Entrepreneurship Hollis
Genchi genbutsu
"Go and see for yourself"
What % of startups receive VC funding
.03%
Principles of Disruptive Innovation
1. Companies depend on customers and investors for resources 2. Small markets don't solve the growth needs of large companies 3. markets that don't exist can't be analyzed 4. an organizations capabilities define its disabilities 5. technology supply may not equal market demand
5 criteria for choice of entity
1. Cost of creating 2. Methods of raising capital 3. Control of decisions 4. Personal liability 5. Taxation
industry life cycles
1. Emerging (Many new entrants. No dominant players) 2. Growth (Many competitors. healthy profits. some acquisition of small companies) 3. Differentiation (intense product differentiation) 4. Shakeout (dominant firms emerge as weaker firms leave) 5. Maturity (Market is becoming saturated. Prices begin to fall) 6. Decline (Falling demand. products being dropped)
learning milestones (three)
1. Use a minimum viable product (MVP) to establish real company data 2. Tune ups towards the ideal 3. Pivot or persevere
3 stages of development
1. economy specializes in production of agricultural products and small scale-manufacturing (Entrepreneurial) 2. Economy shifts from small-scale production towards manufacturing (decrease entrepreneurship) 3. With increasing wealth the economy shifts away from manufacturing toward services (service based)
two reasons to study the industry
1. represents the business's external environment 2. Need to understand whether you can make a profit in the industry and if it is significant to make the effort to start the business
What % of firms of partnerships
10%
What % of high-tech founders have a phd
10%
costs to apply for a patent
10-40k
Average amount of money to start a business
15-20k
when did management become a discipline
1920s
What % of founders have an associates degree
2%
length of patents
20 years from date of filing (15-16 years of actual protection)
What % of women are CEOs
24%
What % of business owners are immigrants
25%
What % more-likely are immigrants to start a business than native born people
30%
What % of founders have a master's degree
30%
What % of VC backed firms were started by immigrants
30-40%
What % of CA business owners are immigrants
33%
What % of companies survive more than 10 years
33%
What % of founders have a degree in finance, accounting, or business
34%
Average combined American and federal tax rate
39.5%
What % of Founders have an JD
4%
What % of Founders have an MD
4%
What % of founders have a bachelor's degree
44%
What % of Founders have a STEM degree
47%
What % of companies survive more than 5 years
50%
What % of companies with employees survive at least 5 years
50%
What % of Founders have a high school diploma or less
6%
What % of family-owned businesses have women in top leadership positions
60%
What % of entrepreneurs take on personal debt
65%
What % of companies with employees survive at least 2 years
67%
What % of Ideas for a business come from a recent job
70-90%
What % of firms have 0 employees
78%
What % of companies have 0 employees
80%
Joseph Schumpeter said, "Competition disciplines before it attacks." What did he mean by this? A. Schumpeter meant that the awareness of competition creates an incentive for company owners to provide the best products and services possible. B. Schumpeter meant that monopolies and oligopolies provide better products precisely because they do not have to contend with competition. C. Schumpeter meant that a wise company owner can foresee and avoid competition. D. Schumpeter meant that the large amount of companies which fail prove the destructiveness of competition.
A
Which of the following were among the reasons offered in the film, "Poverty, Inc." to explain why people remain poor in underdeveloped nations? (Choose all that apply, but remember that incorrect answers will result in point deductions.) A. The legal systems are complex, bureaucratic and difficult for people without money or political connections to navigate. B. Global NGOs are corrupt and mismanaged. C. Well-intentioned aid programs flood the market with cheap or free goods, creating dependence and undermining the ability of local businesses to succeed. D. The poor are disconnected from global trade. E. The poor are ignorant and unable to help themselves.
