Description
Within this particular detailed illustration in regard to challenges of entering the business market the pre entry knowledge and experience.
Abstract. In any national economy
entrepreneurial entry serves to
transform and revitalize markets and
industries, thereby enhancing their
competitiveness. Existing empirical
research suggests that the pre-entry
knowledge of the market and the
entrepreneur’s prior practical and
managerial experience will influence
the new venture’s chances of survival
and its future growth. The current
paper emphasizes the key role that
the entrepreneur has on the market
entry as this entry influences business
survival, growth or exit. In the paper
we seek to better understand the
relationship between the pre-entry
knowledge and experience and the
new venture’s success, by performing
an in-depth analysis of the
specialized literature. We argue that
the pre-entry knowledge should be
assessed against three key
perspectives: (1) personal
characteristics of the entrepreneur,
(2) knowledge about the business
activity, the market and the industry,
and (3) resources at entrepreneur
disposal. Also, the pre-entry
experience can contribute to
development of three categories of
skills in an entrepreneur, such as: (1)
functional skills – ability to perform
various managerial functions, (2)
relational skills – ability to work with
external actors, and (3) resource
management skills – ability to
effectively identify and allocate
scarce resources.
Keywords: business entry,
entrepreneurial company, pre-entry-
planning, pre-entry knowledge, pre-
entry experience.
CHALLENGES OF ENTERING
THE BUSINESS MARKET:
THE PRE-ENTRY KNOWLEDGE
AND EXPERIENCE
Carmen Monica P?UNESCU
The Bucharest University of Economic
Studies, Faculty of Business Administration
2-2A Calea Grivitei, 010701, Bucharest,
Romania
e-mail: [email protected]
Management & Marketing
Challenges for the Knowledge Society
(2013) Vol. 8, No. 1, pp. 63-78
Management & Marketing
64
1. Introduction
The current business environment goes through turbulent and dynamic
changes, with companies entering and exiting various industries at an alarming rate.
Now with the global economic crisis, it has been more than obvious that it is important
to invest in the entrepreneurial culture of a country that leads to creation of new
businesses with the potential to transform and rejuvenate the national economies.
Therefore, entrepreneurship is viewed as the engine for economic growth and vitality
of the large society as a whole. One important particularity of this subject comes from
the fact that there is no universal entrepreneurship recipe. When studying the various
cases of successful entrepreneurs we can find many similarities, but also many
differences from one person to another. There are many variables included in this
equation that different experts still continue to argue over (e.g., Mitton, 1989; Chell et
al., 1991; Kamineni, 2002). These aspects have been proven to influence the behavior
and the decisions of entrepreneurs. Certainly, there are both success and failure stories
in every situation.
One of the most important factors of growth and development of all industries
and economies around the world was the process of companies entering and leaving
the business market. The biggest effect that this factor had on market performance has
focused on productivity and market structure. There is a lot of knowledge in terms of
entrepreneurship input and output activities, their variability in time and connection to
various industries and their influence on the processes of change in the economy
(Carree and Thurik, 2002; Aghion et al., 2004; Thurik et al., 2011; Tan??u and
Matee?escu, 2012). Even if the entering and exiting processes are influenced by
various factors, the most important part of them is the person behind these processes –
the entrepreneur. There is little information in the literature about the main player of
great caliber.
Looking at both the Romanian and the international business environment, we
observe some very strong examples of unique companies that started doing business in
a different way, which proved to be a very successful one. The creative entrepreneurs
behind those businesses turn problems into opportunities, bringing added value to
market and making an impact through innovation. Like Drucker (1993, p. 45) stated,
“entrepreneurs always search for a change, respond to it and exploit it as an
opportunity”. Innovation became a competitive tool of entrepreneurs, a mean by
which they exploit problems and change as opportunities. This was easily noticed
during the last years when, even though passing through economic crises, certain
companies benefited from their opportunities, not obstacles.
Entrepreneurship also creates the opportunity for the business owner to make
a contribution. Most new entrepreneurs help the local economy (local communities in
which they are present) by engaging suppliers, customers, employees, creating
demand, shaping behaviours or influencing market trends and generating cash flow. A
few of them bring an impact to the large society as a whole, through their innovations.
Therefore, everything the entrepreneur does has as a final purpose the long term
Challenges of entering the business market: The pre-entry knowledge and experience
65
sustainable development of the company, the higher level of satisfaction of all the
stakeholders involved, whether they are customers, employees, shareholders or
suppliers, the achievement of profit and the feeling that in the end, the entrepreneur
has done something to help the community.
Now we should not fall in the misconception of thinking that “everyone who
starts a new business is being entrepreneurial” (Drucker, 1993, p. 12). An entrepreneur
brings innovative tools to generate creative solutions which deal with unmet market
needs and creates a new type of value for the customer. According to Wikipedia, this
new type of value can emerge from new and different combinations between the three
factors that describe goods from the economic point of view: raw materials, physical
and mental labor and capital (money). Innovation means doing things differently, but
also doing things better. So, the highlight is on the product quality and on the
customers’ satisfaction, because even if it is important to pay attention to certain
aspects involved in running a business, such as management, marketing, finance, these
do not generate any results if the company doesn’t have good quality products, that do
not satisfy the customers’ expectations. Entrepreneurs must focus on creating products
or services that satisfy the uncovered needs of the customers.
There are certain patterns describing entrepreneurial companies, certain key
factors regarding the way the companies do business that set them apart from traditional,
conservative ones. All companies follow a certain business model. But there are a few,
world known, famous companies that have a unique, creative and performing business
model. Those are the companies that bring real contributions to society, companies that
last during crises and that transform any market issue into an opportunity, and
companies that take care of and satisfy the interests of all their stakeholders. Such
companies, like Apple, are companies led differently, companies that organize
themselves and their interactions with customers and suppliers in unprecedented ways
(Gambardella and McGahan, 2010). Their business model is different, their leadership
approach is different, the person behind the company is different. It is called the
“entrepreneurial model” and it seriously influences innovativeness and the overall
performance of the company (Nybakk and Hansen, 2008).
At the beginning of their existence, entrepreneurial companies are endowed
with pre- entry knowledge and management experience through the human and social
capital of their founder(s). Current empirical research suggests that these intangible
assets influence significantly the firm’s success rate and increase the firm’s survival
(Dencker et al., 2009). However, the mechanisms underlying this relationship have yet
to be fully explored and understood.
The human capital of the entrepreneur, his or her pre-entry knowledge and
experience in the business market have a direct impact on the performance and
organizational learning within the company, leading its entrepreneurial success
(Dencker et al., 2009; Unger, 2011). Early stage business planning and product/service
design and engineering are also influenced by the entrepreneur’s traits and his/her
personal way of doing business (Kumul Guler and Tinar, 2009).
Management & Marketing
66
In this respect, the current paper emphasizes the key role that the entrepreneur
has on the market entry as this entry influences business survival, growth or exit,
compared with the actual productivity the company has on the market. It also explains
the importance of pre-entry knowledge and experience in the entrepreneurial process,
for start-ups, before entering the market. Furthermore, in the paper we try to define an
entrepreneurial model for companies which will help them recognize its benefits.
However, it is important to understand where the entrepreneurial way of leading the
company fits in the wider business picture, where profits are the ones that count.
