Chapter 8: Entrepreneurial Strategy and Competitive Dynamics

Motivation and Capability to Respond (Competitive Dynamics)

*Determines what actions should be taken* What to consider before attacking/responding: 1. Consider how serious the impact of the competitive attack to which the company is responding. - E.g. Barnes & Noble underestimating Amazon's potential worth in the early stages 2. Consider the motivation for responding. (Intent) - A seeker who wants to improve its competitive advantage may be motivated to launch 3. Consider the role of firm age and size in calculating a company's ability to respond. - Smaller firms are quickly responsive and unpredictable through technology, but may lack sufficient resources to respond - Larger firms are slower to respond, predictable through historical successes, but has the sufficient means to respond

Financial resources (Required entrepreneurial resource for venture)

- Angel investor: Private individual who provide equity investments for seed capital during the early stage of a venture that already has a winning business model and dominance in a market niche - Venture capitalist: Company that places investors' (i.e. friends/family & loans) funds in profitable opportunities - Crowdfunding: Pooling investments from a large number of investors; often raised on the Internet *relies on: the stage of venture development & the scale of venture

Qualities for opportunity to be viable (4)

- Attractive: There must be market demand for the new product/service - Achievable: Practical and physically possible - Durable: Must be attractive long enough for the development and deployment to be successful; window of opportunity must be open long enough for it to be worthwhile - Value creating: Potentially profitable; benefits exceed cost of development

Factors of entry strategy

- High-tech or low-tech? -Availability of resources? - Industry/competitive conditions - Overall market potential - Control business or grow it?

Pitfalls of Strategic Alliances

- Lack of oversight and control -Product quality, late delivery, and payment issues - Larger firms take advantage of entrepreneurial tech partners

Human capital (Required entrepreneurial resource for venture)

- Management: employees who have experience and extensive domain knowledge to make rapid decisions and maneuver direction as changes may require; team of managers is better than "lone wolf" -Extending human capital base to outside partners (i.e. gig workers in the platform market) in the gig economy (service providers) -Gig economy model: the market that urban professionals turn to for specialized handy services -Platform firms: Central market where service providers (gig workers) are recruited and evaluated

3 required factors for entrepreneurial venture

- Opportunity - Resources - Entrepreneur/team

Several methods for the search process

1. Look at what's bugging you - Address annoyances 2. Talk to the people who know - Talk to suppliers, customers, and front-line workers in the market to obtain insight on how the stakeholders' needs aren't being met and the avenues 3. Look to other markets - Borrowing ideas from other markets 4. Get inspired by history - Past practices/opportunities that slipped out of practice but might now be valued by the market

Ways to Aggressively Attack Rivals (5) (New Competitive Action)

1.) Devastate rivals' sanctuaries - Utilize smaller-scale attacks to attack profitable segments - E.g. Walmart offering low-priced extended warranties after learning Best Buy derives their profits from extended warranties 2.) Plagiarize with pride - Second movers: monitor customers reactions, make improvements, and launch better versions without market development costs - E.g. Samsung copying the look, feel, and attributes of Apple's iPhone. Lost an infringement lawsuit but improved its market position. 3.) Deceive the competition - Sending competition into the wrong direction which causes them to miss strategic shifts, spend money pursuing dead ends, or slow their responses. - E.g. Max Muir quietly bought a few small firms to build economies of scale but didn't consolidate brands or his sales force so they still looked like independent family firms 4.) Unleash massive and overwhelming force - Full-frontal attack where a firm commits significant resources to a major campaign to weaken rivals' positions in certain markets (i.e. must have mass and stamina) - E.g. Unilever massively invested and marketed into campaigns to achieve a 65% market share in the Vietnamese laundry detergent industry. 5.) Raise competitors' costs - A firm must understand the industry better than their rivals to steer them into relatively higher cost/lower profit arenas by using deception -E.g. Ecolab encouraged Diversity to go after low-volume, high-margin customers because of the high servicing costs that are unprofitable. This resulted in losing contracts to Diversity but eroding Diversity's position in the market.

