13-1. 13-2 recognizing opportunities and creating new ventures mcgraw-hill/irwin strategic...
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13-1
13-2
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
13-3
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.
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
13-4
Learning Objectives
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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
13-5
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.
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
13-6
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
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
13-7
Categories of Entrepreneurial Ventures
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Distinctions (with strategic implications) among entrepreneurial firms
SizeAgeGrowth goals
Entrepreneurial firms generally favor growthEntrepreneur may sell shares to support growth
13-8
Elephants, Mice, and Gazelles
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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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Elephants, Mice, and Gazelles
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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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Elephants, Mice, and Gazelles
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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
13-11
Types of Entrepreneurial Ventures
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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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Types of Entrepreneurial Ventures
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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
Type Characteristics
Adapted from Exhibit 13.2 Types of Entrepreneurial Ventures
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Types of Entrepreneurial Ventures
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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
Type Characteristics
Adapted from Exhibit 13.2 Types of Entrepreneurial Ventures
13-14Opportunity Recognition: Identifying and Developing Market Opportunities
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Opportunities come from many sources
Established firmsNeeds of existing customersSuggestions by suppliersTechnological developments that lead to new advancesChange
13-16
Opportunity Recognition Process
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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
13-17
Opportunity Recognition Process
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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
13-18
Characteristics of Good Opportunities
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Major challenge for entrepreneurial firm is lack of resources
MoneyHuman capitalSocial capital
ResourcesResources
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McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Entrepreneurial Resources
ResourcesResources Money (New-Venture Financing)Early-stage financing
Personal savings, family, and friendsBank financing, public financing, venture capital
DebtEquity
Bootstrapping
13-22
Financing Young Firms
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Exhibit 13.4 How different types of young firms are financed: Informalinvestment versus venture capital
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Entrepreneurial Resources
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Money (Going Concern)Later-stage financing
Angel investorsVenture capital
Equity financingCommercial banks
ResourcesResources
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Entrepreneurial Resources
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Human capitalSocial capitalGovernment resources
Small Business AdministrationGovernment contractingState and local governments
ResourcesResources
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Entrepreneurial Leadership
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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)
13-26
Entrepreneurial Leadership
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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
Entrepreneur(s)Entrepreneur(s)
13-27
Entrepreneurial Leadership
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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
Entrepreneur(s)Entrepreneur(s)
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Entrepreneurial Leadership
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Vision
Entrepreneur(s)Entrepreneur(s)
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
13-29
Entrepreneurial Strategy
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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
13-30
Entry Strategies
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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
13-31
Generic Strategies
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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
13-32
Combination Strategies
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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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