13-1. 13-2 recognizing opportunities and creating new ventures mcgraw-hill/irwin strategic...

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Recognizing Opportunities and Creating New Ventures

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Chapter thirteen

Part 3: strategic implementation

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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.


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Learning Objectives



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

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Learning Objectives


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.


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Learning Objectives


How the generic strategies of overall cost leadership, differentiation, and focus are used by new ventures and small businesses


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Categories of Entrepreneurial Ventures


Distinctions (with strategic implications) among entrepreneurial firms

SizeAgeGrowth goals

Entrepreneurial firms generally favor growthEntrepreneur may sell shares to support growth

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Elephants, Mice, and Gazelles


ElephantsLargeOlderCannot change direction quicklyHave laid off more people than hired in the past 25 yearsCan be hard chargersCan move rapidly because of power in the marketplaceCommands respectCan influence marketplace and business conditions

ElephantsElephants

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MiceSmall firms that power the U.S. economySmall retailers, manufacturersSmall service firms, auto repair shops, plumbers, restaurantsDon’t have much market powerCan change direction quickly in response to changes in business conditionsMany do not aspire to grow large Maintain profitabilitySome, however, aspire to grow

MiceMice

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GazellesSeek rapid growth and above average profitabilityMay be listed in the Inc. 500 or Entrepreneur Hot 100Grow at least 20% a year for 5 years, from a base of at least $100,000 in revenuesDoubles in size during the 4-year periodValue proposition often includes radical innovation or implementation of new technologySeek growth rather than controlCreate many jobs in the economy

Gazelles

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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.

Family businesses

Type Characteristics

Adapted from Exhibit 13.2 Types of Entrepreneurial Ventures

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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.

Franchises



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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.

Home-based businesses



13-14Opportunity Recognition: Identifying and Developing Market Opportunities


Opportunities come from many sources

Start-upsCurrent or past work experiencesHobbies that grow into businesses or lead to inventionsSuggestions by friends or familyChance eventsChange

13-15Opportunity Recognition: Identifying and Developing Market Opportunities


Opportunities come from many sources

Established firmsNeeds of existing customersSuggestions by suppliersTechnological developments that lead to new advancesChange

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Opportunity Recognition Process


Period when you first become aware of a new business conceptMay be spontaneous and unexpectedMay occur as the result of deliberate search for

New venture projectsCreative solutions to business problems

Discovery phaseDiscovery phase

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Opportunity Recognition Process


Evaluating an opportunity (Can it be developed into a full-fledged new venture?)

Talk to potential target customersDiscuss it with production or logistics managersConduct feasibility analysis

Market potentialProduct concept testingFocus groupsTrial runs with end users

Discovery phaseDiscovery phase

Opportunity Opportunity formation phaseformation phase

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Characteristics of Good Opportunities


Good Business Good Business OpportunityOpportunity

AttractiveAttractive Value creatingValue creating

AchievableAchievable DurableDurable

Before launching opportunity as a businessEvaluate readiness and skills of entrepreneurial founder or teamConsider availability and access to resources

13-19 Opportunity Analysis Framework


OpportunityOpportunity

ResourcesResources Entrepreneur(s)Entrepreneur(s)

Adapted from Exhibit 13.3 Opportunity Analysis FrameworkSources: 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).

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Entrepreneurial Resources


Major challenge for entrepreneurial firm is lack of resources

MoneyHuman capitalSocial capital

ResourcesResources

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ResourcesResources Money (New-Venture Financing)Early-stage financing

Personal savings, family, and friendsBank financing, public financing, venture capital

DebtEquity

Bootstrapping

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Financing Young Firms


Exhibit 13.4 How different types of young firms are financed: Informalinvestment versus venture capital

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Money (Going Concern)Later-stage financing

Angel investorsVenture capital

Equity financingCommercial banks

ResourcesResources

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Human capitalSocial capitalGovernment resources

Small Business AdministrationGovernment contractingState and local governments

ResourcesResources

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Entrepreneurial Leadership


Launching a new venture requires a special kind of leadership

CourageBelief in one’s convictionsEnergy to work hard

Three characteristicsVisionDedication and driveCommitment to excellence

Entrepreneur(s)Entrepreneur(s)

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Vision may be entrepreneur’s most important asset

Ability to envision realities that do not yet existAble to communicate with a wide audienceWilling to make unpopular decisionsDetermined to make sure your message gets throughCreate and implement quality systems and methods that will survive

Vision


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Dedication and drive are reflected in hard work

PatienceStaminaWillingness to work long hours Internal motivationIntellectual commitment to the enterpriseStrong enthusiasm for work and life

Vision

Dedication and Drive


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Vision


Dedication and Drive

Commitment to

Excellence

To achieve excellence, venture founders and small business owners must

Understand the customerProvide quality products and servicesManage the business knowledgeably and expertlyPay attention to detailsContinuously learnSurround themselves with good people

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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 analysisValue chain analysis

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Entry Strategies


Getting a foothold in the marketPioneering new entry

Creating new ways to solve old problemsMeeting customer’s needs in a unique new way

Imitative new entryStrong marketing orientationIntroduce same basic product or service in another segment of the market

Adaptive new entryOffer product or service that is “somewhat new and different”Aware of marketplace conditions and conceive entry strategies to capitalized on current trends

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Generic Strategies


How new ventures can achieve competitive advantages

Overall cost leadershipSimple organizational structuresMore quickly upgrade technology and integrate feedback from the marketplaceMake timely decisions that affect cost

DifferentiationUse new technologyDeploy resources in a radical new way

FocusNiche strategies fit the small business mold

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Combination Strategies


A key issue is the scope of a small firm’s strategic efforts relative to those of its competitors

Pursue combination strategiesCombine best features of low-cost, differentiation, and focus strategiesFlexibility and quick decision-making ability of a small firm not laden with layers of bureaucracy

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