322 Exam 2 UW-Madison

Identify LTV based on the following information for a co-working space: Price / month: $500 Cost / month to the co-working management company: $100 Average tenant use: 25 months $12,500 $10,000 It can't be determined from the information provided $15,000

$10,000

Calculate Cost of Customer Acquisition (CoCA) based on the following information for a co-working space: Total sales & marketing budget: $1,000 Sales & marketing associated with bringing in new customers: $500 Number of new customers acquired: 5 $2500 $200 $5000 $100

$100

You have invented a new treatment for sick cows that will save farmers $1000/treatment. The cost of producing each treatment is $20. Assume you are following a 'value-based pricing' strategy. Which of the following is your best pricing option for maximizing your profits? $300 $30 $19.99 $1100

$300

Use the following information: A new startup called DanO.com has launched a website where you can subscribe on a monthly basis to receive inspirational quotes and cartoons on the topic of entrepreneurship via email. The business has the following attributes: Monthly subscription sells for $15/customer/month Cost of sending out the email is $5/customer/month The average customer subscribes for 10 months and then drops the service Placing 1,000 Google ads will cost $200. 5% who see the ad go to the website to request more info. Customers that request more information receive a personal sales call that costs $20/call. 60% of those who receive a call become a customer. What is The Cost of Customer Acquisition at DanO.com? $50 $40 $24 $1200

$40

The basic equation for calculating LTV (lifetime value) of a customer is: (Average Price of a Sale) X (Number of Repeat Transactions) / (Average Retention Time in Months or Years for a Typical Customer) (Average Value of a Sale) X (Number of Repeat Transactions) X (Average Retention Time in Months or Years for a Typical Customer) (Average Value of a Sale) X (Number of Repeat Transactions) / (Average Retention Time in Months or Years for a Typical Customer) (Average Price of a Sale) X (Number of Repeat Transactions) X (Average Time To Acquire a Typical Customer)

(Average Value of a Sale) X (Number of Repeat Transactions) X (Average Retention Time in Months or Years for a Typical Customer)

The basic formula for Cost of Customer Acquisition (or Customer Acquisition Cost) is: (Cost of sales and marketing to acquire new customers) X (number of new customers acquired) (Total cost of all the company's sales and marketing) / (number of new customers acquired) (Total cost of all the company's sales and marketing) / (total number of company's customers) (Cost of sales and marketing to acquire new customers) / (number of new customers acquired)

(Cost of sales and marketing to acquire new customers) / (number of new customers acquired)

You run a t-shirt printing store. You estimate the cost of a single blank shirt + ink to be $12, and your selling price will be $18. The cost in time and materials to set up the printer for a new design is $60. What is your break-even quantity on a specific design? 5 shirts $6 3.33 shirts 10 shirts

10 shirts

When considering raising capital for a company, the "Syndicate" refers to: A group of decision-makers at a financial institution (like a bank or mutual fund) that determine which investments to make. A group of people or institutions who participate in the investment together. The group of managing partners at a venture capital firm that ultimately select the start-up companies to invest in. A shadowy entity related to the Hoofer Sailing Club that always seems to determine the winner of Commodore's Cup.

A group of people or institutions who participate in the investment together.

Companies engage in prototyping and experimentation in order to: Determine the strategic direction of the overall organization. Develop peer-reviewed journal articles. Develop peer-reviewed journal articles. Assess the viability of new products and services quickly.

Assess the viability of new products and services quickly.

You have launched a small business that builds an innovative type of widget from readily available components. You've already got some sales and even a small profit. You need money to expand your operations, mostly to pay for a few pieces of manufacturing equipment. Which of the following is your best financing option? Angel investment Venture capital IPO Bank loan

Bank Loan

Which of the following best describes the key point in the 'Fake It- Chapter 13' reading from "Sprint" by Knapp, Zeratsky, & Kowitz? Build just enough to learn, but not more Investors will only give funding to confident entrepreneurs Entrepreneurs need to move fast and break things The first mover advantage is key to success

Build just enough to learn, but not more

All of the following are considered additional or secondary roles in the decision-making unit EXCEPT: Influencers Purchasing department Champion People (or organizations) with veto power

Champion

The best types of experiments to run as you prepare to launch your venture are: Validated by industry experts or other companies Detailed and thorough Cheap, quick, and easy The ones that give you the answer you want to hear

Cheap, quick, easy

Which part of the Business Model Canvas describes the types of relationships a company establishes with specific customer segments? Customer relationships Channels Revenue streams Value proposition

Customer relationships

In Connie Chan's talk, "When Advertising Isn't Enough", she talks about the different business models used in China to sell e-books. Which of the following was NOT mentioned? Purchasing books 1000 characters at a time Free books that you pay to unlock the ending Customers bid on a limited number of e-books. Free books with a tipping option

Customers bid on a limited number of e-books.

