4. Government Resources
The U.S. government is an important resource for many young and small businesses. It
Teaching Tip: Examples of how young firm start-ups were aided and/or encouraged by
mentors, experienced businesspeople, and local or federal government support programs
are typically very interesting to students. Although we provide a few examples, it is
C. Entrepreneurial Leadership
Launching a new venture requires a special kind of leadership. It involves courage, belief
in one’s convictions, and the energy to work hard under difficult circumstances. In this section,
1. Vision
The entrepreneur has to envision realities that do not yet exist. It may consist of a new
product or a service, a competitive challenge such as beating a competitor, or a personal goal
Discussion Question 16: Can entrepreneurs learn to develop vision or do they have to be
“born with it?”
2. Dedication and Drive
Dedication and drive are reflected in hard work. They require patience, stamina, and a
willingness to work long hours. Drive involves internal motivation, and dedication calls for an
Discussion Question 17: What are some examples of entrepreneurs who have strong
dedication and drive?
Discussion Question 18: Why do some people believe that drive and dedication are
negative qualities? Under what circumstances are these qualities negative? What are the
consequences?
3. Commitment to Excellence
Entrepreneurs sometimes launch businesses without understanding what it will take to
succeed. To achieve excellence, therefore, venture founders and small business owners must
Discussion Question 19: What are some examples of entrepreneurial firms that have
demonstrated a strong commitment to excellence?
Discussion Question 20: What are the potential consequences for start-up firms that do
not strive for excellence?
David Drews, a senior executive at the entrepreneurial firm Project: Worldwide, offers
II. Entrepreneurial Strategy
To be successful, new ventures must evaluate industry conditions, the competitive
Tools and techniques such as five-forces and value chain analysis can also be used to
guide decision making among new ventures and small businesses. In terms of five forces
A. Entry Strategies
The idea of an entry strategy or “entry wedge” describes several approaches that firms
1. Pioneering New Entry
A young firm with a radical new product or highly innovative service may engage in
pioneering—creating new ways to solve old problems or meeting customers’ needs in a unique
There are many potential pitfalls. Customers may not accept the new product or service;
Discussion Question 21: What are some examples of companies you are familiar with
that started with pioneering new venture concept? What made it pioneering? How
radical was it? Did it change an existing industry or create a new one?
2. Imitative New Entry
Imitators look for opportunities to capitalize on proven market successes. An imitation
STRATEGY SPOTLIGHT 8.4 discusses Rocket Internet, an entrepreneurial venture that
unapologetically follows an imitative entry strategy.
If a strategy is easy to imitate, then a major pitfall is that it may be difficult to ever build a
sustainable competitive advantage. On the other hand, franchises are built on the concept of
Discussion Question 22: What are some examples of companies you are familiar with
that use an imitation strategy?
3. Adaptive New Entry
Most new entrants are somewhere between “pure” imitation and “pure” pioneering—they
offer a product or service that is somewhat new and sufficiently different to create new value for
EXHIBIT 8.3 provides examples of four young firms that pursued adaptive strategies—
Pitfalls of an adaptive strategy include 1) the value proposition may not be perceived as
unique; 2) close competitors could copy the new firm’s adaptation as a way to hold onto its
Discussion Question 23: What are some examples of new ventures that have been
launched using a business concept that is an adaptation of an existing business?
The SUPPLEMENT below describes how Slice Corporation took a single idea for a
product and turned it into a catalog of improved cutting devices.
Extra Example: Cutting a Path to Success
TJ Scimone had an idea to develop better designed, and aesthetically pleasing cutting tools. He founded his firm,
Slice, in 2008 to create and build ultramodern versions of staple kitchen tools, such as vegetable peelers and cheese
graters, but he found real success in the market when he turned to building a better cutting device. He started with a
pocket-sized ceramic blade for opening shrink-wrapped packages, such as DVDs. The firm now designs and sells a
range of box cutters, scissors, and other cutting devices that are familiar but very distinct due to Slice’s efforts to
offer true innovation in established product categories. Scot Herbst, the firm’s director of industrial design
summarized the firm’s adaptive strategy when he said, “We look for simple, incremental twists to existing products.
