ENT3003 Exam 3

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Courage

Understand failure is part of learning to succeed

Business Model

Framework established to create value for consumer while preserving some value for entrepreneur

3 F's

Friends, family, fools (Treat these like formal investments though)

Websites for equity crowdfunding

Fundable, Crowdfunder, AngelList, and Circle Up

Razor & Razor Blade Model

Generate huge revenue from offering physical product (razors) at low cost to encourage sales of more expensive razor blades

Data Revenue Model

Generate revenue by selling high-quality, exclusive, valuable information to other parties - data brokers collect 3rd party info and tech giants collect personal user info

Advantages for crowdfunding

Get money to start business, provide idea of level of enthusiasm and interest in product prior to launch, save money on marketing, test ideas and get customer feedback at low cost, build relationships with customers, different options of crowdfunding, exciting process

Advantages to Formal Investments

Get needed money, gain advice and guidance from experienced people, get contacts & connections

Multiparty Business

Giving a product to one party for free but charging other parties - ad supported free content on Internet - free kids admission but charge adults - must balance free and paying users

Emotions after failure are most similar to...

Grief

Angela Lee Duckworth, u penn psychologist, discovery:

Grit is a trait that supersedes traditional methods of measuring talent

Break-Even Analysis

Helps entrepreneurs quickly determine what is needs to sell monthly/yearly to cover costs of running business

Skimming

High pricing, used for new products with no competition ex: IPad

Professional Revenue Model

Provide professional services on a time & materials contract ex: lawyers, accountants

Amortization

Relates to intangible assets like patents, copyrights, trademarks, and business methodologies - matches useful life with revenue generated

Tips for writing formal business plans

Remove the Fluff - describe with direct language, not decorative Define your Target Audience Be Realistic - earns strong ideas merit Focus On Your Competition Understand Distribution Channels - NO VAGUENESS Avoid Hockey Stick Projection - shows few sales in Year 1, but tons in 3/4. Graphed sales looks like hockey stick (very unrealistic) Avoid Typos & Inconsistencies Be Honest About Weaknesses Use Visuals

Interest Expense

Represents interest due in period on any borrowed money, good indicator of company debt

What does bootstrapping provide?

Resources

Advertising Revenue Model

Revenue gained through advertising products & services (ex: Google AdWords or promoted/suggested content)

Goal of Experimentation

See it as an opportunity for further learning and better decision making, rather than a series of failed tests - not to conduct the "perfect" experiment

Sales Price Per Unit

Selling price

What happens when you commit to managing a crowdfunding campaign?

Send out surveys to gain feedback - engage with audience

Target-Return Pricing

Set price based on amount of investment you have put into business

Alternative to Formal Business Plan

Social Capital

Resilience

Strength to recover from failure and overcome obstacles in order to persevere towards achievement of long-term goals

Crowdsourcing

Use the internet to attract, aggregate, and manage ostensibly inexpensive or even free labor from enthusiastic customers and like-minded people - resource for talent and labor - form of bootstrapping

Bootstrapping Techniques

Using the home as the office, renting before buying, minimizing personal salary, developing contacts, offer equity reimbursement, low operating inventories

What size projects use crowdfunding?

Usually small requiring less than $1,000

Study done on grit

West Point incoming cadets completed grit questionnaire to predict what cadet would remain at West Point after summer - higher grit levels = more likely to stay - also have growth mindset

Net Income

What is left after costs, expenses, and taxes are paid. Shows real bottom line

Conscientiousness

Working tirelessly in the face of challenges and toward the achievement of long-term goals

Process Inadequacy

Wrong (or missing) processes set up in the organization, causing communication breakdown

Lessons Learned by Kurt Theobald

- Fail Fast, but not too fast - beware of "shiny object syndrome" - find your formula - know who you are - know who are you - find your deeper purpose - focus on others - recognize when approach is wrong

Market value raised globally through crowdfunding campaigns

$34 billion

Revenue Model

A key component of the business model that identifies how the company will earn income and make profits - explains how entrepreneurs make money & capture value from delivering CVP

Exploratory Experimentation

A method whereby market tests are conducted to get early feedback and acquire important learning and information

Sweat Equity

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

Concept Statement

A one sentence-paragraph description of your vision for your product/service. Should include all features of product, potential problems, target market - needs to be easy to understand

The Pitch Deck

A presentation highlighting the essential elements in a feasibility study & business plan (also called "launch plan") - needed for collegiate competitions, incubator apps, capital funding - replaced formal business plans - describes product, gets interest

Pro Forma Income Statement

A projections or estimate of what a company could potentially do. Estimates impact of revenue/expense on profit

Google Sketchup

A software tool used to create a sketch of a 3D model which save money

Planning

A verb/process of envisioning the future for a business, including what one plans to do and how one plans to do it - plan doesn't equal planning - planning pushes you to take action - plan organizes the actions - STARTS WITH A VISION

Business Model Canvas (BMC)

A visual plan useful for identifying gaps in business idea & integrating various components - 1 page with 9 blocks of business model

Licensing Revenue Model

A way of earning revenue by giving permission to other parties to use protected intellectual property (copyrights, patents, & trademarks) in exchange for fees ex: Apps are designed and licensed to Apple

Alibaba.com

A website that lists china's manufacturers, products, and capabilities. Search the site to find companies with similar products. Can instant message factory using English-Chinese system

How many businesses received formal equity investment out of 627,000?

