TEXTBOOK: Ch. 5: Analyzing the Industry and Market

logically logical

*Step 2: Abduction.* Abduction is a method of reasoning ______________. What this means is that the entrepreneur takes what has been observed or gained from talking with customers and tries to explain it in some _____________ fashion. In the case of the alarm example, the explanation would be that the customer is looking for a kinder, gentler way of waking up. -Essentially, the entrepreneur attempts to explain what he or she has observed.

research resources; time; uncertainty

CHARACTERIZING THE TARGET MARKET: Starting a new business might be as relatively simple as launching a website, but securing enough customers to survive is another matter entirely. Savvy entrepreneurs rely heavily on their market __________________ to substantiate their intuitive belief that they have a winner, but the market research that entrepreneurs undertake doesn't resemble in any great degree the research conducted by large, established companies. In the first place, entrepreneurs are limited by a lack of sufficient ______________, _______, and high levels of _______________, so the data they collect is far from perfect and just enough to give confidence that the entrepreneur should go forward with the new business.

competitive rivalry down; rate of return niche acquired stagnant; high diverse

Competitive Rivalry Among Existing Firms: The 4 factors just discussed all work together to create ________________________. In general, a highly competitive industry serving highly competitive markets will drive ________ profits and ultimately the __________________ on investment. To position themselves in a competitive market, firms often resort to price wars and advertising skirmishes. Once one firm decides to make such a strategic move in the market, others will usually follow. The clearest example is the airline industry; when one airline discounts its prices significantly, most of the others immediately follow. -The problem with this tactic is that it ultimately hurts everyone in the industry and may even force out some smaller firms because competitive prices drop below costs. Most new ventures can't compete on price and can't afford costly advertising battles to build an image. To compete in a market that is highly competitive, they must instead identify a ________ that serves an unmet need for customers and that will enable them to enter quietly and gain a foothold. Southwest Airlines did that effectively by understanding an unmet need for customers to more directly fly to regional airports and pay less per ticket in exchange for giving up some non-essential services. Many entrepreneurs seeking entry into industries such as software, biomedical, biotech, and telecommunications deliberately position themselves to be _________________ eventually by the larger rivals rather than try to compete against them. In general, competitive rivalry in an industry will be the most intense where there are numerous competitors of generally similar size and power, where growth is ______________ and exit barriers are ________, and where the competitive strategies among the rivals are very ______________.

deduces

*Step 3: Deduction.* In this step the entrepreneur ______________ or draws a hypothesis or theory from the explanations or premises generated in step 2. The entrepreneur's theory might be that the customer might want to talk to their alarm clock.

test confidence

*Step 4: The Test.* Armed with a hypothesis about the customer, the entrepreneur goes back into the field to ______ it with customers. If we could provide an alarm clock that you could talk to, would that solve your problem? Because this type of solution involves developing a prototype, it's important that the entrepreneur be confident that if the alarm clock were created and worked, there would be customers ready to buy before making the investment of time and money. That _________________ comes from testing the solution of the customer.

rapid standards expensive

Growth and Adaptation: Following birth, a new industry typically goes through a volatile and _______ stage of growth as companies and their respective technologies jockey for position and the right to determine industry _______________. This is an ____________ period for most companies because they need to use extensive resources and develop critical partnerships to establish their position in the industry.

customer

In the beginning stages of market analysis, the _______________ definition will be fairly loose and may even change substantially as field research is conducted. It is easy to become overwhelmed by the amount of information available about the target market, so it's important to keep in mind the key questions that should be answered: -What are the potential markets for the product or service? How big is each market? How dynamic is the market? Is it growing? -Of these potential markets, which customers are most likely to purchase the product or service at market introduction? In other words, who is in the most pain? -How much do these customers typically buy, how do they buy, and how do they hear about the product or service? -How often do they buy? What is their buying pattern? -How can the new venture meet these customers' needs?

responses

*Step 5: Conclusions.* The final step involves drawing conclusions from the __________________ of customers. It is particularly important here not to bias the conclusions but to make them based on the preponderance of evidence provided by the customer, whether positive or negative.

enter low discourage declined mature large small costs vertically integrated alliances costly resources money; time costly time; personnel; travel Internet location Internet top regulation

Barriers to Entry: An entrepreneurial venture's success in a given industry or market is affected by the ability of new firms to _______ the entrepreneur's market. If the costs are ______ and few economies of scale exist, then competitors can easily enter and disrupt the entrepreneur's competitive strategy. In some industries and markets, however, barriers to entry are high and will _________________ competitors from entering. Note that these factors may also present a challenge for the entrepreneur entering new markets or a new industry. These barriers may include the following: -*Economies of Scale*: Many industries have achieved economies of scale in marketing, production, and distribution. -This means that their costs to produce have _______________ relative to the price of their goods and services. -Typically, economies of scale are found in more __________ industries. -A new venture cannot easily achieve these same economies, so it is forced into a "Catch-22" situation. -If it enters the industry on a _______ scale, it risks retaliation from those established firms in the industry. -If it enters on a ________ scale, which is the more common strategy, it may not be able to compete because its ________ are high relative to everyone else's. -Another version of this dilemma occurs in an industry in which the major players are __________________________; that is, they own their suppliers and/or distribution channels, which effectively locks out the new venture. -What most new ventures do when they must compete with companies that have achieved economies of scale is attempt to form __________________ with other small firms to share resources and thus compete on a more level playing field. -This type of collaboration is occurring more and more often as businesses realize that the industry is too complex for any one company to have all the resources and intellectual property required to control a portion of it. -An example of this strategy is the grocery industry, where independent grocers have joined forces in consortia to achieve more buying power in their industry. -*Brand Loyalty*: New entrants to an industry face existing products and services with loyal customers who are not likely to switch easily to something new. -A new firm will need to undertake an extensive marketing campaign focused on making the customer aware of the benefits of the new venture's products. -The cost of undertaking this strategy can be a significant barrier to entry unless customers are dissatisfied with the competing brands. -On the Internet, it has become clear that when incumbents like Gap and Barnes & Noble set up shop online, they retain the brand presence they have already established in their bricks-and-mortar stores—consequently, they can be profitable immediately. -By contrast, it takes a company like Amazon.com (with the strongest online brand recognition), which had no bricks-and-mortar presence, years to become profitable. -In Amazon's case, another factor in its slow pace to profit was that it was trying to grow the business into multiple areas—books, DVDs, music, and so forth—simultaneously and that kind of growth is very _________ in terms of marketing and inventory. -*Capital Requirements*: The cost of entering many industries is prohibitive for a new venture. -These costs may include up-front advertising, research and development (R&D), and expenditures for plant and equipment. -Entrepreneurs often overcome this barrier by outsourcing to or partnering with established companies to leverage their ________________ and industry intelligence. -*Switching Costs for the Buyer*: Buyers in most industries don't readily switch from one supplier to another unless there is a compelling reason to do so. -Switching costs the buyer __________ and _________. -For example, a manufacturing business that has spent a lot of time and money finding the best supplier for the raw materials it needs to produce its product will not easily change suppliers, because that would mean going through the whole process again. -*Access to Distribution Channels*: The new venture must persuade established distribution channel members to accept its new product or service and must prove that it will be beneficial to distributors to do so. -This persuasion process, like any sale, can be ________ for a new venture in terms of _______, _____________, and __________. -One solution for some types of businesses is distributing via the _______________, which is a direct method of reaching the customer. -*Proprietary Factors*: Barriers to entry also include proprietary technology, products, and processes. -Where established firms hold patents on products and processes that the new venture requires, they have the ability either to keep the new venture out of the industry or to make it very expensive to enter. -Most favorable location is another form of proprietary barrier. -Often entrepreneurs will discover that existing firms in the industry own the most advantageous business sites, forcing the new venture to locate elsewhere, perhaps in a less desirable ______________. -The _____________ diminishes such location advantages somewhat, but the ability of customers to find a Web address quickly through the major search engines also becomes a location advantage. -Making sure the website is optimized so that the business name comes up near the _____ of the search list is important. -Other proprietary factors include trade secret supplier and customer lists. -*Government Regulations*: The government can limit entry to an industry or market through strict _______________, licensing requirements and by limiting access to raw materials via laws or high taxes and to certain locations by means of zoning restrictions. -Food products and biochemicals must obtain FDA approval, which is a significant barrier to entry.

