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Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
PowerPresentation prepared by PowerPresentation prepared by
Thomas MThomas MccKaig, Ryerson UniversityKaig, Ryerson University
Entrepreneurship & Entrepreneurship & The Need for The Need for Competitive Competitive AdvantageAdvantage
11
1-2Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Looking AheadLooking AheadLooking AheadLooking Ahead
After studying this chapter, you should be able to:
1. Identify the rewards and drawbacks of an entrepreneurial career.
2. Describe the various types of entrepreneurs, entrepreneurial management styles, and entrepreneurial ventures.
3. Discuss several factors that indicate a readiness for entrepreneurship.
4. Define small business and identify the importance of small business.
5. Define competitive advantage and assess features of the organization itself that support competitive advantage.
1-3Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Looking AheadLooking AheadLooking AheadLooking Ahead
6. Identify and compare strategy options for building competitive advangtage.
7. Define market segmentation and its related strategies.
8. Explain the concept of niche marketing and its importance to small business.
9. Discuss the importance of sustaining competitive advantage.
1-4Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Entrepreneur DefinedEntrepreneur DefinedEntrepreneur DefinedEntrepreneur Defined
• A person who starts and/or operates a business.• All active owner-managers and second generation
members of family owned firms and owner-managers which buy out founders of existing firms.
• Also includes salaried managers of larger corporations who have a flair for innovation and risk.
1-5Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Figure 1-1
Entrepreneurial IncentivesEntrepreneurial IncentivesEntrepreneurial IncentivesEntrepreneurial Incentives
1-6Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Drawbacks of EntrepreneurshipDrawbacks of EntrepreneurshipDrawbacks of EntrepreneurshipDrawbacks of Entrepreneurship
• Hard work
• Long hours
• Emotional loneliness
• Strong possibility of failure
• Disruptions to personal life
1-7Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Who Are Entrepreneurs?Who Are Entrepreneurs?Who Are Entrepreneurs?Who Are Entrepreneurs?
• Entrepreneurs are:Individuals who discover market needs and
launch new firms to meet those needs.Risk takers who provide an impetus for change,
innovation, and progress.All active owner-managers (founders and/or
managers of small businesses).
1-8Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Characteristics of EntrepreneursCharacteristics of EntrepreneursCharacteristics of EntrepreneursCharacteristics of Entrepreneurs
• Need for Achievement
• Willingness to Take Risks
• Self-Confidence have an internal locus of controlinternal locus of control
• Passion for the Business
1-9Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Internal vs. External Locus of ControlInternal vs. External Locus of ControlInternal vs. External Locus of ControlInternal vs. External Locus of Control
Internal Locus of Control: Entrepreneurs tend to hold themselves accountable
for their own successes or failures.
External Locus of Control: Non-entrepreneurs tend to believe that external
circumstances impact upon their worlds.
1-10Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Varieties of EntrepreneurshipVarieties of EntrepreneurshipVarieties of EntrepreneurshipVarieties of Entrepreneurship
• Founder (“Pure” Entrepreneur)An entrepreneur who brings a new firm into existence.
• General ManagerAn entrepreneur who functions as an administrator of a
business.• Franchisee
An entrepreneur whose power is limited by the contractual relationship with a franchising organization.
1-11Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Characteristics ofCharacteristics ofArtisan EntrepreneursArtisan Entrepreneurs
Characteristics ofCharacteristics ofArtisan EntrepreneursArtisan Entrepreneurs
• Technical training• Paternalistic approach• Reluctance to delegate• Narrow view of strategy• Personal sales effort• Short planning horizon• Simple record keeping
1-12Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Characteristics ofCharacteristics ofOpportunistic EntrepreneursOpportunistic Entrepreneurs
Characteristics ofCharacteristics ofOpportunistic EntrepreneursOpportunistic Entrepreneurs
• Broad-based education• Scientific approach to problems• Willing to delegate• Broad view of strategy• Diversified marketing approach• Longer planning horizon• Sophisticated accounting
and financial control
1-13Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Entrepreneurial TeamsEntrepreneurial TeamsEntrepreneurial TeamsEntrepreneurial Teams
Two or more people who work together as Two or more people who work together as entrepreneurs.entrepreneurs.
Helpful to: Secure a broad range of managerial talents Enhance profits
Useful in: Marginal firms Attractive small firms High potential firms
1-14Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Small Businesses, Growth, and ProfitsSmall Businesses, Growth, and ProfitsSmall Businesses, Growth, and ProfitsSmall Businesses, Growth, and Profits
• High-Potential Venture (Gazelle)A small firm that has great prospects for growth.
• Attractive Small FirmA small firm that provides
substantial profits to its owner.
• Marginal FirmsA small firm that provides
minimal profits to its owner.
