08832323.2012.759094
Journal of Education for Business
ISSN: 0883-2323 (Print) 1940-3356 (Online) Journal homepage: http://www.tandfonline.com/loi/vjeb20
Strategy Choices of Potential Entrepreneurs
Jeffrey W. Alstete
To cite this article: Jeffrey W. Alstete (2014) Strategy Choices of Potential Entrepreneurs,
Journal of Education for Business, 89:2, 77-83, DOI: 10.1080/08832323.2012.759094
To link to this article: http://dx.doi.org/10.1080/08832323.2012.759094
Published online: 17 Jan 2014.
Submit your article to this journal
Article views: 424
View related articles
View Crossmark data
Citing articles: 1 View citing articles
Full Terms & Conditions of access and use can be found at
http://www.tandfonline.com/action/journalInformation?journalCode=vjeb20
Download by: [Universitas Maritim Raja Ali Haji]
Date: 11 January 2016, At: 20:31
JOURNAL OF EDUCATION FOR BUSINESS, 89: 77–83, 2014
C Taylor & Francis Group, LLC
Copyright
ISSN: 0883-2323 print / 1940-3356 online
DOI: 10.1080/08832323.2012.759094
Strategy Choices of Potential Entrepreneurs
Jeffrey W. Alstete
Downloaded by [Universitas Maritim Raja Ali Haji] at 20:31 11 January 2016
Iona College, New Rochelle, New York, USA
The author examined the written business plans of 380 students who completed courses
in entrepreneurship and small business management over an 11-year period. An analysis
categorized the plans into five generic competitive strategy types, and the results found that
58% chose a traditional, focused differentiation approach. A large portion (28%) used broad
differentiation and a small number chose other generic strategies. When considering related
literature on high failure rates of small businesses, the findings of this study suggest that
potential entrepreneurs should be more informed about alternatives and consider combination
strategies or flexible innovative approaches in new business endeavors.
Keywords: entrepreneurship, generic competitive strategy, Porter’s typology, small business
plan, SME strategic planning
Many prospective future entrepreneurs and small business
owners have ideas for potentially successful business ventures and a sincere passion for their ideas. Dreams of success,
personal and monetary rewards, and freedom to make decisions and conduct themselves without traditional employer
supervision are among the reasons people begin the process
of planning a business. It has been stated that there are far
more entrepreneurs than most people realize and the failure
rate of new businesses is disappointingly high (Shane, 2010).
This suggests that enthusiastic would-be entrepreneurs and
others may often operate under a false set of assumptions.
People seeking to start new ventures may also not realize
the importance effective strategic planning, and how it can
help new firms survive and grow (Kuratko, 2009). Reasons
for lack of strategic planning have been identified, and include time scarcity, lack of knowledge, lack of experience or
skills, lack of trust or openness, and a perception of high cost
(Porter, 1991). Today, there are many opportunities for people to find strategic planning information, including books,
websites, talking with small business owners, small business
development centers, or enrolling in college courses.
Courses on entrepreneurship and small business management are popular in higher education, and there are complete undergraduate and graduate degree programs available
as well. Normally these courses and programs involve assignments that require students to write a business plan that
Correspondence should be addressed to Jeffrey W. Alstete, Iona College,
Hagan School of Business, 715 North Avenue, New Rochelle, NY 108011890, USA. E-mail: jalstete@iona.edu
enable potential entrepreneurs to specifically identify what
needs to be done, and helps people move past the first obstacle of inaction (Katz & Green, 2011; Kuratko, 2009). The
college and university faculty members who instruct students
that are considering starting a small business need to be well
informed regarding the sound ideas and starting points of
small businesses, planning methodologies, marketing strategies, management and financial issues, and other important
matters. In addition, private and publicly funded small business assistance agencies, investors, and others involved with
new business ventures can benefit from further examination
of strategic planning issues in small- and medium-sized enterprises (SMEs). Therefore, the trends and results of recent
small business planning proposals should be examined thoroughly so that knowledgeable guidance can be offered to
everyone involved in planning new business ventures.
A BRIEF REVIEW OF SELECTED RELATED
LITERATURE
There are several established models or frameworks in the
field of management that seek to identify different types of
strategies that companies use or propose to use in competitive
marketplaces. H. I. Ansoff (1965), Miles and Snow (1978),
and Porter (1981) being among the most widely used by researchers, faculty, writers, consultants, and strategic planning
practitioners. Igor Ansoff is known as the father of strategic
management and developed a well-known product-market
growth matrix tool to plot generic strategies for growing a
business via existing or new products, in existing or new
Downloaded by [Universitas Maritim Raja Ali Haji] at 20:31 11 January 2016
78
J. W. ALSTETE
markets (I. Ansoff, 2008). The four elements of the Ansoff
matrix are market penetration, market expansion, product
expansion, and diversification. These four approaches can
be used as labels for many business strategies in both small
and large organizations. Miles and Snow’s theory of organizational types holds that in order to perform excellently
there must be a distinct connection between the mission and
values of companies with their organizational strategy and
functional strategies that involve their characteristics and behavior (Kulzick, 2012). As a result of empirical research on
the textbook industry, Miles and Snow developed their strategic framework of four classifications: defenders that focus on
a narrow product-market segment, prospectors that continually seek new market opportunities, analyzers that operate in
a cost-efficient manner while sustaining an innovation focus,
and reactors that stick to the current strategy and rarely make
changes unless they are forced to do so by situational pressures. There have been research studies of businesses using
and confirming the Miles and Snow typology, which found
that prospectors are more common in firms employing under
100 people (O’Regan & Ghobadian, 2006). The Miles and
Snow framework has been widely researched in other business studies to further validate the strategy types (Conant,
Mokwa, & Varadarajan, 1990; McDaniel & Kolari, 1989;
Snow & Hrebiniak, 1980; Zahra, 1987), and it should be
noted that SME performance is likely to improve as they increase implementation of strategic planning and understand
that innovative organizational cultures and strategies need
to be aligned throughout the innovation process (Terziovski,
2010). In addition, combination strategies are also quite common, have been found to be a viable choice for SMEs in the
long run, and in at least one study outperform companies
that follow a differentiation strategy (Leitner & Guldenberg,
2010).
Porter (1980) originally conceived a three-strategy approach defined along two dimensions of narrow or broad
market scope and strategic strength. Porter distilled his ideas
into three best strategies: cost leadership, differentiation,
and market segmentation. While the titles are generally
self-explanatory, market segmentation has a narrow scope
whereas cost leadership and differentiation have a primarily
broad market spans. The Porter generic strategies have been
researched widely in SMEs (Barth, 2003; D’Amboise, 1993;
Leitner & Guldenberg, 2010; Pelham, 2000) and results vary
and include many firms found to be using focused differentiation, broad differentiation, and strategy types that are labeled
as combined, hybrid, or mixed. Other research studies also
have found “that SMEs commonly follow a focus strategy,
with differentiation appearing to be the most popular competitive strategy used by SMEs in market niches” (Leitner &
Guldenberg, 2010, p. 117; see also Gibcus & Kemp, 2003;
Watkin, 1986; Weinstein, 1994). It was also noted in a previous examination of the data from the companies analyzed
that nearly all used a focus strategy and that approach was
not seen as in need of further investigation. This statement
could support the need for further examination of the focused
generic strategy type in SMEs to validate previous findings by
researchers in the fields of entrepreneurship, strategic management, and business education.
As mentioned, in recent years hybrid approaches have become popular concepts that combine strategy types, and some
leading authors on strategic management have proposed an
expanded version of the classic three-strategy proposed by
Porter (1979, 2008) into a Five Generic Strategy Model that
is widely taught in college business strategy capstone courses
and explained in textbooks. It is important to understand what
characterizes each of these expanded five generic strategies
and why some may be more appealing to business leaders
than others in different competitive markets (Thompson, Peteraf, Gamble, & Strickland, 2012):
1. A low-cost provider strategy: striving to achieve lower
overall costs than rivals on products than rivals on
products that attract a broad spectrum of buyers.
