MGT 409 - Chapter 8 Review
What are the 3 elements of Entrepreneurial Strategy?
- An Entrepreneurial Opportunity - The Resources to Pursue the Entrepreneurial Opportunity - An Entrepreneur or Entrepreneurial Team that is willing and able to Undertake the Opportunity
For an Opportunity to be Viable, what four qualities must it possess?
- Attractive - Achievable - Durable - Value Creating
According to lecture, what methods are typically used during the Early Stage of a Company's Financing?
- Bank Financing - Angel Investors
To be successful, New Ventures must evaluate industry conditions, the competitive environment, and market opportunities in order to position themselves strategically. Given that the New Venture is itself a New Entrant, what two factors should primarily be considered when evaluating market conditions?
- Barriers to Entry - The Threat of Retaliation by Incumbents
According to lecture, what methods are typically used during the Later Stage of a Company's Financing?
- Commercial Banks - Venture Capitalists - Equity Financing
According to lecture, what are the three main aspects of Entrepreneurial Leadership?
- Courage - Belief in One's Convictions - The Energy to Work Hard
The starting point for any New Venture is the presence of an Entrepreneurial Opportunity. For new Business Start-Ups, where might Entrepreneurial Opportunities come from?
- Current or Past Experiences - Hobbies that Grow Into Businesses or Lead to Innovations - Suggestions by Friends or Family - Chance Events that make an Entrepreneur aware of an Unmet Need
According to the Boston Consulting Group, what are the five methods by which a firm can Aggressively Attack its Rivals?
- Devastate Rivals' Profit Sanctuaries - Plagiarize with Pride - Deceive the Competition - Unleash Massive and Overwhelming Force - Raise Competitors' Costs
There are several factors that make it more difficult for New Ventures to be successful as Differentiators. What are these factors?
- Differentiation Strategies are generally thought to be expensive to enact - Differentiation successes are sometimes built on superior innovation or technology, which can be difficult for New Ventures to obtain
What are the two phases of the Opportunity Recognition Process?
- Discovery of Opportunity - Evaluation of Opportunity
What are the 4 main types of Entrepreneurial Resources?
- Financial Resources - Human Capital - Social Capital - Government Resources
In the United States, what are the two ways in which the Federal Government provides support for Entrepreneurial Firms?
- Financing - Government Contracting
Research indicates that Entrepreneurs tend to have personality attributes that distinguish them from corporate managers. What are these personality attributes?
- High Core Self-Evaluation - High Conscientiousness - Higher Openness to Experience - Higher Emotional Stability - Lower Agreeableness
While Strategic Alliances certainly have the potential to benefit Start-Ups, what are the Potential Pitfalls associated with them?
- If the Start-Up is working with a foreign firm, there may be a lack of oversight and control - Problems with product quality, timely delivery, and receiving payments - With technology alliances, there is a risk that large firms may take advantage of the technological expertise of their small, entrepreneurial partners
What are the reasons for a company taking New Competitive Actions?
- Improving Market Position - Capitalizing on Growing Demand - Expand Production Capacity - Provide an Innovative New Solution - Obtain First-Mover Advantages
According to many experienced entrepreneurs, what are some of the ways in which firms can undertake a structured search for Entrepreneurial ideas?
- Look at what's bugging you: What are the frustrations you have with current products or processes? - If you have a general idea of the market you want to go into, talk to the suppliers/customers/front-line workers in this market - Borrow ideas from other markets. This could involve looking at different geographic markets or different industries - Look to the past to find good ideas that have slipped out of practice but might now be valued by the market again
According to the text, what are some of the most common reasons why a cycle of competitive actions and reactions (Competitive Dynamics) gets started?
- New Entry into a market by Start-Ups or Incumbents - Threatening actions among existing competitors (e.g. aggressive cost cutting)
How can New Ventures successfully Deploy Cost-Leader Strategies?
- New Ventures often have simple Organizational Structures that make decision making both easier and faster - The small size of New Ventures also helps them to make changes quickly when shifts in the marketplace make it necessary - New Ventures are also able to make decisions at the time they are founded, making it easier to control costs and integrate marketplace feedback
What are the 3 Generic Strategies?
