The environment and entrepreneurship
Part I - The resource-based perspective in the entrepreneurial course
The environment and entrepreneurship
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 environment's dimensions: economic, sociocultural, political and legislative, technological, ecological and operational. Recognize the market's main features and outline the business's suitability and potential competitive advantage accordingly. Understand the role of market - and the environment - 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 business's planned products and/or services based on the data gathered from the Environment’s 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 ranotechnological materials, a company conducting R&D of software programs for special-needs ;iildren, or a company providing management outsourcing services for agro-industry may each acapt its product to suit various different industries connected with the hi-tech sector, the special-eaucation sector, or the agricultural sector, respectively. Entrepreneurs should determine which ;ector is best for their envisioned product and/or service, and in which sector their businesses v.ill profit the most. A market analysis may be helpful in making the best decision (Rodie and Martin 2001).
THE RESOURCE-BASED PERSPECTIVE 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 clients' purchasing habits, saturation levels, etc., must be ascertained fHanssens 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., familv 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., familv. luxurv—familv, sports—family, etc.).
• The market's 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 monev 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 buvers 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 consumers' needs, as well as of competitors' 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 children's 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: customers' main motivation for purchasing the proposed product (e.g., economic, prestige, comfort, trendiness; customer loyalty to a specific product, trade-mark or company; sensitivity to publicity and marketing, such as promotion, quality, price, quality of service, etc.).
THE ENVIRONMENT AND ENTREPRENEURSHIP
USES OF MARKET SEGMENTATION
Ta.D-e 1.1 illustrates the market analysis and utilization of the information collected in order to implement an innovative idea, in this case 'social spa-ing'. Social spa-ing is a new concept offering i tatal spa experience (holistic treatments, therapies, healing rituals, and so on) along with a iirvrcnt place where people can interact informally. Its target clientele comprises business people, acid 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 individuals' business performances: negotiations will be more positive and constructive, meetings will be more productive, and so on.
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 market's three segments — 2e°graphic, demographic, and psychological — 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).
An analysis of the environment is one of the most important elements in weighing whether to .iunch a venture, in that it helps determine if, when and how to launch the business. Environment :s a multifaceted entity that comprises different types of sub-environments — economic, sociocultural, technological, etc. — and understanding the importance of analyzing the environment "rior to launching a business is therefore critical. Each sub-environment is characterized by distinct .j-cal conditions. Thus launching an elegant restaurant in a business area of one of San Francisco's jiitlying neighborhoods is different from launching one in the business area of a small town in, :cr 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 1004).
The dimensions of the environment that should be examined in the elaboration of the venture-rreation process are:
Political and legislative.
economic environment of a new business is the main factor determining its chances of survival; is therefore the most relevant and concrete dimension. Studying the pertinent data and formation and the particulars of the local economic environment will facilitate penetration into mark or company; sensitivity to publicity and marketing, such as promotion, quality, price, quality of service, etc.).