About 8,500

Biggest problem for unprepared successful crowdfunders

Failure to deliver promised rewards

What is similar across different types of economies?

Fear of failure rates

Break-Even Units

Fixed costs / (sales price per unit - variable cost per unit)

How much did Michael Dell bootstrap dell computers with?

$1,000

XPRIZE

Focuses on finding solution to complex problems like air and ocean pollution and adult illiteracy. Saved on labor costs and found creative ways t build spaceship`

Questions to ask when strategizing revenue

- How much are my customers willing to pay? - How many customers do I need? - How much revenue can be generated from sales? - How much does each revenue stream contribute to the total?

Lending Model

A crowdfunding model where funds are offered as loans with the expectation that the money will be repaid. - different forms (expect interest, when to be paid back) - elements of patronage model can be within lending model

Questions To Ask During Planning

- What is your business and how does it add value? - Who is your customer? - How big is the market? - How will you enter the market? - What do you know about the industry? - Who is your competition and why are you better? - Who is on your team and what do they bring to the table? - What are your financial projections?

Signs of Fear of Failure

- children who are punished for failures but not rewarded for achievements - family with maternal irritability or paternal absence - people raised that failure is unacceptable won't view mistakes as learning opportunities - anxiety, lack self-esteem, reluctant to new things

Tips for Deciding Pricing

- know current rates - ask competition - talk to family/friends - think about customers

Support for not writing business plan

- plan is old as soon as it's made - based on untested assumptions - financial projections are too far out to have validity - process discourages action

How Metro Makes Profit?

- wealthy readers - paid to feature big events - easy to read content means low editorial costs - control news racks w distribution network

Initiatives to remove failure stigma

-FAILFaire - F***Up Nights - Pink Boa FailFest (DoSomething.org)

3 parts of business plan

-business concept (discuss industry, business structure, your product/service, and how you want to make your business successful) -marketplace section (describe and analyze potential customers and the competition) -financial section (balance sheet, income/cash flow, financial projections)

Income Statement (Profit & Loss Statement)

A financial report that shows revenue, expenses, and profit for a period of time, typically a month, quarter, or year. - subtracts COGS and expenses from total revenue - need pro-forma income statement - reflects depreciation and amortization of assets

Coping Strategies for Fear of Failure

1. Reframe specific goals to become achievable 2. Separate feelings from facts, esp relating to revenue 3. Allow yourself to feel fear (take deep breaths for 2 mins) 4. Seek support from role models

The Business Brief

2-3 page document outlining company overview, value proposition, customers, and milestones - less visual, sent to stakeholders

Bootstrapping Sources of Income

3 F's : financial assistance other than investments

Kickstarter video percentages

33% successful WITHOUT videos 66% successful WITH videos

Percentage of crowdfunded products delivered later than expected

75%

Business Plan

A formal lengthy written document discussing the business concept, product mix, marketing plan, operations plan, development plan, and financial forecast - must be thought of as work in progress because nothing ever follows plans - 20 - 40 pages of mission, strategy, tactics, goals , financials, 5-year forecast - 3 parts - useful for companies with history of data/operations

Pivot

A change in business direction after small "fail" - change product, customer segment, revenue model, distribution channel - small fail is event (valley), big fail is collapse over time

Investor Model

A crowdfunding model that gives backers an equity stake in the business in return for their funding. - different forms : buy shares in company(ownership) or take share of future revenue (without ownership)

Reward-based Crowdfunding

A crowdfunding model that rewards backers for supporting a project ex: product samples or experiences

Feasibility Study

An essential planning tool that enables entrepreneurs to test the possibilities of an initial idea to see if it is worth pursuing - Focuses on testing - solid foundation for developing business plan - focus on size of market, suppliers, distributors, and entrepreneur skills - assesses business concept viability - "Will my venture work?" - only for entrepreneurs eyes so be honest - key is speed - "Go/No Go"

Lower % Fear of Failure

Angola - 16% Columbia - 23%

Customer-Led Pricing

Ask customers what they are willing to pay, then offer it at that price - good for attracting people

