548 ENTREPRENEURSHIP
be profitable can be written as an equation
where the sum of all future discounted cash
that flows from the new venture is set against
the sum of the direct investment attributable
to the new venture, plus the sum of the ex-
penses related to overcoming the structural
barriers, plus the sum of the expenses related
to retaliation costs (such as price concessions,
marketing, and legal expenses). All too often,
when entrepreneurs make their calculations,
they include only the direct-investment costs
(property, plant, equipment, and initial
organization costs). An opportunity that
looks profitable based on direct costs might
not be profitable when the barrier and re-
taliation costs are factored in.- Retrieved from the Toys “R” Us Web site
February 6, 2007. http://www.toysrus.com/
helpdesk/index.jsp?display=safety&subdis-
play=terms&clickid=botnav_terms_txt. - Exit barriers are those structural impediments
that prevent inefficient firms from leaving an
industry even when the firms are unprofitable
and have little prospect of achieving profitabil-
ity. Examples of exit barriers are psychological
commitment by the firm’s owners, specialized
assets, fixed costs of exit (e.g., labor agree-
ments), and government policy (e.g., Chrysler
and Lockheed in the United States). - Porter, 1980: 18–20.
- The Federal Trade Commission maintains a
classification scheme for all businesses. It is
known as the Standard Industrial Classifica-
tion code, or SIC for short. All products and
services are assigned codes that range from
two to seven digits. Two- and three-digit SIC
codes are too broad and general to identify
competitors, and five- through seven-digit
codes may be too narrow. The four-digit SIC
code is the one that is generally accepted for
current and potential competitor analysis. - See Chapter 2 for complete definitions and
descriptions of the resources and their attrib-
utes. - Included in the general term strategy here
would be such elements as the firm’s goals
and future goals, its assumptions about itself
and its industry, and its own assessment of its
strengths and weaknesses
Chapter 4- There are a number of fine textbooks on the
subject of strategic management. The fol-
lowing list is not meant to be complete or
exclusive: G. Dess and A. Miller, Strategic
Management (New York: McGraw-Hill,
1993); H. Mintzberg and J. Quinn, The
Strategy Process (Upper Saddle River, NJ:
Prentice Hall, 1991); J. Pearce and R.
Robinson,. Strategic Management:
Formulation, Implementation and Control
(Homewood, IL: Irwin, 1992); A. Strick-
land and A. Thompson, Strategic
Management: Text and Cases (Homewood,
IL: Irwin, 1992).- D. Hambrick, “Some Tests of the Effective-
ness of Functional Attributes of Miles and
Snow’s Strategic Types,” Academy of Man-
agement Journal 26, 1983: 5–26. - Probably the second-most important core
decision that an entrepreneur and the top
management team can make (after the choice
of product or service) is customer and market
selection. Who are you going to sell to and
in what channel(s)? See J. Magretta, “Why
Business Models Matter: The Difference
between Business Models and Strategy,”
Harvard Business Review 80, no. 1, May
2002: 86-87; Magretta says a strategy is a
summary of its intended and preferred modes
of accomplishing its goals. This differs from
our own definition given above. - D. Hambrick and J. Fredrickson, “Are You
Sure You Have a Strategy?” Academy of
Management Executive15, no. 4, 2001: 48-
59. - The strategy diamond was suggested as a use-
ful tool by George Norman of Tufts
University. I thank Professor Norman for his
valuable input. - R. Amit and C. Zott, “Value Creation in E-
business,” StrategicManagement Journal 22,
2001: 493-520. - K. Kafner, “Wary of a New Web Idea That
Rings Old,” New York Times,March 24 2006.
Retrieved from the Web March 24, 2006.
http://www.nytimes.com/2006/03/24/tech-
nology/24venture.html. - The original concept and description of entry
wedges was developed by Karl Vesper. See K.
Vesper, New Venture Strategies (Upper Saddle
River, NJ: Prentice Hall, 1980). Rev. ed.
1990. - Vesper, 1990.
- P. Drucker, Innovation and Entrepreneurship
(New York: Harper & Row, 1985). - Drucker, 1985.