Small business- Chapter III

Michael Porter- 5 factors

*new competitors- easy for competitors to enter the industry *substitute products/services- replace services or products *rivalry-how intense is the rivalry among existing competitors in the industry * suppliers-demand high prices for inputs, increasing the company's cost and reducing -profits *buyers-force companies to charge low prices, reducing profit

New business ideas can be considered using either an outside-in analysis or an inside-out analysis. Determine whether each of the following situations depicts an outside-in or an inside-out approach. Outside-in or Inside-out? A serial entrepreneur is thinking about launching a startup that will rely heavily on specific kinds of manufacturing equipment, some of which he does not currently have. He conducts a search to see if any of this equipment is available for sale in his area.

In the outside-in approach, entrepreneurs look for needs in the marketplace and then determine how to use their own capabilities to pursue those opportunities

Which of the following is the most frequent source of new ideas for a business?

Prior work experience

A _____ analysis is a preliminary assessment of a business idea that gauges whether or not the venture envisioned is likely to succeed.

SWOT

new benefit ideas

startup ideas centered around providing customers with new or improved products or services or better ways of performing old functions

Core competencies are the same thing as competitive advantage. * (false)

A competitive advantage gives a startup or small business the upper hand by helping it to provide products or services that customers will choose over available alternatives.

A _____ assessment is focused less on whether industry conditions overall are suitable to launching a new business and more on the probability of a startup's success over the long run.

A micro-level industry assessment is focused more on the probability of a startup's success over the long run.

Which of the following is an example of an idea for a new startup coming from an accidental discovery?

A sharpshooter, who shot holes in a pair of her boyfriend's jeans during an argument, hears him get complimented on the way the jeans look.

What force benefited the various founders the most in the launching of the new ventures discussed in this feature?

Access to personal connections and networks cntributed to the ability of the various entrepreneurs to raise capital funding for their new venture, which was extremely important to the success of these ventures

What value does Raise create for its customers?

Allowing customers to transform unused gift cards into cash and selling gift cards at a discount.

serendipity

An accidental but fortunate discovery

Choosing a focus strategy has its advantages, but it can also lead to:

Competition from other companies that decide to imitate the same strategy

Which of the following statements is an example of a global trend?

Congress passes legislation that increases the tax rates on corporations.

Kitty-Kat Korner fabric shop caters to the quilters in the region. Nowhere else can a quilter find everything she needs: fabrics, notions, pattern books, even quilting machines and quilting classes. This is not your typical fabric store by any means. Which of the following best describes Kitty-Kat's strategy?

Differentiation-based

A company markets an individual yogurt serving with a collapsible spoon attached to the cup. This firm is pursuing a _____ strategy.

Differentiation-based strategy is unique and different from competitors' products.

Only cost-based strategies should be used when focusing on a market niche.

False

Research has revealed that startups based on a personal pastime are less likely than others to generate early sales and reach profitability.

False

Serendipity describes a new product idea resulting from deliberate search activities.

False

Unfortunately, a cost-based strategy usually doesn't work for small companies because they don't have the capacity to produce high volumes.

False. Cost-advantage factors are so numerous and diverse that, in some cases, small businesses may be able to use them with great success.

Research finds that the general environment affects large businesses and not the small ones, regardless of the industry.

False. The general environment, encompassing factors that influence most businesses in a society.

competitive environment

Focus on the strength, position, and likely moves and countermoves of competitors in an industry

opportunity recognition

Identification of potential new products or services that may lead to promising businesses

Outside-in or Inside-out? An experienced executive knows she is going to face stiff competition when she opens her consulting services business, but she believes she has a core competence that will provide a competitive advantage for her company

In the inside-out approach, entrepreneurs first evaluate their capabilities and then identify new products or services they might be able to offer to the market.

Outside-in or Inside-out? A ski shop owner considers adding surfboards to his range of product offerings in order to increase his cash flows during the summer months, when his sales tend to be very low. Surfing products would definitely even out his monthly sales. However, after a careful look at the opportunity, he recognizes that selling surfing equipment would require knowledge and skills that are far outside his core competencies, since neither he (nor his current sales staff) have any surfing experience.

Inside-out

Peggy would like to open a dog grooming business in her home. Which of the following, if true, would indicate this is a good idea?

More households now own dogs, but the owners don't want to give them regular baths.

Ideas based on selling existing products or services in a new context are called:

New market ideas.

_____ refers to the identification of new products or services that may lead to promising businesses.

Opportunity recognition

Outside-in or Inside-out? A small business owner wants to expand his product offerings to generate additional sales. He is strongly considering adding a popular item to his portfolio of product offerings, but he has learned that the legislature in his state is considering the passage of a bill that would severely limit sales of the product he has in mind.

Outside-in

Outside-in or Inside-out? With the goal of marketing a product that is attractive to a specific demographic group, an Internet entrepreneur looks at census tract data to determine the total size of a market that has the demographics she intends to target.

Outside-in

True

Outside-in analysis should consider the general environment, or big picture, and the industry setting in which the venture might do business.

