Chapter 13

1. Chapter 13 Part 3:Strategic Implementation Strategic Management:creating competitive advantages Gregory G. Dess G. T. Lumpkin Marilyn L. Taylor Recognizing Opportunities and Creating New Ventures

2. Learning Objectives • After reading this chapter, you should have a good understanding of: • The role of new ventures and small businesses in the U.S. economy. • The importance of opportunity recognition, as well as the role of opportunities, resources, and entrepreneurs in successfully pursuing new ventures.

3. Learning Objectives • After reading this chapter, you should have a good understanding of: • The role of vision, dedication, and commitment to excellence in determining the quality of entrepreneurial leadership. • The different types of financing that are available to new ventures depending on their stage of development

4. Learning Objectives • After reading this chapter, you should have a good understanding of: • The importance of human capital and social capital as well as government resources in supporting new ventures and small businesses. • The three types of entry strategies—pioneering, imitative, and adaptive—that are commonly used to launch a new venture.

5. Learning Objectives • After reading this chapter, you should have a good understanding of: • How the generic strategies of overall cost leadership, differentiation, and focus are used by new ventures and small businesses

6. Categories of Entrepreneurial Ventures • Distinctions (with strategic implications) among entrepreneurial firms • Size • Age • Growth goals • Entrepreneurial firms generally favor growth • Entrepreneur may sell shares to support growth

7. Distribution of Small Businesses in the United States Agricultural Services (0.4%) 27,000 Retail Trade (6.3%) 355,000 Services (49%) 2,767,000 Wholesale Trade (6.3%) 355,000 Transportation, Communications, and Public Utilities (4.3%) 245,000 Construction (12.4%) 703,000 Mining (0.3%) 19,000 Finance, Insurance, and Real Estate (8.4%) 473,000 Manufacturing (5.4%) 307,000 Adapted from Exhibit 13.1 All Small Companies by Industry Source: SBA’s Office of Advocacy, based on data provided by the U.S. Census Bureau, statistics of U.S. businesses.

8. Elephants, Mice, and Gazelles Elephants • Elephants • Large • Older • Cannot change direction quickly • Have laid off more people than hired in past 25 years • Can be hard chargers • Can mover rapidly because of power in the marketplace • Command respect • Can influence marketplace and business conditions

9. Elephants, Mice, and Gazelles Mice • Mice • Small firms that power the U.S. economy • Small retailers, manufacturers • Small service firms, auto repair shops, plumbers, restaurants • Don’t have much market power • Can change direction quickly in response to changes in business conditions • Many do not aspire to grow large • Maintain profitability • Some, however, aspire to grow

10. Gazelles Elephants, Mice, and Gazelles • Gazelles • Seek rapid growth and above average profitability • May be listed in the Inc. 500 or Entrepreneur Hot 100 • Grow at least 20 percent a year for five years, from a base of at least $100,000 in revenues • Doubles in size during the four-year period • Value proposition often includes radical innovation or implementation of new technology • Seek growth rather than control • Create many jobs in the economy

11. Types of Entrepreneurial Ventures • Definition: A family business is a privately held firm in which family members have some degree of effective control over the strategic direction of the firm and intend for the business to remain within the family. • Scope: Comprise 80 to 90% of all business enterprises in North America, 30 t0 35% of the Fortune 500 companies and majority of enterprises internationally. Fifty percent of the U.S. GDP (over $3.3 trillion) is generated by family-owned businesses. Type Characteristics Family businesses Adapted from Exhibit 13.2 Types of Entrepreneurial Ventures

12. Types of Entrepreneurial Ventures • Definition: A franchise exists when a firm that already has a successful product or service (franchisor) contracts with another business to be a dealer (franchisee) by using the franchisor’s name, trademark and business system in exchange for a fee • Scope: Accounted for $1 trillion in annual retail sales in the United States in 2000. There are about 320,000 franchise businesses, employing more than 8 million people in 75 different industries. Type Characteristics Franchises Adapted from Exhibit 13.2 Types of Entrepreneurial Ventures

13. Types of Entrepreneurial Ventures • Definition: a home-based business, also referred to as SOHO (Small Office/Home Office), consists of a company with 20 or fewer employees, including self-employed, free agents, e-lancers, telecommuters, or other independent professionals working from a home-based setting. • Scope: Approximately 20 million businesses are home-based. The U.S. Commerce Department estimates that more than half of all small businesses are home-based. Type Characteristics Home-based businesses Adapted from Exhibit 13.2 Types of Entrepreneurial Ventures

14. Opportunity Recognition: Identifying and Developing Market Opportunities • Opportunities come from many sources • Start-ups • Current or past work experiences • Hobbies that grow into businesses or lead to inventions • Suggestions by friends or family • Chance events • Change

15. Opportunity Recognition: Identifying and Developing Market Opportunities • Opportunities come from many sources • Established firms • Needs of existing customers • Suggestions by suppliers • Technological developments that lead to new advances • Change

16. Discovery phase Opportunity Recognition Process • Period when you first become aware of a new business concept • May be spontaneous and unexpected • May occur as the result of deliberate search for • New venture projects • Creative solutions to business problems

17. Discovery phase Opportunity formation phase Opportunity Recognition Process • Evaluating an opportunity (Can it be developed into a full-fledged new venture?) • Talk to potential target customers • Discuss it with production or logistics managers • Conduct feasibility analysis • Market potential • Product concept testing • Focus groups • Trial runs with end users

18. Good Business Opportunity Attractive Value creating Achievable Durable Characteristics of Good Opportunities • Before launching opportunity as a business • Evaluate readiness and skills of entrepreneurial founder or team • Consider availability and access to resources

19. Opportunity Entrepreneur(s) Resources Opportunity Analysis Framework Adapted from Exhibit 13.3 Opportunity Analysis Framework Sources: Based on J. A. Timmons and S. Spinelli, New Venture Creation, 6th ed. (Burr Ridge, IL: McGraw-Hill/Irwin, 2004); and W. D. Bygrave, “The Entrepreneurial Process,” in W. D. Bygrave, ed., The Portable MBA in Entrepreneurship, 2nd ed. (New York:Wiley, 1997).

