Entrepreneurial Strategies PDF

Entrepreneurial Strategies Kaulu Chibubi-BPharm, MBA Outline 1. Introduction 2. Five aspects to consider in defining a competitive advantage for a company 3. Benefits of being small 4. Considerations when formulating the strategic plan for a small business 5. The strat...

Entrepreneurial Strategies Kaulu Chibubi-BPharm, MBA Outline 1. Introduction 2. Five aspects to consider in defining a competitive advantage for a company 3. Benefits of being small 4. Considerations when formulating the strategic plan for a small business 5. The strategic management process Introduction  The goal of developing a strategic plan is to create for the small company a competitive advantage—the value proposition that sets a small business apart from its competitors and gives it a unique position in the market that is superior to its rivals.  It is the differentiating factor that makes customers want to buy from your business rather than from your competitors.  From a strategic perspective, the key to business success is to develop a sustainable competitive advantage, one that is durable, creates value for customers, and is difficult for competitors to duplicate.  Companies that fail to define their competitive advantage fall into “me-too” strategies that never set them apart from their competitors and do not allow them to become market leaders or to achieve above average profits. 2. Five Aspects to consider in defining the competitive advantage for a company Entrepreneurs should examine five aspects of their businesses to define their companies’ competitive advantages: 1. Products they sell.  What is unique about the products the company sells?  Do they save customers time or money?  Are they more reliable and more dependable than those that competitors sell?  Do they save energy, protect the environment, or provide more convenience for customers?  By identifying the unique customer benefits of their companies’ products, entrepreneurs can differentiate their businesses. Cont.… 2. Service they provide.  Many entrepreneurs find that the service they provide their customers is an excellent way to differentiate their companies. Because they are small, friendly, and close to their customers, small businesses can provide customer service that is superior to that which their larger competitors can provide.  What services does the company provide (or which ones can it provide) to deliver added value and a superior shopping experience for customers? Cont.… 3. Pricing they offer.  As we will see later in this chapter, some small businesses differentiate themselves using price. Price can be a powerful point of differentiation; offering the lowest price gives some customers a great incentive to buy. However, offering the lowest price is not always the best way to create a unique image. Small companies that do not offer the lowest prices must emphasize the value their products offer. 4. Way they sell.  Customers today expect to be able to conduct business when they want to, meaning that companies that offer extended hours—even 24-hour service seven days a week (perhaps via the Internet)—have the basis for an important competitive advantage. Cont.… 5. Values to which they are committed.  The most successful companies exist for reasons that involve far more than merely making money. The entrepreneurs behind these companies understand that one way to connect with customers and establish a competitive edge is to manage their companies from a values-based perspective and operate them in an ethical and socially responsible fashion. In other words, they recognize that there is no inherent conflict between earning a profit and creating good for society and the environment. 3. Benefits of being small Successful small companies are able to build strategies that exploit all the competitive advantages that their size gives them by doing the following:  Responding quickly to customers’ needs  Providing the precise desired level of customer service  Remaining flexible and willing to change  Constantly searching for new, emerging market segments  Building and defending small market niches  Erecting “switching costs,” the costs a customer incurs by switching to a competitor’s product or service, through personal service and loyalty  Remaining entrepreneurial and willing to take risks and act with lightning speed  Constantly innovating 4. Considerations when formulating the strategic plan for a small business The strategic management procedure for a small business should include the following features:  Use a relatively short planning horizon—two years or less for most small companies.  Be informal and not overly structured; a shirtsleeve approach is ideal.  Encourage the participation of employees and outside parties to improve the reliability and creativity of the resulting plan. Cont.…  Do not begin with setting objectives because extensive objective setting early on may interfere with the creative process of strategic management.  Maintain flexibility; competitive conditions change too rapidly for any plan to be considered permanent.  Focus on strategic thinking, not just planning, by linking long-range goals to day-to-day operations.  Be an ongoing process because businesses and the competitive environment in which they operate constantly change. 5. The strategic Management process Strategic management is a continuous process that consists of nine steps:  Step 1. Develop a clear vision and translate it into a meaningful mission statement.  