Which of the following would be classified as an opportunity when conducting a SWOT analysis?

Positive reputation in the marketplace

Which of Michael Porter's five factors that determine the nature and degree of competition in an industry describes, "Can customers turn to other products or services to replace those that the industry offers?"

Substitute products/services is the factor that asks, "Can customers turn to other products or services to replace those that the industry offers?"

New technology ideas involve unique technology that is better than others currently available, it is feasible to implement, and is focused on a market need that is deep enough to generate sufficient sales.

TRUE> New technology ideas involve unique technology that is better than others currently available, it is feasible to implement, and is focused on a market need that is deep enough to generate sufficient sales.

General Environment

The broad environment, encompassing factors that influence most businesses in a society

What trend in the general environment led to the creation of Raise?

The creation of Raise was inspired mostly by the enactment of the Credit CARD Act of 2009, which extended the validity of gift cards from one year to five and made these cards useful for later trading. This created an opening for the company and the service it provides. See Section 3-3a: Outside-In Analysis.

As the success of the athletic teams at O-MY-U skyrocketed, so did attendance at the games. Out-of-town visitors found all the hotels fully booked. In response, Bob and Shirley opened their home to guests on weekends, operating as a bed and breakfast. Soon many of their neighbors did the same, and Bob and Shirley found they could no longer fill all their rooms every game weekend. How would Michael Porter explain this?

The focus strategy was imitated.

Combining expertise in a specific industry and experience with a problem or issue that people are dealing with can be a powerful source for a startup idea. What expertise and life insights did the entrepreneurs in this story lean on most in their pursuit of success in their businesses?

The starting place for success in these enterprises was in the entrepreneurs' understanding of what the market (women, in this case) needed and their recognition of how the shift toward the sharing economy created an opening for a new offering. However, establishing a quality brand that consumers trust is also crucial because consumers come to believe that it will be worth their time and money to buy the product or use the service.. Personal familiarity with what women want from the beauty care they pay for and their understanding of the power of branding built on high-quality service

Using a cost-based strategy, a company would take steps to increase efficiency and hold down costs.

True

Before entering into a competitive environment

Who would be the new venture's current competitors? What unique resources do they control? What are their strengths and weaknesses? How will they respond to the new venture's decision to enter the industry? How can the new venture respond? Who else might see and exploit the same opportunity?

Which of the following could be considered a core competency?

Zappos' 365-day return policy

A popular tool for studying the industry environment is Porter's five factors. Which of the following is NOT considered part of the five factors?

a. Federal government (correct) b. Substitute products and services c. New competitors d. Suppliers

Substitute products

are usually cheaper than the products they can replace.

re usually cheaper than the products they can replace.

cash reserves, manufacturing equipment, and an office building.

A small firm that provides low prices due to cost efficiencies is using a

cost-based strategy

A ___ is preliminary look at how well a business might do if it were opened.

feasibility analysis- A feasibility analysis allows the entrepreneur to uncover obvious flaws before risking a sizeable investment.

Entrepreneurs who want to start or build a business based on inside-out analysis will first need to

have an in-depth understanding of the general environment.

start up ideas- new technology

involving new or relatively new technology, centered around providing customers with a new product or service- high risk

startups

new business ventures created "from scratch". business that did not exist before entrepreneurs created them

New businesses often find it necessary to __ when the original idea is found to have flaws.

pivot- Pivot simply means to change direction when encountering an obstacle that uncovers holes in one's original plan.

start up ideas- new market

providing customers with a product or service that does not exist in a particular market but does exist somewhere else.

Relative to Coca-Cola, Pepsi Cola would be considered a _____ to/for Coca Cola under Porter's Five Forces model.

rivalry

Industry Environment

the environment that includes factors that directly impact a given firm and all of its competitors

An outside-in analysis involves assessing the firm's

the general environment and industry environment.

pivot

to refocus or recreate a startup if the initial concept turns out to be flawed

entrepreneurial alertness

unique capability

Garden Hoses, Inc. (GHI) focuses on offering a product that are unique and different from competitors' products. GHI is engaging in the _____ strategy.

Differentiation-based strategy is unique and different from competitors' products.

Many businesses are formed because an entrepreneur saw possibilities for improving or modifying an existing product or service as a result of prior work experience.

True

The demise of Blockbuster Video stemmed from which of the following vulnerabilities?

a. New entrants changed the industry's way of doing things. b. They stuck to an old, established way of doing business instead of innovating. c. Management failed to take into account the increasing feasibility of delivering video online. d. All of the above played a part in their demise. (correct)

Spotting trends can come from all of the following EXCEPT

a. Tinkering with products features alone * correct b. Listening to customers c. Joining social media groups d. Using focus groups

Which of the following is NOT an element of SWOT analysis?

a. Weaknesses b. Obligations (correct) c. Strengths d. Threats

Alyson and Andrea, country artists, realized that their love of classic rock was also popular with their fans. Their change to their show to incorporate more rock songs with a country flavor is an example of

adapting a product or service to meet customer needs in a different way.