acquired good; bad

If the competitor is a large company, the entrepreneur may strategically position his company to be ___________ eventually, because large companies typically acquire core competencies rather than develop them. Entrepreneurs also need to distinguish between _________ competition and ______ competition. Good competition comes in the form of companies that are doing what they do very badly; in other words, they aren't making customers happy. -Ways to identify good competition include checking complaint levels at the Better Business Bureau, examining the archives of local newspapers for stories about the company, or checking the public records for financial or legal difficulties. -It will be relatively easier to succeed against a good competitor than a bad one. Bad competitors are those companies that are doing everything right. -Their customers are happy; they add value; and they're prosperous. -In this case, identifying a niche that is currently not being served might be the most effective way to enter such a market and begin to build a brand.

flexibility hierarchical sector subsector industry group industry countries

NAICS industries are identified by a 6-digit code instead of the 4-digit SIC code. The longer code accommodates a larger number of sectors and enables more ________________ in designating subsectors. NAICS is organized in a ____________________ structure much like the SIC. The first 2 digits designate a major economic ________ (formerly division), such as agriculture or manufacturing. The third digit designates an economic __________________ (formerly major group), such as crop production or apparel manufacturing. The fourth digit designates an _____________________, such as grain and oil seed farming or fiber, yarn, and thread mills. The fifth digit designates the NAICS ____________, such as wheat farming or broad-woven fabric mills. The international NAICS agreement fixes only the first 5 digits of the code. The sixth digit is used for industrial classifications in other ________________ where necessary. With the NAICS code, one can find statistics about size of the industry, sales, number of employees, and so forth.

pain size; demand; resources; buy

Notice in the matrix how the benefit to the customer changes to meet the customer's specific _______. Once the customer segments are identified, the entrepreneur has to make a choice. Which of these 3 customers should the entrepreneur go after first? The decision about where to enter the market first is affected by _____ of the market, customer __________, and ______________, but the most important consideration is which customer is most likely to ______. Market research with customers may suggest, for instance, that the quickest early sales will come from rural practitioners because the entrepreneur is not dealing with the bureaucracy of a hospital. Note also that, in this example, the different benefits and distribution strategies for each of the 3 customers actually produce 2 distinct types of businesses: a manufacturer that sells to distributors and a company that manufactures, markets, and distributes to organizations in developing countries. The type of business the entrepreneur wants to own then also influences the decision on first customer.

potential market

The previous discussion of frameworks for analysis of the industry and market also provides an effective way to describe the characteristics of the _____________________ the entrepreneur wishes to serve. However, it is not until an entrepreneur gets into the field and actually talks to potential customers and those who deal with potential customers that a clearer understanding of various customer segments and the first or entry customer is revealed. Ashbury Images, a San Francisco-based nonprofit screen printer that serves as a source of transition jobs for the homeless, had always viewed its primary customers as small nonprofits. -The problem was that these businesses were not profitable customers for Ashbury. -As the company began to analyze its customers in depth, it discovered that its best customers, the ones whose needs were actually being served, were larger corporate clients. -These clients understood Ashbury's value proposition: a high-quality product and a social mission. -Ashbury has now refocused its efforts to put more emphasis on its best customers.

macro-environmental location metropolitan context

A PEST analysis should begin with the identification of the _____________________________ factors that apply to the new business and then an examination of the potential impact these factors might have on the business. For example, factors that make it more difficult to do business—high taxes, real estate costs, and labor costs—may cause an entrepreneur to consider a different ____________ for doing business where these items are more favorable. However, these negatives are often found in high-economic-growth regions like major _______________________ areas, so the trade-off is that going to a more favorable location from an economic perspective may not provide the type of skilled labor required for the business operations. The bottom line is that for any new business, a thorough understanding of the ____________ in which the business will operate is essential to success and long-term survivability.

heart one

Anthropological Techniques for Customer Observation: The problem with most market research is that entrepreneurs don't get at the _________ of the customer's problem and, to make matters worse, they often lead the customer to a solution, which just happens to be theirs! Approaching the customer as an anthropologist would approach a family of gorillas being studied is actually a very effective approach. It consists of 5 steps, with step ______ arguably being the most important.

need; pain; market

Entrepreneurs identify their primary customers by recognizing a ________, or _______, in the ___________.

