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Start-up and the Need for Competitive Advantage


PowerPoint Presentation by Ian Anderson, Algonquin College
Chapter 2 Copyright 2010 by Nelson Education Ltd.

Looking Ahead
After studying this chapter, you should be able to:
1. 2.
3.

Give several reasons for starting a new business rather than buying an existing firm or acquiring a franchise. Identify several factors that determine whether an idea for a new venture is a good investment opportunity. Distinguish between the different types and sources of start-up ideas.

4.

Define competitive advantage and assess features of the environment and organization itself that support competitive advantage.
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Looking Ahead
5.
6. 7. 8.

Evaluate the feasibility of a business.


Identify and compare strategy options for building and sustaining competitive advantage. Define market segmentation and its related strategies. Explain the concept of niche marketing and its importance to small business

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Creating a New Business


Entrepreneurs may start a new business from scratch due to several reasons:
A new product or service Favourable conditions such as location, equipment, employees, suppliers or bankers To capitalize on competitors weaknesses

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Evaluative Criteria Market Factors

Exhibit 2-1a
Source: Adapted from Jeffrey A. Timmons and Stephen Spinelli, New Venture Creation: Entrepreneurship for the 21st Century (Boston: McGraw-Hill Irwin, 2007), pp. 128129.

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Evaluative Criteria Competitive Advantage

Exhibit 2-1b

Source: Adapted from Jeffrey A. Timmons and Stephen Spinelli, New Venture Creation: Entrepreneurship for the 21st Century (Boston: McGraw-Hill Irwin, 2007), pp. 128129.

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Evaluative Criteria Economics

Exhibit 2-1c

Source: Adapted from Jeffrey A. Timmons and Stephen Spinelli, New Venture Creation: Entrepreneurship for the 21st Century (Boston: McGraw-Hill Irwin, 2007), pp. 128129.

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Types of Ideas that Develop into Start-ups

Exhibit 2-2
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Types of Start-up Ideas


Type A Start-up ideas centered around providing customers with an existing product not available in their market Type B Start-up ideas, involving new ideas, involving new technology, centered around providing customers with a new product Type C Start-up ideas centered around providing customers with an improved product
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Sources of Start-up Ideas

Exhibit 2-3
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Competitive Advantage
A firm offers a product or service that is perceived by customers to be superior to those of competitors, thereby promoting firm profitability To establish competitive advantage, a business owner needs to understand the nature of the environment External what business potentials exist Internal what the firm is able to do

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Assessing The Environment


The Macroenvironment
A broad environment with its multiple factors that affect most businesses in a society
STEP Sociocultural, Technological, Economic Political/Legal

Industry Environment
The combined forces that directly impact a given firm and its competitors
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Five Forces Model


Concept by Michael Porter
Threat of New Competitors Threat of Substitute Products or Services Rivalry Among Existing Products Bargaining Power of Suppliers Bargaining Power of Buyers Attractiveness and Profitability of a Target Market

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Environmental and Organizational Impact on Opportunity Assessment

Part of Exhibit 2-4


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Core Competencies and Assessing the Organization


Core Competencies
Value-creating organizational capabilities that are unique to a firm

Resources versus Capabilities


Resources are basic inputs that a firm uses to conduct business (capital, technology, equipment, employees, etc.) intangible and tangible resources Capabilities are the integration of several resources which are deployed together to the firms advantage.
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Venture Feasibility Assessment Model


Stage 1: Back-of-the-Envelope concept
Potential customers, technology available, match to entrepreneur, financial feasibility Decision: go or no go

Stage 2: Research and Verification


Detailed analysis of customers, competition, HR required, technical and financial feasibility Decision: go or no go

Stage 3: Refine the Concept


Detailed business plan Decision: go or no go

The Leap of Faith


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Competitive Advantage Factors


Unique Service Features

Price/Value

Competitive Advantage
Notable Product Attributes Accessibility

Customer Service

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Strategic Terms
Strategy
An action plan that guides resource investments to capitalize on business opportunities

Strategic Decision
A decision regarding the direction a firm will take in relation to its customers and competitors.
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Strategies that Capture Opportunities


Broad-Based Strategy Options
Seek an advantage in cost or marketing
Cost-Advantage Strategy and Options Requires the firm to be the lowest-cost producer
WestJet began as a low-fare, no-frills airline

Marketing-Advantage Strategy Emphasizing the uniqueness of the firms product or service


WestJet is moving to differentiate based on quality service

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Sustaining Competitive Advantage

An established, value-creating industry position that is likely to endure over time Results include superior profitability, increased market share, and improved customer satisfaction
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Market Segmentation and its Variables


Market Segmentation
division of a market into several smaller groups with similar needs or buying behaviour

Market
a group of customers or potential customers who have purchasing power and unsatisfied needs

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Ingredients of a Market

Ingredient 1 Customers: People or businesses

Ingredient 2 Purchasing power: Money/credit

Ingredient 3 Unsatisfied needs

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Market Segmentation Variables


Segmentation Variables The parameters used to distinguish one form of market behaviour from another Geographic Variables Defining a market by its location, size, or extent Benefit Variables Specific characteristics that distinguish market segments according to the benefit sought Demographic Variables Specific characteristics that describe customers and their purchasing power Psychographic Variables Lifestyle trends such as fitness, diet, political and sexual orientation
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Types of Market Segmentation Strategies


Unsegmented Strategy (Mass Marketing) A strategy that defines the total market as the target market Multisegmented Strategy A strategy that recognizes different preferences of individual market segments and develops a unique marketing mix for each Single-Segmentation Strategy A strategy that recognizes the existence of several distinct segments but focuses on only the most profitable segment
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Small Business
(Community Writing Company)

Marketing Mix 2
Product: Price: Felt-Tip Pen $1.00

Marketing Mix 1
Product: Price: Felt-Tip Pen $0.49

Marketing Mix 3
Product: Price: Promotion: Gold Fountain Pen $50.00 Personal Selling

Promotion: Professional Magazines Distribution: Direct from Factory

Promotion: Campus Newspapers Distribution: Bookstores

Distribution: Department Stores

Market Segment A Students

Market Segment B Professors

Market Segment C Executives

Multisegmentation Market Strategy


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Exhibit 2-6

Small Business
(Community Writing Company)

Marketing Mix 1

A SingleSegmentation Market Strategy

Product: Price: Promotion: Distribution:

Felt-Tip Pen $0.49 Campus Newspapers Bookstores

Market Segment A Students

Market Segment B Professors

Market Segment C Executives

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Implementation of Niche Marketing Strategies


Restricting focus to a single subset of customers not adequately serviced by competitors. Limiting the market to a single geographical region. Emphasizing a single product or service. Concentrating on superiority of product or service.

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Niche Market Potential


Niche markets can quickly erode if:
The focus strategy is imitated.
Price, Product, Design, Service, Packaging, etc.

The target segment is structurally unattractive. The target segments differences from other segments narrow. New firms sub segment the industry.

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