2. A broad differentiation strategy: seeking to differentiate the company’s product offering from rivals’ with
attributes that will appeal to a broad spectrum of buyers.
3. A focused (or market niche) low-cost strategy: concentrating on a narrow buyer segment and outcompeting
rivals on costs, this being in position to win buyer favor
by means of a lower-priced product offering.
4. A focused (or market nice) differentiation strategy:
concentrating on a narrow buyer segment and outcompeting rivals with a product offering that meets the specific tastes and requirements of niche members better
than the product offerings of rivals.
5. A best-cost provider strategy: giving customers more
value for the money by offering upscale product attributes at a lower cost than rivals.
Being that this model includes the traditional three generic
strategies by Porter and adds the updated concept that develops the model further by separating differentiation approaches into broad, focused, and focused low cost, as well
as adding a hybrid best-cost strategy, it is an appropriate
choice for research in regard to potential application by entrepreneurs and has been used by other researchers in regard
to SME performance mentioned previously. It should also be
noted that in addition to providing the theoretical basis for
the five generic strategy types explored in this paper, Porter
also outlines unintentional errors that can occur when entrepreneurs apply specific strategies (Kuratko, 2009; Porter,
1991) and that these fatal visions include misunderstanding
industry attractiveness, having no real competitive advantage,
pursuing unattainable competitive position, compromising
strategy for growth, and failure to explicitly communicate
the venture’s strategy to employees. Strategic decisions are
important for both large and small firms to decide the correct course of action, and can mean the difference between
STRATEGY CHOICES OF POTENTIAL ENTREPRENEURS
success and failure (Brouthers, Andriessen, & Nicoloes,
1998). A research investigation such as the one conducted in
this study could add informative findings to scholarly discussions in fields of entrepreneurship and strategic management
regarding different frameworks for envisioning, planning,
and implementing new business ventures.
Downloaded by [Universitas Maritim Raja Ali Haji] at 20:31 11 January 2016
METHODOLOGY
There have been ongoing conversations in the public arena
and academe regarding the value of academic research
(Mexal, 2011) as well as debates regarding rigor and relevance. Critics often question the usefulness of published
research and state that findings are often based on methods
that are unsuitable to the applied nature of professional disciplines (Benbasat & Zmud, 1999; Davenport & Markus, 1999;
Klein & Rowe, 2008; Mohrman, Gibson, & Mohrman, 2001;
Moisander & Stenfors, 2009; Nicolai & Seidl, 2010). It has
also been recommended that practitioners should be the focus
of developing theories and concepts (Putnam, 1995; Rorty,
1998) and that the scholarship of teaching and learning is important (Association to Advance Collegiate Schools of Business [AACSB], 2012; Boyer, 1990). Opportunities for social
science research in areas such as business education have
developed in recent decades, allowing researchers and scholars to utilize the perspectives of students in higher education
who will soon be working in business. Scholars can leverage
their access to these individuals for use in research activities
in ways that allow examinations of learning projects and student activities to expand the knowledge base in many fields
of study (Loyd, Kern, & Thompson, 2005). By examining
student learning assignments, this research methodology can
help to reduce the supposed separation of student learning
practices and controlled academic research. This approach
is becoming more widely used and published together with
traditional primary and secondary research, including laboratory and field-based investigations. In addition, it should be
noted that the use of student assignments in college courses
for qualitative research studies have been published in previous peer-reviewed research articles in scholarly academic
journals. As in other methodologies, readers should be aware
that this type research has limitations, including but not limited to, the nature of the research participants who are selfselected by choosing to enroll in these online undergraduate
and graduate business courses offered at this particular college, the limited knowledge and practical experience of the
participants in small business and entrepreneurial endeavors,
the possible preferences of successful small businesses due
to the demographic and geographic location of the study location, and the size of the study population. Nevertheless,
written business plan assignment instructions are explained
by instructors and emphasized in popular textbooks, which
often contain completed business plan examples. Because a
majority of the courses examined in this study include a combination of part- and full-time students, some of whom are
79
currently employed, and have recently completed business
core courses as part of their educational programs, the selection of students in these courses can be considered measures
that meet conditions of criterion sampling. Established qualitative research concepts state that criterion sampling can add
valuable elements to academic research and aid in attaining
more precise study results for analysis due to the selection
of cases that are chosen to meet the predetermined condition
(Patton, 1990).
During the period from the fall semester of 2001 to winter trimester 2011–2012 there were 22 course sections of
entrepreneurship and small business management courses
offered at a medium sized private college in the New York
Metropolitan area that is regionally accredited and also holds
specialized accreditation by AACSB-International. Eleven of
the courses were electives in the graduate level master of business administration program, and the remaining 10 courses
were electives in the undergraduate baccalaureate degree program. The course requirements for during the 11-year period
were the same and included a written business plan as an
important project. Students are required to obtain instructor
approval for the business plan topic on an asynchronous online discussion board prior writing the paper. This is to ensure
that appropriate business ideas are chosen and that only legal,
ethical and moral business ventures are planned. The expectations are somewhat higher for the graduate-level business
students, and the graduate courses included additional assignments including a group project that involves creating an
online e-business to produce revenue during the term of the
course. The written business plans were not required to be related to the group project, but a very small number of students
in the 11 graduate courses over the 11-year period did choose
to write their individual plan for the e-business team assignment. Another potential influence on student business plans
is that a small portion of the participants in the study decided
to write plans for businesses that their family or friends were
about to begin or were already in operation for a short-time.
However, this number was also very small and the researcher
believes it did not greatly influence the findings.
The identification of the strategy types was based on the
researcher’s extensive experience in teaching a capstone college course on business policy and strategy for many years
that includes Porter’s five generic strategy types. The researcher also authored previous articles in peer-reviewed
journals on competitive business strategy as well as entrepreneurial typologies (Alstete, 2002; Alstete & Halpern,
2008; Alstete & Meyer, 2011). The written student business
plans were read individually one at a time and classified
based on the aforementioned classifications from the established literature in the field.
RESULTS
In reading the 380 written business plans, I was able to identify which of the five generic strategies that the potential
80
J. W. ALSTETE
Business Plan Strategies
2001--2012 (n = 380)
Focused
Differentiation
58%
Downloaded by [Universitas Maritim Raja Ali Haji] at 20:31 11 January 2016
FIGURE 1
Focused Low Cost
3%
Low Cost
Best Cost
3%
8%
Broad
Differentiation
28%
Business plan strategy types (color figure available online).
future entrepreneurs and small business owners are seeking to use in the plans. Many of the written business plans
in this study include strategy terminology in the executive
summary, vision statement, company description, or marketing section that made identification of the strategy clear.
However, an identifiable strategy was not clear in some of
the written plans, or could be more appropriately labeled or
classified in one or more of the typology systems such as
Miles and Snow (defenders, prospectors or reactors) or H. I.
Ansoff (market penetration, market expansion, product expansion, or diversification). Nevertheless, I made decisions
on some of the less clear classifications based on which of
the five expanded Porter generic strategy types the business
plan idea more closely resembles. Even with this limitation,
it was obvious that by far the most common strategy planned
is focused (market niche) differentiation (58%). Whether the
business idea is for a restaurant, service business, new product, retail store, technology company, or another venture, the
plans most commonly seek to concentrate on a constricted
buyer division and out perform competitor companies by
offering niche customers specialized characteristics that satisfy their preferences better than rivals in the marketplace.
