Diane M. Sullivan (2010)

1. New Venture Creation and an Industry Structures & Competitor Analysis Diane M. Sullivan (2010)

2. Industry Structures • An industry’s structure indicates the stage of an industry its life cycle • Suggests types of firms that will likely be successful in the industry • Helps us determine if the window of opportunity is open for new entrants • Suggests strategic moves that new entrants or existing firms can take to capitalize on opportunities created as a result of industry characteristics • 5 general structures an industry can take (these are not mutually exclusive): • Emerging • Fragmented • Mature • Declining • Global

3. Industry Structures: Emerging • Indicated by: Newly created or re-created industries • Primary causes: technological innovations, changes in demand, the emergence of new customer needs, etc. • Examples: microprocessors, digital music, cell phones, biotechnology • Entrepreneurial opportunities present in emerging industries: • Gain a first-mover advantages via: • Technology leadership: can create the technology standard (e.g., Microsoft), gain low-cost position due to economies of scale (Wal-Mart), obtain patent protection • Caution: second-mover advantages may occur where imitators can duplicate the first movers’ patents—research shows imitators can do this for 65% of the cost of the first-mover • Strategically valuable assets (e.g., required resources to compete in industry): access to raw materials (e.g., mining industries), favorable geographic locations (Wal-Mart in medium-sized cities before competition), valuable product market positions (breakfast manufacturers; luxury vehicles) • Create customer switching costs: create a cost for customers to change to another firm’s offerings (e.g., software, pharmaceuticals, even some grocery stores)

4. Industry Structures: Fragmented • Indicated by: • A large number of small to SME firms in the industry • No one has dominant market share • No one creates a dominant technology • Primary causes: few barriers to entry, no economies of scale, may need close local control over enterprises to ensure quality • Examples: service industries like retailing, commercial printing, dry cleaning, local movie houses • Entrepreneurial opportunities present in fragmented industries: • Consolidation: firms can consolidate (e.g., purchase firms) the industry to move create a smaller number of larger firms • Examples: • Blockbuster consolidated the video rental industry • Service Corporation International (SCI) in the funeral industry (found new economies of scale) • Midas has consolidated muffler repair shops

5. Industry Structures: Mature • Indicated by: • Slowing industry growth • Development of repeat customers • Slowing of production capacity • Slowdown in new product/service introductions • Increased international competition • Overall reduction in profitability of firms in industry • Primary causes: technology diffusion, reduction in innovation rate • Examples: fast food; motor oil, large discount retailers; laundry detergents, kitchen appliances • Entrepreneurial opportunities present in mature industries: • Product refinement: focus on extending/improving current products and technologies (e.g., additives to motor oil, more concentrated laundry detergents; front-loading washing machines; Silk Soymilk) • Investment in service quality: increase customer service quality (e.g., restaurant industry and the casual dining segment—Applebee's; Chili's—versus fast-food service) • Process Innovations: activities used to design, product and sell products/services (e.g., US automobile industry; Dell and supply-chain management in PC industry)

6. Industry Structures: Declining • Indicated by: An industry that has experienced an absolute decline in unit sales over a sustained period of time. • Examples: Traditional video rental industry; US defense industry after the Cold War in the 1980s • Entrepreneurial opportunities present in declining industries: • Market Leadership: wait out shakeout period; facilitate shakeout by purchasing competitors’ product lines, then try to gain majority of market share (e.g., Martin Marietta in defense industry acquiring GE’s aerospace business—then merged with Lockheed to become Lockheed Martin) • Market Niche: reduce scope of operations and focus on narrow segments in industry(e.g., Polaroidwith instant photography) • Cost Reduction: reduce operating costs to remain competitive • Harvest or Divestment: withdrawal from industry after industry decline pattern is established so no additional costs incurred (e.g., can sell product lines to competitors)

7. Industry Structures: Global • Indicated by: industry experiencing significant international sales • Examples: athletic shoes; internet auctions; fast food • Entrepreneurial opportunities present in global industries: • Pursue Multidomestic Strategy: customize product/service offerings per each market’s specific needs/wants (fast food; eBay) • Pursue Global Strategy: approach each market with the same offerings (e.g., Nike) • Determine which strategy appropriate by similarity of consumers’ tastes across markets

8. Industry Structures: Assignment Requirements • Due for Checkpoint #4 • Due Thur., Nov. 18th for Teams #4 and #5 • Due Tues, Nov. 23rd for Teams #1, #2 and #3 • Determine the structure of the industry within which your firm will compete • Provide evidence to support your conclusions • Discuss if your firm capitalizes on opportunities present in that industry • Describe if your firm capitalizes on the opportunities that are presented as a consequence of the structure of the industry • If you do not, discuss if can you modify your approach to launching the venture so you can more likely capitalize on the opportunity(ies) presented? • If the venture cannot be modified, discuss if it is not timely to enter this market?

9. Competitor Analysis • Involves a detailed analysis of a firm’s competition and is conducted to • Understand the positions of major competitors • Understand opportunities for a competitive advantage • Identify trouble-spots for the new venture • 3 Main Steps: • Identify competitors • Collect competitive intelligence • Complete and interpret a Competitive Analysis Grid (CAG)

10. Step 1: Identifying Competitors • Determine who the competition is • Requires understanding what “business” your are in (e.g., problems/needs your business fulfills for customers) • Example 1: 1-800-flowers is in the flower and gift business • Question: What business is eBay in? • Types of Competitors: • Direct Competitors: firms that offer identical offerings • Indirect Competitors: firms that offer substitutes • Future Competitors: firms positioned to enter the industry

11. Step 2: Competitive Intelligence • Competitive intelligence (CI) is information gathered about competitors • Sources of CI must be reliable • Annual reports for publically traded companies on company websites and on the SEC website (www.sec.gov) • Conferences • Industry-related books • Customers information • Purchasing competitors offerings • Competitors’ websites

12. Step 3: Competitive Analysis Grid (CAG) • N/A = that company does not offer/address this component. • Green cells = areas where Pitchmeasure has an advantage—could be a source of a competitive advantage. • Red cells = areas where Pitchmeasure has a disadvantage. • Cells not highlighted = areas where Pitchmeasure at a competitive parity.

13. Competitor Analysis: Assignment Requirements • Due for Checkpoint #4 • Due Thur., Nov. 18th for Teams #4 and #5 • Due Tues, Nov. 23rd for Teams #1, #2 and #3 • Identify and discuss the main direct and indirect competitors for your firm • Describe their main characteristics (e.g., size, offerings, position in the industry, market share, notable characteristics, etc.) • Construct a CAG to assess your firm relative to competitors • Discuss firm attributes that are especially favorable • Discuss the implications of this • Discuss firm attributes that are particularly problematic • Discuss the implications of this