Entry Strategies

MBAX 6100MBAX 6100

Entrepreneurship & Small Business Entrepreneurship & Small Business

ManagementManagement

MBAX 6100MBAX 6100

Entrepreneurship & Small Business Entrepreneurship & Small Business

ManagementManagement

Frank MoyesFrank MoyesLeeds School of BusinessLeeds School of BusinessUniversity of ColoradoUniversity of ColoradoBoulder, ColoradoBoulder, Colorado

Entry Strategies

Today’s AgendaToday’s Agenda

Entry strategiesEntry strategies ICEDELIGHTS caseICEDELIGHTS case NREL visit Feb 2 at NREL visit Feb 2 at 2:00pm2:00pm

Entry Strategies

Next WeekNext Week

Opportunity RecognitionOpportunity Recognition Read Read

BZ-2BZ-2 M-1 & 2M-1 & 2 K-2K-2

Download Feasibility PlanDownload Feasibility Plan Tech Transfer ConceptsTech Transfer Concepts

Visit from scientistsVisit from scientists

Entry Strategies

Entry StrategiesEntry Strategies

New BusinessNew Business Develop a new product or serviceDevelop a new product or service Develop a similar product or serviceDevelop a similar product or service Competitive approachesCompetitive approaches

Existing BusinessExisting Business Buying a businessBuying a business FranchiseFranchise Joint venture – customer or supplierJoint venture – customer or supplier

Entry Strategies

Develop a New Product or ServiceDevelop a New Product or Service

ProprietaryProprietary First to marketFirst to market Growth marketsGrowth markets RisksRisks

High failure rateHigh failure rate PioneerPioneer Time to market – missionary sellingTime to market – missionary selling New design doesn’t workNew design doesn’t work Underestimate resourcesUnderestimate resources One trick ponyOne trick pony

Entry Strategies

Develop a Similar Product or ServiceDevelop a Similar Product or Service

Market is well definedMarket is well defined Customer understands the product & is already buyingCustomer understands the product & is already buying Value chain is establishedValue chain is established RisksRisks

Can’t compete with the prosCan’t compete with the pros Time to profitabilityTime to profitability Underestimate the marketing requiredUnderestimate the marketing required Retaliatory action of competitorsRetaliatory action of competitors

Entry Strategies

Competitive ApproachesCompetitive Approaches

Proprietary technologyProprietary technology Differentiation Differentiation Niche StrategyNiche Strategy Cost SuperiorityCost Superiority

K. Allen, Launching New Ventures

Entry Strategies

Proprietary TechnologyProprietary Technology

PatentsPatents Proprietary secretsProprietary secrets CopyrightCopyright RisksRisks

Patent systemPatent system ExpenseExpense TimeTime

Entry Strategies

DifferentiationDifferentiation Distinguished by Distinguished by

Product/process innovationProduct/process innovation Unique marketing or distributionUnique marketing or distribution

Creates brand loyaltyCreates brand loyalty Substitute products less of a threatSubstitute products less of a threat Higher marginsHigher margins

Less price sensitiveLess price sensitive Focus is not on the cost Focus is not on the cost

RisksRisks ExecutionExecution

K. Allen, Launching New Ventures

Entry Strategies

Niche StrategyNiche Strategy

Select a segment of the marketSelect a segment of the market Focus is on customer, product design, price, service, Focus is on customer, product design, price, service,

packaging, geography, distributionpackaging, geography, distribution Compete without going head-to-head with the major Compete without going head-to-head with the major

companiescompanies Gives you time to develop & become strongerGives you time to develop & become stronger RisksRisks

Not sustainable over long termNot sustainable over long term If successful, will attract competitorsIf successful, will attract competitors

K. Allen, Launching New Ventures

Entry Strategies

Cost SuperiorityCost Superiority

Lean & meanLean & mean Tight cost controls Tight cost controls New production process/technologiesNew production process/technologies Quantity targetsQuantity targets RisksRisks

Don’t have economies of scaleDon’t have economies of scale Don’t have infrastructureDon’t have infrastructure Emerging industry – everyone has same disadvantageEmerging industry – everyone has same disadvantage Low overheadsLow overheads

K. Allen, Launching New Ventures

Entry Strategies

Buying a Business - Advantages?Buying a Business - Advantages?

Lower riskLower risk Easier to assessEasier to assess Track recordTrack record First two years are the riskiestFirst two years are the riskiest

Invest fewer dollarsInvest fewer dollars If can get seller to finance If can get seller to finance

purchasepurchase Favorable lending termsFavorable lending terms Trade off with a higher Trade off with a higher

purchase pricepurchase price Acquire assets more cheaplyAcquire assets more cheaply

Expertise of employeesExpertise of employees Training provided by the Training provided by the

seller seller Reduces time to get into a Reduces time to get into a

businessbusiness Must do the due-diligenceMust do the due-diligence RiskRisk

Price is too highPrice is too high Pig in a pokePig in a poke

Entry Strategies

Good Reasons for Selling?Good Reasons for Selling?

