Mgmt160
What is a partnership?
The voluntary association of 2 or more people as co-owners of a business for profit
What is "intellectual property?
Those rights, which result from the physical manifestation of original thought, either naturally or in compliance with statute
What is a sole proprietorship?
A person undertakes a business without the formalities associated with other forms of organization; the individual and business are seen as one for both tax and legal liability purposes
The following table was in the reading. Initially, the founding team own80% of the equity, but by the end of two rounds of financing, the team only own 51%. Are the founders better off after the two round of fundraising? Why or why not?
****Look at Post-money column for price of company****** Yes. Initially they only own 80% of a $1.25M company, which is ~$1M. After two round of financing, even though they own a smaller portion, the company is valued higher. After fundraising, the own 51% of a $20M company, so around $10M. This is much better!
The article discusses 5 benefits of crowdfunding for startups. Please list 3 of them
1. Validates the business idea 2. refines the product or service with consumers by listening to their feedback, likes, and dislikes 3. Paints an accurate picture of how the product or service will do before it officially reaches the market 4. Alleviates capital crunch 5. Marketing such as promoting the product or a direct sales channel by providing backers with the finished product and ensuring penetration and growth
The article discusses the purpose of strategy is to create "competitive advantage". What is competitive advantage?
A large gap that is created between what a customer is willing to spend and the cost incurred
What is convertible preferred stock? How does it differ from common stock?
A type of stock that can either be redeemed at face value of the investment (plus accumulated dividends) or converted to common stock for a pre-negotiated share of the company
What is a venture capitalist? How does a venture capitalist differ from an angel investor?
A venture capitalist is a professional investor who raises money from limited partners to invest in new ventures. Angel investors use their own money, not others'. Also, angel investors don't have a limit on the length of time a fund can exist like VC's do.
The article discusses that the process of formulating a business plan serves several important functions for an early-stage venture. Name 3 of the 5 mentioned in the article
An opportunity to test ideas and determine if viable business opportunities exist The foundation for debating and analyzing key assumptions, developing financial forecasts and designing early experiments A baseline for achieving aspirational milestones by entrepreneurs as they develop minimal viable products and services for an emerging market
The "Dual Aspect" explains that every transaction affects at least two items in the basic accounting equation and preserves the equation's equality. What is the fundamental accounting equation
Assets = liabilities + shareholders' equity
What are the 3 core financial statements? Briefly define the purpose of each statement. Indicate if it is for a point in time or a period of time
Balance sheet = shows the financial position of a company at a point in time, which includes what it owns and owes -> point in time Income Statement = shows a company's productivity over a period of time and if the operations lead to gains or losses in profit -> period of time Statement of cash flows = shows a company's movement of cash between periods of operational, investment, or financing activities -> period of time
The article discusses "Porter's Forces that Shape Industry Competition". As discussed in the article, what are the six forces? Sketch a simple diagram showing the six forces. In a sentence, define and describe each force
Center: profitability (industry competitors) Branching off of center: Threat of new entrants = when new entrant enter an industry, it can reduce profitability by increasing competition Bargaining power of suppliers = suppliers can charge what they want for unique products Bargaining power of buyers = buyers can choose not to give their business to companies, which might make companies switch vendors Threat of substitutes = If other products are similar, they can halt the ceiling of price increases Intensity of rivalries = new rivals can lead to price wars, which decreases the profit pool Opportunity of complements = complements are goods that go along with other goods, so customers need/buy both
In addition to "strategic Orientation", there were five additional critical dimensions of business practice as defined by Stevenson. List the five additional dimensions
Commitment to opportunity Resource commitment process Concept of control of resources Concept of management structure Reward philosophy/compensation practices
The article provides simple equations for "Current Investors' Ownership" and "Previous Investors' Ownership". List the two equations
Current investors' ownership = investment amount / post-money valuation Previous investors' ownership = pre-money amount / post-money valuation
As discussed in the article, what are some of the primary differences between "debt" and "equity" fundraising? How are the motivations of debt and equity financiers different? Give an example of a debt investor and an example of an equity investor as discussed in the reading
Debt investors have a limited upside. Debt fundraising is when the investors just get back their original loan with interest. Equity investors have a tremendous upside potential. They get a stake in the venture. Debt financiers look for predictable, steady cash flows before investing, while equity financiers go after riskier uncertain businesses since they can actually profit off of them. A debt investor would rather loan $10,000 to a venture with a guaranteed $15,000 return than one with a 10% chance of a $500,000 return and a 90% chance of failure, because they will only make back $11,000 (loan + 10% interest) regardless, so they go with the less risky option. Equity investors would do the opposite and go with the one with the larger potential return.