After this finding, it was not surprising to learn that the second most common generic competitive strategy planned for
is broad differentiation (28%). These students and potential small business owners seek to distinguish their business
ventures in ways that they believe will appeal to a broad spectrum of customers. Often with a large selection of products
or range of services that competitors do not offer. The results
of the analysis for all five generic types during the 11-year
study period are shown in Figure 1.
Interestingly, in today’s competitive business environment, high unemployment, and lower consumer spending
and confidence, very few business plans in this study sought
to use a low-cost (3%) or focused low-cost (3%) generic business strategy. In general the ideas contained in the business
plans seem to state that their owners will be able to provide sufficient differentiation (either focused or broad using
the expanded Porter typology) so that consumers will use
that reason to spend money for the product or service proposed. Also somewhat surprising is the finding that only 8%
of the business plans were classified as a best-cost strategy,
where the approach is to offer customers more value for their
purchases by combining good-to-excellent service or product features at a relatively lower cost than competitors offer.
From a broad perspective in looking at the economy today,
the idea of targeting lower or best costs and prices for business services or products with similar features also would
seem to be appealing in marketplaces with dwindling discretionary spending and other negative factors in the economy.
However the written business plans of the potential student
entrepreneurs in this study clearly sought differentiation in
their strategy, with focused differentiation being the most
common throughout the 11-year period and broad differentiation the second most popular choice.
Figure 2 illustrates the comparison of strategies planned
over the 11-year time period.
There was only one brief period when broad differentiation outnumbered focused differentiation (winter
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Broad Differentiation
FIGURE 2
Focused Differentiation
Comparison of focused and broad differentiation strategies, 2001–2012 (color figure available online).
STRATEGY CHOICES OF POTENTIAL ENTREPRENEURS
81
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1
2
3
4
5
6
7 8
9
10 11 12 13
Downloaded by [Universitas Maritim Raja Ali Haji] at 20:31 11 January 2016
% Low Cost
% Broad Differenaon
% Focused Low Cost
FIGURE 3
14
15
16 17 18 19 20 21 22
% Best Cost
% Focused Differenaon
Summary of all five classifications 2001–2012 (color figure available online).
2007–2008), and this may have been a normal variation due
to the nature of the entrepreneurship course which happens
to be a graduate level course that is offered annually in a winter trimester (12 weeks) format. Overall, the findings show
that focused and broad differentiation was the most common
theme, when combined (58% or 28%) add up to a very large
86% of the proposed generic strategy types. This could indicate that student understanding of concepts regarding the
larger macroeconomic environment issues and other strategy
types available may need to be improved in course materials
and by faculty instruction. Also, when looking for business
ideas or aspects of plans related to globalization or international business, nearly all of the 380 business plans examined
did not specifically plan for current and future expansion beyond local and regional markets. However a small number
of business ideas that involved a product or service did mention the possibility of selling to international markets, and
large number of the plans had international concepts such as
foreign culture restaurants or specialized services for local
American customers. The customers targeted are often immigrants who would want a food or product from their home
culture, or American customers for an international focused
differentiated business. In addition, it should be noted that
the findings here may indicate that some potential future entrepreneurs may not be making a wise choice in choosing
a differentiation strategy because previous research of SME
firm performance found that combination strategies with no
generic attributes have higher profitability and growth than
firms that use a differentiation strategy (Leitner & Guldenberg, 2010).
The overall summary findings during the 11-year period
are shown in Figure 3. This figure shows that the strategy
types did not vary greatly, and largely maintained the predominance of broad and focused differentiation approaches
for new small business proposals.
The evidence collected in this 11-year study about the
preponderance of the traditional five generic strategy types
in small business planning could remind readers of the pre-
viously mentioned warning by Porter regarding the unintentional errors that can happen when entrepreneurs apply specific strategies. Those aforementioned fatal visions” about
industry appeal, gaining competitive advantage over rivals,
chasing unfeasible competitive positions, and other negative consequences highlight the need for further discussion
and investigation of what small business owners and new
business entrepreneurs are planning in today’s challenging
marketplace.
DISCUSSION
Overall the findings in this study regarding the usage of
Porter’s focus or niching strategies support what is commonly written about and suggested in books concerning small
business (Kao, 1981; Kotler, 1996; Paley, 1989; Waterworth,
1987) because it is a common belief that SMEs need to
identify an appropriate market niche that is attractive. The
collegiate textbooks even provide criteria for defining the attractiveness of potential niche markets for SMEs and seem to
imply that niching strategies are the only competitive strategy option available to SMEs given their lack of resources
(Brown, 1995; Lee, Lim, & Tan, 1999; Thompson et al.,
2012). Therefore due to the high failure rate of new businesses mentioned previously (Shane, 2010) and the options
for other ways to craft strategies, faculty and textbook writers
should inform potential entrepreneurs and new small business owners that there are alternatives to focused and broad
differentiation strategies. Perhaps there should be additional
emphasis (following the macroenvironmental and competitor analyses that are normally conducted when planning a
new business) that business plan writers should consider a
thoroughly reasoned strategic plan type that has a greater
likelihood of success based on clear linkage to the analyses.
Miles and Snow, H. I. Ansoff, or adaptive nontraditional types
of strategies could be considered. If not just for the reasoned
Downloaded by [Universitas Maritim Raja Ali Haji] at 20:31 11 January 2016
82
J. W. ALSTETE
analyses, also for the examination of previous SME successful examples (albeit few percentage that they are) and that
the selection of focused and broad differentiation approaches
have, in various studies, generally been shown not to be successful for many endeavors. It has been proposed that some
entrepreneurs may in fact spend too much time planning
and should take small, rapid steps to get initiatives started. A
recent in-depth study of 27 serial entrepreneurs found that instead of beginning with a predetermined goal, these successful entrepreneurs allow opportunities to emerge and focus
on maximizing returns as an alternative to seeing a perfect
solution (Schlesinger, Kiefer, & Brown, 2012). Therefore
potential entrepreneurs may need to think in different ways
than those that are taught in traditional entrepreneurship and
strategic management frameworks. In fact, it has been known
for quite a while that only a small portion of entrepreneurs get
their ideas from systematic research (4%) and the majority
(71%) replicated or modified an idea encountered from previous employment or was discovered serendipitously (20%;
Bhide, 1994). The results of the study in this article that
potential future entrepreneurs are still following traditional
focused and broad differentiation and that other studies have
found the success rate of entrepreneurial endeavors to still be
relatively low means that educators, investors, small business
development centers, and others need to be better informed
about alternatives and to think outside traditional strategy
constructs.
CONCLUSION
The findings here reveal that a majority of the potential future entrepreneurs are seeking to strategically position their
new businesses in the traditional focused or broad differentiation categories. Based on the high failure rate of new business
ventures, and previous research of successful SME strategies,
it can be concluded that a wider choice of strategy options
should be made available to people and organizations involved in writing business plans. Courses and programs in entrepreneurship should examine and explain alternatives to the
traditional five generic strategy types, particularly those aside
from focused differentiation and broad differentiation. Combination strategies and modern innovation-oriented strategies
that seek to create new market space by using a systematic
approach to creating value innovation, or more free-form creative thinking, may be better able to assist new SMEs succeed
against competition from their peers and larger competitors
with more resources. It is recommended that additional research should be conducted that follows up on the findings
presented in this article regarding what strategies planned
by entrepreneurs and small business owners for actually accomplish when implemented, if the strategies change, and
what the effective approaches to managing strategic change
should be emphasized for SMEs today. In this rapidly changing global marketplace with new technology, increased com-
petition, new government regulations, changing employee
and customer demographics, and other factors that challenge
SME owners, a proper understanding of all strategic planning options should be an expected part of developing and
growing businesses.
