ENT 3003 Exam 3 Vocab

Turning to family, friends and fools for financial assistance

. It is better to treat the arrangement as a formal loan or investment with terms agreed by both

Cost drivers

COGS Operating Expenses

Nine blocks of the business model canvas

CVP, customer segments, channels, customer relationships, key activities, key resources, key partners, revenue streams, cost structure

What model is viable for web-based companies

Freemium model because of the low marginal cost of providing the service for free users They need to be constantly focused on the average cost of running service for free users, as well as the rates at which free users convert to paying users

three rules for kickstarter

Projects must create something to share with others Projects must be honest and clearly presented Projects can't fundraise for charity, offer financial incentives, or involve prohibited items If you set your fundraising goal to $10,000 and only raise $5000 you get nothing

T/F 42% of startups failed because they didn't solve a big enough problem

True

T/F intentional iteration and intelligent failures are not synonyms

True

Crowdsourcing to reduce labor costs

XPRIZE launched a competition to challenge teams to build a spaceship for a $10 million reward

Revenue Model

a key component of the business model; it identifies how the company will earn revenue and generate profits model outlines how a business will earn revenue, manage costs, and produce profit

Lean Stack

a paid service that compresses the essential parts of your business down to one page to send to investors who have little time to read through a large document

Licensing Revenue Model

a way of earning revenue by giving permission to other parties to use protected intellectual property (copyrights, patents, and trademarks) in exchange for fees

Lean Launch lab

allows you to test hypotheses and refine your business model

Three main parts of business plan

business concept, market section, financial section, cover, title page, and table of contents

Utility and Usage Revenue Model

charges customers fees based on how often goods and services are used Mobile carriers charging per minute, hotels charging per night

operating expenses

costs of running your business, including rent, utilities, administration, marketing/advertising, employee salaries, and so forth

building grit

courage, conscientiousness, perseverance, resilience, excellence

Revenue Drivers

customers, frequency, selling process, price

Intermediation Revenue Model

describes the different methods by which third parties, such as brokers can generate money Brokers are people who organize transactions between buyers and sellers

Franchising Revenue Model

describes the process whereby the owner of an existing business (franchisor) sells the rights to another property (franchisee) to trade under the name of that business. The franchisor offers support in marketing, operations, and financing and in return the franchisee pays the franchisor royalties based on an agreed percentage of sales

Two types of free financial models

direct cross subsidiaries multiparty business

Plan Cruncher

free tool that allows you to summarize your idea in one page

Customers

how many customers, how much are they willing to pay, how will you attract customers

selling process

how much will you be able to sell, what kind of upselling or cross selling opportunities can you find

Frequency

how often will customers come and what incentives can you offer to keep them coming back

pivots

include changing directions on such things as the product, customer segment, revenue model, or distribution channel

Subscription Revenue Model

involves charging customers to gain continuous access to a product or service

multiparty business

involves giving a product or service to one party for free, but charging the other party or parties Ad-supported free content model: consumers get access to content for free while advertisers pay for access

Freemium Revenue Model

involves mixing free (mainly web-based) basic services with premium or upgraded services

pro forma income statement

is a projection or estimate of what the company could potentially do

business failure

is generally conceived as the termination of a commercial organization that has missed its goals and failed to achieve investors' expectations, preventing the venture from continuing to operate and resulting in bankruptcy or liquidation

Goal of experimentation

isn't to conduct a perfect experiment but to see it as an opportunity to learn and make better decisions

key to any written plan is

knowledge- showing that you have done your hw through exploration, experimentation, and market research

David James

made a successful pivot from his education marketplace K12 landing to setting up his own instructional consulting practice

Unit Sales Revenue Model

measures the amount of revenue generated by the number of items (units) sold by a company Typically used by retail businesses who sell directly to consumers Another variation of this model is the razor and razor blade model, and example is when a printer is prices low, but the cost of the ink and toner is high to keep generating revenue

Income Statement

o A financial report that shows revenue, expenses, and profit for a period o It subtracts the COGS and expenses from total revenue to give you a net income figure includes depreciation and amortization of your company's assets

Skimming

o A form of high pricing, generally used for new products or services that face very little or even no competition

Pitch Deck

o A presentation of varying lengths highlighting many of the essential elements found in a feasibility study and business plan o Needed for collegiate competitions, applications to accelerators and incubators, and for angel and venture capital funding

Revenue Model vs. Business Model

o A revenue model is different from a business model because a business model describes how a venture will create, deliver, and capture value

