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Chapter 7
Chapter 7
Chapter 7
Chapter 7
Chapter 7
Chapter 7
Chapter 7
Chapter 7
Chapter 7
Chapter 7
Chapter 7
Chapter 7
Chapter 7
Chapter 7
Chapter 7
Chapter 7
Chapter 7
Chapter 7
Chapter 7
Chapter 7
Chapter 7
Chapter 7
Chapter 7
Chapter 7
Chapter 7
Chapter 7
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Chapter 7

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  • Nick and Dennis had the desire to go into business for themselves without knowing what kind of business they wanted. Being technologically gifted they wanted to work with a software designed to help recovering brain trauma victims. Ironically, the victims could not use “normal” or standard computers and thus enablemart.com came to meet the unfulfilled need. In keeping with their socially conscious company, 10% of profits are donated to charities voted upon by customers.
  • Think about strategy in terms of football. The plays you run depend on the down, yards to go, strength and skills of your players, current score, time left in the game, and how you think the competing team will react. A strategy which works for one team will not necessarily work for another. However, a strategy is important. No good coach would show up to a game without his playbook.
  • Each stage is discussed in further detail.
  • Your first step is deciding what you are going into business to do. For example: I want to build a better mousetrap. This puts you in the extermination industry.
  • Trade associations often have magazines, conventions, websites, and other resources available to help businesses in their industry. Sometimes companies may band together to perform functions. For example: In the sporting goods industry it is not uncommon for stores to band together to purchase items in larger quantities to be able to purchase from the manufacturer. Contacts are used in this process and store do not normally compete in the same geographic region. The Dairy Farmers of America band together for the “Got Milk” campaign which promotes the product but not a specific brand.
  • Your potential market is anyone who could have a use for your product but who has not yet purchased. Your market is made up of those who purchase that type of product. Your target market is the subgroup you choose to focus on. Mass markets are everyone in the population. Coca-Cola mass markets to the entire US. Niche markets are small often underserved markets of people with a similar need and who act or purchase in similar ways. The scope of your market merely refers to how geographically large your market is and is outlined on the next two slide.
  • Often, industry analyses can be purchased from trade organizations or market research firms.
  • Many of the basics can be found through simple online searches. While profitability may not be found quite so simply, the methods by which profits and sales are made come out in interviews with executives or articles on the industry.
  • A key to succeeding in business is knowing what your customer wants and how to provide it to him or her at a profit. Some benefits may be possible to add but may also lower your profits. Add the benefits that customers will be willing to pay more for. For example, people pay more for leather seats in their car, or a DVD player.
  • Some benefits to a customer are direct product features, others are services offered along with the purchase. Benefits can also come by saving customers time, money, or frustration.
  • There are several situations during which you can enter a market. If there is currently a shortage of market supply, you can offer your alternative or substitute to fill the demand. If there are resources which could be used more efficiently, or to make a better product, this gives you an advantage coming in. Contracting with customers who currently use this type of service locks them in to your service. For example, contracting with a heating and A/C company to provide routine maintenance. Some companies like to have a primary supplier, but during busy times may need a secondary supplier. You can start as a secondary supplier but through superior offering, pricing, or service become their primary supplier. Other times a conglomerate may be willing to ‘give up’ a small niche market which you may be better able to serve. Government bids often give an advantage to women or minority businesses. So make sure they know you are one. Whatever your advantage is, make the most of it.
  • Each of the four are discussed in turn. Strengths and weaknesses are internal to the company. Opportunities and threats come from outside the company.
  • How you react to the new found information depends on the situation. If an opportunity plays to your strengths, take advantage of it. If there is a threat in an area you’re weak in, don’t try to fight it. Fight the threats in areas in which you are strong. And if an opportunity come along in an area where you are weak, can you build up that weakness to be able to take advantage of the opportunity?
  • These are seven strategies which are unique to small businesses due to the nature of being small. Being able to customize quickly and well doesn’t happen when your machinery is best set for runs of 1,000 or more. Additionally large companies with thousands of customers cannot possibly know them all by name and provide individual service and support. Nor can they provide to the high class, high-end elite. Some customers value things simply because they are unique and not everyone bought one at Wal-Mart. They like to dress differently, show off their brands, and be above others because they have someone you can’t.
  • Your competencies are what you do well. It may be you as a person, or you as a firm. Vermont Teddy Bear took a well made bear, and offered a unique customized service to create the Bear-Gram which is loved the country over. Botht the product and service side of the bear-gram are high quality, unique, desired, and thus profitable.
  • When evaluating resources for use, whether it is a financial resource, marketing resource, or product component, it is important to ask four questions. If the test fails at any level, then the resource is truly not of value to the organization.