The article discusses a "three-dimensional business landscape". What point is the author trying to make using it, i.e. what does the three-dimensional business landscape represent and why are they talking about it?
Depicts the choices a business makes and shows how choices can increase or decrease profitability. It can be used to respond to forces in the industry Represent the continuum of positions of strategy in an industry. It pictures the tradeoffs on two axes and the profitability of the third. It is a tool to help a firm find a profitable position in an industry Conceptualizes how firms respond to structural forces and is used to determine where and how firms choose to engage in the environment
The article discusses 3 types of crowdfunding. What are they and briefly define each in a sentence or two
Donation crowdfunding = the founder raises money without having a tangible return for their supporters Lending crowdfunding = the company raises money with the expectation that they will repay their supporters Equity crowdfunding = a venture raises money in exchange for an ownership stake in the company
Professor Stevenson discusses two historical definitions of entrepreneurship which he argues are both flawed. What were the two "Schools of Thought" on the way to define entrepreneurship according to Stevenson? According to Stevenson, what is the major flaw to each of the two?
Economic Function: Roles of entrepreneurs in the economy --entails bearing the risk of buying at certain prices and selling at uncertain prices. Also includes innovation; Major flaw: doesn't make sense to decide what economic functions are "entrepreneurial" Individual Traits: Personal characteristics of entrepreneurs; however, single psychological profile of entrepreneurs doesn't exist
In the figure above, according to the book, why is the "step" 4 necessary? That is, to some, it initially may seem redundant to step 2, but it isn't. Explain
Even though the most critical hypotheses are prioritized first, the quick and cheap tests should be performed first when there are still a lot of unknowns. Once more is know, more intricate expensive tests can be run
The article discusses an 11-slide investor pitch. Name 4 of the slides or describe the contents of four of the slides
Executive summary Market positioning, problem description Product positioning Business network positioning Competition or substitutes Customer benefits Operations Financials Risks Implementation, status and traction, financing venture Closing slide (the ask)
The VPC text describes the "testing Process". The following figure was discussed in class. For example, the exclamation point (!) stands for "make progress". Label each of the remaining 6 images below to indicate the steps in the testing process
Extract hypotheses (business model canvass) Prioritize hypotheses (arrows with + and -) Design tests (card with separate cards) Prioritize tests (arrows with + and - with fewer boxes) Run tests (circular arrow motion) Capture learning (card)
The book describes "five data traps to avoid". Name THREE data traps and describe each in a sentence or two
False-positive = see something in data set that isn't actually there False-negative = miss something that actually is in the data set Wrong data = looking in the wrong place (e.g. wrong customer segment) for data Local maximum = thinking "this is it" and deciding one method is the best without testing alternatives Exhausted maximum = believing an opportunity is larger than it actually is
True/False in the article, Prof. Stevenson argues that entrepreneurship can only be practiced by startups and not well-established firms. In a few sentences, describes Prof. Stevenson's reasoning to justify his position
False. Entrepreneurship is more of a mindset had by people that can be used to boost any company. Without the boundaries of resources, more creative and successful ideas can be brought about by entrepreneurs
What is the typical length of time for financial forecasts included int he business plan? Are there any reasons why these may be shorted or longer?
Financial forecasts are projected over 3-5 years. This time may increase if ventures need long-term investments prior to positive capital gain. Ex: tech companies need investments ~10 years before getting positive cash flow
The text discusses "pricing mechanisms" when discussing revenue streams. What are the two types of pricing mechanisms discusses in the text? Describe each in a sentence or two and cite an example for each
Fixed menu pricing: buying price is fixed for all customers, static variables. Products like a water bottle Dynamic pricing: buying price is based on varying market conditions. Airline seats
When describing "customer jobs", the text distinguishes between three main types of customer jobs to be done and supporting jobs. List the three types of customer jobs to be done and briefly describe in a sentence
Functional: customers are trying to complete a task or solve a problem Social: customers want to look good to gain power or status Personal: customers seek an emotional state, feeling good or secure
The article discusses 12 basic accounting concepts and assumptions that anyone interest in financial statement need to understand. Excluding the "dual aspect", list four of the other 11 and describe in a sentence or two. If you forgot the answer to question 1, you can list two additional concepts
Going concern = unless stated otherwise, the assumption that a company will continue operating into the foreseeable future Historical cost = non-monetary or monetary assets are ordinarily initially valued at acquisition price Accounting period = the period of time in which accounting activities are performed for Consistency = transactions are handled the same way every time Business entity = separate and distinct from the owners Monetary unit = only those things that can be expressed in money are included in the accounting records Dual aspect = every transaction affects at least two items in the basic accounting equation Materiality = accounting applies only to material items
Who are angel investors? Give some characteristics and discuss their motivations etc.
