Chap#3

GENERATING AND EXPLOITING NEW ENTRIES

Objective
NEW ENTRY
• new entry Offering a new product to an established or new market, offering
an established product to a new market, or creating a new organization.
• newness creates a number of challenges for entrepreneurs.
• entrepreneurial strategy The set of decisions, actions, and reactions that
first generate and then exploit over time a new entry.
• Fig 3.1
• An entrepreneurial strategy has three key stages: (1) the generation of a
new entry opportunity, (2) the exploitation of a new entry opportunity, and
(3) a feedback loop from the culmination of a new entry generation and
exploitation back to stage 1.
GENERATION OF A NEW ENTRY
OPPORTUNITY
• Resources as a Source of Competitive Advantage
• When a firm engages in a new entry, it is hoped that this new entry will provide the
firm with a sustainable competitive advantage.
• Insight into how entrepreneurs can generate new entries that are likely to provide the
basis for high firm performance over an extended period of time.
• Resources are the basic building blocks to a firm’s functioning and performance. A
firm’s resources are simply the inputs into the production process, such as machinery,
financial capital, and skilled employees.
• organizational culture that enhances communication, teamwork, and innovativeness.
• For a bundle of resources to be the basis of a firm’s superior performance over
competitors for an extended period of time, the resources must be valuable, rare, and
inimitable(including non substitutable)
Continue…
• Creating a Resource Bundle That Is Valuable, Rare, and Inimitable
• The ability to obtain, and then recombine, resources into a bundle that is valuable, rare,
and inimitable itself represents an important entrepreneurial resource.
• To a large extent such an experience —unique to the life of the individual—and therefore
can be considered rare.
• knowledge is important for generating a bundle of resources that will lead to the creation
of a new venture with a long and prosperous life.
• Those wishing to generate an innovation need to look to the unique experiences and
knowledge within themselves and their team.
• Market knowledge refers to the entrepreneur’s possession of information, technology,
know-how, and skills that provide insight into a market and its customers.
• technological knowledge Possession of information, technology, know-how, and skills that
provide insight into ways to create new knowledge
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• Assessing the Attractiveness of a New Entry Opportunity
• created a new resource combination, the entrepreneur needs to
determine whether it is in fact valuable, rare, and inimitable by
assessing whether the new product and/or the new market are
sufficiently attractive to be worth exploiting and developing. This
depends on the level of information on a new entry and the
entrepreneur’s willingness to make a decision without perfect
information.
• Information on a New Entry Prior Knowledge and Information Search
Window of Opportunity
• The period of time when the environment is favorable for
entrepreneurs to exploit a particular new entry.
• When the window is open, environment is favorable for
entrepreneurs to exploit a particular new product or to enter a new
market with an existing product; but the window of opportunity may
close, leaving the environment for exploitation unfavorable.
Comfort with Making a Decision under Uncertainty

• error of commission Negative outcome from acting. Entrepreneur had

overestimated his or her ability to create customer demand and/or to
protect the technology from imitation by competitors. The costs to
the entrepreneur were derived from acting on the perceived
opportunity.
• error of omission Negative outcome from not acting. Entrepreneur
must live with the knowledge that he or she let an attractive
opportunity slip through his or her fingers (underestimate).
Decision to Exploit or Not to Exploit the New
Entry
• Figure 3.2
• Decision to exploit or not to exploit the new entry opportunity
depends on whether the entrepreneur has what she or he believes to
be sufficient information to make a decision, and on whether the
window is still open for this new.
• Assessment of a new entry’s attractiveness Determining whether the
entrepreneur believes she or he can make the proposed new entry
work.
ENTRY STRATEGY FOR NEW ENTRY
EXPLOITATION
• Entrepreneurs when asked about their source of competitive advantage is, “Our
competitive advantage comes from being first. We are the first movers.”
These include:
• First movers develop a cost advantage(idea, cost less)
• First movers face less competitive rivalry(correctly assessed, Rapid growth)
• First movers can secure important channels(develop strong relationships, supplier)
• First movers are better positioned to satisfy customers(attractive segments,
adaptive, standard)
• First movers gain expertise through participation(improvement, monitor changes,
build up their networks)
• Figure 3.3
Environmental Instability and First-Mover
(Dis)Advantages
• key success factors The requirements that any firm must meet to successfully compete in a particular industry.
• If there is a good fit between its resources and the external environment , then the firm will be rewarded with
superior performance.
• To obtain a good fit with the external environment, the entrepreneur must first determine the key success factors
of the industry being targeted for entry.
• emerging industries Industries that have been newly formed and are growing
• Environmental changes are highly likely in emerging industries.
• demand uncertainty Considerable difficulty in accurately estimating the potential size of the market, how fast it
will grow, and the key dimensions along which it will grow.
• First movers have little information upon which to estimate the potential size of the market and how fast it will
grow(overestimating and underestimating).
• technological uncertainty Considerable difficulty in accurately assessing whether the technology will perform
and whether alternate technologies will emerge and leapfrog over current technologies.
• First movers often must make a commitment to a new technology (perform as expected).
• entrepreneur must adapt to the new environmental conditions.
Customers’ Uncertainty and First-Mover (Dis)Advantages

