Entrepreneurship - Chapter 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.

Incremental innovation

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

Profit before taxes

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

Local customers

This was originally true because as the owner you could keep tabs on the satisfaction of local customers more easily than distant ones; but in the digital age, it is less about geographic proximity than about you taking the time to stay in touch with your customers.

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.

Retrenchment

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

Industry analysis (IA)

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

Parallel competition Imitation v innovation

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

Growth stage

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

Entry wedge

An opportunity that makes it possible for a new business to gain a foothold in a market. Supply shortages, Unutilized resources, Customer contracting, Second sourcing, Market relinquishment, Favored purchasing, Government rules

five initial key decisions

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

Industry dynamics

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

Single-mindedness

Developing and demonstrating exceptional expertise in one product or service (vs. competitors with broad approaches or product lines).

Supersupport

Extensive, intensive, and personalized after-sales service.

Gross profit

Funds left over after deducting the cost of goods sold.

Elite

High-quality products with high prices, backed up by high expenditures for advertising and R&D (vs. mass-market products).

Bare bones or no-frills

Keep prices super low by cutting back on décor (think warehouse stores), hours (think weekends only or flea markets), or employees.

Scope: Local to Global

Knowing your market scope helps deciding where to focus sales and advertising efforts Knowing your target market gives you a way to know which competitors to worry about most, namely those within your market scope

Loyal customers

Loyal customers return and are already presold, making your life easier. They also refer friends, another source of revenue

Comprehensiveness

Offering one-stop shopping with complete inventory, immediate delivery, knowledgeable staff, and the major supporting services in one location.

Tightly manage decentralization

Once you know how to efficiently run one type of business, it often becomes easier to open related firms. This is especially common for Internet businesses.

Passionate customers

People who are not just loyal but are likely to rave about your business are likely to generate more potential customers than any other type.

Corporate customers

Selling to other businesses may produce greater profits.

Customization

Short delivery times, custom features, short production runs, high quality (vs. products that are mass produced).

Craftsmanship

Specialized product, localized business operations, high levels of craftsmanship (vs. competitors with scale economies).

Serving the underserved/interstices

Targeting markets forgotten by larger competitors

Degree of similarity Imitation v innovation

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 Key is selecting an industry that offers good potential for making a profit Also needs to offer attractive opportunities to work with a minimum of risk and competition

Introduction stage

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

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.

Generic strategies

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

Cutting out the intermediary

Today farmers at their roadside stands and bands selling their own tracks online are able to sell at lower prices and still make more money by eliminating wholesalers' and retailers' mark-ups.

Formula facilities

Use a prepackaged business (like a McDonald's franchise or a preconfigured restaurant package from Sysco) to offer a better or more consistent product or service.

Competitor

all the firms also selling that product or service.

Market

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

Value and Cost Benefits

characteristics of a product or service that the target customer would consider worthwhile value benefit, cost benefit The best way to identify desirable benefits is through potential customers

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

Scope

geographic range covered by the market Local to Global

Mass market

large portions of the population

Niche market

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

Scale

size of the market

Strategy

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

Differentiation strategy

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

Net profit

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

Boom

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

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.

Imitative strategy

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