ACQUIRING ESSENTIAL

INFORMATION

Entrepreneurship

4

Introduction

Many entrepreneurs who found new ventures to develop products or services do not do their homework: they fail to acquire essential information before beginning.

Market information Who are the potential customers? How will potential customers react to the new

product of service? What can you learn about specific markets or

geographic areas?

Direct Techniques

Survey / customer surveys Potential customers compare your product with existing

ones Target group rates different dimensions of the product on a

scale from low to high

Perceptual mapping A map that reveals the key dimensions along which

potential customers perceive products and evaluate them

Focus groups Groups of 8 to 12 people similar to potential customers

meeting for 1 to 2 hours to describe their perceptions of and reactions to relevant products

Identify the key dimensions along which focus group members perceive and evaluate various products

Indirect Techniques

Desk researchExamines secondary data including

Sales of competing products Demographic data Trends (economic, lifestyle, etc.)

External Analysis

Collecting and Evaluating information from the external environment

Firms do not exist in a vacuum but are part of a complex world (systemic view)

Management should be continually aware of the external forces which: influence demand for existing products and services create opportunities for new products and services

Scanning of the external environment to evaluate PLEST factors and Industry factors (Porter’s 5 forces model)

Need also to monitor their respective trends

External Analysis

Analyzing the dynamics of the industry in which an organisation intends to compete to help identify: Opportunities: conditions in the environment that a

company can take advantage of to become more profitable

Threats: conditions in the environment that endanger the integrity and profitability of the company’s business

External Environment

General / Societal Environment – PLEST Includes environmental forces that are beyond the

influence of the organization and over which it has no (or little) control.

General forces that do not touch directly on ST activities of the firm

General forces affecting LT decisions

External Environment

Task Environment (5 forces) Includes environmental forces that are within the

organization’s operating environment and may be influenced to some degree.

Elements directly affecting the firm ( Porter’s 5 forces)

Industry within which firm intends to operate

Scanning Societal Environment

Political ForcesLegal forcesEconomic forcesSocio-cultural ForcesTechnological Forces

Political Forces

Significant impact on level of competition & on success of strategies Limiting entry in selected sectors/markets Political stability Incentives Policies Attitude towards FDI

Government policy Encouraging SMEs Conducive environment Business registration Permits and licences Tax rate

Legal Forces

Antitrust regulationsLaws protecting the environmentTax laws (Depreciation, Tax credits, etc.)Labour lawsForeign trade regulationsProduct SafetyEqual employment opportunitiesSex discriminationOccupational Safety and Health Act

Economic Forces

Obvious impact on business activity GDP trends Interest rates Inflation Unemployment Wage/Price controls Business cycle Disposable income

Socio-Cultural Forces

Lifestyle changesAttitudes & ExpectationsDemographics

Constituents (and evolution) Age distribution Growth rate

Environmental AwarenessSocial Classes & Mobility

Technological Forces

Spending on R&D (Govt, Industry)Patent/Trademark ProtectionNew productsProductivity gains through automationICT infrastructure Breakthrough Development

Rate & Degree

Industry Analysis(Porter’s 5 Forces Model)

Threat of New Entrants

Substantial Resources & New capacityDesire to gain market shareThreats of entry – function of entry barriers &

reaction of competitorsE.g. – US – new local automobile co’s are rare

due to High capital reqts. to build production facilities

to develop dealer distribution network

Traditional Barriers to Entry

Economies of scale (Intel – production & sale of microprocessors)

High Advertising & Promotion to differentiate product (P&G)

Capital Reqts. (Boeing & Airbus)Switching CostsCost Advantages Independent of Scale

Incumbents may have learning advantages, location advantages, etc.

Access to distribution channelsGovernment policy

Non-Traditional Barriers to Entry

Strength of management team

First-mover advantage

Passion of the management team and

employees

Unique Business Model

Inventing a new approach to an industry and

executing the idea in an exemplary fashion

Rivalry among Existing firms

No. of competitors

Rate of industry growth

Product/service characteristics

Amount of fixed costs

Capacity (large increment only)

Height of Exit barriers

Threat of Substitutes

Different appearance but satisfying same need Fax machines and FedEx Bottled water & cola Tea & Coffee

Low switching costs Strong effect on

industry

Subs limit potential returns of an industry by

placing a ceiling on price

Bargaining Power of Buyers

Can force prices downBargain for quality, more servicesPlay competitors against each otherPowerful if

Purchase of large proportion

Potential to integrate backwards

Alternative suppliers

Changing suppliers costs

Bargaining Power of Suppliers

Ability to reduce prices / qualityPowerful if:

Industry dominated by few (soft drink) Unique product/service (Windows) Subs not readily available (electricity) Ability to integrate forward (Intel can make PCs) Purchasing industry not important to supplier

(lawn mower tyres)