What do you call the set of decisions actions and reactions that first generate and then exploit over time a new entry?

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Chapter 3 Entrepreneurial Strategy: Generating and Exploiting New Entries

Hisrich Peters

McGraw-Hill/Irwin

Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

Shepherd

Entrepreneur’s Adage #9  “Don’t start a business because you need to… start a business because you can and because there’s a market opportunity.” - Jordan

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New Entry  New entry refers to:  Offering a new product to an established or new market.  Offering an established product to a new market.

 Entrepreneurial strategy – The set of decisions, actions, and reactions that first generate, and then exploit over time, a new entry.

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Entrepreneurial Strategy: The Generation and Exploitation of New Entry Opportunities

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Generation of a New Entry Opportunity  Resources as a Source of Competitive Advantage  Resources (Core Competencies) are the basic building blocks of a firm’s functioning and performance; the inputs into the production process.  Resources must be:  Valuable.  Rare.  Inimitable.

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Generation of a New Entry Opportunity (cont.)

 Creating Resource Bundles That Are Valuable, Rare, and Inimitable  Entrepreneurs need to draw from their unique experiences and knowledge.  Market knowledge – Provide insight into a market and its customers.  Technological Knowledge - Provide insight into ways to innovate processes and technology.

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Generation of a New Entry Opportunity (cont.)

 Gathering Information on a New Entry  Prior knowledge and information search costs  More knowledge ensures a more efficient search process (lower search costs).  Search costs include time, money and psychological cost.

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Generation of a New Entry Opportunity (cont.)  Comfort with Making a Decision under Uncertainty  The trade-off between more information and the likelihood that the window of opportunity will close provides a dilemma for entrepreneurs.  Error of commission - Negative outcome from acting on the perceived opportunity.  Error of omission - Negative outcome from not acting on the new entry opportunity.

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The Decision to Exploit or Not to Exploit the New Entry Opportunity

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Entry Strategy for New Entry Exploitation  First Mover - advantages:  Cost advantages  Less (or no) competitive rivalry  The opportunity to secure important supplier and distributor channels  Create the category position  The opportunity to gain expertise through market participation  Brand equity: “Pioneer Admiration”

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Entrepreneur’s Adage #10  “Don’t waste time on useless networking. Choose your events wisely. Network online. Sometimes the best networking is the phone book.” - Jordan

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Entry Strategy for New Entry Exploitation (cont.)

 First-Mover Disadvantages  Demand uncertainty - Difficulty in estimating the potential size of the market, how fast it will grow, and the key dimensions along which it will grow.  No “role model” to follow.

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Entry Strategy for New Entry Exploitation (cont.)

 Technological uncertainty - Difficulty in assessing whether the technology will perform and whether alternate technologies will emerge and leapfrog over current technologies.  Adaptation Difficulties - Hardship in adapting to new environmental conditions.  Entrepreneurial attributes of persistence and determination can inhibit the ability of the entrepreneur to detect, and implement, change.

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Entry Strategy for New Entry Exploitation (cont.)

 First-Mover Disadvantages, cont.  Customer Uncertainty - Difficulty in accurately assessing whether the new product or service provides value for them.  Overcome customer uncertainty by:  Informational advertising  Creating a frame of reference for potential customer  Educating customers through demonstration and documentation  Beta-testing

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Entry Strategy for New Entry Exploitation (cont.)

 Lead Time Strategies for First-Movers  Lead time – The grace period in which the first mover operates in the industry under conditions of limited competition.  Extend lead time by:    

Building customer loyalties. Building switching costs. Protecting product uniqueness. Securing access to important sources of supply and distribution.

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Risk Reduction Strategies for New Entry Exploitation  Risk is derived from uncertainties over market demand, technological development, and actions of competitors.  Three strategies can be used to reduce risk:  Market scope strategies - Focus on which customer groups to serve and how to serve them.  Imitation strategies - Involves copying the practices of others.  Managing newness 3-16

Risk Reduction Strategies for New Entry Exploitation (cont.)  Market Scope Strategies  Narrow-scope (niche) strategy: offer a small product range to a small number of customer groups to satisfy a specific need.  Focuses on producing customized products.  Leads to specialized expertise and knowledge.  Reduces some competition-related risks but increases the risks associated with market uncertainties.

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Risk Reduction Strategies for New Entry Exploitation (cont.)  Broad-scope strategy: offer a wider range of products to multiple different market segments, catering to different sets of needs.  Strategy typically emerges through continuous learning about the market.  Opens the firm up to many different “fronts” of competition.  Reduces risks associated with market uncertainties but increases exposure to competition.

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Risk Reduction Strategies for New Entry Exploitation (cont.)  Imitation Strategy  Why do it?  It is easier to imitate the practices of a successful firm.  It can help develop skills necessary to be successful in the industry.  It provides organizational legitimacy.

 Types of imitation strategies  Franchising - A franchisee acquires the use of a “proven formula” for new entry from a franchisor.  “Me-too” strategy - Copying products that already exist and attempting to build an advantage through minor variations. 3-19

Risk Reduction Strategies for New Entry Exploitation (cont.)  An imitation strategy can potentially:  Reduce the entrepreneur’s costs associated with R&D.  Reduce customer uncertainty over the firm.  Make the new entry look legitimate from day one.

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Risk Reduction Strategies for New Entry Exploitation (cont.)  Managing Newness  Liabilities of newness arise from unique conditions:  Experience curve costs in learning new tasks.  Conflict arising from overlap or gaps in responsibilities.  Unestablished and continually evolving informal structures of communication.

 A new firm needs to:  Educate and train employees.  Facilitate conflict over roles.  Promote activities that foster informal relationships and a functional corporate culture. 3-21

Entrepreneur’s Adage #11  “Steal ideas from others legally.” - Jordan

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What is new entry exploitation?

What are the risk reduction strategies for new entry exploitation?

When an entrepreneur pursues a new entry opportunity only to find out later that he or she had overestimated his or her ability to create customer demand it is a N ):?

What is meant by entrepreneurial opportunity?