small business management 14e. - qualityoperations · 01-07-2018 · powerpoint presentation by...

PowerPoint Presentation by Charlie Cook

The University of West Alabama

Longenecker • Moore • Petty • Palich

© 2008 Cengage Learning.

All rights reserved.

CHAPTER 3

Getting Started

Starting from Scratch or Joining an Existing BusinessPart 2

© 2008 Cengage Learning. All rights reserved. 3–2

Looking AHEAD

1. Identify several factors that determine whether an idea for a

new venture is a good investment opportunity.

2. Give several reasons for starting a new business from scratch

rather than buying a franchise or an existing business.

3. Distinguish among the different types and sources of startup

ideas.

4. Describe external and internal analyses that might shape new

venture opportunities.

5. Explain broad-based strategy options and focus strategies.

After you have read this chapter, you should be able to:


Identifying Startup Ideas

• Opportunity Recognition

Identification of potential new products or services

that may lead to promising businesses

• Entrepreneurial Alertness

Readiness to act on existing, but unnoticed, business

opportunities

• Good Investment Qualities

Products that serve clear and important needs

Products that customers know about

Products that customers can afford

A good idea is not the same as a good opportunity.


Is an Idea a Good Investment Opportunity?

Market

Factors

Competitive

AdvantageJudging a

Business

Opportunity

Management

CapabilityEconomics

Fatal

Flaws


Creating a New Business from Scratch

To tap into

unique

resources

that are

available

To avoid

undesirable

features of

existing

companies

To develop a

commercial

market for new

product or

service.

Wanting the

challenge of

succeeding (or

failing) on your

own

Motivations

To Start

a Business


Basic Questions about Startups

• What other startup types might be considered?

• What are some sources for more new ideas?

• How to identify a genuine opportunity that

creates value, for both the company and the

company’s owners?

• How should the idea be refined?

• What can be done to increase the chances that

the business will be successful?

• What competitive advantage does the business

have over its rivals?


Selected Evaluation Criteria for a Startup3-1

ATTRACTIVENESS

Criterion Favorable Unfavorable

Market Factors

Need for the product Well identified Unfocused

Customers Reachable; receptive Unreachable; strong loyalty to competitor’s product or service

Value created for customers Significant Not significant

Market structure Emerging industry; not highly

competitive

Mature or declining industry; highly concentrated competition

Market growth rate Growing by at least 15% a year Growing by less than 10% a year

Competitive Advantage

Control over prices, costs, and distribution Moderate to strong Weak to nonexistent

Barriers to entry:

Proprietary information or regulatory

protection

Have or can develop Not possible

Response/lead time advantage Competition slow, nonresponsive Unable to gain an edge

Legal/contractual advantage Proprietary or exclusive Nonexistent

Contacts and networks Well developed; accessible Poorly developed; limited

Economics

Return on investment 25% or more; sustainable Less than 15%; unpredictable

Investment requirements Small to moderate; easily financed Large; difficult to finance

Time required to break even or to reach

positive cash flows

Under 2 years More than 4 years

Management Capability Management team with diverse

skills and relevant experience

Solo entrepreneur with no related experience

Fatal flaws None One or more

Source: Adapted from Jeffrey A. Timmons and Stephen Spinelli, New Venture Creation: Entrepreneurship for the 21st Century (Boston: McGraw-Hill Irwin, 2007), pp. 128–129.


Evaluation Criteria for a Startup

• Marketing Factors

Need for product

Identified or unfocused

Customers

Reachable or not, brand loyal

Value created for customer

Significant or insignificant

Life of product

Recovery of cost by customer



• Marketing Factors (cont’d)

Market structure

Emerging or mature

Market size (known or unknown?)

Market growth (how fast?)

• Competitive Advantage

Cost structure

Control over price, costs, channels of supply

Barriers to entry: regulatory protection, response/

lead-time advantage, legal, contacts and networks



• Economics

Return on investment?

Investment requirements

Break-even point

• Management Capability

Diverse skills or solo entrepreneur

with no related experience

• Fatal Flaws


Types of Ideas That Develop into Startups3-2


Kinds of Startup Ideas

• Type A

Are centered around providing customers with an

existing product not available in their market.

• Type B

Involve new ideas, involve new technology, centered

around providing customers with a new product.

• Type C

Are centered around providing customers with an

improved product.


Sources of Startup Ideas3-3

Source: Data developed and provided by the National Federation of Independent

Business and sponsored by the American Express Travel Related Services Company, Inc.


