Entrepreneurship and marketing research

Answer the following questions on each of these articles
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Answer the 3 questions listed below on each article for a total of 6 answers written with detail and references to support any and all opinions.

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1 The opening paragraphs (i.e., there is no heading for this section)

2 Background and overview of relevant literature

3 Method

4 Results

5 Discussion, Implications and Limitations, Conclusions

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Identifying competitors: challenges for start-up firms Magdalena Krzyżanowska Kozminski University, Poland Jolanta Tkaczyk Kozminski University, Poland
Abstract This study addresses the problem of start-up firms identifying their competitors. It explores how entrepreneurs in creative industries become conscious of the existence of competitors and how they change their mode of operation when affected by their competition. The main research questions are: 1) What phases comprise the process of identifying competitors by entrepreneurs in creative industries? 2) What are the characteristics of marketing myopia in creative industries? 3) Will creative entrepreneurs be able to build competitive advantage? The authors answer these questions on the basis of research conducted among young start-up entrepreneurs taking part in the Entrepreneurship in Creative Industries project in Warsaw, Poland during 2012. The analysis is based on three sources of data: 1) application forms submitted by entrepreneurs during the selection of the project participants; 2) evaluation forms filled in during the course of the project by the selected entrepreneurs; and 3) in-depth interviews with the project participants. The qualitative analysis is conducted with the use of Atlas.ti software. This study provides clear implications on how to avoid underdevelopment of competitor orientation for start-up managers. Being complementary to the authors’ research on understanding customers in creative industries, it delineates conclusions on the determinants of market orientation implementation in these sectors. Key Words: competitors, start-up firms, creative industries, competitor orientation Introduction and objectives Creative industries refer to sectors in which development is achieved on the basis of individuals’ knowledge and creativity. In a narrow understanding, they include cultural institutions, while according to a wider definition – adopted in this study, they refer to types of activity like advertising, architecture, arts and crafts markets, industrial design, fashion design, media services, software, the performing arts, publishing, film, music, and television (DCMS 1998). The creative industries belong to the fastest growing sectors in the developed countries (Falk et al. 2011), and great hopes are pinned on their potential in terms of both economic and social progress (Chaston & Sadler‐Smith 2012). They are often perceived, however, as risky undertakings, whose market success is short-lived (Burrows & Ussher 2011). For such reasons, the conditions of their operations become an important area of scientific research. Initially the research was conducted mainly in two directions: the motivations of individual entrepreneurs operating in creative industries, and the macroeconomic advantages of
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developing this kind of activity (Parkman et al. 2012). Subsequently, the issue of business orientation was tackled as a condition of efficient operations in creative industries, particularly in micro and small businesses. The results of these research projects indicate that even businesses operating on a small scale have competencies for development of entrepreneurial orientation (e.g. Chaston & Sadler‐Smith 2012), or simply have already developed a market orientation (e.g. Tkaczyk & Awdziej 2012). However, the actual adaptation of creative enterprises to market conditions remains an open question. This is because the ‘directional’ declarations are one thing, and the implementation of market tasks related to such declarations is another. This discrepancy is well illustrated by the results of the research on buyers’ identification made by entrepreneurs from creative industries (see: Tkaczyk & Krzyżanowska 2013). The authors argue that the current state of the research provides an incomplete picture of market orientation development within creative industries. Therefore, this study presents the issue of developing the elements of a market orientation, which is the customer orientation in new ventures operating in creative industries. The aim of the study addresses the problem of competitor identification by start-up firms. It explores how entrepreneurs in creative industries become conscious of the existence of competitors and how they change their mode of operation when affected by their competition. The main research questions are: 1) What phases comprise the process of identifying competitors by entrepreneurs in creative industries? 2) What are the characteristics of marketing myopia in creative industries? 3) Will creative entrepreneurs be able to build competitive advantage? The answers to these questions are closely related to the formation of businessmen’s mental models, serving as the phenomena categorization, the evaluation of their consequences, as well as the basis for undertaking actions (Prahalad 1986). In this research, the authors focused on the competitive occurrence perception to determine the perspectives on gaining the competitive advantage by businesses starting up operations in the creative industries. Due to this subject, its assumptions were adopted with reference to the research on start-ups, market orientation and mental models. Background New ventures are interpreted in this study in the narrowest way, i.e. as the enterprises only entering the market (Shepherd, 1996). Such entities face the necessity of establishing the foundations of their development, including the recognition of operational conditions in both the market and the macro environment. A distinctive factor influencing their operations, particularly in case of micro and small businesses, is the liability of smallness. This means that such enterprises have limited financial resources, limited market power and a small customer base at their disposal (Kraus et al. 2010). An accompanying condition is the liability of newness, consisting of a lack of relationships with market partners and a lack of experience. Both of these factors result in the relatively low formalisation of actions undertaken by these enterprises and the simplistic form of marketing that is used – often on the intuition basis (Hill & Wright 2000). The other significant consequence is the fundamental importance of the business owner in the process of choosing the course of action and its market implementation. The 235
