Small Business Strategies

Imitation with a Twist

Chapter 07

McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
 Learning Objectives

LO1 Learn the decisions needed to establish a

foundation for strategic planning
LO2 Learn the forms of imitative and
innovative businesses
LO3 Articulate the benefits that win over
customers
LO4 Discover how industry changes affect
strategy

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 Learning Objectives

LO5 Understand the major strategies of

business-differentiation, cost, and focus
LO6 Use SWOT analysis to identify strategic
options.
LO7 Learn how to sustain competitive
advantage through attracting customers
and discouraging competition

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 Strategy in the Small Business

Strategy
– the ideas and actions that explain how a
firm will make its profit

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 Strategy in the Small Business

Good strategy leads to greater

chances for survival and higher profits
for small businesses
What makes a strategy “good” is its fit
to the particulars of your business and
the resources you can bring to it

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 The Small Business
Strategy Process

Figure 7.1

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 Prestrategy: The First Step of
Strategic Planning
There are five initial key decisions:
1. As owner, what do you expect out of
the business?
2. What is your product or service idea
(and its industry)?
3. For your product or service, how
innovative or imitative will you be?

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 Prestrategy: The First Step of
Strategic Planning
4. Who do you plan to sell to—everyone
or targeted markets?
5. Where do you plan to sell—locally,
regionally, nationally, globally?

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 Product/Service Idea

Entry wedge
– An opportunity that makes it possible for a
new business to gain a foothold in a
market.
 Supply shortages, Unutilized resources,
Customer contracting, Second sourcing,
Market relinquishment, Favored purchasing,
Government rules

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 Industry

Industry
– The general name for the line of product
or service being sold, or the firms in that
line of business
– Key is selecting an industry that offers
good potential for making a profit
– Also needs to offer attractive
opportunities to work with a minimum of
risk and competition

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 Attractiveness of Selected
Industries and Lines of Business

Figure 7.2
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 Imitation and Innovation

 Imitative strategy  Innovative

– An overall strategic strategy
approach in which – An overall strategic
the entrepreneur approach in which
does more or less a firm seeks to do
what others are something that is
already doing. very different from
what others in the
industry are doing.

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 Imitation and Innovation

 Degree of  Parallel
similarity competition
– The extent to – An imitative
which a product or business that
service is like competes locally
another. with others in the
same industry.

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 Imitation and Innovation

Pure innovation
– The process of creating new products or
services, which results in a previously
unseen product or service.

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 Question

The size of the market refers to:

A. scale
B. market mass
C. scope
D. niche

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 Markets

Market
– business term for the population of
customers for your product or service
Scope
– geographic range covered by the market
– Local to Global

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 Markets

Scale
– size of the market
 Mass market
– large portions of the population
 Niche market
– narrowly defined segment of the
population that is likely to share interests
or concerns

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 Scope: Local to Global

Scope is important for two reasons:

 Knowing your scope helps deciding where
to focus sales and advertising efforts
 Knowing your target market gives you a way
to know which competitors to worry about
most, namely those within your market
scope

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 Customers and Benefits

Some types of customers often seen as

particularly attractive
Corporate customers
Loyal customers
Local customers
Passionate customers

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 Value and Cost Benefits

Benefits
– characteristics of a product or service
that the target customer would consider
worthwhile
– value benefit, cost benefit
 The best way to identify desirable benefits is
through potential customers

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Industry Dynamics and Analysis

Competitor
– Any other business in the same industry as
yours.
Industry dynamics
– Changes in competitors, sales and profits
in an industry over time.

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 Industry Dynamics and Analysis

Introduction stage
– The life cycle stage in which the product
or service is being invented and initially
developed.
Growth stage
– An industry life cycle stage in which
customer purchases increase at a
dramatic rate.

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Industry Dynamics and Analysis

Boom
– A type of life cycle growth stage marked
by a very rapid increase in sales in a
relatively short time.
Shake-out
– A type of life cycle stage following a
boom in which there is a rapid decrease
in the number of firms in an industry.

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 Industry Dynamics and Analysis

Maturity stage
– The third life cycle stage, marked by a
stabilization of demand, with firms in the
industry moving to stabilize or improve
profits through cost strategies.
Decline stage
– A life cycle stage in which sales and
profits of the firm begin a falling trend.

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Industry Dynamics and Analysis

Retrenchment
– An organizational life cycle stage in which
established firms must find new
approaches to improve the business and
its chances for survival.

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The Industry Life Cycle

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 Tool: Industry Analysis

Industry analysis (IA)

– A research process that provides the
entrepreneur with key information about
the industry, such as its current situation
and trends.

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 Tool: Industry Analysis

 Gross profit
– Funds left over after deducting the cost of goods
sold.
 Net profit
– The amount of money left after operating
expenses are deducted from the business.
 Profit before taxes
– The amount of profit earned by a business before
calculating the amount of income tax owed.

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 Strategy Selection and
Implementation
Generic strategies
– Three widely applicable classic strategies
for businesses of all types—differentiation,
cost, and focus.
Differentiation strategy
– A type of generic strategy aimed at
clarifying how one product is unlike
another in a mass market.

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 Strategy Selection and
Implementation
Cost strategy
– A generic strategy aimed at mass markets
in which a firm offers a combination of
cost benefits that appeals to the
customer.
Focus strategy
– A generic strategy that targets a portion
of the market, called a segment or niche .

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 Typical Strategies for Small
Business Start-Ups

Table 7.2

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 Question

What are the components of a SWOT

analysis?
A.small, working conditions, organization, time
B. social, weaknesses, opportunities, technology
C.strengths, weaknesses, opportunities, threats
D.segment, wealth, organization, technology

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 Tool: SWOT Analysis

Strengths
– characteristics of the business or team
that give it an advantage over others in
the industry.
Weaknesses
– characteristics that place the firm at a
disadvantage relative to others

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 Tool: SWOT Analysis

Opportunities
– chances to make greater sales or profits in
the environment
Threats
– elements in the environment that could
cause trouble for the business.

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Tool: SWOT Analysis

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 SWOT Analysis
Combinations
 Strategic direction
– The conceptualization
of how a business
might best move in
response to the
findings of a SWOT
analysis—Flaunt, Fix,
Fight, Flee, Find, or
Fire-up.

Figure 7.4 7-36

 Post Start-Up Strategy

Competitive advantage
– The particular way a firm implements
customer benefits that keeps the firm
ahead of other firms in the industry or
market.

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 Post Start-Up Strategy

Resources
– Any asset, capability, organizational
process, information, or knowledge that
contributes to the firm’s performance
– Tangible, Intangible

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 Organizational Capabilities

 Organizational capabilities
– abilities, skills, and competencies used by the firm
to make profits from tangible and intangible
resources
 Transformational competencies
– firm can make its product or service better in
value
 Combinational competencies
– combining tangible and intangible resources

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 Organizational Capabilities

 Valuable resource
– An asset, capability, organizational
process, information, or knowledge that
lets a firm take advantage of
opportunities or lock out competitors.
 Rare resource
– An asset, capability, organizational
process, information, or knowledge that is
not generally available to competitors.

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