All it takes is a functional twist here and an ergonomic twist there to make it better than what the competition is
offering.”
Slice’s ability to develop new interpretations of old implements is evident in its Auto-Retractable Box Cutter. As
Simone stated, “box cutters are scary and antiquated tools—most of them are dangerous and ugly.” In their design,
Slice makes several changes to improve the utility and safety of the box cutter. First, Slice uses a ceramic blade that
can last ten times longer than steel. To improve safety, it uses a rounded tip on the blade and a protective housing
that reduces blade exposure. Slice also devised a wrap-around handle that is fits the contours of the users hand, as
well as a rubberized grip to enhance comfort and limit the possibility that the box cutter will slip in the user’s hand.
Finally, Slice built the cutter in a hook shape so users could easily hook it on their belts. This element was built in
when Slice realized that most accidents with box cutters occurred when users were either putting the cutter in or
taking it out of their pockets.
With their innovative designs on these basic products, Slice has received professional acclaim and market success.
For example, one of its products received the Chicago Athenaeum Museum of Architecture and Design Good Design
Award. On the market side, its products have seen solid demand and are now distributed through Home Depot, Crate
& Barrel, Amazon.com, the Container Store, and major office-supply chains.
Sources: Ankeny, J. 2013. Sharp-sighted: Slice’s professional-grade tools don’t cut corners on safety or style.
Entrepreneur. June: 23.
Discussion Question 24: Can you think of other products that could use the mindset that
Slice takes to cutting tools? Are their products where the basic design is well established
but could also be greatly improved upon?
Discussion Question 25: What are some examples of companies you are familiar with
that use an adaptive entry strategy?
Considering the strategic choices that a new entrant has, which new entry strategy is
best? None of the strategies is inherently better than another. Nevertheless, some research
B. Generic Strategies
In general, new ventures are single-business firms using business-level strategies. This
1. Overall Cost Leadership
Entrepreneurial firms achieve success by doing more with less. By holding down costs or
making more efficient use of resources than larger competitors, new ventures can often offer
Discussion Question 26: What advantages do young firms have relative to larger firms
in terms of keeping costs to a minimum? What are the disadvantages of trying to
maintain overall lower costs?
STRATEGY SPOTLIGHT 8.5 discusses the overall low cost leadership strategy of Tuft
and Needle, a mattress manufacturer.
2. Differentiation
Both pioneering and adaptive entry strategies involve some degree of differentiation. In
the case of pioneers, the new venture is attempting to do something strikingly different either by
A differentiation strategy is generally thought to be expensive to enact, however. Yet
those activities that tend to be expensive—innovation, technology, customer service, distinctive
Discussion Question 27: What are some examples of new ventures that have used a
differentiation strategy in order to succeed?
Discussion Question 28: In general, do you think it is easier or more likely that a
differentiation strategy would work best for a new venture, or an overall cost leader
strategy? Explain.
3. Focus
Focus or “niche” strategies provide an effective entry strategy for many new firms. A
Typically, a focus strategy is used to pursue a niche. Here’s why: If a start-up wants to
enter a mature industry, it often has to take business away from an existing competitor. Thus,
Discussion Question 29: Could there be an industry condition or other business
circumstance in which it would be good for a new start-up to enter with a broad or
aggressive strategy rather than a niche strategy? What would it be? (In a growth
industry, a more aggressive strategy is likely to be more effective.)
The SUPPLEMENT below presents the example of Imprivata, an entrepreneurial firm
Extra Example: Finding Success by Taking a Narrower Focus
Imprivata, a Massachusetts-based firm, produces technology solutions to allow users to log in and out of multiple-
user computers with the swipe of a card or a fingerprint rather than through the use of usernames and passwords.
They provided their systems to banks, financial institutions, and healthcare providers. The firm was finding success
in the market and saw sales grow 8 percent from 2008 to 2009. But the firm’s CEO, Omar Hussain, thought the firm
could do even better.