Biggest Startup Failure

Bankruptcy or forced sale

GEM failure rate

Based on people who admit to perceiving opportunities to start a business but feel prevented from acting due to fear of failure. Failure is correlated with national culture - focuses on perceptions of 3 economies (perceived opportunities, perceived capabilities, fear of failure) and degree to which those capable of staring a business may intend to do so over next 3 years (entrepreneurial intentions)

Inattention

Becoming sidetracked from core business, by moving in a new business direction or delegating too much too soon with no follow up

Types of people who back crowdfunding campaign

Between 24-35 years old, men, income > $100,000

Variable Cost Per Unit

COGS plus operating expenses (inventory) that fluctuate with product production

Cost-led Pricing

Calculate all costs and expenses and add expected profit by predicting sales volume to get approx price

Vivid Vision

Challenges an entrepreneur to imagine what a business could be 3 years into the future which is a reasonable amount of time to "nail down" specific, measurable goals - leave usual working environment, go outside - write 3 page description/sketch thoughts - not steps or how to build business

Utility & Usage Revenue Model

Charge customers fees on basis of how often good/service is used - Pay-as-you-go model - ex: hotels, car rentals

Subscription Revenue Model

Charge customers to gain continuous access to product/service

Defining your brand

Choose 3-5 words that describe business as different than existing ones

Perseverance

Commitment to long-term goals through purposeful, deliberate practice

Excellence

Committing to activities that enhance skills, and prioritizing improvement over perfection

Build Blame-Free Culture

Communicate clearly what failures are acceptable and unacceptable ex: reckless conduct is bad but small fails during experimenting is okay

Reasons to bootstrap

Complement or avoid entirely traditional financing sources. Most entrepreneurs don't have business history or enough customers

Competition-Led Pricing

Copy the prices of other businesses selling the same/similar product

2 Types of Costs

Cost of goods sold (COGS) and operating expenses

Fixed Cost

Cost stays the same regardless of revenue generated or product amount produced

Operating Expenses

Costs of running a business, including rent, utilities, administration, marketing/advertising, employee salaries etc. - cutting expenses only gives short-term gain

4 Revenue Drivers

Customers, price, frequency, selling process - test hypotheses to determine revenue drivers

Deviance

Defies legal & ethical boundaries, leading to mismanagement of the venture ex: Theranos blood testing startup

Entrepreneurship is a method that ___

Demands practice

Failure Spectrum

Describes situations that may be perceived as failures, yet can sometimes have positive rather than negative outcomes - ranges from blameworthy to praiseworthy

Why did WHO use crowdsourcing?

Design a video to encourage HIV testing (contest in China)

What costs have technological advances reduced costs for entrepreneurial businesses?

Design, manufacturing, accountant & bookkeeping, sales

Parts of Failure Spectrum

Deviance, Inattention, Lack of Ability, Process Inadequacy, Uncertainty, Exploratory Experimentation

2 types of free financial models

Direct Cross-Subsidies Multiparty Markets

Elements of Feasibility Study

Does the idea fulfill a need or solve a big problem? Is there short/long term market potential? Who are customers and what're they willing to pay? Does the opportunity provide competitive uniqueness? Is model feasible/viable?

Classy Llama

E commerce firm founded by Kurt Theobald, 11th startup in 5 years. 10 past failures taught valuable lessons that led to success

Psychological pricing

Encourage customers to buy based on their belief that the product is cheaper than it really is - flash sales, bogo, bundled products - prices ending in .99 - used by fast food restaurants

Introductory Offer

Encourage people to try product by offering it basically free for certain amount of time

What problem was the Tea-In-One product able to solve?

Environmental Concerns

Kickstarters most backed project

Exploding kittens - 220,000 supporters

Largest global fundraising site

Indiegogo

Why is failure difficult for entrepreneurs?

It is hard to separate personal failure from professional failure since the identity of the business is tied to the identity of the entrepreneur

Most established crowdfunding site

Kickstarter

Key to written plans

Knowledge - showing you've done hw to impress audience

Uncertainty

Lack of clarity about future events that cause entrepreneurs to take unreasonable actions

Pebble Time record

Largest amount of money raised on crowdfunding platform

Other options to showcase business

LeanLaunchLab Lean Stack Plan Cruncher

What model supports micro financed loans?

Lending & Patronage

Other factors to consider in pricing calculation

Livelihood & mistakes

Tips for crowdfunding

Make sure your product solves a real problem (communicate it in 2 sentences), test & refine your idea, be prepared (to provide product), seek & accept advice, start campaign, money matters, focus on the pitch (include video), make the most of crowdfunding opportunities, commit to campaign, avoid crowdfunding curse (delays and failed deliveries due to under preparation)

Freemium Revenue Model

Mix free basic services with premium/upgraded services. Create at least 2 tiers of product - low end is free but limited -high end are more functional - ex: LinkedIn, SurveyMonkey, Skype, Metro newspapers

Highest % Fear of Failure

Morocco - 64% US - 35%

Loss Leader

Offer a product at a below-cost price n an attempt to attract more customers - special discounts or reducing prices - good for competing with established brand - Walmart & Amazon

4 contexts for crowdfunding

Patronage model, lending model, reward-based crowdfunding, and investor model

Backers

People who financially support crowdfunding ventures

Broker

People who organize transactions between buyers & sellers ex: eBay is auction broker, real estate brokers, Airbnb

2 types of Unit Sales

Physical goods & Intangibles

What benefits did Skybell get from crowdfunding?

