Exam 1 Study Guide
Overall Rate of Startup Failure
- ⅕ of new businesses shut down in their first year - ¾ of startups fail, even with venture backing - 70% of entrepreneurs will face potential business failure — 66% will face this potential failure within 25 months of launching their company — 77% of respondents who faced potential failure said it was due in part to COVID-19
ABCs of Leadership
Attributes / Traits Behaviors / Styles Context / Situation
Link Between Personality Traits & Leadership
Big 5 Framework: - Openness - Conscientiousness (0.28) - Extraversion (0.31) - Agreeableness - Neuroticism
Attributes & Traits
Extraversion: being seen as energetic/likable Conscientious: doing things carefully / attention to detail
Functional Areas of Business
Marketing Accounting Finance Operations Management
Pros & Cons of Matrix Departmentalization
Pros: - more customer-oriented - flexible Cons: - resource allocation confusion - lack of clarity for reporting - complicated
Misconceptions about Entrepreneurship
Silicon Valley Model Funding = Venture Capital It's all about having great ideas
What is MacGregor's approach to leadership?
Subordinate-Centered Leadership: manager permits subordinates to function within limits defined by superior
Strategy
a plan of action that will develop a business's competitive advantage
Cognitive Misers
as a rule, people tend to use mental shortcuts in making judgements & drawing inferences
Overdependent Behavior
behaving in a compliant fashion when the boss makes what they know to be a poor decision belief that leader is all-knowing
Strategic Focus
concentrating on meeting the specialized needs of customers
Change-Oriented Behaviors
creating a safe environment where people can share different perspectives or raise ideas/issues without fear of suffering consequences for doing so
Competitive Strategy
how will a business do better than its rivals?
Finanace
involves planning for, obtaining, and managing a company's funds
Task-Oriented Behaviors
reflect the extent to which someone clearly defines/organizes the work of each team member & makes clear how different roles within a team are
Chain of Command
the authority relationships among people working at different levels of the organization
Commerce
the exchange of goods and services
Revenue
the funds an enterprise receives in exchange for its goods or services
Expectancy Theory
the probability of an individual acting in a particular way depends on the strength of that individual's belief that the act will have a particular outcome & on whether the individual values that outcome
Cost Leadership
the strategy where a firm's competitive advantage is based on the bet that it can develop / manufacture / distribute products more efficiently than competitors drive down costs but balance with quality ("do things differently")
Stakeholders
those with a legitimate interest in the success or failure of the business & the policies it adopts
Teamwork
two or more individuals with specified roles interactive adaptively, interdependently, and dynamically toward a common/valued goal
What is Strategy NOT?
- being the best (too vague) - being the first (temporary) - being the only (temporary) - Operational Effectiveness: doing the same things better
Restoring Equity
- change our own inputs - change our own outputs - change our perceptions - change the basis of our comparisons - leave
What types of things do people do to address inequity & when are these triggered?
- change their work habits - change their job benefits/income - distort their perception of themselves - distort their perceptions of others - look at the situation from a different perspective
What are some different ways the business model canvas can be used?
- design new products - starting point for strategic planning - historical analysis - provides snapshot & common language - understand competition
Entrepreneurship: Who / What are your Competitors?
- direct competitors that offer solutions to the job you have identified - other competitors that offer substitutes - research the strengths/weaknesses of each competitor & focus on how well they get the job done
Downsides of Being Public
- disclosure burden - scrutiny by investors / the public - short-term focus to keep investors happy
Three Types of Organizational Justice
- distributive justice - procedural justice - interactional justice
What does situational leadership require?
- flexibility - emotional intelligence - technical skills - coaching skills
What do companies need to take into account before changing their structure?
- is the business too inefficient or too inflexible? => matrix - are decisions made too late? => divisional - are decisions of poor quality? - is there too much conflict between units? - if the business replaced the people, would the problems likely go away?
Effective Goal Setting
- specific - challenging - achievable - accepted - fair
What Does Strategy Require?
- trade-offs (can't be & do everything) - brand consistency/reputation on customer side - different processes / skills / activities on the business side
Why does goal setting sometimes fail?