- Overall Cost Leadership - Differentiation - Focus
What are the 3 main New-Entry Strategies?
- Pioneering New Entry - Imitative New Entry - Adaptive New Entry
What must a New Venture do to sustain its Pioneering Advantage?
- Protect its intellectual property - Advertise heavily to build brand recognition - Form alliances with businesses that will adopt its products and services - Offer exceptional customer service
What are the 5 main contexts in which Entrepreneurship can take place?
- Start-Up Ventures - Major Corporations - Family-Owned Businesses - Nonprofit Organizations (Universities, Charities, etc) - Established Institutions
What is the leading source of business funding for Start-Ups? What is the leading source of business funding for Established Firms?
- Start-Ups: Informal Sources, such as Family and Friends - Established Firms (Firms that have existed for 5 years or more): Loan financing from banks and other credit firms - Note that for both Start-Ups and Established Firms, 5% or less of the funding comes from outside investors, such as Angel Investors or Venture Capitalists
What are three popular types of Strategic Alliances that are used to extend or strengthen Entrepreneurial Firms?
- Technology Alliances - Manufacturing Alliances - Retail Alliances (Licensing Agreements)
While Crowdfunding offers a new avenue for corporations to raise funding, what are the potential downsides associated with it?
- The Crowdfunding website takes 4-9% of the funds raised - While Crowdfunding offers a marketplace in which to raise funds, it also puts additional pressure on entrepreneurs - Entrepreneurs can struggle with how much information to share about their business ideas and financial statements
The starting point for any New Venture is the presence of an Entrepreneurial Opportunity. For Established Firms, where might Entrepreneurial Opportunities come from?
- The Needs of Existing Customers - Suggestions by Suppliers - Technological Developments that lead to New Advances
The types of Financial Resources that may be needed by an Entrepreneurial Firm depend on what two factors?
- The Stage of Venture Development - The Scale of the Venture
What are the Pitfalls associated with an Adaptive New Entry?
- The Value Proposition must be perceived as unique - The Product may easy for competitors to Imitate - Once an Adaptive Entrant achieves initial success, the challenge is to keep the idea fresh
What are the Pitfalls associated with a Pioneering New Entry?
- The product or service may not be accepted by consumers - If the Pioneering New Entry's product is successful, competitors will rush in to copy it. This can create Sustainability Issues for an Entrepreneurial Firm, especially if a larger company with greater resources introduces a similar product
What is Threat Analysis?
A firm's awareness of its closest competitors and the kinds of competitive actions they might be planning - Being aware of competitors and cognizant of whatever threats they might pose is the first step in assessing the level of competitive threat - Once a threat has been recognized, companies must determine how they should respond
What is Adaptive New Entry?
A firm's 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 - This strategy involves taking an existing idea and adapting it to a particular situation in order to create New Value for Customers
What is Pioneering New Entry?
A firm's entry into an industry with a radical new product or highly innovative service that changes the way business is conducted - A Pioneering New Entry may involve the creation of New Ways to solve Old Problems or meeting customers' needs in a unique new way
What is Imitative New Entry?
A firm's entry into an industry with products or services that capitalize on proven Market Successes and that usually have a Strong Marketing Orientation - Imitative New Entry strategies are used by entrepreneurs who see products or business concepts that have been successful in one market niche or physical locale and introduce *the same basic product or service* in another segment of the market
What are New Competitive Actions?
Acts that might provoke competitors to react, including: - New Market Entry - Price Cutting - Imitating Successful products - Expanding Production Capacity
What is Entrepreneurial Strategy?
A strategy that enables a skilled and dedicated entrepreneur, with a viable opportunity and access to sufficient resources, to successfully launch a new venture
According to the text, what is one of the most important factors to evaluate during the Opportunity Recognition phase? How does the evaluation of this factor change if a firm is a New Venture as opposed to an Established Firm?
Among the most important factors to evaluate is the Market Potential for the proposed product - Established Firms tend to operate in established markets. That is, they usually have a customer base for which they are already filling a marketplace need - New Ventures must determine whether a market even exists for their proposed product
What are Venture Capitalists?
