Subject Entrepreneurship

Segment Strategies and Models

Topic Entrepreneurial Strategies

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Table of Contents
1. Overview
2. Crafting Entrepreneurial Strategy
3. Entry Wedges: New Product or Service
4. Entry Wedges: Parallel Competition
5. Entry Wedges: Franchising
6. Resource-based Strategies
7. Isolating Mechanisms and First-Mover Advantages
8. First-Mover Disadvantages
9. Strategic Postures and Orientations
10. Self-Assessment
11. Summary

1. Overview

The founders of Cisco Systems, a computer-networking firm with over $22 billion in
sales, reported that they started their firm without a particular business vision.
Should entrepreneurs craft a strategy before they actually begin a venture?
The answer to this question is both Yes and No. Some entrepreneurs probably had
some well-thought out strategies to create and guide their new ventures. Others
may not be conscious of a specific strategy because they have neither articulated nor
documented it. However, most entrepreneurs have a sense of what they want to do
and how they want to do it. They may not be able to articulate this in the words and
concepts as used in this topic, but they are focused people and they often can see
the path to success before others are even aware of an opportunity.
In this topic, we will examine the concept of entrepreneurial strategy in detail. We
will learn what an entrepreneurial strategy is and how some entrepreneurs
consciously or unconsciously crafted a strategy. By analysing and reflecting on a few
true entrepreneurial stories, you will learn about the choices that entrepreneurs have
when crafting a strategy. You would have learnt about the basic business level
generic strategies of cost leadership, differentiation and focus. These strategies are
applicable to entrepreneurial ventures as well. We will now add the entrepreneurial
options to these basic foundations.
We will begin with discussing the factors to be considered while crafting
entrepreneurial strategy and then link it with a practical application of these factors.
You will then read about the mode of entry strategies followed by a few stories
reflecting the application of these strategies. Resource-based strategies will be
covered next, followed by a detailed review of isolating mechanisms and first-mover
advantages (FMA). We will wrap up the topic by reading about the strategic postures
that a venture can adopt.

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Subject Entrepreneurship
Segment Strategies and Models
Topic Entrepreneurial Strategies

Objectives: Entrepreneurial Strategies

Upon completion of this topic, you should be able to
 describe the factors to be addressed while crafting entrepreneurial strategy
 identify the types of strategies that an entrepreneur can adopt
 explain the concept of an entry wedge
 identify various major and minor entry wedges
 describe the three resource-based strategies that an entrepreneur can employ
 identify the various Isolating Mechanisms
 describe the First-Mover advantages (FMA)
 identify the four strategic postures that a new venture can adopt

2. Crafting Entrepreneurial Strategy

A strategy is defined as a pattern of decisions that shape the venture's internal
resource configuration and deployment, and generally guide alignment with the
environment.
If you read the above definition carefully, you will notice that it has all of the
dimensions of entrepreneurship rolled up within it - the individual who make the
decisions, the resources and structure of the organisation and the operating and
remote environment that provide the context. In short, strategy can be seen as the
cohesive force that binds all the dimensions of a venture into a single and powerful
economic entity.
Before we proceed with exploring the concept of entrepreneurial strategy, attempt
this short exercise.

Reflect on the following statements and think whether you agree or disagree with
them.
1. For a successful entrepreneurial venture, it must have either a unique product
or a unique service.
2. Before beginning a venture, the entrepreneur must spend a lot of time on
analysis, planning and research.
3. Execution must wait until research and analysis is complete.
4. For start-ups to be successful, they need an edge on every front.
5. A successful entrepreneur is one who makes the most of any opportunity that
comes his/her way.
This reflection activity was meant to help you reflect on your own views about
entrepreneurial strategy. Management literature reflects some perceptions that
people have regarding entrepreneurial strategy.

Reading: Adopting Strategies that Work

Read the following article to learn more about the perceptions and realities
associated with crafting entrepreneurial strategies.
Bhide, A.V. “How Entrepreneurs Craft Strategies that Work”, Harvard Business
Review 72 no.2 (March-April 1994): 150-161.
Some questions you can ask yourself on this article are:
1. Do you think that the crafting process makes sense for an entrepreneur?
2. Out of the three main elements, which one is the most important for you?