Every business wants to have higher and higher profits, so they cannot ignore these
key factors that help them gain long term performance and financial growth.
The remainder of this paper is structured as follows. The coming section
presents the research approach. Next section tackles a theoretical approach on the
concept of entrepreneurial company, different views and the positive impact an
entrepreneurial model has on the business. The following section argues in favor of
the importance of pre-entry knowledge and experience in the entrepreneurial process
and explains the role and content of pre-start-up business planning.
The conclusion drawn at the end comes as a reinforcement of the arguments
presented in the body of the paper, restating the benefits, for the entrepreneur, of
understanding the importance of pre-entry knowledge and practical and managerial
experience in the entrepreneurial process.
2. Research outline
To reach the above mentioned purpose, two major objectives are settled. The
first objective is to develop an understanding of how entrepreneurial models are built
within companies, what key sides of the business they relate to and what specific
features of the way a company is led are changed, once the entrepreneurial thinking
spreads. In order to reach this objective the main research method employed was
extensive literature review in the field. Various scientific articles on the subject have
been studied, from both academic and business literature, articles that highlighted the
differences between the conservative companies and the entrepreneurial ones. In
addition, some profiles of companies that are considered entrepreneurial have been
analyzed, by exploring their official web pages; these were companies from different
fields of activity: IT, retail, and manufacturing.
The second objective is to emphasize the importance and need of pre-entry
knowledge and experience and of development through learning for start-ups. We
analyze the role of the pre-start-up knowledge about the business activity, the market
and the industry and also the importance of practical and management experience of
the entrepreneur before entering the market. There are some managerial tools referred
to in the paper that an entrepreneur should use to examine the market and to establish
the methods that he/she wants to use in order for his/her company to survive and
growth. For reaching this objective the same research method has been employed,
meaning secondary data analysis. The data were collected from research articles,
Challenges of entering the business market: The pre-entry knowledge and experience
67
websites, public records and reports of the entrepreneurial companies, published
interviews and social media.
In the content of the paper we provide the entrepreneurs with some
suggestions on how to get better informed before entering a market, about the
importance of pre-start-up planning, about what a person should know regarding the
market and industry he or she plans to enter and about type of experience that should
be previously acquired.
3. Entrepreneurial models for companies
The new company’s entry mode, which alternates between creating a new
venture and taking over an established business, is directly connected with the
entrepreneurial model the company chose to adopt. When it comes to relating to their
company, one of the most important tasks entrepreneurs have to accomplish is to state
precisely how their business will interact with suppliers, customers and other partners.
This is how “entrepreneurs often try to find fundamentally new ways of doing
business that will disrupt an industry’s existing competitive rules, leading to the
development of new business models” (Ireland et al., 2001, p. 53). According to
Miller (1996), the two defining characteristics of the business model for an
entrepreneurial company are “efficiency” and “novelty” that have proven to be of
great impact upon a company’s success and growth.
An entrepreneurial business model based on “efficiency” focuses on ways of
developing the business operations and transactions in a highly efficient manner,
aiming to reduce the operations and other business costs for all the parties involved.
An “efficiency” entrepreneurial model of a company relies more on imitating what
other businesses on the market already do, but in a more efficient and healthy way
(low costs, less resources, less time, etc.).
On the other hand, the entrepreneurial model centered on “novelty” settles
new ways of doing business between various participants present on the market. The
“innovation” entrepreneurial model of a company can be achieved by defining new
channels of distribution, by creating business partnerships between parties not linked
before, by entering new markets or targeting new customers, by introducing new
products and services, or new sales and marketing strategies. Those companies make
use of the available resources in a more creative manner and rely on the customers’
willingness to appreciate the innovative outcome and pay extra for it.
An entrepreneur cannot run his/her business by both models since innovation
attracts higher costs for design, development and implementation that contradicts with
the philosophy of the efficiency entrepreneurial model. However, the both models are
highly valued and exploited by entrepreneurial firms as they offer valid alternatives
for value creation under uncertainty (Aldrich, 1999).
To describe the entrepreneurial model of a company, Covin (1991) refers to
eleven variables that are directly linked to the entrepreneurial – traditional dimension
Management & Marketing
68
of the company (Table 1). These variables relate to decisions in finance, marketing
and operations areas. They are emphasized differently in an entrepreneurial firm vs. a
conservative one, the differences being highlighted in the companies’ strategies and
performance as well.
Table 1
Characteristics of entrepreneurial companies
Criteria Traditional companies Entrepreneurial companies
Financial decisions
External financing Low High
– companies access credits more openly, accept the
idea of debts easier and live up with the possible risks
involved;
– there is a crucial necessity for the business
development;
– this is a in hand solution for sustaining innovative
behavior.
Customer credit High Low
– to gain customers, companies rely on their
innovative products and services as part of their product
differentiation strategy and as competitive advantage.
Marketing decisions
Customer service and
support, warranties
Low to average High
– companies help the customers to get familiarized
with their new, innovative products and to easily learn
how to use them;
– companies work towards eliminating the customer’s
fear of buying unknown products or services;
– companies offer superior warranties.
Know-how Existent Continuously improved
- companies permanently scan the environment for
ideas of innovation and market trends
Advertising Low High
– companies invest more in communicating their
existence, attributes and benefits of their new,
revolutionary products to the potential customers.
Product range Wide Wide, constantly improved
– companies offer a wider product range because
they would constantly come up with something new on
the market.
Pricing strategy Low-price strategy High-price strategy
– companies offer higher prices in exchange for the
differentiated products they offer (competition is not yet
encountered, growing market)
Operations decisions
Product quality Low to average High
– companies compete proactively on the market by
emphasizing the higher quality of the products.
Challenges of entering the business market: The pre-entry knowledge and experience
69
Criteria Traditional companies Entrepreneurial companies
Operating efficiency Under control Lower
– when competing on a market driven by technological
changes and short product life cycle, were the differen-
tiation is given by the innovation degree of products, the
efficiency might be lower (McCarthy et al., 1987).
Industry awareness Little knowledge High
– external information must be gathered, trends must
be analyzed (for example, in terms of customer
preferences and events occurring in their field of action)
and technological evolution of the competitors must be
taken into account.
External
independence
High (many suppliers) Low
– dependency on a sole supplier to assure the
constant viability of the company products.
Source: Adapted from Covin (1991).
Following the information presented in the table, it can be observed that the
key aspects of entrepreneurial companies differ from the perspective of strategies
implemented, whether it is pricing strategy, product strategy, market strategy or
operations one. The main characteristics of the entrepreneurial companies are
exemplified in terms of innovative, risk-tolerance and proactive behavior, supported
by the more usage of external financing, by the more strongly emphasize on customer
service and support, as well as the superior warranties offered. They also prove their
character by the way they do advertising; by the way they build their pricing strategy
and the wide portfolio of high quality products while paying constant attention to the
industry trends and events. By implementing a higher price strategy, by offering
innovative products of high quality, with superior warranties and great support,
entrepreneurial companies prove to be more performing than traditional ones.