Companies organized to place their investors' funds in lucrative business opportunities
When are Competitive Dynamics likely to be the most intense? What two factors are used to determine the intensity of the Competitive Dynamics between companies?
Competitive Dynamics are likely to be the most intense among companies that are competing for the same Customers or that have highly Similar sets of Resources - Market Commonality - Resource Similarity
What is Dedication and Drive? Where are they reflected?
Dedication and Drive are reflected in hard work - Drive involves Internal Motivation - Dedication calls for an intellectual commitment that keeps an entrepreneur going even in the face of bad news or poor luck
Why are Entrepreneurial Firms often in a strong position to offer a Combination Strategy? How does this differ for larger, more established Firms?
Entrepreneurial Firms are often in a strong position to offer a Combination Strategy because they have the flexibility to approach situations uniquely - Holding down expenses can be difficult for large firms because each layer of bureaucracy adds to the cost of doing business - Large firms often find it difficult to offer highly specialized products or superior customer services
What does it mean for an Entrepreneur to possess High Emotional Stability?
Entrepreneurs with a higher level of Emotional Stability exhibit a higher ability to handle ambiguity and maintain even emotions during stressful periods - They are also less likely to be overcome by anxieties
What does it mean for an Entrepreneur to possess High Conscientiousness?
Entrepreneurs with high levels of Conscientiousness tend to have a higher degree of organization, persistence, hard work, and pursuit of goal accomplishment
What does it mean for an Entrepreneur to possess High Openness to Experience?
Entrepreneurs with high levels of Openness to Experience have a desire to explore novel ideas
What does it mean for an Entrepreneur to possess High Core Self-Evaluation?
Entrepreneurs with higher levels of Core Self-Evaluation are confident in their abilities and feel in control of their destiny
What does it mean for an Entrepreneur to possess Low Agreeableness?
Entrepreneurs with low levels of Agreeableness tend to look out primarily for their own self-interest and also are willing to influence or manipulate others for their own advantage
What does it mean for Entrepreneurs to Commit to Excellence?
Excellence requires that Entrepreneurs commit to: - Knowing the Customer - Providing quality goods and services - Paying attention to details - Continuously learning
True or False: New Ventures that are launched with small teams are usually the most successful in the long-run. This is especially the case if the New Venture is launched by a single Entrepreneur
False - New Ventures that are started by teams of three, four, or five Entrepreneurs are more likely to succeed in the long-run than are ventures launched by "lone wolf" entrepreneurs - In the case of Start-Ups, more is better
True or False: Research indicates that the greatest opportunities may stem from seeking growth in existing markets as opposed to entering new markets
False - Research indicates that the greatest opportunities may stem from being willing to enter new markets rather than seeking growth only in existing markets
True or False: Entrepreneurial Ventures almost always become aware of the New Business Concept through spontaneous or unexpected events
False - While an Entrepreneurial Venture's discovery of a New Business Concept may be spontaneous, it can also result from a deliberate search for New Venture Opportunities or Creative Solutions to Business Problems
True or False: In the Opportunity Recognition Process, it is only necessary to identify the Venture Concept
False - Beyond merely identifying the Venture Concept, the Opportunity Recognition process also involves organizing the key people and resources needed to go forward
True or False: While Imitative New Entry may be beneficial to a New Venture in many ways, there is still the concern that the market may not accept the firm's product
False - By using an Imitative New Entry Strategy, our firm is imitating a proven concept - Thus, there is a lower level of uncertainty regarding whether the market will accept the product or not
True or False: Competitive Attacks can only come from New Entrants
False - Competitive Attacks come from many sources besides new entrants - Some of the most intense competition is among incumbent rivals intent on gaining strategic advantages
True or False: Most Start-Ups enter fast-growing, new industries
False - Despite all the attention given to fast-growing new industries, most start-ups enter industries that are Mature
True or False: Most New Entrants either use a Pure Imitation Strategy or a Pure Pioneering Strategy
False - Most New Entrants use a strategy that is somewhere between Pure Imitation and Pure Pioneering - That is, they offer a product or service that is somewhat new and sufficiently different to create new value for customers and capture market share
True or False: If an Entrepreneur has a strong Vision, they are sure to succeed
False - Simply having a Vision is not enough - To develop support, get financial backing, and attract employees, Entrepreneurial Leaders must be able to share their vision with others
True or False: The deliberate search for a New Opportunity is always concerned with identifying truly novel and creative Entrepreneurial Opportunities
False - While a deliberate search for a New Opportunity can aim to identify truly novel and creative Entrepreneurial Opportunities, it can also be be more focused to look for "obvious" opportunities that others have failed to see
True or False: Because bank financing, public financing, and venture capital are important sources of small business finance, these Financial Resources are readily available for Start-Ups
False - While these sources of small business finance are important, they are typically available only after a company has started to conduct business and generate sales
According to the text, what is one of the most challenging aspects of launching a New Venture?
