BA405 Test 2: Ch 8

Forbearance

refraining from reacting at all as well as holding back from initiating an attack

market commonality

the extent to which competitors are vying for the same customers in the same markets

resource similarity

the extent to which rivals draw from the same types of strategic resources

Resources

essential for entrepreneurial success -Financial resources -Human capital -Social capital -Government resources

Competitive Dynamics

intense rivalry, involving actions and responses among similar competitors vying for the same customers in a marketplace -New entry threatens existing competitors -Helps explain why strategies evolve and how to respond to: New competitive action Threat analysis Motivation and capability to respond Types of competitive action Likelihood of competitive reaction

Discovery Phase

Becoming aware of the new business concept -sometimes based on prior knowledge -often spontaneous and unexpected -Can also result from a deliberate search for new venture opportunities or creative solutions to business problems

Crowdfunding

funding a venture by pooling small investments from a large number of investors, often raised on the internet

Entrepreneurial strategy

strategy that enables the skilled and dedicated entrepreneur, with a viable opportunity and access to sufficient resources, to successfully launch a new venture. -To be successful, new ventures must evaluate 1) industry conditions, 2) the competitive environment, and 3) market opportunities in order to position themselves strategically -You Need... 1) Entry strategies 2) Generic strategies 3) Combination strategies

Opportunity Recognition

the process of discovering and evaluating changes in the business environment, such as a new technology, socio-cultural trends, or shifts in consumer demand, that can be exploited. Entrepreneurs must go through a process of identifying, selecting, and developing potential opportunities. -2 Phases: 1) Discovery Phase 2) Evaluation Phase

Threat analysis

a firm's awareness of its closest competitors and the kinds of competitive actions they might be planning -How serious is the threat? -What is the intent of the competitive response? -What resources are needed to fend off a competitive attack? -Which action should I take? -involves an assessment of market commonality and resource similarity (if competitor is high in both, its a stronger competitive threat)

Co-Opetition

a firms strategy of both cooperating and competing with rival firms -Working together behind the scenes to achieve industrywide efficiencies

Competition among incumbent rivals can involve "hardball" strategies:

Devastating rivals' profit sanctuaries Plagiarizing with pride Deceiving the competition Unleashing massive & overwhelming force Raising competitors' costs

Choosing not to respond

-Forbearance -Co-opetition

Likelihood of competitive reaction

-Market dependence (more likely if single-industry or dominates market) -Competitor's resources (more likely /extreme if have more resources ) -The reputation of the firm that initiates the action - the actor's reputation

Adaptive New Entry Strategy

-Offers a product or service that is somewhat new and sufficiently different -Takes existing idea and adapts to particular situation -Capitalizes on current market trends -Creates new value for customers -Captures market share Is it sufficiently unique and different? Can it be easily imitated? How can we continue to keep it fresh and new?

Overall cost leadership

-Simpler organizational structure -Quicker decision-making to upgrade technology & integrate marketplace feedback -Hard to do because don't have high economies of scale relative to big competitors and get business taken away from b/c they offer product/service at lower price

Entrepreneurial Opportunities

-Start-up ventures: ideas/opportunities come from current/past work experiences, hobbies, suggestions by friends/family -Established Firms: ideas/opportunities come from needs of existing customers, suggestions by supplier, technological developments -For all firms, change or chance events can uncover unmet consumer needs -Requires opportunity recognition

Differentiation

-Using new technology -Deploying resources in a radical new way -Both pioneering and adaptive entry strategies involve some degree of differentiation value proposition. -However, differentiation successes are sometimes built on superior innovation or use of technology, which is challenging for young firms to implement relative to established competitors.

Viable Opportunities

Need to have these 4 qualities in marketplace: 1) Attractive: must be market demand for new product/service 2) Achievable: must be practical and physically possible 3) Durable: must be attractive long enough for the development and deployment to be successful 4) Value Creating: must be potentially profitable - benefits surpass cost of development by significant margin -If a new business concept meets these criteria, two other factors must be considered before the opportunity is launched as a business: 1) the resources available to undertake it 2) the characteristics of the entrepreneur pursuing it.

Combination Strategies for New Ventures

-Combine the best features of low-cost, differentiation, and focused strategies -Hold down expenses by having a simple structure -Create high-value products & services by being flexible & innovative

Commitment to Excellence

-Commit to knowing the customer -Providing quality goods and services -Paying attention to details -Continuously learning -Connecting the dots -Hiring people smarter than themselves

Drive & Dedication

-Drive involves internal motivation -Dedication calls for intellectual commitment (keeps an entrepreneur going even in the face of bad news or poor luck) -Both require: Patience, stamina, a willingness to work long hours, and enthusiasm

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 & capture profits -To grow the business

Focus Strategies

-Using niche strategies that fit the small business mold -Works best for small businesses because there is a natural fit between the narrow scope of the strategy and the small size of the firm -Young firms can often succeed best by finding a market niche where they can get a foothold and make small advances that erode the position of the existing competitors