4. Pre-entry knowledge for new ventures
4.1. Pre-entry business planning
Pre-start-up planning is the process by which the entrepreneur, in order to
exploit the opportunity, creates a vision for his business, develops its goals and
objectives and designs the mechanisms to fulfill these objectives and identifies
necessary resources that help him achieve the vision (Sexton and Bowman-Upton,
1991). This process includes collecting and analyzing data prior to the new business
start-up, and then using the knowledge gained to develop the unique business model
and further the business plan itself. Pre-start-up planning can range from no planning
to the development of very comprehensive and detailed, long-term plans
(Castrogiovanni, 1996; Delmar and Shane, 2003).
One stream of research, represented by proponents of business planning,
argues that the pre-entry planning leads to faster and more effective decision making
and allows for the discovery of potential obstacles and problems in business
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70
operations. It also provides concrete objectives aligned with organizational goals and
makes it easier for these goals to be communicated to others, all these contributing to
building a stronger capacity for the company of surviving within the industry (Delmar
and Shane, 2003). Campbell (1988) argues that planning is particularly beneficial
when the activities are performed in conditions of uncertainty where previous
experience or information processing habits have no bearing on the end result. By
systematically and carefully planning the business, the entrepreneur is able to collect
the necessary information about the field, such as the knowledge resulted will help
him better understand what is required of the business to be successful (Dean and
Sharfman, 1996; Delmar and Shane, 2003).
Another stream of research, which covers the critics of business planning,
argues that pre-entry planning detracts time, efforts and attention of entrepreneurs
from more valuable tasks. Also, the value of knowledge acquired through business
planning, particularly in uncertain environments or during crisis periods, may have a
short shelf-life and that planning will constrain entrepreneurial alternative creation
during decision making, even when changes in the environment require organizational
adaptation or transformation (Bird, 1988; Mintzberg, 1994; Bhidé, 2000). Planning
may also discourage creativity and initiative, by focusing attention and efforts in
companies on particular outcomes and established paths to achieve those outcomes
(Mintzberg, 1994).
As such, pre-start-up planning provides entrepreneurs with an opportunity to
collect and consider valuable information which supports their decision to enter a
particular market. Also, it helps them to establish and prioritize the actions they need
to take in order to create and grow their ventures. However, as argued above,
empirical evidence on the effect of planning on new venture survival is conflicting and
further investigation is needed.
4.2. Pre-entry knowledge of the market
The pre-entry knowledge represents the knowledge an entrepreneur should
have before entering the market. A number of studies sustain the idea that a firm’s pre-
entry knowledge and practical experience enhance its long-run performance and
survival (Agarwal et al., 2004; Delmar and Shane, 2006; Franco and Filson, 2006;
Dencker et al., 2009). This is explained by the fact that new entrants with prior
experience and knowledge about the market are better suited for the industry in
question, they can better react to unexpected changes and can faster adapt to dynamic
trends in the industry. As such, they are more likely to succeed on the long-term.
Franco and Filsone (2006) have shown that start-up companies whose
founders had previous industry knowledge and who decide to use product/service
diversification survive longer than companies without relevant experience. Going one
step further, Delmar and Shane (2006) argue that the pre-entry knowledge of the
market and the entrepreneur’s experience in the industry provide him with the
necessary information about competition, niche markets, customer preferences,
Challenges of entering the business market: The pre-entry knowledge and experience
71
product quality, pricing and promotion, supply chain issues, employment practices,
industry rules and norms, which help the entrepreneur in his decision of entering the
market.
As such, the pre-entry knowledge should be assessed against the following
three main areas: (1) personal characteristics of the entrepreneur, (2) knowledge about
the business activity, the market and the industry, and (3) resources at entrepreneur
disposal (Figure 1). The major part of this knowledge is to be gained through formal
or informal education, by taking specialized courses in business and economics. Also,
the knowledge can be acquired from the external environment in which the
entrepreneur lives, through interaction and communication. Websites, books, industry
reports, local authorities, personal views, and the social media are other sources of
reliable information that an entrepreneur can use and exploit to self-create.
Figure 1. Areas of pre-entry knowledge
The pre-entry stage of the entrepreneurial process requires the entrepreneur to
develop his capacity to build intellectual, financial, structural and social capital in
order to start the business successfully. The most basic traits of an entrepreneur
include the opportunity seeking, pro-activeness, the risk preference, initiative taking,
creativity, innovativeness, leadership, problem solving and motivation (Kamineni,
2002; Kumul Guler and Tinar, 2009). Brixy et al. (2008) found that the level of
education, the readiness to take risks, and role models are the most important
determinants during all phases of the entrepreneurial process. Going even further into
the entrepreneur’s characterization, we should mention his/her drive for starting a
business and the commitment towards seeing it succeed, while at the same time,
maintaining the core values of the company and impacting positively the community.
Santarelli and Vivarelli (2007) argue that since entrepreneurs are very
heterogeneous then the entry of new ventures is heterogeneous, favouring innovative
entrepreneurs endowed with “progressive motivation and promising predictors of
better business performance” (p. 476). Other main characteristics of an entrepreneur,
which shape his/her character, personality and behaviour, include: responsible, hard
Pre-entry knowledge
Personal characteristics of
the entrepreneur
Knowledge about the
business, market and
industry
Resources at
entrepreneur disposal
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worker, flexible, follows through with ideas, optimistic, perceptive, self-confident,
determined, high degree of energy, innovative, independent, ability to anticipate
needs, effective communicator, responsive to criticism, able to take the lead, learn
from mistakes and self-directed (Mitton, 1989; Chell et al., 1991).
Second of all, the pre-entry stage of business activity requires the
entrepreneurs to get informed about the characteristics and trends of the industry in
which they will operate, about the market features and its dynamics, about the
customers’ behaviours and changes in these behaviours. They should also know how
to manage human resources in that particular field of activity and how to efficiently
govern the large organization as a whole. Also, the entrepreneur should understand
entirely his business operations. This means for an entrepreneur to have basic financial
competences, understand and interpret different statistics, and have legal and policy
competences. Going even deeper, the entrepreneur should understand the existing
market, its history, the market size and segmentation, the buyers’ behaviour, the
technology, the available products/services, the possible competitors, their strengths
and weaknesses and only then should move on to developing his/her business idea.
This pre-entry knowledge is essential for an entrepreneur as it influences in a
significant way the business success and long term survival (Dencker et al., 2009).
That is why learning is widely acknowledged as being a critical issue for new or
existing companies, one that determines their development, growth, ability to
compete, in a word, their success (Hatch and Dyer, 2004).
Third of all, besides the personal traits and the knowledge about the business
activity, the resources an entrepreneur has at his disposal are another important
determinant for entrepreneurial success. The entrepreneurship literature divides these
resources in three components (Hatch and Dyer, 2004; Cantner and Stuetzer, 2010):
human capital, financial capital and social capital. Human capital provides the
knowledge and skills to start a new venture, financial capital ensures the means to
attract and obtain inputs and social capital offers the network necessary to acquire
those resources that entrepreneurs do not possess. Block et al. (2010) argue that
beyond the human and financial capital, a person’s risk attitude, innovativeness and
perception of financial constraints of entrepreneurship also play important roles in
entrepreneurs’ decision to start a new venture.
To examine the market that the entrepreneur plans to enter and to establish the
methods and mechanisms needed to keep the new venture alive on long-run, the
entrepreneur can use various tools. The most widely spread tools for market and
industry analysis are: Porter analysis, PESTLE analysis and SWOT analysis.
