Chapter 8: Entrepreneurial Strategy and Competitive Dynamics

Recognizing Entrepreneurial Opportunities

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Entrepreneurship: the creation of new value by an existing organization or

new venture that involves the assumption of risk
o Start-up venues
o Major corporations
o Family-owned businesses
o Non-profit organizations
o Established institutions
For an entrepreneurial venture to create value, three factors must be present
o Entrepreneurial opportunity
The starting point for any new venture
New business startups: opportunities come from
Current or past work experiences
Hobbies that grow into businesses or lead to inventions
Suggestions by friends or family
Chance event that makes an entrepreneur aware of an
unmet need
Established firms: opportunities come from
Needs of existing customers
Suggestions by suppliers
Technological developments that lead to new
developments
CHANGE
Major, overarching factor behind all viable opportunities
Creates opportunities
Most changes are brought up by
o new technology
o sociocultural trends
o shifts in consumer demand
Opportunity recognition
process of discovering and evaluating changes in the
business environment
process of identifying, selecting, and developing
potential opportunities
the discovery phase refers to the process of becoming
aware of a new business concept
To stimulate the discovery of new opportunities,
companies often encourage
o Creativity
o Out-of-the-box thinking
o Brainstorming
Evaluation involves analyzing an opportunity to
determine whether it is viable and strong enough to be
developed into a full-fledged new venture
Feasibility analysis

used to evaluate these and other critical success

factors
The most important factor: Market Potential
4 qualities for an opportunity to be viable
o Attractive: must be market demand for the new
product of service
o Achievable: must be practical and physically
possible
o Durable: must be attractive long enough for the
development and deployment to be successful;
window of opportunity must be long enough for it
to be worthwhile
o Value creating: must be potentially profitable;
benefits must surpass the cost of development by a
significant margin
Resources to pursue opportunity
Financial Resources
Cash and capital are important
The types of financial resources that may be
needed depend on two factors:
o Stage of Venture Development
Startup: funding limited
Personal savings and family/friends
majority of funds
o Scale of Venture
Startup: quite small
Angel investors: private individuals who provide equity
investments for seed capital during the early stages of a
new venture; not until winning business model and
dominance in a market niche
Venture capitalists: companies organized to place their
investors finds in lucrative business opportunities
o Always have high performance expectations but
also provide important managerial advice and links
to key contacts in an industry
Human Capital
Managers need to have strong base of experience and
extensive domain knowledge, as well as an ability to
make rapid decisions and change direction as shifting
circumstances may require.
Social Capital
Support of a social network
Strategic alliances represent a type of capital that can be
especially important to young and small firms
Government Resources
Small Business Administration (SBA)
o Loan programs
o Training, counseling, and support services
o

o Governmental contracting
Entrepreneur or entrepreneurial team willing and able to
undertake the opportunity
Entrepreneurial leadership: leadership appropriate for new
venture that requires courage, belief in ones convictions, and
the energy to work hard even in difficult circumstances

Three Characteristics of Leadership

Vision
o Most important asset
o Entrepreneurs are able to exercise a kind of
transformational leadership that creates something
new and changes the world in some way.
o Must share visions with others to develop support
Dedication and drive
o Drive involves internal motivation
o Dedication calls for intellectual commitment that
keeps an entrepreneur going even in the face of
bad news or poor luck
o Both require: patience, stamina, and a willingness
to work long hours
Commitment to excellence
o Excellence requires entrepreneurs to commit to:
Knowing the customer
Providing quality goods and services
Paying attention to details
Continuously learning

Entrepreneurial Strategy
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How does a new entrant evaluate the threat of other new entrants?
o Needs to examine barriers to entry
Too high not enter or gather more resources
o Evaluate threat of retaliation by incumbents
Entry Strategies
o Pioneering New Entry
A firms entry into an industry with a radical new product of
highly innovative service that changes the way business is
conducted
Example: first computer , internet browser
Pitfalls:
Not be accepted by customers
Never really get off the launching pad
May be necessary to protect intellectual property
Advertise heavily
Form alliances
Offer exceptional customer service

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Imitative New Entry

A firms entry into an industry with products or services that
capitalize on proven market successes and that usually has
strong marketing orientation
Have the resources or skills to do a job better than an existing
competitor
Adaptive New Entry
A firms entry into an industry by offering a product or service
that is somewhat new and sufficiently different to create value
for customers by capitalizing on current market trends
pure imitation and pure engineering
Involves taking an existing idea and adapting it to a particular
situation
Pitfalls
Value proposition may be perceived as unique
Nothing to prevent a close competitor from mimicking
Keeping the idea fresh
Choice of these three strategies depend on:
Competitive, financial and market considerations
BLUE OCEAN
Companies that are willing to venture into market spaces where
there is little or no competition
Elements
Create uncontested market space: focus on
customers rather than competition
Make the completion irrelevant: cross industry
boundaries
Break the value/cost tradeof
Pursue diferentiation and low cost simultaneously

Generic Strategies
o Overall Cost Leadership
o Diferentiation
o Focus
o Combined

Competitive Dynamics
o Intense rivalry, involving actions and responses, among similar
competitors vying for the same customers in a marketplace
o Model of Competitive Dynamics
New Competitive Action
Acts that might provide competitors to react, such as new
market entry, price cutting, imitating successful products,
and expanding product capacity
Reasons for launch new actions
o Improve market position
o Capitalize on growing demand
o Provide an innovative new solution

o Obtain first mover advantages

Threat Analysis
Firms awareness of its closest competitors and the kinds
of competitive actions they might be planning
Two factors used to assess whether or not companies are
close competitors
o Market commonality: the extent to which
competitors are vying for the same customers in
the same markets
o Resource similarity: the extent to which rivals
draw from the same strategic resources
Motivation and Capability to Respond
Consider these factors:
o How serious is the impact of the competitive attack
to which they are responding?
o What is the intent of competitive response?
Types of Competitive Actions
Strategic actions
o Major commitments and distinctive and specific
resources to strategic initiatives
Tactical actions
o Refinements or extensions of strategies usually
involving minor resource commitments
Likelihood of Competitive Reaction
Three Factors
o Market Dependence
Degree of concentration of a firms business
in a particular industry
High more at stake
o Competitors Resources
Small firm lack resources unable to
attack back
o Actors Reputation
Choosing Not to React: Forbearance and Co-operation
Forbearance
o Firms choice of not reacting to a rivals new
competitive action
Co-operation
o Firms strategy of cooperating and competing with
rival firms
Competitive actions can take many forms:
The entry of a startup into a market for the first time
Attack by a lower-ranked incumbent on an industry leader
Launch of a breakthrough innovation that disrupts the industry
structure