Chapter 8: Entrepreneurial Strategy and Competitive Dynamics Recognizing Entrepreneurial Opportunities Entrepreneurship: the creation of new value by an existing

organization or new venture that involves the assumption of risk o Start-up venues o Major corporations o Family-owned businesses o Non-profit organizations o Established institutions For an entrepreneurial venture to create value, three factors must be present o Entrepreneurial opportunity The starting point for any new venture New business startups: opportunities come from Current or past work experiences Hobbies that grow into businesses or lead to inventions Suggestions by friends or family Chance event that makes an entrepreneur aware of an unmet need Established firms: opportunities come from Needs of existing customers Suggestions by suppliers Technological developments that lead to new developments CHANGE Major, overarching factor behind all viable opportunities Creates opportunities Most changes are brought up by o new technology o sociocultural trends o shifts in consumer demand Opportunity recognition process of discovering and evaluating changes in the business environment process of identifying, selecting, and developing potential opportunities the discovery phase refers to the process of becoming aware of a new business concept To stimulate the discovery of new opportunities, companies often encourage o Creativity o Out-of-the-box thinking o Brainstorming Evaluation involves analyzing an opportunity to determine whether it is viable and strong enough to be developed into a full-fledged new venture Feasibility analysis o used to evaluate these and other critical success factors The most important factor: Market Potential

4 qualities for an opportunity to be viable o Attractive: must be market demand for the new product of service o Achievable: must be practical and physically possible o Durable: must be attractive long enough for the development and deployment to be successful; window of opportunity must be long enough for it to be worthwhile o Value creating: must be potentially profitable; benefits must surpass the cost of development by a significant margin Resources to pursue opportunity Financial Resources Cash and capital are important The types of financial resources that may be needed depend on two factors: o Stage of Venture Development Startup: funding limited Personal savings and family/friends majority of funds o Scale of Venture Startup: quite small Angel investors: private individuals who provide equity investments for seed capital during the early stages of a new venture; not until winning business model and dominance in a market niche Venture capitalists: companies organized to place their investors finds in lucrative business opportunities o Always have high performance expectations but also provide important managerial advice and links to key contacts in an industry Human Capital Managers need to have 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. Social Capital Support of a social network Strategic alliances represent a type of capital that can be especially important to young and small firms Government Resources Small Business Administration (SBA) o Loan programs o Training, counseling, and support services o Governmental contracting Entrepreneur or entrepreneurial team willing and able to undertake the opportunity Entrepreneurial leadership: leadership appropriate for new venture that requires courage, belief in ones convictions, and the energy to work hard even in difficult circumstances

Three Characteristics of Leadership Vision o Most important asset o Entrepreneurs are able to exercise a kind of transformational leadership that creates something new and changes the world in some way. o Must share visions with others to develop support Dedication and drive o Drive involves internal motivation o Dedication calls for intellectual commitment that keeps an entrepreneur going even in the face of bad news or poor luck o Both require: patience, stamina, and a willingness to work long hours Commitment to excellence o Excellence requires entrepreneurs to commit to: Knowing the customer Providing quality goods and services Paying attention to details Continuously learning

Entrepreneurial Strategy How does a new entrant evaluate the threat of other new entrants? o Needs to examine barriers to entry Too high not enter or gather more resources o Evaluate threat of retaliation by incumbents Entry Strategies o Pioneering New Entry A firms entry into an industry with a radical new product of highly innovative service that changes the way business is conducted Example: first computer , internet browser Pitfalls: Not be accepted by customers Never really get off the launching pad May be necessary to protect intellectual property Advertise heavily Form alliances Offer exceptional customer service o Imitative New Entry A firms entry into an industry with products or services that capitalize on proven market successes and that usually has strong marketing orientation Have the resources or skills to do a job better than an existing competitor o Adaptive New Entry A firms 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 pure imitation and pure engineering Involves taking an existing idea and adapting it to a particular situation

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Pitfalls Value proposition may be perceived as unique Nothing to prevent a close competitor from mimicking Keeping the idea fresh Choice of these three strategies depend on: Competitive, financial and market considerations BLUE OCEAN Companies that are willing to venture into market spaces where there is little or no competition Elements Create uncontested market space: focus on customers rather than competition Make the completion irrelevant: cross industry boundaries Break the value/cost tradeoff Pursue differentiation and low cost simultaneously

Generic Strategies o Overall Cost Leadership o Differentiation o Focus o Combined Competitive Dynamics o Intense rivalry, involving actions and responses, among similar competitors vying for the same customers in a marketplace o Model of Competitive Dynamics New Competitive Action Acts that might provide competitors to react, such as new market entry, price cutting, imitating successful products, and expanding product capacity Reasons for launch new actions o Improve market position o Capitalize on growing demand o Provide an innovative new solution o Obtain first mover advantages Threat Analysis Firms awareness of its closest competitors and the kinds of competitive actions they might be planning Two factors used to assess whether or not companies are close competitors o Market commonality: the extent to which competitors are vying for the same customers in the same markets o Resource similarity: the extent to which rivals draw from the same strategic resources Motivation and Capability to Respond Consider these factors:

How serious is the impact of the competitive attack to which they are responding? o What is the intent of competitive response? Types of Competitive Actions Strategic actions o Major commitments and distinctive and specific resources to strategic initiatives Tactical actions o Refinements or extensions of strategies usually involving minor resource commitments Likelihood of Competitive Reaction Three Factors o Market Dependence Degree of concentration of a firms business in a particular industry High more at stake o Competitors Resources Small firm lack resources unable to attack back o Actors Reputation Choosing Not to React: Forbearance and Co-operation Forbearance o Firms choice of not reacting to a rivals new competitive action Co-operation o Firms strategy of cooperating and competing with rival firms Competitive actions can take many forms: The entry of a startup into a market for the first time Attack by a lower-ranked incumbent on an industry leader Launch of a breakthrough innovation that disrupts the industry structure