Step 2. Assess the company’s strengths and weaknesses.  Step 3. Scan the environment for significant opportunities and threats facing the business.  Step 4. Identify the key factors for success in the business.  Step 5. Analyse the competition.  Step 6. Create company goals and objectives.  Step 7. Formulate strategic options and select the appropriate strategies.  Step 8. Translate strategic plans into action plans.  Step 9. Establish accurate controls. Step 1: Develop a clear vision and translate it into a meaningful mission statement  VISION Throughout history, the greatest political and business leaders have been visionaries.  The purpose of vision is the same: to focus everyone’s attention on the same target and to inspire them to reach it.  The vision is future oriented and touches everyone associated with the company—its employees, investors, lenders, customers, and the community.  It is an expression of what an entrepreneur stands for and believes in. Highly successful entrepreneurs communicate their vision and their enthusiasm about that vision to those around them.  A vision is the result of an entrepreneur’s dream of something successful that does not exist yet and the ability to paint a compelling picture of that dream for everyone to see. It answers the question, “Where are we going?” Cont.… A strong vision helps a company in four ways: 1. Vision provides direction. Entrepreneurs who spell out the vision for their company focus everyone’s attention on the future and determine the path the business will take to get there. 2. Vision determines decisions. The vision influences the decisions, no matter how big or how small, that owners, managers, and employees make every day in a business. This influence can be positive or negative, depending on how well defined the vision is. 3. Vision inspires people. A clear vision excites and ignites people to action. People want to work for a company that sets its sights high. 4. Vision allows for perseverance in the face of adversity. Young companies, their founders, and their employees often face many hardships from a multitude of sources. Having a vision that serves as a company’s “guiding star” enables people to overcome imposing Cont.… MISSION The mission statement addresses another basic question of any business venture: “What business are we in?” Establishing the purpose of the business in writing must come first in order to give the company a sense of direction.  As an entrepreneur, your company’s mission statement should be concise and specific so your customers understand your purpose and how you provide value to them  As an enduring declaration of a company’s purpose, a mission statement is the mechanism for making it clear to everyone the company touches “why we are here” and “where we are going.” Cont.… Elements of a Mission Statement A sound mission statement need not be lengthy to be effective. In fact, shorter usually is better. The four key questions entrepreneurs and their employees should address as they develop a mission statement for their businesses are the following:  What are we in business to accomplish?  Who are we in business to serve?  How are we going to accomplish that purpose?  What principles and beliefs form the foundation of the way we do business? Step 2: Assess the company’s strengths and weaknesses Having defined the vision they have for their company and translated that vision into a meaningful mission statement, entrepreneurs can turn their attention to assessing company strengths and weaknesses. Building a successful competitive strategy requires a business to magnify its strengths and overcome or compensate for its weaknesses.  Strengths are positive internal factors that a company can draw on to accomplish its mission, goals, and objectives. They might include special skills or knowledge, a superior proprietary product or process, a positive public image, an experienced sales force, an established base of loyal customers, and many other factors.  Weaknesses are negative internal factors that inhibit a company’s ability to accomplish its mission, goals, and objectives. Lack of capital, a shortage of skilled workers, the inability to master technology, and an inferior location are Step 3: Scan the environment for significant opportunities & threats facing the business OPPORTUNITIES Once entrepreneurs have taken an internal inventory of company strengths and weaknesses, they must turn to the external environment to identify any opportunities and threats that might have a significant impact on the business.  Opportunities are positive external options that a firm can exploit to accomplish its mission, goals, and objectives. When identifying opportunities, an entrepreneur must pay close attention to new potential markets and product offerings.  Are competitors overlooking a niche in the market we could easily exploit?  Is there a better way to reach our customers, such as a greater focus on online sales?  Are there new markets we can expand into with our existing business? Can we develop new products that offer customers Cont.…  Threats are negative external forces that inhibit a company’s ability to achieve its mission, goals, and objectives. Threats to the business can take a variety of forms, such as new competitors entering the local market, a government mandate regulating a business activity, an economic recession, rising interest rates, mounting energy prices, or technology advances making a company’s product obsolete. Step 4: Identify the key factors for success in the business  Every business is characterized by controllable variables that determine the relative success of market participants.  