1-15Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Four Routes to EntrepreneurshipFour Routes to EntrepreneurshipFour Routes to EntrepreneurshipFour Routes to Entrepreneurship
• Entering a family business
• Opening a franchised business
• Starting a new business
• Buying an existing business
1-16Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Figure 1-2
Age Concerns in Starting a BusinessAge Concerns in Starting a BusinessAge Concerns in Starting a BusinessAge Concerns in Starting a Business
1-17Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Entrepreneurial RefugeesEntrepreneurial RefugeesEntrepreneurial RefugeesEntrepreneurial Refugees
• Foreign refugee
• Corporate refugee
• Parental refugee
• Feminist refugee
• Housewife refugee
• Society refugee
• Educational refugee
1-18Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Taking the PlungeTaking the PlungeTaking the PlungeTaking the Plunge
• Precipitating EventAn event, such as losing
a job, that moves an individual to become an entrepreneur.
1-19Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
What Is a Small Business?What Is a Small Business?What Is a Small Business?What Is a Small Business?
• Criteria for Defining Smallness in Business–Financing supplied by one person or small group–Localized business operations (except marketing)–Business’ size small relative to larger
competitors–Fewer than 100 employees
1-20Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Why is Small Business Important?Why is Small Business Important?Why is Small Business Important?Why is Small Business Important?
• In 1999, 940,000 small businesses were registered in Canada
• Over 90 percent of these businesses have fewer than 50 employees
• Firms with less than 5 employees account for 80 percent of all business entities
• New jobs created by small businesses are growing at rate of 2.3 percent per year, with almost 80 percent of the growth being generated by the newly self-employed.
1-21Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Competitive AdvantageCompetitive AdvantageCompetitive AdvantageCompetitive Advantage
Unique ServiceFeatures
Notable ProductAttributes
CustomerService
Accessibility
CompetitiveCompetitiveAdvantageAdvantage
Price/Value
1-22Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Laying the Foundation to Laying the Foundation to Competitive AdvantageCompetitive Advantage
Laying the Foundation to Laying the Foundation to Competitive AdvantageCompetitive Advantage
• Competitive AdvantageTo establish competitive advantage, the owner needs to
understand the nature of the environment within which he or she will be operating.
A benefit that exists when a firm has a product or service that is seen by its target market as better than those of competitors.
1-23Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
A Model of Competitive AdvantageA Model of Competitive AdvantageA Model of Competitive AdvantageA Model of Competitive Advantage
Fig. 2.3
Strategies• Cost Advantage • Marketing AdvantageMarketing Advantage
FoundationsEnvironmental Assessment Organizational Assessment
• Profits• Market Share• Customer Satisfaction• Survival
ResultsReinvestment Reinvestment
Figure 1-3
1-24Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Assessing The EnvironmentAssessing The EnvironmentAssessing The EnvironmentAssessing The Environment
• The Macroenvironment A broad environment with its multiple factors
that affect most businesses in a society
• Industry Environment The combined forces that
directly impact a given firm and its competitors
1-25Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Segments of the Segments of the General General
EnvironmentEnvironment
Segments of the Segments of the General General
EnvironmentEnvironment
Sociocultural
Economic
Political/Legal
Technological
1-26Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Major Factors Major Factors OffsettingOffsetting
Market Market AttractivenessAttractiveness
Concept by Concept by Michael PorterMichael Porter
Major Factors Major Factors OffsettingOffsetting
Market Market AttractivenessAttractiveness
Concept by Concept by Michael PorterMichael Porter
Bargaining Powerof Buyers
Threat of SubstituteProducts or Services
Bargaining Powerof Suppliers
RivalryAmong Existing
Products
Threat of NewCompetitors
Attractiveness andProfitability of aTarget Market
Figure 1-4
1-27Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Competitor Analysis of and by Competitor Analysis of and by an Organizationan Organization
Competitor Analysis of and by Competitor Analysis of and by an Organizationan Organization
• Who are the new venture’s current competitors?
• What resources do they control?
• What are their strengths and weaknesses?
• How will they respond to the new venture’s decision to enter the industry?
• How can the new venture respond?
• Who else might be able to observe and exploit the same opportunity?
• Are there ways to co-opt potential or actual competitors by forming alliances?
1-28Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Core Competencies andCore Competencies andAssessing the OrganizationAssessing the Organization
Core Competencies andCore Competencies andAssessing the OrganizationAssessing the Organization
• Core Competencies• Value-creating organizational capabilities that are unique
to a firm
• Resources versus Capabilities ResourcesResources are basic inputs that a firm uses to conduct
business (capital, technology, equipment, employees, etc.)
• intangible and tangible resources CapabilitiesCapabilities are the integration of several resources which
are deployed together to the firm’s advantage.