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Subject Entrepreneurship
Segment Strategies and Models
Topic Entrepreneurial Strategies

3. Do you think that the simplest ideas are always the best?

As the article indicates, analogous to the opportunity recognition process, the

strategy development process is non-linear, heuristic and requires flexibility. The
most important elements for entrepreneurial success are speed in seizing
opportunities and eliminating unpromising ideas, a concentration on important issues
and the use of realistic and spontaneous actions that include changing course, if
necessary.
Simply put, the success of entrepreneurial strategy is based on the following actions:
screen out losers quickly, focus on a few key issues and integrate action and
analysis.

Business Start-Up Activities

Let us learn more about these actions.
Screen out losers quickly
In the crafting of strategy, entrepreneurs frequently have to be very fast and agile
because speed to market or to access resources can confer an advantage. That
means there is little time for long drawn out data collection and analysis. Therefore,
entrepreneurs use a few basic rules that have worked well for them as individuals in
the past. These rules enable them to be decisive.
The key is not to pursue a poor opportunity, which is considered a Type II error. A
Type II error uses up time, resources and money, and ruins the entrepreneur's
reputation as a winner. It is better to pass on a good opportunity and commit a Type
I error because it costs little to make this mistake. The next good opportunity is just
around the corner.
Focus on a few key issues
Issues will vary depending on the entrepreneur and the opportunity. For example, if
the opportunity is retail, location will be a go or a no go issue. If the opportunity is
the manufacture of a new pharmaceutical, the key issues to consider will be
regulatory approval and licensing.
Integrate action and analysis
Typically, the entrepreneur will not wait until all of the analysis is complete, and all
the answers to the questions are known before getting started. Since time is of the
essence, there is a need to integrate action and analysis.
In fact, it is common for entrepreneurs to do their market research by simply trying
to find customers. If customers are found, the research shows:
1. There are customers
2. These particular customers should be captured first
The information gathered in the action research stage will be used as data to revise
and reconfigure the opportunity. The data may indicate that some or all of the
opportunity is not what it appeared to be in the early screen stage.

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Subject Entrepreneurship
Segment Strategies and Models
Topic Entrepreneurial Strategies

As you can see, opportunity recognition is frequently not a logical process. Success
means making the business tangible to others. What are the business start-up
activities that make this happen? A recent study reports on the frequency of start-up
activities and these are shown in the presentation below:

Business Start-up Activities

1. 52% spent a lot of time thinking about the business
2. 18% took classes or workshops
3. 16% saved money to invest
4. 13% invested their own money
5. 11% developed a model or procedures for the product or service
6. 7% defined market opportunities
7. 7% purchased raw materials and supplies
8. 7% prepared a business plan
9. 6% organised a start-up team
10. 3% leased major property, plant or equipment
Source: (Gartner, W., Carter, N. and Reynolds, P. Business Start-up Activities,
Chapter 26 (285-298) in Handbook of Entrepreneurial Dynamics: The Process of
Business Creation. Gartner, Carter and Reynolds (ed.). Sage Publications (2004).

Now that you have learnt about the factors to be considered while crafting
entrepreneurial strategy and the activities of new entrepreneurs, let us look at an
example to see how these concepts are put into practice.
Reading: Maintaining the cap in rough tides: Perween Warsi’s story
The following article will show you the story of Perween Warsi, how she made a
success from scratch and had to go through at least two rough events, potentially
lethal for her activities.

Richard, C. " Perween Warsi", Director vol 57 issue 4 (Nov 2003): 56-60
Review the article and reflect on the questions below,
 How did Perween craft her entrepreneurial strategy?
 Did she modify it with the development of the company?
 Do you think she will have to do it now that she is facing new challenges?
You will learn through this example that the entrepreneur was able to screen out the
losers and develop a good fit between the company and its environment.

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Subject Entrepreneurship
Segment Strategies and Models
Topic Entrepreneurial Strategies

3. Entry Wedges: New Product or Service

Entry wedges are the initial strategies that

entrepreneurs employ to get themselves into
business. Entry edges can be major or minor.
All new ventures employ one or more of three
major entry wedges: new product or service,
parallel competition, franchising.

