Professional Documents
Culture Documents
1 - 6 Barringer
1 - 6 Barringer
Introduction to Entrepreneurship
Bruce R. Barringer
R. Duane Ireland
1-1
Chapter Objectives
1 of 2
1. Explain entrepreneurship and discuss its importance. 2. Describe corporate entrepreneurship and its use in established firms. 3. Discuss three main reasons people decide to become entrepreneurs. 4. Identify four main characteristics of successful entrepreneurs. 5. Explain five common myths regarding entrepreneurship.
2-2
Chapter Objectives
2 of 2
6. Explain how entrepreneurial firms differ from salary-substitute and lifestyle firms. 7. Discuss the changing demographics of entrepreneurs. 8. Discuss the impact of entrepreneurial firms on economies and societies. 9. Identify ways in which large firms benefit from the presence of smaller entrepreneurial firms. 10. Explain the entrepreneurial process.
2010 Prentice Hall
2-3
Introduction to Entrepreneurship
There is tremendous interest in entrepreneurship around the world. Books
Amazon.com lists over 33,000 books dealing with entrepreneurship and over 60,000 focused on small business.
College Courses
More and more business schools from Romania have courses dealing with entrepreneurship and small business.
2010 Prentice Hall
1-4
Introduction to Entrepreneurship
General Entrepreneurship Monitor
One important indicator: TEA (early-stage entrepreneurial activity)
Romania:
Low perceived opportunities or capabilities Fear of failure quite high Quite high perceived status Low media attention
1-5
What is Entrepreneurship?
Academic Definitions
Entrepreneurship is the process by which individuals pursue opportunities without regard to resources they currently control. (Stevenson & Jarillo) Entrepreneurship has also been described as a process that involves inputs: an opportunity; one or more proactive individuals; an organizational context; risk; innovation; and resources. It can produce the following outcomes: a new venture or enterprise; value; new products or processes; profit or personal benefit; and growth. (Peggy A. Lambing and Charles R. Kuehl)
Entrepreneurs assemble and then integrate all the resources needed the money, the people, the business model, the strategyneeded to transform an invention or an idea into a viable business.
1-6
Corporate Entrepreneurship
1 of 2
Corporate Entrepreneurship
Is the conceptualization of entrepreneurship at the firm level. All firms fall along a conceptual continuum that ranges from highly conservative to highly entrepreneurial. The position of a firm on this continuum is referred to as its entrepreneurial intensity.
1-7
Corporate Entrepreneurship
2 of 2
Entrepreneurial Firms
Proactive Innovative Risk taking
Conservative Firms
Take a more wait and see posture Less innovative Risk adverse
1-8
1-9
1-10
Product/Customer Focus
A second defining characteristic of successful entrepreneurs is a product/customer focus. An entrepreneurs keen focus on products and customers typically stems from the fact that most entrepreneurs are, at heart, craftspeople.
2010 Prentice Hall
1-11
Execution Intelligence
The ability to fashion a solid business idea into a viable business is a key characteristic of successful entrepreneurs.
1-12
1-13
Optimistic disposition Persuasive Promoter Resource assembler/leverager Self-confident Self-starter Tenacious Tolerant of ambiguity Visionary
1-14
1-15
1-16
1-17
1-18
Women Entrepreneurs
In Romania, recent findings reveal that such gender stereotype of women as main householder is still strong. Nevertheless the businesswomen phenomenon is rising continuously Source: Mariana Dragusin National and Regional Women Entrepreneurs Networks
1-19
almost 40% of the total active SMEs were lead by women entrepreneurs in 2005. There are important regional differences as far as the weight of their enterprises in the total: higher in the North-West Region (42, 0%) The South Region has the lowest weight (29%) of enterprises run by women.
1-20
Young Entrepreneurs
Interest among young people in entrepreneurial careers is growing. college courses Associations to support young entrepreneurs Governmental initiatives
3-21
Job Creation
In the past two decades, economic activity has moved in the direction of smaller entrepreneurial firms, which may be due to their unique ability to innovate and focus on specialized tasks.
