Generating and

Exploiting New Entries

Chapter 3
 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.
• 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
 New Entry
• New entry refers to:
– Offering a new product to an established or new market.
– Offering an established product to a new market.
– Creating a new organization.
(regardless of whether the product or the market is new to
competitors or customers)

• Entrepreneurial strategy – The set of decisions, actions, and

reactions that first generate, and then exploit over time, a new entry
in a way that maximizes the benefits of newness and minimizes its
costs.
Entrepreneurial Strategy: The Generation and
Exploitation of New Entry Opportunities
 Step 1: Generation of a New Entry Opportunity

Resource: The inputs into the production process.

a) Resources as a Source of Competitive Advantage

Resources are the basic building blocks to a firm’s
functioning and performance; the inputs into the
production process.
• They can be combined in different ways.
• A bundle of resources provides a firm its capacity to
achieve superior performance.
Entrepreneurial Resource: The ability to obtain, and then
recombine, resources into a bundle that is valuable, rare, and inimitable.
• Example: Breeze Technology breathable shoes
 Generation of a New Entry Opportunity (cont.)

b) Creating a resource bundle that is valuable, rare, and

inimitable

Entrepreneurs need to draw from their unique experiences and knowledge.

Knowledge that is particularly relevant to the generation of new entries is
related to the market and technology.
– Market knowledge: Possession of information, technology, know-how,
and skills that provide insight into a market and its customers.
Example : Entrepreneur’s knowledge › Market research
Mountain bike
– Technological knowledge: Possession of information, technology,
know-how, and skills that provide insight into ways to create new
knowledge.
Example : . Laser technology has been adapted to navigation, precision
measurement, music recording, and fiber optics.
 Generation of a New Entry Opportunity (cont.)
C. Assessing the Attractiveness of a New Entry
Opportunity
▪ Depends on
1. The level of information an entrepreneur has which he gathers
through his/her prior knowledge and information search and

▪ More knowledge ensures a more efficient search process.

▪ Search costs include time and money.
▪ Window of opportunity: whether the environment is
favorable to exploit the particular new product
 Generation of a New Entry Opportunity (cont.)

2. Comfort with Making a Decision under Uncertainty

- The trade-off between more information and the
likelihood that the window of opportunity will close
provides a dilemma for entrepreneurs.
• Error of commission - Negative outcome from acting on
the perceived opportunity.
• Error of omission - Negative outcome from not acting
on the new entry opportunity.
Assessment of Attractiveness of a New Entry

• The assessment of a new entry’s attractiveness is less

about whether an opportunity “really” exists or not
and more about whether the entrepreneur believes
he or she can make it work – that is:
– Create market demand
– Efficiently produce the product
– Build a reputation
– Develop customer loyalty
– Develop other switching costs.
• Making it work depends on entrepreneurial strategies.
• The Decision to Exploit or Not to Exploit the
New Entry Opportunity depends on
i. Whether the entrepreneur has sufficient
information to make a decision (through info
search & prior knowledge) and
ii. Whether the window is open for this new
entry opportunity
The Decision to Exploit or Not to Exploit the New Entry
Opportunity
 Entry Strategy for New Entry
Exploitation
• First mover advantage:
▪ Cost advantages
▪ Less competitive rivalry.
▪ The opportunity to secure important supplier
and distributor channels.
▪ A better position to satisfy customers.
▪ The opportunity to gain expertise through
participation.
 Entry Strategy for New Entry Exploitation

• First mover’s disadvantages:

Environmental Instability
▪ The entrepreneur must first determine the key
success factors of the industry being targeted for
entry; are influenced by environmental changes.
▪ Find a good fit between resources & external
environment
▪ Demand uncertainty - Difficulty in estimating the
potential size of the market, how fast it will grow,
and the key dimensions along which it will grow.
▪ Technological uncertainty - Difficulty in
assessing whether the technology will perform
▪ Adaptation - Difficulty in adapting to new
environmental conditions.
▪ Entrepreneurial attributes of persistence and
determination can inhibit the ability of the
entrepreneur to detect, and implement, change.
Customers’ Uncertainty

• Difficulty in accurately assessing whether the new

product or service provides value for them.

Overcome customer uncertainty by:

▪ Informational advertising.
▪ Highlighting product benefits over substitutions.
▪ Creating a frame of reference for potential customer.
▪ Educating customers through demonstration and
documentation.
 Entry Strategy for New Entry Exploitation (cont.)

Lead Time
The grace period until when an entrepreneur can
stop or delay potential competitors to enter the
industry. Lead time can be extended if the first
mover can erect barriers to entry by:
▪ Building customer loyalties.
▪ Building switching costs.
▪ Protecting product uniqueness.
▪ Securing access to important sources of supply and
distribution.
Entry Strategy for New Entry Exploitation
 Risk Reduction Strategies for New Entry
Exploitation
• Risk:
– The probability, and magnitude, of downside loss. It
is derived from uncertainties over market demand,
technological development, and actions of
competitors.
• Two strategies can be used to reduce these
uncertainties:
– Market scope strategies - Focus on which customer
groups to serve and how to serve them.
– Imitation strategies - Involves copying the practices
of others.
Risk Reduction Strategies for
New Entry Exploitation (cont.)

• Market Scope Strategies

- Narrow-scope strategy - involves offering a small
product range to a small number of customer groups
to satisfy a particular need.
• Focuses on producing customized products, localized
business operations, and high levels of craftsmanship.
• Leads to specialized expertise and knowledge.
• High-end of the market represents a highly profitable
niche.
• Reduces some competition-related risks but increases
the risks associated with market uncertainties.
Risk Reduction Strategies for
New Entry Exploitation (cont.)

- Broad-scope strategy - involves offering a range

of products across many different market
segments.
– Strategy emerges through the information
provided by a learning process.
– Opens the firm up to many different “fronts” of
competition.
– Reduces risks associated with market uncertainties
but increases exposure to competition.
Risk Reduction Strategies for
New Entry Exploitation (cont.)

• Imitation Strategy
– Copying the practices of other firms.
– Why do it?
• It is easier to imitate the practices of a successful firm.
• It can help develop skills necessary to be successful in the
industry.
• It provides organizational acceptability.
– Types of imitation strategies
• Franchising - A franchisee acquires the use of a “proven
formula” for new entry from a franchisor.
• “Me-too” strategy - Copying products that already exist and
attempting to build an advantage through minor variations.
Risk Reduction Strategies for
New Entry Exploitation (cont.)

• An imitation strategy can potentially:

– Reduce the entrepreneur’s costs associated with
R&D.
– Reduce customer uncertainty over the firm.
– Make the new entry look legitimate from day one.
Risk Reduction Strategies for
New Entry Exploitation (cont.)

Assets of Newness
– Positive implications arising from an organization’s newness.
– Lack of established routines, systems, and processes provide a
learning advantage.
– A heightened ability to learn new knowledge in a continuously
changing environment is an important source of competitive
advantage.
A new firm needs to:
– Educate and train employees.
– Facilitate conflict over roles.
– Promote activities that foster informal relationships and a
functional corporate culture.