Vision

-an entrepreneur's most important asset Requires: 1) Transformational leadership 2) Ability to envision realities that do not yet exist 3) Ability to share this vision with others (in order to develop support, get financial backing, and attract employees)

Imitative New Entry Strategy

-imitators have a strong marketing orientation -Capitalizing on proven market successes -Introducing 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? ex: Square

Strategic Actions (competitive action)

-major commitments of distinctive and specific resources to strategic initiatives -Entering new markets -New product introductions -Changing production capacity -Mergers/alliances

Social Capital

-need extensive social contacts -need strategic alliances (especially for young/small firms) - provide key avenue of growth and gives ability to example or give appearance of entering numerous markets or handling a range of operations (TECHNOLOGY, MANUFACTURING, RETAIL ALLIANCES)

Pioneering New Entry Strategy

-radical new product or highly innovative service that changes way business is conducted (often inventors of new technology) -creating new ways to solve old problems or meeting customers' needs in a unique new way -if unique enough, may have little direct competition (computer) -will it be accepted by consumers? -Will it be disruptive to the status quo of an industry? -Will it be sustainable? (protect its intellectual property, advertise heavily to build brand recognition, form alliances with businesses that will adopt its products or services, and offer exceptional customer service)

Tactical Actions (competitive action)

-refinements or extensions of strategies usually involving minor resource commitments, can be implemented quickly, and draw on general resources -Price cutting (or increases) -Product/service enhancements -Increased marketing efforts -New distribution channels (more likely to react to)

Generic Strategies

1) Overall cost leadership 2) Differentiation 3) Focus

Government resources

1. Government contracting (programs sponsored by SBA and other agencies ensure small businesses have opportunity to bid on contracts to provide good and services to gov) 2. Loan guarantee programs (underwrites loans made by banks to small businesses thus reducing risk) 3. Training, counseling, & support services (state and local governments provide funding, contracts, and other support)

Evaluation Phase

Analyzing the opportunity to determine whether it is viable or feasible to develop further -Talking to potential target customers -Identifying operational requirements with production or logistics manager -Conduct feasibility analysis: what is the market potential, Is the idea strong enough to create value, and therefore profits ?

Three ingredients are critical in order for an entrepreneurial startup to be successful. What are they? A. Good ideas, a team of investors, and a business plan. B. A viable opportunity, available resources, and a qualified and motivated founding team. C. An opportunity, a marketing plan, and office space. D. Management, marketing, and money.

B. A viable opportunity, available resources, and a qualified and motivated founding team

Human Capital

Bankers, venture capitalists, and angel investors agree that the most important asset an entrepreneurial firm can have is strong and skilled management. -managers need to have strong base of experience, and extensive domain knowledge, ability to make rapid decisions, change direction as shifting circumstances -more is better: teams of 3, 4, 5 more likely to succeed

Which of the following might best describe the motivations and actions of small firms as they respond to competitive attacks? A. Because they lack legitimacy in the marketplace, small firms need to signal their competitive actions long before they launch those actions B. Small firms typically have more resources available as they undertake competitive attacks. C. Small firms are more nimble and can respond quickly to competitive attacks. D. All of the above

C. Small firms are more nimble and can respond quickly to competitive attacks. Because they are not well known, startups also have the advantage of the element of surprise in how and when they attack. Innovative uses of technology, for example, allow small firms to deploy resources in unique ways. Because they are young, however, startups may not have the financial resources needed to follow through with a competitive response. In contrast, older and larger firms may have more resources and a repertoire of competitive techniques they can use in a counterattack. Large firms, however, tend to be slower to respond.

Entry Strategies

New venture entry strategies need to: -Quickly generate cash flow -Build credibility -Attract good employees -Overcome the liability of newness 3 Entry Strategies: 1) Pioneering 2) Imitative 3) Adaptive (vary depending on how risky and innovative the new business concept is)

Entrepreneurship

The creation of new value by an existing organization or new venture that involves the assumption of risk -Even though entrepreneurial activity is usually associated with startup companies, new value can be created in many different contexts: 1) Start-up ventures 2) Major corporations 3) Family owned businesses 4) Nonprofit organizations 5) Established institutions

New competitive action

acts that might provoke competitors to react, such as new market entry, price-cutting, imitating successful products, and expanding production capacity

Venture capitalists

companies organized to place their investors' funds in lucrative business opportunities. -entrepreneurs can raise money by selling shares in the new venture -Businesses with extensive development costs or firms on the brink of rapid growth are likely to turn to them

Financial Resources

depends on stage of venture development & venture scale 1) Initial, start up financing - small scale: - personal savings, contributions from friends and family - Crowdfunding 2) Early stage financing: - Bank financing, angel investors 3) Later stage financing: - Commercial banks, venture capitalists, equity financing

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 -embodies vision, dedication and drive, and commitment to excellence

Angel investors

private individuals who provide equity investments for seed capital during the early stages of a new venture. These outside investors favor companies that already have a winning business model and dominance in a market niche.