Class notes
Entrepreneurship and Innovative Management 244 Chap 7-18
- Institution
- Stellenbosch University (SUN)
Summary of all the chapters covered in entrepreneurship and innovative management 244 in 2020, excluding chapter 10
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Chapter 7Small Business Strategies: imitation with a Twist
Learning Objectives
Describe the decisions needed to establish a foundation for strategic planning
Identify the forms of imitative and innovative businesses
Articulate the benefits that win over customers
Asses how industry changes affect strategy
Explain the major strategies of business – differentiation; cost; and focus
Determine how to sustain competitive advantage through attracting customers and
discouraging competition
Focus on Small Business: Mindnautilus
Mindnautilus is, in short, an online store that specializes in selling assistive devices and software for
people with disabilities. They were able to dominate their market because they knew that there was
a large market of potential customers, and they had the advantage of the one’s dad having offered
the idea of internet-based programs to help cognitive functioning of people recovering from
traumatic brain injury.
Strategy in the Small Business
Strategy refers to the idea and actions that explain how a firm will make their profit. The strategy
may be in the form of a blueprint for planning, or a standard in which actions are compared against,
but no matter it’s form, it defines the business’ customers, competition, and how the business
operates. A good strategy leads to greater chances of the business surviving, as well as higher profits
for the business. A strategy can be considered good when it fits to the particulars of your business
with the resources you bring to it. Strategy in small businesses are important because most small
businesses are more imitative than innovative.
The Small Business Strategy Process
Getting useful strategies for a small business is a 4-step process:
1. This step involves reviewing and confirming the goals that define your firm and knowing
your magic number (the post-tax income that the entrepreneur personally seeks from the
business)
2. Here, 2 things are considered: your customers, and the benefits you want to offer them.
These are plotted out in a procedure called perceptual mapping.
3. Thirdly, the dynamics and trends are your industry must be studied in order to identify the
best way and time to enter into the business. This technique is called industry analysis.
4. The last step involves building onto the last 3 steps in order to determine the best strategic
direction and strategy for the firm.
After all 4 steps have been completed, there is a continued effort that aims to refine your firm’s
strategies and tactics in order to maintain a competitive advantage. This is known as post start-up.
Figure 7.1 is based off of the 4 key types of decisions you make about your firm. They can be made
either formally or informally in your opportunity analysis or feasibility analysis. The decisions are the
following:
The major goals you set for your firm
The types of customers you seek and what benefits you plan to offer them
The stage and trend of your chosen industry
The specific generic and supra-strategies you choose to pursue
,Goals: The First Step of Strategic Planning
Before an entrepreneur starts their industry analysis, it is important to make the basic decisions
regarding the goals for your prospective business. These goals are important because they will set
the stage for the kind of business you will have, and they become the foundation for future analysis.
The 5 initial key goal decisions are:
1. As the owner, what do you expect out of the business?
2. What is your product or service idea and within what industry is it?
3. Will your product be more innovative or imitative?
4. Scale: Who do you plan on selling to? Will you have target markets, or will you sell to
everyone?
5. Scope: Where do you plan on selling? Locally, regionally, nationally, globally?
Owner Rewards
All strategy in the small businesses that are just starting out, start with the owner. Here, it is
important to look at the magic number, which is the post-tax amount of income that the
entrepreneur personally seeks from the business. Knowing what this number is from the start makes
it easier to evaluate if the proposed business can deliver on that very basic need that everyone
reports needing.
Product/Service Idea and Industry
Along with this pursuit of rewards, there is often an idea for the business. The process for evaluating
ideas is called the feasibility study.
Some entrepreneurs may start a firm to get the product or service out, while others may create the
product or service and have agents find firms to use it. Either way, the idea gets made real as a
product or a service. If you have a product or service in mind, you also have an industry in which it
will be found. An industry is the general name for the line of products or services being sold. Industry
is vitally important to your core strategy decisions because there are industries more profitable than
others. Picking the right industry is key to the success of the business. It is important to select an
industry that offers good potential for making a profit and attractive opportunities to work with a
minimum of risk and competition. These industries are described as having high industry
attractiveness.
Innovation and Imitation
“Imitation” reflects the fact that for most small businesses, the owner wants to be a lot like others in
the industry but does not want to be exactly like them. Owners who elect to imitate their
competitors still want to have something that differentiates them from the others. It needs to be
something that makes their firm better or more special. The choice between imitation and
innovation is very important. Businesses, especially small/new firms, can do more or less what
others are already doing (an imitative strategy), or they can do something that is very different from
what others do (an innovative strategy). However, imitation is the classic small business strategy.
There are several advantages to using an imitative strategy. You benefit from being able to purchase
existing technologies. This means that you can decipher estimated costs and schedules for the firm.
With imitative approaches, there is also the possibility to buy into existing businesses. The key
benefit from an imitative strategy comes from the customers because they already know the kind of
product/service being offered. This means efforts used on marketing can be focused elsewhere.