REFERENCES
Alstete, J. W. (2002). On becoming and entrepreneur: An evolving typology. International Journal of Entrepreneurial Behavior and Research, 8,
222–234.
Alstete, J. W., & Halpern, D. (2008). Aligning knowledge management
drivers with business strategy implications. Journal of Knowledge Management Practice, 9(3), 1–14.
Alstete, J. W., & Meyer, J. P. (2011). Expanding the model of competitive business strategy for knowledge-based organizations. International
Journal of Knowledge and Management, 9, 16–21.
Ansoff, H. I. (1965). Corporate strategy. New York, NY: McGraw-Hill.
Ansoff, I. (2008). Ingor Ansoff: The father of strategic management. Retrieved from http://www.easy-strategy.com/igor-ansoff.html
Association to Advance Collegiate Schools of Business (AACSB). (2012).
Eligibility procedures and accreditation standards for business accreditation. Retrieved from http://www.aacsb.edu/accreditation/standards-busnjan2012.pdf
Barth, H. (2003). Fit among competitive strategy, administrative mechanisms, and performance: A comparative study of small firms mature and
new industries. Journal of Small Business Management, 41, 133–147.
Benbasat, I., & Zmud, R. W. (1999). Empirical research in information
systems: The practice of relevance. MIS Quarterly, 23, 3–16.
Bhide, A. (1994). How entrepreneurs craft strategies that work. Harvard
Business Review, 72, 150–161.
Boyer, E. L. (1990). Scholaship reconsidered: Priorities of the professoriate. Princeton, NJ: The Carnegie Foundation for the Advancement of
Teaching.
Brouthers, K. D., Andriessen, F., & Nicoloes, I. (1998). Driving blind:
Strategic decision-making in small companies. Long Range Planning,
31, 130–138.
Brown, R. (1995). Marketing for small firms. London, England: Holt, Reinhart & Winston.
Conant, J., Mokwa, M., & Varadarajan, P. (1990). Strategic types, distinctive
competencies, and organizational performance. Strategic Management
Journal, 11, 365–383.
D’Amboise, G. (1993). Do small business manifest a certain strategic
logic? An approach for identifying it. Journal of Small Business and
Entrepreneurship, 11, 8–17.
Davenport, T. H., & Markus, L. (1999). Rigor vs. relevance revisited: Response to Benbasat and Zmud. MIS Quarterly, 23, 19–23.
Gibcus, P., & Kemp, R. G. M. (2003). Strategy and small firm performance (EIM SCALES research report H20028). Retrieved from
http://ideas.repec.org/p/eim/papers/h200208.html
Kao, R. W. Y. (1981). Small business management: A strategic emphasis.
Toronto, Canada: Holt, Reinhart & Winston.
Katz, J. A., & Green, R. P. (2011). Entrepreneurial small business. New
York, NY: McGraw-Hill/Irwin.
Klein, H. K., & Rowe, F. (2008). Marshaling the professional experience of
doctoral students: A contribution to the practical relevance debate. MIS
Quarterly, 32, 675–686.
Kotler, P. (1996). Marketing management: Analysis, planning, implementation, and control (9th ed.). Upper Saddle River, NJ: Prentice Hail.
Kulzick. (2012). Miles and Snow organizational types. Retrieved from
http://www.kulzick.com/milesot.htm
Kuratko, D. F. (2009). Entrepreneurship: Theory, process, practice (8th ed.).
Mason, OH: South-Western Cengage Learning.
Downloaded by [Universitas Maritim Raja Ali Haji] at 20:31 11 January 2016
STRATEGY CHOICES OF POTENTIAL ENTREPRENEURS
Lee, K. S., Lim, G. H., & Tan, S. J. (1999). Dealing with resource disadvantage: Generic strategies for SMEs. Small Business Economics, 12,
299–311.
Leitner, H.-H., & Guldenberg, S. (2010). Generic strategies and firm performance SMEs: A longitudinal study of Austrian SMEs. Small Business
Economics: An Entrepreneurship Journal, 35, 169–189.
Loyd, D. L., Kern, M. C., & Thompson, L. (2005). Classroom research:
Bridging the ivory divide. Academy of Management Learning & Education, 4, 8–21.
McDaniel, S., & Kolari, W. (1989). Marketing implications of Miles and
Snow’s strategic typology. Journal of Marketing, 51, 19–30.
Mexal, S. J. (2011, May 22). The quality and quantity in academic research. The Chronicle of Higher Education. Retrieved from
http://chronicle.com/article/The-Quality-of-Quantity-in/127572/
Miles, R. E., & Snow, C. C. (1978). Organizational strategy, structure, and
process. New York, NY: McGraw-Hill.
Mohrman, S. A., Gibson, C. B., & Mohrman, A. M. (2001). Doing research
that is useful to practice: a model of empircal exploration. Academy of
Management Journal, 44, 357–375.
Moisander, J., & Stenfors, S. (2009). Exploring the edges of theory-practice
gap: Epistemic cultures in strategy-tool development and use. Organisation, 16, 227–247.
Nicolai, A., & Seidl, D. (2010). That’s relevant! Different forms of practical
relevance in management science. Organisation Studies, 31, 1257–1285.
O’Regan, N., & Ghobadian, A. (2006). Perceptions of generic strategies
of small and medium sized engineering adn electronics manufacturers in
the UK: The applicability of the Miles and Snow typology. Journal of
Manufacturing Technology Management, 17, 603–620.
Paley, N. (1989). The manager’s guide to competitive marketing strategies.
New York, NY: Free Press.
Patton, M. Q. (1990). Qualitative evaluation and research methods (2nd
ed.). Newbury Park, CA: Sage.
Pelham, A. M. (2000). Market orientation and other potential influences on
performance in small and medium-sized manufacturing firms. Journal of
Small Business Management, 38, 48–67.
Porter, M. E. (1979). How competitive forces shape strategy. Harvard Business Review, 57, 137–145.
83
Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. New York, NY: The Free Press.
Porter, M. E. (1981). Competitive advantage: Creating and sustaining superior performance. New York, NY: The Free Press.
Porter, M. E. (1991, September). Knowing your place: How to assess the
attractiveness of your industry and your company’s position in it. Inc.,
90–94.
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86, 78–93.
Putnam, H. (1995). Pragmatism: An open question. Oxford: Blackwell.
Rorty, R. M. (1998). Truth and progress. New York, NY: Cambridge University Press.
Schlesinger, L. A., Kiefer, C. F., & Brown, P. B. (2012). New project? Don’t
analyze—Act. Harvard Business Review, 82, 154–158.
Shane, S. A. (2010). The illusions of entrepreneurship: The costly myths that
entrepreneurs and policy makers live by. New Haven, CT: Yale University
Press.
Snow, C., & Hrebiniak, L. (1980). Strategy, distinctive competence,
and organizational performance. Administrative Science Quarterly, 25,
317–336.
Terziovski, M. (2010). Innovation practice and its performance implications
in small and medium enteprises (SMEs) in the manufacturing sector: A
resource-based view. Strategic Managemetn Journal, 31, 892–902.
Thompson, A. A., Peteraf, M. A., Gamble, J. E., & Strickland, A. J., III.
(2012). Crafting and executing strategy: The quest for competitive advantage. New York, NY: McGraw-Hill Irwin.
Waterworth, D. (1987). Marketing for small business. Basinstoke, England:
Macmillian.
Watkin, D. G. (1986). Toward a competitive advantage: A focus strategy for mail retailers. Journal of Small Business Management, 24,
9–16.
Weinstein, A. (1994). Market segmentation: Using demographics, pscychographics, and other niche marketing techniques to product and model
customer behavior. Chicago, IL: Probus.
Zahra, S. (1987). Corporate strategic types, environmental perceptions, managerial philosophies, and goals: An empirical study. Akron Business &
Economic Review, 18, 64–77.