By focusing efforts to maximize their companies’ performance on these key success factors, entrepreneurs can achieve dramatic market advantages over their competitors. Companies that understand these key success factors tend to be leaders of the pack, whereas those that fail to recognize them become also-rans.  Key success factors (KSFs, also called key performance indicators) come in a variety of patterns, depending on the industry. Simply stated, Cont.…  Identifying the KSFs in an industry allows entrepreneurs to determine where they should focus their companies’ resources strategically. It is unlikely that a company, even a large one, can excel on every KSF it identifies.  Therefore, as they begin to develop their strategies, successful entrepreneurs focus on surpassing their rivals on one or two KSFs to build a sustainable competitive edge. Step 5: Analyse the Competition  When asked most small business owners to identify the greatest challenge their companies face, and the most common response is competition.  The Internet and e-commerce have increased the ferocity and the scope of the competition entrepreneurs face and have forced many business owners to change completely the ways in which they do business.  Keeping tabs on rivals’ movements through competitive intelligence programs is a vital strategic activity. “Business is like any battlefield. If you want to win the war, you have to know who you’re up against”. Cont.… COMPETITOR ANALYSIS  Sizing up the competition gives a business owner a realistic view of the market and his or her company’s position in it. Yet not every competitor warrants the same level of attention in the strategic plan.  Direct competitors offer the same products and services, and customers often compare prices, features, and deals from these competitors as they shop.  Significant competitors offer some of the same products and services. Although their product or service lines may be somewhat different, there is competition with them in several key areas.  Indirect competitors offer the same or similar products or services only in a small number of areas, and their target customers seldom overlap yours. Entrepreneurs should monitor closely the actions of their direct competitors, maintain a solid grasp of where their significant competitors are heading, and spend only minimal resources tracking their indirect competitors. Questions to ask  What are the primary criteria customers used to choose among competitive businesses in your industry?  Who are your primary competitors? Where are they located?  What distinctive competencies have they developed?  How do their cost structures compare to yours? Their financial resources?  How do they promote their products and services?  What do customers say about them? How do customers describe their products or services, their way of doing business, and the additional services they might supply?  What are their key strategies?  What are their strengths? How can your company counteract them?  What are their major weaknesses? How can your company Ways to collect competitive intelligence Entrepreneurs can use the following low-cost competitive intelligence methods to collect information about their rivals:  Read industry trade publications for announcements and news stories about competitors.  If appropriate, buy competitors’ products and assess their quality and features. Benchmark their products against yours.  Ask questions of customers and suppliers about what they hear competitors may be doing. In many cases, this information is easy to gather because some people love to gossip.  Visit competitors’ Web sites periodically to see what news is contained there. The Web enables small companies to uncover valuable competitive information at little or no cost.  Sign up for competitors’ social media feeds for current news about their businesses. Cont.…  Attend industry “meet-ups” in your local community.  Attend trade shows and collect competitors’ sales literature.  Monitor social media for insights into your direct competitors.  Watch for employment ads and job postings from competitors; knowing what types of workers they are hiring can tell you a great deal about their future plans.  Conduct patent searches for patents competitors have filed. This gives important clues about new products they are developing.  Visit competing businesses periodically to observe their operations.  Don’t resort to unethical or illegal practices. 6. Create company goals and objectives Before entrepreneurs can build a comprehensive set of strategies, they must first establish business goals and objectives, which give them targets to aim for and provide a basis for evaluating their companies’ performance. Without them, it is impossible to know where a business is going or how well it is performing.  GOALS: The broad, long-range attributes that a business seeks to accomplish are its goals; they tend to be general and sometimes even abstract. Goals are not intended to be specific enough for a manager to act on but simply state the general level of accomplishment sought. Do you want to boost your market share? Does your cash balance need strengthening? Would you like to enter a new market or increase sales in a current one? Do you want to develop new products or services? Cont.