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The New Business Venture MGT 2230

Chapter 13
Entrepreneurial Strategy: Generating & Exploiting New Entries
Opening Profile: Justin Parer
NEW ENTRY
Offering a new product to an established or new market.
Offering an established product to a new market.
Cr
eating a new organization.
Entrepreneurial Strategy
A set of decisions, actions, and reactions that first generate and then exploit over
time a new entry.
Three key stages;
1.
The generation of a new entry opportunity.
2.
The exploitation of a new entry opportu
nity.
3.
A feedback loop from the culmination of the new entry and exploitation
back to stage 1.

GENERATION OF A NEW ENTRY OPPORTUNITY


1.
Resources as a Source of Competitive Advantage.
It is hoped the new entry will provide the firm with a sustainable
compet
itive advantage.
Resources are the basic building blocks to a firms functioning and
performance.
Valuable when it enables the firm to pursue opportunities, neutralize
threats, and offer products and services that are valued by customers.
Rare when it is p
ossessed by few competitors.
Inimitable when replication of this combination of resources would be
difficult and costly for potential competitors.
Creating a Resource Bundle that is Valuable, Rare and
Inimitable
The ability to obtain and then recombine re
sources into a bundle that is valuable,
rare, and inimitable (unique).
Knowledge is in itself valuable. The cumulative knowledge of the management
team is difficult to duplicate.
This combination of experiences of the management team can lead to innovation
.
Market knowledge is the possession of information that provides insight into the
market and its customers.
Technological knowledge is the possession of information, technology, know

how, and skills that provide insight into ways to create new knowledge.
Often, technology has been invented for a specific purpose.
Sometimes that specific purpose leads to a broader base of use. (Tang, freeze
dried coffee, Velcro & Teflon created fro NASA space flights)
ASSESSING THE ATTRACTIVENESS OF A NEW ENTRY OPPORTUNITY
Information on a New Entry
Prior knowledge used to create a new venture can also benefit in assessing the
attractiveness of a particular opportunity.
Knowledge can be increased by searching for information that will shed light on
the attractiveness of th
e new entry.
The search process is in itself a dilemma. The time it takes to properly search for
information may allow for the opportunity to pass or someone else takes
advantage of the venture.
Window of Opportunity
The period of time when the environmen
t is favorable for entrepreneurs to exploit
a particular new entry.
When the window is open the environment is favorable for entrepreneurs to
exploit a new product.
Comfort with Making a Decision under Uncertainty
The trade
off of needing more information
and the window of opportunity closing
creates a dilemma.

The dilemma is a choice of which error you prefer to commit;


1.
Error of commission is creating an error by acting.
2.
Error of omission is a negative outcome from not acting.
ENTRY STRATEGY FOR NEW EXPL
OITATION
1.
First movers develop a cost advantage.
2.
First movers face less competitive rivalry.
3.
First movers can secure important channels for suppliers and distribution.
4.
First movers are better positioned to satisfy customers
because they have the
chance to s
elect the preferred segment and establish their product as the industry
standard.
5.
First movers gain expertise through participation in the market.
Environmental Instability & First Mover (Dis)Advantages
Industries that have been
newly formed and are
growi
ng

.
Must determine the key factors for success.
Advantage is the entrepreneur being first means you have considerable freedom in
how you achieve success.
Disadvantage would be that the demand is uncertain. Difficult to determine how
fast the market will gr
ow, and the key dimensions that make it grow.
Technology may be uncertain because its performance is not proven.
Customers may have difficulty assessing the products value to them.
Lead time is the grace period from the first entrepreneur entering the ind
ustry
under conditions of limited
competition.
1.
Build customer loyalty.
2.
Building switching costs is a mechanism which customer loyalty is
enhanced through rewards programs. (Ex. Flyer miles, points toward cash,
user discounts, etc.)
3.
You must product your pr
oduct uniqueness through patents, copyrights,
trademarks, etc.
4.
Develop exclusive relationships with key sources of supply will limit
access to future competitors.

RISK REDUCTION STRAGEIES OFR NEW ENTRY EXPLOITATION


1.
Scope is a choice by the entrepreneur ab
out which customers groups to serve and
how to serve them.
2.
Narrow Scope Strategy
Produce customized products with localized business operations and high
level of craftsmanship.
Focus on special group of customers that can build specialized expertise
and kn
owledge.
The high end of the market typically represents a highly profitable niche
that is well suited to those firms that can produce customized products.
3.
Broad Scope Strategy
Offering a range of products across many different market segments.
Open the fi
rm to increased exposure of competition.
Must develop a broader knowledge base to understand your customers.
Imitation Strategies
Copying the practices of other firms.
It is easier to imitate than go through the long process of developing new
strategies.
It may help the entrepreneur to practice already successful skills.
You will be perceived by the customer as well established.

Managing Newness
New firms face costs in learning new tasks.
It will take new people time to develop skills and assume responsib
ilities.
New firms sometimes have difficult developing communication channels.
New firms do not have the stigma of old habits and are more flexible to attempt
new ways of conducting business.
HOMEWORK
Research the failure rates of;
1)
All new businesses. (
Provide source)
2)
All new franchises. (Provide source)
3)
What inferences can you make from these numbers?

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