1-29Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Examples of SWOT Factors Examples of SWOT Factors Examples of SWOT Factors Examples of SWOT Factors
Internal• Strengths
– Core Competencies– Financial strength– Well-planned strategy– Skilled management
• Weaknesses– Production inefficiencies– Inadequate financial resources– Poor management– Poorly planned strategy
External• Opportunities
– Untapped market potential– Favourable shift in market– Emerging technologies
– New product• Threats
– New competition– Rising demand
– Increased government regulations
1-30Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Strategies that Capture Opportunities Strategies that Capture Opportunities Strategies that Capture Opportunities Strategies that Capture Opportunities
• Broad-Based Strategy Options
Seek an advantage in cost or competition.
• Cost-Advantage Strategy and OptionsRequires the firm to be the lowest-cost producer.
• Marketing-Advantage StrategyEmphasizing the uniqueness of the firm’s product
or service
1-31Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Market Segmentation Market Segmentation and its Variablesand its Variables
Market Segmentation Market Segmentation and its Variablesand its Variables
• Market Segmentation– division of a market into several smaller groups
with similar needs or buying behaviour
• Market– a group of customers or potentional customers
who have purchasing power and unsatisfied needs.
1-32Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Ingredients of a MarketIngredients of a MarketIngredients of a MarketIngredients of a Market
Ingredient 1Customers:People or
businesses
Ingredient 2Purchasing
power: Money/credit
Ingredient 3Unsatisfied
needs
1-33Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Market Segmentation VariablesMarket Segmentation VariablesMarket Segmentation VariablesMarket Segmentation Variables
• Segmentation Variables The parameters used to distinguish one form of market behaviour
from another • Geographic Variables
Defining a market by its location, size, or extent• Benefit Variables
Specific characteristics that distinguish market segments according to the benefit sought
• Demographic Variables Specific characteristics that describe customers and their purchasing
power.• Psychographic Variables
Lifestyle trends such as fitness, diet, political and sexual orientation
1-34Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Types of Market Segmentation Types of Market Segmentation StrategiesStrategies
Types of Market Segmentation Types of Market Segmentation StrategiesStrategies
• Unsegmented Strategy (Mass Marketing)A strategy that defines the total market as the target market
• Multisegmented StrategyA strategy that recognizes different preferences of
individual market segments and develops a unique marketing mix for each
• Single-Segmentation StrategyA strategy that recognizes the existence of several distinct
segments but focuses on only the most profitable segment
1-35Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Marketing Mix 1
Product: Lead Pencil
Price: $0.79
Promotion: Television
Distribution: Extensive
Small Business(Community Writing Company)
MarketAll Potential Users of a
Writing Instrument
An Unsegmented An Unsegmented Market StrategyMarket Strategy
An Unsegmented An Unsegmented Market StrategyMarket Strategy
Figure 1-5
1-36Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Marketing Mix 2Product: Felt-Tip Pen
Price: $1.00
Promotion: Professional Magazines
Distribution: Direct from Factory
Marketing Mix 3Product: Gold Fountain Pen
Price: $50.00
Promotion: Personal Selling
Distribution: Department Stores
Marketing Mix 1Product: Felt-Tip Pen
Price: $0.49
Promotion: Campus Newspapers
Distribution: Bookstores
Small Business(Community Writing Company)
MarketSegment A
Students
MarketSegment C
Executives
MarketSegment BProfessors
Multisegmentation Multisegmentation Market StrategyMarket Strategy
Multisegmentation Multisegmentation Market StrategyMarket Strategy
Figure 1-6
1-37Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Marketing Mix 1
Product: Felt-Tip Pen
Price: $0.49
Promotion: Campus Newspapers
Distribution: Bookstores
Small Business(Community Writing Company)
Market
Segment A
Students
Market
Segment C
Executives
Market
Segment B
Professors
A Single-A Single-Segmentation Segmentation
Market StrategyMarket Strategy
A Single-A Single-Segmentation Segmentation
Market StrategyMarket Strategy
Figure 1-7
1-38Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Strategic TermsStrategic TermsStrategic TermsStrategic Terms
• Strategic Decision
A decision regarding the direction a firm will
take in relation to its customers and competitors.
1-39Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Implementation of Implementation of Niche Marketing StrategiesNiche Marketing Strategies
Implementation of Implementation of Niche Marketing StrategiesNiche Marketing Strategies
• Restricting focus to a single subset of customers.
• Limiting the market to a single geographical region.
• Emphasizing a single product or service.
• Concentrating on superiority of product or service.
1-40Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Niche Market PotentialNiche Market PotentialNiche Market PotentialNiche Market Potential
• Niche markets can quickly erode if:The focus strategy is imitated.The target segment is structurally unattractive.The target segment’s differences from other
segments narrow.New firms subsegment the industry.
1-41Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.
Sustaining Competitive AdvantageSustaining Competitive AdvantageSustaining Competitive AdvantageSustaining Competitive Advantage
• Sustaining competitive advantageA value-creating industry position that is likely
to endure over time.Results include superior profitability, increased
market share, and improved customer satisfaction.