The minor wedges are momentum factors that augment the major wedge that the
firm uses to enter the market. The more momentum factors that a new venture has
going for it, the more likely its initial thrust into the market will be successful. This is
the same as saying, "look for as many opportunities for sales and support that you
can find".
Review the detailed description of these entry wedges on Minor Wedges in the
eTextbook.
Among the major entry wedges, a new product or service is the most potent.
Drucker refers to this as being first with the most strategy. The strategy aims at
achieving a permanent leadership position either within an existing industry or by
creating a new industry. The Reading Box below presents the story of a venture that
adopted this entry wedge.
Reading: One of a Kind: The Tupperware Story
An enterprising and entrepreneurial individual, Earl Silas Tupper founded Tupperware
in 1938. Tupper's passion for experimenting and inventing can be traced back to his
childhood days. As a child, he invented a frame to facilitate the cleaning of chickens,
which was granted a patent. In 1937, Tupper joined the plastics manufacturing
division of DuPont to work with Bernard Doyle, the inventor of Viscoloid whom he
had met in 1936. Although he worked at DuPont only for a brief period, he used the
experience that he had gained here to set up the Earl S. Tupper Company in 1938.
At a time when most consumers rejected plastic containers due to the odour and
brittleness of plastic, Tupper invented non-greasy, non-brittle airtight and watertight
containers. Notwithstanding, during the initial launch, none of the retail stores could
sell these containers. However, today Tupperware International is a global company
with representatives in more than 100 countries. What finally made this product a
success?
Read the following article for a detailed version of the story. While reading the
article, reflect on the questions below.

Lukas, P., “Party Like It's 1951”, FSB 13 no.6 (1 July 2003): 118
 Which entrepreneurial strategy can you identify in this example?
 What combination of factors made this venture a success?
 How did the venture end up as a phenomenal success?

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Subject Entrepreneurship
Segment Strategies and Models
Topic Entrepreneurial Strategies

You will learn that the Tupperware story is one of the most successful
entrepreneurial ventures in America in the 1950s. The invention and marketing of
Tupperware is considered a famous entrepreneurial product and service innovation.
Not only was the product unique, but the method of sales was also an aggressive
innovation and entry wedge.
You just read how an innovative product backed by an equally innovative sales
strategy made its mark in the history of successful entrepreneurship. Let us now look
at what happens when an entrepreneur enters a market that is dominated by
established brands.

4. Entry Wedges: Parallel Competition

The second major entry wedge is parallel

competition. This entry wedge involves the
introduction of competitive duplication that is
parallel but not identical to existing products
and services. The duplication is a small
innovation or a variation in a well-accepted
product line or service system. Usually, these
innovations represent an attempt to fill a niche
in the market. A review of the article
referenced in the Reading Box will help you
understand this concept.

Reading: The Beauty Business: Toeing the Line

The business of making people look beautiful is almost timeless. Both well-
established brands and start-ups have been co-existing in this area, and there is
room for more. Read the following article for an in-depth update of this ageless
business. While reading the article, reflect on the questions below:

"Pots of promise - The beauty business" Economist vol. 367 issue 8325 (24 May
2003): 69-71
 How do the major and minor brands co-exist?
 Is the growth of this market a result of innovation?
You will learn that both new start-ups as well as established companies continue to
enter products and services in one of the most ancient of all industries - cosmetics.
Although firms struggle to come up with new ideas and concepts in the beauty
business, some are able to find the occasional twist, such as the introduction of
cosmeceuticals. However, all the companies are selling hope and beauty in a bottle.
We have seen an example of successful new products and services. We have also
seen an example of successful parallel competition. In the next section, we explore
the third entry wedge, franchising.

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Subject Entrepreneurship
Segment Strategies and Models
Topic Entrepreneurial Strategies

5. Entry Wedges: Franchising

Franchising takes a proven formula for success

and expands it. It is an international
phenomenon, and you can find out about
international franchise opportunities at the
International Franchising website.
Through franchising, franchisors expand their
business by using other people's money, time
and energy to sell their products or services.
These other people are called the franchisees.
Let us look at a couple of examples on
successful franchising.

In the example given below, we see how three women used franchising to launch
multi-unit businesses. They also found that the franchise environment was a good
one to help them juggle the pressures of family life and entrepreneurship.
Reading: Execution Excellence: Success Stories in Franchising
Research indicates that 71% of most new ventures are ideas that individuals
encounter through a previous employment, and which they modify or replicate. Here
is a collection of three successful entrepreneurial stories of people who made it big
not by having a unique idea or service, but by becoming franchisees.
Read the following articles for a detailed account of success stories in franchising.
While reading the article, reflect on the following questions.
"Open the Door to Success", Business Franchise (Feb 2006):22-23
Wilson, S., "Coming of Age", Entrepreneur vol. 32 issue 8 (Aug 2004): 84-87

 How important is it to have a unique idea or product for a successful business

venture?
 Is it important to have business experience to take up franchising?
 What role is the franchisor expected to play?
You will learn that people without previous experience in business are able to
become entrepreneurs through franchising. While the franchisee provides most of
the expertise and knowledge, the franchisor provides the investment and human
capital.

