Question 1

Because new ventures typically are small,they usually do not have high economies of scale relative to competitors.

Accepted Answer

Because new ventures typically are small, they usually do not have high economies of scale relative to competitors. This means that new firms must seek a different approach, if they wish to pursue a cost-leadership strategy.

Question 2

Few start-ups enter industries that are mature.

Accepted Answer

Despite all the attention given to fast-growing new industries, most start-ups enter industries that are mature. In mature industries, growth in demand tends to be slow and there are often many competitors. Therefore, if a start-up wants to get a piece of the action, it often has to take business away from an existing competitor.

Question 3

Tuft and Needle is a low-cost bed mattress manufacturer that finds it difficult to overcome competition using an overall cost leadership strategy.

Accepted Answer

Strategy Spotlight 8.5 highlights the success of Tuft and Needle, a growing mattress manufacturer with an overall cost leadership strategy. Whatever methods young firms use to achieve a low-cost advantage, this has always been a way that entrepreneurial firms take business away from incumbents by offering a comparable product or service at a lower price. So far, the company is having great success. Launched in 2012, Tuft and Needle surpassed 1 USD million in sales in 2013 and was expected to gross 5 million USD in sales in 2014.

Question 4

Under Armour Inc.,founded in 1995,makes undershirts and other athletic gear using moisture-wicking fabric.This is an example of a pioneering new entry.

Accepted Answer

An adaptive new entry approach does not involve reinventing the wheel, nor is it merely imitative either. It involves taking an existing idea and adapting it to a particular situation. Under Armour successfully modified and adapted existing products to create new value.

Question 5

Entrepreneurial firms are often in a strong position to use combination strategies,because they have the flexibility to approach situations uniquely.

Accepted Answer

Entrepreneurial firms are often in a strong position to offer a combination strategy, because they have the flexibility to approach situations uniquely. For example, holding down expenses can be difficult for big firms, because each layer of bureaucracy adds to the cost of doing business across the boundaries of a large organization.

Question 6

Once an adaptive entrant has achieved initial success,the company is safe from copycat competition.

Accepted Answer

Once an adaptive entrant achieves initial success, the challenge is to keep the idea fresh. If the attractive features of the new business are copied, the entrepreneurial firm must find ways to adapt and improve the product or service offering.

Question 7

To be successful within a market niche,the key strategic requirement is to have a good differentiation strategy.

Accepted Answer

Focus strategies are often associated with small businesses because there is a natural fit between the narrow scope of the strategy and the small size of the firm. A focus strategy may include elements of differentiation and overall cost leadership, as well as combinations of these approaches. But to be successful within a market niche, the key strategic requirement is to stay focused.

Question 8

Square,founded in 2010,provides a means for small businesses to process credit and debit card sales without signing up for a traditional credit card arrangement.This is an example of a pioneering new entry.

Accepted Answer

Sometimes the key to success with an imitative strategy is to fill a market space where the need had previously been filled inadequately. Entrepreneurs are also prompted to be imitators when they realize that they have the resources or skills to do a job better than an existing competitor. This can actually be a serious problem for entrepreneurial start-ups if the imitator is an established company. As of 2014, Square was processing 30 USD billion in transactions annually. But success triggers imitation. A host of both upstart and established firms have moved into this new segment. While Square has quickly established itself in the market, it now faces strong competition from major competitors, including Apple, Google, and PayPal.

Question 9

The success of an adaptive new entrant can be limited,if the value proposition is perceived as being unique.

Accepted Answer

There are several pitfalls that might limit the success of an adaptive new entrant. First, the value proposition must be perceived as unique. Unless potential customers believe a new product or service does a superior job of meeting their needs, they will have little motivation to try it.

Question 10

Entrepreneurial competitive dynamics refers to a cycle of actions and responses between firms competing for the same customers.

Accepted Answer

Competitive dynamics is intense rivalry, involving actions and responses, among similar competitors vying for the same customers in a marketplace.

Question 11

Running Press created a line of palm-sized mini books that were sold as point-of-sale impulse items.The company grew rapidly,even though it had a small fraction of the sales in the publishing industry.They used a pure overall cost leadership strategy to capture market share.

