Entry Strategies for New Ventures - Entrepreneurship

It is easy to be captivated by the promise of entrepreneurship and the lure of becoming one’s own boss. It can be difficult, however, for a prospective entrepreneur to determine what product or service to provide. Many factors need to be considered, including: an idea’s market potential, the competition, financial resources, and one’s skills and interests. Then it is important to ask: Why would a consumer choose to buy goods or services from this new firm?

One important factor is the uniqueness of the idea. By making a venture stand out from its competitors,
uniqueness can help facilitate the entry of a new product or service into the market.

It is best to avoid an entry strategy based on low cost alone. New ventures tend to be small. Large
firms usually have the advantage of lowering costs by producing large quantities.

Successful entrepreneurs often distinguish their ventures through differentiation, niche specification, and innovation.

Differentiation is an attempt to separate the new company’s product or service from that of its competitors. When differentiation is successful, the new product or service is relatively less sensitive to price fluctuations because customers value the quality that makes the product unique.

A product can be functionally similar to its competitors’ product but have features that improve its operation, for example. It may be smaller, lighter, easier to use or install, etc. In 1982, Compaq Computer began competing with Apple and IBM. Its first product was a single-unit personal computer with a handle.
The concept of a portable computer was new and extremely successful.

Niche specification is an attempt to provide a product or service that fulfills the needs of a specific subset of consumers. By focusing on a fairly narrow market sector, a new venture may satisfy customer needs better than larger competitors can.

Changes in population characteristics may create opportunities to serve niche markets. One growing market segment in developed countries comprises people over 65 years old. Other niches include groups defined by interests or lifestyle, such as fitness enthusiasts, adventure-travel buffs, and working parents. In fact, some entrepreneurs specialize in making “homemade” dinners for working parents to heat and serve.

Innovation is perhaps the defining characteristic of entrepreneurship. Visionary business expert Peter F. Drucker explained innovation as “change that creates a new dimension of performance.” There are two main types of product innovation. Pioneering or radical innovation embodies a technological breakthrough or 

new-to-the-world product. Incremental innovations are modifications of existing products. 

But innovation occurs in all aspects of businesses, from manufacturing processes to pricing policy.

Tom Monaghan’s decision in the late 1960s to create Domino’s Pizza based on home delivery and

Jeff Bezos’ decision in 1995 to launch Amazon.com as a totally online bookstore are examples of 

innovative distribution strategies that revolutionized the marketplace.

Entrepreneurs in less-developed countries often innovate by imitating and adapting products created in developed countries. Drucker called this process “creative imitation.” Creative imitation takes place whenever the imitators understand how an innovation can be applied, used, or sold in their particular market better than the original creators do.

Innovation, differentiation, and/or market specification are effective strategies to help a new venture to attract customers and start making sales.

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Choosing a Product and a Market

Choosing a Product and a Market-Entrepreneurship

Aprospective entrepreneur needs to come up with a good idea. This will serve as the foundation of the new venture.

Sometimes an entrepreneur sees a market need and—Eureka!—has an idea for a product or service
to fill it. Other times an entrepreneur gets an idea for a product or service and tries to find a market for
it. A Scottish engineer working at General Electric created putty that bounces but had no use for it. In
the hands of a creative entrepreneur, it became a toy, “Silly Putty,” with an enthusiastic market: children.

The idea doesn’t have to be revolutionary. Research, timing, and a little luck transform commonplace
ideas into successful businesses. In 1971, Chuck Burkett launched a firm to make an ordinary product, novelty key chains. But when he got a contract with a new venture in Florida—Disney World he started making Mickey Mouse key chains, and achieved tremendous success.

There are many ways to look for ideas. Read a lot, talk to people, and consider such questions as: What limitations exist in current products and services? What would you like that is not available? Are there
other uses for new technology?

What are innovative ways to use or to provide existing products? In Australia in 1996, two entrepreneurs founded Aussie Pet Mobile Inc. to bring pet bathing and grooming to busy people’s homes. It is now a top U.S. franchise business.

Is society changing? What groups have unfulfilled needs? What about people’s perceptions? Growing
demand for healthy snacks created many business opportunities in the United States, for example.

Business ideas usually fit into one of four categories that were described by H. Igor Ansoff in the 

Harvard Business Review in 1957 

An existing good or service for an existing market. This is a difficult approach for a start-up operation. It means winning over consumers through merchandising appeal, advertising, etc. Entry costs are high, and profit is uncertain. 

A new good or service for a new market. This is the riskiest strategy for a new firm because both the product and the market are unknown. It requires the most research and planning. If successful, however, it has the most potential for new business and can be extremely profitable. 

A new good or service for an existing market. (Often this is expanded to include modified goods/services.) For example, entrepreneurial greeting-card makers use edgy humor and types of messages not produced by Hallmark or American Greetings—the major greeting-card makers—to compete in an existing market. 

An existing good or service for a new market. The new market could be a different country, region, or market niche. Entrepreneurs who provide goods/services at customers’ homes or offices, or who sell them on the Internet, are also targeting a new market—people who don’t like shopping or are too busy to do so. 

The last two categories have moderate risk, but product and market research can reduce it. They also offer opportunities for utilizing effective start-up strategies—innovation, differentiation, and market specification.

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