chapter 03 revised

7/27/2019 Chapter 03 Revised

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PowerPoint Presentation by Charlie Cook

The University of West Alabama

Copyright 2006 Thomson Business & Professional Publishing.

All rights reserved.

Part 2 Starting From Scratch or

Joining an Existing Business

Getting Started


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Copyright 2006 Thomson Business & Professional Publishing. All rights reserved. 34

Is an Idea a Good Investment Opportunity?

Market Factors Is there a clearly defined market need for the product or service,

and is the timing right?

Competitive Advantage

Can the proposed business achieve a durable or sustainable

competitive advantage?

Economics

Is the venture financially rewarding, and does it have significant

profit and growth potential?

Management Capability Is there a good fit between entrepreneur and opportunity?

Fatal Flaws

Is there a fatal flaw that will make the venture unsuccessful?


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Two Paths to Entrepreneurship

StartupCreatinga new

business

from

scratch

BuyoutPurchasing

an existing

business


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Reasons for Starting a New Business

Developing a commercial market for a recently invented ornewly developed product or service

Taking advantage of available resources, ideal location,

advances in equipment, employees, suppliers, and bankers

Avoiding precedents, policies, procedures, and legal

commitments of existing firms

Wanting the challenge of succeeding or failing on your own


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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 andthe companys 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 haveover its rivals?


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Evaluation Criteria for a Startup

Marketing FactorsNeed 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


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Marketing Factors (contd.)Market structure

Emerging or mature

Market size (known or unknown?)

Market growth (how fast?)

Competitive Advantage

Cost structure

Degree of control over: price, costs, channels of supply

Barriers to entry: regulatory protection, response/lead-timeadvantage, legal, contacts, and networks




EconomicsReturn on investment?

Investment requirements

Break-even point

Management Capability

Diverse skills or solo entrepreneur

with no related experience

Fatal Flaws



Kinds of Startup Ideas

Type AStartup ideas centered around providing customers

with an existing product not available in their market

Type B

Startup ideas involving new ideas, involving newtechnology, centered around providing customers with

a new product

Type C

Startup ideas centered around providing customers

with an improved product



Exhibit 3.2

Example:

Targeting the "New Age"

beverage market by

selling soft drinks with

nutritional value

New Market

Type A Ideas

Example:

Using high-tech

computers to develop a

simulated helicopter ride

Type B Ideas

New Technology

Example:

Developing a personal

misting device to keep

workers cool

Type C Ideas

New Benefit

Types of Ideas that Develop into Startups


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Copyright 2006 Thomson Business & Professional Publishing. All rights reserved. 313Exhibit. 3.3

Family Business

6%Friends/Relatives5%

Personal Interest/Hobby

16%

Suggestion

7%

Education/Courses

6%

Chance Happening

11%Other

4%

Prior WorkExperience

45%

Sources of Startup Ideas

Source: Data developed and

provided by the National Federation

of Independent Business

Foundation and sponsored by

American Express Travel Related

Services Company, Inc.


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Evaluating Entrepreneurial Opportunities

Outside-In AnalysisStudying 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 firmand its competitors


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Major

Factors

Offsetting

MarketAttractive-

ness

Bargaining Powerof Buyers

Threat of Substitute

Products or Services

Bargaining Power

of Suppliers

Intensity of Rivalry

Among Existing

Products

Threat of New

Competitors

Attractiveness andProfitability of a

Target Market

Exhibit 3.6


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Competitor Analysis

Who are the new ventures current competitors?

What resources do they control?

What are their strengths and weaknesses?

How will they respond to the new ventures 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?


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Evaluating Opportunities (contd.)

Inside-Out AnalysisAssessing the firms internal competitive potential

ResourcesBasic inputs that a firm uses to conduct its business

Tangible resources: visible and easy to measure Intangible resources: invisible and difficult to quantify

Capabilities Integration of various organizational resources that are

deployed together to the firms advantage

Core CompetenciesResources and capabilities that provide a firm with a

competitive advantage over its rivals


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Integrating Internal and External Analyses

Strengths, Weaknesses, Opportunities, andThreats (SWOT) Analysis

A type of assessment that provides a concise

overview of a firms 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?


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Examples of SWOT Factors

Exhibit 3.7


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Strategies that Capture Opportunities

Broad-Based StrategySeeking an advantage in cost or competition

Cost-Based Strategy

Requiring the firm to be the lowest-cost producer

Differentiation-Based Strategy

Emphasizing the uniqueness of the firms product or

service

Focus StrategiesTargeting a specific market segment (niche) using

either a cost- or a differentiation-based strategy


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Setting a Direction for the Startup

Exhibit 3.8


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Implementation of Focus Strategies

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


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Important Strategic Terms

Strategic DecisionA 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 toendure over time

chapter 03 revised

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