What Entrepreneur Needs - Example

Entrepreneurial Topics 1. Barriers to Imitation Innovation is one of the key aspects in business studies an entrepreneur must carefully understand in order to succeed. Such cannot be underestimated simply because there are so many contradicting views about what innovation is, particularly as a strategy in business. In a layman’s term, it is often said that innovation is putting new ideas into practice to be competitive. With this definition, the concepts of research and development, commercialisation of new products, and process technologies are the often highlighted as aspects of the practice. Thus, innovation can happen with just any organisation or company. In fact, they often share common traits. In their Harvard Business School case study, Sull, Ruelas-Gossi and Escobari (2004) named three distinct approaches to innovation as: 1) strategically exploiting an intimate knowledge of their consumers’ mindsets; 2) innovating around (rather than through) technology, and; 3) scouring the world for ideas. Being innovative entails great pains and sacrifices on the side of the entrepreneur, especially if this meant staying ahead of competition which is one of the key barriers being employed by the business-minded to prevent others from exploiting an opportunity. Baron and Shane (2005) noted that by creating barriers to block others from copying or imitating the idea or innovation by the entrepreneur, the same can continue to capitalise and maximise this opportunity for long. Three other approaches to blocking imitation by others have been named in this regard: 1) controlling resources; 2) establishing legal barriers to imitation; and 3) building a reputation for satisfying customers (Baron and Shane 2005). Finally, this paper will answer whether barriers created to block imitation are necessary. Studying closely the use of innovation as a barrier to imitation, let us take a closer look at Toyota’s success. The Japanese carmaker has been considered a good model for companies who sought for constant innovation through strong systems and solid structures focused on creating the right social context. May and Roberts (2007) said this strong system employed at Toyota contributed much on how the company was able to successfully transformed a competitor’s (General Motors) factory in Fremont, California that “produced a 360° innovation.” The venture between Toyota and General Motors is a classic book case of innovation success story, according to May and Roberts (2007) in their book, The Elegant Solution Toyota’s Formula for Mastering Innovation. When the American-owned General Motors faced insurmountable debacles, including union strikes that eventually led to its factory being shut off and the entire workforce laid-off, it entered talks with the Japanese carmaker to reopen the Fremont line, eventually naming it New United Motor Manufacturing Inc (NUMMI). For Toyota, it believed that there were risks attached to this venture because the company was required to inject funds, reopen and manage the plant, and eventually began operations and implement its so-called Toyota Production System. Another concern for Toyota is that it is risky to use the same workers (those who were laid off), the same union, the same facilities and equipment. On the other hand, General Motors has its own demands too: implement the secrets of lean production and successful compact car design, and the United Auto Workers demanded representation and recognition. An even bigger concern for Toyota then was working with General Motors, a direct competitor. This meant the Japanese carmaker was required to give away production methods and quality processes to General Motors. However, Toyota Chairman Eiji Toyoda, looked at it positively as a perfect challenge, an opportunity in fact to test the viability and transportability of the Toyota Production System, the truly first step it needed to have a wholly-owned Toyota manufacturing in North America. In the end, Toyota took the risk. While the target for Toyota and General Motors was a rebadged Toyota Corolla and Chevrolet Prizm, the Japanese carmaker employed innovation by introducing its Production System. And this new social context for work helped replaced coercion and conflict with cooperation and confidence. In sum, the Toyota Production System, a world-class standard for manufacturing operations, became the door to allow the culture of innovation flourish. With a culture of innovation, Toyota was able to deliver radically different outcome by altering the system, the context and the structure to make it meaningful. When Toyota decided to implement its production system it is fully aware that such operational process may be imitated by its competitor, particularly General Motors. But it still proceeded and believed that Toyota should fear no one. The result was that workers trusted a foreign company, so each one performed and delivered their best because there is confidence that the Japanese company is not out to exploit and repeat what these labor workers experienced with the former management. May and Roberts (2007) wrote that full production that began in 1985 yielded the highest quality and productivity of any GM plant by the end of 1986. As workers’ satisfaction ang engagement rose, absenteeism was also reported to have dropped to three percent. Given such performance record, operational innovation also improved. By opening up its manufacturing and operational system, Toyota proved that setting up barriers is not always necessary, and it can sometimes be used for its own advantage. The Toyota Production System became an open book practice, and attracted the attention of the press and book authors. As more positives were written about the practice, the more that Toyota gain credibility and reputation that eventually satisfied the customers. This eventually paved for Toyota a way to implement another barrier to be imitated: building a reputation. Baron and Shane (2005) said with good reputation, a company can keep customers from shifting their allegiance to others. 