entrepreneurs’ attitudes toward marketing and their engagement in marketing operations determine the results of the actions undertaken (Kraus et al. 2010). As the development of micro and small businesses is phased in character, in the initial stage entrepreneurs often focus on the creation of an offer and the acquisition of buyers, and only afterwards do they extend the range of their operations (Carson,  Gilmore 2001). It can mean the insufficient recognition of the competitive determinants of operation, because of the necessity to use sizable resources and spend a considerable amount of time (Bressler n.d.). It is a particularly meaningful threat to the accomplishment of the task, which consists of identifying areas of potential competitive advantage for a new venture. The level of customer orientation development is therefore an important feature of actions taken within new ventures that may affect the efficiency of those actions. The market orientation is the concept, whose understanding in this study is based on the synthetic version, combining two original concepts dating from 1990 by Narver, Slater and Kohli & Jaworski (Homburg & Pflesser 2000; Gotteland et al. 2007). This means that the market orientation is, on one hand, expressed with such formation of the enterprise’s organizational culture that creates the most efficient and effective ways of satisfying customer needs – the cultural aspect (Narver & Slater 1990). On the other hand, it consists in taking actions connected with the acquisition of knowledge on buyers’ present and future needs. This refers to the organisation of marketing research, the distribution of this knowledge within the company and its utilisation in the process of influencing the market – the behavioural aspect (Kohli & Jaworski 1990). The market orientation consists of three components (Narver & Slater 1990): • Customer orientation – pursuing an understanding of the nature of customer needs and creating products or services of value that is significant for them; • Competitor orientation – striving to identify goals, resources and strategies of current and potential competitors; • Functional coordination – seeking the best utilisation of resources possessed by an enterprise in creating the value significant for customers. Considering the kind of customer needs – either cognizant or incognizant – that enterprises want to satisfy, two types of the market orientation can be distinguished: reactive and active (Narver et al. 2004). The reactive market orientation consists of focusing on existing needs that are expressed by customers. The active market orientation lies in an attempt to predict accurately the evolution of customer needs and to convince them toward new products or services. The indispensable condition of developing the competitor orientation is to identify them accurately. In case of small and new ventures, it is determined by the way the competitive situation is shaped in entrepreneurs’ mental models. A mental model of a dynamic system, such as the configuration of competitive condition, is understood as ‘a relatively enduring and accessible, but limited, internal conceptual representation of an external system (historical, existing or projected) whose structure is analogous to the perceived structure of that system’ (Doyle 1999). A mental model is, in other words, the accumulation of knowledge and beliefs on a specific topic. It is characterised by a certain level of permanence and a given entity can be aware of its existence and also influence its shape. The model is a cognitive structure accumulating information, which is based on concepts, ideas and other language-like 236
components. It refers to occurrences external to the entity, but due to the inter-subjective nature of this structure is prone to errors and omissions (Doyle 1998). The essence of the mental model’s importance in the process of decision-making by entrepreneurs is that such models are both active and passive in their nature, i.e. they influence business owners’ experience and they are shaped by market occurrences (Chermack 2003). It can be therefore stated that in the case of entrepreneurs operating in creative industries, the way their mental models are shaped on one hand affects whether and how competitors are identified. On the other hand, a definite way and range of analysis influences the formation of mental models. The issue of competitor identification has been addressed so far in the comparative way. This is the attention paid to the perception of a competitive situation by managers, confronted with the perception of the same situation by customers (De Chernatony 1994), as well as the managers’ perception in the context of objective criteria for isolating strategic groups (e.g. Osborne et al. 2001). The accuracy of competitors’ identification as a factor influencing the results of company operations is a current object of interest for marketing researchers (e.g. Clark 2011; Krzyżanowska & Tkaczyk 2012; Krzyżanowska & Moszoro 2011). According to the authors’ knowledge, the accuracy in recognizing the competitive situation by entrepreneurs starting up operations in creative industries has not been studied yet. In accordance with Chaston (2008), one central idea of this study is that entrepreneurs starting businesses in creative industries are inclined toward fulfilling creative aspirations. Furthermore, a majority of them have no market experience. In view of this, the pervading question is to what extent the aforementioned conditions make the correct analysis of the competitive situation more difficult. Research approach and methods The choice of research method is consistent with the postulate expressed by (Chaston & Sadler‐Smith 2012): ‘…much more research is required concerning entrepreneurial and managerial cognition, but useful insights on this issue will probably not be generated by using purely quantitative research methodology.’ As the main research method, the authors chose a qualitative and quantitative content analysis of documents gathered during the Entrepreneurship in Creative Industries project, conducted by Kozminski University in 2011-2013. This project included five phases: – Recruitment – Selection – Diagnosis of training needs – Training, and – Advice for established enterprises. The content analysis can be identified as the technique of reasoning through systematic and objective identification of each particular feature of the text (Stone et al. 1966). The analysis process consisted of three steps: 1) submission of 81 applications by the participants during the first phase of the project (recruitment); 2) completion of 81 evaluation forms during the fourth phase of the project (training); and 3) individual in237
depth interviews with 16 selected participants during the fourth phase of the project. To perform the analysis, Atlas.ti software was used. The analysed applications were filled by the project participants in the first stage and used for selecting the most promising ventures. Business plans required for obtaining grants were developed only after the training phase of the project was completed. The analysis was conducted for the applications submitted by only those participants who won grants at the end of the fourth stage. This gave the authors an opportunity to compare how the business concepts and the competitors’ perceptions changed between the stages of applying for participation in the project and its implementation. The entrepreneurs who qualified for the project, and therefore for the analysis, intended to start their businesses in a variety of branches belonging to creative industries, as shown in Table 1. Table 1. Creative industries branches in the project Branch Number of participants Film and video 12 Art and graphic design 9 architecture 8 Publications and publishing activity 8 Electronic media 8 Handicraft 7 Music 7 Fashion design 7 Photography 5 Industrial design 4 Antiques and art market 3 Theatre 2 Computer games 1 Total 81 Source: own The project was aimed at enhancing the development of new, dynamic and growing companies operating in the creative industries in the metropolitan area of Warsaw. The target group included individuals intending to start their own businesses. Preference was given to persons professionally inactive, unemployed and permanently unemployed, women, persons aged 45+, and the disabled. As the project was financed from the Human Capital Operational Programme funds, Measure 6.2, support and promotion of entrepreneurship and self-employment, the classic framework of support was adopted in the programme for use in this measure. In the recruitment phase, as many as 2,100 applications were accepted, of which 160 individuals qualified for the second phase. Of these, 81 persons were awarded nonrepayable financial support in the form of a grant worth PLN 40,000 to start-up the business. The demographic structure of the participants was 48 females and 33 males; 29 married persons, including 23 with children to support; 43 unemployed; and 37 graduates of art schools. The average participant was 38 years old with median 35 years. 238
The average job seniority was 10 years with median 9 years. Seventeen persons had previous experience in running their own businesses. In April  2013 the project is in the fifth phase of realisation. The recruitment application consisted of 18 parts to be completed by each participant. For the purpose of this study, the authors chose two descriptive sections for further analyses: the business concept, and the market and participant demographics. In the descriptive sections, each candidate was requested to write down answers of up to 1,000 characters, including spaces, to the following questions: • Describe the essence of your business concept. What does it consist of? • Who will be your customer? Who will be your competitor? In what area will you operate? The same group of participants was asked to complete the evaluation form in the fourth stage of the project. The form consisted of five parts: examining the changes in the business concept as influenced by the training process, the perception of the environment including customers, as well as the financial, technological, human, and relational resources, and the competencies of the project participants. A group of 16 participants, who were purposefully selected from various creative branches within the project, was individually interviewed. The interviews were of an informal nature and semi-structured. The participants described the history of their venture, explaining at what stage of the concept development they were at the moment, what successes they had achieved, and what the biggest problem in their opinion was. The content analysis of the collected material proceeded according to the sequence of the following activities: 1) definition of the set of analysis categories; 2) assignment of text fragments to the specified categories; and 3) interpretation. Findings and conclusions The analysis of the submitted applications indicated considerable problems with identification of competitors. Although explicitly requested to identify competitors for their venture, 16 entrepreneurs did not refer to this category at all, describing only their business concepts, their future customers and their scope of operations. All these respondents were graduates of art schools and were primarily focused on the uniqueness of their offer. The frequency analysis of words used in applications for the description of business concepts and competitors showed that the words ‘competition’ and ‘competitor’ were used much less than the words ‘firm’, ‘client’ and ‘market’. The frequency list for key words is presented in Table 2.
