MHR 322 Exam 2 Quizzes

A debt investor is generally willing to take a risk on an early-stage startup company if the company's innovation or technology appears to have good long-term potential. T/F

False

A good starting point for figuring out COCA (cost of customer acquisition) is to figure out how long it will take one salesperson to sell product to one customer. The proportion of the salesperson's annual salary required to make the sale is the COCA. T/F

False

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

False

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

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. T/F

False

Once you have identified your beachhead market, you should identify 10-12 adjacent markets and calculate TAM for each. T/F

False

The Lean Startup Approach is based on having a detailed, long-term business plan in place before talking to potential customers. T/F

False

The persona for your product is also the primary economic buyer. T/F

False

Venture capital firms are generally investing their own money T/F

False

When identifying key assumptions about your venture, two key areas to consider are team formation and the decision-making unit. T/F

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. T/F

False

In the video on "Debunking the Myths of Entrepreneurship," Eric Ries argues that what distinguishes successful ventures is: a. mostly a matter of luck. b. having the right idea at the right time and the right team to implement it. c. having enough capital to survive at least one bad product launch. d. pivoting from bad ideas to opportunities that have good product-market fit.

d

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. T/F

True

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

a

According to the Art of Startups by Bhide, bootstrapping a venture is a good idea because: a. It helps the company grow as fast as possible. b. It ensures that the company never runs out of cash. c. It reveals hidden problems and forces the company to solve them. d. It avoids giving away ownership to investors who don't have the company's best interests in mind.

c

All of the following are conditions for a Minimum Viable Business Product EXCEPT: a. The customer pays for the product b. The product is sufficient to start the customer feedback loop c. The product generates profit for the venture d. The customer gets value out of the product

c

Cost of Customer Acquisition (CoCA), also known as Customer Acquisition Cost (CAC), is best defined as: a. The total profit generated by a customer. b. The total cost to acquire and keep a customer for a given period of time. c. The total sales and marketing cost required to earn a new customer. d. How much a customer is willing to pay in order to acquire the products or services you sell.

c

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: a. the company is led by a team of experienced executives. b. the company has an extremely exciting and/or disruptive technology c. the company has had stable cash flow for a while and conservative expectations. d. the company expects to grow extremely quickly

c

If your company is successful, which of the following is the most likely financial exit that generates returns for external investors? a. Chapter 11 bankruptcy filing b. Sale of the company to the venture capital firm c. Sale of the company to another business d. Initial Public Offering (IPO)

c

In her talk on why business models matter, Ann Miura-ko of Floodgate Ventures says that the business model helps show whether: a. Customers will actually buy the product that the company wants to sell b. It is possible to generate a software model for how the business will actually run. c. The combination of elements leads to "dollars in" being greater than "dollars out" or not. d. The venture's technology actually works the way the entrepreneur believes

c

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

c

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

c

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

c

The two main types of external funding for ventures are: a. Equity and grants b. Cash and checks c. Debt and equity d. Debt and grants

c

Mapping the process to acquire a paying customer(Step 13) usually requires all of the following steps EXCEPT: a. Identifying which members of the decision-making unit you will need to access b. Estimating how long it will take to generate a lead for a potential customer c. Estimating the time and effort required to make the actual sale d. Estimating the per unit cost of acquiring a new customer

d

Which business model sells product at a very low margin but incorporates high-margin add-on products? a. Consumables b. Transaction fee c. One-time upfront charge plus maintenance d. Upsell with high-margin products

d

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

d

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? a. $6 b. 5 shirts c. 3.33 shirts d. 10 shirts

d

Calculating cost of customer acquisition also includes the cost of trying to sell to customers who ultimately choose not to buy the product or service. T/F

True

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

True

Equity investors in early stage companies might expect return rates as high as 50%-60% per year T/F

True

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

True

In Connie Chan's talk, "When Advertising Isn't Enough", she states that one of the key differences is that the large US consumer internet companies typically have only one main revenue stream while those in China have multiple large revenue streams. T/F

True

In the Lean Startup methodology, building a sustainable business is the outcome of a series of evolving product experiments. True/False