**gross margin = gross profit/sales Price short

Exploring an industry will involve gathering and synthesizing an enormous amount of information as well as talking to people who spend their days working in that industry. Starting with a clear understanding of what information needs to be gathered will increase the chances that the assessment is as accurate as possible. The data collected should answer the following key questions: -"What does the industry look like?" -Every industry possesses a particular character that may be described as hostile, collaborative, highly competitive, friendly, and so forth. It is also characterized by its demographics, such as size, number of active companies, revenues, and age. -"Is the industry growing?" -Growth is measured by sales volume, number of employees, units produced, number of new companies entering the industry, and so forth. -A growing industry means more opportunities for new ventures to enter and survive. -The appropriate growth measure is determined by the type of industry. -For example, the food services industry is typically labor intensive, so looking at growth in the number of employees makes sense. -On the other hand, the import/export industry is not necessarily labor intensive so growth in the number of employees is not a good measure of overall industry growth. -"Where are the opportunities?" -Does the industry provide opportunities for new businesses with strategies involving new products and/or processes, novel business models, innovative distribution strategies, or new marketing approaches? -Are there clear examples of new ventures that have succeeded in this industry? -"What is the status of any new technology?" -How quickly does the industry adopt new technology, and does technology play a significant role in the competitive strategy of firms in the industry? -"How much do industry companies spend on research and development?" -Expenditures on R&D indicate how important technology is, how rapid the product development cycle is, and whether technology is critical to industry success. -"Who are the opinion leaders in the industry?" -Which firms dominate the industry and what impact do they have? -How do they influence new firm strategy? -Opinion leaders may or may not be a new firm's competitors in its markets depending on how the entrepreneur has defined his or her customers. -Nevertheless, opinion leaders will affect the new venture's ability to access the supply chain and distribution channels. -"Are there young, successful firms in the industry?" -This information will provide an indicator of how formidable the entry barriers are and whether the industry is growing rapidly. -"What does the future look like?" -What appears likely to happen over the next five years? -What are the trends and patterns of change? -Entrepreneurs need to prepare their new ventures for success beyond the date of launch; they need to prepare for sustainability. -"Are there any threats to the industry?" -Is there any chance that new technology will render obsolete either the industry or that segment of the industry in which the entrepreneur is doing business? -"What are the typical margins in the industry?" -Looking at average gross margins in the industry provides an indication of how much room there is to make mistakes. -A gross margin is derived by dividing gross profit by sales**. -It indicates how much money is left to pay overhead and make a profit. -If the industry typically has 2% margins or less, as the grocery industry does, making a profit will require selling in large volumes and keeping overhead costs to a minimum. -________, therefore, will be a driver of customer purchasing decisions. -Where margins run at 70% or higher, there is a lot more room to play, but generally these industries (such as the software industry) have relatively ________ product life cycles, so R&D costs are high. -Here customers are more interested in getting a solution to their problem and are willing to pay a premium to get that solution.

competitive; industry; markets industry; attractiveness

Porter's Five Forces: For years, the work of Michael Porter has provided a way of effectively looking at the structure of an industry and a company's _________________ strength and positioning relative to that ___________ and to the ___________ it serves. Porter's basic premise is that sustaining high performance levels requires a well-thought-out strategy and implementation plan based on knowledge of the way the __________ works and the ______________________ of markets. Porter asserts that there are 5 forces in any industry that affect the ultimate profit potential of a venture in terms of long-run return on investment. By contrast, such things as economic forces, changes in demand, material shortages, and technology shifts affect short-run profitability.

first customer biggest competition targeted; less; productive

Targeting the First Customer: Target market research provides some of the most important data that one needs to decide who the first customer is. Recall that the ___________________ is the one who has a problem the entrepreneur can solve. Therefore, the first customer may not be the ____________ market, but rather be an unserved niche that enables the entrepreneur to enter the market with no direct ____________________ for a time. To narrow the focus of market research and to save time and money, entrepreneurs should consider identifying 2 to 3 prototypes of a business that seem to be the most feasible. For any product, for example, the entrepreneur could be a manufacturer, distributor, or a retailer. If the product has patents associated with it, licensing the technology to another company is yet another business opportunity. By narrowing the focus, market research can be more _______________, take ______ time, and generally be more ____________________.

validity random convenience sample questionnaire

Survey Techniques: Survey techniques, whether online, in-person, or by phone require drawing a representative sample from the population of customers in which the entrepreneur is interested. The sample must be selected with great care, for it will determine the ____________ of the results. In general, to avoid bias, a sample should be _____________—that is, one in which the entrepreneur has as little control over the selection of respondents as possible. Most entrepreneurs, because of limitations of cost and time, use what is called a ___________________________. -This means that not everyone in the defined target market has a chance of being chosen to participate. -Instead, the entrepreneur may, for example, choose to select the sample from people who happen to be at the airport on a particular day. -Clearly, this method will not reach all possible customers at the airport, but if the target customer is typically found at airports, there's a good chance of obtaining at least a representative sample from which results can be derived fairly confidently. Even if a convenience sample is used, there are ways to ensure the randomness of selection of the participants. Using the airport example, an entrepreneur can decide in advance to survey every 5th person who walks by. -Thus the respondents are not chosen on the basis of attractiveness or lack of it—or for any other reason, for that matter. Whatever system is employed, the key point is to make an effort not to bias the selection so that the outcomes are more meaningful. Conducting a survey, whether in person or online, entails designing a survey instrument, usually a _______________________ that, once filled out by the respondent, provides the desired information. Questionnaire design is not a simple matter of putting some questions on a piece of paper. There are, in fact, proven methods of questionnaire construction to help ensure unbiased responses. It is not within the scope of this text to present all the techniques for questionnaire construction; however, a few key points should be remembered: -Keep the questionnaire short, with lots of white space, so that the respondent is not intimidated by the task. -Be careful not to ask leading or biased questions. -Ask easy, simple questions first, progressing gradually to the more complex ones. -Ask demographic questions (questions about age, sex, income, and the like) last, when the respondent's attention may have waned. These questions can be answered very quickly. The Internet has made it easy for small businesses to collect valuable data without having to enlist the help of costly market research firms. Internet surveys such as SurveyMonkey and ZapSurvey are less expensive than traditional surveys, the response time is greatly reduced, and it's easier to include global respondents seamlessly. Posting surveys on the Internet is a convenient way to conduct research if the primary customer is an Internet user. The survey can be posted in user groups, social networks, sent via email to target customers, or placed on a website (as long as the people who need to respond to the survey have a way of knowing that it's there). Some entrepreneurs prefer to conduct their surveys in person at a location where their target customer can be found, for example, a shopping mall if the respondent is a consumer. Alternatively, a trade show is another popular source for these types of surveys. -The advantage of this approach is an immediate and more targeted response as well as the opportunity to perhaps delve deeper into a particular response, not to mention the ability to observe nonverbal communication. Each of the techniques discussed has advantages and disadvantages associated with it. In general, surveys have a response rate of only about 2%, and several follow-ups are usually required to get a sufficient sample. Phone surveys are typically ineffective because in the past few years, people have been bombarded by telemarketers and now resist responding to a telephone survey. Whatever method is chosen, nothing beats feedback from the customer, whether it be at the design stage or as part of an effort to profile the customer and calculate demand.