2010 Prentice Hall
1-22
1-23
1-24
Step 1
Step 2
Developing Successful Business Ideas
1-25
Step 3
Step 4
1-26
Chapter 2
Recognizing Opportunities and Generating Ideas
Bruce R. Barringer R. Duane Ireland
2010 Prentice Hall
2-27
Chapter Objectives
1 of 3
1. Explain why its important to start a new firm when its window of opportunity is open. 2. Explain the difference between an opportunity and an idea. 3. Describe the three general approaches entrepreneurs use to identify opportunities. 4. Identify the four environmental trends that are most instrumental in creating business opportunities. 5. List the personal characteristics that make some people better at recognizing business opportunities than others.
2010 Prentice Hall
3-28
Chapter Objectives
2 of 2
6. Identify the five steps in the creative process. 7. Describe the purpose of brainstorming and its use as an idea generator. 8. Describe how to use library and Internet research to generate new business ideas. 9. Explain the purpose of maintaining an idea bank. 10. Describe three steps for protecting ideas from being lost or stolen.
2-29
What is An Opportunity?
1 of 2
Opportunity Defined
An opportunity is a favorable set of circumstances that creates a need for a new product, service or business.
2-30
What is an Opportunity?
2 of 2
2-31
2-32
Observing Trends
Trends create opportunities for entrepreneurs to pursue. The most important trends are: Economic forces. Social forces. Technological advances. Political action and regulatory change. Its important to be aware of changes in these areas.
2-33
2-34
Economic trends help determine areas that are ripe for new startups and areas that startups should avoid.
Individual sectors of the economy have a direct impact on consumer buying patterns (Ex. Banking industry-interests loans) A week economy favors those business that help people or businesses save money (Ex. Nistevo).
2-35
Advances in technology frequently create business opportunities. They are usually correlated with economic and social changes. Ex: Walkman, iPod, cell phones
2010 Prentice Hall
Examples of Entire Industries that Have Been Created as the Results of Technological Advances Computer industry Internet Biotechnology Digital photography
2-37
Example: H20Audio
Once a technology is created, products often emerge to advance it Or help users better use it.
An example is H20Audio, a company started by four former San Diego State University students, that makes waterproof housings for the Apple iPod.
2-38
General Example
Political action and regulatory changes also provide the basis for opportunities.
Laws to protect the environment have created opportunities for entrepreneurs to start firms that help other firms comply with environmental laws and regulations.
2-39
Specific Example
Consultancy companies providing help to other companies in order to implement specific quality management regulations (ISO, HACCP etc.) Or accessing European funds.
2-40
Solving a Problem
Sometimes identifying opportunities simply involves noticing a problem and finding a way to solve it. These problems can be pinpointed through observing trends and through more simple means, such as intuition, serendipity, or chance.
2-41
A problem facing the U.S. and other countries is finding alternatives to fossil fuels. A large number of entrepreneurial firms, like this wind farm, are being launched to solve this problem.
2-42
Solving a Problem
A third approach to identifying opportunities is to find a gap in the marketplace A gap in the marketplace is often created when a product or service is needed by a specific group of people but doesnt represent a large enough market to be of interest to mainstream retailers or manufacturers.
2-44
Specific Example
2-45
Prior Experience
Cognitive Factors
Social Networks
Creativity
2-46
Prior Experience
Prior Industry Experience
Several studies have shown that prior experience in an industry helps an entrepreneur recognize business opportunities.
By working in an industry, an individual may spot a market niche that is underserved. It is also possible that by working in an industry, an individual builds a network of social contacts who provide insights that lead to recognizing new opportunities. Corridor principle
2-47
Cognitive Factors
Cognitive Factors
Studies have shown that opportunity recognition may be an innate skill or cognitive process. Some people believe that entrepreneurs have a sixth sense that allows them to see opportunities that others miss. This sixth sense is called entrepreneurial alertness, which is formally defined as the ability to notice things without engaging in deliberate search.
