Chapter 1Copyright © 2003 by Nelson, a division of Thomson Canada Limited. PowerPresentation...

Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.

PowerPresentation prepared by PowerPresentation prepared by

Thomas MThomas MccKaig, Ryerson UniversityKaig, Ryerson University

Entrepreneurship & Entrepreneurship & The Need for The Need for Competitive Competitive AdvantageAdvantage

11

1-2Chapter 1 Copyright © 2003 by Nelson, a division of Thomson Canada Limited.

Looking AheadLooking AheadLooking AheadLooking Ahead

After studying this chapter, you should be able to:

1. Identify the rewards and drawbacks of an entrepreneurial career.

2. Describe the various types of entrepreneurs, entrepreneurial management styles, and entrepreneurial ventures.

3. Discuss several factors that indicate a readiness for entrepreneurship.

4. Define small business and identify the importance of small business.

5. Define competitive advantage and assess features of the organization itself that support competitive advantage.


Looking AheadLooking AheadLooking AheadLooking Ahead

6. Identify and compare strategy options for building competitive advangtage.

7. Define market segmentation and its related strategies.

8. Explain the concept of niche marketing and its importance to small business.

9. Discuss the importance of sustaining competitive advantage.


Entrepreneur DefinedEntrepreneur DefinedEntrepreneur DefinedEntrepreneur Defined

• A person who starts and/or operates a business.• All active owner-managers and second generation

members of family owned firms and owner-managers which buy out founders of existing firms.

• Also includes salaried managers of larger corporations who have a flair for innovation and risk.


Figure 1-1

Entrepreneurial IncentivesEntrepreneurial IncentivesEntrepreneurial IncentivesEntrepreneurial Incentives


Drawbacks of EntrepreneurshipDrawbacks of EntrepreneurshipDrawbacks of EntrepreneurshipDrawbacks of Entrepreneurship

• Hard work

• Long hours

• Emotional loneliness

• Strong possibility of failure

• Disruptions to personal life


Who Are Entrepreneurs?Who Are Entrepreneurs?Who Are Entrepreneurs?Who Are Entrepreneurs?

• Entrepreneurs are:Individuals who discover market needs and

launch new firms to meet those needs.Risk takers who provide an impetus for change,

innovation, and progress.All active owner-managers (founders and/or

managers of small businesses).


Characteristics of EntrepreneursCharacteristics of EntrepreneursCharacteristics of EntrepreneursCharacteristics of Entrepreneurs

• Need for Achievement

• Willingness to Take Risks

• Self-Confidence have an internal locus of controlinternal locus of control

• Passion for the Business


Internal vs. External Locus of ControlInternal vs. External Locus of ControlInternal vs. External Locus of ControlInternal vs. External Locus of Control

Internal Locus of Control: Entrepreneurs tend to hold themselves accountable

for their own successes or failures.

External Locus of Control: Non-entrepreneurs tend to believe that external

circumstances impact upon their worlds.


Varieties of EntrepreneurshipVarieties of EntrepreneurshipVarieties of EntrepreneurshipVarieties of Entrepreneurship

• Founder (“Pure” Entrepreneur)An entrepreneur who brings a new firm into existence.

• General ManagerAn entrepreneur who functions as an administrator of a

business.• Franchisee

An entrepreneur whose power is limited by the contractual relationship with a franchising organization.


Characteristics ofCharacteristics ofArtisan EntrepreneursArtisan Entrepreneurs

Characteristics ofCharacteristics ofArtisan EntrepreneursArtisan Entrepreneurs

• Technical training• Paternalistic approach• Reluctance to delegate• Narrow view of strategy• Personal sales effort• Short planning horizon• Simple record keeping


Characteristics ofCharacteristics ofOpportunistic EntrepreneursOpportunistic Entrepreneurs

Characteristics ofCharacteristics ofOpportunistic EntrepreneursOpportunistic Entrepreneurs

• Broad-based education• Scientific approach to problems• Willing to delegate• Broad view of strategy• Diversified marketing approach• Longer planning horizon• Sophisticated accounting

and financial control


Entrepreneurial TeamsEntrepreneurial TeamsEntrepreneurial TeamsEntrepreneurial Teams

Two or more people who work together as Two or more people who work together as entrepreneurs.entrepreneurs.

Helpful to: Secure a broad range of managerial talents Enhance profits

Useful in: Marginal firms Attractive small firms High potential firms


Small Businesses, Growth, and ProfitsSmall Businesses, Growth, and ProfitsSmall Businesses, Growth, and ProfitsSmall Businesses, Growth, and Profits

• High-Potential Venture (Gazelle)A small firm that has great prospects for growth.

• Attractive Small FirmA small firm that provides

substantial profits to its owner.

