Industry Types and the Opportunities They Offer (Declining Industries )
Declining Industries
A declining industry is an industry that is experiencing a reduction in demand, such as the retail photo finishing industry. Typically, entrepreneurs shy away from declining industries because the firms in the industry do not meet the tests of an attractive opportunity, described in Chapter 2. There are occasions, however, when a start-up will do just the opposite of what conventional wisdom would suggest and, by doing so, stakes out a position in a declining industry that isn’t being hotly contested. That is what Cirque du Soleil did in the circus industry.
Entrepreneurial firms employ three different strategies in declining industries. The first is to adopt a leadership strategy, in which the firm tries to become the dominant player in the industry. This is a rare strategy for a start-up in a declining industry. The second is to pursue a niche strategy, which focuses on a narrow segment of the industry that might be encouraged to grow through product or process innovation. The third is a cost reduction strategy, which is accomplished through achieving lower costs than industry incumbents through process improvements. Achieving lower costs allows a firm to sell its product or service at a lower price, creating value for consumers in the process of doing so. Initially a small firm but now quite large as a result of its success, Nucor Steel revolutionized the steel industry through the introduction of the “minimill” concept, and is an example of an entrepreneurially minded firm that pursued this strategy. Most steel mills in the United States use large blast furnaces that produce a wide line of products and require enormous throughput in order to be profitable. Nucor’s minimills are smaller and produce a narrower range of products. They are, however, energy efficient and make high-quality steel.15 Nucor proved its concept and quickly found growth markets within the largely declining U.S. steel industry.
A declining industry is an industry that is experiencing a reduction in demand, such as the retail photo finishing industry. Typically, entrepreneurs shy away from declining industries because the firms in the industry do not meet the tests of an attractive opportunity, described in Chapter 2. There are occasions, however, when a start-up will do just the opposite of what conventional wisdom would suggest and, by doing so, stakes out a position in a declining industry that isn’t being hotly contested. That is what Cirque du Soleil did in the circus industry.
Entrepreneurial firms employ three different strategies in declining industries. The first is to adopt a leadership strategy, in which the firm tries to become the dominant player in the industry. This is a rare strategy for a start-up in a declining industry. The second is to pursue a niche strategy, which focuses on a narrow segment of the industry that might be encouraged to grow through product or process innovation. The third is a cost reduction strategy, which is accomplished through achieving lower costs than industry incumbents through process improvements. Achieving lower costs allows a firm to sell its product or service at a lower price, creating value for consumers in the process of doing so. Initially a small firm but now quite large as a result of its success, Nucor Steel revolutionized the steel industry through the introduction of the “minimill” concept, and is an example of an entrepreneurially minded firm that pursued this strategy. Most steel mills in the United States use large blast furnaces that produce a wide line of products and require enormous throughput in order to be profitable. Nucor’s minimills are smaller and produce a narrower range of products. They are, however, energy efficient and make high-quality steel.15 Nucor proved its concept and quickly found growth markets within the largely declining U.S. steel industry.
Industry Types and the Opportunities They Offer (Declining Industries )
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