RetirementRetirement Other interestsOther interests Illness or deathIllness or death Internal disputesInternal disputes Business too complexBusiness too complex Inadequate capitalInadequate capital Exit strategy Exit strategy

FASTTRAC, Planning and Growing a Business Venture

Entry Strategies

Bad Reasons for Selling?Bad Reasons for Selling?

Deteriorating marketDeteriorating market Product obsolescenceProduct obsolescence Loss of key peopleLoss of key people Lease problemsLease problems Legal problemsLegal problems

Poor locationPoor location CompetitionCompetition Problems with key suppliersProblems with key suppliers Dependency on key customerDependency on key customer Do you want to own a turn-Do you want to own a turn-

around?around?

FASTTRAC, Planning and Growing a Business Venture

Entry Strategies

Where to LookWhere to Look

NetworkNetwork Banks, accountants, attorneysBanks, accountants, attorneys NewspapersNewspapers Industry trade magazinesIndustry trade magazines Business brokersBusiness brokers Chambers of CommerceChambers of Commerce SBA and development agenciesSBA and development agencies Bankruptcy listingsBankruptcy listings

FASTTRAC, Planning and Growing a Business Venture

Entry Strategies

FranchisingFranchising

““Arrangement in which an owner of a trademark, trade Arrangement in which an owner of a trademark, trade name, or copyright has licensed others to use it in name, or copyright has licensed others to use it in selling goods or services.” selling goods or services.”

26% of small companies started 3,000 franchise chains 500,000 outlets

Kuratko, Entrepreneurship

Entry Strategies

Franchising Advantages?Franchising Advantages?

Training and GuidanceTraining and Guidance Brand Name AppealBrand Name Appeal Proven Track RecordProven Track Record Financial AssistanceFinancial Assistance

Kuratko, Entrepreneurship

Entry Strategies

Franchise AgreementFranchise Agreement

InitialInitial ContinuingContinuing Territorial rightsTerritorial rights

Spinelli, Portable MBA in Entrepreneurship,Bygrave & Zacharakis

Entry Strategies

Franchising FeesFranchising Fees

Celluland (cellular telephones)Celluland (cellular telephones) Fee $25,000Fee $25,000 Royalty 5%Royalty 5% Store Costs $80,000 to $250,000Store Costs $80,000 to $250,000

Papyrus (greeting cards)Papyrus (greeting cards) Fee $29,500Fee $29,500 Royalty 6%Royalty 6% Store Costs $70,000 to $150,000Store Costs $70,000 to $150,000

Kuratko, Entrepreneurship

Entry Strategies

Franchising FeesFranchising Fees

Valvoline (auto oil change)Valvoline (auto oil change) Fee $35,000Fee $35,000 Royalty 6%Royalty 6% Store Costs $55,000 to $100,000Store Costs $55,000 to $100,000

Pizza Franchise $325,000Pizza Franchise $325,000 Starbucks? Noodles?Starbucks? Noodles?

Kuratko, Entrepreneurship

Entry Strategies

Franchising DisadvantagesFranchising Disadvantages

Franchise FeesFranchise Fees Dependent on Franchisor for product, services, Dependent on Franchisor for product, services,

trainingtraining Control exercised by the FranchisorControl exercised by the Franchisor Advertising not freeAdvertising not free Time consuming reportsTime consuming reports

Entry Strategies

Franchising RisksFranchising Risks

Concept may not be proven – franchisor is a start-upConcept may not be proven – franchisor is a start-up Franchisor reputation and resourcesFranchisor reputation and resources

Trade name with no drawing powerTrade name with no drawing power No assistanceNo assistance Unfilled promisesUnfilled promises

Economics don’t work – can’t get the volumeEconomics don’t work – can’t get the volume Overlapping territories - SubwayOverlapping territories - Subway YouYou must get customers must get customers

Entry Strategies

Entry Strategies

Entry Strategies

Franchise ConclusionsFranchise Conclusions

Different kind of riskDifferent kind of risk Need to do due-diligenceNeed to do due-diligence Must write a business plan Must write a business plan

Entry Strategies

Entry Strategies ConclusionsEntry Strategies Conclusions

Lots of ways Lots of ways Must be proactiveMust be proactive Sentry strategySentry strategy

Entry Strategies

Alternative Entry StrategiesAlternative Entry Strategies

Sentry strategySentry strategy Observation of a needObservation of a need Spin-offsSpin-offs Company outsourcingCompany outsourcing Customer in handCustomer in hand

Desperation – no job, no moneyDesperation – no job, no money HobbiesHobbies Home based businessHome based business Non-profitNon-profit