DBA 403:

ENTREPRENEURSHIP
DBA 403: Entrepreneurship

STRATEGY FOR A NEW

VENTURE
 Session Objectives

• At the end of the session, students should be able

to understand the following concepts:
vEntrepreneurial Leadership
vEntrepreneurial Strategy
vBusiness Model
 Entrepreneurial Leadership (ctd)
• Entrepreneurs are leaders who identify opportunities and
marshal resources from various stakeholders in order to
exploit these opportunities and create value.
• Three Key characteristics
– Vision
– Dedication and drive
– Commitment to excellence
• Other Characteristics
– developing a strategy
– getting great people on
– focusing on results
– innovating for the future
– Self Discipline especially in areas of ethical leadership and
corporate governance
 Entrepreneurial Leadership (ctd)
Vision Dedication and Drive
reflected in hard work
– Ability to envision
realities that do not – Patience
yet exist
– Stamina
– Exercise a kind of
– Willingness to work
transformational
long hours
leadership
– Internal motivation
– Able to share with
others – Intellectual
commitment to the
enterprise
– Strong enthusiasm for
work and life
 Entrepreneurial Leadership (ctd)
• To achieve excellence, venture founders and small
business owners must
– Understand the customer
– Provide quality products and services
– Pay attention to details
– Continuously learn
– Surround themselves with good people
 Entrepreneurial Strategy
• Best strategy for the enterprise will be determined
by
– Resources –
• Create a viable opportunity on the basis of the available
resources
• Resources need to be Valuable, Rare, Inimitable and Non-
Substitutable (VRIN) for a competitive advantage
– Knowledge on conditions in the business environment
• This is information held by Entrepreneur or his networks
• Could also be part of a risk management strategy
• Tools and techniques to determine strategic choices
– Five Forces Analysis
– Value Chain Analysis
 Entry Strategies
• Getting a foothold in the market
– Pioneering new entry
• Creating new ways to solve old problems
• Meeting customer’s needs in a unique new way
– Imitative new entry
• Strong marketing orientation
• Introduce same basic product or service in another
segment of the market
– Adaptive new entry
• Offer product/service that is “slightly new/ different”
• Aware of marketplace conditions and conceive entry
strategies to capitalized on current trends
 Generic Strategies
• How new ventures can achieve competitive advantages
– Overall cost leadership
• Simple organizational structures
• More quickly upgrade technology and integrate
feedback from the marketplace
• Make timely decisions that affect cost
– Differentiation
• Use new technology
• Deploy resources in a radical new way
– Focus
• Niche strategies fit the small business mold
 Strategic and Tactical Competitive Actions

Strategic Actions Tactical Actions

• Entering new markets • Price cutting (or
• New product increases)
introductions • Product/service
• Changing production enhancements
capacity • Increased marketing
• Mergers/Alliances efforts
• New distribution
channels
 Likelihood of Competitive Reaction
• How a competitor is likely to respond will
depend on three factors
– Market dependence
– Competitor’s resources
– The reputation of the firm that initiates the
action (actor’s reputation)
 Feasibility Assessment: Simple Decision
Rules
• Competencies available versus competencies required
– Intellectual competencies – tacit, explicit, patents and copyrights
– Technological, operational, marketing, or development
competencies
• Consideration of the value of boundary rules - determine
what limits the opportunity
– Market, environment, competitors, regulations, technology,
capital?
– The level of uncertainty, the lack of critical resources
 Feasibility Assessment: Simple Decision
Rules
• Consideration of the value of resource rules:
– Understand the critical resources required
– The Ability to develop or acquire the critical resources
– Proven Competency with resources required

• Consideration of the value of timing rules:

– Perceived window of opportunity for the new venture
– Perceived startup and development time
– Expected market and product life cycles
 Strategy Defining Characteristics
• The unique feature that serves to differentiate the
opportunity
• The products and services to best exploit the
opportunity:
– Derived product/service lines
– Potential for developing future core competencies
• The target markets perceived available for
exploitation:
– Ability to competitively position the venture in an existing
market
– Ability to use the venture to expand the existing market
– Ability to use the venture to create a new market
 Strategy Defining Characteristics (ctd)
• Consider the types of critical resources required :
– Knowledge-based resources: patents, copyrights, proprietary
– Technology-based resources: leader technology, follower
technology
– R&D-based resources, facilities and support
– Capital-based resources: finance, facilities, materials
• Consider the type of competitive advantage to be pursued:
– Cost Leadership strategy – the low cost competitor
– Differentiation strategy – unique hard to imitate products/services
– Niche strategy – a subset of cost leadership or differentiation
• Consider what is the basis for competitive strategy:
– Market Based – external orientated strategy
– Resource Based – internal orientated strategy
 Strategy Defining Characteristics (ctd)
• Consider how the excess return is to be achieved/sustained:
– Superior price/quality performance
– Continuous value added innovation
– Achieving and maintaining an economy of scale
– Superior customer service/loyalty
– Patent or copyright protection
– Superior research and development technology
 Cost-Leadership Type Strategy
• The Cost Leadership Strategy is based on achieving a
sustainable low cost competitive advantage
• Cost leadership usually entails economy of scale – a high
volume approach based on:
– low cost products and services
– low cost operation processes
– low cost distribution chains
– low cost materials
• Cost leadership can also be proprietary – based on patents
or copyrights
• Cost leadership can also be niche based – low cost for a
narrow product or market segment
 Differentiation Type Strategy
• The Differentiation Objective is to achieve a sustainable
competitive advantage based on unique products or
services
• Differentiation strategy is typically based on:
– Intellectual knowledge
– Unique experience
– Innovative approaches
– Technological advances
• Differentiation offers customer’s unique value-added
attributes clearly perceived to be superior to the
competition
• Differentiation requires continuous innovation to sustain
competitive advantage –investments in research and talent
• Differentiation strategy allows premium pricing for unique
value-added features
 A: Market Based Strategy
• The existing market determines the strategy.
• An external oriented approach with the markets as a
focus
• Strategy is primarily dependent on the selected market
and its industry forces
– The strategy is limited to one market
– The market is selected for attractiveness to the creative idea
– The goal is to achieve a sustainable competitive position
– The strategy objective is to influence the market so as to
improve the new venture’s competitive position
• Market based strategy is a competition driven zero
sum game
• This strategy is best employed in relatively stable
market environments
 B: Resource Based Strategy
• The new venture’s resources determine the strategy
• An internal oriented approach where resources are
the focus
• Strategy is based on the new venture’s internal
resources and competencies
– Resource-based strategy facilitates reactions to market
changes
– A competency driven resource strategy can more quickly
react to or even create change
• Resource-based strategy can cross markets and
industries
• Best employed in environments of rapid market or
technology change
 Strategy Differentiation
• Cost Leadership–market based strategy
• Cost Leadership–resource based strategy
• Differentiation–market based
• Differentiation–resource based
– Evolve the market
– Create the market
 Differentiation - Resource Based Type
Evolutionary Approach
• Goal – “Exploit, do not disrupt the markets”.
• Utilize the new venture’s tangible and intangible internal
resources
• Generate sustainable value-added products and services
that are difficult to imitate
• Continually expand an established market, or multiple
markets, avoiding wholesale disruption
• Develop tangible and intangible internal resources into
core competencies
• Produce a range of products and services for various
markets that are superior in customer value and difficult to
imitate.
 Evolutionary – Resource based
differentiation strategy
Prerequisite Requirements
• Intellectual Capital: the ability to outthink the
competition
• Conversion Capability: the ability to convert
intangible assets into resources
• Core Competency Base: the ability to develop a
“right” set of core competencies
 Differentiation - Resource Based Type
Creative Approach
• Intellectual capital required
• Identify and develop the basic core competencies
• Goal is to continuously create diverse lines of unique
products or services with differentiating attributes that
that add customer value superior the competitors
across multiple markets.
• The differentiating attributes could include:
– Improved performance
– Additional/alternative capabilities
– Expanded life
– Increased reliability
– Aesthetic appeal
– Environmental or safety factors
 Differentiation - Resource Based Type
Conversion Capability
• Ability to convert intangible intellectual assets into
critical tangible resources and future core
competencies
• The new venture begins with limited resources, mostly
intangible.
• A key strategy consideration is how to convert limited
resources, intangible ideas, and visions into:
– Tangible capabilities
– Core competencies,
– Strategic assets
– and finally, a sustainable competitive advantage.
• This entrepreneurial conversion process requires;
– Identification of the critical resources required for success
– A method of gaining access to the critical resources
– Combining the critical resources with the required
competencies
Other Relevant Strategy Considerations
• The evolutionary resource-based differentiation
strategy allows
– Increased flexibility -
• Exploit the creative vision across the spectrum of products and
services in multiple markets
• Rapid adjustment to continuous or dramatic changes in key
environmental or market conditions
– Mitigated risk and uncertainty
• Multiple market dispersion reduces single market risk
• Avoidance of major market disruption reduces risk
– The value of multiple markets
• Creating new products in multiple markets allows the ability to seek
premium pricing in multiple markets
Other Relevant Strategy Considerations
(ctd)
• Operating in multiple markets incurs the risk of
dissipating the new venture’s resources and efforts
resulting in a potential lack of strategic focus.
• Consider the impact of potential technological change
– What potential technological changes could significantly
impact on the new venture’s resource based differentiation
strategy and when?
• Consider the impact of globalization driven change
– What potential globalization factors could significantly impact
on the new venture’s resource based - differentiation
strategy and when?
 Business Model
• Is an outline of the actions that occur in the delivery of
a good or service
• The plan for how a firm
– Competes (core strategy),
– Uses resources (distinctive resources),
– Structures relationships (partnership network),
– Interfaces with customers (customer interface), and
– Creates value to sustain itself based on its generated profits
(approach to creating value)
• A firm’s business model takes it beyond its boundaries
(to consider necessary partners that help enable the
business model)
 How Business Models Emerge
• The Value Chain
– Illustrates activities that move products from raw
material stage - manufacturing and distribution -
end user.
– Studying a business or industry’s value chain, can
help identify opportunities for new businesses
– That is, areas in the value chain where value can
be created
• Fatal Flaws – Avoid these as they can render a
business model untenable from the beginning
– A complete misread of the customer
– Utterly unsound economics
Four Components of a
Business Model
 Business Model Component 1: Core
Strategy
• Core Strategy: how firm competes relative to
competitors
– Porter’s Generic Strategies
• Cost leadership: operations streamlined for efficiency
(e.g., Wal-Mart)
• Differentiation: create an industry-wide perception of
unique value (e.g., Tiffany jewelry; Intel)
• Focus: concentrate on narrow segment of the industry
(e.g., Red Bull with energy drinks) of a narrow set of
customers (e.g., Babies ‘R’ Us with baby needs)
• Focused-differentiation: uniquely serve narrow industry
or customer segments (e.g., Babies ‘R’ Us
comprehensively serves consumers in need of baby care
items)
 Business Model Component 1: Core
Strategy
• Requires development of Business mission
(overarching purpose): describes why firm
exists and what it’s supposed to accomplish
– Southwest: “…the highest level of customer
service delivered with… warmth, friendliness,
individual pride, and company spirit.”
– Product/market scope (what you provide
customers): defines products & markets on
which firm concentrates
– Amazon: adjusted product choices over time
(first only books - cds, dvds, etc.)
 Business Model Component 2:
Strategic Resources
The resources firm has substantially affects business model
•New ventures’ resources often limited to competencies of founders,
opportunity identified, unique way they serve the market
•2 most important strategic resources are:
– Core competencies: resource/capability serves as source of
competitive advantage over rivals
• When identifying core competencies, try to identify skills that
are unique, valuable to customers, difficult to imitate, and
transferable to other opportunities. For Example: Sony and
miniaturization, Dell’s supply chain management
– Strategic assets: anything rare and valuable that firm owns
• Brands, patents, customer data, distinctive partnerships, HR,
etc. For Example: Starbucks’ brand name in coffee retailing
 Business Model Component 2:
The Importance of Strategic Resources
• Must combine core competencies & strategic assets
to get a sustainable competitive advantage
– Investors pay attention to this when evaluating a
business
– Attainment of of sustainable competitive advantage is
achieved by Value: Does a resource enable a firm to exploit an
environmental opportunity, and/or neutralize an environmental threat?
• Rarity: Is a resource currently controlled by only a small number of
competing firms? [are the resources used to make the
products/services or the products/ services themselves rare?]
• Imitability: Do firms without a resource face a cost disadvantage in
obtaining or developing it? [is what a firm is doing difficult to imitate?
• Non-Substitutability: - Are the resources difficult to substitute?
• Organization: Are a firm’s other policies and procedures organized
to support the exploitation of its valuable, rare, and costly-to-imitate
resources?”
 Business Model Component 3:
Partnership Network
• New ventures don’t usually have all resources needed
to perform all activities
• Do not want to do everything as many tasks aren’t
core to venture’ competitive advantage
– Example: Nike with manufacturing
– Example: Dell with suppliers (e.g., Intel supplies
microprocessors to Dell, gets paid quickly, uses Dell’s
supply management software, etc.)
– Example: KBL with sorghum farmers
• It’s important to have collaborative relationships with suppliers, and to
find ways to motivate them to perform at higher levels
 Business Model Component 3:
Common Types of Business Partnerships
• Joint Venture: Formal partnership (involves equity stakes)
– Two or more firms pool resources to create a separate, jointly
owned organization (e.g., Sony Ericsson to make mobile phones
using Sony’s consumer electronics and Ericsson’s technology
leadership expertise)
• Strategic Alliance: Generally no equity, but contractual in nature
– Relationship between two or more firms that exchange resource
with one another but do not have a joint, equity, relationship (e.g.,
Lexus and Coach à Limited Lexus ES 300 Coach Edition)
• Trade Associations: Informal partnership (often non-profit)
– Organizations formed by firms to collect and disseminate
important industry information
– Often used to promote the industry via advertising, lobbying, etc.
Kenya National Chamber of Commerce & Kenya Association of
Manufacturers
 Business Model Component 4:
Customer Interface
• Who is your customer?
– Specific
– General customers
– Geographical outreach
• How will you serve your customer?
– Physical
– Virtual Service
– Long distance
• What is the ideal pricing structure
– Costs of Operation
– Risk Return
– Desired margins
DBA 403: ENTREPRENEURSHIP