Challenges of entering the business market: The pre-entry knowledge and experience
73
Porter’s five forces analysis is a framework for industry analysis and business
strategy evaluation (micro-environment analysis) and helps understand the
competition level for a market. Porter’s five forces include three forces from
‘horizontal’ competition: the threat of substitute products, the threat of existing rivals,
and the threat of new entrants; and two forces from ‘vertical’ competition: the
bargaining power of suppliers and the bargaining power of customers (Porter, 1980).
The entrepreneur should understand and interpret correctly all of these forces as they
help him see the dangers or opportunities of entering the market.
PESTLE analysis stands for “political, economic, social, technological, legal
and environmental” analysis and describes a framework of macro-environmental
factors which impact the business organization operations. A PESTLE analysis is a
useful tool for understanding the ‘big picture’ of the environment in which an
organization operates. Specifically a PESTLE analysis is a useful tool for
understanding risks associated with market growth or decline, a new product or
service, a new technology. The results of this analysis help new ventures to position
on the market, to learn about its potential and trends and to decide future direction.
SWOT analysis is a tool for auditing an organization and its environment,
internally and externally. It is the first stage of planning and helps entrepreneurs to
focus on key issues, such as: strengths, weaknesses, opportunities, and threats (Hill
and Westbrook, 1997). The internal and external business context analysis generally
produce a large amount of information, and the SWOT analysis serves as a filter for
unnecessary information and reduces it to a manageable quantity of key issues. The
SWOT analysis classifies the internal aspects of the company as strengths or
weaknesses and the external situational factors as opportunities or threats.
4.3. Pre-entry work and management experience
Both practical and management experiences can influence in a positive way an
entrepreneur that wants to enter the market. These experiences come from previous
jobs and take various shapes and contours: communication and networking skills,
management skills, interpersonal skills, a broader perspective about the market, the
appropriate use of leadership styles, handling personnel problems like conflicts and
firings, the challenge of new and/or complex tasks or problems, the opportunity to
learn and apply new practices, and the exposure to positive role models (i.e. Gelderen
et al., 2006; Johnson et al., 2006
. As such, pre-entry experience can contribute to
development of three categories of skills in an entrepreneur, namely: (1) functional
skills – ability to perform various managerial functions (e.g. sales, marketing, ?nance,
human resources), (2) relational skills – ability to work with external actors (e.g.
employees, customers, suppliers, other partners), and (3) resource management skills –
ability to effectively identify, allocate and manage scarce resources (Figure 2).
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Figure 2. Pre-entry experience
There is a clear indication that previous work experience has a significant and
positive effect on the company’s success and survival on the long-run, as this indicates
a clear direction for the organization (Dencker et al., 2009). An increase in the degree
of previous experience, a good education, positive influences from family and friends,
industry experience, all of these increase the likelihood of firm survival.
The theory of entrepreneurial entry (and exit) decisions introduced by Nocke
(2006) explains that by knowing their own managerial talent, entrepreneurs decide
which market to enter, where markets differ in size or other features. Empirical
evidence proved that those entrants that choose large markets where competition is
intense are more efficient than those that select smaller markets.
Some researchers regard the work and managerial experience as an important
factor in entrepreneurial success, particularly if the experience is in the specific
industry sector of the business venture (Johnson et al., 2006; Parker and Van Praag,
2010). Lee and Tsang (2001) argue that most studies reported in the literature suggest
a positive relationship between the entrepreneur's prior experience and venture
performance. Indeed, their research found that “achievement motivation, the
personality trait which had greatest influence on venture growth, had a smaller impact
on firm success than previous experience” (p. 600). A study conducted by Colette et
al. (2004) showed that of all the personality traits included in their study, including
internal locus of control, number of partners, networking activities, extraversion and
education, the entrepreneur’s practical and managerial experience had the greatest
effect on the firm’s growth variable.
However, there is limited empirical evidence to suggest that pre-entry industry
experience (for example, experience in telecommunications) has a positive effect on
?rm survival across a variety of different other industries (for example, transportation,
energy, pharmaceuticals etc.).
Pre-entry experience
Ability to perform
various managerial
functions
Ability to effectively
identify and manage
scarce resources
Ability to work with
external actors
Challenges of entering the business market: The pre-entry knowledge and experience
75
By transferring the previous work relation and experience towards a new
venture, the entrepreneur strengthens the company, ensuring cohesiveness of its
business operations. Also, the interaction with new sources of information (from
friends, family, and other people) can influence an entrepreneur in a positive way,
transferring more knowledge for the company’s interest (Timmermans, 2009).
5. Implications and conclusions
The paper findings are destined to be used, first of all, by prospective
entrepreneurs as they advise them on how to be better informed before entering a
market, about the importance of pre-start-up business planning, about what a person
should know regarding the market – the pre-entry knowledge and what type of
experience he or she has to acquire – pre-entry experience. Secondary, the paper
advances the theoretical research in the field of pre-start-up business planning and new
venture entry, by clearly delimitating between key concepts and by emphasizing the
key role that the entrepreneur has on the market entry. However, further empirical
evidence to substantiate our research findings is required.
A company led accordingly to an entrepreneurial model is more prepared to
deal with the unexpected changes in its external and internal environment and is aimed
constantly to influencing or transforming the business world in which it activates.
At their inception, new ventures are endowed with knowledge and experience
through the human and social capital of their entrepreneur. Existing empirical research
(i.e. Dencker et al. 2009) suggests that this pre-entry knowledge and experience will
influence the company’s chances of survival and growth. However, the extent to
which the entrepreneur’s pre-entry knowledge of the business activity and his pre-
entry management experience in?uences the business success is difficult to be
determined and needs further investigation.
In the paper we suggest that the pre-entry knowledge is to be assessed against
three key perspectives: (1) personal characteristics of the entrepreneur, (2) knowledge
about the business activity, the market and the industry, and (3) resources at
entrepreneur disposal. Also, the pre-entry experience will contribute to development
of three categories of skills in an entrepreneur, such as: (1) functional skills – ability to
perform various managerial functions, (2) relational skills – ability to work with
external actors, and (3) resource management skills – ability to effectively identify and
allocate scarce resources.
Future research should further investigate the extent to which each one of the
three pre-entry knowledge areas influences or determines the firm’s success on the
long-run. It should also explore the degree to which the skills developed in the pre-
start-up stage of the business increase the chances for survival of the new venture.
Management & Marketing
76
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About the author
Carmen Monica P?UNESCU is a Full Professor at the Faculty of Business
Administration from the Bucharest University of Economic Studies (ASE), Romania.
Prof. P?unescu holds a PhD in Economics from ASE. Her qualification raise includes:
University of Rome “La Sapienza”, Italy – 2002-2003, Government scholarship;
Loyola University in New Orleans, USA – 2004-2005, Senior Fulbright Grantee,
Harvard Business School, Boston, USA – EECPCL 2007; IMTA 2008, Bled, Slovenia
and EEC 2009, Maastricht, Holland. Her research interests lie in the areas of
organization’s maturity assessment, entrepreneurial management and leadership,
social entrepreneurship, academic entrepreneurship, and women entrepreneurship.
doc_441446659.pdf
Within this particular detailed illustration in regard to challenges of entering the business market the pre entry knowledge and experience.