A C D
Which of the following are among the practices of design thinking? A. Observation B. Elaborate prototyping for early feedback C. Customer engagement in the design process D. Small teams with singular, concentrated expertise E. Hypotheses and experimentation F. Expert-centric thinking
A C E
Zoom out pivot
A single is insufficient to support a whole product. What was considered the whole product become a single feature of a much larger product
Startup Runway
A startups runway is the number of pivots it can still make; How much time you have to use the cash
Effectual reasoning is based upon the logic that says: A. "To the extent we can control the future, we don't need to predict it." B. "To the extent we can control the future, we can predict it." C. "To the extent we can predict the future, we don't need to control it." D. "To the extent we can predict the future, we can control it."
A. "To the extent we can control the future, we don't need to predict it."
Eric Ries states that the two most important hypotheses that entrepreneurs make are:
A. The value hypothesis and the growth hypothesis
Which of the following were among the contributions that family businesses have made to the U.S. economy, according to data presented in class earlier in the semester? (Choose all that apply) A. Family businesses are more likely to have a company code of ethics, and to have communicated it to all employees. B. Family businesses are more likely to obtain venture capital investment. C. Family businesses are more likely to pay above-market wages. D. Family businesses survive longer than businesses that are not family-owned or controlled. E. Family businesses are more likely to promote women to positions of leadership within the company. F. Family businesses are more likely to pursue disruptive innovations. G. Family businesses account for more than 50% of all wages paid in the United States. H. Family businesses are less likely to lay off employees, even during difficult economic times.
A. Family businesses are more likely to have a company code of ethics, and to have communicated it to all employees. E Family businesses are more likely to promote women to positions of leadership within the company. G. Family businesses account for more than 50% of all wages paid in the United States
Please match the following terms and definitions that Professor Sarasvathy uses when explaining effectual decision making. A. The "affordable loss" principle B. The "lemonade" principle C. The "crazy quilt" principle 1 Leveraging contingencies 2 Creation and utilization of strategic partnerships 3 The decision to focus on obtaining information rather than maximization of profit
A3 B1 C2
What are the Three A's
Actionable Accessible Auditable
Three A's of Hypothesis
Actionable (demonstrate clear cause and effect) Accessible (make the data fairly simple to analyze) Auditable (the data is credible to employee)
Votizen
After all your A/B test and growth metrics Pivot
Which of the following statements accurately reflect how we have used the term "prototype" in our readings and in class discussions? (Choose all that apply, but remember that incorrect answers will result in point deductions.) A. Any time spent improving your prototype without knowing what your customer wants is wasted effort. B. The primary purpose of a prototype is to obtain feedback. C. Prototypes can be a good way of seeing how early adopters interact with your product. D. A prototype should be the best version of the product or service possible. E. Prototypes are useful tools for validated learning.
All except D
Porter's Five Forces
Also known as Industry and Competitive Analysis. A framework considering the interplay between (1) the intensity of rivalry among existing competitors, (2) the threat of new entrants, (3) the threat of substitute goods or services, (4) the bargaining power of buyers, and (5) the bargaining power of suppliers.
What does every business model start with?
An idea
genericide
Aspirin losing trademakr status zipper losing status escalator thermos
Choose all that apply. Which of the following are among the explanations Zoltan Acs offers for why entrepreneurial behavior increases in the "third phase" of economic development? A. Better educated and more sophisticated citizens tend to demand higher wages. B. Service firms tend to be smaller than manufacturing firms. C. The business services sector of the economy increases relative to manufacturing. D. The amount of manufacturing decreases as a share of the economy. E. There are more innovations in and adoption of information technology.
B C D E
Tim Brown credits Thomas Edison with having popularized the idea of: (Choose all that apply, but remember that incorrect answers will result in point deductions.) A. "design thinking" B. a "team-based approach to innovation" C. the genius "lone inventor" D. the modern "R & D laboratory"
B D
Which of the following statements are true of firms in the United States, according to U.S. Census and other sources of data we've examined this semester? (Choose all that apply, but remember that incorrect answers will result in point deductions) A. Of the firms that have salaried employees, most have gross income of more than $500,000/year. B. Most corporations are family-owned or family-controlled. C. Most new jobs come from companies that are backed by venture capital D. The vast majority of firms do not have salaried employees. E. The vast majority of firms have fewer than 20 employees. F. Most new jobs come from firms with fewer than 20 employees. G. Family businesses have more females in top leadership positions than other businesses.