Press coverage

Direct Cross-Subsidies

Price a product above market value to pay for loss of giving away a product below market value - customers who are pleased with free product pay for add-ons - more viable for web-based companies ex: cell phone companies lose money by giving out free phone handsets but cover less by charging monthly service fees, airlines have low far but fees for bags

Value-Based Pricing

Price product based on how it benefits the customer - buyers have major influence over pricing strategy ex: paying for water filter which will provide long term value - value can be pleasure or monetary

Printer & Ink Model

Printer is sold at low price but ink is very expensive which keeps generating revenue for manufacturer

Why did University of Washington use crowdsourcing?

Produce an accurate enzyme model using gamers who played online science game

3 rules of Kickstarter

Project must create something to share with others, project must be honest and clearly presented, project can't fundraise for charity, offer financial incentives, cover general business expenses, or involve prohibited items

One Reason Startups Fail - Eric Ries, author of Lean Startup

The allure of good plan, solid strategy, and thorough market research. - planning & forecasting is only accurate when based on long, stable operating history in static environment

Operating Profit

The amount left over from revenue once all costs and expenses are subtracted

Unit Sales Revenue Model

The amount of revenue generated by the number of items (units) sold by a company - used by retail businesses - 2 types of unit sales: physical goods & intangibles - razor & razor-blade model or printer & ink model

Deliberate Practice

The conscious effort to practice things we can't yet do - not doing the same thing over and over - must have purpose and long-term achievement goals

Depreciation

The cost of wear & tear on your physical assets such as machinery, equipment, and building - an asset with >1 year of life doesn't have whole cost on income statement in year its purchased

Fair Pricing

The degree to which both businesses and customers believe the pricing is reasonable - market testing is helpful

Intermediation Revenue Model

The different methods by which third parties, such as brokers (or middlemen) generate money

Cost of Goods Sold (COGS)

The direct cost of producing a product, occur when a sale takes place

Revenue

The income gained from sales of goods or services - commonality btwn all businesses

Franchising Revenue Model

The owner of existing business (franchisor) sells the rights to another party (franchisee) to trade under the name of that business - franchisor provides marketing, operations, and financing - franchisee pays royalties based of sales %

Bootstrapping

The process of building or starting a business with no outside investment, funding, or support - focuses on creative ways to access every available resource while minimizing spending - apply 8 parts of entrepreneurship model

Crowdfunding

The process of raising cash for a new venture from a large audience (the "crowd"), typically through the Internet - utilizes small contributions from large number of people - resource for money - form of bootstrapping

Grit

The quality that enables people to work hard and sustain interest in their long-term goals. Related to resilience bc perseverance is necessary to stick to long-term commitments

Business Failure

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/liquidation - can result in future improvements - failure is viewed as part of journey

Why do 42% of startups fail?

They don't solve a big enough problem

Other than money, why do entrepreneurs bootstrap?

They like the independence and control. Don't have to give away equity or explain decisions

3 Main Causes of Failure

They psyche, people mistakes, & market mistakes

What makes backers give larger amounts of money?

To be first to receive product when launched

Goal when using a video pitch

Total transparency (to sell the vision to people who don't know you)

Patronage Model

a crowdfunding model where backers do not expect any direct return for their donation or investment

Equity Crowdfunding

a form of crowdfunding that gives investors the opportunity to become shareholders in a company

Shiny Object Syndrome

a tendency to drop everything in favor of the latest new idea. Leads to many failures. Entrepreneurs need to be strategic about pursuing all opportunities at specific right times

Attributes of Grit

courage, conscientiousness, perseverance, resilience, excellence

Intelligent Failures

good failures that provide valuable new knowledge that can help a startup overcome hurdles and roadblocks - experimentation is necessary to find answers in never-explored situations - quick failures can produce positive results

How much money do most small businesses begin with?

less than $5,000. Formal investments are very rare

Bundled Pricing

packaging a set of goods or services together and selling them for lower price than if sold separately - customers see bargain - increase profit for company ex: fast food meals, cell phone packages

Intentional Iteration

process that involves prototyping, testing, analyzing, and refinement. Failure is part of experimenting

Lack of Ability

the lack of skillset to get the job done, entrepreneur is overextended. Good at the start but skills were needed as business grows - companies outgrow founders


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