Abstract. In any national economy
entrepreneurial entry serves to
transform and revitalize markets and
industries, thereby enhancing their
competitiveness. Existing empirical
research suggests that the pre-entry
knowledge of the market and the
entrepreneur’s prior practical and
managerial experience will influence
the new venture’s chances of survival
and its future growth. The current
paper emphasizes the key role that
the entrepreneur has on the market
entry as this entry influences business
survival, growth or exit. In the paper
we seek to better understand the
relationship between the pre-entry
knowledge and experience and the
new venture’s success, by performing
an in-depth analysis of the
specialized literature. We argue that
the pre-entry knowledge should be
assessed against three key
perspectives: (1) personal
characteristics of the entrepreneur,
(2) knowledge about the business
activity, the market and the industry,
and (3) resources at entrepreneur
disposal. Also, the pre-entry
experience can contribute to
development of three categories of
skills in an entrepreneur, such as: (1)
functional skills – ability to perform
various managerial functions, (2)
relational skills – ability to work with
external actors, and (3) resource
management skills – ability to
effectively identify and allocate
scarce resources.
Keywords: business entry,
entrepreneurial company, pre-entry-
planning, pre-entry knowledge, pre-
entry experience.
CHALLENGES OF ENTERING
THE BUSINESS MARKET:
THE PRE-ENTRY KNOWLEDGE
AND EXPERIENCE
Carmen Monica P?UNESCU
The Bucharest University of Economic
Studies, Faculty of Business Administration
2-2A Calea Grivitei, 010701, Bucharest,
Romania
e-mail: [email protected]
Management & Marketing
Challenges for the Knowledge Society
(2013) Vol. 8, No. 1, pp. 63-78
Management & Marketing
64
1. Introduction
The current business environment goes through turbulent and dynamic
changes, with companies entering and exiting various industries at an alarming rate.
Now with the global economic crisis, it has been more than obvious that it is important
to invest in the entrepreneurial culture of a country that leads to creation of new
businesses with the potential to transform and rejuvenate the national economies.
Therefore, entrepreneurship is viewed as the engine for economic growth and vitality
of the large society as a whole. One important particularity of this subject comes from
the fact that there is no universal entrepreneurship recipe. When studying the various
cases of successful entrepreneurs we can find many similarities, but also many
differences from one person to another. There are many variables included in this
equation that different experts still continue to argue over (e.g., Mitton, 1989; Chell et
al., 1991; Kamineni, 2002). These aspects have been proven to influence the behavior
and the decisions of entrepreneurs. Certainly, there are both success and failure stories
in every situation.
One of the most important factors of growth and development of all industries
and economies around the world was the process of companies entering and leaving
the business market. The biggest effect that this factor had on market performance has
focused on productivity and market structure. There is a lot of knowledge in terms of
entrepreneurship input and output activities, their variability in time and connection to
various industries and their influence on the processes of change in the economy
(Carree and Thurik, 2002; Aghion et al., 2004; Thurik et al., 2011; Tan??u and
Matee?escu, 2012). Even if the entering and exiting processes are influenced by
various factors, the most important part of them is the person behind these processes –
the entrepreneur. There is little information in the literature about the main player of
great caliber.
Looking at both the Romanian and the international business environment, we
observe some very strong examples of unique companies that started doing business in
a different way, which proved to be a very successful one. The creative entrepreneurs
behind those businesses turn problems into opportunities, bringing added value to
market and making an impact through innovation. Like Drucker (1993, p. 45) stated,
“entrepreneurs always search for a change, respond to it and exploit it as an
opportunity”. Innovation became a competitive tool of entrepreneurs, a mean by
which they exploit problems and change as opportunities. This was easily noticed
during the last years when, even though passing through economic crises, certain
companies benefited from their opportunities, not obstacles.
Entrepreneurship also creates the opportunity for the business owner to make
a contribution. Most new entrepreneurs help the local economy (local communities in
which they are present) by engaging suppliers, customers, employees, creating
demand, shaping behaviours or influencing market trends and generating cash flow. A
few of them bring an impact to the large society as a whole, through their innovations.
Therefore, everything the entrepreneur does has as a final purpose the long term
Challenges of entering the business market: The pre-entry knowledge and experience
65
sustainable development of the company, the higher level of satisfaction of all the
stakeholders involved, whether they are customers, employees, shareholders or
suppliers, the achievement of profit and the feeling that in the end, the entrepreneur
has done something to help the community.
Now we should not fall in the misconception of thinking that “everyone who
starts a new business is being entrepreneurial” (Drucker, 1993, p. 12). An entrepreneur
brings innovative tools to generate creative solutions which deal with unmet market
needs and creates a new type of value for the customer. According to Wikipedia, this
new type of value can emerge from new and different combinations between the three
factors that describe goods from the economic point of view: raw materials, physical
and mental labor and capital (money). Innovation means doing things differently, but
also doing things better. So, the highlight is on the product quality and on the
customers’ satisfaction, because even if it is important to pay attention to certain
aspects involved in running a business, such as management, marketing, finance, these
do not generate any results if the company doesn’t have good quality products, that do
not satisfy the customers’ expectations. Entrepreneurs must focus on creating products
or services that satisfy the uncovered needs of the customers.
There are certain patterns describing entrepreneurial companies, certain key
factors regarding the way the companies do business that set them apart from traditional,
conservative ones. All companies follow a certain business model. But there are a few,
world known, famous companies that have a unique, creative and performing business
model. Those are the companies that bring real contributions to society, companies that
last during crises and that transform any market issue into an opportunity, and
companies that take care of and satisfy the interests of all their stakeholders. Such
companies, like Apple, are companies led differently, companies that organize
themselves and their interactions with customers and suppliers in unprecedented ways
(Gambardella and McGahan, 2010). Their business model is different, their leadership
approach is different, the person behind the company is different. It is called the
“entrepreneurial model” and it seriously influences innovativeness and the overall
performance of the company (Nybakk and Hansen, 2008).
At the beginning of their existence, entrepreneurial companies are endowed
with pre- entry knowledge and management experience through the human and social
capital of their founder(s). Current empirical research suggests that these intangible
assets influence significantly the firm’s success rate and increase the firm’s survival
(Dencker et al., 2009). However, the mechanisms underlying this relationship have yet
to be fully explored and understood.
The human capital of the entrepreneur, his or her pre-entry knowledge and
experience in the business market have a direct impact on the performance and
organizational learning within the company, leading its entrepreneurial success
(Dencker et al., 2009; Unger, 2011). Early stage business planning and product/service
design and engineering are also influenced by the entrepreneur’s traits and his/her
personal way of doing business (Kumul Guler and Tinar, 2009).
Management & Marketing
66
In this respect, the current paper emphasizes the key role that the entrepreneur
has on the market entry as this entry influences business survival, growth or exit,
compared with the actual productivity the company has on the market. It also explains
the importance of pre-entry knowledge and experience in the entrepreneurial process,
for start-ups, before entering the market. Furthermore, in the paper we try to define an
entrepreneurial model for companies which will help them recognize its benefits.
However, it is important to understand where the entrepreneurial way of leading the
company fits in the wider business picture, where profits are the ones that count.
