Entrepreneurial

Strategy and
Competitive
Dynamics

Module 6

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education .
 Learning Objectives
8-2

After reading this chapter, you should have a

good understanding of:
LO6.1 The role of opportunities, resources, and
entrepreneurs in successfully pursuing new ventures.
LO6.2 Three types of entry strategies – pioneering,
imitative, and adaptive – commonly used to launch a
new venture.
LO6.3 How the generic strategies of overall cost
leadership, differentiation, and focus are used by
new ventures and small businesses.
 Entrepreneurial Strategy
8-3

🞒 Entrepreneurship involves value creation

and the assumption of risk
🞒 New value can be created in many
contexts:
🞒 Startup ventures
🞒 Major corporations
🞒 Family owned businesses
🞒 Nonprofit organizations
🞒 Established institutions
 Entrepreneurial Strategy
8-4

🞒 Start-up 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
 Entrepreneurial Strategy
8-5

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.
 Entrepreneurial
8-6
Opportunities
🞒 Entrepreneurial opportunities require
opportunity recognition
🞒 Two phases of activity
🞒 Discovery
■ Becoming aware of a new business concept
🞒 Evaluation
■ Analyzing the opportunity to determine whether
it is viable or feasible to develop further
 Entrepreneurial
8-7
Opportunities
🞒 Discovery phase - Becoming aware of the
new business concept
🞒 Can be spontaneous and unexpected
🞒 Can also result from a deliberate search
■ Where are the new venture opportunities?
■ What might be a creative solution to a business
problem?
 Entrepreneurial
8-8
Opportunities
🞒 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 ?
 Entrepreneurial
8-9
Opportunities
🞒 Viable opportunities have the following
qualities:
🞒 They are attractive
🞒 They are achievable
🞒 They are durable
🞒 They are value-creating
 Example:
8-10
The Feasibility of Frozen Treats
🞒 Dippin’ Dots was based on an
innovative idea
🞒 In 1987, product testing showed it was
attractive to consumers
🞒 Operational facilities were developed to
maintain the low temperatures necessary
for production
🞒 By 2007, competitors such as Frosty
Bites (Mini Melts) had stolen market
share – the product idea was no longer
that innovative
🞒 By 2011, Dippin’ Dots was bankrupt
🞒 Ice cream of the future??
 Entrepreneurial Resources
8-11

🞒 Resources are essential for

entrepreneurial success
🞒 Financial resources
🞒 Human capital
🞒 Social capital
🞒 Government resources
 Entrepreneurial Resources
8-12

🞒 Financial resources depend on stage of

venture development & venture scale
🞒 Initial, start up financing
■ Personal savings, family, and friends
■ Crowdfunding
🞒 Early stage financing
■ Bank financing, angel investors
🞒 Later stage financing
■ Commercial banks, venture capitalists equity
financing
 Entrepreneurial Resources
8-13

🞒 Human capital
🞒 Strong, skilled management
🞒 Social capital
🞒 Extensive social contacts & strategic alliances
■ Technology, manufacturing, or retail alliances
🞒 Federal, state, & local government
resources
🞒 Government contracting
🞒 Loan guarantee programs
🞒 Training, counseling, & support services
 Entrepreneurial Leadership
8-14

🞒 Entrepreneurial leadership is needed

🞒 Courage
🞒 Belief in one’s convictions
🞒 Energy to work hard
🞒 Leadership characteristics
🞒 Vision
🞒 Dedication and drive
🞒 Commitment to excellence
 Entrepreneurial Leadership
8-15

🞒 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
 Entrepreneurial Leadership
8-16

🞒 Drive & dedication are necessary

🞒 Involves internal motivation
🞒 Intellectual commitment
🞒 Patience
🞒 Stamina, willingness to work long hours
🞒 Enthusiasm that attracts others
 Entrepreneurial Leadership
8-17

🞒 Commitment to excellence is required

🞒 Commit to knowing the customer
🞒 Providing quality goods and services
🞒 Paying attention to details
🞒 Continuously learning
🞒 Connecting the dots
🞒 Hiring people smarter than themselves
 Example:
8-18
Lessons from a Young Entrepreneur
🞒 Create massive value
🞒 Trust people, but verify credentials
🞒 Psychology is important – don’t ignore
personal needs
🞒 Be willing to make the tough decisions
🞒 Be a manager, not a technician
🞒 Invest back into the company
🞒 Integrity is everything

🞒 Get comfortable being uncomfortable

 Entrepreneurial Strategy
8-19

🞒 New ventures require an entrepreneurial

strategy
🞒 What are the industry conditions?
■ Five-forces analysis - barriers to entry?
🞒 What is the competitive environment?
■ Retaliation by established firms?
🞒 What are the market opportunities?
🞒 Entry strategies
🞒 Generic strategies
🞒 Combination strategies
 Entry Strategies
8-20

🞒 New venture entry strategies need to:

🞒 Quickly generate cash flow
🞒 Build credibility
🞒 Attract good employees
🞒 Overcome the liability of newness
🞒 Pioneering new entry
🞒 Imitative new entry
🞒 Adaptive new entry
 Entry Strategies
8-21