ISSN: 0883-2323 (Print) 1940-3356 (Online) Journal homepage: http://www.tandfonline.com/loi/vjeb20
Strategy Choices of Potential Entrepreneurs
Jeffrey W. Alstete
To cite this article: Jeffrey W. Alstete (2014) Strategy Choices of Potential Entrepreneurs,
Journal of Education for Business, 89:2, 77-83, DOI: 10.1080/08832323.2012.759094
To link to this article: http://dx.doi.org/10.1080/08832323.2012.759094
Published online: 17 Jan 2014.
Submit your article to this journal
Article views: 424
View related articles
View Crossmark data
Citing articles: 1 View citing articles
Full Terms & Conditions of access and use can be found at
http://www.tandfonline.com/action/journalInformation?journalCode=vjeb20
Download by: [Universitas Maritim Raja Ali Haji]
Date: 11 January 2016, At: 20:31
JOURNAL OF EDUCATION FOR BUSINESS, 89: 77–83, 2014
C Taylor & Francis Group, LLC
Copyright
ISSN: 0883-2323 print / 1940-3356 online
DOI: 10.1080/08832323.2012.759094
Strategy Choices of Potential Entrepreneurs
Jeffrey W. Alstete
Downloaded by [Universitas Maritim Raja Ali Haji] at 20:31 11 January 2016
Iona College, New Rochelle, New York, USA
The author examined the written business plans of 380 students who completed courses
in entrepreneurship and small business management over an 11-year period. An analysis
categorized the plans into five generic competitive strategy types, and the results found that
58% chose a traditional, focused differentiation approach. A large portion (28%) used broad
differentiation and a small number chose other generic strategies. When considering related
literature on high failure rates of small businesses, the findings of this study suggest that
potential entrepreneurs should be more informed about alternatives and consider combination
strategies or flexible innovative approaches in new business endeavors.
Keywords: entrepreneurship, generic competitive strategy, Porter’s typology, small business
plan, SME strategic planning
Many prospective future entrepreneurs and small business
owners have ideas for potentially successful business ventures and a sincere passion for their ideas. Dreams of success,
personal and monetary rewards, and freedom to make decisions and conduct themselves without traditional employer
supervision are among the reasons people begin the process
of planning a business. It has been stated that there are far
more entrepreneurs than most people realize and the failure
rate of new businesses is disappointingly high (Shane, 2010).
This suggests that enthusiastic would-be entrepreneurs and
others may often operate under a false set of assumptions.
People seeking to start new ventures may also not realize
the importance effective strategic planning, and how it can
help new firms survive and grow (Kuratko, 2009). Reasons
for lack of strategic planning have been identified, and include time scarcity, lack of knowledge, lack of experience or
skills, lack of trust or openness, and a perception of high cost
(Porter, 1991). Today, there are many opportunities for people to find strategic planning information, including books,
websites, talking with small business owners, small business
development centers, or enrolling in college courses.
Courses on entrepreneurship and small business management are popular in higher education, and there are complete undergraduate and graduate degree programs available
as well. Normally these courses and programs involve assignments that require students to write a business plan that
Correspondence should be addressed to Jeffrey W. Alstete, Iona College,
Hagan School of Business, 715 North Avenue, New Rochelle, NY 108011890, USA. E-mail: jalstete@iona.edu
enable potential entrepreneurs to specifically identify what
needs to be done, and helps people move past the first obstacle of inaction (Katz & Green, 2011; Kuratko, 2009). The
college and university faculty members who instruct students
that are considering starting a small business need to be well
informed regarding the sound ideas and starting points of
small businesses, planning methodologies, marketing strategies, management and financial issues, and other important
matters. In addition, private and publicly funded small business assistance agencies, investors, and others involved with
new business ventures can benefit from further examination
of strategic planning issues in small- and medium-sized enterprises (SMEs). Therefore, the trends and results of recent
small business planning proposals should be examined thoroughly so that knowledgeable guidance can be offered to
everyone involved in planning new business ventures.
A BRIEF REVIEW OF SELECTED RELATED
LITERATURE
There are several established models or frameworks in the
field of management that seek to identify different types of
strategies that companies use or propose to use in competitive
marketplaces. H. I. Ansoff (1965), Miles and Snow (1978),
and Porter (1981) being among the most widely used by researchers, faculty, writers, consultants, and strategic planning
practitioners. Igor Ansoff is known as the father of strategic
management and developed a well-known product-market
growth matrix tool to plot generic strategies for growing a
business via existing or new products, in existing or new
Downloaded by [Universitas Maritim Raja Ali Haji] at 20:31 11 January 2016
78
J. W. ALSTETE
markets (I. Ansoff, 2008). The four elements of the Ansoff
matrix are market penetration, market expansion, product
expansion, and diversification. These four approaches can
be used as labels for many business strategies in both small
and large organizations. Miles and Snow’s theory of organizational types holds that in order to perform excellently
there must be a distinct connection between the mission and
values of companies with their organizational strategy and
functional strategies that involve their characteristics and behavior (Kulzick, 2012). As a result of empirical research on
the textbook industry, Miles and Snow developed their strategic framework of four classifications: defenders that focus on
a narrow product-market segment, prospectors that continually seek new market opportunities, analyzers that operate in
a cost-efficient manner while sustaining an innovation focus,
and reactors that stick to the current strategy and rarely make
changes unless they are forced to do so by situational pressures. There have been research studies of businesses using
and confirming the Miles and Snow typology, which found
that prospectors are more common in firms employing under
100 people (O’Regan & Ghobadian, 2006). The Miles and
Snow framework has been widely researched in other business studies to further validate the strategy types (Conant,
Mokwa, & Varadarajan, 1990; McDaniel & Kolari, 1989;
Snow & Hrebiniak, 1980; Zahra, 1987), and it should be
noted that SME performance is likely to improve as they increase implementation of strategic planning and understand
that innovative organizational cultures and strategies need
to be aligned throughout the innovation process (Terziovski,
2010). In addition, combination strategies are also quite common, have been found to be a viable choice for SMEs in the
long run, and in at least one study outperform companies
that follow a differentiation strategy (Leitner & Guldenberg,
2010).
Porter (1980) originally conceived a three-strategy approach defined along two dimensions of narrow or broad
market scope and strategic strength. Porter distilled his ideas
into three best strategies: cost leadership, differentiation,
and market segmentation. While the titles are generally
self-explanatory, market segmentation has a narrow scope
whereas cost leadership and differentiation have a primarily
broad market spans. The Porter generic strategies have been
researched widely in SMEs (Barth, 2003; D’Amboise, 1993;
Leitner & Guldenberg, 2010; Pelham, 2000) and results vary
and include many firms found to be using focused differentiation, broad differentiation, and strategy types that are labeled
as combined, hybrid, or mixed. Other research studies also
have found “that SMEs commonly follow a focus strategy,
with differentiation appearing to be the most popular competitive strategy used by SMEs in market niches” (Leitner &
Guldenberg, 2010, p. 117; see also Gibcus & Kemp, 2003;
Watkin, 1986; Weinstein, 1994). It was also noted in a previous examination of the data from the companies analyzed
that nearly all used a focus strategy and that approach was
not seen as in need of further investigation. This statement
could support the need for further examination of the focused
generic strategy type in SMEs to validate previous findings by
researchers in the fields of entrepreneurship, strategic management, and business education.
As mentioned, in recent years hybrid approaches have become popular concepts that combine strategy types, and some
leading authors on strategic management have proposed an
expanded version of the classic three-strategy proposed by
Porter (1979, 2008) into a Five Generic Strategy Model that
is widely taught in college business strategy capstone courses
and explained in textbooks. It is important to understand what
characterizes each of these expanded five generic strategies
and why some may be more appealing to business leaders
than others in different competitive markets (Thompson, Peteraf, Gamble, & Strickland, 2012):
1. A low-cost provider strategy: striving to achieve lower
overall costs than rivals on products than rivals on
products that attract a broad spectrum of buyers.