Finding a way to begin doing business that: - Quickly Generates Cash Flows - Builds Credibility - Attracts Good Employees - Overcomes the Liability of Newness
Why are Focus Strategies often associated with small businesses?
Focus Strategies are often associated with small businesses because there is a natural fit between the narrow scope of the strategy and the small size of the firm - To be successful within a market niche, the key strategic requirement is to stay focused
Generally, what is the most important Entrepreneurial Resource for Business Start-Ups?
For Business Start-Ups, the most important resource is usually Money - This is because a new firm typically has to expend substantial sums of money just to start the business - However, it should be noted that Financial Resources are not the only kind of resource a New Venture needs
How can the use of a Combination Strategy improve the sustainability of an Entrepreneurial Firm's success?
For nearly all new entrants, one of the major fears is that its strategy will be copied by a large firm with more resources or a close competitor with a similar structure - Because of the flexibility of Entrepreneurial Firms, they can often enact Combination Strategies in ways that other firms cannot copy
What is Crowdfunding? Besides financing, what other benefit does it offer?
Funding a venture by pooling small investments from a large number of investors; often raised on the Internet - Crowdfunding can also provide Entrepreneurs with valuable feedback that can be used to refine or further innovate the firm's products
Why is it generally considered to be unwise for Start-Ups to enter Mature industries with a broad or aggressive strategy? What should these Start-Ups do instead?
If a Start-Up enters a market with a broad or aggressive strategy, it is likely to evoke retaliation from a more powerful Competitor - Young firms can often succeed best by finding a market niche where they can get a foothold and then make small advances that erode the position of existing competitors. - Once a Young Firm has a foothold in the marketplace, it can begin to build a name for itself and grow
With regards to the strategies proposed by the Boston Consulting Group, what does it mean to Raise Competitors' Costs?
If a company has superior insight into the complex cost and profit structure of an industry, it can compete in a way that steers its rivals into relatively higher cost/lower profit arenas - This strategy uses deception to make rivals think they are winning when in fact they are not
In terms of Viability, what does it mean for an Opportunity to be Achievable?
If an Opportunity is Achievable, it means that it is practical and physically possible
In terms of Viability, what does it mean for an Opportunity to be Durable?
If an Opportunity is Durable, it means that the Opportunity is attractive enough for its deployment to be successful - That is, the window of opportunity is open long enough for it to be worthwhile
In terms of Viability, what does it mean for an Opportunity to be Value Creating?
If an Opportunity is Value Creating, it means that the Opportunity is potentially profitable - That is, the benefits surpass the cost of development by a significant margin
With regards to the strategies proposed by the Boston Consulting Group, what does it mean to Deceive the Competition?
If competitors are distracted, they may miss strategic shifts, spend money pursuing dead ends, or be slow to respond
In terms of Viability, what does it mean for an Opportunity to be Attractive?
If the Opportunity is Attractive, it means that there is market demand for the new product - That is, the Opportunity is Attractive in the Marketplace
What is Competitive Dynamics?
Intense rivalry, involving Actions and Responses, among similar competitors vying for the same customers in a marketplace - Competitive Dynamics have the potential to alter a company's strategy - EX: New Entrants may be forced to change their strategies or develop new ones to survive competitive challenges by incumbent rivals
With regards to the strategies proposed by the Boston Consulting Group, what does it mean to Plagiarize with Pride?