His solution was to drop 60 percent of its customers. He decided to stop designing and selling systems to banks and
other financial service firms and focus the firm’s business on the healthcare sector. By making this shift, Imprivata
could stop trying to design general systems for multiple market sectors, and instead, focus on developing systems
that met the specific security and productivity needs of doctors, nurses, and other healthcare providers. They also
emphasized the design to streamline the process of providing healthcare.
Imprivata has seen its focus lead to market success. Its healthcare business grew 40 percent in 2012 and now has
sales over $50 million. Its technology is now used in over 1,100 hospitals in the United States.
Sources: Schiller, K. 2013. A narrower focus: A tech company sees gains by turning its attention away from 60
percent of its clients. Entrepreneur. June: 46.
Discussion Question 30: What are the advantages and disadvantages of a focus
strategy?
Discussion Question 31: Is Imprivata limiting it opportunities by focusing on one market
segment? Should they look to expand outside of the healthcare market?
Emphasize that many of the industries that small firms participate in have thousands of
participants that aren’t direct competitors. For example, they may be separated geographically.
Discussion Question 32: What are the advantages of competing in a fragmented
industry? What are the disadvantages?
C. Combination Strategies
One of the best ways for new ventures and small businesses to achieve success is with
combination strategies. By combining the best features of low cost, differentiation, and/or focus
Discussion Question 33: What are the key ways in which a combination strategy differs
from the generic strategies?
III. COMPETITVE DYNAMICS
New entry into markets nearly always threatens existing competitors. As a result, the
competitive actions of a new entrant are very likely to provoke a competitive response from
Discussion Question 34: In general, do you believe competition is beneficial or
damaging to incumbents in an industry? In what ways is competition beneficial or
damaging?
EXHIBIT 8.4 identifies the factors that that competitors need to consider when
In the sections below, we will review the elements that contribute to a competitor’s
A. New Competitive Action
Why do companies launch new competitive actions? There are several reasons:
Improve market position
Capitalize on growing demand
When a company enters into a market for the first time, it is like an attack on existing
competitors. Attacks come from many sources besides new entrants. Some of the most intense
Discussion Question 35: What are some examples of new entrant companies you are
familiar with whose entry into a market evoked a competitive response? What was the
response? What was the impact of the response on the new entrant? On the incumbent?
The SUPPLEMENT below provides the example of Judicata to suggest that new entrants
Extra Example: Judicata aims to “Map the Legal Genome”
Attorneys and their staff who are researching prior court cases and related case law documents typically turn to
Lexis-Nexis and Westlaw, the dominant legal research databases. These systems have been around to decades and
require users to enter search terms and then painstakingly read through the volumes of references that the search
spits out. This tends to be a very labor intensive and costly process.
Judicata aims to move into this space by providing a more user friendly and less time intensive process. Judicata’s
system relies on natural language search technologies, text analytics, and advanced search tools to create systems
that allow users to bore down quickly to the most relevant case law on a particular topic. Rather than providing the
users with a list of possibly relevant cites, Judicata provides structured output with key findings from the legal
literature. For example, Judicata quickly allows users to systematically differentiate the findings on cases for which
the plaintiff was a male compared to when a plaintiff was a female.
The entrenched incumbents are finding it difficult to respond to Judicata since their systems are based on decades of
programming that they have developed. It is too costly to scrap that code and build up a more advanced system.
Additionally, though their systems are not terribly user friendly, users have grown accustomed to the structure of the
user interface and would resist any major changes to a new interface.
Source: Primack, D. 2013. A startup tries to hack the law. Cnnmoney.com. May 29: np; Halliburton, A. Judicata
raises $5.8M second round to build out advanced legal research systems. Techcrunch.com. May 28: np.
Discussion Question 36: Do you think Judicata will be able to change the legal research
business? How should Lexis-Nexis and Westlaw respond to this entry?
EXHIBIT 8.5 outlines five strategies for improving competitive position and
consolidating gains in preparation for another attack from Hardball: Are You Playing to Play or
Playing to Win? by George Stalk, Jr. and Rob Lachenauer.