Managing a Growing
Entreprise
 SESSION OBJECTIVES
At the end of the session, students should be able
to understand the following concepts:-
• Introduction
• Forms of business growth
• Entrepreneurs and business growth
• Entrepreneurial vs. Professional management
 INTRODUCTION
Management Of Business Growth
• One of the defining factors of a good
entrepreneurial idea is its potential for
growth.
• An entrepreneurial venture that is well
managed will naturally grow.
• Growth may be gradual, or fast, depending
on several factors; markets growth rate,
environment and management capability.
 Measurements of Business Growth
Business growth can be measured in terms of:
ü Profit
ü Employment
ü Assets value
ü Sales/turnover
ü Market share
ü Number of branches
Business growth can be achieved through increasing the
existing production capacity to meet increasing demand e.g.
ü Opening new branches
ü New lines of business
ü Merging with another firm
ü Buying other business
• Growth requires careful thought and research.
• If not properly managed it can lead to demise of
the business.
• Growth leads to strain on the resources; staff,
finances, supplies, equipment etc.
• Growth can also lead to emergence of
competition and changes in the market
conditions.
 Advantages of growth to an
entrepreneur
If growth is well managed it can be very rewarding to
an entrepreneur, leading to:
üMore finances
üMore staff
üMore recognition
üBetter living standards
üAchievement
As these businesses mature and grow, they begin to
enjoy economies of scale, such as quantity discounts
and more efficient use of people and equipment.
Distinctive Characteristics of
Small Firm Management
Professional-Level
Management