substitutes function

Threat from Substitutes: A new venture must compete not only with products and services in its own industry but also with logical _________________ that other industries bring to the market. Generally, these substitute products and services accomplish the same basic ___________ in a different way or at a different price. For example, movie theaters regularly compete with other forms of entertainment for the consumer's disposable dollars. The threat from substitute products is more likely to occur where firms in other industries are earning high profits at better prices than can be achieved in the new venture's industry. It is also likely to happen where an incumbent firm has deep resources and technical talent so that it can move quickly into new markets.

methods

The market data the entrepreneur collects is only as good as the research ________________ used to collect them. To ensure that useful and correct conclusions can be drawn from the data collected, sound research methods must be employed:

impact

Using the Porter framework to characterize an entrepreneur's industry and target market is just the first step. To be able to use this information to refine a business model and entry strategy requires drawing some conclusions based on the information gathered. One way to do this is to start by determining the _________ of the variables that describe each of the five forces. The following scale will help to differentiate the direction and strength of the impact: Threat of new entry or substitution is extremely high and impact will be very negative = ↓ ↓ Threat of new entry or substitution is high or strong = ↓ Threat of new entry or substitution is moderate = + No threat = 0 Supplier/buyer power is extremely high and impact will be very negative = ↓↓ Supplier/buyer power is high or strong = ↓ Supplier/buyer power is moderate = + Supplier/buyer power is not a threat = 0

Inductive reasoning observing engaging problems engaging

*Step One: Induction.* ______________________ is learning from observation. It has the goal of understanding the nature of the customer and the customer's needs in a way that does not intrude on customers in their natural habit. In terms of what the entrepreneur is trying to accomplish, this step involves ______________ customers in action, where this makes sense, or _______________ customers in conversation with the goal of getting the customer to reveal _______________ they face. An example of pure observation is what Hewlett-Packard's medical division does when it wants to consider the development of new products. -They embed their people in a hospital to observe how hospital personnel go about their day. -Are there points where they may not have a tool or solution for something they need to do so they create a work-around? -What do they struggle with most? -Their goal is to identify problems. Where pure observation would not give the results needed, ________________ customers in conversation is effective. For example, suppose an entrepreneur wanted to improve on the standard alarm clock but wasn't sure customers had any pain associated with alarm clocks. -She might engage some random consumers in conversation about how they make sure they wake up in time to meet their obligations. -She will hear everything from I set an alarm clock, or I set my alarm clock and the clock on my cell phone to My husband wakes me up. -That's the easy part of the conversation. -What the entrepreneur really wants to know is how customers would like to be awakened. -Why? -Because alarm clocks are essentially a commodity and the entrepreneur wants to change the game. -To develop a game-changing product, the customer can't be tethered to something they already know. -They have to be free to think beyond what they know and focus on their problem. -So the answer to the question how would you like to be awakened might be I want to hear music and then say 'OK, I'm up' and that would turn off the alarm. -The problem the customer has revealed is that they don't want to have to touch the alarm clock—they want a kinder, gentler way of waking up. -The customer doesn't know how to solve this problem, but that's not the customer's job; it's the entrepreneur's job. -And one entrepreneur, Jonathan Nostrandt, actually solved this very problem using artificial intelligence and creating an alarm clock the user can talk to—Moshi.

disruptive opportunities Wild West resources

Birth: A new industry emerges, often with the introduction of a ________________ technology, such as the Internet, that displaces previous technology and creates ______________________ that didn't exist before. One might argue that the new media sector, discussed previously, is an example of an emerging industry that came about as the result of affordable and accessible production technology via the Internet. Successful examples of early companies in this space are YouTube, Facebook, Twitter, and Wikipedia, and these companies have inspired thousands of service companies designed to help individuals and businesses take advantage of these platforms to better connect with their customers. For entrepreneurs contemplating an industry entry at the earliest stage, it truly is the _________________, with no rules and plenty of opportunities to try anything and everything. With sufficient ________________, an entrepreneurial firm can position its technology to potentially become the industry standard; without them, the new venture's strategy will be influenced by the standards set by more dominant players.

art analyzed; synthesized; conclusions categories business models; customers; distribution channels; strategies intelligence feasibility

Drawing Conclusions from Market Research: Entrepreneurial decision making is more _____ than science, so the data gathered during the market research process must be _______________, _________________, and result in some __________________ about market feasibility. One of the first steps in working toward a conclusion is to organize the data into meaningful _______________—customer profile, market demographics, demand indicators, and so forth. This organization makes it possible to more easily analyze the data and seek patterns or trends that might provide vital information. A thorough review of all the data collected may also enable the entrepreneur to develop some sense of whether there are more positive aspects to the market than there are negative aspects. Furthermore, from the review, threats and challenges to the business goals can be identified and opportunities or courses of action that can include potential _____________________, _______________, __________________, and business ______________ can be taken. It is the entrepreneur's job to interpret all the raw data and turn it into business ________________. With a complete picture of the market in hand, an entrepreneur will be in an excellent position to draw a conclusion regarding the market _________________ of the new venture.

problem; experiencing; solution suppliers; retailers

Gathering Demand Data: It is no easy task to figure out what the demand for a new product or service might be. Even large, experienced companies have failed at it. (Remember the Apple Newton, the first PDA? Its handwriting recognition capability was poor; customers became frustrated, and demand went to zero.) If entrepreneurs are attempting to give customers what they need, something they will demand, the first thing they must understand is that customers can describe their problems and they can describe what they need to be able to do—their outcomes, but they are typically not effective at describing solutions to their problems. For example, if entrepreneurs ask customers to identify what they like and don't like about the entrepreneur's product or the competitor's product, customers will typically respond in the context of something they know. "I wish this smart phone had a scroll wheel on the right side." Customers are merely providing a missing feature that perhaps a competitor offers. By contrast, if the entrepreneur asks a question that seeks an outcome—"how do you want to use a communication device?" (or better yet, "how do you want to communicate?")—he or she has put no boundaries on the customer. Customers are free to think about how they want to communicate in various scenarios without describing features. With these outcomes understood, the entrepreneur can better design a solution to the customer's problem. More importantly, with this knowledge in hand, the entrepreneur is better prepared to gather demand data. The question that entrepreneurs do not want to ask is "Would you buy this product?" -The simple reason is that in many cases, the respondent will be reluctant to offend the entrepreneur and so will say "yes," knowing full well that they won't be asked to purchase it that day so there is no commitment on their part. -A better approach is to identify a _____________, confirm that the respondent is ______________________ that problem, and then ask if the entrepreneur's ___________ would interest them. -This approach makes it easier for the customer to respond sincerely. Talking to customers to gauge demand is only the first step. It is also important to discuss demand with industry people such as _____________ and ______________. Getting estimates from at least 3 different sources enables the entrepreneur to derive a range of values and then triangulate to a best estimate.

