Section 1

The Entrepreneurial
Perspective
Chapter 3
Generating and Exploiting
New Entries

©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
 New Entry
New entry is one of the essential acts of entrepreneurship.
• Newness can be both good and bad.

Entrepreneurial strategy maximizes benefits of newness and

minimizes its costs. Elements include:
• The generation of a new entry opportunity.
• The exploitation of a new entry opportunity.
• A feedback loop.

If the new entry is exploited, performance depends on:

• Entry strategy.
• Risk reduction strategy.
• The way the firm is organized.
• Competence of the entrepreneur and management team.

©McGraw-Hill Education.
 Generation of a New Entry Opportunity
Resources are the building blocks, combined in various ways to
achieve superior performance.
• Valuable if it allows the firm to pursue opportunities, neutralize
threats, and offer products and services valued by customers.
• Rare when few or no competitors have it.
• Inimitable when replicating the bundle is difficult and/or costly.

©McGraw-Hill Education.
 Entrepreneurial Resource
The basis for entrepreneurial resource is knowledge built up over
time through experience – idiosyncratic, therefore rare.
• The entrepreneur’s market knowledge is deeper than knowledge
gained through market research.
• Entrepreneurs who lack this knowledge are less likely to recognize or
create attractive opportunities for new products or new markets.

• An entrepreneur’s technological knowledge often leads to new

markets rather than meeting unmet market needs.

A resource bundle is the basis for a new entry – created from the
entrepreneur’s market and technological knowledge, and other
resources.

©McGraw-Hill Education.
 Assessing the Attractiveness of a New Entry Opportunity
The following considerations help the entrepreneur determine if
the product is valuable, rare, inimitable and worth pursuing.
• Information on a new entry.
• Window of opportunity may be open or shut.
• Comfort in making decisions under uncertainty – must choose
between an error of commission or an error of omission.

The assessment of a new entry’s attractiveness is less about if

the opportunity exists and more about the entrepreneur
believing they can make it work with entrepreneurial strategies.

©McGraw-Hill Education.
 First Mover Entry Strategy
First movers develop a cost
advantage
First movers face less
competitive rivalry.
First movers can secure
important suppliers and
channels of distribution.
First movers are better
positioned to satisfy
customers.
©McGraw-Hill Education.
First movers gain expertise
through participation.
First movers do not always
prosper.
First mover advantages must
outweigh the disadvantages
and depend on:
• Environmental stability.
• Ability to educate customers.
• Ability to erect barriers to
entry and imitation to extend
the firm’s lead time.
 Environmental Instability – First Mover (Dis)Advantages
Performance depends on the fit between a firm’s bundle of
resources and the external environment.
• For a good fit, first determine key success factors.
• Environmental changes are likely in emerging industries.

Entrepreneurs face demand and technological uncertainty.

• Demand uncertainty makes it difficult to estimate future demand.
• First movers must often commit to a new, unproven technology
resulting in technological uncertainty.
• When demand is unstable or technological uncertainty is high, first mover
disadvantages may outweigh first mover advantages.
• Changes in demand or technology means the firm must adapt to new
environmental conditions – difficult due to inertia.

©McGraw-Hill Education.
 Customers’ Uncertainty and First Mover (Dis)Advantages
The element of newness may mean uncertainty for customers.
• They may be uncertain about how to use the product or its benefits.

To reduce this uncertainty, entrepreneurs can:

• Offer informational advertising or use comparison marketing.

When the product is highly innovative, the customer may lack a

frame of reference for processing product information.
By delaying entry in a market requiring considerable education,
the firm might benefit from the investments of first movers.
First movers can have an advantage when :
• Education directs customer preferences to the firm’s products, when
the firm is seen as a “founder,” and when the firm can erect barriers to
entry and imitation.

©McGraw-Hill Education.
 Lead Time and First Mover (Dis)Advantages
Entry barriers provide a grace period of limited competition.
• This lead time lets the first mover prepare for future competition.

The first mover can extend lead time by using barriers to entry.
• Building customer loyalties.
• Building switching costs.
• Protecting product uniqueness.
• Securing access to important sources of supply and distribution.

Barriers to entry reduce competition.

If there is insufficient customer demand, consider allowing
competitor into the industry to share pioneering costs.

©McGraw-Hill Education.
 Risk Reduction Strategies for New Entry Exploitation
A new entry involves considerable risk.
The choice of market scope ranges from a narrow- to a broad-
scope strategy depending on the risk targeted for reduction.
• Narrow-scope strategy offers a small product range to a small number
of customer groups.
• Vulnerable to the risk that market demand does not materialize or
changes over time.

• A broad-scope strategy takes a “portfolio” approach and offers a range

of products.
• If new entry involves creation of a new market, a broad-scope strategy
reduces the major risk of uncertainty over customer preferences.

©McGraw-Hill Education.
 Imitation Strategies
Imitation strategy is another strategy for minimizing risk.
• Imitation is easier than conducting a systematic and expensive search.
• Imitating successful practices helps the entrepreneur develop skills
necessary for industry success.
• Imitation provides organizational legitimacy.

Imitation strategies include franchising and “me-too” strategy.

• In the “me-too” strategy, variations may be minor product changes,
entering new markets, or delivering the product in a different way.

An imitation strategy may reduce R&D costs, reduce customer

uncertainty, and provide immediate legitimacy.

©McGraw-Hill Education.
 Managing Newness
Creation of a new organization offers some liabilities of newness.
• Learning new tasks is expensive and takes time.
• Role responsibility may overlap or have gaps.
• The informal structure takes time to establish.

The entrepreneur can also benefit from assets of newness.

• Established routines can be a liability when the firm faces change.
• Previous practices create momentum, redirection is difficult.

A heightened ability to learn new knowledge is a source of

competitive advantage.
New ventures have strategic advantage over mature companies,
particularly in dynamic environments.

©McGraw-Hill Education.