The two main types of external funding for ventures are: Debt and grants Debt and equity Cash and checks Equity and grants

Debt and equity

Testing key assumptions about your venture requires: Setting up a focus group of industry experts Designing and performing experiments Pitching your first 10 customers to see how many buy the product Reviewing your market data to ensure it is still relevant

Designing and performing experiments

Mapping the process to acquire a paying customer usually requires all of the following steps EXCEPT: Identifying which members of the decision-making unit you will need to access Estimating how long it will take to generate a lead for a potential customer Estimating the time and effort required to make the actual sale Estimating the per unit cost of acquiring a new customer

Estimating the per unit cost of acquiring a new customer

A debt investor is generally willing to take a risk on a startup company if the company's innovation or technology appears to have good long-term potential. True False

False

According to The Art of Startups by Bhide, most new ventures in the U.S. raise money from venture capital firms. True False

False

An accurate explanation for how customers buy products is: "Build a better mousetrap and the world will beat a path to your door." True False

False

Because they could lose the full value of the investment if the company defaults on the loan, debt investors generally expect a higher return than equity investors. True False

False

Calculating total addressable market for follow-on markets is essential relatively early in the venturing process because you need to be prepared to pivot if your beachhead market does not develop as expected. True False

False

Generally speaking, angels tend to invest in early stage companies after a venture capital firm has made an investment. True False

False

In The Use of Knowledge in Society paper, Hayek argued that Centralized planning was a superior economic system because it allowed government experts with data to determine the price and production levels instead of leaving those decisions to a large number of individuals and businesses. False True

False

One of the major advantages of crowdfunding is that a successful fundraising campaign (for example, on KickStarter) requires nothing more than a brief description of the product idea-- the platform takes care of generating a web-savvy pitch to potential investors. True False

False

The 17 business models presented in Disciplined entrepreneurship represent the full set of possible business models you should consider for your venture. True False

False

The MVBP should balance simplicity with the features that customers will pay the most money to acquire True False

False

The persona for your product is also the primary economic buyer. True False

False

True (A) or False (B): Banks are the primary source of initial investment dollars for startup companies in the software industry. True False

False

Venture capital firms are generally investing their own money True False

False

When you are trying to sell a new product or service, you usually only have to convince one key person to make the sale. True False

False

If your business fails, what happens to the money invested by angels or venture capital firms (equity investments)? First you pay off the founders. Then pay off the investors. Then pay off the debtholders. First you pay off any loans or trade payables (suppliers). If there's anything left, it might get paid out to the stockholders. If the company can't pay them back, then the founders pay them back with personal funds. First you pay off the stockholders. If there's anything left, it might get paid out to debt-holders or suppliers.

First you pay off any loans or trade payables (suppliers). If there's anything left, it might get paid out to the stockholders.

A seed funding round likely indicates the venture: Has just an idea in the mind of the founders Is trying to rapidly scale production Has no product and no revenue Most likely got investment capital from a bank

Has no product and no revenue

Some ventures can secure customer commitment before having a definitive MVP. All of the following could be ways to accomplish that EXCEPT: Have a customer secure a grant from a government agency so that the customer can pilot the product Have the customer prepay for your solution Have the customer put down a deposit for the purchase Have the customer provide a letter of intent

Have a customer secure a grant from a government agency so that the customer can pilot the product

Which business model is the most common for service firms because it rewards short-term activity rather than scaling up? Subscription or leasing model Cost plus Hourly rates Licensing

Hourly rates

Venture capital firms do what no other funding entity can do: Buy start-up companies long before industry participants realize the value of new, innovative technologies. Invest in new ventures without worrying about the return requirements. Invest large amounts of capital in high-risk ventures that will take a long time to pay out. Invest in companies around the world regardless of legal status.

Invest large amounts of capital in high-risk ventures that will take a long time to pay out.