  • The Industry life cycle approach to small business is similar to the normal industry life cycle. Introduction stage is normally not yet profitable, sales are slow, and there are startup costs to recover. Growth stage kicks in when sales take off. Prices can rise, profitability comes in. Maturity is where sales start to level off. You can then focus on cutting costs and improving efficiency without sacrificing your offerings. Not all products or industries reach decline. Can you imagine the beer industry disappearing? The wagon wheel, on the other hand, has gone into decline.
  • Transcript

    • 1. p p t BA 346 Working as an Entrepreneur Bob Zahrowski
    • 2. 7 Small Business Strategies: Imitation with a Twist McGraw-Hill/Irwin ©2007 by the McGraw-Hill Companies, Inc. All rights reserved.
    • 3. <ul><li>Objectives: </li></ul><ul><li>Learn the decisions needed to establish a foundation for strategic planning </li></ul><ul><li>Learn the forms of imitative and innovative businesses </li></ul><ul><li>Articulate the benefits that win over customers </li></ul><ul><li>Use SWOT analysis to identify strategic options </li></ul><ul><li>Under the major strategies of business-differentiation, cost, and focus </li></ul><ul><li>Use value chain analyses to apply strategy throughout the firm </li></ul><ul><li>Learn how to sustain competitive advantage through attracting customers and discouraging competition </li></ul>Chapter 7
    • 4. <ul><li>Focus on Small Business: Mindnautilus.com </li></ul><ul><li>Nick Tostenrude met Dennis Moulton in 1999 </li></ul><ul><li>Both wanted to go into business for themselves </li></ul><ul><li>PC/Internet-based programs to help recovering brain trauma victims </li></ul><ul><li>People with brain trauma did not have access to needed equipment </li></ul><ul><li>Enablemart.com , selling assistive devices </li></ul><ul><li>Customers in 50 states and 20 countries </li></ul><ul><li>10% of profits to charitable causes from customers </li></ul>Chapter 7
    • 5. <ul><li>Strategy in the Small Business </li></ul><ul><li>Strategy : the ideas and actions that explain how a firm will make its profit </li></ul><ul><ul><li>Good strategy leads to greater chances for survival and higher profits for small businesses </li></ul></ul><ul><ul><li>What makes a strategy “good” is its fit to the particulars of your business and the resources you can bring to it </li></ul></ul>Chapter 7
    • 6. Chapter 7 Prestrategy Product/service - Industry - Imitation - Intensity Markets - Scale - Scope TOOL Industry Analysis Benefits Value Benefits Cost Benefits Entry wedges TOOL SWOT Analysis Strategy Generic strategies - Differentiation - Cost - Focus Fragmented industry strategies Supra-strategies TOOL Value Chain Analysis Competitive Advantage Resources -Tangible -Intangible Organizational capabilities TOOL VRIO Analysis The Small Business Strategy Process
    • 7. <ul><li>1. Prestrategy: First Step of Strategic Planning </li></ul><ul><li>Goal is deciding on product or service you intend to offer and the general nature of your intended market </li></ul><ul><li>Industry : general name for line of product or service being sold, or the firms in that line of business </li></ul>Chapter 7
    • 8. <ul><li>Industry </li></ul><ul><ul><li>Key is selecting an industry that offers good potential for making a profit </li></ul></ul><ul><ul><li>Also needs to offer attractive opportunities to work with a minimum of risk and competition </li></ul></ul><ul><ul><li>http://www.census.gov/epcd/naics02/ </li></ul></ul><ul><ul><li>Trade association : group of people in the same industry who band together to represent the industry to the public and government </li></ul></ul>Chapter 7
    • 9. <ul><li>Markets : business term for the population of customers for your product or service </li></ul><ul><li>Scale : size of the market </li></ul><ul><ul><li>Mass or Niche </li></ul></ul><ul><li>Scope : geographic range covered by the market </li></ul><ul><ul><li>Local to Global </li></ul></ul>Chapter 7
    • 10. <ul><li>Scale : most industries have both mass and niche markets </li></ul><ul><ul><li>Mass market : large portions of the population </li></ul></ul><ul><ul><ul><li>Example: all men, all women, all teens, et al </li></ul></ul></ul><ul><ul><ul><li>Mass market is broad </li></ul></ul></ul><ul><ul><li>Niche market : narrowly defined segment of the population that is likely to share interests or concerns </li></ul></ul><ul><ul><ul><li>Example: Hallmark vs. SimplyShe </li></ul></ul></ul>Chapter 7
