SmBs Ch. 7

shake-out

A type of life cycle stage following a boom in which there is a rapid decrease in the number of firms in an industry.

parallel competition

An imitative business that competes locally with others in the same industry.

entry wage

An opportunity that makes it possible for a new business to gain a foothold in a market.

incremental innovation

An overall strategic approach in which a firm patterns itself on other firms, with the exception of one or two key areas.

innovative strategy

An overall strategic approach in which a firm seeks to do something that is very different from what others in the industry are doing.

mass market

large portions of the population

gross profit

Funds left over after deducting the cost of goods sold.

net profit

The amount of money left after operating expenses are deducted from the business.

profit before taxes

The amount of profit earned by a business before calculating the amount of income tax owed.

generic strategies

Three widely applicable classic strategies for businesses of all types—differentiation, cost, and focus.

1. Knowing your market scope helps deciding where to focus SALES and ADVERTISING efforts 2. Knowing your target market gives you a way to know which COMPETITORS to worry about most, namely those within your market scope

2 reasons scope is important

1. corporate 2. loyal 3. local 4. passionate

4 types of customers

tactical actions

Competitive responses with low resource requirements.

1. As owner, what do you expect out of the business? 2. What is your product or service idea (and its industry)? 3. For your product or service, how innovative or imitative will you be? 4. Who do you plan to sell to—everyone or targeted markets? 5. Where do you plan to sell—locally, regionally, nationally, globally?

5 initial key decisions

1. prestrategy 2. customers & benefits 3. industry dynamics & analysis 4. strategy selection & implement 5. post start-up strategy

5 stages of small business strategy process

cost strategy

A generic strategy aimed at mass markets in which a firm offers a combination of cost benefits that appeals to the customer.

focus strategy

A generic strategy that targets a portion of the market, called a segment or niche .

perceptual map

A graphic display which positions products, services, brands, or companies according to their scores of important strategic dimensions.

decline stage

A life cycle stage in which sales and profits of the firm begin a falling trend.

industry analysis (IA)

A research process that provides the entrepreneur with key information about the industry, such as its current situation and trends.

differentiation strategy

A type of generic strategy aimed at clarifying how one product is unlike another in a mass market.

boom

A type of life cycle growth stage marked by a very rapid increase in sales in a relatively short time.

industry dynamics

Changes in competitors, sales and profits in an industry over time.

degree of similarity

The extent to which a product or service is like another.

industry

The general name for the line of product or service being sold, or the firms in that line of business

introduction stage

The life cycle stage in which the product or service is being invented and initially developed.

competitive advantage

The particular way a firm implements customer benefits that keeps the firm ahead of other firms in the industry.

magic number

The post-tax income the entrepreneur personally seeks from the business.

pure innovation

The process of creating new products or services, which results in a previously unseen product or service. Also called blue ocean strategy

maturity stage

The third life cycle stage, marked by a stabilization of demand, with firms in the industry moving to stabilize or improve profits through cost strategies.

competitor

all the firms also selling that product or service.

market

business term for the population of customers for your product or service

benefits (value benefit, cost benefit) -The best way to identify desirable benefits is through potential customers

characteristics of a product or service that the target customer would consider worthwhile

supra-strategies

classic benefit combinations which are designed to work where there are many small businesses in an industry, along with a few larger firms

1. supply shortages (new product in demand) 2. unutilized resources 3. customer contracting (business downsizing) 4. second sourcing (second option, often local) 5. market relinquishment (major firm leaves market) 6. favored purchasing 7. government rules

examples of entry wedges

scope

geographic range covered by the market Local to Global

Good strategy leads to GREATER CHANCES for survival and HIGHER profits for small businesses

good strategy leads to...

niche market

narrowly defined segment of the population that is likely to share interests or concerns

porter's five-forces model of industry competition

see p. 205

scale

size of the market

1. goals (rewards, product/service, market) 2. customers and benefits (value and cost benefits) 3. industry dynamics and analysis (industry life cycle and industry trends) 4. strategy selection (generic strategies, supra-strategies, entry wedges 5. post start-up tactics (strategic and tactical actions)

small business strategy process

1. introduction 2. growth 3. shake-out 4. maturity 5. decline 6. death or retrenchment

stages of the industry life cycle

strategy

the ideas and actions that explain how a firm will make its profit

-rivals -entrants -substitutes -suppliers -customers

to determine competitive advantage, look at...

1. craftsmanship 2. elite 3. barebones 4. customization 5. single-mindedness 6. cutting out the intermediary 7. supersupport 8. formula facilities 9. decentralization

types of supra-strategies

value - displays characteristics related to the nature of the product or service itself (quality, fashion, reputation) cost - ways firm can keep costs lower for customers *to decide which benefits to offer --> perceptual map

value vs. cost benefits

its FIT to the particulars of your business and the RESOURCES you can bring to it

what makes a strategy good

growth stage

An industry life cycle stage in which customer purchases increase at a dramatic rate.

retrenchment

An organizational life cycle stage in which established firms must find new approaches to improve the business and its chances for survival.

imitative strategy

An overall strategic approach in which the entrepreneur does more or less what others are already doing.

strategic actions

Competitive responses requiring a major commitment of resources.