In "Build, Measure, Learn" Eric Ries tells the story of their instant messaging startup IMVU. Eric and his co-founders learned how their target customers used IM systems by: Thinking about how they used IM themselves Inviting them to their office to try the technology Studying market reports about instant messaging and online platforms Launching an online survey

Inviting them to their office to try the technology

Which part of the Business Model Canvas describes the network of suppliers and partners that make the business model work? Revenue streams Key partnerships Key activities Channels

Key partnerships

Which part of the Business Model Canvas describes the most important assets required to make a business model work? Key resources Key partnerships Value proposition Key activities

Key resources

Customers may be resistant to purchasing a new or unfamiliar product. Steps that you can take to overcome this resistance include: Ensure that advertising and documentation clearly demonstrate how a customer would adjust behavior to best use the innovation Make it compatible with existing customer behavior Make sure the quality of the product is signaled by an attractively low price Positioning the product close to competitor products

Make it compatible with existing customer behavior

Which business model relies on the customer providing their credit card or billing information in advance and then being charged for small purchases, usually of digital goods with no physical value? Franchise Advertising Microtransactions Operating and maintenance Reselling the data collected

Microtransactions

In "Build, Measure, Learn" Eric Ries tells the story of their instant messaging startup IMVU. They spent 6 grueling months developing the product, and when they released it: It didn't work It had a rough launch but eventually caught on No one even tried it It went viral

No one even tried it

In "A Broken Place," the follow-up article about entrepreneur Shai Agassi, it turns out that the "strategy" didn't work. "A Broken Place" looks more carefully at the business model of the venture, which was based on the idea that: People wanted to pay the lowest possible price for their car and transportation. People wanted to buy a transportation service, not a specific car as a product. People wanted to ensure that their transportation had the least environmental impact possible. People wanted their car to accelerate as fast as possible.

People wanted to buy a transportation service, not a specific car as a product.

In the decision-making unit, the most important role determining whether your product sells is: Primary economic buyer Influencer Purchasing department End-user

Primary economic buyer

Which of the following is NOT one of the 9 building blocks of the Business Model Canvas? Products and services Key resources Revenue streams Customer relationships

Products and services

All of the following are key principles of the "prototype mindset" EXCEPT: Prototypes are no better than the ideas behind them Build just enough to learn, but not more You can prototype anything Prototypes are disposable

Prototypes are no better than the ideas behind them

All of the following are primary roles in the decision-making unit EXCEPT: Champion Primary economic buyer End-user Purchasing agent

Purchasing agent

After your beachhead market, follow-on markets include: Selling add-on services associated with your product to the same customers and selling your initial product to markets that are similar to your beachhead. Selling more of your initial products to the same customers and selling your initial product to markets that are similar to your beachhead. Selling new versions of your product to the same customers and selling your initial product to markets that are similar to your beachhead.

Selling new versions of your product to the same customers and selling your initial product to markets that are similar to your beachhead.

After your beachhead market, follow-on markets include: Selling add-on services associated with your product to the same customers and selling your initial product to markets that are similar to your beachhead. Selling new versions of your product to the same customers and selling your initial product to markets that are similar to your beachhead. Selling more of your initial products to the same customers and selling your initial product to markets that are similar to your beachhead.

Selling new versions of your product to the same customers and selling your initial product to markets that are similar to your beachhead.

Which of the following would be the best way to test assumptions about a potential new restaurant in downtown Madison? Set up a table on Library Mall or on the Capitol Square, give away small free samples, and see if you can convince people to buy larger portions. Conduct an extensive online survey of Madison residents to understand their preferences for eating at restaurants Invest $25,000 to set up a food cart next to Grainger Hall. Get a bank loan to open the restaurant on State Street

Set up a table on Library Mall or on the Capitol Square, give away small free samples, and see if you can convince people to buy larger portions.

According to the Art of Startups by Bhide, one way that firms can use bootstrapping to get operational quickly is: Invest in R&D early to ensure the product has all the necessary features. Start with a copycat idea that targets a small market. Create a wide-ranging social media campaign to target the largest possible market. Raise as much money as possible from professional investors.

Start with a copycat idea that targets a small market.

All of the following are good ways to reduce COCA (cost of customer acquisition) EXCEPT: Target the largest customer segments first to reduce the effective cost on a per customer basis Stay focused on the target market Use word of mouth Improve conversion rates in the selling process

Target the largest customer segments first to reduce the effective cost on a per customer basis

Which of the following is NOT one of the 9 building blocks of the Business Model Canvas? Key activities Cost structure Key partnerships Team

Team

Which of the following is NOT one of the 9 building blocks of the Business Model Canvas? Value proposition Customer segments Technology Channel

Technology

Lifetime value of a customer should take all of the following into account EXCEPT: One-time revenue The cost of acquiring the customer Recurring revenue Costs of serving the customer

The cost of acquiring the customer

The primary economic buyer is: The decision maker who will sign off on spending money. The person who will actually use the product. The person with depth of experience who can influence the rest of the decision-making unit. The person or department who handles the logistics of the purchase.