- what gets measured is what gets done - what gets rewarded is what gets done - undermines intrinsic motivation - encourages risky/unethical behavior - narrow focus
Unity of Command
- would you want to report to more than one boss? - what happens if you get conflicting directions? - whose directions would you follow?
When Does Differentiation Work Best?
1) Buyer needs/uses of the product are diverse 2) There are many ways to differentiate the product/service that have value to buyers 3) Few rival firms are following a similar differentiation approach 4) Technological change is fast-paced & competition revolves around rapidly evolving product features
Five Dimensions of Power
1) Coercive (punishment) - formal 2) Reward - formal 3) Legitimate (authority) - formal 4) Expert (special knowledge) - informal 5) Referent (admiration) - informal
9 Components of the Business Model Canvas
1) Customer Segments 2) Value Proposition 3) Channels 4) Customer Relationships 5) Revenue Streams 6) Key Resources 7) Key Activities 8) Key Partnerships 9) Cost Structure
Ways to Go Public
1) IPO 2) Special Purpose Acquisition Company (SPAC) 3) Direct Listing (no new shares created)
Entrepreneurship: Solving Problems & Adding Value
1) Identify a problem you feel driven to solve 2) Consider your role as founder (people care who's behind the brand) 3) Get a co-founder if possible 4) Determine how you will add value to people's lives (your competitive advantage) 5) Take the plunge
When Does Best Cost Provider Work Best?
1) In markets where product differentiation is the norm & attractively large numbers of value-conscious buyers can be induced to purchase midrange products rather than the basic products of low-cost producers or the expensive products of top-of-the-line differentiators 2) In recessionary times when great masses of buyers become value-conscious & are attracted to economically priced products/services with especially appealing attributes
Types of Coordination (corresponding to interdependence) (most to least coordinated)
1) Mutual Adjustment: high-level 2) Planning: mid-level 3) Standardization: low-level
Three Ways to Think about Leadership Effectiveness
1) Objective Performance: the best leaders really met/exceeded performance expectations 2) Improvement in the Skills/Abilities of Followers: mentoring directly or giving challenges / trusting them with difficult tasks to help them grow 3) Creating a Positive Work Environment
When Does Low-Cost Provider Work Best?
1) Price competition among rival sellers is vigorous 2) The products of rival sellers are essentially identical & are readily available from several sellers 3) There are few ways to achieve product differentiation that have value to buyers 4) Buyers incur low costs in switching their purchases from one seller to another 5) The majority of industry sales are made to a few large-volume buyers 6) Industry newcomers use introductory low prices to attract buyers & build a customer base
Top Reason for Startup Failure
1) Ran out of money (37%) 2) No financing / investor interest (31%) 3) No business plan/model (25.5%)
Three Types of Interdependence (most to least interdependent)
1) Reciprocal: adjust as situation changes 2) Sequential: output becomes input 3) Pooled: combining separate parts
Three Types of Leadership Behaviors
1) Task-Oriented Behaviors 2) Relationship-Oriented Behaviors 3) Change-Oriented Behaviors
Behaviors & Styles
1) Task-Oriented Behaviors (clarity of roles/expectations) 2) Relationship-Oriented Behaviors (concern for others) 3) Change-Oriented Behaviors (psychological safety)
Five Steps to Find a Need in the Market
1) Understand the Jobs to Be Done Theory 2) Be Introspective & find a job that you haven't satisfied 3) Conduct Interviews & ask about motivations behind certain choices 4) Identify & Examine Competitors 5) Be Ever-Observant (adapt)
What are the steps involved in analyzing a case? (refer to the Case Analysis Checklist)
1) Understand the Situation (what & who?) 2) Identify the Evidence 3) Interpret Exhibits 4) Apply Concepts 5) Reach a Conclusion
Team Member Characteristics
1) a shared collective identity 2) common goals 3) interdependence 4) distinctive roles within the team
5) Revenue Streams
1) asset sale 2) usage fee 3) subscription fees 4) lending / renting / leasing 5) licensing 6) brokerage fees 7) advertising
What does it take to achieve entrepreneurial success?