B, D, E, F, G
Causal reasoning is based upon the logic which says: A. "To the extent we can control the future, we can predict it." B. "To the extent we can predict the future, we can control it." C. "To the extent we can control the future, we do not need to create it." D. "To the extent we can predict the future, we can create it."
B. "To the extent we can predict the future, we can control it."
Which of the following were among the data points Peter Drucker points to as proof that the United States added more jobs than it lost during the years 1965 - 1985? (Choose all that apply) A. Union membership was increasing during that time. B. Veterans of World War II were entering the work force in large numbers during that time. C. The "Women's Liberation" movement meant that women were entering the work force in large numbers during that time. D. "Baby Boomers" were graduating from college and entering the work force in large numbers during that time.
C, D
Which of the following assertions does Joseph Schumpeter make in the assigned excerpt from Capitalism, Socialism and Democracy [choose all that apply]? A. The primary basis for consumer selection among available products is price. B. Capitalism is capable of evolving toward a state of relative balance, or equilibrium. C. Innovation can come in the form of new methods of production. D. "Top-down" economic decision-making results in more efficient allocation of resources. E. Competition is a "disciplining" factor in the marketplace.
C, E
What are some of the trends Peter Drucker warns of, in the mid-1980s, which could derail the economic progress created by the birth of millions of small companies? I. Inflation II. The nuclear arms race III. The growing welfare state IV. The deficit V. The collapse of rapidly growing economies in developing nations A. All of the above B. I, III, IV and V, but not II C. I, II and IV, but not III or V
C. I, II and IV, but not III or V
What LPs do
Can advise, but cannot be involved in day to day roles
Platform Pivot
Change from an application to a platform or vice versa; solve same problem in a different manner
Channel Pivot
Change in distribution channel. Realization the same basic solution could be delivered through with greater effectiveness
Value Capture Pivot
Change in the way a company captures value can affect the business, the product, and marketing strategies; Monetization or revenue models. Capturing value is an intrinsic part of the product hypothesis.
The ongoing process of innovation, new product, new business, and new industry creation which often makes its predecessors obsolete.
Creative Destruction
Both Professor Zoltan Acs and the film "Poverty, Inc." strongly suggest that for economic development to occur, even more important than the conditions for business creation are the conditions for: emergency aid B. international adoption C. free migration of people D. business growth
D
Saras Sarasvathy defines what she calls the "bird-in-hand" principle as: A. Setting flexible goals B. Timely transitioning from "effectual" to "causal" decision-making C. Approaching potential start-up team members with different skill sets D. Working with available resources
D
What does Peter Drucker identify as the "new technology" that all of the high growth companies of the late 1970s and early 1980s had?
D. Entrepreneurial management
Even though he states that an MVP shouldn't be the best possible product, Eric Ries still insists that startup founders use their MVPs to test their riskiest assumptions first.
True
IDEO co-founder Tom Kelley says that "design thinking" sometimes means not listening to customers.
True
In the U.S., about half of new businesses fail within the first few years of launching.
True
Most innovations tend to be sustaining or incremental improvements to existing products and services, rather than disruptive, or radical, changes.
True
Professor Acs states that for an underdeveloped nation to move into the second phase of economic growth, entrepreneurial behavior - meaning the creation of firms - should decrease.
True
T/F: Perfect competition does not exist
True
TF: Most firms hire between 0-20 employees
True
TF: Most wages are paid by family owned companies
True
Zoltan Acs and his research partner Atilla Varga found that necessity entrepreneurship did not contribute meaningfully to economic development.