Every business wants to have higher and higher profits, so they cannot ignore these
key factors that help them gain long term performance and financial growth.
The remainder of this paper is structured as follows. The coming section
presents the research approach. Next section tackles a theoretical approach on the
concept of entrepreneurial company, different views and the positive impact an
entrepreneurial model has on the business. The following section argues in favor of
the importance of pre-entry knowledge and experience in the entrepreneurial process
and explains the role and content of pre-start-up business planning.
The conclusion drawn at the end comes as a reinforcement of the arguments
presented in the body of the paper, restating the benefits, for the entrepreneur, of
understanding the importance of pre-entry knowledge and practical and managerial
experience in the entrepreneurial process.
2. Research outline
To reach the above mentioned purpose, two major objectives are settled. The
first objective is to develop an understanding of how entrepreneurial models are built
within companies, what key sides of the business they relate to and what specific
features of the way a company is led are changed, once the entrepreneurial thinking
spreads. In order to reach this objective the main research method employed was
extensive literature review in the field. Various scientific articles on the subject have
been studied, from both academic and business literature, articles that highlighted the
differences between the conservative companies and the entrepreneurial ones. In
addition, some profiles of companies that are considered entrepreneurial have been
analyzed, by exploring their official web pages; these were companies from different
fields of activity: IT, retail, and manufacturing.
The second objective is to emphasize the importance and need of pre-entry
knowledge and experience and of development through learning for start-ups. We
analyze the role of the pre-start-up knowledge about the business activity, the market
and the industry and also the importance of practical and management experience of
the entrepreneur before entering the market. There are some managerial tools referred
to in the paper that an entrepreneur should use to examine the market and to establish
the methods that he/she wants to use in order for his/her company to survive and
growth. For reaching this objective the same research method has been employed,
meaning secondary data analysis. The data were collected from research articles,
Challenges of entering the business market: The pre-entry knowledge and experience
67
websites, public records and reports of the entrepreneurial companies, published
interviews and social media.
In the content of the paper we provide the entrepreneurs with some
suggestions on how to get better informed before entering a market, about the
importance of pre-start-up planning, about what a person should know regarding the
market and industry he or she plans to enter and about type of experience that should
be previously acquired.
3. Entrepreneurial models for companies
The new company’s entry mode, which alternates between creating a new
venture and taking over an established business, is directly connected with the
entrepreneurial model the company chose to adopt. When it comes to relating to their
company, one of the most important tasks entrepreneurs have to accomplish is to state
precisely how their business will interact with suppliers, customers and other partners.
This is how “entrepreneurs often try to find fundamentally new ways of doing
business that will disrupt an industry’s existing competitive rules, leading to the
development of new business models” (Ireland et al., 2001, p. 53). According to
Miller (1996), the two defining characteristics of the business model for an
entrepreneurial company are “efficiency” and “novelty” that have proven to be of
great impact upon a company’s success and growth.
An entrepreneurial business model based on “efficiency” focuses on ways of
developing the business operations and transactions in a highly efficient manner,
aiming to reduce the operations and other business costs for all the parties involved.
An “efficiency” entrepreneurial model of a company relies more on imitating what
other businesses on the market already do, but in a more efficient and healthy way
(low costs, less resources, less time, etc.).
On the other hand, the entrepreneurial model centered on “novelty” settles
new ways of doing business between various participants present on the market. The
“innovation” entrepreneurial model of a company can be achieved by defining new
channels of distribution, by creating business partnerships between parties not linked
before, by entering new markets or targeting new customers, by introducing new
products and services, or new sales and marketing strategies. Those companies make
use of the available resources in a more creative manner and rely on the customers’
willingness to appreciate the innovative outcome and pay extra for it.
An entrepreneur cannot run his/her business by both models since innovation
attracts higher costs for design, development and implementation that contradicts with
the philosophy of the efficiency entrepreneurial model. However, the both models are
highly valued and exploited by entrepreneurial firms as they offer valid alternatives
for value creation under uncertainty (Aldrich, 1999).
To describe the entrepreneurial model of a company, Covin (1991) refers to
eleven variables that are directly linked to the entrepreneurial – traditional dimension
Management & Marketing
68
of the company (Table 1). These variables relate to decisions in finance, marketing
and operations areas. They are emphasized differently in an entrepreneurial firm vs. a
conservative one, the differences being highlighted in the companies’ strategies and
performance as well.
Table 1
Characteristics of entrepreneurial companies
Criteria Traditional companies Entrepreneurial companies
Financial decisions
External financing Low High
– companies access credits more openly, accept the
idea of debts easier and live up with the possible risks
involved;
– there is a crucial necessity for the business
development;
– this is a in hand solution for sustaining innovative
behavior.
Customer credit High Low
– to gain customers, companies rely on their
innovative products and services as part of their product
differentiation strategy and as competitive advantage.
Marketing decisions
Customer service and
support, warranties
Low to average High
– companies help the customers to get familiarized
with their new, innovative products and to easily learn
how to use them;
– companies work towards eliminating the customer’s
fear of buying unknown products or services;
– companies offer superior warranties.
Know-how Existent Continuously improved
- companies permanently scan the environment for
ideas of innovation and market trends
Advertising Low High
– companies invest more in communicating their
existence, attributes and benefits of their new,
revolutionary products to the potential customers.
Product range Wide Wide, constantly improved
– companies offer a wider product range because
they would constantly come up with something new on
the market.
Pricing strategy Low-price strategy High-price strategy
– companies offer higher prices in exchange for the
differentiated products they offer (competition is not yet
encountered, growing market)
Operations decisions
Product quality Low to average High
– companies compete proactively on the market by
emphasizing the higher quality of the products.
Challenges of entering the business market: The pre-entry knowledge and experience
69
Criteria Traditional companies Entrepreneurial companies
Operating efficiency Under control Lower
– when competing on a market driven by technological
changes and short product life cycle, were the differen-
tiation is given by the innovation degree of products, the
efficiency might be lower (McCarthy et al., 1987).
Industry awareness Little knowledge High
– external information must be gathered, trends must
be analyzed (for example, in terms of customer
preferences and events occurring in their field of action)
and technological evolution of the competitors must be
taken into account.
External
independence
High (many suppliers) Low
– dependency on a sole supplier to assure the
constant viability of the company products.
Source: Adapted from Covin (1991).
Following the information presented in the table, it can be observed that the
key aspects of entrepreneurial companies differ from the perspective of strategies
implemented, whether it is pricing strategy, product strategy, market strategy or
operations one. The main characteristics of the entrepreneurial companies are
exemplified in terms of innovative, risk-tolerance and proactive behavior, supported
by the more usage of external financing, by the more strongly emphasize on customer
service and support, as well as the superior warranties offered. They also prove their
character by the way they do advertising; by the way they build their pricing strategy
and the wide portfolio of high quality products while paying constant attention to the
industry trends and events. By implementing a higher price strategy, by offering
innovative products of high quality, with superior warranties and great support,
entrepreneurial companies prove to be more performing than traditional ones.
