MHR 322- Questions

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 & marketing budget: $1,000 Sales & marketing associated with bringing in new customers: $500 Number of new customers acquired: 5

$100

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

$100

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· Expected customer life is 10 months Placing 1,000 Google ads will cost $200. 5% who see the ad go to the website to request moreinfo. 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 The Lifetime Value of a Customer at DanO.com?

$100

What is the contribution margin per unit for the following example:Dr. Bock's book on business models is priced at $25The total cost to produce the books is $20The variable cost to produce the book is $10

$15

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 equation for calculating LTV (lifetime value) of a customer is:

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

The basic formula for Cost of Customer Acquisition (or Customer Acquisition Cost) is:

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

You have decided to launch a new board game. You estimate the cost per unit to be $12, your selling price will be $20 and your initial investment is $160,000. What is your break-even quantity?

20,000 units

Companies engage in prototyping and experimentation in order to

Assess the viability of new products and services quickly

The basic equation for breakeven analysis is:

Break even quantity = Fixed costs / (Sales price per unit - Variable cost per unit)

The author of Disciplined Entrepreneurship describes "A Decision-Making Unit" as being made up of:

Champion, Economic Buyer, and Influencers

Which part of the Business Model Canvas describes how a company communicates with and reaches its customer segments to deliver a value proposition?

Channels

The best types of experiments to run as you prepare to launch your venture are:

Cheap, quick, and easy

Which of the following is the best example of "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

In Connie Chan's talk, "When Advertising Isn't Enough", she talks about the different business models used in China to sell e-books. Which of the following was NOT mentioned?

Customers bid on a limited number of e-books.

The two main types of external funding for ventures are:

Debt and equity

Assume you have completed a CoCA / LV analysis for your startup company. You have found that your cost of customer acquisition is greater than the lifetime value of a customer. Based on this finding what should you focus on?

Decreasing the cost of customer acquisition

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. Focus on dominating the current target market with the MVBP until your venture achieves profitability. NOT Expand sales of the MVBP to as many additional market segments as possible. Reduce COCA (cost of customer acquisition) to ensure that the MVBP becomes the dominant product in the market segment.

In Geoffrey Moore's "Crossing the Chasm" framework, the customers who are willing to pay more but also want attention and service are part of the:

Early adopters

Mapping the process to acquire a paying customer usually requires all of the following steps EXCEPT:

Estimating how long it will take to generate a lead for a potential customer Identifying which members of the decision-making unit you will need to access NOT Estimating the per unit cost of acquiring a new customer Estimating the time and effort required to make the actual sale NOT

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

FALSE

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

FALSE

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

FALSE

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

FALSE

Giving away your product or service for free can be a viable business model as long as you sort out how to monetize it later.

False

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

False

It is always easier to raise prices than to lower prices.

False

Long-term sales processes are focused almost entirely on word of mouth and advertising.

False

Selecting your pricing framework is especially important because you should plan to keep it constant as you complete the process of researching and launching your venture.

False

The most common short term sales processes for new ventures are direct sales using salespeople and indirect sales using partners or distributors.

False

Venture capital firms are generally investing their own money

False

When calculating cost of customer acquisition, entrepreneurs tend to overestimate costs because they only remember the shortest sales cycles.

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.

False

If your business fails, what happens to the money invested by angels or venture capital firms (equity investments)?

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

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

Frame hypotheses Establish clear goals Build incrementally and iteratively NOT Test hypotheses

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

Freemium

Lifetime value is important because it tells you:

How much total profit (value) you can expect from a particular customer, which tells you how much you can spend to acquire that customer

Venture capital firms do what no other funding entity can do:

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

All of the following are considered additional or secondary roles in the decision-making unit EXCEPT:

Influencers Purchasing department (ANS) People/organizations with veto power Champion

Which part of the Business Model Canvas describes the network of suppliers and partners that make the business model work?

Key partnerships

In Geoffrey Moore's "Crossing the Chasm" framework, the customers who make conservative decisions requiring well-defined and proven information are the:

Late majority

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

According to Disciplined Entrepreneurship, the correct order of steps to bring an innovation to market is:

Market Segmentation, Build an End User Profile, Quantify the Value Proposition

Which of the following is a key principle of the "prototype mindset?

More prototypes are always better Prototypes are only as good as the ideas behind them NOT The prototype must appear real Prototype now, build later

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

NOT The continuation of price controls allowed for a steady supply NOT The lack of price controls caused the prices to initially climb and then say at that high level

According to the 'Fake It- Chapter 13' reading from "Sprint," it's not a good idea to invest a lot of time in untested product development because:

NOT people at your company will get bored if they don't have something new to work on. NOT it is too expensive to maintain long-term product development processes.

