MHR 322 Exam 2 - Final

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

The basic formula of Cost of Customer Acquisition (COCA) is:

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

The customer is often made up of:

-End User -Decision-Making Unit *Champion *Primary Economic Buyer *Influencers, Veto Power

BMC: Channels

-Through which channels do our customer segment want to be reached? -How are we reaching them now? -How are our channels integrated? -Which ones work best? -Which ones are most cost efficient? -How are we integrating them with customer routines? Channel Phases: Awareness-->Evaluation--->Purchase--->Delivery--->After sales

The Prototype Mindset (from reading)

-You can prototype anything-Prototypes are disposable -Build just enough to learn, but not more- The prototype must appear real

Threadless examples

-dozens of new styles every month -designers posted on site-->order it -every product is always sold out-incentive as winning designer

T/F: 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

False

T/F: In "The Use of Knowledge in Society" paper, Hayek argued that Centralized planning was a superior economic system because it allowed the 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

T/F: One of the major advantages of crowdfunding is that it allows the entrepreneur to work directly with a producer or distributor instead of having to pitch their idea to potential customers.

False

T/F: The 17 business models presented in Disciplined entrepreneurship represent the full set of possible business models you should consider for your venture

False

T/F: The MVBP should balance simplicity with the features that customers will pay the most money to acquire

False

T/F: an equity investor cannot lose the entire value of the investment

False

T/F: Generally speaking, equity investors are willing to take higher risks than debt investors

True

According to the Mullins article on customer cash, a key benefit of getting upfront payments from customers is it:

Allows company founders to focus on creating, testing, refining, and proving their business models instead of on courting investors

You can rent a food cart for $80/day and you are selling gourmet brats for $10.00/each. The cost of the brat/bun/etc... is $6.00 each. What is the breakeven quantity?

Break-Even Qty =Fixed Costs ÷ (Selling Price - Variable Cost/Unit)=$80 ÷ ($10 -$6) = 20 brats

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

Champion

Testing key assumptions about your venture requires:

Designing and performing experiments

According to the Art of Startups by Bhide, most startups should build a team by:

Finding less-experienced people who want to build skills and capabilities

A software company allows customers to use the basic product without charge but charges customers who wish to access premium features. This is an example of which pricing model?

Freemium

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:

Inviting them to their office to try their technology

Which of the following is NOT one of the 9 building blocks of the Business Model Canvas? (cost structure, key activities, team, key partnerships)

Team

According to "Fake it til you make it," the biggest problem with building a fully functional product / service rather than a (90%) facade is:

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

T/F: An equity investor shares in the upside if the company is successful

True

Disciplined Entrepreneurship asks whether "The dogs will eat the dogfood" to refer to:

Whether or not people will buy your product or service

What is crowdfunding?

the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.

Additional roles in DMU

- Primary and secondary influencers - person with veto power - purchasing dept.

Define a person with veto power

A person who can say "no" and not support it, canceling the purchase

If your MVBP (minimum viable business product) appears to be successful, then the next step is to:

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

A seed funding round likely indicates the venture:

Has no product and no revenue

Which part of the Business Model Canvas describes the most important assets required to make a business model work?

Key resources

In the video "To Raise Money or Not Part 1," the speaker notes that one of the reasons they bootstrapped was because:

Their product was actually making money almost from day one

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

According to the Mullins article on customer cash, the model that connects buyers and sellers is

matchmaker model

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

$10,000

Calculate Cost of Customer Acquisition (COCA) based on the following information for a co-working space: - Total sales and marketing budget: $1000 - Sales and marking associated with bringing in new customers: $500 - Number of new customers acquired: 5

$100

A 'Series A' funding event is likely to be:

$2-10 million

Which of the following is the best definition of a business model?

- A short narrative that tells the story of the organization, including why it was founded - A program or calculation that estimates the value the company generates based on a set of inputs - The rationale of how an organization creates, delivers, and captures value (CORRECT) - A map of the activities of the organization

Which of the following is the best example of a "A/B Testing" as it is used in entrepreneurship?

- Comparing two versions of a webpage/ad against each other by seeing which one gets more click or views (CORRECT) - Rank ordering your innovation ideas with 'A' being the best and 'B' being the worst - Determining whether your venture should seek an "A-round" or a "B-round" based on the results of your prototype testing - Actual vs. Budget comparison

What are the components of the business model canvas?

- Customer segments - Value proposition - Channels - Customer relationships - Revenue streams - Key resources - Key activities - Key partners - Cost structures

In the video "Principles of Lean," Steve Blank presents a three-step process for the Lean Startup, including each of the following stages EXCEPT:

- Establish clear goals (CORRECT) - Frame hypotheses - Build incrementally and iteratively - Test hypothesis

All of the following are good ways to reduce COCA except:

- Speed through the sales funnel - Improve the quality of your leads (people who may be interested) - Choose your business model with COCA in mind since some business models have higher costs and slower sales cycles - Target the customer segments with the longes sales cycles so you have the most time to close deals (CORRECT)

Which of the following best describes the key point in the 'Fake It- Chapter 13' reading form "Sprint" by Knapp, Zeratsky, and Kowitz?