20. Resources Entrepreneurial Resources • Major challenge for entrepreneurial firm is lack of resources • Money • Human capital • Social capital

21. Resources Entrepreneurial Resources • Money (New-Venture Financing) • Early-stage financing • Personal savings, family, and friends • Bank financing, public financing, venture capital • Debt • Equity • Bootstrapping

22. Alternatives to Traditional Financing Allows a start-up to hold onto its cash and minimize commitments to equipment or real estate that might need updating as the company grows (or shrinks). Leasing costs are deductible as a business expense. Method Description Leasing Barter A traditional noncash means of exchanging products or services. Bartering has enjoyed a resurgence in p0opularity because exchange services now available on the Internet are facilitating more barter transactions. Sources: J. A. Fraser, “Plans for Growth,” Inc. Magazine, March 2001, pp. 56-57; J. A. Fraser, “A Hitchhiker’s Guide to Capital Resources,” Inc. Magazine, February 1998, pp. 74-82; and T. Owens, “Getting Financing in 1990,” Small Business Reports, June 1990, 0pp. 61-72. Adapted from Exhibit 13.4 Alternatives to Traditional Financing

23. Alternatives to Traditional Financing One of the fastest growing techniques for financing start-ups and number one among female entrepreneurs. It’s like a bank loan without the lengthy approval process. But the high interest rates that some cards charge could make it risky. Method Description Credit cards Supplier financing Suppliers that let you pay for goods or services in 60 or 90 days rather than after only 10 to 30 days are, in effect, financing your purchase. Some suppliers will agree to this because they need your business as badly as you need their credit. Sources: J. A. Fraser, “Plans for Growth,” Inc. Magazine, March 2001, pp. 56-57; J. A. Fraser, “A Hitchhiker’s Guide to Capital Resources,” Inc. Magazine, February 1998, pp. 74-82; and T. Owens, “Getting Financing in 1990,” Small Business Reports, June 1990, 0pp. 61-72. Adapted from Exhibit 13.4 Alternatives to Traditional Financing

24. Alternatives to Traditional Financing Factoring is a method of raising cash by selling accounts receivables to a third party or financing against the value of receivables. It’s generally used only for short-term cash needs and often comes with a hefty interest charge. Method Description Factoring Sources: J. A. Fraser, “Plans for Growth,” Inc. Magazine, March 2001, pp. 56-57; J. A. Fraser, “A Hitchhiker’s Guide to Capital Resources,” Inc. Magazine, February 1998, pp. 74-82; and T. Owens, “Getting Financing in 1990,” Small Business Reports, June 1990, 0pp. 61-72. Adapted from Exhibit 13.4 Alternatives to Traditional Financing

25. Resources Entrepreneurial Resources • Money (Going Concern) • Later-stage financing • Angel investors • Venture capital • equity financing • Commercial banks

26. Resources Entrepreneurial Resources • Human capital • Social capital • Government resources • Small Business Administration • Government contracting • State and local governments

27. Entrepreneur(s) Entrepreneurial Leadership • Launching a new venture requires a special king of leadership • Courage • Belief in one’s convictions • Energy to work hard • Three characteristics • Vision • Dedication and drive • Commitment to excellence

28. Entrepreneur(s) Entrepreneurial Leadership • Vision may be entrepreneur’s most important asset • Ability to envision realities that do not yet exist • Able to communicate with a wide audience • Willing to make unpopular decisions • Determined to make sure your message gets through • Create and implement quality systems and methods that will survive Vision

29. Entrepreneur(s) Entrepreneurial Leadership • Dedication and drive are reflected in hard work • Patience • Stamina • Willingness to work long hours • Internal motivation • Intellectual commitment to the enterprise • Strong enthusiasm for work and life Vision Dedication and Drive

30. Entrepreneur(s) Entrepreneurial Leadership • To achieve excellence, venture founders and small business owners must • Understand the customer • Provide quality products and services • Manage the business knowledgeably and expertly • Pay attention to details • Continuously learn • Surround themselves with good people Vision Dedication and Drive Commitment to Excellence

31. Entrepreneurial Strategy • Best strategy for the enterprise will be determined to some extent by • Unique features of the opportunity, resources, and entrepreneur(s) • Other conditions in the business environment • Can use various tools and techniques to determine strategic choices • Five-forces analysis • Value-chain analysis

32. Entry Strategies • Getting a foothold in the market • Pioneering new entry • Creating new ways to solve old problems • Meeting customer’s needs in a unique new way • Imitative new entry • Strong marketing orientation • Introduce same basic product or service in another segment of the market • Adaptive new entry • Offer product or service that is “somewhat new and different” • Aware of marketplace conditions and conceive entry strategies to capitalized on current trends

33. Generic Strategies • How new ventures can achieve competitive advantages • Overall cost leadership • Simple organizational structures • More quickly upgrade technology and integrate feedback from the marketplace • Make timely decisions that affect cost • Differentiation • Use new technology • Deploy resources in a radical new way • Focus • Niche strategies fit the small business mold

34. Combination Strategies • A key issue is the scope of a small firm’s strategic efforts relative to those of its competitors • Pursue combination strategies • Combine best features of low-cost, differentiation, and focus strategies • Flexibility and quick decision-making ability of a small firm not laden with layers of bureaucracy