2. Blue Ocean Strategy Strategy is often employed by businesses to serve as war plan in the corporate battlefield or competition. Although numerous studies have been written about corporate strategies that were varied in scope and context, however, the direction by far, is only one – being competitive through sustainability of profitability and core competencies. In contrast, W. Chan Kim and Renee Mauborgne, two Harvard professors, posited the Blue Ocean Strategy and Value Innovation Logic. These two new business concepts suggest that businesses can maximise growth by steering away from and completely abandoning competition through the creation of a new space or industry. To define Blue Ocean Strategy coined by the tandem of Kim and Mauborgne, it will be best summed up as a strategy that involves “not competing,” “creating a new market space where there are no competition.” A Red Ocean Strategy, on the other hand, for comparison’s sake, is a landscape where boundaries are defined and accepted where companies and industries are out in the field to outperform one another. A red ocean strategy got its name for the bloody battle that resulted from the bloody competition, whereas in blue ocean paradigm, the analogy is with the wider potential of market space that is deep, vast and unexplored. When applied to business, Blue Ocean strategy emerges and value innovation concepts occur when a company begins to self-introspect and ask how a new industry can be created. Kim and Mauborgne argued that in the business world that were conditioned to believe great company or great industry can be built to last, what remains are smart strategic moves (Dearlove and Crainer 2003). In their “Charting Your Company’s Future” article published by the Harvard Business Review (2003), Kim and Mauborgne identified ways through which a company can shift a strategy canvass of an industry in order to create a whole new business landscape. With this approach, three basic traits emerge – a) focus, b) divergence, and; c) compelling tagline. Meanwhile, steering the strategy canvass to this new direction, it is said a company must begin by reorienting its strategic focus from competitors to alternatives, and radically from customers of the industry to noncustomers. This radical shift can help company to gain insight into how to redefine the problem the existing industry focuses in order for the same to reconstruct buyer value elements that reside across industry limits. These two research fellows at Harvard suggested that focus must be evident in the company’s strategic profile and value curve or the graphical representation how a company invests in the factors of competition and how it might invest in them in the future. Hence, with blue ocean strategy, a company benefits from pursuing differentiation and the low costs to break the value/cost trade-off. It also helps company avoid overstepping or over-engineering a product or service but becomes concentrated on simplifying processes and innovations. Apart from these benefits, a company is driven to be critical of every factor that the industry competes on to discover the range of assumptions they make unconsciously in the process of competing. In their interview with Kim and Mauborgne, the proponents of the Blue Ocean strategy and Value innovation concepts, Dearlove and Crainer (2003) wrote in the magazine Chief Executive that strategic moves that matters most to both an industry’s and a company’s long-term profitability is the redundant creation of new market space that embraces the mass market or value innovation. Minus value innovation, Dearlove and Crainer (2003) a whole industry is replaced by those that are more innovative, leaving behind companies that refuse to adopt the imperative for strategic moves. Hence, through value innovation, a company limits its strategic opportunities and projected growth potential by confining its analysis to its own industry. In sum, for Kim and Mauborgne’s model, strategy are not supposed to be dictated by an available landscape and dominant companies or industries, rather, whole industries rise and then fade into oblivion. This strategic thinking suggested by Kim and Mauborgne is the complete opposite of the war and military business analogy used in strategic business which suggests that territories must be divided among the players. In contrast, Blue Ocean Strategy and Value Innovation encourages that new land or new territories be created because market spaces are infinite. For Kim and Mauborgne (1996) value innovation is a path to leave behind the conventional thinking of doing business while reducing costs because companies will no longer chart the traditional approach of making sure that companies stay ahead of the competition. In their article, “Value Innovation: The Strategic Logic of High Growth,” published in 1996 by the Harvard Business Review, the two Harvard professors pointed out what high-growth companies do instead to remain relevant: make competition irrelevant. Other differences that high-growth companies look for are – a) big ideas; b) tremendous leap in value; c) identify completely new sources of value; and, d) commonalities in the features that customers value. In sum, an important lesson that the blue ocean and value innovation strategy taught us is to go beyond the constraints and boundaries imposed by the conventional mode of making business. There were no imposed rules that a company or industry must concentrate only within the landscape or territories where participants compete with one another to get a slice of the market already saturated by others. Furthermore, with blue ocean strategy thinking, a company or industry is taught how to think outside the box, to be critical and to look beyond the vast, deep landscape outside the window in order to find greener pastures. 