Individuals or groups of individuals who use their own money to invest in startups. They are usually previous entrepreneurs who successfully exited and have a lot of wealth and who want to relive the excitement of their past through new, budding entrepreneurs. They are less structured than VCs and offer small sums of money, guidance, and experience
The VPC text discusses that value propositions in B2B transactions typically involve several stakeholders in the search, evaluation, purchase and use of a product or service. Each one has a different profile and a different value proposition canvas. Stakeholders can tilt the purchasing decision in one direction or another. List 4 of the 6 stakeholders given in the text. Describe each
Influencer: parties whose opinions count and whom decision makers listen to Recommenders: people carrying out search & evaluation process. They make formal recommendations for/against a purchase Economic buyers: controls budget & makes actual purchase Decision Makers: ultimately makes choice of product/service and orders purchase decision End users: ultimate beneficiaries of product/service Saboteurs: obstruct process of searching, evaluating and purchasing product/service
The book discusses that some business models work only with a combination of several value propositions and customer segments. Name one of the two common types of multiple fits discussed in the test, and describe in a few sentences. Cite an example of a company that needs the multiple fit that you discuss
Intermediary - business model fits with distributors and the end consumers. B2B and B2C. Selling appliances to box stores and end users Platform - multisided. Two customer segments, but one value propositions. Uber drivers and riders
As defined in the text, what is a "Call to Action"? How is a "call to action" used?
It prompts a subject to perform an action. It is used in experiments to test one or more hypotheses. The more involved an action is, the more interest a customer has
The "business model canvas" consists of nine basic building blocks. Sketch the canvas and label each of the nine blocks. For each labeled block, describe it in a sentence or two
Key partners: all of the suppliers and partners needed for a company's business model to work Key activities: things companies do so their business model works Key resources: the assets needed for a company's business model to work Value proposition: products or services from a company that provide value to a customer segment Customer relationships: the way a company interacts with its customers Channels: the ways companies reach customer segments with their value proposition Customer segments: a specific group of people an enterprise is trying to reach Cost structure: all cost incurred by a company's business model Revenue stream: the cash acquired from the product or service provided by a company
The three dimensional business landscape is closely related to a VPD data trap. Which one?
Local maximum - by exploring alternatives of strategic positions and other strategies, a firm can avoid settling on one position and declaring the best when a better alternative exists
What is crowdfunding?
Pooling resources from a group of people to invest in a new product or service. It encompasses outsourcing of an organized function to a strategically defined network of actors in the form of an open call
The article discusses a framework for startup crowdfunding. The framework breaks the startup stage into three phases: Pre-startup, startup, and growth. According to the article, what is the optimal type of crowdfunding for each stage?
Pre-startup: donation crowdfunding Startup: Lending crowdfunding Growth: Equity crowdfunding
List the three types of "fit" discussed in the text. Specifically, for each "fit", list the "name", the "slang" term used for each. Describe the key attributes of each fit in a sentence or two
Problem-solution fit (on paper) - you have evidence that customers have jobs, pains, and gains. You have a value proposition that addresses these jobs, pains, and gains Product-market fit (in the market) - your product/services, pain relievers, and gain creators are proven to create customer value; you have traction in the market Business model fit (in the bank) - your value proposition is embedded in a profitable and expandable business model
Define entrepreneurship according to Stevenson
Pursuing opportunities without regard for currently accessible resources
The article discusses the "Four Actions Framework". Describe the four forces and discuss how you can use the framework to develop a business strategy
Reduce = lowers or reduces factors below industry standards Create = creates new factors that don't yet exist in an industry Raise = raises factors above industry standards Eliminate = eliminates factors an industry takes for granted You can use this framework to re-evaluate old perceived truths. It can help access non-consumers and open up an uncontested market
When describing "customer gains", the text distinguishes between four main types of customer gains. List the four type of customers gains OR list two types and briefly describe each in a sentence or two
Required gains: These are gains without which a solution wouldn't work Expected gains: these are relatively basic gains that we expect from a solution, even if it could work without them Desired gains: these are gains that go beyond what we expect from a solution but would love to have if we could Unexpected gains: these are gains that go beyond customer expectations and desires
In addition to the "5 Forces Framework", the article discusses "Blue Ocean Strategy" and two other strategic frameworks and perspectives on strategy. What are they the other two? Briefly describe each in a sentence or two
Resource-based-view (RBV) = strategic decisions are made based on the resources available Emergent strategy = focuses on organizational learning, intuition, and adaption. Focuses on intentions, reality, both external and internal. Professor: the view that a successful strategy is less the product of deliberation and planning than of the collision of intention and reality, whether internal or external.