You have just learned about major and minor entry wedges. You have also read
examples of major entry wedges: unique products and services, parallel competition
and franchising.

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Subject Entrepreneurship
Segment Strategies and Models
Topic Entrepreneurial Strategies

Let us explore the concept further with a scenario example.

Ming Chen is an accomplished Black Belt martial artist. He is professionally trained in
defensive tactics, weapons use, first aid and communication skills. His first job was
as a Security Officer employed with a mid-sized security firm called A to Z Security in
California. A to Z Security supplied personnel for office buildings, manufacturing
facilities, banks, hotels and restaurants, schools and so on. A to Z Security has
recently decided to stop providing Bodyguard and Executive protection services due
to high cost structures.
After his stint with A to Z Security, Ming took up the position of Security Manager for
a mid-sized retailer located in Los Angeles, California. As the security manager, his
duties and responsibilities entailed the provision of internal security against
shoplifting by customers and employees and external store security against break-
ins and vandalism. In addition, he also had the responsibility of overseeing cash and
night deposit, supervising security guard personnel and managing relations with the
police department.
Ming has recently decided to quit his second job and start his own security firm. He
has been working on this thought for quite some time now, and has conducted an
informal market survey. The findings reveal that most security firms in Los Angeles
provide a diversified set of security services and that there is a shortage of
professionally trained bodyguards in Los Angeles. Therefore, Ming is thinking of
setting up a security firm solely dedicated to providing professionally trained
bodyguards.
Now that you have reviewed the scenario, what do you think is the major entry
wedge in this situation?
1. A shortage of professionally trained bodyguards in Los Angeles
2. A to Z Security's decision to stop providing bodyguard and executive
protection services
3. Ming's decision to start a security firm solely dedicated to providing
bodyguard services
4. Ming's Black Belt in martial arts and the professional training that he has had
in the area of security
You will learn that Ming's decision to start a security firm solely dedicated to
providing bodyguard services. Most security firms in Los Angeles provide a diversified
set of security services. Ming's decision to carve a niche in providing professionally
trained bodyguards is the major entry wedge, that is, Parallel Competition. The
following Reading box details how an organisation adopted parallel competition as
the major entry wedge and made a success out of the venture.

Reading: Creative Imitation

Parallel competition, also called sometimes creative imitation, has been the strategy
followed by several newly industrialised countries to catch up with industrialised
economies.
The article below will discuss what happened in Korea and the link with Intellectual
Property Rights.
Kim, L. "Technology Transfer and Intellectual Property Rights: The Korean
Experience", Bridges (2002): 5-8

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Subject Entrepreneurship
Segment Strategies and Models
Topic Entrepreneurial Strategies

You will learn how technological development occurred through parallel competition,
basically producing the same products but with new performance features, often
linked to the price due to cheap labour forces.
Entry wedges are not full-blown strategies but are rather the methods the founders
use to get their initial foothold in a business. So, how does a venture sustain the
initial competitive advantage that it gains? This is done through resource-based
strategies and FMA, which we will explore in the next section.

6. Resource-based Strategies
According to the resource-based view (RBV) of entrepreneurship, firms can have a
sustainable competitive advantage only if they possess resources and capabilities
that are rare, valuable, hard to copy and non-substitutable.
Within RBV, entrepreneurs can employ four specific types of strategies. Since the
nature of sustainable competitive advantage in RBV has to do with rent-seeking
behaviour, these strategies are referred to as rent-seeking strategies. In our
framework, the concept of rent corresponds to the source of profit from controlling
and employing resources or assets. Rents are of four types: Ricardian rent, Monopoly
rent, Entrepreneurial rent and Quasi rent. The strategy to obtain each is also
different. Let us review the types of rent-seeking strategies in the presentation
below.

Types of Rent-Seeking Strategies

You learned that rents are of four types, namely Ricardian rent, Monopoly rent,
Entrepreneurial rent and Quasi rent. Let us summarise about each rent seeking
strategy before going further.
Ricardian
Rents are derived from controlling physical resources, such as land or some natural
resource, such as coal or oil.
Monopoly
Rents are derived from controlling licenses, intellectual property, copyrights, patents
or any form of restrictive agreement that prevents other firms from using a resource
without paying you a fee.
Entrepreneurial
Rents are derived from being first to market, taking risk by starting a business or
being opportunistic.
Quasi
Rents are derived from a specific sunk investment or capability that is associated
with the assets or resources of another company.
For example, rent derived from vending machines owned by one company, that is
the entrepreneur, and located on the premises of another company. The better the
location, the more the entrepreneur can charge for the product in the machines. This
profit is made with the association of the location with the machine.