3. What Entrepreneur Needs Entrepreneurs are often told to remember or possess several traits in order to be effective and successful when proposing investments with venture capitalists. Apart from luck, great technology, great ideas and charm, the writing of a business plan is one that should not be missed by entrepreneurs when embarking on a business. It is said the business case must not only be highly-detailed but provide product or services features that are sophisticated than those currently in the market. Most studies point out that carefully crafting a business plan is one of the most important business practices for a very long time. In this regard, we look into the qualities and characteristics of a business plan to answer why this is one of the very essential business documents that investors look forward to seeing, but paradoxically also throw out if the questions they are looking for are not answered. Vivian McCarron (2000) in the journal Venture Capital traced the traditional and more recent uses of business plans. She revealed that up to 90 percent of business plans sent to venture capitals are junked because questions that investors want answered are never addressed. McCarron (2000) wrote that in the early 1990s, companies depended on business plans to secure for cash and exploit existing sales opportunities, however. Today, a good business plan can do more than prevent failures but the document alone should lead a company to a meeting with a prospective investor. Looking at it on the entrepreneur’s perspective, a business plan is a statement of intent to start a business with interested third parties who may be an investor, banker and strategic partner. The business plan oftentimes serves as a reality check for entrepreneurs who are eyeing to open up a business but currently need to be assured about all aspects of the business. As expected this is true to today because investors, who are taking a far more conservative approach to both formal and informal investing, are interested to put their trust and inject cash to a venture that champions a business model that actually work, with ready customers and a track record. Business plans, after all, albeit briefly is the proposed execution strategy and idea that the entrepreneur proposes to bring to market. Moreover, based on recent researches, most investors prefer to learn about a potential business or investment through a referral from someone they trusted. This has bearing because among the criticisms against business plans are its tendency to be overly optimistic with regard to financial projections. For the desire to be attractive, entrepreneurs might also stuff hype, poor explanation of the business model and neglect including a clear demonstration of customer demand to the business plan. Thus, it only pays that a business plan is carefully prepared, answering all the important questions that investors are looking for, namely – 1) rate of growth, returns on investment, degree of risk and protection. Meanwhile, a very detailed business plan might only become necessary when requested by prospective investor because the latter are very much interested in details about the quick return on investments and the short payback periods for customers. As such, the business plan is not the only piece of information considered because it can only serve as a guide for investment decision-making. Some studies contend that in lieu of a very detailed business plan, the proponent must consider very carefully the business concept and the business model. The business concept – including data about the product/service, customer, value proposition, and distribution – must be stated clearly and concisely. On the other hand, the business model or how the proposed investment will make money must be discussed in detail to provide prospective investor with the blueprint of the sources of revenue and the sustainability of the business model. Writing for the journal Research Technology Management, Markham (2002) elaborated on the qualities that make an entrepreneur effective when pitching to venture capitalists. He listed bargaining techniques, political behavior, assertiveness and charm, among other qualities that will prove the effectiveness of an entrepreneur. On the other hand, given that the business plan have been prepared, here comes the phase whereby the project champion must convince the intended investor to obtain the needed support and resources. It is in this phase that entrepreneurs get to realize that the success of the prospective business does not lie alone on polished and fully-detailed business plan. Stephen Markham (2002) noted that a business plan is a lever to begin the relationship. It is also helpful that the entrepreneur understands the concept of Valley of Death or the so-called gap between the technical invention or market recognition of an idea and the efforts to commercialize it (Markham, 2002). In order to cross the Valley of Death, a champion, resources and formal development processes must be present. The entrepreneur must also be credible in order to secure approval of business cases easily. Markham (2002) identified two sources where credibility is derived: the entrepreneur’s track record and the plan’s quality. A business plan is said to be quality made when it ingrained the quality of the science or market information upon which the idea is founded and the completeness of the business case. References List Australian Institute of Management Victoria and Tasmania 2001, ‘How Creative Does our Innovation Need to be?’ AIM Victoria and Tasmania. Baron R and Shane SA 2005, Entrepreneurship: A Process Perspective, South-Western College Publishing, p. 239-266. Dearlove D & Crainer S 2003, ‘Flouting Conventional Wisdom’, Chief Executive vol. 188. Hargadon, A 2003, How Breakthroughs Happen: The Surprising Truth About How Companies Innovate, Boston, Mass.: Harvard Business School Press. Kim, CW & Mauborgne, R 2005, ‘Blue Ocean Strategy: From Theory to Practice’, California Management Review, vol. 47, no. 3. Kim, CW & Mauborgne, R 2002, ‘Charting Your Company’s Future’, Harvard Business Review, pp. 77-83. Kim WC & Mauborgne R 1996, ‘Value Innovation: The Strategic Logic of High Growth’, Harvard Business Review. Markham SK 2002, ‘Moving Technologies from Lab to Market’, Research Technology Management, vol. 45, no. 6, pp. 31. May ME & Roberts K 2007, The Elegant Solution Toyota’s Formula for Mastering Innovation, London: Simon and Schuster. McCarron V 2000, ‘Get Planning’, Venture Capital. Sull D, Ruelas-Gossi A, & Escobari M 2004, ‘What Developing-World Companies Teach Us about Innovation’, Harvard Business School Working Knowledge. Read More