Whirlwind Look at Strategy for Entrepreneurs

1. Whirlwind Look at Strategy for Entrepreneurs Jeff Stambaugh Dillard College of Business/Rm 257A jeff.stambaugh@mwsu.edu http://faculty.mwsu.edu/business/jeff.stambaugh Built by Stambaugh/2009

2. Whirlwind Look at ENT Strategy • Feasibility analysis: Is this truly a potential business? • Industry analysis: Is this truly an attractive industry to enter? • Business Strategy / Model: How can I generate value for everyone? Built by Stambaugh/2009

3. More on Feasibility • Is there a market for the product (value for customers)? • Are there margins for the firm? • Is there sufficient volume over time • Size of Market • Repetition of purchases • Fad? If it’s feasible, it appears I have a business (valid ENT opportunity) Built by Stambaugh/2009

4. Ways to Test Feasibility • Prototypes / Focus groups • Web (Second Life) • Small trials (local markets, eBay, etc) Built by Stambaugh/2009

5. Industry Analysis • How do firms generate value and compete • Is this an attractive industry to enter • Industry: firms producing products that are close substitutes for each other • Standard Industry Classification (SIC) and North American Industry Classification System (NAICS)http://www.census.gov/epcd/www/naics.html Built by Stambaugh/2009

6. Porter’s Five Forces Built by Stambaugh/2009

7. Threat of New Entrants • Threat of new entrants greatest when • Low economies of scale (or no cost disadvantages independent of scale) • Low capital requirements (or easy access to funds) • Low switching costs • Little Differentiation • Easy access to distribution channels • Government policy does not inhibit new entries Built by Stambaugh/2009

8. Bargaining Power of Buyer • Greater when: • Buyer is a major customer for supplier • Low switching costs • Undifferentiated products • Able to backward integrate • Buyer earns low profits • Buyer doesn’t rely on product for key attributes (e.g. quality) Built by Stambaugh/2009

9. Bargaining Power of Suppliers • Greater when: • Few large suppliers and buying firms’ industry not concentrated. • No substitute products • Supplier not reliant on buyer’s business • Suppliers’ goods are essential to buyer • High switching costs for buyers or differentiated product • Suppliers could forward integrate into buyer’s business Built by Stambaugh/2009

10. Substitute Products • Another way for the customer to “scratch the itch” • Limits industry profitability • Also suggests possible threats: • The car vs Southwest Airlines • Email / fax vs FedExing documents overnight • Cable TV versus videogames? Built by Stambaugh/2009

11. Rivalry Among Competitors • Rivalry among existing firms increases when: • Little degree of differentiation • Low switching costs • Numerous / equally balanced competitors • Slow industry growth • High strategic stakes • High fixed costs or high storage costs • High exit barriers Only the Paranoid Survive … Andy Grove Built by Stambaugh/2009

12. Powerful Competitors versus New Entrants • Are they likely to be aware of the entry? • Do you threaten them in a way they are likely to react? • Do they have the capability to respond? • What’s their track record? • What do Google, JetBlue, and Netflix all have in common? Built by Stambaugh/2009

13. Industry Life Cycle • Fragmented versus Concentrated Industries Built by Stambaugh/2009

14. Online Tools for Industry Analysis • From our library http://library.mwsu.edu/research.asp • From WSJ http://online.wsj.com/home/us • www.bizstats.com • Hoovers: http://www.hoovers.com/free/ind/fr/list.xhtml Built by Stambaugh/2009

15. Fundamental StrategyQuestions • How are we going to create value for our customer (or less noble—how are we going to motivate them to buy our product / service?): • By being the cheapest? • By offering the most desirable features / services? • By serving a niche market? • By melding low cost and some unique features? • And how do my competitive advantages play into this? http://images.businessweek.com/ss/08/09/0908_2007_finalists/19.htm Business-level strategy: decisions that describes how firm will compete in its chosen industry / market segment The purpose of business is to create and keep a customer … Drucker Built by Stambaugh/2009

16. Generic Strategies • Cost Leadership • Differentiation • Focus The purpose of business is to create and keep a customer … Drucker Built by Stambaugh/2009

17. Overall Cost Leadership • Comparable (decent) product that you can produce cheaper than competitors by …. • Scale-efficient operations • Cost reductions from experience • Overall cost control • Avoid marginal accounts • Squeeze value chain • Lower costs + same price to consumer = higher profits (or lower price increased volume = higher profits) • Typical ENT Options • Local cost advantage • Specialization cost adv • Underused resource • Better management The purpose of business is to create and keep a customer … Drucker Built by Stambaugh/2009

18. Differentiation • Bases for differentiation • Prestige • Product features • Service Competitive advantage comes when people pay more for it than it costs you to provide it The purpose of business is to create and keep a customer … Drucker Built by Stambaugh/2009

19. Focus Strategies • Geographic • Demographic • Income scale (both high and low) • Unique product requirements http://images.businessweek.com/ss/08/09/0908_2007_finalists/7.htm The purpose of business is to create and keep a customer … Drucker Built by Stambaugh/2009

20. Supra-Strategies of Differentiation • Craftsmanship • Customization • Super-support • Serving underserved / interstices • Elite • Single-mindedness • Comprehensiveness The purpose of business is to create and keep a customer … Drucker Built by Stambaugh/2009

21. Combination Strategy(Integrated Cost and Differentiation) • Efficiently provide unique value (hit the mid-spectrum) • Tougher to imitate but also harder to implement The purpose of business is to create and keep a customer … Drucker Built by Stambaugh/2009

22. Innovation • Incremental vs pure • Usually with a differentiation or combo strategy Built by Stambaugh/2009

23. What is a Competitive Advantage • Superior financial returns (staying ahead of competitors)! • Some ENTs may settle for much less How do I generate a competitive advantage? Built by Stambaugh/2009

24. Value Chain • Value = Total revenue (price x quantity) • Two views: value generator, waste minimizer • Internal / External Fit Do what you can, with what you have, where you are … T. Roosevelt Built by Stambaugh/2009

25. Resources • Tangible (things you can see / quantify): • Financial (balance sheet, ability to borrow) • Physical (plant and equipment) • Technological (patents, trade secrets) • Organizational (planning processes and control systems) • Intangible (things you can’t see / quantify) • Human (knowledge, skill, trust, leadership) • Innovation • Reputation • Organizational Capabilities (competences / capacity to combine) Do what you can, with what you have, where you are … T. Roosevelt Built by Stambaugh/2009

26. Core Competencies • Capabilities firm emphasizes / performs especially well while pursuing its vision • Core competencies lead to competitive advantage • Do something better • Do something others can’t Do what you can, with what you have, where you are … T. Roosevelt Built by Stambaugh/2009

27. VRIO • Valuable (can it increase sales or decrease costs?) • Rare (how many others have it?) • Imitability (how easy can it be copied?) • Organization (Can we use the resource?) Built by Stambaugh/2009

28. Resources/Capabilities that Lead to Competitive Advantage (CA) • Difficult to Imitate/Substitute: • Physical uniqueness • Path dependent (history matters) • Causal ambiguity • Socially complex Do what you can, with what you have, where you are … T. Roosevelt Built by Stambaugh/2009

29. Class Takeaways • Is it feasible? • Is it an attractive industry? • Business model / strategy • How will I generate a competitive advantage? Built by Stambaugh/2009