• Marginal FirmsA small firm that provides

minimal profits to its owner.


Four Routes to EntrepreneurshipFour Routes to EntrepreneurshipFour Routes to EntrepreneurshipFour Routes to Entrepreneurship

• Entering a family business

• Opening a franchised business

• Starting a new business

• Buying an existing business


Figure 1-2

Age Concerns in Starting a BusinessAge Concerns in Starting a BusinessAge Concerns in Starting a BusinessAge Concerns in Starting a Business


Entrepreneurial RefugeesEntrepreneurial RefugeesEntrepreneurial RefugeesEntrepreneurial Refugees

• Foreign refugee

• Corporate refugee

• Parental refugee

• Feminist refugee

• Housewife refugee

• Society refugee

• Educational refugee


Taking the PlungeTaking the PlungeTaking the PlungeTaking the Plunge

• Precipitating EventAn event, such as losing

a job, that moves an individual to become an entrepreneur.


What Is a Small Business?What Is a Small Business?What Is a Small Business?What Is a Small Business?

• Criteria for Defining Smallness in Business–Financing supplied by one person or small group–Localized business operations (except marketing)–Business’ size small relative to larger

competitors–Fewer than 100 employees


Why is Small Business Important?Why is Small Business Important?Why is Small Business Important?Why is Small Business Important?

• In 1999, 940,000 small businesses were registered in Canada

• Over 90 percent of these businesses have fewer than 50 employees

• Firms with less than 5 employees account for 80 percent of all business entities

• New jobs created by small businesses are growing at rate of 2.3 percent per year, with almost 80 percent of the growth being generated by the newly self-employed.


Competitive AdvantageCompetitive AdvantageCompetitive AdvantageCompetitive Advantage

Unique ServiceFeatures

Notable ProductAttributes

CustomerService

Accessibility

CompetitiveCompetitiveAdvantageAdvantage

Price/Value


Laying the Foundation to Laying the Foundation to Competitive AdvantageCompetitive Advantage

Laying the Foundation to Laying the Foundation to Competitive AdvantageCompetitive Advantage

• Competitive AdvantageTo establish competitive advantage, the owner needs to

understand the nature of the environment within which he or she will be operating.

A benefit that exists when a firm has a product or service that is seen by its target market as better than those of competitors.


A Model of Competitive AdvantageA Model of Competitive AdvantageA Model of Competitive AdvantageA Model of Competitive Advantage

Fig. 2.3

Strategies• Cost Advantage • Marketing AdvantageMarketing Advantage

FoundationsEnvironmental Assessment Organizational Assessment

• Profits• Market Share• Customer Satisfaction• Survival

ResultsReinvestment Reinvestment

Figure 1-3


Assessing The EnvironmentAssessing The EnvironmentAssessing The EnvironmentAssessing The Environment

• The Macroenvironment A broad environment with its multiple factors

that affect most businesses in a society

• Industry Environment The combined forces that

directly impact a given firm and its competitors


Segments of the Segments of the General General

EnvironmentEnvironment

Segments of the Segments of the General General

EnvironmentEnvironment

Sociocultural

Economic

Political/Legal

Technological


Major Factors Major Factors OffsettingOffsetting

Market Market AttractivenessAttractiveness

Concept by Concept by Michael PorterMichael Porter

Major Factors Major Factors OffsettingOffsetting

Market Market AttractivenessAttractiveness

Concept by Concept by Michael PorterMichael Porter

Bargaining Powerof Buyers

Threat of SubstituteProducts or Services

Bargaining Powerof Suppliers

RivalryAmong Existing

Products

Threat of NewCompetitors

Attractiveness andProfitability of aTarget Market

Figure 1-4


Competitor Analysis of and by Competitor Analysis of and by an Organizationan Organization

Competitor Analysis of and by Competitor Analysis of and by an Organizationan Organization

• Who are the new venture’s current competitors?

• What resources do they control?

• What are their strengths and weaknesses?

• How will they respond to the new venture’s 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?


Core Competencies andCore Competencies andAssessing the OrganizationAssessing the Organization

Core Competencies andCore Competencies andAssessing the OrganizationAssessing the Organization

• Core Competencies• Value-creating organizational capabilities that are unique

to a firm

• Resources versus Capabilities ResourcesResources are basic inputs that a firm uses to conduct

business (capital, technology, equipment, employees, etc.)

• intangible and tangible resources CapabilitiesCapabilities are the integration of several resources which

are deployed together to the firm’s advantage.


