Entrepreneurial strategy

HEMBA

February 18, 2012

Basic strategy categories are:

DifferentiationLow costNiche

Business modelBusiness model

Revenue modelRevenue model Cost modelCost model

Revenue categoriesRevenue categories Cost of Goods SoldCost of Goods Sold Operating CostsOperating Costs

The “First Mover Advantage”

• Conventional wisdom would have us believe that it is always beneficial to be first – first in, first to market, first in class.

• Examples based on the “Jack Welch school of business strategy”

• The advantages accorded to those who are first to market defines the concept of First Mover Advantage (FMA).

The case for FMA – supply side

• Creates economies of scale (economic benefits that accrue with increasing volume to both period costs and unit costs of production)

• Creates learning curve gains based on cumulative units of production

• Provides first-mover with control over important, possibly scarce input factors

The case for FMA – demand side

Four types of switching costs

1. Contractual costs (“sticky” accounts)

2. Initial investment (time & $)

3. Habit formation (learning period, familiarity)

4. Brand strength based on relevance, awareness, esteem

Several key aspects about capturing a first mover’s advantage

You have to be first (or very early) into the market

You need to capture a large percentage of the market quickly

You need to create switching costs so the customer will stick with you

Very expensive, hard to win First Movers rarely win

Attributes of winning strategies

Better

Faster

Cheaper

Entry Strategy

Benchmark

Devise Initial Market Test

Create a Platform

Growth Strategy

FranchisingExpanding your

product mixGeographic expansion

Means to expand globally Pros Cons

Technology Transfer - Reduces entry costs - Risk of losing the technology

Technology Licensing - Generates revenue

- Conserves resources

- A lost opportunity to extend your own brand

Outsourcing - Cost-saving

Exporting - Cheap- Easy

- Additional costs in after-sales support and transportation- Moral hazard

Foreign Direct Investment (FDI) - Physical presence

- Control of assets

- Expensive

Franchising - Licenses an operational system - Risk of damaging the brand name

Venture financing - Both an enabling and an enacting mechanism

- Often leads to mergers and acquisitions with foreign companies

Mergers and acquisitions (M&A) - Established infrastructure

- Allow a company to grow and expand quickly

- Very expensive