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Entrepreneurial Strategy and Competitive Dynamics. chapter 8. Entrepreneurial Strategy. Entrepreneurship involves value creation and the assumption of risk New value can be created in many contexts: Startup ventures Major corporations Family owned businesses Nonprofit organizations
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Entrepreneurial Strategy • Entrepreneurshipinvolves value creation andthe assumption of risk • New value can be created in many contexts: • Startup ventures • Major corporations • Family owned businesses • Nonprofit organizations • Established institutions
Entrepreneurial Strategy Exhibit 8.1 Opportunity Analysis Framework Source: Based on Timmons, J.A., & Spinelli, S. 2004. New Venture Creation (6th edition). New York: McGraw Hill/Irwin; and Bygrave, W.D. 1997. The Entrepreneurial Process. In W.D. Bygrave (Ed.), The Portable MBA in Entrepreneurship (2nd edition). New York: Wiley.
Entrepreneurial Opportunities • Entrepreneurial opportunities require opportunity recognition • Two phases of activity • Discovery • Becoming aware of a new business concept • Evaluation • Analyzing the opportunity to determine whether it is viable or feasible to develop further
Entrepreneurial Resources • Financial resources depend on stage of venture development & venture scale • Initial, start up financing • Personal savings, family, and friends • Crowdfunding • Early stage financing • Bank financing, angel investors • Later stage financing • Commercial banks, venture capitalists equity financing
Entrepreneurial Resources • Human capital • Strong, skilled management • Social capital • Extensive social contacts & strategic alliances • Technology, manufacturing, or retail alliances • Federal, state, & local government resources • Government contracting • Loan guarantee programs • Training, counseling, & support services
Entrepreneurial Leadership • Entrepreneurial leadership is needed • Courage • Belief in one’s convictions • Energy to work hard • Leadership characteristics • Vision • Dedication and drive • Commitment to excellence
Entrepreneurial Strategy • New ventures require an entrepreneurial strategy • What are the industry conditions? • Five-forces analysis - barriers to entry? • What is the competitive environment? • Retaliation by established firms? • What are the market opportunities? • Entry strategies • Generic strategies • Combination strategies
Entry Strategies • New venture entry strategies need to: • Quickly generate cash flow • Build credibility • Attract good employees • Overcome the liability of newness • Pioneering new entry • Imitative new entry • Adaptive new entry
Generic Strategies for New Ventures • Overall cost leadership • Simpler organizational structure • Quicker decision-making to upgrade technology & integrate marketplace feedback • Differentiation • Using new technology • Deploying resources in a radical new way • Focus • Using niche strategies that fit the small business mold
Combination Strategies for New Ventures • Pursuing combination strategies • Combine the best features of low-cost, differentiation, and focused strategies • Hold down expenses by having a simple structure • Create high-value products & services by being flexible & innovative
Competitive Dynamics • New entry threatens existing competitors • Competitive dynamics helps explain why strategies evolve and how to respond: • New competitive action • Threat analysis • Motivation and capability to respond • Types of competitive action • Likelihood of competitive reaction
Competitive Dynamics • Threat analysis involves an assessment of • Market commonality • Resource similarity • How serious is the threat? • What is the intent of the competitive response? • What resources are needed to fend off a competitive attack? • Which action should I take?
Competitive Dynamics • Strategic actions • Entering new markets • New product introductions • Changing production capacity • Mergers/alliances • Tactical actions • Price cutting (or increases) • Product/service enhancements • Increased marketing efforts • New distribution channels Types of competitive actions include:
Competitive Dynamics • Likelihood of competitive reaction • Market dependence • Competitor’s resources • The reputation of the firm that initiates the action – the actor’s reputation • Choosing not to respond • Forbearance • Co-opetition • Working together behind the scenes to achieve industrywide efficiencies