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Subject Entrepreneurship
Segment Strategies and Models
Topic Entrepreneurial Strategies

Another example would be the recent phenomenon of locating a coffee shop, that is
the entrepreneur, inside an established bookstore. The entrepreneur can often
charge more than the usual street price for the coffee because the co location and
investment has made that cup of coffee more valuable to the bookstore customer or
the coffee drinker.

For a detailed description of the resource-based strategies read Resource-Based

Strategies in the eTextbook.

7. Isolating Mechanisms and First-Mover Advantages

A rent-seeking strategy will provide the new venture with a source of competitive
advantage. However, for sustainable competitive advantage to occur, the rents must
also be protected. Therefore, entrepreneurs employ methods to prevent the rents
generated through the new venture from leaking out. These methods are known as
Isolating Mechanisms.
Monopoly rents are protected by government enforcement and the rule of law.
Ricardian rents are protected through ownership rights or lease agreements. You
either own the asset or property or you have the right to use it under contract.
Quasi-rents are protected by contracts between two or more companies that enter
into asset specific agreements. Joint venture partnerships are frequently employed to
implement the quasi-rent strategy.
Sometimes there are statuary restrictions that keep others from entering the
business. Giving a limited number of licenses to serve liquor within a jurisdiction is
an example of setting statutory restrictions. Courts also enforce patents, copyrights
and proprietary intellectual property.
Corporate entrepreneurs have some additional first-mover advantages by virtue of
their historical existence. For example, they may already have established brands
and consumers may be loyal to these brands. Early market entry can gain customer
support as the loyalty spills over to the new product or service. In addition,
corporations have greater financial capacity than new-venture entrepreneurs. This
means they can sometimes pre-empt competitors by securing hard-to-copy
resources very early. These resources might be prime locations, key advertising
media or simply human resources and managerial talent.
Isolating Mechanisms will not last for long, especially entrepreneurial rents, which
are most likely to be dissipated with the passage of time. Therefore, the
entrepreneur needs to do something else to establish a strong position. This is
known as First-Mover Advantage. The advantages in being first for the entrepreneur
include the following: Technological leadership, Production and volume leadership,
pre-emptive rights and switching costs. Let us review these advantages in the
presentation below.

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Subject Entrepreneurship
Segment Strategies and Models
Topic Entrepreneurial Strategies

First-Mover Advantage
Let us explore these advantages in detail.
Technological leadership
Being a technological leader can generate patents, a strong R&D base and help set
industry standards for years to come.
Production and volume leadership
Being a leader in production and volume can generate economies of scale that
provide cost advantages that may be long lasting.
Pre-emptive rights
This can give the entrepreneur, who is first, the right of first refusal for
Switching costs
This is the cost that can be imposed on buyers by generating early brand loyalty or
setting standards for use.

You have read and understood the concept of First-Mover Advantages. Check your
understanding of this concept by attempting the short exercise below. Read the
following article and then answer the following question.
Fred, V., J. Helyar, A. Taylor III, A. Lashinsky, B. Cherry and M. Tran “The
Disrupters”, Fortune 148 no.3 (11 August 2003): 62

What are the commonalities among these first-mover disrupters? Which two of the
following options do you think are appropriate?
1. Most of them entered businesses where there were already established ways
of doing things and traditions, and they did it differently.
2. Most of them used technology in some novel way and found ways to legally
protect their lead and advantages.
3. Most of them introduced a new technology.
Now that you have reviewed the options let us see whether you identified the correct
answers.
Options 1 and 2 are the commonalities among these first-mover disrupters. Most of
them entered businesses where there were already established ways of doing things
and traditions, and they did it differently. They also used technology in some novel
way and found ways to legally protect their lead and advantages.