Founders as Management Managerial

Managers Weakness
of
Small Firms

Firm Growth and

Resource
Managerial
Constraints
Practices
Organizational Stages of Small Business
Growth
Stages in Firm Growth and Management
Growth Stage Entrepreneur’s Workload
Stage 1. One-Person Doing all of the work. Making
Operation contact with customers.
Stage 2. Player- Continuing to do some of the basic
Coach work, although learning to hire and
supervise.
Stage 3. Intermediate Rising above hands-on
Supervision management; working through
intermediate managers.
Stage 4. Formal Using plans and budgets; following
Organization policies and procedures.
 Managing Versus Doing
STAGE 1 STAGE 2 STAGE 3 STAGE 4
One-Person Player-Coach Intermediate Formal
Operation Supervision Organization

Time spent managing Time spent doing

 Managerial Tasks of
Entrepreneurs

Creating an
Planning
Organizational
Activities
Structure

Entrepreneurial
Management

Leading and Controlling

Delegating Operations
 Planning Activities
• The Benefits of Formal Planning
– Improved productivity
– Better focus on goal attainment
– Increased credibility with stakeholders
• Planning Time
– “Tyranny of the urgent”
– Planning requires discipline
– Planning should not be postponed
• Employee Participation
– Employees are an excellent planning resource
 Planning Activities: Types of Plans
Type of Plan Purpose
Long-range plan A firm’s overall plan for the future
(strategic plan)
Short-range plan A plan that governs a firm’s operations for one year
or less
Budget A document that expresses future plans in monetary
terms
Business policies Basic statements that provide guidance for
managerial decision making