🞒 Pioneering new entry

🞒 Creating new ways to solve old problems
🞒 Meeting 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 it be sustainable?
 Entry Strategies
8-22

🞒 Imitative new entry

🞒 Imitators have a strong marketing orientation
🞒 Capitalizing on proven market successes
🞒 Introducing 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?
 Entry Strategies
8-23

🞒 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
🞒 Is it sufficiently unique and different?
🞒 Can it be easily imitated?
🞒 How can we continue to keep it fresh and
new?
 Entry Strategies
8-24

Exhibit 8.3 Examples of Adaptive New Entrants

Source: Bryan, M. 2007. Spanx Me, Baby! www.observer.com, December 10, np.; Carey, J. 2006. Perspiration Inspiration. Business
Week, June 5: 64; Palanjian, A. 2008. A Planner Plumbs for a Niche. www.wsj.com, September 30, np.; Worrell, D. 2008. Making Mint.
Entrepreneur, September: 55; www.mint.com; www.spanx.com; www.underarmour.com; Buss, D. 2010. The Mothers of Invention. Wall
Street Journal, February 8: R7; Crook. J. 2012. Mint.com Tops 10 Million Registered Users, 70% Use Mobile. Techcrunch.com, August
29: np.; and www.plumorganics.com.
 Generic Strategies
8-25
for New Ventures
🞒 Overall cost leadership
🞒 Simpler organizational structure
🞒 Quicker decision-making to upgrade
technology & integrate marketplace feedback
🞒 Differentiation
🞒 Using new technology
🞒 Deploying resources in a radical new way
🞒 Focus
🞒 Using niche strategies that fit the small
business mold
 Combination Strategies
8-26
for New Ventures

🞒 Pursuing combination strategies

🞒 Combine the best features of low-cost,
differentiation, and focused strategies
🞒 Hold down expenses by having a simple
structure
🞒 Create high-value products & services by
being flexible & innovative
 Competitive Dynamics
8-27

🞒 New entry threatens existing competitors

🞒 Competitive dynamics helps explain why
strategies evolve and how to respond:
🞒 New competitive action
🞒 Threat analysis
🞒 Motivation and capability to respond
🞒 Types of competitive action
🞒 Likelihood of competitive reaction
 Competitive Dynamics
8-28

Exhibit 8.4 Model of Competitive Dynamics

Source: Adapted from Chen, M.J. 1996. Competitor Analysis and Interfirm Rivalry: Toward a Theoretical
Integration. Academy of Management Review, 21(1): 100-134; Ketchen, D.J., Snow, C.C., & Hoover, V.L. 2004.
Research on Competitive Dynamics: Recent Accomplishments and Future Challenges. Journal of Management,
30(6): 779-804; and Smith, K.G., Ferrier, W.J., & Grimm, C.M. 2001. King of the Hill: Dethroning the Industry
Leader . Academy of Management Executive, 15(2): 59-70.
 Competitive Dynamics
8-29

🞒 Why do companies launch new

competitive actions?
🞒 To improve market position
🞒 To capitalize on growing demand
🞒 To expand production capacity
🞒 To provide an innovative new solution
🞒 To obtain first mover advantages
🞒 To strengthen financial outcomes & capture
profits
🞒 To grow the business
 Competitive Dynamics
8-30

🞒 Competition among incumbent rivals can

involve “hardball” strategies:
🞒 Devastating rivals’ profit sanctuaries
🞒 Plagiarizing with pride
🞒 Deceiving the competition
🞒 Unleashing massive & overwhelming force
🞒 Raising competitors’ costs
 Competitive Dynamics
8-31

🞒 Threat analysis involves an assessment

of
🞒 Market commonality
🞒 Resource similarity
🞒 How serious is the threat?
🞒 What is the intent of the competitive
response?
🞒 What resources are needed to fend off a
competitive attack?
🞒 Which action should I take?
 Competitive Dynamics
8-32

Types of competitive actions include:

🞒 Strategic actions 🞒 Tactical actions
🞒 Entering new ▣ Pricecutting (or
markets increases)
🞒 New product ▣ Product/service
introductions enhancements
🞒 Changing ▣ Increased
production marketing efforts
capacity ▣ New distribution
🞒 Mergers/alliances channels
 Competitive Dynamics
8-33

🞒 Likelihood of competitive reaction

🞒 Market dependence
🞒 Competitor’s resources
🞒 The reputation of the firm that initiates the
action – the actor’s reputation
🞒 Choosing not to respond
🞒 Forbearance
🞒 Co-opetition
■ Working together behind the scenes to achieve
industrywide efficiencies
 Competitive Dynamics &
8-34
Entrepreneurial Strategies
🞒 Entrepreneurial strategy involves new
value creation, which
🞒 Threatens existing competitors
🞒 Changes the competitive dynamics of the
marketplace
🞒 Entrepreneurial activity involves risk
🞒 How should I enter a market?
🞒 How should I compete?
🞒 How should I deal with the competitor’s
reaction?