2-48
Social Networks
1 of 3
Social Networks
The extent and depth of an individuals social network affects opportunity recognition. People who build a substantial network of social and professional contacts will be exposed to more opportunities and ideas than people with sparse networks. In one survey of 65 start-ups, half the founders reported that they got their business idea through social contacts. All of us have relationships with other people that are called ties. (See next slide.)
2-49
Social Networks
2 of 3
Result
It is more likely that an entrepreneur will get new business ideas through weak-tie rather than strong-tie relationships. (See next slide.)
2010 Prentice Hall
2-50
Social Networks
3 of 3
Why weak-tie relationships lead to more new business ideas than strong-tie relationships Strong-Tie Relationships These relationships, which typically form between like minded individuals, tend to reinforce insights and ideas that people already have. Weak-Tie Relationships These relationships, which form between casual acquaintances, are not as apt to be between likeminded individuals, so one person may say something to another that sparks a completely new idea.
2-51
Creativity
1 of 2
Creativity
Creativity is the process of generating a novel or useful idea. Opportunity recognition may be, at least in part, a creative process.
2-52
2-53
Brainstorming
Focus Groups
2-54
Brainstorming
Brainstorming
Is a technique used to generate a large number of ideas and solutions to problems quickly. A brainstorming session typically involves a group of people, and should be targeted to a specific topic. Rules for a brainstorming session:
No criticism. Freewheeling is encouraged. The session should move quickly. Leap-frogging is encouraged.
2-55
Focus Groups
Focus Group
A focus group is a gathering of five to ten people, who have been selected based on their common characteristics relative to the issues being discussed. These groups are led by a trained moderator, who uses the internal dynamics of the group environment to gain insight into why people feel they way they do about a particular issue. Although focus groups are used for a variety of purposes, they can be used to help generate new business ideas.
2010 Prentice Hall
2-56
Library Research
Libraries are an often underutilized source of information for generating new business ideas. The best approach is to talk to a reference librarian, who can point out useful resources, such as industry-specific magazines, trade journals, and industry reports. Simply browsing through several issues of a trade journal or an industry report on a topic can spark new ideas.
2-57
Large public and university libraries typically have access to search engines and industry reports that would cost thousands of dollars to access on your own.
Examples of Useful Search Engines and Industry Reports Lexis-Nexis Academic ProQuest IBISWorld Mintel Standard & Poors Net Advantage
2-58
Internet Research
If you are starting from scratch, simply typing new business ideas into a search engine will produce links to newspapers and magazine articles about the hottest new business ideas. If you have a specific topic in mind, setting up Google or Yahoo! e-mail alerts will provide you to links to a constant stream of newspaper articles, blog posts, and news releases about the topic. Targeted searches are also useful.
2010 Prentice Hall
2-59
Other Techniques
Customer Advisory Boards
Some companies set up customer advisory boards that meet regularly to discuss needs, wants, and problems that may lead to new ideas.
Day-In-The-Life Research
A type of anthropological research, where the employees of a company spend a day with a customer.
2-60
Chapter 3
Feasibility Analysis
Bruce R. Barringer R. Duane Ireland
3-61
Chapter Objectives
1 of 3
1. Explain what a feasibility analysis is and why its important. 2. Discuss the proper time to complete a feasibility analysis when developing an entrepreneurial venture. 3. Describe the purpose of a product/service feasibility analysis and the two primary issues that a proposed business should consider in this area. 4. Explain a concept statement and its components. 5. Describe the purpose of a buying intentions survey and how its administered.
2010 Prentice Hall
3-62
Chapter Objectives
2 of 3
6. Explain the importance of library, Internet, and gumshoe research. 7. Describe the purpose of industry/market feasibility analysis and the two primary issues to consider in this area. 8. Discuss the characteristics of an attractive industry. 9. Describe the purpose of organizational feasibility analysis and list the two primary issues to consider in this area.