2. A broad differentiation strategy: seeking to differentiate the company’s product offering from rivals’ with
attributes that will appeal to a broad spectrum of buyers.
3. A focused (or market niche) low-cost strategy: concentrating on a narrow buyer segment and outcompeting
rivals on costs, this being in position to win buyer favor
by means of a lower-priced product offering.
4. A focused (or market nice) differentiation strategy:
concentrating on a narrow buyer segment and outcompeting rivals with a product offering that meets the specific tastes and requirements of niche members better
than the product offerings of rivals.
5. A best-cost provider strategy: giving customers more
value for the money by offering upscale product attributes at a lower cost than rivals.
Being that this model includes the traditional three generic
strategies by Porter and adds the updated concept that develops the model further by separating differentiation approaches into broad, focused, and focused low cost, as well
as adding a hybrid best-cost strategy, it is an appropriate
choice for research in regard to potential application by entrepreneurs and has been used by other researchers in regard
to SME performance mentioned previously. It should also be
noted that in addition to providing the theoretical basis for
the five generic strategy types explored in this paper, Porter
also outlines unintentional errors that can occur when entrepreneurs apply specific strategies (Kuratko, 2009; Porter,
1991) and that these fatal visions include misunderstanding
industry attractiveness, having no real competitive advantage,
pursuing unattainable competitive position, compromising
strategy for growth, and failure to explicitly communicate
the venture’s strategy to employees. Strategic decisions are
important for both large and small firms to decide the correct course of action, and can mean the difference between
STRATEGY CHOICES OF POTENTIAL ENTREPRENEURS
success and failure (Brouthers, Andriessen, & Nicoloes,
1998). A research investigation such as the one conducted in
this study could add informative findings to scholarly discussions in fields of entrepreneurship and strategic management
regarding different frameworks for envisioning, planning,
and implementing new business ventures.
Downloaded by [Universitas Maritim Raja Ali Haji] at 20:31 11 January 2016
METHODOLOGY
There have been ongoing conversations in the public arena
and academe regarding the value of academic research
(Mexal, 2011) as well as debates regarding rigor and relevance. Critics often question the usefulness of published
research and state that findings are often based on methods
that are unsuitable to the applied nature of professional disciplines (Benbasat & Zmud, 1999; Davenport & Markus, 1999;
Klein & Rowe, 2008; Mohrman, Gibson, & Mohrman, 2001;
Moisander & Stenfors, 2009; Nicolai & Seidl, 2010). It has
also been recommended that practitioners should be the focus
of developing theories and concepts (Putnam, 1995; Rorty,
1998) and that the scholarship of teaching and learning is important (Association to Advance Collegiate Schools of Business [AACSB], 2012; Boyer, 1990). Opportunities for social
science research in areas such as business education have
developed in recent decades, allowing researchers and scholars to utilize the perspectives of students in higher education
who will soon be working in business. Scholars can leverage
their access to these individuals for use in research activities
in ways that allow examinations of learning projects and student activities to expand the knowledge base in many fields
of study (Loyd, Kern, & Thompson, 2005). By examining
student learning assignments, this research methodology can
help to reduce the supposed separation of student learning
practices and controlled academic research. This approach
is becoming more widely used and published together with
traditional primary and secondary research, including laboratory and field-based investigations. In addition, it should be
noted that the use of student assignments in college courses
for qualitative research studies have been published in previous peer-reviewed research articles in scholarly academic
journals. As in other methodologies, readers should be aware
that this type research has limitations, including but not limited to, the nature of the research participants who are selfselected by choosing to enroll in these online undergraduate
and graduate business courses offered at this particular college, the limited knowledge and practical experience of the
participants in small business and entrepreneurial endeavors,
the possible preferences of successful small businesses due
to the demographic and geographic location of the study location, and the size of the study population. Nevertheless,
written business plan assignment instructions are explained
by instructors and emphasized in popular textbooks, which
often contain completed business plan examples. Because a
majority of the courses examined in this study include a combination of part- and full-time students, some of whom are
79
currently employed, and have recently completed business
core courses as part of their educational programs, the selection of students in these courses can be considered measures
that meet conditions of criterion sampling. Established qualitative research concepts state that criterion sampling can add
valuable elements to academic research and aid in attaining
more precise study results for analysis due to the selection
of cases that are chosen to meet the predetermined condition
(Patton, 1990).
During the period from the fall semester of 2001 to winter trimester 2011–2012 there were 22 course sections of
entrepreneurship and small business management courses
offered at a medium sized private college in the New York
Metropolitan area that is regionally accredited and also holds
specialized accreditation by AACSB-International. Eleven of
the courses were electives in the graduate level master of business administration program, and the remaining 10 courses
were electives in the undergraduate baccalaureate degree program. The course requirements for during the 11-year period
were the same and included a written business plan as an
important project. Students are required to obtain instructor
approval for the business plan topic on an asynchronous online discussion board prior writing the paper. This is to ensure
that appropriate business ideas are chosen and that only legal,
ethical and moral business ventures are planned. The expectations are somewhat higher for the graduate-level business
students, and the graduate courses included additional assignments including a group project that involves creating an
online e-business to produce revenue during the term of the
course. The written business plans were not required to be related to the group project, but a very small number of students
in the 11 graduate courses over the 11-year period did choose
to write their individual plan for the e-business team assignment. Another potential influence on student business plans
is that a small portion of the participants in the study decided
to write plans for businesses that their family or friends were
about to begin or were already in operation for a short-time.
However, this number was also very small and the researcher
believes it did not greatly influence the findings.
The identification of the strategy types was based on the
researcher’s extensive experience in teaching a capstone college course on business policy and strategy for many years
that includes Porter’s five generic strategy types. The researcher also authored previous articles in peer-reviewed
journals on competitive business strategy as well as entrepreneurial typologies (Alstete, 2002; Alstete & Halpern,
2008; Alstete & Meyer, 2011). The written student business
plans were read individually one at a time and classified
based on the aforementioned classifications from the established literature in the field.
RESULTS
In reading the 380 written business plans, I was able to identify which of the five generic strategies that the potential
80
J. W. ALSTETE
Business Plan Strategies
2001--2012 (n = 380)
Focused
Differentiation
58%
Downloaded by [Universitas Maritim Raja Ali Haji] at 20:31 11 January 2016
FIGURE 1
Focused Low Cost
3%
Low Cost
Best Cost
3%
8%
Broad
Differentiation
28%
Business plan strategy types (color figure available online).
future entrepreneurs and small business owners are seeking to use in the plans. Many of the written business plans
in this study include strategy terminology in the executive
summary, vision statement, company description, or marketing section that made identification of the strategy clear.
However, an identifiable strategy was not clear in some of
the written plans, or could be more appropriately labeled or
classified in one or more of the typology systems such as
Miles and Snow (defenders, prospectors or reactors) or H. I.
Ansoff (market penetration, market expansion, product expansion, or diversification). Nevertheless, I made decisions
on some of the less clear classifications based on which of
the five expanded Porter generic strategy types the business
plan idea more closely resembles. Even with this limitation,
it was obvious that by far the most common strategy planned
is focused (market niche) differentiation (58%). Whether the
business idea is for a restaurant, service business, new product, retail store, technology company, or another venture, the
plans most commonly seek to concentrate on a constricted
buyer division and out perform competitor companies by
offering niche customers specialized characteristics that satisfy their preferences better than rivals in the marketplace.