4. Pre-entry knowledge for new ventures
4.1. Pre-entry business planning
Pre-start-up planning is the process by which the entrepreneur, in order to
exploit the opportunity, creates a vision for his business, develops its goals and
objectives and designs the mechanisms to fulfill these objectives and identifies
necessary resources that help him achieve the vision (Sexton and Bowman-Upton,
1991). This process includes collecting and analyzing data prior to the new business
start-up, and then using the knowledge gained to develop the unique business model
and further the business plan itself. Pre-start-up planning can range from no planning
to the development of very comprehensive and detailed, long-term plans
(Castrogiovanni, 1996; Delmar and Shane, 2003).
One stream of research, represented by proponents of business planning,
argues that the pre-entry planning leads to faster and more effective decision making
and allows for the discovery of potential obstacles and problems in business
Management & Marketing
70
operations. It also provides concrete objectives aligned with organizational goals and
makes it easier for these goals to be communicated to others, all these contributing to
building a stronger capacity for the company of surviving within the industry (Delmar
and Shane, 2003). Campbell (1988) argues that planning is particularly beneficial
when the activities are performed in conditions of uncertainty where previous
experience or information processing habits have no bearing on the end result. By
systematically and carefully planning the business, the entrepreneur is able to collect
the necessary information about the field, such as the knowledge resulted will help
him better understand what is required of the business to be successful (Dean and
Sharfman, 1996; Delmar and Shane, 2003).
Another stream of research, which covers the critics of business planning,
argues that pre-entry planning detracts time, efforts and attention of entrepreneurs
from more valuable tasks. Also, the value of knowledge acquired through business
planning, particularly in uncertain environments or during crisis periods, may have a
short shelf-life and that planning will constrain entrepreneurial alternative creation
during decision making, even when changes in the environment require organizational
adaptation or transformation (Bird, 1988; Mintzberg, 1994; Bhidé, 2000). Planning
may also discourage creativity and initiative, by focusing attention and efforts in
companies on particular outcomes and established paths to achieve those outcomes
(Mintzberg, 1994).
As such, pre-start-up planning provides entrepreneurs with an opportunity to
collect and consider valuable information which supports their decision to enter a
particular market. Also, it helps them to establish and prioritize the actions they need
to take in order to create and grow their ventures. However, as argued above,
empirical evidence on the effect of planning on new venture survival is conflicting and
further investigation is needed.
4.2. Pre-entry knowledge of the market
The pre-entry knowledge represents the knowledge an entrepreneur should
have before entering the market. A number of studies sustain the idea that a firm’s pre-
entry knowledge and practical experience enhance its long-run performance and
survival (Agarwal et al., 2004; Delmar and Shane, 2006; Franco and Filson, 2006;
Dencker et al., 2009). This is explained by the fact that new entrants with prior
experience and knowledge about the market are better suited for the industry in
question, they can better react to unexpected changes and can faster adapt to dynamic
trends in the industry. As such, they are more likely to succeed on the long-term.
Franco and Filsone (2006) have shown that start-up companies whose
founders had previous industry knowledge and who decide to use product/service
diversification survive longer than companies without relevant experience. Going one
step further, Delmar and Shane (2006) argue that the pre-entry knowledge of the
market and the entrepreneur’s experience in the industry provide him with the
necessary information about competition, niche markets, customer preferences,
Challenges of entering the business market: The pre-entry knowledge and experience
71
product quality, pricing and promotion, supply chain issues, employment practices,
industry rules and norms, which help the entrepreneur in his decision of entering the
market.
As such, the pre-entry knowledge should be assessed against the following
three main areas: (1) personal characteristics of the entrepreneur, (2) knowledge about
the business activity, the market and the industry, and (3) resources at entrepreneur
disposal (Figure 1). The major part of this knowledge is to be gained through formal
or informal education, by taking specialized courses in business and economics. Also,
the knowledge can be acquired from the external environment in which the
entrepreneur lives, through interaction and communication. Websites, books, industry
reports, local authorities, personal views, and the social media are other sources of
reliable information that an entrepreneur can use and exploit to self-create.
Figure 1. Areas of pre-entry knowledge
The pre-entry stage of the entrepreneurial process requires the entrepreneur to
develop his capacity to build intellectual, financial, structural and social capital in
order to start the business successfully. The most basic traits of an entrepreneur
include the opportunity seeking, pro-activeness, the risk preference, initiative taking,
creativity, innovativeness, leadership, problem solving and motivation (Kamineni,
2002; Kumul Guler and Tinar, 2009). Brixy et al. (2008) found that the level of
education, the readiness to take risks, and role models are the most important
determinants during all phases of the entrepreneurial process. Going even further into
the entrepreneur’s characterization, we should mention his/her drive for starting a
business and the commitment towards seeing it succeed, while at the same time,
maintaining the core values of the company and impacting positively the community.
Santarelli and Vivarelli (2007) argue that since entrepreneurs are very
heterogeneous then the entry of new ventures is heterogeneous, favouring innovative
entrepreneurs endowed with “progressive motivation and promising predictors of
better business performance” (p. 476). Other main characteristics of an entrepreneur,
which shape his/her character, personality and behaviour, include: responsible, hard
Pre-entry knowledge
Personal characteristics of
the entrepreneur
Knowledge about the
business, market and
industry
Resources at
entrepreneur disposal
Management & Marketing
72
worker, flexible, follows through with ideas, optimistic, perceptive, self-confident,
determined, high degree of energy, innovative, independent, ability to anticipate
needs, effective communicator, responsive to criticism, able to take the lead, learn
from mistakes and self-directed (Mitton, 1989; Chell et al., 1991).
Second of all, the pre-entry stage of business activity requires the
entrepreneurs to get informed about the characteristics and trends of the industry in
which they will operate, about the market features and its dynamics, about the
customers’ behaviours and changes in these behaviours. They should also know how
to manage human resources in that particular field of activity and how to efficiently
govern the large organization as a whole. Also, the entrepreneur should understand
entirely his business operations. This means for an entrepreneur to have basic financial
competences, understand and interpret different statistics, and have legal and policy
competences. Going even deeper, the entrepreneur should understand the existing
market, its history, the market size and segmentation, the buyers’ behaviour, the
technology, the available products/services, the possible competitors, their strengths
and weaknesses and only then should move on to developing his/her business idea.
This pre-entry knowledge is essential for an entrepreneur as it influences in a
significant way the business success and long term survival (Dencker et al., 2009).
That is why learning is widely acknowledged as being a critical issue for new or
existing companies, one that determines their development, growth, ability to
compete, in a word, their success (Hatch and Dyer, 2004).
Third of all, besides the personal traits and the knowledge about the business
activity, the resources an entrepreneur has at his disposal are another important
determinant for entrepreneurial success. The entrepreneurship literature divides these
resources in three components (Hatch and Dyer, 2004; Cantner and Stuetzer, 2010):
human capital, financial capital and social capital. Human capital provides the
knowledge and skills to start a new venture, financial capital ensures the means to
attract and obtain inputs and social capital offers the network necessary to acquire
those resources that entrepreneurs do not possess. Block et al. (2010) argue that
beyond the human and financial capital, a person’s risk attitude, innovativeness and
perception of financial constraints of entrepreneurship also play important roles in
entrepreneurs’ decision to start a new venture.
To examine the market that the entrepreneur plans to enter and to establish the
methods and mechanisms needed to keep the new venture alive on long-run, the
entrepreneur can use various tools. The most widely spread tools for market and
industry analysis are: Porter analysis, PESTLE analysis and SWOT analysis.