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Subject Entrepreneurship
Segment Strategies and Models
Topic Entrepreneurial Strategies

8. First-Mover Disadvantages
Being the first mover has its potential advantages. However, the advantages of being
first can be elusive or even non-existent. According to an address by James
Utterback at the Academy of Management meeting in Seattle recently, systematic
research show that being the first mover does NOT usually lead to becoming the
winner. Presumably, often an early innovative imitator does everything right that the
first mover does right, and also does better some of those things that the first mover
does not do right. If this is correct, being the first mover gives potential but not
always realised advantages. If the first mover does not listen to the market and
becomes enamoured of the business model and strategy, then others will make the
appropriate adaptations in the business model, and some clever imitator will eat the
cake.
Intrapreneurs have some extra burdens to carry and these add to their first mover
disadvantages. By moving too quickly to introduce a new product or service,
corporate entrepreneurs risk
 incurring high R&D expenses
 facing underdeveloped supplier markets
 facing underdeveloped distribution channels
 facing challenges of immature enabling technologies and complements (what
good is a fax machine without reliable data transmission lines and fax paper?)
 misunderstanding uncertain customer requirements
To the question then of who wins - the first mover or the clever follower - the answer
must at this point be, who knows?
Reading: First-Mover Advantages: Is the Advantage Short-Lived?
The authors of this article link the empirical findings on first-mover advantages with
the complementary stream of research on the resource-based view (RBV) of the
firm. While the first part of the article provides an update on the FMA literature, the
latter part focuses on the link between RBV and FMA. Read the following article to
learn more about first-mover advantages and some disadvantages. While reading the
article, reflect on the questions below:
Hamel, G. “Smart Mover, Dumb Mover”, Fortune 144 no.4 (3 Sept 2001): 191-195.
 Who benefits from pioneering?
 Do pioneers have a specific skill and resource profile?
 Are resources and capabilities enhanced by early entry?
 Does the potential advantage gained by pioneers ensure a strong position as
the market evolves?
You will learn that new research literature on FMA reveals that the advantages of
early market entry differ significantly across geographic markets and product
categories. In addition, early entrants to markets may gain advantages through the
pre-emption of various resources, such as technology, location and personnel, and
through the development of organisational capabilities that are crucial to the success
of their products or services. However, the research findings also indicate that FMA
may also have disadvantages.
You just read about the advantages of being a first mover. You also read that being
the first mover may also have some disadvantages. Read the article specified in the
Reading Box below to learn how a new entrepreneurial venture did not become
successful, despite being the first mover.

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Subject Entrepreneurship
Segment Strategies and Models
Topic Entrepreneurial Strategies

Reading: Future Beef: Mistakes Made and Lessons Learned

FDR, Finally Done Right! This was the initial name suggested by the founders of
Future Beef Incorporated of Arkansas City, Kansas (USA). This venture was founded
by a team of experts with the goal of being the first to use modern genetic data,
mechanised production and high-tech computer systems to process cattle into beef
and by-products.
 What was unique about this venture?
 What first-mover advantages did the founders have?
 Did the initial advantage of being the first mover ensure the success of this
venture?
 Were resources and capabilities enhanced by the innovation?
 Did the founders make any mistakes?
To find answers to these questions and for the complete story, read the following
article.
Jess, M. “How did these genius cattlemen blow it so badly?”, Inc. 25 issue 8 (August
2003): 86-95
You will learn that after over US$100 million invested in the most up-to-date
vertically integrated plant of its kind, the entrepreneurs lost all, declared bankruptcy
and looked on as another company bought their assets and re-started the plant,
having learned all the lessons.
However, Bowling, one of the founders, remains proud, and remarks in the article.
"We knew when we started out that we were visionaries and not execution people",
he continues. "You have to know, when you're a visionary that you're going to have
high risk".

9. Strategic Postures and Orientations

History, the patterns of decisions made by organisational leaders and the inertial
effects of policies, practices and trends combine to form the overall strategic posture
of a venture. A strategic posture is an overarching commonality of purpose and
culture. Organisations can be characterised by the postures they take in solving the
problems they face. The postures include:
 Prospector posture
 Defender posture
 Analyser posture
 Reactor posture
Let us review these postures in the presentation below.

Strategic Postures
Let us review each strategic posture to learn more about it. We will begin with the
profile and then go on to execution issues, organisational principles and future of the
prospectors.
Profile of prospectors
The prospector posture is the one most relevant for most entrepreneurship and new
venture creation. Prospectors are characterised by continual searching and scanning
behaviour, experimentation and innovation. They create change for other
competitors and add uncertainty when entering into stable industry environments.