B. Threat Analysis
Prior to actually observing a competitive action, effort is needed to become aware of
Two factors are used to assess whether or not companies are close competitors:
1. Market Commonality—whether or not competitors are vying for the same
2. Resource Similarity—the degree to which rivals draw on the same types
On the one hand, a market rival may be hesitant to attack a company that it shares a high
degree of market commonality with because it could lead to an intense battle. On the other hand,
In general, the same set of conditions holds true with regard to resource similarity. That
Discussion Question 37: Think of two close rivals among the companies you are familiar
with—two clothing stores or two auto manufacturers. Do they have a high or low degree
of market commonality? What are the implications of that?
Discussion Question 38: What are the implications of two close rivals having very
similar resources?
C. Motivation and Capability to Respond
Once attacked, competitors are faced with deciding how to respond. Before deciding,
There are several factors to consider. First, how serious is the impact of the competitive
attack to which they are responding? Second, companies planning to respond to a competitive
challenge must also understand their motivation for responding. What is the intent of the
competitive response? Is it merely to blunt the attack of the competitor or is it an opportunity to
enhance its competitive position?
Another consideration when planning a competitive challenge involves assessing the
capability to respond. What strategic resources can be deployed to fend off a competitive attack?
Does the company have an array of internal strengths it can draw on or is it operating from a
position of weakness? For example, young or small firms may be able to respond quickly
because they are more nimble than large firms. However, they may not have the financial
resources to follow-through on an attack.
Discussion Question 39: What are some of the reasons a company might be motivated to
respond to a competitive attack?
Discussion Question 40: What types of assets or resources that a company might possess
gives them a strong capability to respond? What are the implications of that?
D. Types of Competitive Actions
Once an organization determines whether it is willing and able to launch a competitive
1. Strategic actions represent major commitments of distinctive and specific resources.
2. Tactical actions include refinements or extensions of strategies.
Discussion Question 41: What are some examples of companies you are familiar with
that responded to a competitive attack? What type of response was used? Was the action
successful? Did the response evoke a counterattack?
EXHIBIT 8.6 provides several examples of strategic and tactical competitive actions.
Some competitive actions take the form of frontal assaults, that is, actions aimed directly
at taking business from another company or capitalizing on industry weaknesses. Guerilla
Discussion Question 42: Think of a young firm that you are familiar with that is trying to
build up its business and grow. What kind of competitors is the company up against?
Considering its rivals, what would be the best type of competitive actions the company
could take? Frontal assault? Guerilla tactics? Offensive actions? Defensive actions?
The SUPPLEMENT below addresses tactics that can be used by small companies to stay
ahead of their bigger rivals.
Extra Example: Aldi’s Price Warrior Tactics
One of the most common and effective tactical actions is to compete on price. It can be done without a large
investment or a major change in strategy. And, in fact, it is one of the best ways that smaller or more focused firms
can compete with larger rivals.
Three tactics are especially effective for companies aiming to compete on price:
1. Focus on just one or a few consumer segments.
2. In that segment, provide at least one benefit that is better than that of larger rivals.
3. Add to the mix highly efficient operations to keep costs down.
That’s how Aldi, the German retailer (which, in the U, also owns Trader Joe’s) has survived and thrived in highly
competitive markets in Europe. Aldi stores tend to be smaller than comparable discounters—rarely larger than
15,000 square feet. The outlets carry only about 700 products and 95 percent of them are store brands. The typical
big box supermarket carries in excess of 25,000 different products. One consequence is that Aldi has a relatively
easier supply chain to manage. Because volume sales on its narrow product line are high, another plus is that it is
able to negotiate better price concessions with suppliers.
It also excels in customer service. Plenty of checkout lines are provided so customers don’t have to wait in line and
its scanning technology is super fast, which gets people through the lines even faster. The smaller stores and simpler
operations make it easier to start up new stores and position them in neighborhoods where the real estate costs are
lower. Using these tactics, Aldi has grown to 4,100 stores in Germany and 7,500 worldwide.
Source: Kumar, N. 2006. Strategies to fight low-cost rivals. Harvard Business Review, December: 104–112.
Discussion Question 43: What are some examples of companies you are familiar with
that have used tactics similar to Aldi’s? How effective have the tactics been?