Chapter 3 Entrepreneurial Strategy Generating and Exploiting New

Chapter 3 Entrepreneurial Strategy: Generating and Exploiting New Entries © 2014 by Mc. Graw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may Mc. Graw-Hill/Irwin Copyright © 2013 by The Mc. Graw-Hill Companies, Inc. All rights reserved. not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Learning Objectives • To understand that the essential act of entrepreneurship involves new entry • To be able to think about how an entrepreneurial strategy can first generate, and then exploit over time, a new entry • To understand how resources are involved in the generation of opportunities • To be able to assess the attractiveness of a new entry opportunity 3 -2

Learning Objectives • To acknowledge that entrepreneurship involves making decisions under conditions of uncertainty • To be able to assess the extent of first-mover advantages and weigh them against firstmover disadvantages • To understand that risk is associated with newness, but there are strategies that the entrepreneur can use to reduce risk 3 -3

Entrepreneurship entails new entry into the market • New entry: • New product/service in an established or new market • Established product/service in a new market • A new organization New entry involves, of course, newness on the market 3 -4

Newness on the market Newness can be both positive and negative • Newness can help differentiate a firm from its competitors • However, newness creates a number of challenges for entrepreneurs 3 -5

Entrepreneurship entails new entry into the market • Entrepreneurial strategy • Set of decisions, actions, and reactions that generate, and exploit, a new entry over time • Maximizes the benefits of newness and minimizes its costs • You will use resources and knowledge (market knowledge and sometimes also technological knowledge) to create your entrepreneurial strategy • Let us start with resources… 3 -6

Generation of a New Entry Opportunity • Resources • What you use to produce things: inputs into the production process • Source of competitive advantage • Basic building blocks to a firm’s functioning • Can be combined in different ways • Provide capacity to achieve superior performance when they are: • Valuable • Rare • Inimitable 3 -7

Resources • What resources does it take to produce? Are they? -Valuable Source: newslite. tv -Rare - Inimitable 3 -8

Generation of a New Entry Opportunity • Information on a new entry • More knowledge ensures: • Entrepreneur starts from a position of less ignorance • Less time is spent on information search • Window of opportunity: Favorable environment for entrepreneurs to exploit a new entry 3 -9

Generation of a New Entry Opportunity • Comfort with making a decision under uncertainty • Likelihood that the window of opportunity will close leads to the dilemma of choosing between • Error of commission: Negative outcome from acting on the perceived opportunity • Error of omission: Negative outcome from not acting on the new entry opportunity 3 -10

Let us think… • Suppose you move into a market with a completely new product or service. • What are the first-mover advantages? • What are the disadvantages? 3 -11

First-movers challenges • Success factors uncertainty • Demand uncertainty: Difficulty in estimating: • Potential size, growth, and the key dimensions along which a market will grow • Technological uncertainty: Difficulty in assessing whether: • The technology will perform • Alternate technologies will emerge and leapfrog over current technologies 3 -12

Risk Reduction Strategies for New Entry Exploitation • Risk • Probability, and magnitude, of loss • Derived from uncertainties over: • Market demand • Technological development • Actions of competitors • Strategies to reduce uncertainties • Market-scope strategies • Imitation strategies 3 -13

Market Scope Strategies • Scope: Choice about which customer groups to serve and how to serve them • Narrow-scope strategy • Offers small product range to a small number of customers to satisfy a particular need • Focuses on: • • Producing customized products Localized business operations High level craftsmanship High-end of the market 3 -14

Market Scope Strategies • Broad-scope strategy • Offers range of products across different market segments • Helps gain better understanding of the whole market • Reduces risks associated with market uncertainties • Increases exposure to competition 3 -15

Imitation Strategies • Copying practices of other businesses • Advantages • Help develop skills necessary to be successful in the industry • Make the new entry look legitimate from day one • Reduce costs associated with R&D • Reduce customer uncertainty over the firm • Imitate a proven product/service or a business model 3 -16

Imitation Strategies • Types of imitation strategies • Franchising • Acquiring a “proven formula” for new entry from a franchisor • “Me-too” strategy • Copying exist products and attempting to build an advantage through minor variations 3 -17

Discussion 1. Come up with an example of a firm that have used imitation as a way of reducing the risk of entry. What aspects of risk was it meant to reduce? Was it successful? 3 -18

Discussion 2. Is increasing an entrepreneurial orientation of an established business always a good thing? Or are there circumstances, or environments, in which the further pursuit of opportunities can diminish firm performance? 3 -19

Discussion 3. Is it a waste of time to detail the firm’s strategy in the business plan when the audience for that plan (e. g. , venture capitalist) knows that things are not going to turn out as expected and, as a result, place considerable importance on the quality of the management team? Why not submit only the resumes of those in the management team? If you were a venture capitalist, would you want to see the business plan? 3 -20