Procedures Specific work methods to be followed in business

activities
Standard operating An established method of conducting a business
procedures activity
 Creating an Organizational
Structure
• The Unplanned Structure
–Structure evolves as the firm evolves.
–Growth creates the need for structural change.
• Chain of Command
–The official, vertical channel of communication in an
organization
–A channel for two-way communication
• Span of Control
–The number of subordinates supervised by one
manager
 Creating Organizational
Structure (cont’d)
• Line Organization
–A simple organization in which each person
reports to one supervisor
• Line and Staff Organization
–An organizational structure that includes staff
specialists who assist management
–Line activities
• Activities contributing directly to the primary
objectives of the firm
–Staff activities
• Activities that support line activities
Line-and-Staff Organization (example)
Factors Determining Optimum Span of
Control

Few Subordinates
Complex work
Inexperienced workers
Superior with limited ability

More Subordinates
Moderately difficult work
Moderately experienced workers
Superior with moderate ability

Many Subordinates
Simple work
Very experienced workers
Superior with much ability
 Delegating Authority
• Delegation of Authority
–Granting to a subordinate the
right to act or make
decisions
• Benefits of delegation
–Frees up superior to perform
more important tasks
–Develops subordinate’s
skills
–Improves two-way
communications
 Controlling Operations

Planning and
Goal Setting

Establishing
standards

Measuring
Performance

Taking Corrective
Action
 Communicating
• Stimulating Two-Way Communication
–Conduct periodic performance review sessions to
get employee feedback.
–Use bulletin boards to keep employees informed.
–Use suggestion boxes to solicit employees’ ideas.
–Hold staff meetings to discuss issues and problems.
–Hold informal meetings with
employees to socialize and talk.
 Personal Time Management
• The Problem of Time Pressure
– Many owner-managers work 60-80 hours per week.
– Effect of overwork is inefficient work performance.
• Time Savers for Busy Managers
– Effective use of time (time management)
• Analyze how time is normally spent
• Eliminate practices that waste time
• Carefully plan available time
• Use a daily planner to prioritize activities
• Don’t avoid unpleasant or difficult tasks
• Limit conference and meeting times
The Entrepreneurs’ folly as managers
• The very traits that lead people to start the business i.e.
ambition, creativity, self-confidence, obsession, etc.
can lead to problems for the business at the growth
stage.
• Growth requires a radical shift in management style.
• Growth pushes most entrepreneurs to areas that they
are not good at.
• Success often encourages most entrepreneurs to bite
off more than they can chew.
• Obsession with control is one observable feature of
most entrepreneurs, which becomes a major liability in
managing growth.
 Challenges of Transition
• Overwhelming entrepreneurial characteristics of
ambitions and control leading to obsession.
• Underdeveloped human resources to be delegated to.
Normally caused by:
– Inability to pay costs of staff development.
– Inability
• Tendency of the market to recognize individuals in a
business and not the firm.
– Trusting individuals to deliver
– Nature of marketing tactics by small enterprises
• Inability of entrepreneurs to trust others to see their
vision as well as they do
 Outside Management Assistance
• The Need for Outside Assistance
– To supplement entrepreneur’s personal knowledge
and experience.
– To provide opportunities to share ideas with peers.
– To reduce feelings of loneliness and working in
isolation.
– To have access to outsiders’ detached, objective
viewpoints, insights and ideas.
– To gain fresh knowledge of methods, approaches,
and solutions beyond the experience of the
entrepreneur.
Outside Management Assistance

Business
Incubators

Other Business Student

and Professional Consulting
Services Teams
Source of
Outside
Management Service Corps of
Entrepreneurial
Networks
Assistance Retired Executives
(SCORE)

Small Business
Management
Development
Consultants
Centers (SBDCs)
How do you ensure the sustained
increase of shareholder value?
Top Line Bottom
Line To create
shareholder value,
a company has to
Savings take on the right
risks, retain them
Losses and manage them
Revenue within its
s Claims boundaries
 Building value through growth
• Aim to increase the recurring profits of the business
• Focus on maintaining L.T growth in sales
• Develop relations with customers
• Create an entrepreneurial team
• Develop degree of governance and financial
reporting
• Adopt transparent and conservative accounting
policies
• Maintain flexibility
• Create a relevant role for owner
END