Business Model Canvas

o A type of visual plan that is especially useful for identifying any gaps in the business idea and integrating the various components

inattention

o An entrepreneur gets sidetracked from the core business-either by moving in a new business direction or by delegating too much too soon without following up Siouxsie Downs became sidetracked from her main business, STEM by trying to manage too many projects at once

feasibility study

o An essential planning tool that enables entrepreneurs to test the possibilities of an initial idea to see if it is worth pursuing o Focuses on the size of the market, the suppliers, distributors, and the skills of the entrepreneur o Determines whether your idea is workable and profitable o Written document no more than 10 pages

Building a blame free environment

o Blame free cultures encourage people to share, accept, learn from, and recover from failure o Employees need to feel assured that they will not receive a negative reaction when they admit mistakes o Key is to communicate clearly what sorts of failures are acceptable and unacceptable

Who is your competition? Why are you better?

o Competitive analysis comparing your venture to others

business plan

o Considered the most formal of planning tools o Lengthy written document discussing the business concept, product mix, marketing plan, operations plan, development plan, and initial forecast o Traditionally 20 to 40 pages plus additional pages for appendices o Mission, strategy, tactics, goals, financials, and objectives, together with a 5-year forecast for income, profits, and cash flow

Crowdsourcing through technology

o Free software tools like Google's Sketchup enable users to create a sketch of a 3D model of their own invention; this can then be turned into a 3D physical prototype using a specialized desktop printer like the MakerBot, which costs less than $1,000. o Chinese manufacturers have become efficient enough to manufacture in small batches while maintaining low costs o Websites like Alibaba.com list Chinas manufacturers, products, and capabilities o Wikihouse designs and builds houses through a form of 3d printing without involving a construction team

What are your financial projections?

o Future revenues and expenses

intelligent failures

o Good failures that provide valuable new knowledge that can help a startup overcome hurdles and roadblocks

psychological pricing

o Intended to encourage customers to buy based on their belief that the product or service is cheaper than it really is o Flash sales, BOGO, and bundled products are all methods of psychological pricing

Cost-led pricing

o Involves calculating the costs involved in manufacturing or delivering the product or service, plus all other expenses, and adding an expected profit or margin by predicting your sales volume to get the approximate price

How will you enter the market?

o Involves describing the needs your product or service fulfills for your customer, the problems you are solving for them, and any evidence you must show that your potential customers will want to buy your offering

value-based pricing

o Involves pricing your product based on how it benefits the customer

target return pricing

o Involves setting your price based on the amount of investment you have to put into your business

Crowdsourcing

o Involves using the internet to attract, aggregate, and manage ostensibly inexpensive or even free labor from enthusiastic customers and like-minded people o Crowdfunding is a source for money and crowdsourcing is a source of talent and labor

introductory offer

o Is to encourage people to try your new product by offering it for free or at a heavily discounted price for a certain number of days or to the first 100 customers

lessons learned by successful entrepreneurs

o Kurt Theobald, cofounder, and CEO of ecommerce firm Classy Llama. He learned valuable lessons from his 10 failed businesses that helped him succeed with his 11th venture

uncertainty

o Lack of clarity about future events can cause entrepreneurs to take unreasonable actions Keith B. Nowak, founder of social media instant messaging company Imercive, believes the company failed because it stuck to the wrong strategy for too long (failing to pivot sooner)

Exploratory experimentation

o Market tests are conducted to get early feedback and acquire important learning and information. Some of these tests fail miserably but they are crucial for learning Joelle Mertzel, founder of countertop butter dish Butterie did a market test that showed 67% would use the butter dish

Process inadequacy

o Means the wrong processes are set up in the organization, so communication breaks down among employees and things begin to fall through the cracks Paul Biggar and Nathan Chong founders of NewsTilt said poor communication was one of the reasons their startup lasted two months

Who is on your team and what do they bring to the table?

o Members of team, key duties and responsibilities, and the unique skills they bring to the venture

Deviance

o Occurs when an entrepreneur defies legal and ethical boundaries, leading to mismanagement of the venture Theranos blood-testing startup is an example of a company who demonstrated deviance from social norms

bundled pricing

o Packaging a set of goods or services together; they are then sold for a lower price than if they were sold separately

Crowfunding

o Process of raising cash for a new venture from a large audience, typically through the internet o People who use crowdfunding to raise money are known as "crowdfunders," and people who contribute financial support to crowdfunding ventures are known as "backers." o Small contributions from a large number of people

Signs of fear of failure

o Researchers have suggested that the origins of fear of failure may lie in parent-child relations o Connection between high paternal expectations and a child's fear of failure, as well as maternal irritability and paternal absence

how big is the market?