Change-Based Sources of Entrepreneurial Opportunities3-4

Change Factor Definition

Industry Factors

The unexpected Unanticipated events lead to either enterprise success or

failure.

The incongruous What is expected is out of line with what will work.

Process needs Current technology is insufficient to address an

emerging challenge.

Structural change Changes in technology, markets, etc., alter industry

dynamics.

Human and Economic

Factors

Demographics Shifts in population size, age structure, ethnicity, and

income distribution impact product demand.

Changes in perception Perceptual variations determine product demand.

New knowledge Learning opens the door to new product opportunities

with commercial potential.


Applying Innovative Thinking to Business Ideas

1. Borrow ideas from existing products and services or other

industries.

2. Combine two businesses into one to create a market opening.

3. Begin with a problem in mind.

4. Recognize a hot trend and ride the wave.

5. Explore ways to improve a product or service’s function.

6. Think of how to streamline a customer’s activities.

7. Adapt a product or service to meet customer needs in a different

way.

8. Imagine how the market for a product or service could be

expanded.

9. Keep an eye on new technologies.


Evaluating Entrepreneurial Opportunities

• Outside-In Analysis

Studying the context of the venture to identify

business ideas and determine which ideas qualify as

opportunities.

General Environment– A broad environment, encompassing factors that influence most

businesses in a society.

Industry Environment– The combined forces that directly impact a given firm and its

competitors.

Competitive Environment– The environment that focuses on the strength, position, and likely

moves and countermoves of competitors in an industry.


Segments of the General Environment3-5


Major Factors Offsetting Market Attractiveness3-6

Bargaining Power

of Buyers

Threat of Substitute

Products or Services

Bargaining Power

of Suppliers

Intensity of Rivalry Among

Existing Competitors

Threat of New

Competitors

Attractiveness and

Profitability of a

Target Market


Competitor Analysis

• 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?


Evaluating Opportunities… (cont’d)

• Inside-Out AnalysisAssessing the firm’s internal competitive potential

• ResourcesBasic inputs that a firm uses to conduct its business

Tangible resources: visible and easy to measure.

Intangible resources: invisible, difficult to quantify

• CapabilitiesIntegration of various organizational resources that

are deployed together to the firm’s advantage.

• Core CompetenciesResources and capabilities that provide a firm with a

competitive advantage over its rivals.


Integrating Internal and External Analyses

• Strengths, Weaknesses, Opportunities, and

Threats (SWOT) Analysis

A type of assessment that provides a concise

overview of a firm’s strategic situation.

Helps identify opportunities that match the venture.

• Seeking Competitive Insight

Will the opportunity lead to others in the future?

Will the opportunity build skills that open the door to

new opportunities in the future?

Will pursuit of the opportunity be likely to lead to

competitive response by potential rivals?


Examples of SWOT Factors3-7


The Opportunity “Sweet Spot”3-8


Important Strategic Terms

• Strategy

A plan of action that coordinates the resources and

commitments of an organization to achieve superior

performance.

• Strategic Decision

A decision regarding the direction a firm will take in

relating to its customers and competitors.

• Sustainable Competitive Advantage

A value-creating industry position that is likely to

endure over time.


Setting a Direction for the Startup3-9


Selecting Strategies That Capture Opportunities

Cost-Based

Strategy

Focus

Strategy

Broad-Based

Strategy

Differentiation-

Based Strategy

Strategies That

Capture

Opportunities


Focus Strategies

• Focus Strategy Implementation

Restricting focus to a single subset of customers.

Emphasizing a single product or service.

Limiting the market to a single geographical region.

Concentrating on superiority of product or service.


Focus Strategies (cont’d)

• Advantages

Niche market shields from direct competition.

Allow development of unique expertise

• Disadvantages

Focus markets can quickly erode if:

1. The focus strategy is imitated.

2. The target segment is structurally unattractive.

3. The target segment’s differences from other

segments narrow.

4. New firms subsegment the industry.


Key TERMS

• opportunity recognition

• entrepreneurial alertness

• competitive advantage

• Type A ideas

• Type B ideas

• Type C ideas

• serendipity

• general environment

• industry environment

• competitive environment

• resources

• tangible resources

• intangible resources

• capabilities

• core competencies

• SWOT analysis

• strategy

• cost-based strategy

• differentiation-based

strategy

• focus strategy

• strategic decision

small business management 14e. - qualityoperations · 01-07-2018 · powerpoint presentation by...

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