The decision maker who will sign off on spending money.

In her talk on why business models matter, Ann Miura-ko of Floodgate Ventures says that she likes to see a business model for a new venture because it shows: The key assumptions and hypotheses about why the venture could succeed. Whether the venture's underlying technology will work or not. Whether the team is capable of implementing the business. Whether a venture capital firm should invest in the venture or not.

The key assumptions and hypotheses about why the venture could succeed.

According to "Fake it til you make it," the biggest problem with building a fully functional product / service rather than a (90%) facade is: Potential customers can clearly tell the difference between a facade and the real product and won't be willing to give you feedback. Fully functional products / services are really expensive to develop, and you might not have enough money to do marketing and advertising. The longer you spend working on a prototype or a real product, the more attached you'll become, and the less likely you'll be to accept negative test results.

The longer you spend working on a prototype or a real product, the more attached you'll become, and the less likely you'll be to accept negative test results.

The "virality coefficient" is: The magnitude of the positive word of mouth your product generates. A qualitative measure of whether your product tends to make people ill. A measure of whether your online ads get reposted across social media. The number of people who hear about your product via traditional advertising.

The magnitude of the positive word of mouth your product generates.

Assume that a venture has successfully raised capital from outside investors in a Seed round of funding. Which of the following is most likely true as it progresses from a Seed round to a Series A round? The A-round investors will expect to get a higher rate of return than the Seed investors The valuation in the A-round will be exactly the same as in the Seed round The entrepreneur will receive a personal financial return as a result of the A-round. The perceived risk of the venture should reduced

The perceived risk of the venture should reduced

Assume that a venture has successfully raised capital from outside investors in a Seed round of funding. Which of the following is most likely true as it progresses from a Seed round to a Series A round? The valuation in the A-round will be exactly the same as in the Seed round The perceived risk of the venture should reduced The entrepreneur will receive a personal financial return as a result of the A-round. The A-round investors will expect to get a higher rate of return than the Seed investors

The perceived risk of the venture should reduced

In the decision-making unit, a champion is: The person who will actually use the product The person with depth of experience whose opinion can affect the rest of the decision-making unit The person who wants the customer to purchase the product The decision maker who will sign off on spending money

The person who wants the customer to purchase the product

In the decision-making unit, an influencer is: The person with depth of experience whose opinion can affect the rest of the decision-making unit The person who wants the customer to purchase the product An individual or organization with the ability to reject a purchase for any reason The person or department who handles the logistics of the purchase

The person with depth of experience whose opinion can affect the rest of the decision-making unit

A key real world lesson of the stories told about the electric car company "Better Place" in your readings is: No matter how good the innovation is, the venture will still fail if it doesn't have the right team to drive implementation. There are limits of innovation and it is difficult to get consumers to embrace new technology. Getting consumers to embrace new innovation requires having the right technology at the right time in the right place. When the innovation is compelling enough, consumers will embrace new technology

There are limits of innovation and it is difficult to get consumers to embrace new technology.

In the video "To Raise Money or Not Part 2," the speaker points out that one of the key factors that helped them raise venture capital was: They already had a fully functional software product that was being deployed at dozens of major customers. They had a really well-written business plan with solid financial forecasts. They got funding from an angel investor who was well connected in industry and with the VC firms. They had a highly qualified team of founders with extensive prior work experience in the space.

They got funding from an angel investor who was well connected in industry and with the VC firms.

A business loan is substantively no different than other types of debt such as student loans or a home mortgage. True False

True

A business model is a framework by which you capture value from customers based on the product or service you sell. True False

True

According to the Mullins article on customer cash, the matchmaker model is attractive because it requires little or no inventory and the cost of goods sold is extremely low. True False

True

An angel is a wealthy individual who is investing his/her own money True False

True

Be flexible on pricing for early testers and "lighthouse customers" because you can use them as case examples to help sell other customers. True False

True

Calculating the total addressable market size for follow-on markets helps you stay aware of the long-term potential of your business True False

True

Equity investors in early stage companies might expect return rates as high as 50%-60% per year True False

True

Generally speaking equity investors are willing to take higher risks than debt investors. True False

True

Generally speaking, angels tend to invest less than venture capital firms. True False