True

MVP stands for Minimum Viable Product. T/F

True

The best way to figure out the decision-making unit is to talk to your potential customers. T/F

True

The cost of customer acquisition (COCA) analysis begins with mapping the process to acquire a paying customer. T/F

True

All of the following are key factors when designing a business model EXCEPT: a. The strategy or core you will implement b. How much value your product provides to customers c. What the customer will be willing to do d. What your competition is doing e. The incentives for your distribution channel

a

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

a

The concept of using customer cash to finance your start-up relies on: a. receiving cash from customers before having to spend money for to generate the product or service to be sold. b. generating the product or service to be sold before receiving cash from customers. c. matching your working capital requirements to the cash conversion cycle. d. getting customers to invest in your business by purchasing stock or giving you a loan.

a

When testing assumptions, even if "the dogs eat the dog food" you will still have to show that: a. Someone will actually pay for the dog food. b. You can produce the dog food at an affordable price. c. The dog food is safe to eat. d. The LTV (lifetime value) is lower than the COCA (cost of customer acquisition).

a

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

a

Which of the following would be the best way to test assumptions about a potential new restaurant in downtown Madison? a. 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. b. Invest $25,000 to set up a food cart next to Grainger Hall. c. Conduct an extensive online survey of Madison residents to understand their preferences for eating at restaurants d. Get a bank loan to open the restaurant on State Street

a

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

a

You should be able to identify likely price points that would work for your customers by: a. combining the information you have about your customer's budget process and purchasing authority. b. combining the information you have about the end-user and your distribution channels. c. combining the information you have about total addressable market and the top priority of your persona. d. combining the information you have about competitors and long-term market trends.

a

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

b

According to the Art of Startups by Bhide, offering high-value products and services is a good idea because it: a. requires less effort than a sophisticated social media marketing campaign. b. generates enough profit for the firm to use direct selling, rather than rely on indirect marketing or general advertising. c. focuses the company on research and development for the long term. d. demonstrates to venture capital firms that the company is more technologically advanced than competitors.

b

If your MVBP (minimum viable business product) appears to be successful, then the next step is to: a. Expand sales of the MVBP to as many additional market segments as possible. b. Develop a Product Plan that identifies which features should be added to the next iteration of your product and targeted at the next market segment. c. Reduce COCA (cost of customer acquisition) to ensure that the MVBP becomes the dominant product in the market segment. d. Focus on dominating the current target market with the MVBP until your venture achieves profitability.

b

Lifetime value is important because it tells you: a. How much your life is worth as an entrepreneur, which tells you whether to get a real job or not b. How much total profit (value) you can expect from a particular customer, which tells you how much you can spend to acquire that customer c. The value of a product over its useful lifetime, which tells you how long to wait before generating a new product

b

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? a. $50 b. $40 c. $1200 d. $24

b

Which part of the Business Model Canvas describes the different groups of people or organizations an enterprise aims to reach and serve? a. Markets b. Customer segments c. Key resources d. Channels

b

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? a. Angel investment b. Bank loan c. Venture capital d. IPO

b

According to "The Art of Startups," the biggest challenge for the majority of would-be entrepreneurs is: a. Raising enough capital to launch the business b. Finding exactly the right co-founder c. Having the wits and "hustle" to start and grow the business without external capital d. Figuring out what artwork to put on the walls

c?

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

d

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 a. $2500 b. $5000 c. $200 d. $100

d

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

d

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 a. $15,000 b. $12,500 c. It can't be determined from the information provided d. $10,000

d

In the video "Principles of Lean," Steve Blank argues that a business plan is good for: a. Any company, including startups b. Serving as a paperweight; no one should use them c. Startups that are facing especially high risks or uncertain markets d. Established companies with successful products that are developing new products

d

In the video "To Raise Money or Not Part 2, the speaker explains that a key reason they chose to raise venture capital was: a. bringing the VC on board meant that the founders had significantly reduced work loads because the VC supported a lot of the operational activities. b. bringing the VC on early meant that they would never have to raise capital again. c. they needed an enormous amount of money that they just couldn't raise any other way d. having the VC as an investor added credibility to their sales pitch to the companies they were targeting as customers.

d

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

technology