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Subject Entrepreneurship
Segment Strategies and Models
Topic Entrepreneurial Strategies

Prospectors often employ the new product or new service wedge, and they can be
found in larger numbers in emerging industries. Prospectors are more likely to try to
overcome fragmentation than cope with it.
Execution Issues of prospectors
However, the high levels of innovation combined with market turbulence can lead the
venture to run the risk of low profitability and over extension of resources. Since
prospectors are always scanning and looking for new opportunities, they must also
solve the problem of avoiding long term commitments to a single technology or set
of resources. They can achieve flexibility by using multiple technologies and by
resisting high levels of investment in fixed plant and equipment. Prospectors will put
together networks of people and organisations on an ad hoc or semi permanent
basis. This technological flexibility allows the prospector to respond rapidly to
changes in opportunities, but the venture seldom achieves maximum efficiency in
production and distribution because of the multiple technologies.
Since prospectors do not have permanent fixed investment, they face the managerial
problem of facilitating and coordinating the numerous and diverse operations.
Prospectors solve this problem by ensuring that marketing and R&D people are the
dominant decision makers. This keeps the firm sensitive to customers and change. In
addition, they frequently consult and employ important outsiders, such as customers
and suppliers, and their organisations to manage the more routine elements of the
production and distribution chain.
Organisational Principles of prospectors
Power is correlated with expertise, and individuals frequently move in and out of
power depending upon the particular expertise required. Both individual and firm
performance is measured against the competition. This type of administrative
system, sometimes known as an organic system, is best suited to maintaining
flexibility, but it does have a cost. Resources may be underutilised in the process.
Human resources sometimes require more stability than this system can offer.
Future of prospectors
What happens to the prospector who actually starts a business that goes through the
life cycle and becomes a stable, mature enterprise? There is always the possibility
that the prospector will sell it and go on prospecting. It is also likely that the
prospector will begin a process to change his or her strategic positioning to a
defender or analyser.
The prospector posture can be highly successful and profitable if the posture is
consistently executed. Let us review the profile, execution issues, organisational
principles and future of the defenders.
Profile of defenders
The defender posture is not typical of an entrepreneur in the process of new venture
creation but exists as an incumbent. The defender tries to seal off a portion of the
market to create a stable set of products and customers. The defender's main
objective is to defend a niche. This is done by narrowly defining the niche and
refusing opportunities to expand the scope of the business. Within the niche, the
defender is quite aggressive, emphasising high quality products, superior service and
competitive pricing. The defender is cautious and the firm grows slowly, primarily
through market penetration. The benefit of this strategy to the defender is that it
makes the firm hard to displace. The cost is that the defender is extremely
susceptible to environmental change and shifts in the market.

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Subject Entrepreneurship
Segment Strategies and Models
Topic Entrepreneurial Strategies

Execution Issues of defenders

The defender faces the production problem with the objective of being as efficient
and cost effective as possible. Usually employing a single core technology, the
defender makes a permanent and fixed investment in the most efficient plant and
equipment available. Process innovation to improve efficiencies is an important
element in maintaining a low cost position. The dangers of this strategic posture are
found in major technological shifts and market dynamism.
Organisational Principles of defenders
To ensure efficiency, the defender must maintain strict control. Therefore, the
organisation that the defender creates most resembles a bureaucracy. Finance and
production experts dominate. Promotions are from within, and tenures are lengthy.
The key organisational principles are the division of labour and hierarchy of control.
Individual and firm performance is measured against last year's performance.
Future of defenders
This posture is extremely effective in stable environments, but it does not respond
well to new product or market opportunities. The business models of firms that were
founded as prospectors may develop into a defender position. It is not easy to do
continuous innovation or always to find new markets. One shot success firms will
have to become defenders to supplement the inability to maintain a successful
prospector posture.
The first defender posture can be highly successful and profitable if the posture is
consistently executed.
Now, let us review the profile, execution issues, organisational principles and future
of the analysers.
Profile of analysers
The analyser posture combines the best of the prospector and defender postures into
a hybrid mode. Analysers attempt to be flexible to new opportunities while
simultaneously maintaining a base of traditional core products and customers.
Therefore, they perform a balancing act, they must scan externally while maintaining
internal focus. The best way to do this is to combine a relatively low investment in
R&D with selective imitation of demonstrably successful new products. Thus,
analysers enter new markets with the parallel competition wedge.
Execution Issues of analysers
Since analysers grow through me too competition, they must develop other
advantages. They do this primarily through the design of the organisation and its
systems. Production issues dominate the stable portion of the firm's activities.
Organisational Principles of analysers
The analyser organisation is extremely complex. It must manage many technical
stable and dynamic technical cores. It must employ the bureaucratic systems of the
defender and yet maintain the flexibility and organic systems of the prospector. To
solve these problems, the analyser is dominated by people in applied research and
marketing. The venture is driven by intensive planning and coordination.
Performance appraisal is based both on effectiveness and efficiency measures.

