978-1259912191 Chapter 4 Solutions Manual Part 1

Chapter Four: External Analysis

Key Terms

Benchmarking: Working with and learning from a company outside of your industry

that has a particular skill that is potentially critical to your operation. (LO 4-5)

Competitive Advantage: The edge a business has over competing businesses, made

up of those things that the business does better than anyone else in the industry (LO

4-6)

Competitive Map: An analytical tool used to organize information about direct

competitors on all points of competition. (LO 4-4)

Elasticity of Demand: Consumers response to price changes. (LO 4-5)

Exit Barrier: A barrier, such as investment in capital assets that keeps a firm from

leaving an industry. (LO 4-5)

Fragmented Markets: Markets in which no one competitor has a substantial share of

the market and the means of competition vary widely within the same market space.

(LO 4-3)

Industry: Those direct competitors selling similar products/services within a specified

geographic radius that is consistent with a customer’s willingness to travel to purchase

those products/services. (LO 4-1)

Normal or ordinary competitive factor: Describing those areas of a business that are

simply standard practice in the industry and are necessary for the business to be a

player. (LO 4-6)

Resource-Based Analysis: A theoretical approach and practical methodology that

examines the functioning of a business in terms of whether a product/service

simultaneously meets the criteria of being rare, durable, non-substitutable, and

valuable. (LO 4-6)

Substitute: A product that performs a similar function or achieves the same result, but

is not a precise imitation. (LO 4-5)

Unusual or unique competitive factor: Describing those areas of a business that are

unique or unusual when compared to the standard practices of the industry, and that

provide the opportunity for the business to gain value over and above the ordinary

returns in the industry. (LO 4-6)

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Chapter Four: External Analysis

Suggested Text Responses:

Opening Vignette – “Moziah Bridges” – p.61

Student responses will vary.

Exercise 1 – p.66

Student responses will vary.

Exercise 2 – p.67

Student responses will vary.

Exercise 3 – p.68

Student responses will vary.

Exercise 4 – p.72

Student responses will vary.

Ethical Challenge – p.73

Student responses will vary. This may be a good small group exercise.

Exercise 5 –p.75

Student responses will vary.

Review Questions – p.78

1. How would you advise a potential entrepreneur define the industry for a new

business? The new entrepreneur should develop of list of services/products that will

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Chapter Four: External Analysis

2. How should a new business develop a profile for its potential customers? The

3. Why should a potential entrepreneur research the industry personally? The

4. What techniques would you recommend for identifying competitors within an

5. How would you recommend developing a complete analysis of the competitors

6. What elements are in a competitive map? A competitive map lists each competitor

Business Plan Development Questions: p.76

Student answers will vary.

Individual Exercises: p.76

Student answers will vary.

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Chapter Four: External Analysis

Group Exercises: p.76

Studen answers will vary.

Class Activities and Sample Assignments

1. Divide the students into groups. Ask students to choose a new small business. Next,

ask the students to identify the industry, target customers, competitors, and the

competitive advantage for their new small business. The students can present their

business or list the outcome of their work on a flip chart or the blackboard. (LO 4-2,

4-3, 4-4, 4-5, 4-6)

2. In groups, ask students to list the eight critical steps (text page 62) needed to

examine the external environment. Next, ask students to create a hypothetical new

business and apply each step to their new small business. Choose one person from

each group to be the spokesperson to share their analysis of the external

environment as they applied it to their new small business. (LO 4-1,4-2, 4-3, 4-4,

3. 4-5, 4-6)

4. In groups, ask students to discuss why entrepreneurs define their customers.

Discuss the advantages of defining their customers and the disadvantages if they fail

to define their customers. Next, divide the groups into subgroups and assign one

group an upscale restaurant; and assign the other group a convenience store. Ask

students in each subgroup to identify the target customers for each of the new small

business. The specific details to discuss should include the age, location, income

group, level of education, and other categories that they choose to detail. Ask

students to discuss why the specific details about the customers were chosen and

relate why each business targets different types of clients. (LO 4-1, 4-2)

