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Administrative Studies
ADMS 3920
Cameron Johnston

CHAPTER 2 Chapter 2_Start-up and the Need for Competitive Advantage Reasons for starting a new business  To begin a new type of business based on a recently invented or newly developed product or service  To take advantage of an ideal location, equipment, products or services, employees, suppliers, and bankers  To avoid undesirable precedents, policies, procedures, and legal commitments of existing firms o Capitalize on competitor’s weakness or problems with existing offerings or service Identifying ‘GOOD’ Start-up Ideas (Factors that determine whether an idea for a new venture is a good investment opportunity)  Market factors - Meet a clearly defined market need ( need for the product) - Timing must right - Customers - Value created for customers - Market structure - Market growth rate  Competitive advantage - A product or service that customers perceive to be superior to those of its competitors - Control over prices, costs, and distribution - Barriers to entry - Proprietary information or regulatory protection - Response/lead time advantage  Economics - Profitable - Growth potential  Management capability - A good fit between the entrepreneur and the opportunity - Appropriate skills and experience to operate the venture  Fatal flaws - No fatal flaw in the venture Strategies to find start-up ideas  Look for favourable factors driving change - Technology - Social/demographic - Political/regulatory  Look to sectors / industries favoring new firm formation - Knowledge conditions - Demand intensity conditions - Industry life cycle conditions - Industry structure  Look for opportunities favoring new firm over established firms - Competitor’s position entrenched & lacking flexibility - Opportunity to introduce highly differentiated new offering  Look to capitalize on Particular Strength(s) - Innovation, capacity, position, timing, skill, expertise or experience 1/5 CHAPTER 2 Types of start-up ideas  Type A  New Market - Providing customers with an existing product not available in their market - E.g. targeting the “new age” beverage market by selling soft drinks with nutritional value  Type B  New technology - Involving new ideas, involving new technology, centered around providing customers with a new product - E.g. using computer technology to give prisoners access to collect phone service directly from their cells  Type C  New Approach Benefit - Providing customers with an improved product - E.g. making paper from discarded stalks of grain sorghum Sources of Start-up Ideas  Family business  Friends/relatives  Personal interest/hobby  Suggestion  Education/courses  Chance happening  Prior work experience  Other Competitive advantage: exists when a firm offers a product or service that is perceived by customers to be superior to those of competitors, thereby promoting firm profitability.  Competitive advantage can only come within a context which is why business owner needs to understand the nature of the firm’s operating environment  To establish competitive advantage, business owner needs to understand the nature of firm’s operating environment. Two environmental dimensions to consider - External: what business potential exist (i.e. macro & industry factors) - Internal: what the firm is able to do (i.e. company capabilities and resources) o Studying general trends and the dynamics of competition in an industry may highlight opportunities that match the unique capabilities of the firm, and this knowledge can be used to block the effects of competitive response. Business opportunity: occurs when an enterprise has identified a competitive advantage that has a reasonable chance to succeed. This means that all of the pieces of the puzzle must come together, and in the right order.  Evaluating opportunities using external analysis - Take a look at the Macro Environment for what potentials exist  Sociocultural Two edged sward, Societal trends may affect consumer demand, opening up new markets and pushing which can open up others into decline. new opportunities  Technological for a small firm – The most relevant to small businesses, since it spawns many new ventures – or renders or threaten its them obsolete existence  Economic Forces such as the rate of inflation, interest rates, and even currency exchange rate affect small business, as they either promote or discourage business growth  Political/Legal 2/5 CHAPTER 2 It includes governmental trends such as tax laws and safety regulations that may pose s treat to businesses or render an existing or budding entrepreneurial business concept unviable. Geopolitical developments: create new opportunities to expand markets, outsource
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