small

It is easy to research common broad industries like consumer goods and technology because they are frequently covered by the government, news sources, brokerage firms, and the financial press. More difficult are _______ industries, whose data may end up aggregated within a larger industry; new or emerging industries, which are not yet represented in the government classification system; business-to-business industries where information is kept proprietary; and those industries that are not yet perceived to be legitimate industries. However, there are some indirect ways to extrapolate valuable information to guide the feasibility process; 1. "Check the business press." -Often popular business publications and newspapers will write about an industry before it hits the radar of the more established sources. 2. "Talk to trade associations." -Since these organizations are comprised of industry companies, they tend to collect data that describes that industry. -The Encyclopedia of Associations is a good way to find such a trade organization. -Also consider searching online using the ".org" domain, which is typical of nonprofit organizations such as trade associations. 3. "Consult trade association journals." -These journals are often found online or through services like LexisNexis or Factiva. 4. "Check organizations that list government and agency resources." -For example, FedStats lists U.S. government sites that contain statistical information, and it can be searched by topic or agency. 5. "Look at blogs, wikis, websites, and social networking sites." -Find patterns of thought and support or disconfirming evidence for your conclusions.

decline disruptive

Maturity and Decline: In this stage, the industry reaches a mature state in which several major players dominate. If new research and development in the industry do not produce a resurgence of growth, the industry could face impending __________ as earnings and sales growth slow and prospects deteriorate. Typically, mature industries are described by high-dividend yields (the expected annual payout divided by the price) and low price-to-earnings ratios, and CEOs of companies in mature industries tend to focus on cost containment (maintaining expense levels to prevent unnecessary spending or thoughtfully reducing expenses to improve profitability without long-term damage to the company). In general, it takes the introduction of ______________ technology to turn a declining industry around. Broad industries like mining, manufacturing, and agriculture are all in decline, although some sectors within those industries have found new life. -For example, in Iowa, soy farmers have developed a new soy flour that can substitute for eggs in baked goods with no cholesterol. -And miners of mica in South Dakota are finding new applications for their minerals as a result of new technology that can reduce the size of mica granules to the nano level or less than 12 microns in size. -Mica, traditionally used as an insulating material in electronics, is now used to dampen sound in automobiles and add shine to cosmetics.

fast Progressive Intermediating Radical creative

Recent research has identified 4 major industry trajectories that signal how ______ change occurs in a particular industry. __________________ change takes place as companies in the industry grow geographically and increase profits through innovations in operations, processes, distribution, and technology. -Examples are discount retailers like Wal-Mart and airlines like Jet Blue. _____________________ change, by contrast, is industry change that comes about when there are major shifts in the value chain in the form of forward and backward integration, strategic partnerships, and new ways to transact business with customers. -A good example is the automobile industry, where dealers have moved onto the Internet in an effort to reach more customers and bring down costs. ___________ change occurs in industries when an innovation results in the obsolescence of previous technology and drives old-line companies out of business. -The Internet produced such a change for the automobile industry, and the PC drove typewriter manufacturers out of business. -Radical change is transformative, but the transformation typically happens over decades. Finally, _____________ change is found in industries where resources turn over frequently and must continually be replaced. -Companies in industries like the film production industry tend to undertake multiyear projects to develop new assets for customers (the moviegoers) who constantly seek new forms of entertainment.

costly; time clarification; discussion nonverbal in-depth network

Structured Interviews: Although personal interviews are more __________ and ________-consuming than surveys, they have many advantages: -They provide more opportunity for _______________ and ________________. -The interviewer has an opportunity to observe _______________ communication and hence assess the veracity of what the interviewee is saying. -The response rate is high. -Interviews permit open-ended questions that can lead to more ______________ information. -They provide an opportunity for the entrepreneur to __________ and develop valuable contacts in the industry. Where time and money permit, structured interviews are an excellent source of valuable information from customers, suppliers, distributors, and anyone else who can help the entrepreneur determine who the first customer is. If the entrepreneur is interviewing a number of people, it would be important to have questions in common so that there is a basis for response comparison and useful patterns can be identified. It is critical to prepare for interviews by developing questions that focus on the information required to answer the market research questions, and by conducting some background research on the person being interviewed and the company. That way, more insightful questions can be asked rather than wasting the interviewee's time with questions that can be easily answered from material on the company website.

broad current primary validate

The Importance of Primary Industry Data: Secondary research paints a __________ picture of the industry, but given the lead time from data gathering to print, it rarely yields the most ____________ information available. Therefore, to access the timeliest information, it is extremely important to gather _______________ field data on the industry. Put more simply, entrepreneurs need to talk with people in the industry to ____________ what they have gathered with their secondary research. Some sources to tap are: -"Industry observers", who study particular industries and regularly report on them in newspapers or newsletters or through the media. -"Suppliers and distributors", who are in an excellent position to comment on the health of the industry in terms of demand for products and services, as well as on the financial strength and market practices of major firms in the industry. -"Customers", who can be a clue to satisfaction with the industry and the products or services supplied by firms in the industry. -"Employees of key firms in the industry", who are a good source of information about opinion leaders and competitors. -"Professionals from service organizations", such as lawyers and accountants, who regularly work with a particular industry. -"Trade shows", which give a good indication of who the opinion leaders are and who has the strongest market strategy.

industry industry successful mature entry; growth; profitability

Unquestionably, the analysis of the _____________ in which the business will operate is critical to determining whether a new venture will be feasible. From the broadest perspective, the _____________ is a grouping of businesses that interact in a common environment as part of a value chain or distribution channel. There is enormous value in knowing an industry well. Ideas for new ventures frequently come from understanding and having experience with an industry. In addition, comprehending how an industry works can help entrepreneurs find strategic partners, customers, venture capital, and strategies for success and also learn where the pitfalls and roadblocks might be. A strategic position in a growing, dynamic, healthy industry can go a long way toward ensuring a _________________ venture. For example, a young, growing industry with many new entrants, like the new media industry spawned by the Internet and user-generated content technology such as blogs and video, offers an opportunity to position a business to become a major player in the industry. By contrast, occupying a weak position in a ________ industry, such as the PC industry, may sound a death knell for the business before it ever opens its doors. Understanding how an industry operates is fundamental to shaping effective ________ and ________ strategies and to determining the potential for ______________________.

competencies; resources supply chain; distribution channels niche

When making decisions based on the Five Forces, it is important to consider the core _____________________ and _____________ that the new venture brings to the equation. For entrepreneurial ventures, an industry has to enable the venture to access the ________________ and _________________________; however, it does not mean that existing markets must be favorable. Entrepreneurs typically enter with a _________ strategy serving an unmet need in the market, so by definition, there will be no competitive rivalry for a time. In the end, the Five Forces Model should be used as one of several tools to aid in the decision making that entrepreneurs must do when judging the feasibility of their new business concepts.

