Chapter 10 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of...

Chapter 10

Concept & Development of Entrepreneurship

Entrepreneurial Decision Process

Types of Start-up Ventures

Entrepreneurship & Economic Development

Ethics and Social Responsibility

Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 10-1

Entrepreneurial Strategy

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Chapter 10







Chapter Learning Objectives

1. To understand that the essential act of entrepreneurship involves new entry.

2. To be able to think about how an entrepreneurial strategy can first generate, and then exploit over time, a new entry.

3. To understand how resources are involved in the generation of opportunities.

4. To be able to assess the attractiveness of a new entry opportunity.

5. To acknowledge that entrepreneurship involves making decisions under conditions of uncertainty.

6. To be able to assess the extent of first-mover advantages and weigh them against first-mover disadvantages.

7. To understand that risk is associated with newness, but there are strategies that the entrepreneur can use to reduce risk.

Chapter 10







Chapter Opening Profile

• Justin Parer• www.BSE.net.au• First attempt at university

ended badly• Started mobile pizza

business at age 18• First entrepreneurial venture

failed• Second attempt at university

was completely different• “University gave me options”• Majored in accounting

• Worked in accounting to gain experience and network

• Purchased a ship building and repair business

• Purchased a metal-working business

• He has control over the money side of his businesses but also has flexibility to take advantage of opportunities that arise

Chapter 10







New Entry

• New entry (definition): offering a new product to an established or new market, offering an established product to a new market, or creating a new organization

• Entrepreneurial strategy (definition): the set of decisions, actions, and reactions that first generate, and then exploit over time, a new entry

• Resources: the inputs into the production process; machinery, equipment, financial capital, and skilled employees

Chapter 10







Entrepreneurial Strategy

Chapter 10







Resources

Entrepreneurial resource (definition): the ability to obtain, and

then recombine, resources into a bundle that is valuable, rare, and

inimitable

– This bundle of resources provides the capacity to achieve superior performance

• Valuable: enables the firm to pursue opportunities, neutralize threats, and offer products valued by customers

• Rare: possessed by few

• Inimitable: the combination of resources is not easily replicated

Chapter 10







Role of Knowledge

• Market knowledge (definition): possession of information, technology, know-how, and skills that provide insight into a market and its customers

– Need to know the market that you are trying to serve

– Can be supplemented (but not necessarily replaced) by marketing research

• Technological knowledge (definition): possession of information, technology, know-how, and skills that provide insight into ways to create new knowledge

Chapter 10







Assessing Attractiveness

• Information on a New Entry

• Prior knowledge and information search

– More knowledge is a good thing; reduces uncertainty

– Gaining knowledge takes time and money and the risk of missing the opportunity

• Window of opportunity (definition): the period of time when the environment is favourable for entrepreneurs to exploit a particular new entry

• Comfort with Making a Decision under Uncertainty

– Error of commission: negative outcome from acting

– Error of omission: negative outcome from not acting

Chapter 10







Assessing Attractiveness (continued)

• Assessment of a new entry’s attractiveness: determining whether the entrepreneur believes she or he can make the proposed new entry work

Chapter 10







• Re: Figure 10.2• Depends on whether the entrepreneur has sufficient

information to make a decision• Depends on whether the entrepreneur is comfortable

making a decision without perfect information

Decision to Exploit or not Exploit the New Entry

Chapter 10







Entry Strategy for New Entry Exploitation

A common expression among entrepreneurs “our competitive

advantage comes from being first.”

Meaning the entrepreneur is making money doing something

nobody has done before.

