Whirlwind Look at
Strategy for Entrepreneurs
Jeff Stambaugh
Dillard College of Business/Rm 257A
jeff.stambaugh@mwsu.edu
http://faculty.mwsu.edu/business/jeff.stambaugh
Built by Stambaugh/2009
Whirlwind Look at
ENT Strategy
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Feasibility analysis: Is this truly a potential
business?
Industry analysis: Is this truly an attractive industry
to enter?
Business Strategy / Model: How can I generate value
for everyone?
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More on Feasibility
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Is there a market for the product (value for
customers)?
Are there margins for the firm?
Is there sufficient volume over time
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Size of Market
Repetition of purchases
Fad?
If it’s feasible, it appears I have a business
(valid ENT opportunity)
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Ways to Test Feasibility
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Prototypes / Focus groups
Web (Second Life)
Small trials (local markets, eBay, etc)
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Industry Analysis
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How do firms generate value and compete
Is this an attractive industry to enter
Industry: firms producing products that are close
substitutes for each other
Standard Industry Classification (SIC) and North
American Industry Classification System (NAICS)
http://www.census.gov/epcd/www/naics.html
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Porter’s Five Forces
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Threat of New Entrants
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Threat of new entrants greatest when
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Low economies of scale (or no cost
disadvantages independent of scale)
Low capital requirements (or easy access to
funds)
Low switching costs
Little Differentiation
Easy access to distribution channels
Government policy does not inhibit new entries
Bargaining Power of Buyer
 Greater when:
 Buyer is a major customer for supplier
 Low switching costs
 Undifferentiated products
 Able to backward integrate
 Buyer earns low profits
 Buyer doesn’t rely on product for key attributes
(e.g. quality)
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Bargaining Power of Suppliers
 Greater when:
 Few large suppliers and buying firms’ industry
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not concentrated.
No substitute products
Supplier not reliant on buyer’s business
Suppliers’ goods are essential to buyer
High switching costs for buyers or differentiated
product
Suppliers could forward integrate into buyer’s
business
Substitute Products
 Another way for the customer to “scratch the itch”
 Limits industry profitability
 Also suggests possible threats:
 The car vs Southwest Airlines
 Email / fax vs FedExing documents overnight
 Cable TV versus videogames?
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Rivalry Among Competitors
 Rivalry among existing firms increases when:
 Little degree of differentiation
 Low switching costs
 Numerous / equally balanced competitors
 Slow industry growth
 High strategic stakes
 High fixed costs or high storage costs
 High exit barriers
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Only the Paranoid Survive … Andy Grove
Powerful Competitors versus
New Entrants
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Are they likely to be aware of the entry?
Do you threaten them in a way they are likely to
react?
Do they have the capability to respond?
What’s their track record?
What do Google, JetBlue, and Netflix all have in
common?
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Industry Life Cycle
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Fragmented versus Concentrated Industries
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Online Tools
for Industry Analysis
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From our library http://library.mwsu.edu/research.asp
From WSJ http://online.wsj.com/home/us
www.bizstats.com
Hoovers:
http://www.hoovers.com/free/ind/fr/list.xhtml
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Fundamental
StrategyQuestions
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How are we going to create value for our customer
(or less noble—how are we going to motivate them
to buy our product / service?):
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By being the cheapest?
By offering the most desirable features / services?
By serving a niche market?
By melding low cost and some unique features?
And how do my competitive advantages play into
this?
http://images.businessweek.com/ss/08/09/0908_2007_finalists/19.htm
Business-level strategy: decisions that describes how firm
will compete in its chosen industry / market segment
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The purpose of business is to create and keep a customer … Drucker
Generic Strategies
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Cost Leadership
Differentiation
Focus
The purpose of business is to create and keep a customer … Drucker
Overall Cost Leadership
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Comparable (decent) product that you can produce
cheaper than competitors by ….
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Scale-efficient operations
Cost reductions from experience
Overall cost control
Avoid marginal accounts
Squeeze value chain
Typical ENT Options
• Local cost advantage
• Specialization cost adv
• Underused resource
• Better management
Lower costs + same price to consumer = higher
profits (or lower price
increased volume = higher
profits)
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The purpose of business is to create and keep a customer … Drucker
Differentiation
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Bases for differentiation
■ Prestige
■ Product features
■ Service
Competitive advantage comes when people
pay more for it than it costs you to provide it
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The purpose of business is to create and keep a customer … Drucker
Focus Strategies
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Geographic
Demographic
Income scale (both high and low)
Unique product requirements
http://images.businessweek.com/ss/08/09/0908_2007_finalists/7.htm
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The purpose of business is to create and keep a customer … Drucker
Supra-Strategies of Differentiation
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Craftsmanship
Customization
Super-support
Serving underserved / interstices
Elite
Single-mindedness
Comprehensiveness
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The purpose of business is to create and keep a customer … Drucker
Combination Strategy
(Integrated Cost and Differentiation)
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Efficiently provide unique value (hit the midspectrum)
Tougher to imitate but also harder to implement
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The purpose of business is to create and keep a customer … Drucker
Innovation
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Incremental vs pure
Usually with a differentiation or combo strategy
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What is a Competitive Advantage
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Superior financial returns (staying ahead of
competitors)!
Some ENTs may settle for much less
How do I generate a competitive
advantage?
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Value Chain
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Value = Total revenue (price x quantity)
Two views: value generator, waste minimizer
Internal / External Fit
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Do what you can, with what you have, where you are … T. Roosevelt
Resources
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Tangible (things you can see / quantify):
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Intangible (things you can’t see / quantify)
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Financial (balance sheet, ability to borrow)
Physical (plant and equipment)
Technological (patents, trade secrets)
Organizational (planning processes and control systems)
Human (knowledge, skill, trust, leadership)
Innovation
Reputation
Organizational Capabilities (competences / capacity
to combine)
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Do what you can, with what you have, where you are … T. Roosevelt
Core Competencies
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Capabilities firm emphasizes / performs especially
well while pursuing its vision
Core competencies lead to competitive advantage
■ Do something better
■ Do something others can’t
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Do what you can, with what you have, where you are … T. Roosevelt
VRIO
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Valuable (can it increase sales or decrease costs?)
Rare (how many others have it?)
Imitability (how easy can it be copied?)
Organization (Can we use the resource?)
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Resources/Capabilities that Lead to
Competitive Advantage (CA)
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Difficult to Imitate/Substitute:
■ Physical uniqueness
■ Path dependent (history matters)
■ Causal ambiguity
■ Socially complex
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Do what you can, with what you have, where you are … T. Roosevelt
Class Takeaways
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Is it feasible?
Is it an attractive industry?
Business model / strategy
How will I generate a competitive advantage?
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