Accepted Answer

Focus strategies are often associated with small businesses because there is a natural fit between the narrow scope of the strategy and the small size of the firm. A focus strategy may include elements of differentiation and overall cost leadership, as well as combinations of these approaches. To be successful within a market niche, the key strategic requirement is to stay focused. Even though these books represent just a tiny fraction of total sales in the 23 USD billion publishing industry, they have been a mainstay for Running Press. As the Running Press example indicates, many new ventures are successful even though their share of the market is quite small.

Question 12

Several arena factors make it more difficult for new ventures to be successful as differentiators.Examples include innovation,technology,customer service,and distinctive branding.

Accepted Answer

There are several factors that make it more difficult for new ventures to be successful as differentiators. All of these areas (innovation, technology, customer service, distinctive branding) are also arenas where new ventures have sometimes made a name for themselves even though they must operate with limited resources and experience.

Question 13

If a start-up enters a market with a broad or aggressive strategy,it is likely to evoke little retaliation from a more powerful competitor.

Accepted Answer

If a start-up enters a market with a broad or aggressive strategy, it is likely to evoke retaliation from a more powerful competitor. Young firms can often succeed best by finding a market niche where they can get a foothold and make small advances that erode the position of existing competitors. From this position, they can build a name for themselves and grow.

Question 14

Entrepreneurial new entry is often perceived as a competitive threat because most market needs are being met,either directly or indirectly,by an existing firm.

Accepted Answer

New entry into markets, whether by start-ups or by incumbent firms, nearly always threatens existing competitors. This is true in part because nearly every market need is already being met, either directly or indirectly, by existing firms. As a result, the competitive actions of a new entrant are very likely to provoke a competitive response from companies that feel threatened. This, in turn, is likely to evoke a reaction to the response.

Question 15

The most threatening competitor to new entrants are close competitors,because they have similar structural features that help them adjust quickly and be flexible in decision making.

Accepted Answer

Perhaps more threatening than large competitors are close competitors, because they have similar structural features that help them adjust quickly and be flexible in decision making. Here again, a carefully crafted and executed combination strategy may be the best way for an entrepreneurial firm to thrive in a competitive environment.

Question 16

One of the most important considerations for a new entrant is the type of strategic positioning to choose that will help the business move forward.

Accepted Answer

Whether to be pioneering, imitative, or adaptive when entering markets is only one question the entrepreneur faces. A new entrant must also decide what type of strategic positioning will work best as the business goes forward.

Question 17

Developed in 1993,WorldWideWeb,later named Nexus,was the first web browser.It radically changed how users access information on the Internet.This is an example of a pioneering new entry strategy.

Accepted Answer

New entrants with a radical new product or highly innovative service may change the way business is conducted in an industry. This kind of breakthrough of creating new ways to solve old problems or meeting customer needs in a unique new way is referred to as a pioneering new entry. If the product or service is unique enough, a pioneering new entrant may actually have little direct competition.

Question 18

The Amazon approach to selling books,using the Internet and offering superior customer service,gave it a strong entry strategy.This is an example of a focus strategy.

Accepted Answer

Amazon founder Jeff Bezos set out to use Internet technology to revolutionize the way books are sold. He garnered the ire of other booksellers and the attention of the public by making bold claims about being the earth's largest bookseller. As a bookseller, Bezos was not doing anything that had not been done before. But two key differentiating features, doing it on the Internet and offering extraordinary customer service, made Amazon a differentiated success.

Question 19

Smell-O-Vision created an invention that would pump odors into movie theatres.It did not make it to market.This was an attempt to be an adaptive entry strategy.

Accepted Answer

An adaptive new entry approach does not involve reinventing the wheel nor is it merely imitative either. It involves taking an existing idea and adapting it to a particular situation. Smell-O-Vision created a new invention to meet customer needs and therefore was an attempted pioneering new entry strategy.

Question 20

A focus strategy must not include elements of differentiation and overall cost leadership in order to be successful.

Accepted Answer

Focus strategies are often associated with small businesses because there is a natural fit between the narrow scope of the strategy and the small size of the firm. A focus strategy may include elements of differentiation and overall cost leadership, as well as combinations of these approaches. To be successful within a market niche, the key strategic requirement is to stay focused.

Quiz 8: Entrepreneurial Strategy and Competitive Dynamics