Chapter 03 Revised

Getting Started
Part 2 Starting From Scratch or Joining an Existing Business

PowerPoint Presentation by Charlie Cook The University of West Alabama
Copyright 2006 Thomson Business & Professional Publishing. All rights reserved.
Is an Idea a Good Investment Opportunity?

Market Factors
Is there a clearly defined market need for the product or service, and is the timing right?
Competitive Advantage
Can the proposed business achieve a durable or sustainable competitive advantage?
Economics
Is the venture financially rewarding, and does it have significant profit and growth potential?
Management Capability
Is there a good fit between entrepreneur and opportunity?
Fatal Flaws
Is there a fatal flaw that will make the venture unsuccessful?
Copyright 2006 Thomson Business & Professional Publishing. All rights reserved. 34
Two Paths to Entrepreneurship
Startup
Creating a new business from scratch
Buyout
Purchasing an existing business
35
Reasons for Starting a New Business

Developing a commercial market for a recently invented or newly developed product or service
Taking advantage of available resources, ideal location, advances in equipment, employees, suppliers, and bankers
Avoiding precedents, policies, procedures, and legal commitments of existing firms
Wanting the challenge of succeeding or failing on your own
36
Basic Questions about Startups

What other startup types might be considered? What are some sources for more new ideas? How to identify a genuine opportunity that creates value for both the company and the companys owners? How should the idea be refined? What can be done to increase the chances that the business will be successful? What competitive advantage does the business have over its rivals?
37
Evaluation Criteria for a Startup

Marketing Factors
Need for product
Identified or unfocused
Customers
Reachable or not, brand loyal
Value created for customer

Significant or insignificant
Life of product
Recovery of cost by customer
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Marketing Factors (contd.)
Market structure
Emerging or mature Market size (known or unknown?) Market growth (how fast?)
Competitive Advantage
Cost structure
Degree of control over: price, costs, channels of supply Barriers to entry: regulatory protection, response/lead-time advantage, legal, contacts, and networks
39

Economics
Return on investment?
Investment requirements Break-even point
Management Capability
Diverse skills or solo entrepreneur with no related experience
Fatal Flaws
310
Kinds of Startup Ideas

Type A
Startup ideas centered around providing customers with an existing product not available in their market
Type B
Startup ideas involving new ideas, involving new technology, centered around providing customers with a new product
Type C
Startup ideas centered around providing customers with an improved product
311
Types of Ideas that Develop into Startups

Type A Ideas
New Market
Type B Ideas
New Technology
Type C Ideas
New Benefit
Example: Targeting the "New Age" beverage market by selling soft drinks with nutritional value
Example: Using high-tech computers to develop a simulated helicopter ride
Example: Developing a personal misting device to keep workers cool
Exhibit 3.2
Sources of Startup Ideas
Family Business Friends/Relatives 6% 5%

Personal Interest/Hobby 16% Prior Work Experience Suggestion 7% 45%
Education/Courses 6% Chance Happening 11%
Other 4%
Source: Data developed and provided by the National Federation of Independent Business Foundation and sponsored by American Express Travel Related Services Company, Inc.
Exhibit. 3.3
Evaluating Entrepreneurial Opportunities

Outside-In Analysis
Studying the context of the venture to identify business ideas and determine which ideas qualify as opportunities
General Environment A broad environment encompassing factors that influence most businesses in a society Industry Environment The combined forces that directly impact a given firm and its competitors
316
Major Factors Offsetting Market Attractiveness
Threat of New Competitors Threat of Substitute Products or Services Intensity of Rivalry Among Existing Products Bargaining Power of Suppliers Bargaining Power of Buyers Attractiveness and Profitability of a Target Market
Exhibit 3.6
Competitor Analysis
Who are the new ventures current competitors? What resources do they control? What are their strengths and weaknesses? How will they respond to the new ventures decision to enter the industry?
How can the new venture respond?

Who else might be able to observe and exploit the same opportunity?
Are there ways to co-opt potential or actual competitors by forming alliances?
319
Evaluating Opportunities (contd.)

Inside-Out Analysis
Assessing the firms internal competitive potential
Resources
Basic inputs that a firm uses to conduct its business
Tangible resources: visible and easy to measure Intangible resources: invisible and difficult to quantify
Capabilities
Integration of various organizational resources that are deployed together to the firms advantage
Core Competencies
Resources and capabilities that provide a firm with a competitive advantage over its rivals
Integrating Internal and External Analyses

Strengths, Weaknesses, Opportunities, and Threats (SWOT) Analysis
A type of assessment that provides a concise overview of a firms strategic situation. Helps identify opportunities that match the venture.
Seeking Competitive Insight

Will the opportunity lead to others in the future? Will the opportunity build skills that open the door to new opportunities in the future? Will pursuit of the opportunity be likely to lead to competitive response by potential rivals?
Examples of SWOT Factors
Exhibit 3.7
Strategies that Capture Opportunities

Broad-Based Strategy
Seeking an advantage in cost or competition
Cost-Based Strategy
Requiring the firm to be the lowest-cost producer
Differentiation-Based Strategy
Emphasizing the uniqueness of the firms product or service
Focus Strategies
Targeting a specific market segment (niche) using either a cost- or a differentiation-based strategy
323
Setting a Direction for the Startup
Exhibit 3.8
Implementation of Focus Strategies

Restricting focus to a single subset of customers Emphasizing a single product or service Limiting the market to a single geographical region Concentrating on superiority of product or service
325
Important Strategic Terms

Strategic Decision
A decision regarding the direction a firm will take in relating to its customers and competitors
Sustainable Competitive Advantage

A value-creating industry position that is likely to endure over time
327

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Getting Started

Part 2 Starting From Scratch or Joining an Existing Business

Is an Idea a Good Investment Opportunity?

Two Paths to Entrepreneurship

Reasons for Starting a New Business

Avoiding precedents, policies, procedures, and legal commitments of existing firms

Wanting the challenge of succeeding or failing on your own

Basic Questions about Startups

Evaluation Criteria for a Startup

Value created for customer

Evaluation Criteria for a Startup

Evaluation Criteria for a Startup

Kinds of Startup Ideas

Types of Ideas that Develop into Startups

Example: Using high-tech computers to develop a simulated helicopter ride

Example: Developing a personal misting device to keep workers cool

Sources of Startup Ideas

Family Business Friends/Relatives 6% 5%

Education/Courses 6% Chance Happening 11%

Evaluating Entrepreneurial Opportunities

Major Factors Offsetting Market Attractiveness

How can the new venture respond?

Are there ways to co-opt potential or actual competitors by forming alliances?

Evaluating Opportunities (contd.)

Integrating Internal and External Analyses

Seeking Competitive Insight

Examples of SWOT Factors

Strategies that Capture Opportunities

Setting a Direction for the Startup

Implementation of Focus Strategies

Important Strategic Terms

Sustainable Competitive Advantage

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