After this finding, it was not surprising to learn that the second most common generic competitive strategy planned for
is broad differentiation (28%). These students and potential small business owners seek to distinguish their business
ventures in ways that they believe will appeal to a broad spectrum of customers. Often with a large selection of products
or range of services that competitors do not offer. The results
of the analysis for all five generic types during the 11-year
study period are shown in Figure 1.
Interestingly, in today’s competitive business environment, high unemployment, and lower consumer spending
and confidence, very few business plans in this study sought
to use a low-cost (3%) or focused low-cost (3%) generic business strategy. In general the ideas contained in the business
plans seem to state that their owners will be able to provide sufficient differentiation (either focused or broad using
the expanded Porter typology) so that consumers will use
that reason to spend money for the product or service proposed. Also somewhat surprising is the finding that only 8%
of the business plans were classified as a best-cost strategy,
where the approach is to offer customers more value for their
purchases by combining good-to-excellent service or product features at a relatively lower cost than competitors offer.
From a broad perspective in looking at the economy today,
the idea of targeting lower or best costs and prices for business services or products with similar features also would
seem to be appealing in marketplaces with dwindling discretionary spending and other negative factors in the economy.
However the written business plans of the potential student
entrepreneurs in this study clearly sought differentiation in
their strategy, with focused differentiation being the most
common throughout the 11-year period and broad differentiation the second most popular choice.
Figure 2 illustrates the comparison of strategies planned
over the 11-year time period.
There was only one brief period when broad differentiation outnumbered focused differentiation (winter
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Broad Differentiation
FIGURE 2
Focused Differentiation
Comparison of focused and broad differentiation strategies, 2001–2012 (color figure available online).
STRATEGY CHOICES OF POTENTIAL ENTREPRENEURS
81
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1
2
3
4
5
6
7 8
9
10 11 12 13
Downloaded by [Universitas Maritim Raja Ali Haji] at 20:31 11 January 2016
% Low Cost
% Broad Differenaon
% Focused Low Cost
FIGURE 3
14
15
16 17 18 19 20 21 22
% Best Cost
% Focused Differenaon
Summary of all five classifications 2001–2012 (color figure available online).
2007–2008), and this may have been a normal variation due
to the nature of the entrepreneurship course which happens
to be a graduate level course that is offered annually in a winter trimester (12 weeks) format. Overall, the findings show
that focused and broad differentiation was the most common
theme, when combined (58% or 28%) add up to a very large
86% of the proposed generic strategy types. This could indicate that student understanding of concepts regarding the
larger macroeconomic environment issues and other strategy
types available may need to be improved in course materials
and by faculty instruction. Also, when looking for business
ideas or aspects of plans related to globalization or international business, nearly all of the 380 business plans examined
did not specifically plan for current and future expansion beyond local and regional markets. However a small number
of business ideas that involved a product or service did mention the possibility of selling to international markets, and
large number of the plans had international concepts such as
foreign culture restaurants or specialized services for local
American customers. The customers targeted are often immigrants who would want a food or product from their home
culture, or American customers for an international focused
differentiated business. In addition, it should be noted that
the findings here may indicate that some potential future entrepreneurs may not be making a wise choice in choosing
a differentiation strategy because previous research of SME
firm performance found that combination strategies with no
generic attributes have higher profitability and growth than
firms that use a differentiation strategy (Leitner & Guldenberg, 2010).
The overall summary findings during the 11-year period
are shown in Figure 3. This figure shows that the strategy
types did not vary greatly, and largely maintained the predominance of broad and focused differentiation approaches
for new small business proposals.
The evidence collected in this 11-year study about the
preponderance of the traditional five generic strategy types
in small business planning could remind readers of the pre-
viously mentioned warning by Porter regarding the unintentional errors that can happen when entrepreneurs apply specific strategies. Those aforementioned fatal visions” about
industry appeal, gaining competitive advantage over rivals,
chasing unfeasible competitive positions, and other negative consequences highlight the need for further discussion
and investigation of what small business owners and new
business entrepreneurs are planning in today’s challenging
marketplace.
DISCUSSION
Overall the findings in this study regarding the usage of
Porter’s focus or niching strategies support what is commonly written about and suggested in books concerning small
business (Kao, 1981; Kotler, 1996; Paley, 1989; Waterworth,
1987) because it is a common belief that SMEs need to
identify an appropriate market niche that is attractive. The
collegiate textbooks even provide criteria for defining the attractiveness of potential niche markets for SMEs and seem to
imply that niching strategies are the only competitive strategy option available to SMEs given their lack of resources
(Brown, 1995; Lee, Lim, & Tan, 1999; Thompson et al.,
2012). Therefore due to the high failure rate of new businesses mentioned previously (Shane, 2010) and the options
for other ways to craft strategies, faculty and textbook writers
should inform potential entrepreneurs and new small business owners that there are alternatives to focused and broad
differentiation strategies. Perhaps there should be additional
emphasis (following the macroenvironmental and competitor analyses that are normally conducted when planning a
new business) that business plan writers should consider a
thoroughly reasoned strategic plan type that has a greater
likelihood of success based on clear linkage to the analyses.
Miles and Snow, H. I. Ansoff, or adaptive nontraditional types
of strategies could be considered. If not just for the reasoned
Downloaded by [Universitas Maritim Raja Ali Haji] at 20:31 11 January 2016
82
J. W. ALSTETE
analyses, also for the examination of previous SME successful examples (albeit few percentage that they are) and that
the selection of focused and broad differentiation approaches
have, in various studies, generally been shown not to be successful for many endeavors. It has been proposed that some
entrepreneurs may in fact spend too much time planning
and should take small, rapid steps to get initiatives started. A
recent in-depth study of 27 serial entrepreneurs found that instead of beginning with a predetermined goal, these successful entrepreneurs allow opportunities to emerge and focus
on maximizing returns as an alternative to seeing a perfect
solution (Schlesinger, Kiefer, & Brown, 2012). Therefore
potential entrepreneurs may need to think in different ways
than those that are taught in traditional entrepreneurship and
strategic management frameworks. In fact, it has been known
for quite a while that only a small portion of entrepreneurs get
their ideas from systematic research (4%) and the majority
(71%) replicated or modified an idea encountered from previous employment or was discovered serendipitously (20%;
Bhide, 1994). The results of the study in this article that
potential future entrepreneurs are still following traditional
focused and broad differentiation and that other studies have
found the success rate of entrepreneurial endeavors to still be
relatively low means that educators, investors, small business
development centers, and others need to be better informed
about alternatives and to think outside traditional strategy
constructs.
CONCLUSION
The findings here reveal that a majority of the potential future entrepreneurs are seeking to strategically position their
new businesses in the traditional focused or broad differentiation categories. Based on the high failure rate of new business
ventures, and previous research of successful SME strategies,
it can be concluded that a wider choice of strategy options
should be made available to people and organizations involved in writing business plans. Courses and programs in entrepreneurship should examine and explain alternatives to the
traditional five generic strategy types, particularly those aside
from focused differentiation and broad differentiation. Combination strategies and modern innovation-oriented strategies
that seek to create new market space by using a systematic
approach to creating value innovation, or more free-form creative thinking, may be better able to assist new SMEs succeed
against competition from their peers and larger competitors
with more resources. It is recommended that additional research should be conducted that follows up on the findings
presented in this article regarding what strategies planned
by entrepreneurs and small business owners for actually accomplish when implemented, if the strategies change, and
what the effective approaches to managing strategic change
should be emphasized for SMEs today. In this rapidly changing global marketplace with new technology, increased com-
petition, new government regulations, changing employee
and customer demographics, and other factors that challenge
SME owners, a proper understanding of all strategic planning options should be an expected part of developing and
growing businesses.
REFERENCES
Alstete, J. W. (2002). On becoming and entrepreneur: An evolving typology. International Journal of Entrepreneurial Behavior and Research, 8,
222–234.