True
What law governs partnerships
Uniform Partnership Act, follows Uniform law and is not used in Louisiana
The essential unit of progress for startups, according to Eric Ries
Validated Learning
The benefit the customer derives from the product or service you are offering
Value Proposition
What is a partnership
Voluntary contract between 2 or more people who agree to devote certain funds, labor, skills to a business with the understanding that profits and losses will be shared two or more persons engaged in a joint venture for profit
Zoom in pivot
What was previously considered a single feature in a product becomes the whole product
analog
current good that proves your leap of faith (walkmans proved IPod demand)
market
defined by customers, those that pay for benefits of the product or service
lean thinking
defines value as providing benefit to the customer, anything else is waste
value hypothesis
determining whether the model brings value, is it the right product or service
Split tests
different versions of a product are offered to customers at the same time
requirements of s corps
domestic up to 100 shareholders taxed like a partnership retains limited liability
Factor-Driven Economy
economies that rely on unskilled labor and the extraction of natural resources for growth
Professor Sarasvathy explains that causal logic is BLANK-dependent, while effectual logic is BLANK-dependent.
effect, people
Only a minority of startups are valued over $1b
false
How is a corporation formed?
filing articles of incorporation with secretary of state
bug lists
great innovators notice things that annoy them or that can be made better - they keep a "bug list" of things that bug them and look for better alternatives
Efficiency-driven economies
growing economies in need of improving their production processes and quality of goods produced
what type of hypothesis is innovation accounting
growth hypothesis
Necessity Entrepreneurship
having to become an entrepreneur because you have no better option
what can you not patent?
ideas, abstract principles, compositions of matter, math formulas, living things you created
trademarks
identifies source of a mark/good/service (company name, logo, slogan, product names); (shapes, colors, sounds); registered with USPTO duration is in perpetuity ("genericide") brand identity = goodwill
Disruptive innovations (technologies)
innovations that result in worse product performance (at least near-term); precipitated the leading firms failure
Customer Segment Pivot
keeping the functionality of the product the same but changing the audience focus; Company realizes that the product it is building solves a real problem for real customers but they're not the type of customers it originally planned to serve
Cohort analysis
looking at the performance of each group of customers that comes into contact with the product independently
MVP's
minimum viable product, begins process of learning, test fundamental business hypotheses; Common outcome of concierge MVPs is to invalidate a companies growth model (types)
relationship between necessity entrepreneurship and economic development
negative in low-income countries, while relationship between entrepreneurship and economic development in high-income countries is most likely positive
customer need pivot
new product, same customer
are trademarks and copyrights common knowledge
no
do LLCs have personal liability
no
do partnerships pay income tax
no
NAICS
north american industry classification system
trademarks and copyrights
not public knowledge
where do trademarks protect you
only in states where you are using the trademark Lasts perpetuity
What is the maximum amount an LP can lose
original investment. assets are not liable so long as they remain passive
Sole Proprietorship
owner managed dies with owner sell entire company personally liable single taxation
corporation
owners don't manage perpetual existence shares easily sold limited liability double taxation
Partnership
owners manage dissolves easily difficult to sell interests personally liable single taxation
Limited Liability Company
owners or managers perpetual existence shares alienable (not easily) limited liability single taxation
What are limited partners considered
passive investors
"left-handed" consumers
people who are very different from you.
Fuzzy front end
period of time prior to launch and startup; name comes because everything is confusing/nothing is predictable
Ratio
ratio of opportunity-to-necessity entrepreneurship should be a useful indicator of economic development, and can be a guide for development policy; as more and more of the population becomes involved in opportunity entrepreneurship and as more and more people leave necessity entrepreneurship (self employment), the more we see rising levels of economic development
Keystoning
retailer at least doubles its cost in setting the price to the consumer
Most common source of money to start a business
savings & loans
what can you trademark
shapes, colors, sounds
are trade secrets state or federal law
state law
Optimization versus learning
the company can be executing a plan that does not make sense with due diligence (doesn't mean they are bad at their jobs they are just working in the wrong direction)
primary market
the customers or markets that have the most need for the product offered
suicide quadrant
the introduction of new products in new markets; an area where traditional marketing techniques are ineffective
Innovation-driven economies
the most advanced economies, where businesses compete based on innovation and entrepreneurship
sustaining innovations (technologies)
they improve the performance of established products, along dimensions of performance that mainstream customers in major markets have historically valued; rarerly even the most radical changes precipitated failure of leading firms
why would an LLC be taxed like a partnership?