5. In groups, ask students to discuss the external environment. Specifically, ask to

discuss why it is important for new small business owners to assess the external

environment themselves versus hiring a consultant or another professional

associated with their new small business. (LO 4-3)

6. Ask the students to discuss the function of a competitive map. Draw a diagram of a

potential competitive map on the blackboard or flip chart (Review Diagram 4.1 on

page 69 of the text). As a class discussion, establish a hypothetical new small

business and discuss why it is important for entrepreneurs to complete the

competitive map personally. Next, ask students to describe some potential items that

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Chapter Four: External Analysis

an entrepreneur must consider to establish a competitive map. List the items,

analyze the results, and form conclusions. (LO 4-4)

7. Divide the class into groups of two or three students (Note: Five different groups of

students are needed to complete this assignment) (LO 4-1, 4-2, 4-3, 4-4, 4-5, 4-6)

Assign each group one of the following topics:

a. Substitutes

b. Elasticity of demand

c. Ease of entry/exit

d. Benchmarking

e. Industry trends

Ask each group to define them and relate them to an external analysis. Discuss why

they are important in the external analysis. List their results on a flip chart or

blackboard. (LO 4-5)

8. Divide the students into groups and discuss the advantages of a competitive

advantage. Ask students to compare and contrast the usual parts of a business with

the unique parts of a business. Discuss how they vary by industry type, the amount

of time in the industry, and discuss how the resource-based view applies to

competitive advantage. (LO 4-5, 4-6)

Discussion Questions for Online/Hybrid classes

1. Explain why it is important for entrepreneurs to evaluate their competitors. Discuss

the advantages and disadvantages of competitor identification. (LO 4-3)

2. Summarize the similarities and differences between usual and unique parts of

businesses. Provide an example for each term. (LO 4- 6)

3. Define a fragmented market. Why is it important for entrepreneurs to understand

them? (LO 4-3)

4. What is a substitute? Why do new small business owners evaluate substitutes and

the potential impact they have in the market? (LO 4-5)

5. New business owners learn to assess the external environment. List the eight critical

steps that new business owners use to assess the external environment. (LO 4-1)

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Chapter Four: External Analysis

6. What is an exit barrier? Discuss why small business owners include them in their

entrepreneurial business planning. (LO 4-5)

7. Discuss how industry trends shape the long-term perspective of the industry. Why?

(LO 4-5)

8. Explain why new entrepreneurial owners select or target their customers. What are

the disadvantages associated with not choosing the customers? (LO 4-2)

9. Summarize why entrepreneurs utilize the technique known as resource-based

analysis. (LO 4-6)

10..Describe how unique parts of the business can develop into competitive

advantages. (LO 4-6)

Discussion Questions for Online/Hybrid classes- Responses

1. Explain why it is important for entrepreneurs to evaluate their competitors.

Discuss the advantages and disadvantages of competitor identification.

2. Summarize the similarities and differences between usual and unique parts

of businesses. Provide an example for each term. (LO 4-6) Usual or normal

3. Define a fragmented market. Why is it important for entrepreneurs to

understand them? (LO 4-3) A fragmented market is one in which no competitor

4. What is a substitute? Why do new entrepreneurial business owners

evaluate substitutes and the potential impact they have in the market? (LO

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Chapter Four: External Analysis

5. New business owners learn to assess the external environment. List the

eight critical steps that new business owners use to assess the external

environment. (LO 4-1) The eight critical steps are:

a. Define the industry in which you are competing.

b. Define your customers.

6. What is an exit barrier? Discuss why small business owners include them

in their entrepreneurial business planning. (LO 4-5) An exit barrier is a

7. Discuss how industry trends shape the long-term perspective of the

industry. Why? (LO 4-5) Industry trends affect the business. For example,

8. Explain why new entrepreneurial business owners select or target their

customers. What are the disadvantages associated with not choosing the

customers? (LO 4-2) It would be too expensive for new business owners

9. Summarize why entrepreneurs utilize the technique known as

resource-based analysis. (LO 4-6) This technique is based on potentially

10. Describe how unique products can develop into competitive

advantages. (LO 4-6) Unique products separate the new entrepreneurial

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