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BUS502 Entrepreneurship
Entrepreneurial Strategy and Legal Aspects
Week 5
Learning Objectives
To understand that the essential act of entrepreneurship involves new entry
To be able to think about how an entrepreneurial strategy can first generate, and then exploit over time, a new entry
To understand how resources are involved in the generation of opportunities
To be able to assess the attractiveness of a new entry opportunity
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Learning Objectives
To acknowledge that entrepreneurship involves making decisions under conditions of uncertainty
To be able to assess the extent of first-mover advantages and weigh them against first-mover disadvantages
To understand that risk is associated with newness, but there are strategies that the entrepreneur can use to reduce risk
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Learning Objectives
To identify and distinguish intellectual property assets of a new venture including patents, trademarks, and copyrights
To identify procedures that can protect a venture’s trade secrets, including licensing to either expand a business or start a new venture
To illustrate important issues related to contracts, insurance, and product safety and liability
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Introduction
Entrepreneurship can be scary – it’s about dealing with uncertainties and taking risks
Understanding your customers and the environment that you are operating in, is therefore one of the most important aspect of starting a business
From idea to business start – there are a lot of iterations and revisions
The Business Model in Context
https://youtu.be/aGkrNYh4MUE
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New Entry
Includes:
New product or service in an established or new market
Established product or service in a new market
A new organization (e.g. start-up)
Entrepreneurial strategy
Set of decisions, actions, and reactions that generate, and exploit, a new entry over time
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
New Entry and Focus for Assignment 2 & 3
Your business opportunity
development should refer to:
A new organisation
s
A market within Australia
It is NOT about:
Opening a business based on an existing business idea or model
A market outside Australia
Unless such idea or model has been advanced with something new!
Be innovative!
Based on a new or advanced busines idea
Entrepreneurial Strategy:
The Generation and Exploitation of New Entry Opportunities
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Generation of a New Entry Opportunity
Resources
Inputs into the production process
Source of competitive advantage
Basic building blocks to a firm’s functioning
Can be combined in different ways
Provide capacity to achieve superior performance when they are:
Valuable Rare Inimitable
Generation of a New Entry Opportunity
Creating a resource bundle that is valuable, rare, and inimitable
Entrepreneurial resource
Ability to obtain, and recombine, resources into a bundle that is valuable, rare, and inimitable
Drawn from the unique experiences and knowledge of the entrepreneurs
Market knowledge
Information, technology, know-how, and skills that provide insight into a market and its customers
Technological knowledge
Provides insight into ways to create new knowledge
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Generation of a New Entry Opportunity
Assessing the attractiveness of a new entry opportunity depends on:
The level of information
Willingness to make a decision without perfect information
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Generation of a New Entry Opportunity
Information on a new entry
Prior knowledge and information search
More knowledge ensures:
Entrepreneur starts from a position of less ignorance
Less time is spent on information search
‘Costs’ of information search: time and money
Window of opportunity: Favorable environment for entrepreneurs to exploit a new entry
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Speed is of the essence!
https://marketbusinessnews.com/financial-glossary/window-of-opportunity-definition-meaning/
Generation of a New Entry Opportunity
Comfort with making a decision under uncertainty
Likelihood that the window of opportunity will close leads to the dilemma of choosing between
Error of commission:
Negative outcome from acting on the perceived opportunity
Error of omission:
Negative outcome from not acting on the new entry opportunity
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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The Decision to Exploit or Not to Exploit the New Entry Opportunity
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Factors That Influence the Decision to Enter the Market Now or to Delay Entry
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Entry Strategy for New Entry Exploitation
Environmental instability and first-mover
(dis)advantages
Firm performance depends upon the fit between external environment and resources
First movers are unaware of key success factors
Emerging industries
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Potential size, growth, and the key dimensions along which a market will grow
Entry Strategy for New Entry Exploitation
Difficulty in estimating:
Demand
uncertainty
Difficulty in assessing whether:
The technology will perform
Alternate technologies will emerge and leapfrog over current technologies
Technological uncertainty
In changing market conditions:
Persistence and determination can inhibit the ability to adapt
Adaptation
Entry Strategy for New Entry Exploitation
Customers’ uncertainty and first-mover (dis)advantages
Uncertainty for customers
Difficulty in accurately assessing whether the new product or service provides value
Overcome customer uncertainty by:
Informational advertising
Highlighting product benefits over substitutes
Creating a frame of reference for potential customers