to avoid double taxation
why would an LLC be taxed like a corporation
to reinvest profits back into business
Piercing the Corporate Veil
to rule that the shareholders are liable for company debt to creditors. Court may reach personal assets if owners perform any misconduct. Merely becoming insolvent or going out of business is not enough reason to pierce
vanity metrics
traditional numbers used to judge startups, they give the rosiest possible picture of performance (instead use accountable metrics)
liability for sole proprietorship
unlimited legal liability
what does TM mean
using in commerce, no federal protection
What does leveraging contingencies mean
using lemons to make lemonade
what is a patent
utility, design, plant NOT the right to do something, it is the power to exclude others from making, manufacturing, selling
Innovators should see products as BLANK rather than BLANK
verbs, nouns
Ethnography
way to explore the social culture of groups authentically
antilog
what drives you to address your business in a particular way (napster paved way for iTunes)
Growth hypothesis
what is the way to scale up
what is a copyright
when an idea is fixed in a tangible medium of expression registration is NOT authorship - a prerequisite for federal court
principles of disruptive innovation
when good companies fail, it is often because their management either ignored these principles of tried to fight them; b/c of "good" management
Principles of disruptive innovation
when good companies fail, it is often because their managers either ignored these principles or chose to fight them
concierge MVP
work hand in hand with customers so they enjoy the product as much as possible. very INEFFICIENT. outcome to to invalidate the companies proposed growth model
Can partners be held if liable if they did not do anything wrong
yes
are patents common knowledge
yes
What is modifiable in a partnership
Division of profits Division of losses Duration of Partnership
According to a study conducted by the Kauffman Foundation, the average age of first-time entrepreneurs in the fastest-growing businesses was: A. Nearly 50 B. Early 20s C. Mid -20s D. Early 40s E. Upper 30s
E
Industry Life cycle
Emerging Growth Differentiation Shakeout Maturity decline
What is not modifiable in a partnership
Equal rights in management of business Duty of care Duty of loyalty
Eric Ries maintains in his book The Lean Startup that "entrepreneurship" is not "management."
False
IDEO principals Tom Kelley, Tim Brown and Dennis Boyle all explained that "design thinking" is a way of developing and exploiting sudden breakthroughs.
False
Josef Schumpeter agreed with the other economists of his day that in an industrialized economy, the primary competitive advantage one producer has over another is price.
False
Peter Drucker explained that, contrary to the conventional wisdom at the time, America was actually adding jobs during the collapse of our manufacturing dominance in the 1970s, and that these were provided primarily by (then) largely unknown but promising high-tech companies.
False
Saras Sarasvathy described the "suicide quadrant" as that space where an entrepreneur is trying to launch a new product in an existing market with too much competition.
False
TF: Average self-employed person earns MORE than working for someone else
False
TF: Entrepreneurs work LESS HOURS than working for someone else
False
Tom Kelley writes in "The Art of Innovation" that great customer insight can be obtained from focus groups and market research.
False
Customer Hierarchy
Gatekeepers- hold the key to reaching particular customers, control flow of information Influencers- people who want to affect the purchase decision and whose approval is required before a decision to purchase is made Deciders- people who make final purchasing decision Purchasers- those who have the actual authority to buy a product Users- ultimate beneficiaries of the purchase
GEM
Global Entrepreneurship Monitor research program; annual assessment of the national level of entrepreneurial activity
Business Architecture Pivot
High margin, low volume (complex systems model) or low margin, high volume (volume operations model); First is associated more with B2B and latter is associated with consumer products
Burn Rate
How fast you are going through cash
lean startup case studies
IMVU Case Study: MVP led to low sales, assumed the product was at fault; they made many changes to the product but made no impact on customer behavior; used google ads to analyze customer behavior
migration of capabilities
In the start-up stages of a business, much of what gets done is attributable to its resources; institute processes and values into employees and company functions (establish a culture); every organizational change entails a change in resources, processes, or values or some combination
In his Harvard Business Review article, what names does Tim Brown give to the three steps of "design thinking" as they are practiced at IDEO?
Inspiration, Ideation, Implementation
What is a "business model"?