2010 Prentice Hall
3-63
Chapter Objectives
3 of 3
10. Explain the importance of financial feasibility analysis and list the most critical issues to consider in this area.
3-64
Feasibility Analysis
3-65
3-66
The reason so few companies are a success in that most people do not have a lot of common sense about what will sell and what wont. You need to be very pragmatic about whether people will pay for a product based on your great idea. This should be great and I am sure the world will beat a path to my door. Once you have an idea for a product or service, you need to test the market. Talk to potential customers about what they want. And dont try to make the product do everything for everyone. Engineers often make mistakes. Its the Swiss Army knife mentality. They want to put everything in. Dont. Go out and talk to customers as quickly as you can and put a copy of the product in front of them to get their feedback. When we went out to sell our first product at Silicon Graphics people came back and said. We dont want to do this. We (after making adjustments) sold them what they wanted.
JIM CLARK
3-67
Feasibility Analysis
Role of feasibility analysis in developing business ideas.
3-68
Product/Service Feasibility
Organizational Feasibility
Financial Feasibility
3-69
3-70
Purpose
Is an assessment of the overall appeal of the product or service being proposed. Before a prospective firm rushes a new product or service into development, it should be sure that the product or service is what prospective customers want.
3-71
3-72
Product/Service Desirability
1 of 3
First, ask the following questions to determine the basic appeal of the product or service. Does it make sense? Is it reasonable? Is it something consumers will get excited about? Does it take advantage of an environmental trend, solve a problem, or take advantage of a gap in the marketplace? Is this a good time to introduce the product or service to the market? Are there any fatal flaws in the product or services basic design or concept?
2010 Prentice Hall
15-73
Product/Service Desirability
2 of 3
3-74
Product/Service Desirability
3 of 3
3-75
Product/Service Demand
1 of 6
Product/Service Demand
Their are two steps to assessing product/service demand. Step 1: Administer a Buying Intentions Survey Step 2: Conduct library, Internet, and Gumshoe research
3-76
Product/Service Demand
2 of 6
3-77
Product/Service Demand
3 of 6
3-78
Product/Service Demand
4 of 6
3-79
Product/Service Demand
5 of 6
Explanation A gumshoe is a detective or an investigator that scrounges around for information or clues wherever they can be found. Be a gumshoe. Ask people what they think about your product or service idea. If your idea is to sell educational toys, spend a week volunteering at a day care center and watch how children interact with toys.
3-80
Gumshoe Research
Product/Service Demand
6 of 6
One of the most effective things an entrepreneur can do to conduct a thorough product/service feasibility analysis is to hit the streets and talk to potential customers. This potential entrepreneur is administering a survey about a new product idea.
3-81
Purpose Is an assessment of the overall appeal of the industry and the target market for the proposed business. An industry is a group of firms producing a similar product or service. A firms target market is the limited portion of the industry it plans to go after.
3-82
Industry Attractiveness
3-83
Industry Attractiveness
1 of 2
Industry Attractiveness
Industries vary in terms of their overall attractiveness. In general, the most attractive industries have the characteristics depicted on the next slide. Particularly importantthe degree to which environmental and business trends are moving in favor rather than against the industry .
3-84
Industry Attractiveness
2 of 2
3-85
3-86
Purpose
Is conducted to determine whether a proposed business has sufficient management expertise, organizational competence, and resources to successfully launch a business. Focuses on non-financial resources.
3-87
Management Prowess
Resource Sufficiency
3-88
Management Prowess
1 of 2
Management Prowess
A firm should candidly evaluate the prowess, or ability, of its management team to satisfy itself that management has the requisite passion and expertise to launch the venture. Two of the most important factors in this area are:
The passion that the solo entrepreneur or the founding team has for the business idea. The extent to which sole entrepreneur or the founding team understands the markets in which the firm will participate.
3-89
Management Prowess
2 of 2
An indication of passion is the willingness of a new venture team to complete a comprehensive feasibility analysis.