What is an "S (subchapter) corporation" and how does it differ from a "C (ordinary) corporation"?
S corp is a creature of the law that has the tax status of a partnership and teh protections from legal liabilities of corporations. C corps are taxed at both the corporate level and the personal income level when dividends are given to shareholders. S corps are not taxed at the corporate level, but shareholders are taxed individually. Also, S corp have a limit on the number of shareholders, while C corps don't, and VC's can't hold shares in S corps
According to the text, Steve Blank coined the term "Earlyvangelist". What is an Earlyvangelist? The book lists five traits of an Earlyvangelist. List 3 of the five traits
Someone who is able/willing to test out a new value proposition Has a problem or need Is aware of having a problem Is actively looking for a solution Has put together an interim solution from collected parts Has or can acquire a budget to purchase a solution
The text describes approximately 12 experiment types in the "experiment library". For example, the text describes "Ad tracking" as one type of experiment. Name 4 others and describe in a sentence
Speed boat - use analogy of a speed boat to see what customers see as risks or advantages in the value proposition Innovative games - play games with customers to determine what they want out of a value proposition Product box - gives customers a blank box to create their own desired value proposition Illustration, storyboards and scenarios - puts the customer in the front of a cheap version of the value proposition to see how they respond to it Ad tracking - google adwords and pair your ads with who's searching Unique link tracking - set up a special site and give it to customer. See if they visit
Sketch and label the "value proposition canvas" (the circle and the square). After labeling, provide a few sentences describing each of the label quadrants/pie sections
Square: gain creator- things a company can do to provide customers with the gains they are expecting pain reliever- what a company can do to lessen the pains or worries customers have services and products- what the company provides to customers Circle: gains- what customers are looking to get out of a product or service pains- anything that annoys your customers before, during and after trying to get a job done or simply prevents them from getting a job done jobs- things your customers are trying to get done in their work or personal life
What is a "strategy canvas"? How is a "strategy canvas" to be used? What does the horizontal axis represent on the strategy canvas? What does the vertical axis represent on the strategy canvas? What is the "line" connecting the dots on the strategy canvas called and what does it stand for?
Strategy canvas is a diagnostic and action framework for creating compelling blue ocean strategies. It is used to see what industries are currently investing in Horizontal = range of factors that an industry competes on and invests in Vertical = offering levels buyers receive from the different key competing factors The "line" is the value curve, which shows relative performance of a business within the industry's key competing factors
Define "strategy" as given in the article
The integrated set of choices that positions a business in its industry such that there are superior financial returns long term
The VPC text describes 6 techniques to gain customer insights. These techniques help you understand the customer's perspective when designing value propositions. Name four of the techniques and in a sentence describe each
The scientist - creates experiments to see what customers want The impersonator - steps into the customer's shoes to see how the value proposition is seen from their prospective The journalist - interviews consumers to see how they feel about the value proposition The data detective - looks at all of the data and information to see if the value proposition is being received well by consumers The anthropologist -observe potential customers in the real world to see how they behave The CoCreator - integrate customers into the process of value creation
The text discusses that a business model can involve two different types of revenue streams. What are the two types?
Transaction revenue Recurring revenue
What is an "up round" and a "down round"?
Up round is when the value of a venture increases between financing events. Down round is when the value of a venture decreases between financing events
Briefly describe the structure of a venture capital firm. For example, consider: where does the money come from, what legal form is used by a typical VC firm, who manages the firm, what are the characteristics of the typical fund.