Educating customers through demonstration and documentation
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Entry Strategy for New Entry Exploitation
Lead time and first-mover (dis)advantages
Lead time
Grace period in which the first mover operates in the industry under conditions of limited competition
Lead time can be extended by:
Building customer loyalties
Building switching costs
Protecting product uniqueness
Securing access to important sources of supply and distribution
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Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Risk Reduction Strategies for New Entry Exploitation
Risk
Probability, and magnitude, of downside loss
Derived from uncertainties over:
Market demand
Technological development
Actions of competitors
Strategies to reduce uncertainties
Market- scope strategies
Imitation strategies
Market Scope Strategies
Narrow-scope strategy
Offers small product range to a small number of customers to satisfy a particular need
Focuses on:
Producing customized products
Localized business operations
High level craftsmanship
High-end of the market
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Market Scope Strategies
Broad-scope strategy
Offers range of products across different market segments
Helps gain better understanding of the whole market
Opens the firm up to many different “fronts” of competition
Reduces risks associated with market uncertainties
Increases exposure to competition
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Imitation Strategies
Copying practices of other Advantages
Help develop skills necessary to be successful in the industry
Provide organizational legitimacy
Reduce costs associated with R&D
Reduce customer uncertainty over the firm
Make the new entry look legitimate from day one
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Acquiring a “proven formula” for new entry from a franchisor
Imitation Strategies
Types of imitation strategies
Franchising “Me-too” strategy
Copying existing products/services and attempting to build an advantage through minor variations
Legal Issues regarding New Entry
Intellectual property
Protect your ‘business idea’
Avoid infringing on others’ intellectual property
Contractual agreements
Protecting your ‘business idea’ in partnerships
Liability issues
Making your products and services safe
Protection via insurance cover
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Intellectual Property
Need for lawyer (legal advice re type of venture)
Important assets to the entrepreneur
Patents, trademarks, copyrights, or trade secrets held by the entrepreneur
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Patents
Contract between the government and an inventor
Grants protection from others making, using, or selling a similar idea
Issued by the Patent and Trademark Office (PTO)
USTPO for international
European Patent Office
Utility patent
For duration of 20 years
Include plant patent
Design patent
For duration of 14 year
Patents
The provisional application
Provides evidence of being first to market
Establishes date of conception of invention
Determines rights to the patent based on the concept of first to file
The patent application
Complete history and description of the invention
Lists claims for the product’s usefulness
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Trademarks
Distinguishing word, name, or symbol used to identify a product
Can last indefinitely
Can be filed solely on the basis intent to use
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Copyrights
Prevent others from printing, copying, or publishing any original works of authorship
Increasingly relevant due to growth in use of Internet
Registered with the Library of Congress
Applicable for duration of 70 years
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Trade Secrets And
Non-Competition Agreements
Protection against disclosing information that could be damaging to business
Applicable as long as the idea or process remains a secret
Not covered by federal law but
recognized under a governing body of common laws
Requires employee training and implementing of security procedures
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Licensing
Contractual agreement giving rights to others to use intellectual property in return for a royalty or fee
Useful when firms:
Intend to grow their business in new markets but lack resources
Need permission to copy or incorporate the patent, trademark, or copyright with their ideas
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Type of Licensing
Patent license agreements
agreements
Copyright license agreements
Specify how the licensee would have access to the patent
Trademark license Involve a franchising
agreement
Involve rights to use or copy books, software, music, photographs, plays
Product Safety and Liability
Responsibility of a company to meet legal specifications regarding a new product
The Consumer Product Safety Act - Created a commission responsible for:
Prescribing safety standards
Regulating labeling and advertising
Determining fines as well as product recalls
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Types of Insurance and Possible Coverage
Property
Casualty
Life
Workers’ compensation
Bonding
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Tutorial?
We will continue using the two canvases.
Please bring a draft of your business model canvas and value proposition canvas.
You will have the opportunity to discuss and receive feedback and suggestions!
If needed, we will also be able to help you with developing your business ideas.
Preparation for next week
In week 6, we will start with preparation for assignment 3 and will discuss how to develop a business plan (read chapter 7 in the text book).
Week 6 is also the last chance to get some feedback on your business idea. Bring both your canvases to the tutorial!
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Thank you for your attention
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