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CHAPTER 8
Entrepreneurial Strategy
and Competitive Dynamics

© 2021 McGraw Hill. 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.
 Learning Objectives
After reading this chapter, you should be able to:
1. Describe the role of opportunities, resources, and
entrepreneurs in successfully pursuing new ventures.
2. Identify three types of entry strategies – pioneering,
imitative, and adaptive – commonly used to launch a new
venture.
3. Explain how the generic strategies of overall cost
leadership, differentiation, and focus are used by new
ventures and small businesses.
4. Explain how competitive actions, such as the entry of new
competitors into a marketplace, may launch a cycle of
actions and reactions among close competitors.
5. Identify the components of competitive dynamics analysis –
new competitive action, threat analysis, motivation and
capability to respond, types of competitive actions, and
likelihood of competitive reaction.
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 Looking Ahead

Recognizing Entrepreneurial Opportunities.

Entrepreneurial Strategy.
Competitive Dynamics.

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 Need for Entrepreneurial Strategy

Consider …
New technologies, shifting social and
demographic trends, as well as sudden
changes in the business environment can
create opportunities for entrepreneurship.
However, business opportunities can
disappear as quickly as they appear.
What do new ventures and entrepreneurial
firms need to do to achieve and sustain a
competitive advantage?

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 Recognizing Entrepreneurial
Opportunities
Entrepreneurship involves value creation and the
assumption of risk.
New value can be created in many contexts.
• Startup ventures.
• Major corporations.
• Family-owned businesses.
• Nonprofit organizations.
• Established institutions.
Ideas and opportunities can come from many sources.
Change or chance can uncover unmet customer needs.
https://www.investopedia.com/terms/e/entrepreneur.asp

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 Entrepreneurial Opportunity Analysis
The three factors needed to successfully proceed:

Opportunity

Resources Entrepreneurs(s)

Exhibit 8.1 Opportunity Analysis Framework

Source: Based on Timmons, J.A., & Spinelli, S. 2004. New Venture Creation (6th edition). New York:
McGraw Hill/Irwin; and Bygrave, W.D. 1997. The Entrepreneurial Process. In W.D. Bygrave (Ed.), The
Portable MBA in Entrepreneurship (2nd edition). New York: Wiley.

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 Entrepreneurial Opportunity Recognition

Entrepreneurial opportunities require

opportunity recognition.
Two phases of activity:
1. Discovery
• Becoming aware of a new business concept
2. Evaluation
• Analyzing the opportunity to determine
whether it is viable or feasible to develop
further

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 Entrepreneurial Opportunities: Discovery

Discovery phase — Becoming aware of the new

business concept. Ask: Where are the new venture
opportunities? What might be a creative solution to a
business problem?
• Can be spontaneous and unexpected.
• Can also result from a deliberate search.
• Are there frustrations with current products or
processes?
• Do stakeholders have unmet needs?
• What do other markets or industries do?
• Can we revive old ideas?

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 Entrepreneurial Opportunities:
Evaluation

Evaluation phase – Analyzing the viability of an

opportunity.
• Talk to potential target customers.
• Conduct a feasibility analysis.
• What are the operational requirements?
• What is the market potential?
• Is the idea strong enough to create value, and
therefore, profits?

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 Entrepreneurial Opportunities: Viability

Viable opportunities have the following qualities:

• They are attractive.
• They are achievable.
• They are durable.
• They are value-creating.
Resources also need to be available, including an
entrepreneurial leader and team.

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 Entrepreneurial Resources

Resources are essential for entrepreneurial

success.
• Financial resources.
• Human capital.
• Social capital.
• Government resources.
https://www.startmeup.hk/startup-resources/incubation-acceleration-programmes/

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 Entrepreneurial Financial Resources
Financial resources depend on the stage of venture
development and venture scale.
• Initial, startup financing.
• Personal savings, family, and friends.
• Crowdfunding.
https://www.thebalancesmb.com/best-crowdfunding-sites-4580494

• Early-stage financing.
• Bank loans, angel investors.
https://www.startmeup.hk/startup-resources/angels-venture-capitalists/

• Later-stage financing.
• Commercial banks, venture capitalists equity financing.

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 Entrepreneurial Human, Social, and
Governmental Resources
Human capital.
• Strong, skilled management.
Social capital.
• Extensive social contacts & strategic alliances.
• Technology, manufacturing, or retail alliances.

Federal, state, & local government

resources.
• Government contracting.
• Loan guarantee programs — SBA.
• Training, counseling, & support services.
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 Entrepreneurial Leadership
Entrepreneurial leadership needs:
• Courage.
• Belief in one’s convictions.
• Energy to work hard.
• Ability to build a dedicated team.
Leadership personality traits:
• Higher self-confidence, conscientiousness, openness
to new experiences, emotional stability.
• Lower agreeableness.
Leadership characteristics:
• Vision.
• Dedication and drive.
• Commitment to excellence.
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 Entrepreneurial Leadership: Vision, Drive
and Dedication
Vision is an entrepreneur’s most important asset.
• Requires transformational leadership.
• Ability to envision realities that do not yet exist.
• Ability to share this vision with others.
Drive & dedication are necessary.
• Involves internal motivation.
• Calls for intellectual commitment.
• Requires patience.
• Stamina, willingness to work long hours.
• Enthusiasm that attracts others.
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 Entrepreneurial Leadership:
Commitment to Excellence
Commitment to excellence is required.
• Commit to knowing the customer.
• Provide quality goods and services.
• Pay attention to details.
• Continuously learn.
• Connect the dots.
• Hire people smarter than themselves.