3-90
Resource Sufficiency
1 of 2
Resource Sufficiency
This topic pertains to an assessment of whether an entrepreneur has sufficient resources to launch the proposed venture. To test resource sufficiency, a firm should list the 6 to 12 most critical nonfinancial resources that will be needed to move the business idea forward successfully.
If critical resources are not available in certain areas, it may be impractical to proceed with the business idea.
3-91
Resource Sufficiency
2 of 2
Examples of nonfinancial resources that may be critical to the successful launch of a new business
Availability of
3-92
Purpose
Is the final component of a comprehensive feasibility analysis. A preliminary financial assessment is sufficient.
3-93
3-94
3-95
3-96
3-97
defined market niche. High percentage of recurring revenuemeaning that once a firm wins a client, the client will provide recurring sources of revenue. Ability to forecast income and expenses with a reasonable degree of certainty. Internally generated funds to finance and sustain growth. Availability of an exit opportunity for investors to convert equity to cash.
3-98
First Screen
First Screen
Shown in Appendix 3.1, is a template for completing a feasibility analysis. Its called First Screen because its a tool that can be used in the initial pass at determining the feasibility of a business idea. If a business idea cuts muster at this stage, the next step is to complete a business plan.
3-99
Chapter 4
Writing a Business Plan
Bruce R. Barringer R. Duane Ireland
4-100
Chapter Objectives
1 of 2
1. Explain the purpose of a business plan. 2. Discuss the two primary reasons for writing a business plan. 3. Describe who reads a business plan and what theyre looking for. 4. Explain the difference between a summary business plan, a full business plan, and an operational business plan. 5. Explain why the executive summary may be the most important section of a business plan.
2010 Prentice Hall
6-101
Chapter Objectives
2 of 2
6. Describe a milestone and how milestones are used in business plans. 7. Explain why its important to include separate sections on a firms industry and its target market in a business plan. 8. Explain why the Management Team and Company Structure section of a business plan is particularly important. 9. Describe the purposes of a sources and uses of funds statement and an assumptions sheet.
2010 Prentice Hall
4-102
Chapter Objectives
3 of 3
3-103
Dual-Use Document
4-104
Why Reads the Business PlanAnd What Are They Looking For?
There are two primary audience for a firms business plan
Audience A Firms Employees What They are Looking For
A clearly written business plan helps the employees of a firm operate in sync and move forward in a consistent and purposeful manner.
A firms business plan must make the case that the firm is a good use of an investors funds or the attention of others.
4-105
4-106
Sense of Excitement
Along with facts and figures, a business plan needs to project a sense of anticipation and excitement about the possibilities that surround a new venture.
2010 Prentice Hall
4-107
4-108
4-109
4-110
4-111
Executive Summary
The executive summary is a short overview of the entire business plan It provides a busy reader with everything that needs to be known about the new ventures distinctive nature. An executive summary shouldnt exceed two single-space pages.
4-112
Key Insights In many instances an investor will ask for a copy of a firms executive summary and will ask for a copy of the entire plan only if the executive summary is sufficiently convincing. The executive summary, then, is arguably the most important section of a business plan.
Executive Summary
4-113
Company Description
The main body of the business plan beings with a general description of the company. Items to include in this section:
Company description. Company history. Mission statement. Products and services. Current status. Legal status and ownership. Key partnerships (if any).
4-114
Key Insights While at first glance this section may seem less important than the others, it is extremely important. It demonstrates to your reader that you know how to translate an idea into a business.
Company Description
4-115
Industry Analysis
This section should being by describing the industry the business will enter in terms of its size, growth rate, and sales projections. Items to include in this section:
Industry size, growth rate, and sales projections. Industry structure. Nature of participants. Key success factors. Industry trends. Long-term prospects.
4-116
Key Insights Before a business selects a target market it should have a good grasp of its industryincluding where its promising areas are and where its points of vulnerability are. The industry that a company participates in largely defines the playing field that a firm will participate in.
Industry Analysis
4-117
Market Analysis
The market analysis breaks the industry into segments and zeros in on the specific segment (or target market) to which the firm will try to appeal. Items to include in this section:
Market segmentation and target market selection. Buyer behavior. Competitor analysis.
