Chapter 13

Entrepreneurial Strategy:
Generating and Exploiting
New Entries

McGraw-Hill/Irwin
Entrepreneurship, 7/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. 13-1
 What is a New Entry?
 Offering a new product to an established or new
market.
 Offering an established product to a new market.
 Creating a new organization.

13-2
Entrepreneurial Strategy: The Generation and
Exploitation of New Entry Opportunities

 <<Insert Figure 13.1>>

13-3
 Resources: Source of
Competitive Advantage
 Basic building blocks to a firm’s functioning and
performance.
 Inputs into the production process.
 Can be combined in different ways.
 Provides a firm its capacity to achieve superior
performance.

 Resources need to be:

 Valuable.
 Rare.
 Inimitable.

13-4
 Creating a Resource Bundle
 Entrepreneur possesses ability to obtain and recombine
resources.
 Market knowledge: information, technology, know-
how/skills that provide insight to market/customers.
 Technological knowledge: information, technology know-
how/skills that provide insight to create new knowledge.

13-5
 Assessing Attractiveness: Information on a
New Entry
 Prior knowledge and information search
 More knowledge ensures a more efficient search
process.
 Search process represents a dilemma for an
entrepreneur.
 Costs: both money and time.

 Window of opportunity
 Period of time when the environment is favorable for
entrepreneurs to exploit a particular new entry.

13-6
 Comfort with Making a Decision under
Uncertainty
 Dilemma arising from the trade-off between more
information and the likelihood of closure of the window of
opportunity.
 Error of commission: negative outcome from acting.
 Error of omission: negative outcome from not acting.

13-7
Decision to Exploit or Not to Exploit the New
Entry Opportunity

 <<Insert Figure 13.2>>

13-8
 Strategy for New Entry: First-Mover Advantages

 Develop a cost advantage.

 Face less competitive rivalry.
 Can secure important channels.
 Better positioned to satisfy customers.
 Gain expertise through participation.

13-9
 First Mover (Dis)Advantages (1 of 2)

 Demand uncertainty: difficulty in estimating

 Potential size of the market.
 How fast it will grow.
 Key dimensions along which it will grow.

 Technological uncertainty: difficulty in assessing

 Whether the technology will perform.
 Whether alternate technologies will emerge and leapfrog over current
technologies

13-10
 First Mover (Dis)Advantages (2 of 2)

 Adaptation: difficulty to adapt to the new environmental conditions.

 Customer uncertainty: difficulty in accurately assessing whether the new

product or service provides value for them.
 Overcoming customer uncertainty:
 Informational advertising.
 Highlight product benefits over substitutions.
 Create frame Of reference for potential customer.
 Educate customer- set industry standard, customer loyalty.

13-11
 Lead Time and First Mover
 Lead time: grace period in which the first mover operates in
the industry under conditions of limited competition.

 Creating barriers to entry for competition:

 Building customer loyalties.
 Building switching costs.
 Protecting product uniqueness.
 Securing access to important sources of supply and
distribution.

13-12
 Risk Reduction Strategies
 Risk: probability of, and magnitude of, downside loss.

 Derived from entrepreneur’s uncertainties over:

 Market demand.
 Technological development.
 Actions of competitors.

 Two such strategies:

 Market scope.
 Imitation.

13-13
 Market Scope Strategies: Narrow Scope
 Scope: choice about which customer groups to serve and
how to serve them.

 Narrow scope: offers a small product range to a small

number of customer groups to satisfy a particular need.
 Focuses on producing customized products, localized business
operations, and high levels of craftsmanship.
 Focuses on a specific group of customers.
 High-end of the market represents a highly profitable niche.

13-14
 Market Scope Strategies: Broad Scope
 Offers a range of products across many different market
segments.
 Strategy emerges through the information provided by a
learning process.
 Opens the firm up to many different “fronts” of competition.
 Reduction of risks associated with market uncertainties.

13-15
 Imitation Strategy
 Involves copying the practices of other firms.
 Cannot be rare or inimitable.
 Why Do It?
 Minimizes risk of downside loss associated with a new
entry.

 Advantages:
 Easier to imitate the practices of a successful firm.
 Can help develop skills necessary to be successful in the
industry.
 Provides organizational legitimacy.

13-16
 Types of Imitation Strategies
 Franchising: focuses on imitation to reduce the risk of
downside loss for the franchisee.
 “Me-too” strategy: copying products that already exist
and attempting to build an advantage through minor
variations.
 Might be more difficult to successfully implement than
initially expected
 Can potentially:
 Reduce the entrepreneur’s costs associated with R&D.
 Reduce customer uncertainty over the firm.
 Make the new entry look legitimate from day one.

13-17
 Managing Newness
 Liabilities of newness arise from unique conditions:
 Costs in learning new tasks.
 Conflict arising from overlap or gaps in responsibilities.
 Establishing formal and informal structures of
communication.

 New firm need to:

 Pay special attention in education and training employees.
 Help employees develop knowledge and skills quickly.
 Foster activities to foster informal relationships and a
functional corporate culture.

13-18
 Assets of Newness
 Lack of established routines, systems, and processes
provide a clean slate, giving a learning advantage.
 Heightened ability to learn new knowledge in a
continuously changing environment.
 Flexibility and ability to accommodate new knowledge.

13-19