Just because a close competitor comes up with an idea first does not mean it cannot be successfully imitated - In fact, Second Movers can see how customers respond to a product and then launch an improved version of it without all the market development costs - However, successful imitation is harder than it may appear. It requires that the imitating firm keep its ego in check.
What is Entrepreneurial Leadership? What are the three main characteristics of Entrepreneurial Leadership?
Leadership appropriate for New Ventures that requires courage, belief in one's convictions, and the energy to work hard even in difficult circumstances The three main characteristics of Entrepreneurial Leadership are: - Vision - Dedication and Drive - Commitment to Excellence
How can Social Capital be beneficial to New Ventures? What are the sources of Social Capital?
New Ventures founded by Entrepreneurs who have extensive Social Contacts and Strategic Alliances are more likely to succeed than those without them - Even if a Venture is new, it will gain exposure and build legitimacy faster if the founders have contacts who will vouch for them - Social Capital may be derived from prior jobs, industry organizations, and local business groups such as the chamber of commerce
With regards to the strategies proposed by the Boston Consulting Group, what does it mean to Devastate Rivals' Profit Sanctuaries?
Not all business segments generate the same level of profits for a company - Through focused attacks on a rival's most profitable segments, a company can maximize leverage with relatively smaller-scale attacks - However, it is worth noting that companies closely guard the information needed to determine just what their profit sanctuaries are
According to the text, what is often the key to success with an Imitative Strategy? When might Entrepreneurs be prompted to be Imitators?
Often, the key to success with an Imitative Strategy is to fill a market space where the need had previously been filled inadequately - Entrepreneurs might be prompted to be Imitators when they realize that they have the resources or skills to do a job better than an existing Competitor
With regards to the Opportunity Recognition Process, what does Opportunity Evaluation refer to?
Opportunity Evaluation involves analyzing an opportunity to determine whether it is Viable and strong enough to be developed into a full-fledged new venture - Ideas developed by new product groups or in brainstorming sessions are tested by various methods, which may include speaking with Potential Target Customers, Identifying Operational Requirements, and conducting Feasibility Analyses - If the Venture concept continues to seem viable, a more formal business plan may be developed
What are Angel Investors?
Private individuals who provide equity investments for seed capital during the early stages of a New Venture
In terms of Social Capital, how can Young and Small Firms (Start-Ups) benefit from Strategic Alliances?
Strategic Alliances can provide a key avenue for growth by Entrepreneurial Firms - By partnering with other companies, Start-Ups can expand or give the appearance of entering numerous markets / handling a range of operations
According to Bankers, Venture Capitalists, and Angel Investors, what is the most important asset an Entrepreneurial Firm can have? What are the ideal qualities of this asset?
Strong and Skilled Management (Human Capital) - Sometimes, an investor is actually investing in the Entrepreneur more so than the product itself - Managers must have a 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
With regards to the Opportunity Recognition Process, what does Discovery of Opportunity refer to?
The Opportunity Discovery phase refers to the process of becoming aware of a new business concept - An Entrepreneur may become aware of this new business concept through an epiphany or sudden moment of realization - Opportunity Discovery may also occur as a result from the Deliberate Search for new venture opportunities or Creative Solutions to business problems
What is the objective of the Small Business Administration (SBA)? What is the purpose of the programs sponsored by the SBA?
The SBA has several loan guarantee programs designed to support the growth and development of entrepreneurial firms while also promoting the region's economy - Programs sponsored by the SBA and other government agencies ensure that small businesses have the opportunity to bid government contracts
According to the text, what is an especially important skill needed for firms to succeed in the Gig Economy?
The ability of firms to extend their capital base to outside partners - Platform firms in the Gig Economy will only succeed if they can deliver Gig Workers who deliver high quality service
What is Entrepreneurship?
The creation of new value by an existing organization or new venture that involves the assumption of risk
What are the underlying desires of a firm launching New Competitive Actions?
