Part 1
The Resource-Based Perspective in the Entrepreneurial Course
Chapter 1
The environment and entrepreneurship
After studying this chapter you will be able to:
Identify the key features of the environment in which the business will operate in order to plan how to use the advantages and minimize the disadvantages for the business it brings in;
Deepen the knowledge on each of the environmentâs dimensions: economic, sociocultural, political and legislative, technological, ecological and operational.
Recognize the marketâs main features and outline the businessâs suitability and potential competitive advantage accordingly.
Understand the role of market â and the environment â analyses for establishing valuable advantage right at the pre-launch stage.
Conduct research on the market and the environment in which the business is planned to operate.
Adjust the businessâs planned products and/or services based on the data gathered from the environmentâs analysis.
The first step in successfully putting an idea into practice is deciding upon the main industry or area of operation. Many products and services may be suitable for, or adaptable to, filling important needs of different industries and sectors. For example, a company for consultancy in marketing nanotechnological materials, a company conducting R&D of software programs for special-needs children, or a company providing management outsourcing services for agro-industry may each adapt its product to suit various different industries connected with the hi-tech sector, the special-education sector, or the agricultural sector, respectively. Entrepreneurs should determine which sector is best for their envisioned product and/or service, and in which sector their businesses will profit the most. A market analysis may be helpful in making the best decision (Rodie and Martin 2001).
The Market Analysis
The market is the general arena of potential exchange of products and services. Prior to launching a business, the potential entrepreneur must familiarize him or herself with the local market and the specific sectors and industries relevant to the planned venture. The entrepreneur should assess the feasibility of penetration of his or her products or services into the market by assessing two main dimensions:
The number of active customers for the products/services.
The volume of sales for the products/services.
Both dimensions should be assessed for a specified time period and in a defined geographical area. Then, information and data on the market, such as the characteristics of the target clientsâ purchasing habits, saturation levels, etc., must be ascertained (Hanssens 1980; Schwienbacher 2007).
For example, in order to launch a business that sells cars, information about the following should be gathered:
Client preferences, tastes and attitudes (e.g., family vehicles, hatchbacks, sports cars, etc.).
Market evolution (e.g., in the past five years, more women have been buying family cars than have men).
Division of sales of different car types (e.g., family, luxuryâfamily, sportsâfamily, etc.).
The marketâs saturation level.
The best way to gather such information is through market segmentation. Turning to the previous example, in many countries the element of safety has become the most important feature, and potential customers are willing to pay more money for cars with newer and better safety technologies. Acknowledging this, the entrepreneur wishing to launch a business for selling cars should focus on safety (complementary accessories or new technologies for greater safety). However, entrepreneurs should be aware that each segment of the potential buyers may be looking for different safety-related features in their cars: families will look for safety devices in the back seats, where the children sit, while young drivers will look for safety in the braking system or the engine, and businessmen who use their cars for hours on end will look for safe tires and anti-corrosion accessories. Entrepreneurs have to assess their prospective market according to the different needs and demands of their potential customers, and market segmentation enables overall coverage of the market and identification of consumersâ needs, as well as of competitorsâ activities and market trends.
Three major principles guide market segmentation:
Geographic segmentation: the number of businesses dealing with the proposed product/ industry/sector, etc.; volume of sales, turnover, mergers, etc., in a bounded geographic area. For example, the number of businesses in e-marketing in the region of Paris, France.
Demographic segmentation: the general characteristics of the owners of new ventures, such as gender, age, nationality, language spoken, education and specialization. For example, what is the profile of entrepreneurs who develop childrenâs computer games? Do they have academic certification, are they specialists in computer-related programs, are they educators or former teachers, are they young entrepreneurs (i.e., in the age-range of their customers)?
Psychological segmentation: customersâ main motivation for purchasing the proposed product (e.g., economic, prestige, comfort, trendiness; customer loyalty to a specific product, trademark
or company; sensitivity to publicity and marketing, such as promotion, quality, price, quality of service, etc.).
Uses of Market Segmentation
Table 1.1 illustrates the market analysis and utilization of the information collected in order to implement an innovative idea, in this case âsocial spa-ingâ. Social spa-ing is a new concept offering a total spa experience (holistic treatments, therapies, healing rituals, and so on) along with a different place where people can interact informally. Its target clientele comprises business people, and it is planned as a calm, relaxing environment for business meetings, negotiations, workplace celebrations, and conferences. The social spa-ing concept is based on the underlying philosophy that a venue that is likely to balance the senses will have a favorable impact on individualsâ business performances: negotiations will be more positive and constructive, meetings will be more productive, and so on.
Table 1.1 Characteristics of the market for spa-ing
Such an innovative idea is usually risky, and the entrepreneur wishing to develop a venture based on this concept must gather the relevant data in order to assess the potential success and profitability of such a place. The data should be collected for each of the marketâs three segments â geographic, demographic, and psychological â on the basis of which the entrepreneur can consider whether to launch a venture built on this concept or not (Gustavsen, Finne and Oscarsson 2001).
The Environment
An analysis of the environment is one of the most important elements in weighing whether to launch a venture, in that it helps determine if, when and how to launch the business. Environment is a multifaceted entity that comprises different types of sub-environments â economic, sociocultural, technological, etc. â and understanding the importance of analyzing the environment prior to launching a business is therefore critical. Each sub-environment is characterized by distinct local conditions. Thus launching an elegant restaurant in a business area of one of San Franciscoâs outlying neighborhoods is different from launching one in the business area of a small town in, for example, Minnesota: both the cost-effectiveness of opening such a restaurant and its odds for survival are dependent on the sub-environment (Gartner 1985; Dubini 1989; Doh and Pearce 2004).
The dimensions of the environment that should be examined in the elaboration of the venture-creation process are:
Political and legislative.
The economic environment of a new business is the main factor determining its chances of survival; it is therefore the most relevant and concrete dimension. Studying the pertinent data and information and the particulars of the local economic environment will facilitate penetration into the market of the product(s), and of the venture itself. The data, numbers and facts that are important to acquire during the realization stage include gross national product (GNP), gross national income (GNI) and net national product (NNP). Other factors that are important to acknowledge in the process of realizing the venture are: trends in the local market such as the phase and rate of economic development; the degree of employment growth or decline; recession; economic wealth (âthe bubbleâ) or poverty; economic crises (âthe bubble burstsâ); inflation; American dollar fluctuations in the stock market; taxation and political fiscal and monetary regulations, etc. The data may be found in the published files of the different countriesâ National Bureau of Statistics, in various national publications, in OECD publications,1 in Global Entrepreneurship Monitor (GEM) publications,2 in the publications of national academic institutions, and from professors and researchers in the relevant fields (Lumpkin and Dess 1996).
The sociocultural environment constitutes the sub-environment of potential customers for specific products and/or services. Entrepreneurs should acquire information about the potential customersâ profiles in terms of their demographic and social characteristics, i.e., gender, age, ethnicity, economic status, familial status, and who the main consumers of the product are (adults, families, children). Such information enables the entrepreneur to adjust the products, services or complementary services to the potential consumersâ needs. For example, in a shop for womenâs fashion, where most of the potential clients will be women, including mothers, a nursery where children will be taken care of while their mothers shop is a complementary service that is very relevant to the businessâs goals: such a service can only be planned by tracking the poten...