• uncertainty for customers Customers may have considerable difficulty

in accurately assessing whether the new product or service provides
value for them.
• offering a superior product is not sufficient to enable a first mover to
make sales; the entrepreneur must also reduce customer
uncertainties.
• provides customers with information about how the product
performs and articulates the product’s benefits (information).
Lead Time and First-Mover
(Dis)Advantages
• lead time The grace period in which the first mover operates in the industry under
conditions of limited competition.
• Important barriers to entry are derived from relationships with key stakeholders:
• Building customer loyalties. First movers need to establish their firms and their
products in the minds of their customers and thus build customer loyalty.
• Switching costs The costs that must be borne by customers if they are to stop
purchasing from the current supplier and begin purchasing from another.
• Protecting product uniqueness If the uniqueness of the product is a source of
advantage over potential competitors.
• Securing access to important sources of supply and distribution. First movers that
are able to develop exclusive relationships with key sources of supply and/or key
distribution channels.
RISK REDUCTION STRATEGIES FOR NEW ENTRY
EXPLOITATION
• risk The probability, and magnitude, of downside loss (bankruptcy).
• Strategies can be used to reduce some or all of these uncertainties and thereby
reduce the risk of downside loss. Two such strategies are market scope and imitation.
• Market Scope Strategies :Scope is a choice by the entrepreneur about which customer
groups to serve and how to serve them. The choice of market scope ranges from a
narrow- to a broad-scope strategy and depends on the type of risk the entrepreneur
believes is more important to reduce.
• Narrow-Scope Strategy A narrow-scope strategy offers a small product range to a
small number of customer groups to satisfy a particular need.
1)Product differentiation reduces competition
2)Focusing on a specific group of customers
3) highly profitable niche(high levels of product quality)
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Broad-Scope Strategy
• Entrepreneur can cope with market uncertainty by using a broad-
scope strategy to learn about the market through a process of trial
and error (different products and markets).
• The entrepreneur’s ultimate strategy will emerge as a result of the
information provided by this learning process.
• In contrast, a broad scope strategy offers a way of reducing risks
associated with market uncertainties but faces increased exposure to
competition.
• satisfying new customers
Imitation Strategies
• Imitation involves copying the practices of other firms.This idea of
using imitation strategies to improve firm performance at first
appears inconsistent with the argument at the start of the chapter
that superior performance arises from the qualities of being valuable,
rare, and inimitable.
Types of Imitation Strategies
• uniqueness
• “me-too” strategy Copying products that already exist and attempting
to build an advantage through minor variations.
• research and development
Managing Newness
• liabilities of newness: Negative implications arising from an
organization’s newness.
• New organizations face costs in learning new tasks(time + training)
• As people are assigned to the roles of the new organization, there will
be some overlap or gaps in responsibilities(conflicts).
• Communication within the organization occurs through both formal
and informal channels(formal not informal).
• assets of newness Positive implications arising from an organization’s
newness.