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Table 2. Frequency of key words in respondents’ applications Key word Number of occurrences Firm 137 Client 125 Market 69 Person 61 Competition 54 Customer 46 Area 45 Offer 38 Service 35 Product 33 Activity 30 Price 19 Competitor 19 In the analysis of applications, four ways of describing competitors were identified: – Lack of any description – Indication of no existing competitors – Very general description of competitors – Very detailed description of competitors Only the graduates of art schools, mainly young people, were found to lack any competitive descriptions. An indication of no competitors was depicted in the following ways: At present I don’t have a direct competition in the market. As for the Internet, the competition in the Polish market is insignificant. The competition is only emerging and in fact exists only outside of Poland. Domestic competitors don’t operate actively. There is not too much competition. For dance classes/courses there is no competition. In this topical area there is no competition. I have noticed lack of competition in the Polish market. I have no competitors. In this area there are no direct competitors. The description of competitors – if noticed by respondents – was either very general or quite detailed. The more specific characteristics were provided by entrepreneurs with certain business experience, having business partners and a non-artistic education. Graduates of art schools, as well as the youngest and the oldest participants of the project, described competitors in more general ways. The examples of competitors’ general descriptions are presented in Table 3.
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Table 3. Exemplary general descriptions of competitors The competition is represented by other art historians. The competition includes graphic designers and small advertising agencies, but they are more expensive. The main competition consists of manufacturers already operating in the market, having well-established position. Competition: marketing agencies. There are few firms of a similar profile, which results from low awareness of social networking needs. The main competition includes music schools and culture centres having in their offer teaching instrument playing. Competition is the grey zone, i.e. teachers offering services with no business activity. We reckon with possible competition and this is why we want to secure our designs through patents. My competitors will be other coffee houses and patisseries, but none of them offers such combination of consumption with art. For my business the competition includes recording studios of similar profile. The general descriptions of competitors indicated the general area of competition occurrence, but the respondents were unable to mention any particular companies or data regarding the described market. They named categories of competitors, mainly focusing on direct rivals and neglecting substitutive or potential ones. The examples of competitors’ detailed descriptions are presented in Table 4. Table 4. Exemplary detailed descriptions of competitors The competition will be companies dealing with film production; in this moment there are about 10 branch leaders. Exemplary competitors: Dreamsound, Cafe Ole, Post Meridian, Studio Zet. The competition for my business will be other newly-established clothing firms, such as: Mamapiki, Nennuko, DreamNation, Wearso. There are many competitive companies: 70% manufacture wooden sites, about 20% offer steel wire equipment and about 10% are importers from Europe and East. At present there are three firms in the Polish market that offer similar services.  Vena-Art – stereograph of this company serves only big, international productions; 3D Image – this company focuses rather on equipment manufacturing, although services are also included in their offer; and 3D Mind Films. All of them operate countrywide. There are 8,948 architects in Poland. In Warsaw there are 10 big architectural firms with more than 50 employees offering services to biggest clients. Mediumsized businesses employ 10-50 people and their number is several dozens. The separate category includes newly-established, small, but dynamic firms. There are only about 70 e-shops offering men’s fashion in Poland, and the majority of them lacks a distinctive positioning, for example f-planet, fashioncorner, modmod. Such players as answear, markafoni, allegro reach other segments. Polish designers position their brands as luxurious in terms of price. A potential threat is connected with foreign professional e-shops, having an attractive offer and able to send their products to Poland at smaller and smaller cost – e.g. asos, topman.  241
In the detailed competitor descriptions, the respondents were able to either name competitive companies or mention quantitative data about the market, sometimes both of them. Such characteristics of competitors indicated the maturity of their business approach, as well as their thorough and well-considered business concept. The distribution of the various competitors’ description among the respondents in presented in Chart 1. Chart 1. Distribution of various competitors’ descriptions among respondents
The distribution of ways in which competitors were described was consistent with the authors’ expectations. The project was to a large degree targeted at graduates of art schools and people who needed training in the field of running their own business. The conclusions from the analysis confirmed the usability of the training phase of the project. In the part of their applications regarding the business concept, the participants could indicate distinguishing marks for their businesses. Only 9 respondents used the term ‘competitive advantage’. Among the mentioned advantages, the leading ones were related to an unique offer, price and better understanding of the market. The competitive advantage is: -Having a unique product. In Poland there are no equivalents provided on the level of quality adopted by the business owners. -Standardisation of the offer: lower cost, transparency of the offer, faster purchase and realisation. -Unexploited market niche: the first- mover advantage, the product in the growing phase. -Better understanding of customer needs, thanks to the owners’ managerial skills, experience and business knowledge.’ ‘The competitive advantage is guaranteed through my deep rooting in so-called environment of potential customers, stemming from my wide professional experience, close network of acquaintances among cultural animators, cultural institutions, artists and contractors of various professions.’