It is the structure of an organization That provides a good or service Provides value to a set of customers Profitably
According to historical research, what percent of startups receive venture capital? Less than 5% Between 5% and 6% Less than 10% ~12%
Less than 5%
Synonym of value proposition
Market Pain
A very small number of startups in the U.S. ever receive venture capital, but between 30 - 40% of those that do are started by immigrants.
True
Is a written partnership agreement required?
No
LLC
Owners manage Perpetual Existence Limited Liability Single Taxation MOST STARTUPS ARE LLCs
design patents
PURELY ORNAMENTAL, 15-16 years of actual patent protection
UPA Defaults
Partnership will dissolve if any partner leaves or dies (can be modified in agreement) will always dissolve if only one partner left
How do taxes work in partnerships?
Pass through taxation persons pay income taxes based on individual income tax rate
Four stages in the creative process
Preparation - looking at a problem from a variety of perspectives Incubation - letting the problem lie in the subconscious for a period of time Illumination - discovery of solution Verification - bringing the idea to an outcome
What provides the most up to date information on an industry
Primary field data
What is harder to change: resources or processes?
Processes because they have worked for years
RPV
Resources (people, equipment, technology, product designs, brands, information, cash, relationships, etc) Processes (transformation of resources into products and services of greater worth), Values (standards by which employees make prioritizations decisions)
customer segment pivot
Same product, new customer
Technology Pivot
Same solution by using completely different technology. More likely to be for sustaining innovation. Established companies excel at this.
Kondratieff cycle
Stagnation occurs in economy 50 years after a new technology innovation is made, which leads to 20 years of slow growth
Customer Need Pivot
The problem we are trying to solve for the customer is not very important. However, because of customer intimacy we notice other needs that can be solved. Could be repositioning current products or brand new products.
Metcalfe's Law
The value of network as a whole is proportional to the square of the number of participants; the more people the more valuable
Engine Growth Pivot
Three types of engines of growth: viral, sticky, and paid growth models; Change its growth strategy to seek faster or more profitable growth. Usually also required change in how value is captured
Can 2 corporations form a partnership
Yes. They are fictitious persons
industry
a grouping of businesses that interact in a common environment as part of a value chain or distribution channel that delivers a particular good
Validated learning
a rigorous method of demonstrating progress when one is embedded in the soil of extreme uncertainty in which startups grow; Process of demonstrating empirically that a team has discovered valuable truths about a startups present and future business prospects
Innovation accounting
accounting geared towards disruptive innovation, allows startups to objectively prove they are learning how to grow a sustainable business helps separate good from bad growth (Success theater - using appearance of growth to make it seem that they are successful)
Choose all that apply. The term "proof of concept," as we use it in class, refers to: A. Technological feasibility B. The existence of a functional prototype C. A business model that demonstrates potential for growth
all of the above
Benefit Corporation
amendment to existing state business corporation act explicitly allows management to make decisions to benefit society into articles of incorporation
Opportunity Entrepreneurship
an active choice to start a new enterprise based on the perception that an unexploited or underexploited business opportunity exists; has a positive and significant effect on economic development
copyright
an idea that is fixed in a tangible medium of expression; anything textual, musical, artistic, sculptural; Life + 70 (individual-author) 120 years (corporate author)
patents
are public knowledge; power to exclude others from making, manufacturing, selling; 20 years from date of filing (15-16 years of actual patent protection), application costs $10,000-$40,000
Effectual reasoning
begins with a given set of means and allows goals to emerge contingently over time from the varied imagination and diverse aspirations of the founders and the people they interact with (explorers)
Causal reasoning
begins with a predetermined goal and a given set of means, and seeks to identify the optimal―fastest, cheapest, most efficient, and so on―alternative to achieve the given goal. (Conquerors)
cross-pollinate
borrow ideas from one area for use in another.
assumptions about capitalism and growth
capitalism means dealing with an evolutionary process; method of economic change and not only never is but never can be stationary capitalism is the process of creative destruction (according to Schumpeter)
Is creative destruction about equilibrium or change
change