4-118
Key Insights Most startups do not service their entire industry. Instead, they focus on servicing a specific (target) market within the industry. Its important to include a section in the market analysis that deals with the behavior of the consumers in the market. The more a startup knows about the consumers in its target market, the more it can tailor its products or service appropriately.
4-119
Market Analysis
Marketing Plan
The marketing plan focuses on how the business will market and sell its product or service. Items to include in this section:
Overall marketing strategy. Product, price, promotions, and distribution.
4-120
Key Insights The best way to describe a startups marketing plan is to start by articulating its marketing strategy, positioning, and points of differentiation, and then talk about how these overall aspects of the plan will be supported by price, promotional mix, and distribution strategy.
Marketing Plan
4-121
The management team of a new venture typically consists of the founder or founders and a handful of key management personnel. Items to include in this section:
Management team. Board of directors. Board of advisers. Company structure.
4-122
Key Insights This is a critical section of a business plan. Many investors and others who read the business plan look first at the executive summary and then go directly to the management team section to assess the strength of the people starting the firm.
4-123
Operations Plan
Outlines how your business will be run and how your product or service will be produced. A useful way to illustrate how your business will be run is to describe it in terms of back stage (unseen to the customer) and front stage (seen by the customer) activities. Items to include in this section:
General approach to operations. Business location. Facilities and equipment.
4-124
Key Insights Your have to strike a careful balance between adequately describing this topic and providing too much detail. As a result, it is best to keep this section short and crisp.
Operations Plan
4-125
If youre developing a completely new product or service, you need to include a section that focuses on the status of your development efforts. Items to include in this section:
Development status and tasks. Challenges and risks. Intellectual property.
4-126
Key Insights Many seemingly promising startups never get off the ground because their product development efforts stall or turn out to be more difficult than expected. Its important to convince the reader of your plan that this wont happen to you.
4-127
Financial Projections
The final section of a business plan presents a firms pro forma (or projected) financial projections. Items to include in this section:
Sources and uses of funds statement. Assumptions sheet. Pro forma income statements. Pro forma balance sheets. Pro forma cash flows. Ratio analysis.
4-128
Key Insights Having completed the earlier sections of the plan, its easy to see why the financial projections come last. They take the plans youve developed and express them in financial terms.
Financial Projections
4-129
4-130
Twelve PowerPoint Slides to Include in an Investor Presentation 1. Title Slide 2. Problem 3. Solution 4. Opportunity and target market 5. Technology 6. Competition 7. Marketing and sales 8. Management team 9. Financial projections 10. Current status 11. Financing sought 12. Summary
4-131
Its also important to look sharp when presenting a business plan. This new venture team is going over its PowerPoint slides one last time before an investor presentation.
4-132
Chapter 5
Industry and Competitor Analysis
Bruce R. Barringer
R. Duane Ireland
5-133
Chapter Objectives
1 of 2
1. Explain the purpose of an industry analysis. 2. Identify the five competitive forces that determine industry profitability. 3. Explain the role of barriers to entry in creating disincentives for firms to enter an industry. 4. Identify the nontraditional barriers to entry that are especially associated with entrepreneurial firms. 5. List the four industry-related questions to ask before pursuing the idea for a firm.
2010 Prentice Hall
5-134
Chapter Objectives
2 of 2
6. Identify the five primary industry types and the opportunities they offer. 7. Explain the purpose of a competitor analysis. 8. Identify the three groups of competitors a new firm will face. 9. Describe ways a firm can ethically obtain information about its competitors. 10. Describe the reasons for completing a competitive analysis grid.
2010 Prentice Hall
5-135
Industry Analysis
Is business research that focuses on the potential of an industry.
5-136
Industry Analysis
5-138
Conclusion
In various studies, researchers have found that from 8% to 30% of the variation in firm profitability is directly attributable to the industry in which a firm competes.
