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Summary

This chapter examined how you, as a technology entrepreneur, can exploit established company weaknesses to develop higher performing new technology ventures. The early section of the chapter explained why established companies win competitive battles with new companies most of the time. Established firms have the advantages of having moved farther up the learning curve in manufacturing and marketing, allowing them to produce and distribute new products more efficiently and effectively than new firms. Established firms also benefit from reputation effects. Because they have ongoing relationships with customers, new firms must offer something considerably better than the established firm to attract customers, who have a bias against change. Established firms have the advantage of existing cash flow, which allows them to finance the development of new products and services more cheaply than new firms, which must raise capital from financial markets to undertake this development. Established firms often have the advantage of scale economies, which results from the tendency of new firms to be established at a small scale to minimize risk. Finally, established firms have complementary assets in marketing and manufacturing, which increase the returns from exploiting new products and services.

Although established firms have these advantages, they also suffer from several weaknesses that provide a way for entrepreneurs to compete against them. Established firms focus on efficiency as a way to develop competitive advantages over other existing firms, creating blinders to new product and service opportunities. Their focus is on generating value from existing capabilities, leading them to ignore and discount opportunities where new capabilities need to be created. Established firms need to satisfy their existing customers, and so often neglect opportunities in which new market segments could be targeted with new products and services, and they have existing organizational structures that constrain communication patterns and information flow and so make it difficult for established companies to exploit certain opportunities. Established companies need to reward people for doing their existing jobs, and this constrains them from rewarding people for undertaking innovation. They have hierarchies to manage their existing operations, which inhibits product development.


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