    • 11. <ul><li>Scope : local or global </li></ul><ul><ul><li>Can be local, regional, national, international, or global </li></ul></ul><ul><ul><li>Scope is important for two reasons: </li></ul></ul><ul><ul><ul><li>Knowing your scope helps deciding where to focus sales and advertising efforts </li></ul></ul></ul><ul><ul><ul><li>Knowing your target market gives you a way to know which competitors to worry about most, namely those within your market scope </li></ul></ul></ul>Chapter 7
    • 12. <ul><li>Imitative strategy : doing more or less what others are doing </li></ul><ul><ul><li>Classic small business strategy </li></ul></ul><ul><ul><li>Almost 2/3 of people starting business use this approach </li></ul></ul><ul><ul><li>Advantages : existing technologies, possibility to buy existing businesses, customers already know what you are offering </li></ul></ul>Chapter 7
    • 13. <ul><li>Degree of similarity : extent to which a product or service is like another </li></ul><ul><ul><li>Imitation is not likely to match precision or completeness or copying seen in franchising </li></ul></ul><ul><ul><li>Imitation plus one degree of similarity: copying one or two key aspects of existing businesses </li></ul></ul><ul><li>Pure innovation : new product or service, also with a unique setting </li></ul>Chapter 7
    • 14. <ul><li>Tool: Industry Analysis </li></ul><ul><li>Industry analysis (IA): a research process that provides the entrepreneur with key information about the industry, such as current situation and trends </li></ul><ul><ul><li>Helps to estimate possible financial returns </li></ul></ul>Chapter 7
    • 15. <ul><li>Basics of Industry Analysis </li></ul><ul><ul><li>SIC/NAICS number and description: online </li></ul></ul><ul><ul><li>Industry size over time: online </li></ul></ul><ul><ul><li>Profitability </li></ul></ul><ul><ul><li>How profits are made: interview or articles </li></ul></ul><ul><ul><li>Target market competitor concentration: directory checking </li></ul></ul>Chapter 7
    • 16. <ul><li>2. Benefits: Second Step of Strategic Planning </li></ul><ul><li>Benefits : characteristics of a product or service that the target customer would consider worthwhile (low cost or high quality) </li></ul><ul><ul><li>Key decision is deciding what benefits you plan to offer to your customer </li></ul></ul>Chapter 7
    • 17. <ul><li>Value Benefits </li></ul><ul><ul><li>Quality </li></ul></ul><ul><ul><li>Style </li></ul></ul><ul><ul><li>Delivery </li></ul></ul><ul><ul><li>Service </li></ul></ul>Chapter 7 <ul><ul><li>Technology </li></ul></ul><ul><ul><li>Shopping Ease </li></ul></ul><ul><ul><li>Personalization </li></ul></ul><ul><ul><li>Assurance </li></ul></ul><ul><ul><li>Place </li></ul></ul><ul><ul><li>Credit </li></ul></ul><ul><ul><li>Brand/reputation </li></ul></ul><ul><ul><li>Belonging </li></ul></ul><ul><li>Cost Benefits </li></ul><ul><ul><li>Lower costs </li></ul></ul><ul><ul><li>Scale savings </li></ul></ul><ul><ul><li>Scope savings </li></ul></ul><ul><ul><li>Learning </li></ul></ul><ul><ul><li>Organizational practices </li></ul></ul>
    • 18. <ul><li>Leveraging Opportunities During Entry </li></ul><ul><li>7 Entry Wedges </li></ul><ul><ul><li>Supply shortages </li></ul></ul><ul><ul><li>Unutilized resources </li></ul></ul><ul><ul><li>Customer contracting </li></ul></ul><ul><ul><li>Second sourcing </li></ul></ul><ul><ul><li>Market relinquishment </li></ul></ul><ul><ul><li>Favored purchasing </li></ul></ul><ul><ul><li>Government rules </li></ul></ul>Chapter 7
    • 19. <ul><li>Tool: SWOT Analysis </li></ul><ul><li>S : Strength W : Weakness O : Opportunity T : Threat </li></ul><ul><ul><li>SWOT looks critically at these factors </li></ul></ul><ul><ul><li>Used to organize and perform an analysis of your company’s current and future resources </li></ul></ul>Chapter 7
    • 20. <ul><li>SWOT: Strengths </li></ul><ul><ul><li>Customers ready to buy </li></ul></ul><ul><ul><li>Specialized knowledge </li></ul></ul><ul><ul><li>Trade secrets </li></ul></ul><ul><ul><li>Patents, trademarks, copyrights </li></ul></ul><ul><ul><li>Brand or personal recognition </li></ul></ul><ul><ul><li>Prior self-employment experience </li></ul></ul><ul><ul><li>Prior sales experience </li></ul></ul>Chapter 7