private; public income suppliers firm; industry large up little significant power; higher commodity; decline more; high; high complements

Using the Framework to Draw Conclusions: Entrepreneurs can quickly become overwhelmed by the amount of information and the inconsistencies they confront when they begin their search process. That is why it's important to understand how the author defined the industry they're talking about, and be careful of sources that define the industry in such a way as to make it appear larger than it actually is. The demographics in the industry are also difficult to get a handle on because if the industry is comprised of a lot of private firms (and most are), then government data broken down into SIC or NAICS codes is valuable because it includes _________ and _________ companies. The extent of supplier power can be gauged by looking at a representative public company's __________ statements to determine what % of its direct costs were spent on _________________. Economies of scale are a barrier to entry for entrepreneurs, so it's critical to examine government data from the census to calculate the % output of an average _______ in the industry relative to the total output of the __________. If the firm's output is _________ relative to total output, it suggests that economies of scale are in play, so the entrepreneur's entry strategy must involve rapid scale _____ to survive. When it comes to the issue of customer power, the general rule is that where the industry supplies many downstream markets, customers have ________ power. -That means that if the entrepreneur has only one or two customers, those customers have __________________ power to affect the entrepreneur's strategy. Some additional things to watch out for include the following: -A fast-growth industry may not be attractive because suppliers typically gain ________ and charge _________ prices. -Moreover, products reach _______________ status much faster, which means that profit margins __________. -A "sexy" industry that everyone is writing about will tend to attract _______ competition and will often have price-insensitive buyers, _______ switching costs, and ________ barriers to entry. -The need for industry _____________________ to enable a new venture to grow must be considered. -For example, electric cars have been slow to take hold for a number of reasons, but the lack of an infrastructure (recharging stations) is a significant roadblock.

Internet

As was true with the industry analysis, the _______________ is a good starting point for gathering secondary data. Many of the traditional resources found in libraries are now available in online versions; for example, U.S. census data can be found at www.census.gov. Using census data, entrepreneurs can determine whether the geographic area they have defined for the business is growing or declining, whether its population is aging or getting younger, or whether the available work force is mostly skilled or unskilled, along with many other trends.

market primary; first customer resources

A _____________, by contrast, is a grouping of customers that an entrepreneur targets. Identification of the ______________ market and the ____________________ is one of the most important tasks that needs to be undertaken during feasibility analysis. What is meant by "first customer"? -The customer is an individual or organization who pays for a product or service, so the first customer for the entrepreneur generally represents that segment of the marketplace that needs the product or service most—in other words, the customer in the most pain. The reason is that entrepreneurs have limited _________________ so they want to assure that their first sales come quickly, which will happen if they've targeted customers with real problems.

external environment profit Return on investment (ROI)

AN OVERVIEW OF INDUSTRY ANALYSIS: There are two important reasons to study the industry in which a new venture will operate. First, it represents the business's ________________________, and no business operates independent of its external environment. Second, entrepreneurs need to understand whether they can make a __________ in the industry and if that profit will be significant enough to make the effort to start the business worthwhile. ___________________________ is a critical factor in any entrepreneur's planning. -Two forces influence ROI in an industry: (1) forces that tend not to change such as brand equity and intellectual property and forces that are dynamic, such as the number of potential buyers or changing demographics (2) the aggregate strength of the market forces.

Porter's Five Forces resources

ANALYZING AN INDUSTRY: It is often helpful to attach a framework to the concept of an industry to organize all the data collected and to be able to effectively evaluate the industry. Many frameworks have been proposed, and several have been adopted successfully by entrepreneurs. Perhaps the most commonly used competitive framework is ____________________________. Porter's work has been challenged on several levels, most notably, that a "sixth force," the government or public, should be included and that the attractiveness of an industry cannot be evaluated independent of the ______________ the company brings to the industry. Keeping these criticisms in mind, Porter's framework still provides an excellent exercise for entrepreneurs as they seek to characterize the industry and markets they will enter.

differentiation; solutions; solutions space focus not relationships; supply chain; customers important context; environment heart; launching

Dealing with Competition: Undoubtedly the best way for entrepreneurs to stave off competition is to provide meaningful ____________________ in their _____________ to customer _________. In a complex world that strategy needs to be bolstered by additional strategies that recognize the new venture's market position. One way to provide meaningful differentiation is to identify new market _______—a niche that is not currently being served. -That strategy gives entrepreneurs a temporary monopoly in which to establish themselves before having to face competition. Entrepreneurs should also have a plan in place to maintain a market _________ after launch. -Market research does ______ end with the launch of the business. -It's an ongoing process over the life of the business. -The venture must constantly scan the environment for new competitors, trends, disruptions, and new opportunities. -Entrepreneurs should plan for a continual stream of disciplined experiments, always looking for ways to attract noncustomers and venture into new markets. Finally, entrepreneurs need to quickly focus on developing ________________ with key people in the ______________ as well as key ________________. -It creates a significant competitive advantage because business relationships take time to develop and once that trust is in place, it's difficult for a competitor to overcome it. Studying the industry and market the new venture will serve is a difficult and time-consuming task, but it is perhaps the most _________________ information an entrepreneur can collect because it helps the entrepreneur understand the business ___________ or _________________, and the entrepreneur will learn whether the business will have customers. This is the ___________ of feasibility analysis and the foundation for _____________________ the business.

differentiation niches commoditization price innovation

Differentiation and Competition: As more firms enter the industry, intense product _____________________ occurs, because the industry's established standards and proprietary rights no longer provide the exclusivity they once did. Entrepreneurial ventures that enter the industry at this point must either identify ___________ that have not been served or differentiate themselves sufficiently in order to attract enough customers to be successful. One of the biggest threats at this stage is __________________________. -It is commonly believed that all products eventually become commodities; however, recent research has revealed that this is not always the case. -Take, for example, the humble toaster, which has gone through multiple iterations in its product life cycle and is still a prominent fixture in the home appliance industry. -Today, the global marketplace in countertop toasting technology is demonstrably driven by differentiation, segmentation, and ongoing technical innovation. When _______ becomes the most important differentiator, however, it signals to entrepreneurs that the time for _____________ has already arrived and that new value must be created quickly.

primary data observation; interviews

Exploring the Market with Primary Data: The most important data that entrepreneurs can collect on potential customers are ____________________, in particular, data collected through ______________ or customer ______________. The general process involves collecting data based on the questions, forming some hypotheses or educated guesses about the potential first customer, and then testing the hypotheses by conducting additional research with the customer.