2010 Prentice Hall
5-139
5-140
Business Trends
Other trends that impact an industry. For example, are profit margins in the industry increasing or falling? Is innovation accelerating or waning? Are input costs going up or down?
2010 Prentice Hall
5-141
5-142
5-143
5-144
Threat of Substitutes
1 of 3
Threat of Substitutes
The price that consumers are willing to pay for a product depends in part on the availability of substitute products. For example, there are few if any substitutes for prescription medicines, which is one of the reasons the pharmaceutical industry is so profitable. In contrast, when close substitutes for a product exist, industry profitability is suppressed, because consumers will opt out if the price gets too high.
5-145
Threat of Substitutes
2 of 3
5-146
Threat of Substitutes
3 of 3
A customer could easily get a cup of coffee cheaper at one of Starbucks competitors. To decrease the likelihood of this, Starbucks offers highquality fresh coffee, good service, and a pleasant atmosphere. Starbucks has therefore reduced the threat of substitutes.
2010 Prentice Hall
5-147
5-148
Barriers to Entry
Barrier to Entry Economies of Scale Explanation Industries that are characterized by large economies of scale are difficult for new firms to enter, unless they are willing to accept a cost disadvantage. Industries such as the soft drink industry that are characterized by firms with strong brands are difficult to break into without spending heavily on advertising.
Product differentiation
Capital requirements
The need to invest large amounts of money to gain entrance to an industry is another barrier to entry.
5-149
5-150
5-151
First-mover advantage
5-153
5-154
Factors that determine the intensity of the rivalry among existing firms in an industry.
The more competitors there are, the more likely it is that one or more will try to gain customers by cutting its price.
The degree to which products differ from one product to another affects industry rivalry.
5-155
Factors that determine the intensity of the rivalry among existing firms in an industry (continued)
The competition among firms in a slow-growth industry is stronger than among those in fastgrowth industries.
Firms that have high fixed costs must sell a higher volume of their product to reach the break-even point than firms with low fixed costs.
5-156
5-157
Factors that have an impact on the ability of suppliers to exert pressure on buyers
Supplier concentration
When they are only a few suppliers that supply a critical product to a large number of buyers, the supplier has an advantage.
Switching costs
Switching costs are the fixed costs that buyers encounter when switching or changing from one supplier to another. If switching costs are high, a buyer will be less likely to switch suppliers.
5-158
Factors that have an impact on the ability of suppliers to exert pressure on buyers (continued)
Attractiveness of substitutes
Supplier power is enhanced if there are no attractive substitutes for the product or services the supplier offers.
The power of a supplier is enhanced if there is a credible possibility that the supplier might enter the buyers industry.
5-159
5-160
Factors that have an impact on the ability of suppliers to exert pressure on buyers
If there are only a few large buyers, and they buy from a large number of suppliers, they can pressure the suppliers to lower costs and thus affect the profitability of the industries from which they buy.
Buyers costs
The greater the importance of an item is to a buyer, the more sensitive the buyer will be to the price it pays.
5-161
Factors that have an impact on the ability of buyers to exert pressure on suppliers (continued)
Degree of standardization of suppliers products The degree to which a suppliers product differs from its competitors affect the buyers bargaining power.
The power of buyers is enhanced if there is a credible threat that the buyer might enter the suppliers industry.
5-162
5-163
5-164
5-165
5-166
Emerging Industries
Industries in which standard operating procedures have yet to be developed.
Opportunity: First-mover advantage.
Fragmented Industries
Industries that are characterized by a large number of firms of approximately equal size.
Opportunity: Consolidation.
5-167
Mature Industries
Industries that are experiencing slow or no increase in demand.
Opportunities: Process innovation and after-sale service innovation.
Declining Industries
Industries that are experiencing a reduction in demand.
Opportunities: Leadership, establishing a niche market, and pursuing a cost reduction strategy.
5-168
Global Industries
Industries that are experiencing significant international sales.
Opportunities: Multidomestic and global strategies.
5-169
Competitor Analysis
What is a Competitor Analysis?