…  Objectives are more specific targets of performance. Common objectives concern profitability, productivity, growth, efficiency, sales, financial resources, physical facilities, organizational structure, employee welfare, and social responsibility. Because some of these objectives might conflict with one another, it is important to establish priorities. Which objectives are most important? Which are least important? Arranging objectives in a hierarchy according to their priority can help an entrepreneur resolve conflicts when they arise. Characteristics of well-written objectives  They are specific. Objectives should be quantifiable and precise. For example, “to achieve a healthy growth in sales” is not a meaningful objective; however, “to increase retail sales by 12 percent and wholesale by 10 percent in the next fiscal year” is precise and spells out exactly what management wants to accomplish.  They are measurable. Managers should be able to plot the organization’s progress toward its objectives; this requires a well-defined reference point from which to start and a scale for measuring progress.  They are action commitments. Objectives are linked to specific actions. Ideally, managers and employees should be able to see how their jobs lead to the company achieving its objectives.  They are assignable. Unless an entrepreneur assigns responsibility for an objective to an individual, it is unlikely Cont.…  They are realistic yet challenging. Objectives must be within the reach of the organization, or motivation will disappear. In any case, managerial expectations must remain high. In other words, the more challenging an objective is (within realistic limits), the higher the performance will be. Set objectives that will challenge your business and its employees.  They are timely. Objectives must specify not only what is to be accomplished but also when it is to be accomplished. A time frame for achievement is important.  They are written down. Setting objectives does not have to be complex; in fact, an entrepreneur should keep the number of objectives relatively small (from 5 to 10). Writing down objectives makes them more concrete and makes it easy to communicate them to everyone in the company. The strategic planning process works best when managers and employees work together to set goals and objectives. Developing a plan is top management’s responsibility, but executing it falls to managers and employees; therefore, encouraging them to participate broadens the plan’s perspective and increases the motivation to make the plan work. Step 7: Formulate strategic options & select the appropriate strategies  By this point in the strategic management process, entrepreneurs should have a clear picture of what their businesses do best and what their competitive advantages are. They also should understand their firms’ weaknesses and limitations as well as those of their competitors. The next step is to evaluate strategic options and then prepare a game plan designed to achieve the stated mission, goals, and objectives.  A strategy is a road map of the actions an entrepreneur draws up to accomplish a company’s mission, goals, and objectives. In other words, the mission, goals, and objectives spell out the ends, and the strategy defines the means for reaching them. Strategic Options 1. Cost leadership strategy: A strategy in which a company strives to be the low cost producer relative to its competitors in the industry. 2. Differentiation: A company following a differentiation strategy seeks to build customer loyalty by selling goods or services that provide unique attributes and that customers perceive to be superior to competing products. That, in turn, enables the business to command higher prices for its products or services than competitors. 3. Focus strategy: A strategy in which a company selects one or more market segments; identifies customers’ special needs, wants, and interests; and approaches them with a good or service designed to excel in meeting those needs, wants, and interests. Step 8: Translate strategic plans into action plans  No strategic plan is complete until it is put into action; planning a company’s strategy and implementing it go hand in hand.  Entrepreneurs must convert strategic plans into operating plans that guide their companies on a daily basis and become a visible, active part of the business. No small business can benefit from a strategic plan sitting on a shelf collecting dust. Unfortunately, failure to implement a strategy effectively is a common problem.  The lesson is that even sound strategies, unless properly implemented, will fail. Step 9: Establish accurate controls  Planning without control has little operational value; therefore, a sound planning program requires a practical control process.  The plans and objectives created in the strategic planning process become the standards against which actual performance is measured.  It is important for everyone in the organization to understand —and to be involved in— the planning and controlling process. Unless entrepreneurs measure progress against the goals and objectives established in step 6, their companies make little progress toward accomplishing them. References 1. Scarborough N.M. (2016) Essentials of Entrepreneurship and Small Business Management. 8th Ed. Boston: Pearson Education Limited Chapter 5