difficult

Finding Information About Competitors: Collecting information on competitors is one of the most _____________ parts of researching a market. It is easy to gain superficial information from the competitor's advertising, website, or facilities; but the less obvious types of information, such as revenues and long-term strategies, are another matter. Information on publicly held competitors can be found in annual reports and other filings required by the Securities and Exchange Commission (SEC). Unfortunately, however, most startup companies are competing against other private companies that will not be willing to divulge these sensitive data. Data that are important to gather include current market strategies, management style and culture, pricing strategy, customer mix, and promotional mix. The following are some suggestions on where to look for this information: -Visit competitors' websites or the outlets where their products are sold. -Evaluate appearance, number of customers coming and going, what they buy, how much, and how often. -Talk to customers and employees. -Buy competitors' products to understand the differences in features and benefits and to learn about how they treat their customers. -Use Internet search engines such as Google.com to read what customers are saying about the company. -Find information on public companies to serve as benchmarks for the industry.

competitive analysis proprietary resources; skills roadblocks experience short resources; commitment target market markets

GATHERING COMPETITIVE INTELLIGENCE: One of the weakest portions of any feasibility analysis or business plan is the _________________________. Why do entrepreneurs frequently underestimate the competition? -For one thing, their information is incomplete because competitors don't reveal their most ___________________ strategies and tactics. Entrepreneurs also tend to underestimate what it takes in the way of _______________ and _______ to establish a presence in a market and they don't identify all the __________________ along the way. That talent comes from __________________. Furthermore, it is difficult for entrepreneurs to know what they don't know! The competition generally possesses market share, brand recognition, management experience, customer knowledge, value chain relationships, industry knowledge, and resources. That is a formidable package of competitive strength. By contrast, many entrepreneurs take the naive view that their concept is so new that they have no competition. Sadly, that is rarely the case. Even a niche strategy, probably the most effective strategy for a startup, will only leave an entrepreneur competitor-free for a very _______ time. Add to that the very real fact that entrepreneurial startups are short on _________________ and long on _________________ and it is easy to see why it would be difficult for a small startup to respond effectively to a competitor attack. In assessing the competition, the idea is not to benchmark the new venture against a competitor but rather to find ways to create new value that customers will pay for. To undertake effective competitor research, one has to first determine the _________________ that the entrepreneur's venture is serving (which was discussed in the previous section), because entrepreneurs compete in ______________.

secondary sources multiple patterns

Gathering Secondary Sources of Industry Information: It's generally wise to begin any research by looking at __________________________ of information to gather background data. Today, Google search engine (or Yahoo!, MSN, and others) and Wikipedia.com are great places to get an introduction to an industry and pick up on some trends by noting what is being talked about. Journals, trade magazines, industry analysts, government publications, and annual reports of public corporations—normally available in a university or community library and on the Internet—are also excellent starting points; they provide more targeted information and generally from experts. For example, a number of industry analysts offer excellent overviews of most of the major industries. Trade magazines provide a good sense of key firms and the direction the industry may be taking. LexisNexis and STAT-USA are also fine sources of industry statistics. The important thing to remember is to use ___________________ sources to draw conclusions because no one source is complete and it's important to get a variety of perspectives to look for ____________. The North American Industry Classification System (NAICS), the classification system that the United States, Canada, and Mexico developed to identify industries and allow for common standards and statistics across North America, is replacing the traditional U.S. Standard Industrial Classification system (SIC). NAICS covers 350 new industries that have never been coded before. -Some of these industries reflect high-tech developments such as fiber optic cable manufacturing, satellite communications, and the reproduction of computer software. -However, far more of these new categories are not technology-based: bed and breakfast inns, environmental consulting, warehouse clubs, pet supply stores, credit card issuing, diet and weight reduction centers, to name only a few.

analysis

Identifying a pain or need in the market is only the first step. Unfortunately, many entrepreneurs don't place enough emphasis on in-depth market ______________ to support the need they have recognized. As a result, they tend to overestimate their market forecasts for demand by as much as 60%. And that kind of error can be devastating to a startup venture. This chapter helps the reader do efficient and effective industry and market research within the constraints of the limited resources available to entrepreneurs so that their new venture increases its chances for success.

informal focus group feedback videotaped

Informal Focus Groups—The Group Interview: One efficient way to gain valuable information and feedback from customers and others is to conduct an ____________________________, in which a representative sample of potential customers is brought together for a presentation and discussion session. It is often used to elicit ____________ on customer needs relative to a potential product or service or to compare products. It is essential to ensure that the person leading the focus group have some knowledge of group dynamics and be able to keep the group on track. Often these focus group sessions are ___________________ so that the entrepreneur can spend more time later analyzing the nuances of what occurred. -It is important to get the written permission of attendees before videotaping.

market competitive

Markets that are growing generally experience 2 types of turbulence: ___________ turbulence, which is the rate at which customer tastes and preferences change; and _________________ turbulence, which is the rate at which competitors in the market change their strategies, such as introducing technological innovations.

environment trajectory social; technological; economic; political age; health R&D; change capital; purchasing power; inflation; rate; prospects regulation; stability; trade environmental; legal; ethical

PEST Analysis: In addition to viewing the industry and market through the lens of the Five Forces Model, it may be helpful for an entrepreneur to also conduct a PEST (or STEP) analysis to examine the ______________________ in which the new venture will operate and to ensure that the entrepreneur's strategies are aligned with the _______________ of the industry and the markets in which the new business will compete. PEST analysis examines specific aspects of the macro-environment: its _________, ___________________, ______________, and ___________ facets. Social factors consist of demographic and cultural aspects of the environment, such as ______ distribution and _________ consciousness or attitudes toward the environment. Technological factors include such things as ________ activity and rate of technological _____________. Economic factors deal with the firm's cost of ____________ and customers' ______________________ as well as __________, employment ________, and economic __________________ over time. Political factors involve government ________________ and the various legal issues that affect the business's operations in addition to the __________ of the government and _________ agreements. Depending on the needs of the entrepreneurs, the PEST analysis can be extended to include __________________, ___________, and _____________ factors (STEEPLE).

benefits; distribution channel; product/service; competition

Segmenting the Market with a Customer Matrix: One useful way to look at various customer segments to determine which should be the primary or first customer is to construct a customer matrix that lays out the ____________, _________________________, __________________, and potential _________________ for each of the identified customer segments. The matrix in the next slide represents an initial hypothesis about 3 potential customers for a proprietary hand-held ultrasound device. -This is an example where the primary customer (the one who pays) is not the primary beneficiary or end user. -To give some context to the matrix, millions of ultrasound-guided catheter insertion procedures are performed annually, and a significant % of them fail because the doctor is forced to look away to view the images. -This requires reinsertion, which is uncomfortable for the patient and wastes time. -The product being introduced solves that problem because the probe and image display are integrated in a single miniaturized device.

competition rapidly increases productive competition; social many; high stable; mature opinion leaders