The desire to: - Strengthen financial outcomes - Capture some of the extraordinary profits that industry leaders enjoy - Grow the business
With regards to the strategies proposed by the Boston Consulting Group, what does it mean to Unleash Massive and Overwhelming Force?
The firm commits significant resources to a major campaign to weaken rivals' positions in certain markets - Firms must be sure that they have the size and stamina required to win before they "declare war" against a rival
For firms that are young and small, how available is funding/financing? Explain why this might be the case
The funding to young and small firms tends to be quite limited - The majority of new firms are low-budget Start-Ups launched with personal savings and the contributions of family and friends - This lack of funding may be due to the fact that Start-Ups are at the earliest Stage of Development and begin on a relatively Small Scale
What is Opportunity Recognition?
The process of Discovering and Evaluating changes in the business environment that can be exploited These changes include New Technology, Sociocultural Trends, or Shifts in Consumer Demands
Arguably, what is an Entrepreneur's most important asset? Why is this?
Their Vision - With Vision, entrepreneurs are able to exercise a kind of Transformational Leadership that creates something new and changes the world
For all firms, there is a major overarching factor behind all viable opportunities that emerge in the business landscape. What is this factor? How do Entrepreneurial Firms use this factor to their advantage?
This factor is Change. Changes spark creative new ideas and innovation. Entrepreneurial Firms make the most of changes brought about by taking advantage of: - New Technology - Sociocultural Trends - Shifts in Consumer Demand
Both Established Firms and Small/Young Firms can pursue an Overall Cost Leadership Strategy. However, the way that the Overall Cost Leadership Strategy is achieved may be different for Small/Young Firms. Explain how and why
Three features of the Low-Cost Approach include achieving economies of scale, substantial capital investments, and using knowledge gained from experience to make Cost-Saving improvements. These elements are typically unavailable to New Ventures - New Ventures are small, so achieving high economies of scale relative to competitors is difficult - New Ventures typically have low amounts of cash, meaning that they can't make large capital investments to increase their scale advantages - New Ventures are generally young, so they may lack the knowledge and experience needed to achieve cost reductions
According to the text, how have companies encouraged the discovery of new opportunities?
To stimulate the discovery of new opportunities, companies often encourage the following: - Creativity - Out-of-the-box Thinking - Brainstorming
True or False: Many New Ventures are successful even when its share of the market is quite small
True
True or False: The Entry Strategy used by an Entrepreneurial Firm will vary depending on how risky and innovative the new business concept is
True
True or False: The level of available financing is often a strong determinant of how the business is launched and its eventual success
True - Cash finances and access to capital play a huge role in supporting the success of a new venture
True or False: Research suggests that the experience of older entrepreneurs gives them an advantage in building a successful, fast-growing firm
True - Even young founders find their best success when they hit middle age
True or False: Both Pioneering and Adaptive Entry Strategies involve some degree of Differentiation
True - For both strategies, the new entry is based on being able to offer a differentiated value proposition - EX: In the case of Pioneers, the New Venture is attempting to do something strikingly different, either by using a new technology or by deploying resources in a way that radically alters the way business is conducted
True or False: When a New Venture uses an Adaptive Strategy, they may be less likely to face Direct Competition
True - This is because the firm is doing something novel and different - However, unlike an Imitative Strategy, the Adaptive Strategy is not proven. Thus, there is the risk that the market may or may not accept the firm's product.
True or False: New Entry into markets, whether by start-ups or by incumbent firms, nearly always threatens existing competitors
True - This is true in part because, except in very new markets, nearly every market need is already being met, either directly or indirectly by existing firms - Thus, the competitive actions of a new entrant are very likely to provoke a competitive response from companies that feel threatened
True or False: The government itself does not typically lend money to small businesses, but instead underwrites loans made by banks to small businesses
True - This reduces the risk associated with lending to firms with unproven records
According to the text, when might Ventures have an especially difficult time growing from "good to great"? What is the implication of this for an organization's Leadership?
Ventures built on the charisma and dedication of a single person may have trouble growing from "good to great" once that person leaves - This means that the Leadership that is needed to build a great organization is usually exercised by a *team of dedicated people* working together rather than a single leader