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‘The competitive advantage of the shop will be achieved through a true presentation of products – trend description, easiness of navigation, technical details, quality of packshots, quality and quantity of product shots, access information, and helpdesk – as well as the secure payment.’ Competitive advantages: -Combination of design with performance -Measurable artistic value for a competitive price -Long-term business contacts in other parts of the country, based on friendly relationships, which allows rallying round and taking bigger challenges together -Lower costs – owned premises.’ ‘Competitive advantages: quick production thanks to the use of modern software facilitating AutoCAD LT 2012 development, compliance with customer expectations and innovation, artistic touch.’ As for the graduates of art schools, if they mentioned any competitive advantage, it was usually connected with their knowledge and skills: ‘My competitive advantage is practical knowledge of the fashion design market, and qualifications in the field of clothing patterns, printing, and colouring.’ In the fourth phase of the Entrepreneurship in Creative Industries project, training on marketing, finance, and entrepreneurship was provided to the participants who afterwards were asked to complete the evaluation forms. Having analysed the parts of the forms related to the concept of business and the environment perception, the researchers concluded that only one entrepreneur failed to point out competitors for his business. In case of 10 respondents, the business concepts were considerably redefined – for example, from an art gallery to a coffee house – while the next 35 participants decided to extend their operations through the modification of the offered product range. In all these cases, the perception of competitors also changed. The absolute majority of entrepreneurs were then able to give a more detailed description of their competitors. Just after the business start-ups, 16 in-depth interviews were conducted. The respondents emphasized the significant impact of training on the market perception including competitors. The majority of art school graduates evaluated this impact as big and very big. A lower importance of training for the perception of both competitors and their own business concept was indicated by those respondents who had previously run businesses. Despite the increased awareness and acquired knowledge, part of the business owners even after start-up was still focused on their product and the act of creating it. Having analysed the available materials, it was found that the marketing myopia in the case of creative industries may consist to a large degree from: 1) excessive focus on product and client, and 2) ignoring competitors. The focus on product or client is a typical feature in creative industries. Ignoring competitors can be derived from either the overestimated confidence in one’s own prediction abilities – from the belief that rivals’ behaviour can be easily anticipated – or a
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limited perspective – from the effect of a fixed way of problem analysis that does not allow identifying new phenomena. Considering art school graduates being typical business owners in creative industries, and analysing the data collected during the project realisation, the following process of identifying competitors in this sector is suggested: 1.    Focus on distinguishing aspects of an offer and its client: competitors remain unnoticed. 2.    Perception of competitors without regard to their importance: there are competitors, but they have no influence on the unique offer. 3.    Perception of general category of direct competitors. 4.    Perception and detailed analysis of influences from direct, substitutive and potential competitors. Limitations and further research The main limitation of this research was the choice of the Entrepreneurship in Creative Industries project participants as the study subjects. This project was, due to its general recruitment provisions, targeted at people requiring particular informative and financial support, without which the big part of planned ventures would not have been launched at all. Also, some part of support would have started only in the future after accumulating the necessary financial resources. The situations in which the project participants found themselves had a considerable influence on their perception of the environment, with special regard to the description of competitors. The triangulation of data and methods was adopted in an attempt to overcome the limitations of the conducted research. The materials used for the research was collected in two stretches of time: before the participants received grants and after they started their businesses. The recruitment application forms and the project evaluation forms filled out by participants, as well as the transcripts of interviews conducted with selected participants, were used for both qualitative and quantitative content analysis. An interesting area for further research would be comparing these achieved results with other industries, as well as verifying whether the precise descriptions of the competitive environment made in the early stage of planning new businesses have an impact on their future success. Bibliography Bressler, M., How small businesses master th superior competi. aabri.com. Available at: http://www.aabri.com/manuscripts/121156.pdf [Accessed March 5, 2013]. Burrows, H. & Ussher, K., 2011. The lazy assumption that the creative industries are inherently risky is harming Britain’s path to growth…Demos. Available at: http:// www.demos.co.uk/files/Risky_business_-_web.pdf [Accessed February 20, 2013]. Carson, D., Gilmore, A., 2001. Marketing at the interface: Not “what” but “how”. Journal of Marketing Theory & Practice, 8(2), pp.1–7.