A competitor analysis is a detailed analysis of a firms competition. It helps a firm understand the positions of its major competitors and the opportunities that are available. A competitive analysis grid is a tool for organizing the information a firm collects about its competitors.
5-170
Identifying Competitors
Types of Competitors New Ventures Face
5-171
5-172
5-173
Many companies attend trade shows to not only display their products, but to see what their competitors are up to. This is a photo of the the 2008 Consumer Electronics Trade Show in Las Vegas.
5-174
5-175
5-176
Chapter 6
Developing an Effective Business Model
Bruce R. Barringer R. Duane Ireland
2010 Prentice Hall
6-177
Chapter Objectives
1 of 2
1. Describe a business model. 2. Explain business model innovation. 3. Discuss the importance of having a clearly articulated business model. 4. Discuss the concept of the value chain. 5. Identify a business models two potential fatal flaws.
6-178
Chapter Objectives
2 of 2
6. Identify a business models four major components. 7. Explain the meaning of the term business concept blind spot. 8. Define the term core competency and describe its importance. 9. Explain the concept of supply chain management. 10. Explain the concept of fulfillment and support.
6-179
Business Model
A firms business model is its plan or diagram for how it competes, uses its resources, structures its relationships, interfaces with customers, and creates value to sustain itself on the basis of the profits it generates. The term business model is used to include all the activities that define how a firm competes in the marketplace.
2010 Prentice Hall
6-180
Its important to understand that a firms business model takes it beyond its own boundaries. Almost all firms partner with others to make their business models work. In Dells case, it needs the cooperation of its suppliers, customers, and many others to make its business model possible.
2010 Prentice Hall
6-181
6-182
6-183
6-184
6-185
6-186
6-187
6-188
6-189
6-190
6-191
6-192
Core Strategy
1 of 3
Core Strategy
The first component of a business model is the core strategy, which describes how a firm competes relative to its competitors.
6-193
Core Strategy
2 of 3
Mission Statement
Product/Market Scope
A companys product/market scope defines the products and markets on which it will concentrate.
6-194
Core Strategy
3 of 3
Basis of Differentiation
It is important that a new venture differentiate itself from its competitors in some way that is important to its customers. If a new firms products or services arent different from those of its competitors, why should anyone try them?
6-195
Strategic Resources
1 of 3
Strategic Resources
A firm is not able to implement a strategy without resources, so the resources a firm has affects its business model substantially.
For a new venture, its strategic resources may initially be limited to the competencies of its founders, the opportunity they have identified, and the unique way they plan to serve their market.
6-196
Strategic Resources
2 of 3
Core Competencies
Strategic Assets
6-197
Strategic Resources
3 of 3
6-198
Partnership Network
1 of 2
Partnership Network
A firms partnership network is the third component of a business model. New ventures, in particular, typically do not have the resources to perform key roles. In most cases, a business does not want to do everything itself because the majority of tasks needed to build a product or deliver a service are not core to a companys competitive advantage. A firms partnership network includes:
Suppliers. Other key relationships.
2010 Prentice Hall
6-199
Partnership Network
2 of 2
Suppliers
Firms partner with other companies to make their business models work. An entrepreneurs ability to launch a firm that achieves a competitive advantage may hinge as much on the skills of the partners as on the skills within the firm itself.
6-200
Customer Interface
1 of 3
Customer Interface
The way a firm interacts with its customer hinges on how it chooses to compete.
For example, Amazon.com sells books over the Internet while Barnes & Noble sells through its traditional bookstores and online.
6-201
Customer Interface
2 of 3
Target Market
A firms target market is the limited group of individuals or businesses that it goes after or tries to appeal to.
Fulfillment and support describes the way a firms product or service reaches it customers. It also refers to the channels a company uses and what level of customer support it provides.
6-202
Customer Interface
3 of 3
Pricing Structure
The third element of a companys customer interface is its pricing structure. Pricing models vary, depending on a firms target market and its pricing philosophy.
6-203
6-204