Strategic Action (Type of Broad Competitive Action)

1.) Entering new markets - Geographical expansion - Neglected market expansion - Target rivals' markets - Target new demographics 2.) New product introductions - Imitate rivals' products - Address gaps in quality - Leverage new technologies - Leverage brand name with related products - Patents protecting innovation 3.) Changing production capacity - Create overcapacity - Tie up raw materials sources - Tie up preferred suppliers and distributors - Stimulate demand by limiting capacity 4.) Mergers/alliances - Acquire/partner with competitors to reduce competition - Tie up key suppliers through alliances - Obtain new technology/intellectual property - Facilitate new market entry

Types of entrepreneurial strategies to consider

1.) Entry Strategy 2.) Generic Strategy 3.) Combination

How a new entrant evaluates the threat of other new entrants

1.) Examine barriers to entry 2.) Threat of retaliation by incumbents (established firms)

Entrepreneurial resources (One of the factors for venture)

1.) Financial resources 2.) Human capital 3.) Social capital 4.) Government resources

Choosing Not to React in a Competitive Dynamic Setting

1.) Forbearance - Refraining from reacting at all which includes no initiation in attacking 2.) Co-opetition - Strategy that includes cooperating and competing with rival firms - Close competitors that differentiate themselves in the eyes of consumers may work together behind the scenes to achieve industrywide efficiencies -E.g. Swedish brewers cooperate to recycle used bottles but compete for customers on the basis of taste and variety

Types of Competitive Actions [Specific] (Competitive Dynamics)

1.) Frontal assaults - Aimed directly at taking business from a competitor or capitalizing on industry weaknesses - Utilizes significant resources can use this 2.) Guerrilla offensive & selective attacks - Draw attention to products/services by creating buzz or generating enough shock value to get some free publicity - Utilizes fewer resources - E.g. TOMS shoes donating one pair of shoes to those in need for every pair of shoes purchased, Starbucks incorrectly writing names and customers taking pics of it online 3.) Defensive actions - Rarely improve a competitive advantage, but a credible defensive action can lower the risk of being attacked and deter new entry *Several factors like types of entry strategies and the use of cost leadership vs. differentiation can guide the decision about what types of competitive actions to take*

Generic Strategy

1.) Overall low cost 2.) Differentiation 3.) Focus

New Entry Strategies

1.) Pioneering New Entry 2.) Imitative New Entry 3.) Adaptive New Entry *Must be willing to venture into new arenas rather than growing within internal markets. Profits grow more by venturing into new areas at an average of 61% while staying within the market yields 39%.*

Tactical Action (Type of Broad Competitive Action)

1.) Price cutting (or increases) - Maintain low-price dominance - Discounts & rebates - Incentives (e.g. frequent flyer miles) - Enhance offering to move upscale 2.) Product/service enhancements - Address gaps in service - Expand warranties - Make incremental product improvements 3.) Increased marketing efforts - Use guerrilla marketing - Conduct selective attacks - Change product packaging - Use new marketing channels 4.) New distribution channels - Direct supplier access - Direct customer access - Multiple points of contact with customers - Internet presence expansion

Types of Competitive Actions [Broad] (Competitive Dynamics)

1.) Strategic actions - Major commitments of distinctive and specific resources to strategic initiatives (More expensive to afford) - E.g. Launching breakthrough innovation, building a new production facility, or merging with another company) 2.) Tactical actions - Refinements or extensions of strategies usually involving minor resource commitments (Less costly to afford) - E.g. Cutting prices, improving gaps in service, & strengthening marketing efforts)

Opportunity recognition

A process of identifying, selecting, and developing potential opportunities. Helps determine viable opportunities. More than the "Eureka!" feeling that people experience at the moment they identify a new idea. Opportunity recognition assesses to what extent the opportunity is viable in the marketplace.