However, when you elect an innovative strategy, you have the ability and benefit of making your
business precisely fit your own ideas and preferences.
In practice, most firms use imitation +- a degree of similarity:
, Imitation minus a degree of similarity is the business equivalent of cloning. Imitation itself
involves patterning a business on existing firms and processes. Your imitation is not likely to
match the precision or completeness of copying seen in franchising, since you are unlikely to
have all the information about the model business or process. You may also adapt your
business to fit local situations or your current situation.
Imitation plus 1 degree of similarity is where you look at existing businesses and pattern
yourself after them, with the exception of 1 or 2 key areas in which you seek to do things in
a new, and hopefully better way. This is called incremental innovation and is second only to
parallel competition in frequency.
Pure innovation, or blue ocean strategy results in a new product or service. Here, there will
be no competitors in the market as it is a new product/service.
Parallel innovation is when the standard-setter’s approach is used for lower startup costs, while
incremental innovation takes the product/service to the next level. One area is chosen to be
improved. Remember that a lot of research has shown that imitators do better than pioneers in the
long run.
To Whom will you Sell?
A market is the business term for the population of customers of your product/service. If you know
your market inside and out, you are likely to know much of the key information for how to be
successful in your line of business. There are 2 strategic decisions about your market in general that
need to be made early in the process of going into business. The first is the scale of the market,
which is the size of the market (whether you plan to aim for a mass market, or a niche market). And
the other is the scope of the market, which defines the geographic range covered by the market –
local to global.
Scale: When determining the target market for a product/service, there are generally 2
choices: mass markets or niche markets. A mass market is a market that involves large
portions of the population. They are broad and targets the entire market. A niche market is a
narrowly defined segment of the population that is likely to share interests or concerns.
They are specific and narrow, and in a niche market approach, you try to only target
customers in the niche. Most industries make use of both mass and niche markets.
Scope: Market scope is related to market scale. Market scope refers the geography of your
target market. Market scope is important for 2 reasons: firstly, acknowledging your market
scopes helps to decide where to focus your sales and advertising efforts. The second benefit
is that knowing your target market gives you a way to determine which potential
competitors you need to worry about most, namely those also in your market scope.
In this goal step, the key is to bring together the decisions that underlie the business you hope to
own. This starts with you and the rewards you seek; the product or service you plan to offer for sale
to achieve those rewards; and the industry and markets with which you and your firm will plan to
deal. Armed with this basic understanding of your firm, you are ready to begin developing a strategy
to achieve your goals. Very often, it starts with a closer consideration of your potential customers
and what you can do with your product or service to best catch their attention.
Customers and Benefits: The Second Step of Strategic Planning
Chapter 8
, Business Plans: Seeing Audiences and Your Business Clearly
Learning Objectives
Understand why and when to develop a business plan
Know how to tell the business plan story
Learn the major sections of the business plan
Focus business plan sections to meet specific needs
Identify the major risks to business plan success
Master pitching your business plan to others
Business Plan Background
A business plan is a document designed to detail the major characteristics of a firm – it’s product or
service, its industry, its market, its manner of operating (production; marketing; management), and
its financial outcomes with an emphasis on the firm’s present and future. When you are serious
about starting a business, or when there is a lot of money on the line (be it your own or someone
else’s), creating a business plan is the most critical activity. The plan is important, but the
understanding you get from the planning process is more important. There are two situations under
which creating a business plan is very crucial:
External Legitimacy: This is the extent to which a small business is taken for granted,
accepted, or treated as viable by organizations or people outside of the small business, or
the owner’s family. Creating a business plan has been acknowledged at being the best way
to build external legitimacy for a business. When a firm is seeking external advice, be it
financial or expert, a business plan is done in order to signal professionalism, and how
serious you are about the business. Investors will also expect to see a business plan before
they consider investing into the business. A business is most important here, when raising
money for the business. Refer to table 8.1 in the textbook for a list of people who would
want to see a business plan.
Internal Understanding: This is when you want to get all the aspects of the business clear in
your mind and the minds of others in the business, such as your partners or your key
employees.
If you are seeking a banker, investor or a partner, then a business plan is extremely essential.
The Business Plan: Starting Up and Building
The Path to the Business Plan
This shows the path of presentations entrepreneurs may create when planning to go into business.
When there is more time to talk about the business, presentations can be longer.
The Vision Statement: A firm’s vision statement is the
most important single idea held by the owner and the
employees. It is a very simple 5-10-word sentence or
tagline (a memorable catchphrase that captures the
key idea of a business, its service, product or
customer) that expresses the fundamental goal or idea
of the firm. The tagline can also serve as the firm’s
mission statement.
The Mission Statement: This is related to the vision
statement, however, is typically longer (20-25 words).
It often adds the firm’s competitive advantage. Mission
statements have fallen out of favor as they became
too similar to each other and too full of business
jargon. Many small businesses today drop the mission
statement and move on to the elevator pitch.
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