SMALL BUSINESS MANAGEMENT, 18E

Longenecker/Petty/Palich/Hoy

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Starting a Small Business

Chapter 3

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Learning Goals:

• Distinguish among the different types and sources of startup ideas.
• Use innovative thinking to generate ideas for high-potential startups.
• Describe external and internal analyses that might shape the selection of venture opportunities.
• Explain broad-based strategy options and focus strategies.

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Learning Goals (cont.):

• Screen business ideas to identify those with the greatest potential.
• Assess the feasibility of a startup idea.

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Developing Startup Ideas

• Opportunity Recognition
• Identification of potential new products or services that may lead to promising businesses
• Entrepreneurial Alertness
• Readiness to act on unnoticed business opportunities and to pivot quickly away from flawed initial ideas.

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Developing Startup Ideas (cont.)

• Which Product or Service?
• Serves important consumer needs
• Has readily recognized utility and user benefits
• Is affordable to a large group of potential customers

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Creating a New Business from Scratch

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3–7

To develop a commercial market for new product �or service

Wanting the challenge of succeeding �(or failing) �on your own

Motivations �To Start �a Business

To tap into �unique �resources �that are �available

To avoid undesirable features of existing companies

3–8

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Types of Ideas That Develop into Startups

3.1

3–9

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Common Sources of Startup Ideas

3.2

Prior work experience

45%

Personal interest/hobby

16%

Chance happening

11%

Suggestion

7%

Education/

Family �business

6%

Friends/�relatives

5%

Other�4%

Using Innovative Thinking to Generate Business Ideas

1. Borrow ideas from existing products and services or other industries.
2. Combine two businesses into one to create a market opening.
3. Begin with a problem in mind.
4. Recognize a hot trend and ride the wave.
5. Explore ways to improve an existing product or service’s function.
6. Think of how to streamline a customer’s activities.

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Using Innovative Thinking to Generate Business Ideas (cont.)

7. Adapt a product or service to meet customer needs in different ways.
8. Imagine how market for a product or service could be expanded.
9. Offer products through a subscription service.
10. Cash in on the sharing economy.
11. Study a product or service to see if you can make it “green.”
12. Keep an eye on new technologies.

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Using Internal and External Analyses to Assess Business Ideas

• Outside-In Analysis
• Studying context of venture to identify and determine business ideas that qualify as opportunities.
• General Environment
• Encompasses factors influencing business in a society.
• Industry Environment
• Factors that impact a firm and all of its competitors.
• Competitive Environment
• Focus on the strength, position, and likely moves and countermoves of competitors in an industry.

© 2017Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

© 2017Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Trends in the General Environment

3.3

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Major Factors Offsetting Market Attractiveness

3.4

The Competitive Environment

• Who would be the new venture’s current competitors?
• What unique resources do they control?
• What are their strengths and weaknesses?
• How will they respond to the new venture’s decision to enter the industry?
• How can the new venture respond?
• Who else might see and exploit the same opportunity?
• Are there ways to co-opt potential or actual competitors by forming alliances?

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Evaluating Market Opportunities

• Inside-Out Analysis
• Assessing the firm’s internal competitive potential
• Resources
• Basic inputs that a firm uses to conduct its business
• Tangible resources: visible and easy to measure.
• Intangible resources: invisible, difficult to quantify
• Capabilities
• Routines and processes that can coordinate the combined use of

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Evaluating Market Opportunities

• Capabilities
• Routines and processes that can coordinate the combined use of productive assets in order to achieve desired outcomes.
• Core Competencies
• Capabilities that provide a firm with a competitive advantage over its rivals and reflect its personality.

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Integrating Internal and External Analyses

• Strengths, Weaknesses, Opportunities, and Threats (SWOT) Analysis
• Provides concise overview of firm’s strategic situation.
• Helps identify opportunities that match the venture.

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© 2017Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Examples of SWOT Factors

3.5

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The Entrepreneur’s Opportunity “Sweet Spot”

3.6

Important Strategic Terms

• Strategy
• Plan of action that coordinates resources and commitments of an organization to achieve superior performance.
• Strategic Decision
• Regards the direction a firm will take in relating to its customers and competitors.
• Sustainable Competitive Advantage
• A value-creating industry position likely to endure over time.

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Selecting Strategies That Capture Opportunities

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Broad-Based Strategy Options

Cost-Based Strategy

Focus �Strategy

Differentiation-Based Strategy

Focus Strategies

• Focus Strategy Implementation
• Restricting focus to a single subset of customers.
• Emphasizing a single product or service.
• Limiting the market to a single geographical region.
• Concentrating on superiority of product or service.

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Focus Strategies (cont.)

• Advantages
• Niche market shields from direct competition.
• Focus allows development of unique expertise.
• Disadvantages
• Focus markets can quickly erode if:
• Competitors successfully imitate the strategy.
• Segment erodes or demand disappears.
• Segment loses its uniqueness.
• New firms subsegment the industry.

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Factors in Business Idea Screening

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Strength of the business idea

Industry and competitive advantage

Screening �a Business Idea

Capability of founders

Capital requirements and venture performance

Targeted market �and customers

Is Your Startup Idea Feasible?

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Market �Factors

Competitive Advantage

Judging the Feasibility of �a Business Opportunity

Management Capability

Industry�Attractiveness

Fatal �Flaws

Is Your Startup Idea Feasible?

• Feasibility Analysis
• A preliminary assessment of a business idea that gauges whether or not the venture envisioned is likely to succeed
• Fatal Flaws
• A circumstance or development that alone could render a new business unsuccessful
• Market potential: acceptance, accessibility, growth, and size
• Power of competitors
• Strength of competitive advantage
• Startup costs

© 2017Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

© 2017Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

A Feasibility Analysis Framework

3.7

Is Your Startup Idea Feasible (cont.)?

• New Venture Leadership
• Dimensions of Management Capability
1. Fit of the venture with leader’s mission, aspirations, and comfort level with risk involved
2. Leader’s grasp of critical enterprise success factors and ability to execute on these factors
3. Leader’s connection to others who will be essential to making the venture work

© 2017Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

capabilities

competitive advantage

competitive environment

core competencies

cost-based strategy

differentiation-based strategy

entrepreneurial alertness

fatal flaw

feasibility analysis

focus strategy

general environment

industry environment

intangible resources

new benefit ideas

new market ideas

new technology ideas

opportunity recognition

pivot

resources

serendipity

startups

strategy

SWOT analysis

tangible resources

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Key Terms