Examples of SWOT Factors Examples of SWOT Factors Examples of SWOT Factors Examples of SWOT Factors

Internal• Strengths

– Core Competencies– Financial strength– Well-planned strategy– Skilled management

• Weaknesses– Production inefficiencies– Inadequate financial resources– Poor management– Poorly planned strategy

External• Opportunities

– Untapped market potential– Favourable shift in market– Emerging technologies

– New product• Threats

– New competition– Rising demand

– Increased government regulations


Strategies that Capture Opportunities Strategies that Capture Opportunities Strategies that Capture Opportunities Strategies that Capture Opportunities

• Broad-Based Strategy Options

Seek an advantage in cost or competition.

• Cost-Advantage Strategy and OptionsRequires the firm to be the lowest-cost producer.

• Marketing-Advantage StrategyEmphasizing the uniqueness of the firm’s product

or service


Market Segmentation Market Segmentation and its Variablesand its Variables

Market Segmentation Market Segmentation and its Variablesand its Variables

• Market Segmentation– division of a market into several smaller groups

with similar needs or buying behaviour

• Market– a group of customers or potentional customers

who have purchasing power and unsatisfied needs.


Ingredients of a MarketIngredients of a MarketIngredients of a MarketIngredients of a Market

Ingredient 1Customers:People or

businesses

Ingredient 2Purchasing

power: Money/credit

Ingredient 3Unsatisfied

needs


Market Segmentation VariablesMarket Segmentation VariablesMarket Segmentation VariablesMarket Segmentation Variables

• Segmentation Variables The parameters used to distinguish one form of market behaviour

from another • Geographic Variables

Defining a market by its location, size, or extent• Benefit Variables

Specific characteristics that distinguish market segments according to the benefit sought

• Demographic Variables Specific characteristics that describe customers and their purchasing

power.• Psychographic Variables

Lifestyle trends such as fitness, diet, political and sexual orientation


Types of Market Segmentation Types of Market Segmentation StrategiesStrategies

Types of Market Segmentation Types of Market Segmentation StrategiesStrategies

• Unsegmented Strategy (Mass Marketing)A strategy that defines the total market as the target market

• Multisegmented StrategyA strategy that recognizes different preferences of

individual market segments and develops a unique marketing mix for each

• Single-Segmentation StrategyA strategy that recognizes the existence of several distinct

segments but focuses on only the most profitable segment


Marketing Mix 1

Product: Lead Pencil

Price: $0.79

Promotion: Television

Distribution: Extensive

Small Business(Community Writing Company)

MarketAll Potential Users of a

Writing Instrument

An Unsegmented An Unsegmented Market StrategyMarket Strategy

An Unsegmented An Unsegmented Market StrategyMarket Strategy

Figure 1-5


Marketing Mix 2Product: Felt-Tip Pen

Price: $1.00

Promotion: Professional Magazines

Distribution: Direct from Factory

Marketing Mix 3Product: Gold Fountain Pen

Price: $50.00

Promotion: Personal Selling

Distribution: Department Stores

Marketing Mix 1Product: Felt-Tip Pen

Price: $0.49

Promotion: Campus Newspapers

Distribution: Bookstores


MarketSegment A

Students

MarketSegment C

Executives

MarketSegment BProfessors

Multisegmentation Multisegmentation Market StrategyMarket Strategy

Multisegmentation Multisegmentation Market StrategyMarket Strategy

Figure 1-6


Marketing Mix 1

Product: Felt-Tip Pen

Price: $0.49

Promotion: Campus Newspapers

Distribution: Bookstores


Market

Segment A

Students

Market

Segment C

Executives

Market

Segment B

Professors

A Single-A Single-Segmentation Segmentation

Market StrategyMarket Strategy

A Single-A Single-Segmentation Segmentation

Market StrategyMarket Strategy

Figure 1-7


Strategic TermsStrategic TermsStrategic TermsStrategic Terms

• Strategic Decision

A decision regarding the direction a firm will

take in relation to its customers and competitors.


Implementation of Implementation of Niche Marketing StrategiesNiche Marketing Strategies

Implementation of Implementation of Niche Marketing StrategiesNiche Marketing Strategies

• Restricting focus to a single subset of customers.

• Limiting the market to a single geographical region.

• Emphasizing a single product or service.

• Concentrating on superiority of product or service.


Niche Market PotentialNiche Market PotentialNiche Market PotentialNiche Market Potential

• Niche markets can quickly erode if:The focus strategy is imitated.The target segment is structurally unattractive.The target segment’s differences from other

segments narrow.New firms subsegment the industry.


Sustaining Competitive AdvantageSustaining Competitive AdvantageSustaining Competitive AdvantageSustaining Competitive Advantage

• Sustaining competitive advantageA value-creating industry position that is likely

to endure over time.Results include superior profitability, increased

market share, and improved customer satisfaction.

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