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. *Entry for the first time may be considered entrepreneurial. Entry strategy relies on the risk and innovation of the concept.*

Combination (Generic Strategy)

Combining low-cost, differentiation, and focus strategies gives a distinctive appearance. Pitfalls: - Large competitor with more resources will copy what they are doing; firms with combined strategies may have less of a threat - Close competitors with similar structural features are bigger threats because they adjust quickly and are more flexible in decision making than large competitors Advantages: - Young firms establish unique combination strategies that large firms cannot copy - Carefully crafted and executed combination strategies are sustainable

2 phases of opportunity recognition process

Discovery and evalution

Crowdfunding: Pros and Cons

Pros: - Peer-to-peer system where firms grow investments through mass investors for the venture Cons: - Crowdfunding site fees (i.e. 4%-9%) - Pressure on entrepreneurs (i.e. Face whiplash from investors via social media if a deadline is missed or projection is short) - Struggling of what info to share when sourcing funds because trolling competitors can possibly see the business ideas

Feasibility Analysis

The process of determining if a business idea is viable or if it should be discontinued by testing methods, talking to potential customers, and discussing operational requirements.

Differentiation (Generic Strategy)

- Pioneers may do something strikingly different by using a new technology or/and by deploying resources in a way that changes the way business is conducted - E.g. Uber utilized tech that improved driver time and offered passengers info on the progress of their trip & leveraged the use of private cars without having to invest into a fleet of taxis. - Must have innovation, technology, customer service, and distinctive branding Pitfalls: - Expensive to enact (i.e. cost of advertising and promotion, paid endorsements, exceptional customer service, etc.) - Must have strong brand identity - Superior innovation or use of technology - Factors that make it difficult for ventures to excel against established competitors

Considered factors before opportunity is launched & after meeting viable qualities (2)

- Resources available to undertake opportunity - Characteristics of the entrepreneur(s) pursuing it

Social capital (Required entrepreneurial resource for venture)

- Social network: The support that entrepreneurs get from extensive social contacts - Support comes from prior jobs, industry organizations, and local business groups - Strategic alliances (i.e. technology, manufacturing, & retail)

Overall lLow Cost Leadership (Generic Strategy)

- Ventures are smaller than incumbents so they make alternatives cheaper by easier and quicker access to different avenues - Ventures cannot produce at a larger scale

Discovery

1. Becoming aware of a new concept through an "Aha!" - "Aha!" moment: an insight or epiphany based on their prior knowledge; spontaneous and unexpected - E.g. Schultz of Starbucks was in Milan, Italy and figured out the coffee-and-conversation model would also work in America. 2. May come from a deliberate search for new opportunities or creative solutions to business problems [SEARCH PROCESS] - Search process: Unstructured and chaotic at first but eventually leads to a solution or innovation; aims to identify truly novel and creative entrepreneurial opportunities; looks for "obvious" opportunities that others overlooked - Encourage creativity, out-of-the-box thinking, and brainstorming

Types of Strategic Alliances

1. Technology alliance (i.e. Tech-savvy firm enhances the technological capabilities of older incumbents, or larger firms, and expands the revenue and reach of smaller firms) 2. Manufacturing alliance (i.e. Internet allowed simpler delivery and design specifications with manufactureres) 3. Retail alliance (i.e. Licensing agreements) - Licensing agreements: allows one to sell products/services of another in different markets, including overseas - Specialty products: Products that seem more exotic in another country

New Competitive Action (Competitive Dynamics)

Acts (e.g. new market entry, price cutting, imitating successful products, and expanding production capacity) that might provoke competitors to react. Reasons for new competitive actions: - Improve market position - Capitalize on growing demand -Expand production capacity - Provide an innovative new solution - Obtain first-mover advantages *Competition can come from new entrants or incumbents within the market/industry.* E.g. Toyota' success with the Prius launched the potential for high-fuel economy cars so competitors created their own hybrids, electric cars, high-efficiency diesel engines, and more fuel-efficient traditional gasoline engines.

Threat Analysis (Competitive Dynamics)

Awareness of closest competitors and the kinds of competitive actions they might be planning. Factors that assess who are close competitors (2): 1.) Market commonality: Extent to which competitors compete for the same customers in the same markets (e.g. Boeing & Airbus) 2.) Resource similarity: Extent to which rivals draw from the same types of strategic resources (e.g. Huawei and Nokia have patent rights to similar technologies, high quality engineering staffs, and global sales forces) The intensity of a response is determined by its strategic resource endowments. Greater strategic resources increase a firm's capability to respond.