Challenges of entering the business market: The pre-entry knowledge and experience
73
Porter’s five forces analysis is a framework for industry analysis and business
strategy evaluation (micro-environment analysis) and helps understand the
competition level for a market. Porter’s five forces include three forces from
‘horizontal’ competition: the threat of substitute products, the threat of existing rivals,
and the threat of new entrants; and two forces from ‘vertical’ competition: the
bargaining power of suppliers and the bargaining power of customers (Porter, 1980).
The entrepreneur should understand and interpret correctly all of these forces as they
help him see the dangers or opportunities of entering the market.
PESTLE analysis stands for “political, economic, social, technological, legal
and environmental” analysis and describes a framework of macro-environmental
factors which impact the business organization operations. A PESTLE analysis is a
useful tool for understanding the ‘big picture’ of the environment in which an
organization operates. Specifically a PESTLE analysis is a useful tool for
understanding risks associated with market growth or decline, a new product or
service, a new technology. The results of this analysis help new ventures to position
on the market, to learn about its potential and trends and to decide future direction.
SWOT analysis is a tool for auditing an organization and its environment,
internally and externally. It is the first stage of planning and helps entrepreneurs to
focus on key issues, such as: strengths, weaknesses, opportunities, and threats (Hill
and Westbrook, 1997). The internal and external business context analysis generally
produce a large amount of information, and the SWOT analysis serves as a filter for
unnecessary information and reduces it to a manageable quantity of key issues. The
SWOT analysis classifies the internal aspects of the company as strengths or
weaknesses and the external situational factors as opportunities or threats.
4.3. Pre-entry work and management experience
Both practical and management experiences can influence in a positive way an
entrepreneur that wants to enter the market. These experiences come from previous
jobs and take various shapes and contours: communication and networking skills,
management skills, interpersonal skills, a broader perspective about the market, the
appropriate use of leadership styles, handling personnel problems like conflicts and
firings, the challenge of new and/or complex tasks or problems, the opportunity to
learn and apply new practices, and the exposure to positive role models (i.e. Gelderen
et al., 2006; Johnson et al., 2006
. As such, pre-entry experience can contribute todevelopment of three categories of skills in an entrepreneur, namely: (1) functional
skills – ability to perform various managerial functions (e.g. sales, marketing, ?nance,
human resources), (2) relational skills – ability to work with external actors (e.g.
employees, customers, suppliers, other partners), and (3) resource management skills –
ability to effectively identify, allocate and manage scarce resources (Figure 2).
Management & Marketing
74
Figure 2. Pre-entry experience
There is a clear indication that previous work experience has a significant and
positive effect on the company’s success and survival on the long-run, as this indicates
a clear direction for the organization (Dencker et al., 2009). An increase in the degree
of previous experience, a good education, positive influences from family and friends,
industry experience, all of these increase the likelihood of firm survival.
The theory of entrepreneurial entry (and exit) decisions introduced by Nocke
(2006) explains that by knowing their own managerial talent, entrepreneurs decide
which market to enter, where markets differ in size or other features. Empirical
evidence proved that those entrants that choose large markets where competition is
intense are more efficient than those that select smaller markets.
Some researchers regard the work and managerial experience as an important
factor in entrepreneurial success, particularly if the experience is in the specific
industry sector of the business venture (Johnson et al., 2006; Parker and Van Praag,
2010). Lee and Tsang (2001) argue that most studies reported in the literature suggest
a positive relationship between the entrepreneur's prior experience and venture
performance. Indeed, their research found that “achievement motivation, the
personality trait which had greatest influence on venture growth, had a smaller impact
on firm success than previous experience” (p. 600). A study conducted by Colette et
al. (2004) showed that of all the personality traits included in their study, including
internal locus of control, number of partners, networking activities, extraversion and
education, the entrepreneur’s practical and managerial experience had the greatest
effect on the firm’s growth variable.
However, there is limited empirical evidence to suggest that pre-entry industry
experience (for example, experience in telecommunications) has a positive effect on
?rm survival across a variety of different other industries (for example, transportation,
energy, pharmaceuticals etc.).
Pre-entry experience
Ability to perform
various managerial
functions
Ability to effectively
identify and manage
scarce resources
Ability to work with
external actors
Challenges of entering the business market: The pre-entry knowledge and experience
75
By transferring the previous work relation and experience towards a new
venture, the entrepreneur strengthens the company, ensuring cohesiveness of its
business operations. Also, the interaction with new sources of information (from
friends, family, and other people) can influence an entrepreneur in a positive way,
transferring more knowledge for the company’s interest (Timmermans, 2009).
5. Implications and conclusions
The paper findings are destined to be used, first of all, by prospective
entrepreneurs as they advise them on how to be better informed before entering a
market, about the importance of pre-start-up business planning, about what a person
should know regarding the market – the pre-entry knowledge and what type of
experience he or she has to acquire – pre-entry experience. Secondary, the paper
advances the theoretical research in the field of pre-start-up business planning and new
venture entry, by clearly delimitating between key concepts and by emphasizing the
key role that the entrepreneur has on the market entry. However, further empirical
evidence to substantiate our research findings is required.
A company led accordingly to an entrepreneurial model is more prepared to
deal with the unexpected changes in its external and internal environment and is aimed
constantly to influencing or transforming the business world in which it activates.
At their inception, new ventures are endowed with knowledge and experience
through the human and social capital of their entrepreneur. Existing empirical research
(i.e. Dencker et al. 2009) suggests that this pre-entry knowledge and experience will
influence the company’s chances of survival and growth. However, the extent to
which the entrepreneur’s pre-entry knowledge of the business activity and his pre-
entry management experience in?uences the business success is difficult to be
determined and needs further investigation.
In the paper we suggest that the pre-entry knowledge is to be assessed against
three key perspectives: (1) personal characteristics of the entrepreneur, (2) knowledge
about the business activity, the market and the industry, and (3) resources at
entrepreneur disposal. Also, the pre-entry experience will contribute to development
of three categories of skills in an entrepreneur, such as: (1) functional skills – ability to
perform various managerial functions, (2) relational skills – ability to work with
external actors, and (3) resource management skills – ability to effectively identify and
allocate scarce resources.
Future research should further investigate the extent to which each one of the
three pre-entry knowledge areas influences or determines the firm’s success on the
long-run. It should also explore the degree to which the skills developed in the pre-
start-up stage of the business increase the chances for survival of the new venture.
Management & Marketing
76
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About the author
Carmen Monica P?UNESCU is a Full Professor at the Faculty of Business
Administration from the Bucharest University of Economic Studies (ASE), Romania.
Prof. P?unescu holds a PhD in Economics from ASE. Her qualification raise includes:
University of Rome “La Sapienza”, Italy – 2002-2003, Government scholarship;
Loyola University in New Orleans, USA – 2004-2005, Senior Fulbright Grantee,
Harvard Business School, Boston, USA – EECPCL 2007; IMTA 2008, Bled, Slovenia
and EEC 2009, Maastricht, Holland. Her research interests lie in the areas of
organization’s maturity assessment, entrepreneurial management and leadership,
social entrepreneurship, academic entrepreneurship, and women entrepreneurship.
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