o Size of market and share of market you intend to capture

Global Fear of Failure

o Strong fear of failure is often rooted in one's national culture o Fear was lowest in Angola and Columbia and highest in Morocco, Greece, and India. The United States is 35% o People in Africa have the highest percentage of perceived opportunities, perceived capabilities, and entrepreneurial intentions o Perceived capabilities rank high in Latin America and the Caribbean, but score highest for fear of failure o Europe and North America score the lowest for entrepreneurial intentions

Fair Pricing

o The degree to which both businesses and customers believe that the pricing is reasonable

lack of ability

o The entrepreneur is overextended and lacks the skillset to get the job done Eddie Lou founder of workforce technology company shiftgig, stepped down as CEO in favor of a new CEO who has the skills to set up the company, raise capital and bring it to the market

loss leader

o The practice of offering a product or service at a below-cost price to attract more customers o Examples: Walmart and Amazon

Business Brief

o Two-to-three-page document outlining the company overview, value proposition, customers, and milestones o You can send to stakeholders

Crowdsourcing to improve medical treatment

o WHO special programme for research and training in tropical diseases has set up a crowdsourcing initiative that involves groups of experts and nonexperts who solve health problems and then share the solution with the public

What do you know about the industry?

o Write down any research you have carried out that supports your ideas and make sure it is correct and up to date

Who is your customer?

o Write down who your target customer is. Defining characteristics, and why they will buy your product or service

Sweat Equity

o a non-monetary investment that increases the value or ownership interest created by the investment of hard work for no compensation

concept statement

o a one sentence to one paragraph description of your vision for your product or service

Kickstarter

o most established crowdfunding site, as well as the largest platform for creative projects in the world Makes it money by charging a percentage of the funds collected from each successful project, in addition to payment processing fees Does not accept projects associated with charitable donations, loans, or general business expenses

Customer-led pricing

o you ask customers how much they are willing to pay and then offer your service at that price

Competition-led pricing

o you copy the prices suggested by other businesses selling the same or very similar products and services

Cost of Goods Sold

occur when a sale takes place Easier to reduce than operating expenses

Professional Revenue Model

provides professional services on a time and materials contract Consultants, lawyers, and accountants often charge by the hour for their services

Direct Cross-Subsidies

refers to pricing a product or service above its market value to pay for the loss of giving away a product or service for free or below its market value Airlines that advertise low fares but then add fees for amenities such as checked bags, extra legroom, or the ability to choose your seat

Advertising Revenue Model

relies on the amount of revenue gained through advertising goods and services Google AdWords service is a type of advertising revenue model called CPC or cost per click, which charges the advertiser a fee every time a user clicks on the ad Another form is cost per action (CPA) which is when a click converts to an actual sale

tips for writing plans

remove the fluff define target audience be realistic focus on competition understand distribution channels avoid the hockey stick projection avoid typos and grammatical mistakes be honest about weaknesses use visuals

revenue

the income gained from the sales of goods or services

Planning

the process of envisioning the future for your business, including what you plan to do and how you plan to do it Planning is different from a plan because planning is a verb and implies action

price

what are you charging, what are the factors that increase the value of your product

intentional iteration

· a process that involves prototyping, testing, analyzing, and refinement

Angele Lee Duckworth definition of grit

· a trait that supersedes traditional methods of measuring talent

benefits of formal routes of getting money

· getting the money you need and gaining advice from people who are more experienced than you

break-even analysis

· point where revenues equal costs

concept of failure

· provokes an emotional reaction or antifailure bias that inhibits us from learning from the experience · For entrepreneurs, failure is especially difficult because it is hard to separate personal failure from professional failure

proponents of writing a business plan

· say it helps you gain clarity, keeps you organized, establishes a core message, and creates alignment among team members. It also helps establish legitimacy

Those against writing a business plan

· say that the plan is old as soon as it comes off the printer, it's based on untested assumptions, financial projections are too far out to have validity, and the actual writing and compiling discourages action and gathering real data

Bootstrapping

· the process of building or starting a business with no outside investment, funding, or support

grit

· the quality that enables people to work hard and sustain interest in their long-term goals. Also related to resilience, not just in the face of failure, but perseverance to stick to long-term commitments and goals

Amy Edmonson Experiment

·believes that failures range from big to small along a failure spectrum o She believes that not all failures are blame worthy, her spectrum ranges from blameworthy to praiseworthy o Entrepreneurs who intentionally violate certain rules (Deviance at the top of the spectrum) is blameworthy

Data Revenue Model

·when they generate revenue by selling high-quality, exclusive, valuable information to other parties