The New Venture’s Environment
Technological
Economic
Industry
New
Venture
Environment
Political
Ecological
Socio-demographic
© 2002 by Prentice Hall
3-1
Quantitative and Judgemental Forecasting Methods
Method
Description
A bottom-up approach that aggregates unit demand
Cost
Low
Complexity
Low
Forecasts jointly prepared by experts in a functional area
Low
Low
Learning about intentions of potential customers and final
users
Medium
Medium
Effects of anticipated conditions imagined by forecasters
Medium
Low
Experts guided to consensus
Low
Medium
Idea generation in a non-critical group situation
Low
Medium
Sales force estimate
Juries of executive opinion
Customer surveys:
Market research focus
groups
Scenario development
Delphi method
Brainstorming
© 2002 by Prentice Hall
3-2
Sources of
Entrepreneurial Opportunities
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The unexpected
The incongruous
The process need
Industry and market structures
Demographics
Changes in perception
New knowledge
© 2002 by Prentice Hall
3-3
Elements of Industry Structure
New
Entrants
Threat of New
Entrants
Suppliers
Bargaining
Power
of Suppliers
Industry
Competitors
Intensity of Rivalry
Bargaining
Power
Buyers
of Buyers
Threat of
Substitutes
Substitutes
© 2002 by Prentice Hall
3-4
Elements of Industry Structure
Entry Barriers:
 Economies of scale
 Proprietary product differences
 Brand identity
 Switching costs
 Capital requirements
 Access to distribution
 Absolute cost advantages
 Proprietary learning curve
 Access to necessary inputs
 Proprietary low-cost product design
 Government policy
 Expected retaliation
© 2002 by Prentice Hall
3-5
Elements of Industry Structure
Rivalry Determinants:
 Industry growth
 Fixed (or storage) costs / value added
 Intermittent overcapacity
 Product differences
 Brand identity
 Switching costs
 Concentration and balance
 Informational complexity
 Diversity of competitors
 Corporate stakes
 Exit barriers
© 2002 by Prentice Hall
3-6
Elements of Industry Structure
Determinants of Supplier Power:
 Differentiation of inputs
 Switching costs of suppliers and firms in the industry
 Presence of substitute inputs
 Supplier concentration
 Importance of volume to supplier
 Cost relative to total purchases in the industry
 Impact of inputs on cost or differentiation
 Threat of forward integration relative to threat of backward integration
by firms in the industry
© 2002 by Prentice Hall
3-7
Elements of Industry Structure
Bargaining Leverage:
 Buyer concentration versus firm concentration
 Buyer volume
 Buyer switching costs relative to firm switching costs
 Buyer information
 Ability to backward integrate
 Substitute products
 Pull-through
© 2002 by Prentice Hall
3-8
Elements of Industry Structure
Price Sensitivity:
 Price / total purchases
 Product differences
 Brand identity
 Impact on quality performance
 Buyer profits
 Decision makers’ incentives
© 2002 by Prentice Hall
3-9
Elements of Industry Structure
Determinants of substitution threats:
 Relative price performance of substitutes
 Switching costs
 Buyer propensity to substitute
© 2002 by Prentice Hall
3-10
Political and Governmental Issues
Effecting Entrepreneurs
Global
Trade barriers
Trade agreements
Tariffs and duties
Political risk
© 2002 by Prentice Hall
National
Taxation
Regulation
Antitrust issues
Patent issues
Gov’t spending
State and Regional Local
Taxation
Taxation
Securities law
Zoning
Licensing
Incentives
3-11
Entry Barriers
Structural Barriers
 Economies of scale
 Excess capacity
 Product differentiation core
 Specific assets
 Capital requirements
 Switching costs
 Access to distribution channels
 Non-size cost disadvantages
© 2002 by Prentice Hall
3-12
Entry Barriers
Retaliatory Barriers
 Competitors' reputation
 Industry history
 Attack competitors
 Slow industry growth rate
 Competitors with substantial resources
 Price cutting
 Legal challenges
© 2002 by Prentice Hall
3-13
Factors Affecting Retaliatory Pricing
Encouraging Factors
Discouraging Factors
Elastic demand
Inelastic demand
Cost advantages
No cost advantages
Excess capacity
Tight capacity
Small competitors
Large competitors
New competitors
Long-time rivalries
Single-product markets
Mkt. interdependence
© 2002 by Prentice Hall
3-14
Industry Environment Issues
Competitive analysis
Industry analysis
Buyer power
Supplier power
Threat of substitutes
Entry barriers
Rivalry between firms
© 2002 by Prentice Hall
3-15
Competitor Resource Analysis
Resource Type
Own Firm
#1
#2
#3
#4
#5
Financial
Physical
Human
Technical
Reputational
Organizational
Total Scores
Grand Mean
+/- from Mean
Evaluate each resource base from 1-7.
© 2002 by Prentice Hall
1: Firm has no advantage in this area.
4: Firm’s capabilities are about the same as other competitors.
7: Firm possesses an absolute advantage in this area.
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