Shakeout: When __________________ is the most intense, those companies that are unable to compete leave. The remaining firms then grow more ___________ as they pick up the slack. In fact, it is a curious truism that as the industry goes through its shakeout, the GDP (gross domestic product) (the total value of goods produced and services provided in a country during one year) actually __________________, meaning that firms in the industry become more _________________. Nevertheless, although shakeouts may lead to temporary efficiency gains, they also eliminate the possibility of ___________________ and therefore contribute to a _________ loss from decreased market competition. Entrepreneurial firms will not enter such an industry if they cannot survive the predatory tactics of the dominant players in the industry. The shakeout period moves the industry from ________ companies and ________ product costs, to a more __________ and ____________ industry with only a few efficient firms. This is the period in the industry life cycle when the ______________________ establish themselves.

segment geographic; income census

Some demographic data (data on age, income, race, occupation, and education) help identify the likelihood that a person will choose to buy a product. Demographic data also make it possible to __________ the target market into subgroups that are different from one another. -For example, if the target market is retired people over age 65, their buying habits (such as product requirements and quantity or frequency of purchase) may vary by _______________ region or by ___________ level. Finally, _________ data can be used to arrive at an estimate of how many target customers live within the geographic boundaries of the target market. -Then, within any geographic area, those who meet the particular demographic requirements of the product or service can be segmented out.

primary research

The Customer Profile: Out of the ____________________ will come a complete profile of the customer in great detail, that is, a description of the primary customer, be it a consumer or a business. The profile is critically important to the eventual marketing strategy, because it provides information vital to everything from product/service design to distribution channels and the marketing plan to attract the customer. Here is a list of some of the information that goes into the customer profile, whether that customer be a consumer or a business: -Age -Income level -Education -Buying habits—when, where, how much -Where these customers typically find these types of products and services -How they would like to purchase these products and services If the customer is a business, it can be described in essentially the same way—for example, the first customer is a small to midsized construction company with annual revenues of $5 million that makes purchases quarterly, buys primarily over the Internet, and pays within 60 days. The customer profile will also play an important role in the development of the marketing plan.

supply demand same resources same; different currently early; fast visible outside

The noteworthy research of M.I. Chen on competitor analysis suggested that to correctly assess the competitive market, one must view it from 2 sides: the __________ side, which includes resource capabilities such as R&D and production, and the _____________ side, which is represented by the customer and the customer's needs. Direct competitors are those businesses that serve the ______ customer needs with the same types of ______________, while indirect competitors serve the ________ customer needs but with ______________ resources as in substitute products or services. Potential competitors are those that are not ______________ serving the same customer needs but have the resources to quickly move into that space and compete. Therefore, it is important to look outside the immediate industry and market for alternatives. An entrepreneur also needs to look beyond existing competition to emerging competitors. In many industries today, technology and information are changing at such a rapid pace that the window of opportunity for successfully starting a new venture closes _______ and ______. Consequently, entrepreneurs must be vigilant in observing new trends and new technology that might portend new competitors. Sometimes the most threatening aspect of a competitor is not readily _________ in the typical facts that are reported, and frequently competitors come from ____________ the entrepreneur's industry and market. For example, understanding a competitor's core competency helps to determine whether that competency can ever be shifted to the entrepreneur's niche market. Suppose the entrepreneur's business is to train unskilled workers for well-paying jobs in industry. -The entrepreneur looks at all the competitors in the training industry and decides that he can compete because he has created a unique niche in the market. -What the entrepreneur has failed to do is look outside his industry to companies that might have the same core competency and might have the deep resources required to shift to his niche very rapidly. -Those companies are not always obvious. -For example, one of Marriott's core competencies is training unskilled workers in the language and work skills they need to perform the various jobs in Marriott's hotel chain. -It certainly has the resources to take this competency into any niche it desires. -Another example is substitutes and new entrants to the market in the form of disruptive innovation coming from outside the market. -These game-changing innovations can destroy the profitability of existing firms. -That is why so many companies are continually innovating their products and processes, because of the strong competitive advantage it gives them. -Therefore, to make certain that a potential threat like this one is not missed, entrepreneurs should: -Determine what the competitor has to do to be successful in its own core business. -Are there any core competencies that it must acquire? -Determine whether the competitor has a competency in the same area as the entrepreneur. -Determine which of the competitor's core competencies are transferable to the entrepreneur's business.

bargaining power switching costs standardized significant backward integration

Threat from Buyers' Bargaining Power: In industries where buyers (customers) have ________________________, it is more difficult for a new entrant to gain a foothold and grow. Examples of buyers that have this type of bargaining power include Price/Costco, Barnes & Noble, and Wal-Mart. Buyers like these can force down prices in the industry through volume purchases. This is particularly true where industry products constitute a significant portion of the buyers' requirements—books for Barnes & Noble, toys for Wal-Mart. Under this scenario, the buyer is more likely to be able to achieve the lowest possible price, a price that entrepreneurs will find difficult to compete with. Buyers also gain bargaining power where they face few _____________________; where the industry's products are ___________________ or undifferentiated, so there are plenty of substitutes; or where the industry's products don't affect the buyer in a __________________ way. The largest buyers also pose a threat of ______________________; that is, they may actually purchase their suppliers, thus better controlling costs and affecting price throughout the industry.

raising prices; goods; quality magnified forward prices increase

Threat from Suppliers' Bargaining Power: In some industries, suppliers exert enormous power through the threat of ______________, limiting the quality or quantity of ________ they supply, or changing the _________ of the products that they supply to manufacturers and distributors. If the number of these suppliers is few relative to the size of the industry, or the industry is not the primary customer of the suppliers, that power is _______________. A further threat from suppliers is that they will integrate ____________—that is, they will purchase the outlets for their goods and services, thus controlling the _________ at which their output is ultimately sold. And entrepreneurs must remember that where switching costs are high, it's difficult for firms to make the needed changes to _____________ their profitability.

static; stable life cycle birth; growth; maturity; decline product

Understanding Industry Life Cycles: Industries do not remain _______ or __________ over time; in fact, they are constantly evolving. Like people, industries and their products move through a ____________ that includes _________, __________, ____________, and ultimately _____________. Today, many industry life cycles are accelerating with a corresponding speeding up of their ____________ cycles; consequently, many companies have been caught in the inertia of believing that their products would live forever. Like companies, industries decline when the story is no longer compelling. When companies in that industry stick to the old strategies while customers move on, the life cycle slows and eventually dies. Currently, the newspaper industry is suffering from disruptive change brought about by the Internet and the new consumer-generated media—blogs, Google, online newsletters, eBay, and Monster.com. Despite this powerful competition, the industry is still focusing most of its resources on print media even after making the shift to the Web.