VCs raise their financial capital from limited partners (LPs). The VC fund is managed by general partners (GPs), who screen and select ventures, monitor and aid portfolio companies, manage the liquidity events for successful companies, etc. GPs in return receive an annual management fee and a predefined share of the fund's profits. VC funds need to have a defined, limited life, often 1- years. They raise a series of funds that overlap, make investments during first phase (3-5 years), growth and harvest during second phase. Therefore, VCs typically invest in companies they think can create value in 5-7 years. VCs seek home run opportunities
The article discusses that "strategy is a firm's answer to two fundamental questions". What are the two questions?
Where to compete? How to compete?
The article discusses 3 key criteria which can be used to help choose a legal form of organization. Name 2 of the 3
Who are the investors and owners in the company? What is the time frame of the life of the company? What are the capital requirements and cash flow characteristics likely to be?
The article discusses that a good pitch should answer 3 "Why" questions. What are they and explain
Why this? -> what will this provide for consumers and stakeholders that support the venture? Why now? -> why will this thrive in the current market? Why this team? -> what does this team have that will be the best to push this product/service and make it succeed?
According to the article, has the prevalence of full-length business plans changes? If so, why and what has replaced them?
Yes. VC investors in the 1990s required formal written business plans. Now, they come in a variety of forms. Usually, well-put together pitches with supporting documents. Mini-plans and pitch decks have replaced them in order to increase the flow rate of information
In the article, Prof. Stevenson defines "Entrepreneurship as a ________ phenomenon".
behavioral
What does the term "bootstrapping" mean when referring to a startup?
building up a business and generating positive cash flow using personal funds and resources without relinquishing equity in the firm Using personal savings, small loans, credit cards and the retained business earning to build the business.
According to the article, what are a "business plan" and a "business pitch" and an "elevator pitch"?
business plan = a document that articulates a proposed venture's business model and provides specific additional detail on a planned or existing venture business pitch = a presentation that communicates the business model to investors, customers, partners, advisors, potential employees, and stakeholders elevator pitch = a typically verbal pitch that conveys the critical information about a venture to a busy listener
According to Osterwalder & Pigneur, what is the definition of a "business model"?
describes how an organization creates, delivers, and captures value
In the article, Prof. Stevenson discusses each critical dimension varying from the "_______________ domain" to the "________ domain" along the continuum.
entrepreneurial administrative
What does "LLC" stand for?
limited liability company
According to the article, what are the four common types of business plan? Briefly describe each and discuss if the plan type is for external stakeholders or internal stakeholders
mini-business plan = a summary of a new venture's strategy, go-to-market and operational plans and how those plans translate into financial forecasts. -> external stakeholders because used for financing and gaining support traditional-business plan = provides details on a venture's strategy, go-to-market, and operational plans and specific detail on how these plans translate into financial forecasts. -> external stakeholders because used as due diligence Go-to-market plans = describes unmet needs of early customers and distinguishing features of product. -> internal because use for revenue models and marketing Operational plans = the activities and milestones an entrepreneur must meet while developing, producing and delivering a product (early venture product) -> internal because used to minimize assumptions
According to the article, what are the 4 common form of intellectual property (IP)? For each, list the approximate length of time of exclusivity and the common use
patent = exclusive for 20 years after filing for utility & plant patents and 14 years for design patents. They protect commercial and industrial products copyright = exclusive for 70 years after author's death and they protect creative works Trade secret = no limit to time of exclusivity. Protects ideas, know-hows, information, etc. that is secret and adds to the competitive advantage of a company Trade marks = no limit to time of exclusivity. Given to the first registrant in an industry. Protects design, phrase, logo, etc. that is used to distinguish a good or service in its industry
How are pre-money and post-money valuations linked?
pre-money valuation + investment amount = post-money valuation
In the article, Prof. Stevenson discussed strategic orientation as a continuum from "______" (nickname) to "_____" (nickname) as the level of controlled resources increased.
promoter trustee
Define the terms "red oceans" and "blue oceans" according to Kim & Mauborgne
red oceans = the existing industries in the known market blue oceans = the non-existing industries in an unknown market
The article discusses 3 core financial implications of the business model. What are they and explain each in a sentence or two
underlying profitability = profitability depends on the value of output relative to the value of input asset intensity = the amount of assets that ned to be tied up in a business in order to generate sales pace of growth = the speed that the venture needs to grow