    • 21. <ul><li>SWOT: Weaknesses </li></ul><ul><ul><li>Customers not ready to buy </li></ul></ul><ul><ul><li>Inadequate financial backing </li></ul></ul><ul><ul><li>Easy-to-copy business </li></ul></ul><ul><ul><li>Undistinctive product, service, or brand </li></ul></ul><ul><ul><li>Location or facility disadvantages </li></ul></ul><ul><ul><li>Lack of self-employment experience </li></ul></ul><ul><ul><li>Lack of managerial experience </li></ul></ul>Chapter 7
    • 22. <ul><li>SWOT: Opportunities (from entry wedges) </li></ul><ul><ul><li>Supply shortages </li></ul></ul><ul><ul><li>Unutilized resources </li></ul></ul><ul><ul><li>Customer contracting </li></ul></ul><ul><ul><li>Second sourcing </li></ul></ul><ul><ul><li>Favored purchasing </li></ul></ul><ul><ul><li>Technology creating new products/services </li></ul></ul><ul><ul><li>New markets opening up </li></ul></ul>Chapter 7
    • 23. <ul><li>SWOT: Threats </li></ul><ul><ul><li>Economic downturn </li></ul></ul><ul><ul><li>Oversupply </li></ul></ul><ul><ul><li>Competitive pressures </li></ul></ul><ul><ul><li>Supplier/customer pressures </li></ul></ul><ul><ul><li>Major supplier/customer loss </li></ul></ul><ul><ul><li>Missed window of opportunity </li></ul></ul><ul><ul><li>Negative government regulations or actions </li></ul></ul>Chapter 7
    • 24. Chapter 7 Fight Flee Flaunt Fix Threats Opportunities Strengths Weaknesses Inside the Firm
    • 25. <ul><li>SWOT Analysis </li></ul><ul><li>Final stage of SWOT analysis is to match it against the benefits sought by your market </li></ul><ul><li>Strengths should match or support the benefits </li></ul><ul><li>Weaknesses should not get in the way of delivering the desired benefits </li></ul>Chapter 7
    • 26. <ul><li>Strategy Suggestion </li></ul><ul><li>3 Classic Strategies </li></ul><ul><ul><li>Differentiation strategy : clarifying how one product is unlike another in a mass market </li></ul></ul><ul><ul><li>Cost strategy : firm offers a combination of cost benefits that appeals to the customer </li></ul></ul><ul><ul><li>Focus strategy : targets a portion of the market (segment or niche) </li></ul></ul>Chapter 7
    • 27. <ul><li>7 Small Business Supra-Strategies </li></ul><ul><ul><li>Craftsmanship </li></ul></ul><ul><ul><li>Customization </li></ul></ul><ul><ul><li>Super-support </li></ul></ul><ul><ul><li>Serving the underserved/interstices </li></ul></ul><ul><ul><li>Elite </li></ul></ul><ul><ul><li>Single-mindedness </li></ul></ul><ul><ul><li>Comprehensiveness </li></ul></ul>Chapter 7
    • 28. <ul><li>Competitive Advantage </li></ul><ul><li>Resources : What You Bring to the Firm </li></ul><ul><ul><li>Tangible resources : easily identified </li></ul></ul><ul><ul><ul><li>Financial (cash), Physical (land) </li></ul></ul></ul><ul><ul><li>Intangible resources : typically informational and and expertise-based practices and routines that are not clearly evident </li></ul></ul><ul><ul><ul><li>Human (skill), Reputation (trust) </li></ul></ul></ul>Chapter 7
    • 29. <ul><li>Organizational capabilities : abilities, skills, and competencies used by the firm to make profits from tangible and intangible resources </li></ul><ul><li>Transformational competencies : firm can makes it product or service better in value </li></ul><ul><li>Combinational competencies : combining tangible and intangible resources </li></ul><ul><ul><li>Vermont Bear Company’s Bear-Gram </li></ul></ul>Chapter 7
    • 30. <ul><li>The VRIO Analysis </li></ul><ul><ul><li>Test 1: Value – does the resource help you increase sales or decrease costs </li></ul></ul><ul><ul><li>Test 2: Rareness – is the resource rare enough that you can charge more than competitors without the resource </li></ul></ul><ul><ul><li>Test 3: Imitability – can the competition imitate the resource </li></ul></ul><ul><ul><li>Test 4: Organization – can the firm make use of the resource </li></ul></ul>Chapter 7
    • 31. Chapter 7 Industry Life Cycle Approach to Small Business Strategy Table 7.2 Introduction Growth Maturity Decline Retrenchment Market Scope Optimal Strategy Imitation/Innovation Customer Segment Organizational Goal Supra-Strategy Niche Differentiation Innovation Pioneers and early adopters Master technology Single-mindedness; Super-support Mass Differentiation Innovation Early majority Product and service leadership (being “the one”) Craftsmanship; customization; elite Niche Cost; focus Imitation Laggards Serve remaining markets Serving the underserved; customization Mass Cost Imitation Late majority Market share Single-mindedness; cost; comprehensiveness Mass via consolidation Cost Innovation Late adopters and laggards New efficiencies

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