Being first can result in a number of advantages• First movers develop a cost advantage

• First movers face less competitive rivalry

• First movers can secure important channels

• First movers are better positioned to satisfy customers

• First movers gain experience through participation

Chapter 10







Entry Strategy for New Entry Exploitation

First movers do NOT always prosper• Yahoo versus late arriver Google• Netscape versus copycat Windows Explorer• SONY’s Beta vs. VHS of JVC and Matsushita

Chapter 10







Chapter 10







First Mover Advantages

• Being the first to market with a new entry provides the following advantages:– Cost advantage due to the experience curve

– Less competitive rivalry, at least in the beginning

– Ability to secure important channels; suppliers and distributors

– Better positioning to satisfy customers; market segments, and becoming the standard

– Gain expertise through participation:

• Learn from the first generation of products

• Monitor changes in market

• Build up networks

Chapter 10







First Mover Disadvantages

• Environmental instability– Key success factors (definition): the requirements that any firm

must meet in order to successfully compete in a particular industry

– Emerging industries: industries that have been newly formed and are growing

– Demand uncertainty (definition): considerable difficulty in accurately estimating the potential size of the market, how fast it will grow, and the key dimensions along which it will grow

– Technological uncertainty (definition): considerable difficulty in accurately assessing whether the technology will perform and whether alternate technologies will emerge and leapfrog over current technologies

– Adaptation : Changes in market demand do not necessarily mean the first movers cannot prosper – but such changes are difficult

Chapter 10







First Mover Disadvantages (continued)

• Customers’ uncertainty– Uncertainty for customers (definition): customers may have

considerable difficulty in accurately assessing whether the new product or service provides value for them

– Need to educate customers

• Lead time– Lead time (definition): the grace period in which the first

mover operates in the industry under conditions of limited competition

• Build customer loyalties

• Build switching costs

• Protect product uniqueness

• Secure access to important sources of supply and distribution

Chapter 10







Ethics

Do the Right Thing• Smart entrepreneurs are doing well by doing good• Ethics and business used to have a “rocky marriage”

Chapter 10







Reducing Risk

• Risk (definition): the probability of, and magnitude, of downside loss

• Two strategies to reduce risk of new entry: market scope and imitation

• Market Scope Strategy (definition): a choice about which customer groups to serve and how to serve them

• Market segmentation, targeting, and positioning

• The market scope strategy can range from narrow to broad

Chapter 10







Market Scope Strategy

• Narrow-scope strategy: offering a small product range to a small number of customer groups to satisfy a particular need

– Focuses on customized products, localized business operations, and high levels of craftsmanship

– Build specific expertise and knowledge as a competitive advantage; difficult to copy

– Well-suited to higher end markets

– Does not protect against being copied by larger competitors

– Risk of market demand not growing or changing

Chapter 10







Market Scope Strategy (continued)

• Broad-scope strategy: offering a range of products across many different market segments

– Focuses on more standardized products, potentially wider area of operations, and quality production

– Lowers risk by diversifying across different products

– Reduces risks associated with market uncertainties but faces increased exposure to competition

– Addresses major concern: uncertainty over customer preferences

Chapter 10







Imitation Strategies

• Copying the practices of other firms• Inconsistent with the earlier idea of superior performance

resulting from being valuable, rare, and inimitable• Not all aspects of a business need to be imitated

• Can shorten the learning curve for the entrepreneur

• Can provide organizational legitimacy• Examples:

– Franchising

– “Me-too” products

• Copying products that already exist and attempting to build an advantage through minor variations

Chapter 10







Managing Newness

• Liability of newness (definition): negative implications arising from an organization’s newness

– New organizations face costs in learning new tasks

– Overlap in roles and responsibilities

– Communication via formal and informal channels

• Special attention to educating and training employees

• New firms lack established routines, systems, and processes, which can be a good thing

• Heightened ability to learn new knowledge can be a competitive advantage

Chapter 10







Chapter Closing Comments

1. To understand that the essential act of entrepreneurship involves new entry.

2. To be able to think about how an entrepreneurial strategy can first generate, and then exploit over time, a new entry.

3. To understand how resources are involved in the generation of opportunities.

4. To be able to assess the attractiveness of a new entry opportunity.

5. To acknowledge that entrepreneurship involves making decisions under conditions of uncertainty.

6. To be able to assess the extent of first-mover advantages and weigh them against first-mover disadvantages.

7. To understand that risk is associated with newness, but there are strategies that the entrepreneur can use to reduce risk.

Chapter 10 Concept & Development of Entrepreneurship Entrepreneurial Decision Process Types of...

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