True

Hayek argued that knowledge of time and place is more important than scientific knowledge in The Use of Knowledge in Society paper. False True

True

Identifying key assumptions for your venture requires reviewing each step of the Disciplined Entrepreneurship framework to see what conclusions you made based on your market research. True False

True

MVP stands for Minimum Viable Product. True False

True

Mapping the process to acquire a paying customer can help you identify hidden obstacles that inhibit your ability to sell your product. True False

True

One of the most important reasons to map out the process to acquire a paying customer is to understand the length of the sales cycle. True False

True

The MVBP (minimum viable business product) combines the most important key individual assumptions into one integrated product that can be sold. True False

True

The business model you select and implement for your venture will have a significant impact on both whether you need to raise external capital as well as how you raise external capital. True False

True

The cost of customer acquisition (COCA) analysis begins with mapping the process to acquire a paying customer. True False

True

The difference between the lean startup "MVP" (minimum viable product) and Disciplined Entrepreneurships "MVBP" (minimum viable business product) is that the MVP only requires a product that tests specific assumptions about the venture. True False

True

The primary goal of your short term sales process is to create demand for your product and fulfill those orders. True False

True

Venture capital firms are primarily driven by financial returns; angel investors may have a personal interest in a specific technology or venture in addition to wanting a financial return. True False

True

Venture capital firms only invest in ventures that have the potential to generate very high returns. True False

True

When a company uses equity financing, it gives up partial ownership of the company in exchange for investor capital. True False

True

When identifying key assumptions about your venture, you should carefully review your "next 10 customers" list. True False

True

When mapping the process to acquire a paying customer, you should note whether payment will come from the customer's yearly operating budget or from the customer's long-term capital budget. True False

True

Which business model charges customer for the products or services actually used or consumed? "Cell phone" plan Parking meter or penalty charges Usage-based Shared savings

Usage-based

Disciplined Entrepreneurship asks whether "The dogs will eat the dogfood" to refer to: Whether or not people will buy your product or service Whether or not co-founders will invest capital to demonstrate their commitment to the venture Whether or not people will say they like your product or service Whether or not salespeople will go the extra mile to close a sale

Whether or not people will buy your product or service

Convertible debt is best described as: an investment that starts out as equity but is expected to be converted to a loan at some point in the future. an investment that starts out as a loan but is expected to be converted to equity at some point in the future. an investment that includes both a loan component and an equity component. an investment that changes over time as the needs of the company or the investor change.

an investment that starts out as a loan but is expected to be converted to equity at some point in the future.

According to the Mullins article on customer cash, ventures using the deposit model are likely to: obtain a loan from a bank which is held in a restricted deposit account to be used an a pre-agreed basis. deposit funds into a reserved account to utilize if the company's cash runs low. ask a sales or distribution partner to make a deposit to utilize or re-sell the company's services. ask customers to make a deposit on their purchase before they receive the product or service.

ask a sales or distribution partner to make a deposit to utilize or re-sell the company's services.

According to the Art of Startups by Bhide, most startups should build a team by: offering large cash and stock option packages to attract the best talent. hiring top-quality executives with extensive prior experience. focusing on identifying candidates who are passionate about the venture's underlying technology. finding less-experienced people who want to build skills and capabilities.

finding less-experienced people who want to build skills and capabilities.

According to the Mullins article on customer cash, entrepreneurs may have an opportunity to provide custom services to one customer that can generate products sold to other companies using a: low-cost leader model. standardize and resell model. subscription model. matchmaker model.

standardize and resell model.

According to the Mullins article on customer cash, companies that charge customers a predictable monthly fee in advance are using a: value pricing model. deposit model. subscription model. scarcity model.

subscription model.

If a company that does not have assets that can be claimed if the venture fails, a bank or financial institution is likely to provide debt financing only if: the company has an extremely exciting and/or disruptive technology the company is led by a team of experienced executives. the company has had stable cash flow for a while and conservative expectations. the company expects to grow extremely quickly

the company has had stable cash flow for a while and conservative expectations.

In the video "To Raise Money or Not Part 1," the speaker notes that one of the reasons they bootstrapped was because: they didn't plan to grow the company very quickly venture capitalists are greedy and unscrupulous. their product was actually making money almost from day one. they didn't want to give up control of the company

their product was actually making money almost from day one.

Which part of the Business Model Canvas describes the bundle of products and services that create value for a specific customer segment? Revenue streams Products and services Key partnership Value proposition

value proposition