that make decision making both easier and faster. The smaller size also helps young firms change more quickly when upgrades in technology or feedback from the marketplace indicates that improvements are needed. They are also able to make decisions at the time they are founded that help them deal with the issue of controlling costs. Both pioneering and adaptive entry strategies involve some degree of differentiation. That is, the new entry is based on being able to offer a differentiated value proposition. However, differentiation successes are sometimes built on superior innovation or use of technology, which is challenging for young firms to implement relative to established competitors. Focus strategies work for small businesses because there is a natural fit between the narrow scope of the strategy and the small size of the firm. If a startup wants to succeed, it has to take business away from an existing competitor. Young firms can often succeed best by finding a market niche where they can get a foothold and make small advances that erode the position of the existing competitors. From this position, they can build a name for themselves and grow.
Question (3 of 4)
When an industry is mature, a _________ strategy may be considered to be an effective approach for a new entrant.
Answer: A. If a startup wants to succeed, it has to take business away from an existing competitor. Young firms can often succeed best by finding a market niche where they can get a foothold and make small advances that erode the position of the existing competitors. From this position, they can build a name for themselves and grow.
Combination Strategies for New Ventures
Pursuing combination strategies can combine the best features of low-cost, differentiation, and focused strategies.
Holding down expenses by having a simple structure
Creating high-value products & services by being flexible & innovative
Offering highly specialized products or superior customer service to a niche market
One of the best ways for young and small businesses to achieve success is by pursuing combination strategies. By combining the best features of low-cost, differentiation, and focus strategies, new ventures can often achieve something truly distinctive. Entrepreneurial firms are often in a strong position to offer a combination strategy because they have the flexibility to approach situations uniquely. They can often enact combination strategies in ways that the large firms cannot copy. For example, holding down expenses can be difficult for big firms because each layer of bureaucracy adds to the cost of doing business across the boundaries of a large organization. Also, large firms often find it difficult to offer highly specialized products or superior customer services, while entrepreneurial firms can create high-value products and services through their unique differentiating efforts. However, one of the major dangers is that either a large firm with more resources or a close competitor will copy what the new entry is doing. A carefully crafted and executed combination strategy may be the best answer. Nevertheless, competition among rivals is a key …
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