Alstete, J. W., & Halpern, D. (2008). Aligning knowledge management
drivers with business strategy implications. Journal of Knowledge Management Practice, 9(3), 1–14.
Alstete, J. W., & Meyer, J. P. (2011). Expanding the model of competitive business strategy for knowledge-based organizations. International
Journal of Knowledge and Management, 9, 16–21.
Ansoff, H. I. (1965). Corporate strategy. New York, NY: McGraw-Hill.
Ansoff, I. (2008). Ingor Ansoff: The father of strategic management. Retrieved from http://www.easy-strategy.com/igor-ansoff.html
Association to Advance Collegiate Schools of Business (AACSB). (2012).
Eligibility procedures and accreditation standards for business accreditation. Retrieved from http://www.aacsb.edu/accreditation/standards-busnjan2012.pdf
Barth, H. (2003). Fit among competitive strategy, administrative mechanisms, and performance: A comparative study of small firms mature and
new industries. Journal of Small Business Management, 41, 133–147.
Benbasat, I., & Zmud, R. W. (1999). Empirical research in information
systems: The practice of relevance. MIS Quarterly, 23, 3–16.
Bhide, A. (1994). How entrepreneurs craft strategies that work. Harvard
Business Review, 72, 150–161.
Boyer, E. L. (1990). Scholaship reconsidered: Priorities of the professoriate. Princeton, NJ: The Carnegie Foundation for the Advancement of
Teaching.
Brouthers, K. D., Andriessen, F., & Nicoloes, I. (1998). Driving blind:
Strategic decision-making in small companies. Long Range Planning,
31, 130–138.
Brown, R. (1995). Marketing for small firms. London, England: Holt, Reinhart & Winston.
Conant, J., Mokwa, M., & Varadarajan, P. (1990). Strategic types, distinctive
competencies, and organizational performance. Strategic Management
Journal, 11, 365–383.
D’Amboise, G. (1993). Do small business manifest a certain strategic
logic? An approach for identifying it. Journal of Small Business and
Entrepreneurship, 11, 8–17.
Davenport, T. H., & Markus, L. (1999). Rigor vs. relevance revisited: Response to Benbasat and Zmud. MIS Quarterly, 23, 19–23.
Gibcus, P., & Kemp, R. G. M. (2003). Strategy and small firm performance (EIM SCALES research report H20028). Retrieved from
http://ideas.repec.org/p/eim/papers/h200208.html
Kao, R. W. Y. (1981). Small business management: A strategic emphasis.
Toronto, Canada: Holt, Reinhart & Winston.
Katz, J. A., & Green, R. P. (2011). Entrepreneurial small business. New
York, NY: McGraw-Hill/Irwin.
Klein, H. K., & Rowe, F. (2008). Marshaling the professional experience of
doctoral students: A contribution to the practical relevance debate. MIS
Quarterly, 32, 675–686.
Kotler, P. (1996). Marketing management: Analysis, planning, implementation, and control (9th ed.). Upper Saddle River, NJ: Prentice Hail.
Kulzick. (2012). Miles and Snow organizational types. Retrieved from
http://www.kulzick.com/milesot.htm
Kuratko, D. F. (2009). Entrepreneurship: Theory, process, practice (8th ed.).
Mason, OH: South-Western Cengage Learning.
Downloaded by [Universitas Maritim Raja Ali Haji] at 20:31 11 January 2016
STRATEGY CHOICES OF POTENTIAL ENTREPRENEURS
Lee, K. S., Lim, G. H., & Tan, S. J. (1999). Dealing with resource disadvantage: Generic strategies for SMEs. Small Business Economics, 12,
299–311.
Leitner, H.-H., & Guldenberg, S. (2010). Generic strategies and firm performance SMEs: A longitudinal study of Austrian SMEs. Small Business
Economics: An Entrepreneurship Journal, 35, 169–189.
Loyd, D. L., Kern, M. C., & Thompson, L. (2005). Classroom research:
Bridging the ivory divide. Academy of Management Learning & Education, 4, 8–21.
McDaniel, S., & Kolari, W. (1989). Marketing implications of Miles and
Snow’s strategic typology. Journal of Marketing, 51, 19–30.
Mexal, S. J. (2011, May 22). The quality and quantity in academic research. The Chronicle of Higher Education. Retrieved from
http://chronicle.com/article/The-Quality-of-Quantity-in/127572/
Miles, R. E., & Snow, C. C. (1978). Organizational strategy, structure, and
process. New York, NY: McGraw-Hill.
Mohrman, S. A., Gibson, C. B., & Mohrman, A. M. (2001). Doing research
that is useful to practice: a model of empircal exploration. Academy of
Management Journal, 44, 357–375.
Moisander, J., & Stenfors, S. (2009). Exploring the edges of theory-practice
gap: Epistemic cultures in strategy-tool development and use. Organisation, 16, 227–247.
Nicolai, A., & Seidl, D. (2010). That’s relevant! Different forms of practical
relevance in management science. Organisation Studies, 31, 1257–1285.
O’Regan, N., & Ghobadian, A. (2006). Perceptions of generic strategies
of small and medium sized engineering adn electronics manufacturers in
the UK: The applicability of the Miles and Snow typology. Journal of
Manufacturing Technology Management, 17, 603–620.
Paley, N. (1989). The manager’s guide to competitive marketing strategies.
New York, NY: Free Press.
Patton, M. Q. (1990). Qualitative evaluation and research methods (2nd
ed.). Newbury Park, CA: Sage.
Pelham, A. M. (2000). Market orientation and other potential influences on
performance in small and medium-sized manufacturing firms. Journal of
Small Business Management, 38, 48–67.
Porter, M. E. (1979). How competitive forces shape strategy. Harvard Business Review, 57, 137–145.
83
Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. New York, NY: The Free Press.
Porter, M. E. (1981). Competitive advantage: Creating and sustaining superior performance. New York, NY: The Free Press.
Porter, M. E. (1991, September). Knowing your place: How to assess the
attractiveness of your industry and your company’s position in it. Inc.,
90–94.
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86, 78–93.
Putnam, H. (1995). Pragmatism: An open question. Oxford: Blackwell.
Rorty, R. M. (1998). Truth and progress. New York, NY: Cambridge University Press.
Schlesinger, L. A., Kiefer, C. F., & Brown, P. B. (2012). New project? Don’t
analyze—Act. Harvard Business Review, 82, 154–158.
Shane, S. A. (2010). The illusions of entrepreneurship: The costly myths that
entrepreneurs and policy makers live by. New Haven, CT: Yale University
Press.
Snow, C., & Hrebiniak, L. (1980). Strategy, distinctive competence,
and organizational performance. Administrative Science Quarterly, 25,
317–336.
Terziovski, M. (2010). Innovation practice and its performance implications
in small and medium enteprises (SMEs) in the manufacturing sector: A
resource-based view. Strategic Managemetn Journal, 31, 892–902.
Thompson, A. A., Peteraf, M. A., Gamble, J. E., & Strickland, A. J., III.
(2012). Crafting and executing strategy: The quest for competitive advantage. New York, NY: McGraw-Hill Irwin.
Waterworth, D. (1987). Marketing for small business. Basinstoke, England:
Macmillian.
Watkin, D. G. (1986). Toward a competitive advantage: A focus strategy for mail retailers. Journal of Small Business Management, 24,
9–16.
Weinstein, A. (1994). Market segmentation: Using demographics, pscychographics, and other niche marketing techniques to product and model
customer behavior. Chicago, IL: Probus.
Zahra, S. (1987). Corporate strategic types, environmental perceptions, managerial philosophies, and goals: An empirical study. Akron Business &
Economic Review, 18, 64–77.