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 Entrepreneurial Strategy
New ventures require an entrepreneurial strategy.
• What are the industry conditions?
• What are the barriers to entry? (Five-forces analysis)
• What is the competitive environment?
• Might there be retaliation by established firms?
• What are the market opportunities?
• How should the firm actually enter a new market?
Firms must choose how to compete:
• Entry strategies
• Generic strategies
• Combination strategies

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 Entry Strategies

New venture entry strategies need to:

• Quickly generate cash flow.
• Build credibility.
• Attract good employees.
• Overcome the liability of newness.
Choices include:
• Pioneering new entry
• Imitative new entry
• Adaptive new entry

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 Entry Strategies: Pioneering

Pioneering new entry:

• Create new ways to solve old problems.
• Meet customers’ needs in a unique new way.
• Will it be accepted by consumers?
• Will it be disruptive to the status quo of an
industry?
• Will the advantage be sustainable against
imitators?

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 Entry Strategies: Imitative

Imitative new entry:

• Imitators have a strong marketing orientation.
• Capitalize on proven market successes.
• Introduce the same basic product or service in
another segment of the market.
• Can we do it better than an existing competitor?
• Will someone then imitate us?

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 Entry Strategies: Adaptive

Adaptive new entry:

• Capitalizes on current market trends.
• Offers a product or service that is somewhat new and
sufficiently different.
• Creates new value for customers.
• Captures market share.
• Does it do a superior job of meeting customer needs?
• Can it be easily imitated?
• How can we continue to keep it fresh and new?

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 Generic Strategies for New Ventures
Overall cost leadership — advantage due to:
• Simpler organizational structure and smaller size.

• Cost control via quicker decisions to upgrade

technology and integrate marketplace feedback.
Differentiation — can compete by:
• Offering a unique value proposition through
innovation and superior use of new technology.
• Deploying resources in a radical new way.
Focus — means ability to:
• Use niche strategies that fit the small business model.
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 Combination Strategies for New
Ventures

Pursuing combination strategies can combine

the best features of low-cost, differentiation, and
focused strategies.
• Holding down expenses by having a simple
structure.
• Creating high-value products and services by being
flexible and innovative.
• Offering highly specialized products or superior
customer service to a niche market.

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 Competitive Dynamics

New entry threatens existing competitors.

Competitive dynamics helps explain why
competitive strategies evolve and how to
respond.
• Need to identify new competitive action.
• Engage in threat analysis.
• Have the motivation and capability to respond.
• Understand the types of competitive action.
• Evaluate the likelihood of competitive reaction.

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 Competitive Dynamics Model

Exhibit 8.3 Model of Competitive Dynamics

Source: Adapted from Chen, M.J. 1996. Competitor Analysis and Interfirm Rivalry: Toward a Theoretical
Integration. Academy of Management Review, 21(1): 100-134; Ketchen, D.J., Snow, C.C., & Hoover, V.L.
2004. Research on Competitive Dynamics: Recent Accomplishments and Future Challenges. Journal of
Management, 30(6): 779-804; and Smith, K.G., Ferrier, W.J., & Grimm, C.M. 2001. King of the Hill:
Dethroning the Industry Leader . Academy of Management Executive, 15(2): 59-70.
Access the text alternative for slide images.

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 Competitive Dynamics: Why Launch
Actions?
Why do companies launch new competitive
actions?
• To improve market position.
• To capitalize on growing demand.
• To expand production capacity.
• To provide an innovative new solution.
• To obtain first mover advantages.
• To strengthen financial outcomes and capture profits.
• To grow the business.

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 Competitive Dynamics: Threat Analysis
Threat analysis involves an assessment of:
• Market commonality
• Resource similarity

How serious is the threat?

Motivation and capability to respond means asking:

• What type of competitive response is necessary?
• What resources are needed to fend off a competitive
attack?
Am I willing and able to launch an action?
Which competitive action should I take?
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 Competitive Dynamics: Actions
Types of competitive actions include:
• Strategic actions.
• Entering new markets.
• Creating new product introductions.
• Changing production capacity.
• Pursuing mergers or alliances.
• Tactical actions.
• Doing price cutting (or offering increases).
• Making product/service enhancements.
• Increasing marketing efforts.
• Developing new distribution channels.

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 Competitive Dynamics: Reaction
Likelihood of competitive reaction depends on:
• Market dependence.
• Competitor’s resources.
• The reputation of the firm that initiates the action
— the actor’s reputation.
Choosing not to respond is a choice and includes:
• Forbearance — holding back on an attack.
• Co-opetition — both cooperating and competing.
• Working together behind the scenes to achieve
industrywide efficiencies.

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 Competitive Dynamics and
Entrepreneurial Strategies
In summary: Entrepreneurial strategy
involves new value creation.
• Threatens existing competitors.
• Changes the competitive dynamics of the
marketplace.
Entrepreneurial activity involves risk.
• How should I enter a market?
• How should I compete?
• How should I deal with the competitor’s reaction?

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