- The first mover advantage is key to success - Entrepreneurs need to move fast and break things - Build just enough to learn, but not more (CORRECT) - Investors will only give funding to confident entrepreneurs

In "A Broken Place," the article about Better Place and entrepreneur Shai Agassi, a key lesson about building a viable business model for a new venture is that:

- The most critical element of bringing a new technology to market is a charismatic founder who can tell a compelling story. - If you are bringing a new technology to market you will need a lot of outside capital. - If you don't have a good distribution strategy, your business model probably won't work. - It is very difficult to get consumers to change their behavior (CORRECT)

BMC: Revenue Streams

-For what value are our customers really willing to pay? -For what do they currently pay? -How are they currently paying? -How would they prefer to pay? -How much does each Revenue Stream contribute to overall revenues? Types: Asset sale, usage fee, subscription fees, licensing, etcFixed Pricing: list price, product feature dependent, customer segment dependent Dynamic Pricing: negotiation, real time market

BMC: Customer Segments

-From whom are we creating value? -Who are our most important customers? Ex. Mass market, niche market, segmented, diversified, etc

BMC: Cost Structure

-What are the most important costs inherent in our business models? -Which key resources are most expensive? -Which key activities are most expensive? Is your Business More:-Cost driven (leanest cost structure, low price value proposition, maximum automation, extensive outsourcing)-Value Driven (focused on value creation, premium value proposition) Sample Characteristics: fixed costs (salaries, rent, utilities), variable costs, economies of scale, economies of scope

BMC: Key Resources

-What key resources do our value propositions require? -Our distribution channels? Customer Relationships? Revenue Streams? Types of resources: physical, intellectual, human, financial

BMC: Customer Relationships

-What type of relationship does each of our Customer Segments expect us to establish and maintain with them? -Which ones have we established? -How are they integrated with the rest of our business model? -How costly are they? ***this drives cost structure Examples: personal assistance, self-service, automated services, communities, co-creation

BMC: Value Proposition

-What value do we deliver to the customer? -Which one of our customer's problems are we helping to solve? -What bundles of products and services are we offering to each Customer segment? -Which customer needs are we satisfying? ***something important to get target customer segment Characteristics: newness, performance, customization, design, brand/status, price, etc

BMC: Key Partners

-Who are our key partners?-Who are our key suppliers? -Which key resources are we acquiring from partners? -Which key activities do partners perform? Motivations for partnerships: optimization and economy, reduction of risk and uncertainty, acquisition of particular resources and activities

5 Ways to Win Referrals from Influencers

1. Build referral relationships 2. Gather a group of VIPs 3. Target professional reviews 4. Get online referrals 5. Arm influencers with selling tools

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?

10 shirts

Assuming a venture raises external capital to successfully fund growth, the most common order of funding events would be:

Family and friends, Angels, Venture Capital, Public market via IPO

To develop an effective map for the process of acquiring a paying customer, it is important to:

Figure out whether the various decision-making units have the budgeting authority to make purchases

Which business model is the most common for service firms because it rewards short-term activity rather than scaling-up

Hourly rates

According to Hayek, the fundamental problem with society in constructing a rational economic order?

It is a problem of the utilization of knowledge not given to anyone in its totality

In Geoffrey Moore's "Crossing the Chasm" framework, the customers who only purchase after a product have has been established fro a long time (possibly so long that you've already sold your company) are:

Laggards (skeptics)

Customers may be resistant to purchasing a new or unfamiliar product. Steps that you can take to overcome this resistance include:

Make it compatible with existing customer behavior

In "A Broken Place," the article about Better Place and entrepreneur Shai Agassi, the venture's failed efforts to coordinate deals with multiple automakers represent a flaw in which section of the business model?

Partners

Define the perchasing department

People in a company cannot buy a product until it passes through the purchasing department; in charge of finances

Which of the following is NOT one of the 9 building blocks of the Business Model Canvas? (channel, value proposition, technology, customer segments)

Technology

In the Commanding Heights video the Polish egg market was an example of:

The lack of price controls caused the prices to initially climb and then decline

What is and how do you calculate break-even quantity?

The number of units that must be sold for total revenue (from all units sold) to equal the total cost (of all units sold) Breakeven Qty = Fixed Cost / (Revenue per unit - Variable cost per unit)

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 perceived risk of the venture should reduce

In the decision-making unit, a champion is:

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

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

True

T/F: Debt investors are more likely to invest in a company if there is an asset that can be claimed by the investor in the event that company defaults on the debt

True

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

True

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

True

T/F: 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

T/F: It is important to carefully consider your new venture's business model because you have many options to choose from and it is difficult to change your business model later

True

T/F: Mapping the process to acquire a paying customer can help you to identify hidden obstacles that inhibit your ability to sell your product

True

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

True

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

True

T/F: The primary goal of your short term sales process is to create demand for your product and fulfill those orders

True

T/F: lifetime value of a customer can be calculated as the total revenues generated by the customer over time minus the operational costs of serving the customer

True

In "Build, Measure, Learn" Eric Ries suggests that the core question behind lean thinking is:

Which of our efforts create value and which are wasteful?

demand-based pricing

a price-setting method based on estimates of demand at different prices

price skimming

a pricing policy whereby a firm charges a high introductory price, often coupled with heavy promotion

All of the following are primary roles in the decision-making unit EXCEPT: (primary economic buyer, purchasing agent, end-user, champion)

purchasing agent

penetration pricing

setting a low initial price on a new product to appeal immediately to the mass market

competition-based pricing

setting prices based on competitors' strategies, prices, costs, and market offerings

cost-based pricing

setting prices based on the costs of producing, distributing, and selling the product plus a fair rate of return for effort and risk

value-based pricing

setting the price at a level that seems to the customer to be a good price compared to the prices of other options

Business Model Canvas by Osterwalder

• Focus on key components of Bus. Model • Hypothesis driven • Easily changeable (Post-it Notes) • Can color code different customer segments