Entreprenuership (Chapter 2)

Copyright © 2008 by Nelson, a division of Thomson Canada Limited

ENTREPRENEURSHIPA PROCESS PERSPECTIVE

Robert A. BaronScott A. ShaneA. Rebecca Reuber

Slides Prepared by:Sandra Malach, University of Calgary

Copyright (c) 2008 by Nelson, a division of Thomson Canada Limited

2 Uncovering Opportunities:

Understanding Entrepreneurial

Opportunities and Industry Analysis

1


LEARNING OBJECTIVES

1. Define an entrepreneurial opportunity and explain why such opportunities exist.

2. Describe how technological, political/regulatory and social/demographic changes generate entrepreneurial opportunities.

3. List the different forms that entrepreneurial opportunities can take, and explain why some forms are better for new firms than others.


LEARNING OBJECTIVES4. Explain why new firms are more successful in some

industries than in others, and identify the four major types of industry differences that influence the relative success of new firms.

5. Identify the three different dimensions of knowledge conditions, and explain how they influence an industry’s supportiveness of new firms.

6. Identify the three different dimensions of demand conditions, and explain how they influence an industry’s supportiveness of new firms.

7. Identify the two different dimensions of industry life cycles, and explain how they influence an industry’s supportiveness of new firms.


LEARNING OBJECTIVES

8. Identify the four different dimensions of industry structure, and explain how they influence an industry’s supportiveness of new firms.

9. Explain why established firms are usually better than new firms at exploiting entrepreneurial opportunities.

10. Identify the types of opportunities that new firms are better at exploiting, and explain why new firms are advantaged at the exploitation of those opportunities.


“In great affairs we ought to apply ourselves less to creating

chances than to profiting from those that offer.”

--La Rouchefoucauld, Maxims, 1665


BETTER OPPORTUNITIES Some industries are more

favourable to new firms than others

Some types of opportunities are better than others for new firms to pursue


INDUSTRIES THAT PRODUCE HIGH-GROWTH COMPANIES*

1. Pulp Mills2. Computer/Office

Equipment3. Guided

missiles/space vehicles/parts

4. Nonferrous rolling & drawing

5. Railroad car rental

6. Measuring & controlling devices

7. Paper Mills8. Search & navigation

equipment9. Communication

equipment10. Drugs(*Derived From Fortune 500

List)


ENTREPRENEURIAL OPPORTUNITY - DEFINED

An entrepreneurial opportunity is a situation in which changes in technology, or economic, political, social, and demographic conditions generate the potential to create something new.


CHANGES MAKE IT POSSIBLE…

To make new products or services To develop new production

processes To organize in new ways To open up new markets To use new raw materials


OPPORTUNITIES FROM INFORMATION

Entrepreneurial opportunities exist because people have different information. (Israel Kirzner, NYU)

Different information leads to different decisions.

Superior information leads to better decisions.


OPPORTUNITIES FROM CHANGE

Truly valuable entrepreneurial opportunities come from an external change that either: Makes it possible to do things that

had not been done before. Makes it possible to do something in a

more valuable way. (Josef Schumpeter)


SOURCES OF OPPORTUNITY

Technological Change Political & Regulatory Change Social & Demographic Change

50% of Inc. 500 companies started business in response to change.


TECHNOLOGICAL CHANGE Makes it possible for

people to do things in new and more productive ways.

Larger technological changes are a greater source of opportunity.


POLITICAL AND REGULATORY CHANGE

Makes it possible to develop business ideas to use resources in new ways that are either more productive, or that redistribute wealth from one person to another.


OPPORTUNITIES FROM POLITICAL AND REGULATORY CHANGE

Deregulation Regulations that support particular

types of business activities Regulations that increase demand

for particular activities or subsidize firms that undertake them

Policy that increases innovation


SOCIAL AND DEMOGRAPHIC CHANGE

Alters demand for products and services

Makes it possible to generate solutions to customer needs that are more productive than those currently available


FORMS OF AN OPPORTUNITY

New products and services, New methods of production, New markets, New ways of organizing, and New raw materials.


OPPORTUNITIES & CHANGES

FORM OF OPPORTUNITY

TECHNOLOGICAL CHANGE

BUSINESS RESPONSE

REASONING

New Product/Service

Gas engine Car Engine to power cars

New way of Organizing

Internet Online book sales

Sales without stores

New Market Refrigeration Refrigerated Ships

Meat Exports to Japan

New Production Method

Computer Computer-Aided Design

Eliminates Prototypes

New Raw Material Oil Refine to gas Gas for cars


NEW VS. ESTABLISHED FIRMS Entrepreneurs most often

introduce new products or services or enter new markets

Established firms most often introduce new production processes

and ways of organizing

The most successful entrepreneurs develop new processes. (Mansfield, 1985)


INDUSTRY CONDITIONS THAT AFFECT SUCCESS

Knowledge conditions Demand conditions Industry lifecycles Industry structure


KNOWLEDGE CONDITIONS

Knowledge Conditions: information that underlies the production of products & services.

Favourable industries for new firms: greater R&D intensity (R&D$/sales) public sector production of technology Innovation requires flexible and

nimble organizations


DEMAND CONDITIONS

Demand Conditions: attributes of customer preferences for products & services

New firms do better in: Larger markets Rapidly growing markets Heavily segmented markets


INDUSTRY LIFE CYCLE


INDUSTRY LIFE CYCLES

Optimal conditions for new firms: Young Industries Prior to the establishment of a

dominant design (common approach or standard)


INDUSTRY STRUCTURE

New firms perform more poorly in Capital-intensive industries Advertising-intensive industries Concentrated industries (versus

fragmented industries) Industries composed of mostly

large firms


ADVANTAGES OF ESTABLISHED FIRMS

The learning curve Established reputation Positive cash flow Economies of scale Complementary assets


NEW vs. ESTABLISHED FIRMS

NEW FIRMS Competence-

destroying change

Discrete products and services

Ideas embedded in human capital

ESTABLISHED FIRMS

Learning curve Reputation Positive cash flow Economies of

scale Complementary

assets


COMPETENCE DESTROYING CHANGE

Large Companies Locked into old ways

of thinking Must cannibalize

existing business Hindered by

established routines Must seek to satisfy

existing customers

Small Companies Can think in new

ways No concerns with

existing business Can form new

routines easily No existing customer

base to satisfy


DANGER! PITFALLL AHEAD!

DON’T WASTE TIME DEVELOPING INCREMENTAL INNOVATIONS – THERE IS TOO MUCH AGAINST YOU


ESTABLISHED VS. NEW FIRMSOPPORTUNITY EVALUATION

EXAMPLE DIMENSION ADVANTAGE

WHY?

Jewellery Store

Reputation Established Customers know & trust

Automobile Manufacturer

Strong Learning Curve

Established Better at producing & distributing

3D Computer Graphics Chip

Competence-Destroying Innovation

New Firm Undermines established firms

Blackberry Discrete Innovation

New Firm Independent of existing systems

Date post:	19-Jan-2016
Category:	Documents
Upload:	donakomeah
View:	17 times
Download:	0 times

Entreprenuership (Chapter 2)

Documents