In "Build, Measure, Learn" Eric Ries tells the story of their instant messaging startup IMVU. They spent 6 grueling months developing the product, and when they released it:

No one even tried it

In "A Broken Place," the follow-up article about entrepreneur Shai Agassi, it turns out that the "strategy" didn't work. "A Broken Place" looks more carefully at the business model of the venture, which was based on the idea that:

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

In the decision-making unit, the most important role determining whether your product sells is:

Primary economic buyer

All of the following are primary roles in the decision-making unit EXCEPT:

Primary economic buyer Champion Purchasing agent End-user

Which of the following is NOT one of the 9 building blocks of the Business Model Canvas?

Products and services

In the Daymond John interview, he talked about the importance of using influencers when starting FUBU. The influencers that had the most impact in the early days of his business were:

RAPPERS?

After your beachhead market, follow-on markets include:

Selling new versions of your product to the same customers and selling your initial product to markets that are similar to your beachhead. Selling add-on services associated with your product to the same customers and selling your initial product to markets that are similar to your beachhead. NOT Selling more of your initial products to the same customers and selling your initial product to markets that are similar to your beachhead.

According to the Art of Startups by Bhide, one way that firms can use bootstrapping to get operational quickly is:

Start with a copycat idea that targets a small market.

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

TRUE

All of the following are good ways to reduce COCA (cost of customer acquisition) EXCEPT:

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

Lifetime value of a customer should take all of the following into account EXCEPT:

The cost of acquiring the customer

The primary economic buyer is:

The decision maker who will sign off on spending money

All of the following are key factors when designing a business model EXCEPT:

The incentives for your distribution channel The strategy or core you will implement How much value your product provides to customers What the customer will be willing to do What your competition is doing

In the decision-making unit, a champion is:

The person who wants the customer to purchase the product

All of the following are conditions for a Minimum Viable Business Product EXCEPT:

The product generates profit for the venture

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

The rationale of how an organization creates, delivers, and captures value.

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 the VC firms.

A top-down perspective on calculating COCA (cost of customer acquisition) requires totaling all sales and marketing expenses for a given time period (or process) and dividing by the number of customers acquired.

True

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

True

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

True

Crowdfunding is a financing strategy where an entrepreneur uses an online platform to raise capital to fund the development or production of a new product or artistic creation.

True

Customer acquisition cost analysis should take into account all sales and marketing costs, including salaries of salespeople, printing of brochures, costs of trade show exhibits, advertising, and so on.

True

Different types of customers will pay different amounts for the same products or services, depending on how early or late they are buying compared to other customers.

True

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

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.

True

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

MVP stands for Minimum Viable Product.

True

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

True

Mapping your sales process strategy requires matching specific sales activities at each stage (short term, medium term, and long term) with the specific type of customer (or segment) you expect to reach with that activity.

True

More most new ventures, cost of customer acquisition will start very high and should decrease over time.

True

Pricing should be based primarily on the value your customer gets rather than the cost to produce the product or service.

True

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

True

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

True

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

Truth

Which business model charges customer for the products or services actually used or consumed?

Usage-based

Which part of the Business Model Canvas describes the bundle of products and services that create value for a specific customer segment?

Value proposition

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

Whether or not people will buy your product or service

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?

Convertible debt is best described as:

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

In the video on "Debunking the Myths of Entrepreneurship," Eric Ries argues that the goal of entrepreneurship is to:

build an organization that will outlive the founders.

Think about a large insurance company, such as American Family (or State Farm, or Zurich, etc.). Where on the business model (or lean) canvas does internet advertising belong?

channels

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.

In the video "To Raise Money or Not Part 2, the speaker explains that a key reason they chose to raise venture capital was:

having the VC as an investor added credibility to their sales pitch to the companies they were targeting as customers.

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

key resources

According to the Art of Startups by Bhide, successful bootstrappers should grow the venture:

only as fast as they can afford and control.

According to the Partnership Charter by Gage, one of the best reasons to start a company with partners is

partnerships allow people to exploit opportunities more quickly

In the video on "Debunking the Myths of Entrepreneurship," Eric Ries argues that what distinguishes successful ventures is:

pivoting from bad ideas to opportunities that have good product-market fit.

The concept of using customer cash to finance your start-up relies on:

receiving cash from customers before having to spend money for to generate the product or service to be sold.

According to the Founder's Dilemma by Wasserman, an entrepreneur may have the necessary skills and capabilities but might chose to bring on a co-founder anyway to do jobs she doesn't want to do herself. This refers to the entrepreneur's

task preferences

If a company that does not have assets that can be claimed if the venture fails, a bank or financial institution is likely to provide debt financing only if:

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

Breakeven analysis commonly refers to the calculation that helps you figure out:

the number of units or dollars of revenue needed to cover total costs.

The LTV is

the total profit associated with a customer

Cost of Customer Acquisition (CoCA), also known as Customer Acquisition Cost (CAC), is best defined as:

the total sales and marketing cost required to earn a new customer