Entrepreneurial Leadership (One of the factors for venture)

Entails vision, dedication and drive, and commitment to excellence. Entrepreneurs are different from corporate managers through: - Higher core self-evaluation (i.e. self-confidence and control over his destiny) - Higher conscientiousness (i.e. organization, persistence, hard work, and pursuit of goal accomplishment) - Higher emotional stability (i.e. handles ambiguity and more emotionally stable during stressful periods) - Lower agreeableness (i.e. motivated by self interests and willing to influence/manipulate for own advantage) Successful entrepreneurial attributes: - Middle aged (i.e. most likely to be over 50) - Experienced professionals with at least 3 years - Dedicated team of professionals (not one individual) who fit culture, goals, and work ethic

Adaptive (New Entry Strategy)

Entry into an industry by offering a product/service that's somewhat new and sufficiently different to create value for customers by capitalizing on current market trends. Takes an existing idea and adapts it to a particular situation. Between imitation and pioneering. Pitfalls: - Must be perceived as unique by customers - Easy for competitors to mimic the adaptive strategy - Keeping the idea fresh is difficult

Pioneering (New Entry Strategy)

Entry into an industry with a radical new product or highly innovative service/product that changes the way business is conducted. (E.g. First personal computer & first Internet browser) Pitfalls: - Product/service may not be accepted by consumers - Others will rush to copy it which causes sustainability issues Advantages to success: - Protect intellectual property -Advertise heavily to build brand recognition - Form alliances with businesses that will adopt its products/services - Offer excellent customer service

Imitative (New Entry Strategy)

Entry into an industry with products/services that capitalize on proven market successes and that usually have a strong marketing orientation. Brought from one segment of the market to another. (E.g. Square vs. Apple, Google, and PayPal) When imitators are prompted to join: - Fill a market space where the need had previously been filled inadequately - When a competitor has the resources/skills to do a better job than an existing competitor

Likelihood of Competitive Reaction (Competitive Dynamics)

Factors that determine a competitor's response: 1.) Market dependence - Degree of concentration of a firm's business in a particular industry - A high concentration of its business in a particular industry indicates a higher stake in the industry - Young, small firms may be limited by resource constraints 2.) Competitor's resources 3.) Actors' reputation - Competitors are more likely to respond to competitive moves by market leaders - Consider how successful prior attacks have been - E.g. Ford & Chrysler follow GM's offer of discounts and incentives

Competitive dynamics

Intense rivalry, involving actions and responses, among similar competitors vying for the same customers in a marketplace. Factors to consider when responding to competition: 1.) New competitive action 2.) Threat analysis 3.) Motivation and capability to respond 4.) Types of competitive action 5.) Likelihood of competitive reaction

Entrepreneurship

New value creation is developed through: start-up ventures, major corporations, family-owned businesses, nonprofit organizations, and established institutions. It is typically associated with start-up companies.

Government Resources (Required entrepreneurial resource for venture)

Provides support through financing and government contracting. Government resources are used to grow the economy of a region. Includes government contracting, loan guarantee programs (i.e. SBA), and training, counseling, and support services. 1.) Small Business Administration (SBA) Financing - Government underwrites (accepts liability) loans made by banks to small businesses which includes those with unproven records 2.) SBA Government contracting - Programs sponsored by the SPA ensure that small businesses have the opportunity to bid on contracts to provide goods/services to the government - Drawbacks of working with government: Regulation issues & time-consuming decision making

Sources of opportunities

Startup opportunity sources: - Current or prior experiences - Hobbies that grow into businesses or lead to inventions - Suggestions by friends or family - A chance event that makes an entrepreneur aware of an unmet need Established firm opportunity sources: - Needs of existing customers - Suggestions by suppliers - Technological developments that lead to new advances All firms: - Change that is brought about by new technology, sociocultural trends, and shifts in consumer demand

Focus (Generic Strategy)

Under mature industries, ventures should start in market niches where they can slowly erode profits from incumbents in the market instead of entering a broad market with an aggressive strategy. Start smaller instead of bigger.