MGMT 206 - Longenecker CHP 3 Starting a Small Business PDF

 1. Distinguish among the different types and sources of startup ideas. 2. Use innovative thinking to generate ideas for high-potential startups. 3. Describe external and internal analyses that might shape the selection of venture opportunities. 4....

 1. Distinguish among the different types and sources of startup ideas. 2. Use innovative thinking to generate ideas for high-potential startups. 3. Describe external and internal analyses that might shape the selection of venture opportunities. 4. Explain broad-based strategy options and focus strategies. 5. Know how to screen business ideas to identify those with the greatest potential. 6. Assess the feasibility of a startup idea. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–2  Developing Startup Ideas Opportunity Recognition  Identification of potential new products or services that may lead to promising businesses Entrepreneurial Alertness  Readiness to act on unnoticed business opportunities and to pivot quickly away from flawed initial ideas. Which Product or Service?  Serves important consumer needs  Has readily recognized utility and user benefits  Is affordable to a large group of potential customers  A good idea is not the same as a good opportunity. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–3  Creating a New Business from Scratch To develop a To tap into commercial unique market for resources new product that are available or service Motivations To Start a Business Wanting the To avoid challenge of undesirable succeeding features of (or failing) existing on your own companies © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–4  3.1 Types of Ideas That Develop into Startups © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted i 3–5 n a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  3.2 Common Sources of Startup Ideas Prior work experience 45% Personal interest/hobby 16% Chance happening 11% Suggestion 7% Education/ Family business 6% Friends/ relatives 5% Other 4% © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted i 3–6 n a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Change-Based Sources of Entrepreneurial Opportunities Change Factor Definition Industry or Enterprise Factors The unexpected Unanticipated events lead to either enterprise success or failure. The incongruous What is expected is out of line with what will work. Process needs Current technology is insufficient to address an emerging challenge. Structural change Changes in technology, markets, etc., alter industry dynamics. Human and Economic Factors Demographics Shifts in population size, age structure, ethnicity, and income distribution impact product demand. Changes in perception Perceptual variations determine product demand. New knowledge Learning opens the door to new product opportunities with commercial potential. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–7  Using Innovative Thinking to Generate Business Ideas 1. Borrow ideas from existing products and services or other industries. 2. Combine two businesses into one to create a market opening. 3. Begin with a problem in mind. 4. Recognize a hot trend and ride the wave. 5. Explore ways to improve an existing product or service’s function. 6. Think of how to streamline a customer’s activities. 7. Adapt a product or service to meet customer needs in different ways. 8. Imagine how market for a product or service could be expanded. 9. Study a product or service to see if you can make it “green.” 10.Keep an eye on new technologies. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–8  Using Internal and External Analyses to Assess Business Ideas Outside-In Analysis  Studying context of venture to identify and determine business ideas that qualify as opportunities.  General Environment – Encompasses factors influencing business in a society.  Industry Environment – Factors that impact a firm and all of its competitors.  Competitive Environment – Focus on the strength, position, and likely moves and countermoves of competitors in an industry. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–9  3.3 Trends in the General Environment © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted i 3–10 n a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  3.4 Major Factors Offsetting Market Attractiveness © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted i 3–11 n a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  The Competitive Environment Who would be the new venture’s current competitors? What unique 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 see and exploit the same opportunity? Are there ways to co-opt potential or actual competitors by forming alliances? © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–12  Evaluating Market Opportunities Inside-Out Analysis  Assessing the firm’s internal competitive potential Resources  Basic inputs that a firm uses to conduct its business  Tangible resources: visible and easy to measure.  Intangible resources: invisible, difficult to quantify Capabilities  Routines and processes that can coordinate the combined use of productive assets in order to achieve desired outcomes. Core Competencies  Capabilities that provide a firm with a competitive advantage over its rivals and reflect its personality. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–13  Integrating Internal and External Analyses Strengths, Weaknesses, Opportunities, and Threats (SWOT) Analysis  Provides concise overview of firm’s 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? © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–14  3.5 Examples of SWOT Factors © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted i 3–15 n a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  3.6 The Entrepreneur’s Opportunity “Sweet Spot” © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted i 3–16 n a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Important Strategic Terms Strategy  Plan of action that coordinates resources and commitments of an organization to achieve superior performance. Strategic Decision  Regards the direction a firm will take in relating to its customers and competitors. Sustainable Competitive Advantage  A value-creating industry position likely to endure over time. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–17  Selecting Strategies That Capture Opportunities Broad-Based Strategy Options Differentiatio Cost-Based Focus n-Based Strategy Strategy Strategy © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–18  Focus Strategies Focus Strategy Implementation  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. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–19  Focus Strategies (cont’d) Advantages  Niche market shields from direct competition.  Focus allows development of unique expertise. Disadvantages  Focus markets can quickly erode if:  Competitors successfully imitate the strategy.  Segment erodes or demand disappears.  Segment loses its uniqueness  New firms subsegment the industry. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–20  Factors in Business Idea Screening Strength of the business idea Industry and Targeted market Screening competitive and customers a Business advantage Idea Capital Capability of requirements founders and venture performance © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–21  Is Your Startup Idea Feasible? Market Factors Judging the Fatal Feasibility Competitive Flaws Advantage of a Business Opportunity Industry Management Attractivenes Capability s © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–22  Is Your Startup Idea Feasible? Feasibility Analysis  A preliminary assessment of a business idea that gauges whether or not the venture envisioned is likely to succeed Fatal Flaws  A circumstance or development that alone could render a new business unsuccessful  Market potential: acceptance, accessibility, growth, and size  Power of competitors  Strength of competitive advantage  Startup costs  Management capability © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–23  3.7 A Feasibility Analysis Framework © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted i 3–24 n a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Feasibility?… (cont’d) New Venture Leadership  Dimensions of Management Capability 1. Fit of the venture with leader’s mission, aspirations, and comfort level with risk involved 2. Leader’s grasp of critical enterprise success factors and ability to execute on these factors 3. Leader’s connection to others who will be essential to making the venture work. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–25  Key Terms capabilities intangible resources competitive advantage new benefit ideas competitive environment new market ideas core competencies new technology ideas cost-based strategy opportunity recognition differentiation-based strategy pivot entrepreneurial alertness resources fatal flaw serendipity feasibility analysis startups focus strategy strategy general environment SWOT analysis industry environment tangible resources © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–26