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Subject Entrepreneurship
Segment Strategies and Models
Topic Entrepreneurial Strategies

Future of analysers
This type of posture is ideally suited to maintaining balance and flexibility, but if the
balance is lost, it may be difficult to restore equilibrium.
The analyser posture can be highly successful and profitable if the posture is
consistently executed.
Reactors
The reactor posture is the residual posture, it is what the organisation becomes when
it is inconsistent and indecisive. The reactor, as the name explains, reacts. There is
little planning or conscious choice. The reactor is unable to respond effectively to
change, because no change is ever anticipated. The reactor is always in crisis mode,
it always manages by putting out fires.
The reactor posture is the one posture that must be avoided. A venture can fall into
the reactor trap by failing to be consistent with the posture that led to its most
important successes.
Reactors almost always perform lower than the prospector, defender and analyser
postures.

It is important for the entrepreneur to control, or at least understand, the posture

that the new venture is taking, because research has shown that consistency within
a posture is positively related to firm performance.
There have been many studies based upon this notion of strategic postures. The
basic work is R. Miles and C. Snow, Organisational Strategy: Structure and Process.
New York: McGraw-Hill, 1978.

10. Self-Assessment
Now, try the self-assessment questions to test your understanding of the topic. Click
the following link to open the Self-Assessment in a new window.
Self-Assessment
Q1. Which three of the following are factors important for entrepreneurial success?
1. Display speed in seizing opportunities.
2. Concentrate on important issues.
3. Act realistically and spontaneously.
4. Never let go of an opportunity.
Q2. Select the major entry wedge.
1. New product or service
2. Perceived need
3. Exploiting Partial Momentum
4. Market Relinquishment
Q3. A Ricardian rent is generated by:
1. controlling land or natural resources.
2. controlling intellectual property, copyrights, patents, etc.
3. being the first to enter a market.
4. being associated with another company or investment.
Q4. Which of the following is NOT a key element of First-Mover Advantages (FMA)?

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Subject Entrepreneurship
Segment Strategies and Models
Topic Entrepreneurial Strategies

1. Technological leadership leading to patents and a strong R & D base

2. Economies of scale
3. Low cost financing
4. Generating early brand loyalty among buyers
Q5. Which three of the following are examples of the prospector posture?
1. Constant searching and scanning
2. Attraction to new products and emerging industries
3. Forming ad-hoc networks of people and organisations
4. Commitment to a single technology
Q6. Which three of the following suggest that the defender posture is atypical for an
entrepreneur?
1. Concentration on protecting a market niche
2. Forming ad hoc networks of people and organisations
3. Moving slowly and cautiously
4. Commitment to a single technology by making a high investment
Q7. The analyser posture:
1. Attempts to pursue new opportunities while simultaneously maintaining a
traditional base
2. Avoids entering markets with a parallel competition wedge
3. Evaluates every opportunity exhaustively before acting
4. Is a simple and relaxed approach to entrepreneurship
Q8. An organisation that is inconsistent and indecisive is exhibiting which posture?
1. Prospector posture
2. Defender posture
3. Analyser posture
4. Reactor postures

11. Summary
This topic covered the following points:
 Entrepreneurs should formulate strategies for operating their business and
managing the resources. Strategies help align the firm within its environment.
 Entry wedges provide the initial strategic probe of the firm. There are major
wedges and minor wedges, which provide momentum to the firm.
 Resource-based strategies enable the firm to collect rents for its resources
and unique skills and capabilities. Entrepreneurial rents are the most quickly
dissipated by emerging competition.
 Entrepreneurs employ isolating mechanisms, which are methods to prevent
the rents generated through the new venture from leaking out.
 FMA includes technological leadership, production and volume leadership, pre-
emptive rights and switching costs.
 Enterprises can assume one of four possible strategic postures. For the new
venture, the prospector posture is the most effective and consistent with the
strategies of the entrepreneur.
Credits and Disclaimer
Microsoft is a registered trademark of Microsoft Corporation in the United States and/or other countries.
Netscape and Navigator are registered trademarks of Netscape Communications Corporation.
The Wall Street Journal's Center for Entrepreneurs. All rights reserved.

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