1) good team 2) make something customers actually need 3) financial savvy (spend as little as possible & know when to seek funding) 4) good timing 5) experience
Elements Contributing to Customer Value Creation
1) newness 2) performance 3) customization 4) "getting the job done" 5) design 6) brand / status 7) price 8) cost reduction 9) risk reduction 10) accessibility 11) convenience & usability
4) Customer Relationships
1) personal assistance 2) dedicated personal assistance 3) self-service 4) automated services 5) communities 6) co-creation
How to entrepreneurs get their money?
1) personal savings & cash flow (profits) 2) credit cards 3) friends & family 4) banks 5) venture capitalists
Important Traits of Effective Teams
1) trust 2) engage in unfiltered conflict around ideas 3) commit to decisions / plans of action 4) accountability 5) focus on achievement of collective results
Situational Leadership Model
Developmental Levels: D1: enthusiastic beginner (low competence + high commitment D2: disillusioned / unmotivated learner (low-some competence + low commitment) D3: capable but cautious contributor (moderate-high competence + variable commitment) D4: self-reliant achiever (high competence + high commitment) Leadership Styles: S1: Directing (high directive behavior + low supportive behavior) S2: Coaching (high directive + supportive behavior) S3: Supporting (low directive + high supportive behaviors) S4: Delegating (low directive + supportive behavior)
Establishment vs. Advancement
Establishment: direction / advice / etc. Advancement: growth / promotion
Different Aspects of Organizational Structure
Formalization Specialization Departmentalization Chain of Command Span of Control Centralization vs. Decentralization
Team Development Process
Forming, Storming, Norming, Performing graph: team performance vs. effectiveness
Types of Departmentalization
Functional Divisional Matrix
How can the BMC be divided into two distinct parts & what do each of these parts encompass?
Left: "back-stage" / business-facing component (focused on efficiency & costs) Right: "front-stage" / customer-facing component (focused on value)
How do resources & capabilities fit into strategy?
Low-Cost Provider: company must have the resources/capabilities to keep its cost below those of its competitors Differentiation: must have the resources/capabilities to incorporate unique attributes into its product offering Best Cost Provider: requires the resources/capabilities to incorporate upscale product/service attributes at a lower cost than rivals
Management vs. Leadership
Management = being responsible for maintaining the status quo ("doing things right") / executing strategy Leadership = oriented toward achieving goals that are presumably better than the status quo ("doing the right things") / developing strategy
1) Customer Segments
Mass Market: value propositions / distribution channels / customer relationships all focus on one large group of customers with broadly similar needs/problems Niche Market: cate to specific/specialized customer segments Segmented Diversified Multi-Sided Platform
8) Key Partnerships
Motivations: 1) optimization & economies of scale 2) reduction of risk/uncertainty 3) acquisitions of particular resources/activities
Pros & Cons for Divisional Departmentalization
Pros: - more customer-oriented - faster response times - better coordination within divisions Cons: - duplication of resources - increased costs - disconnect between divisions
Pros & Cons of Functional Departmentalization
Pros: - specialization - efficiency - skill development - clear career paths Cons: - may lack customer focus - slower response times - silos
What is at the heart of the BMC?
Value Propositions
Organization
a collection of people working together to achieve a common purpose - goal-directed - structured activities - linked to the environment - identifiable boundaries
Initial Public Offering (IPO)
a private company creates new shares which are underwritten by a financial organization & sold to the public the first sale of a company's shares to the public & the listing of shares on a stock exchange to raise capital
Leadership
a process involving disproportionate influence over others in pursuit of goals
Reinforcement Theory
a theory of motivation that holds that people do things because they know that certain consequences will follow
7) Key Activities
actions a company must take to operate successfully
Business
any activity that provides goods or services to consumers for the purpose of making a profit an organization that seeks to provide goods or services to customers
Equity Theory
based on individuals' perceptions about how fairly they are treated compared with their coworkers
Goal Setting Theory
based on the premise that an individual's intention to work toward a goal is a primary source of motivation *carefully calibrate goals so that they are challenging & achievable
Entrepreneurial Startup
build a scalable business model through innovation / growth orientation / funding
Owned Channels
can be direct (i.e. in-house sales force / website) or indirect (i.e. retail stores owned/operated by the organization) leads to higher margins can be costly to implement/operate
Differentiation (Technical Uniqueness)
competitive advantage based on superior products/service deliver distinctive value ("do different things")
Focused Low-Cost Provider
concentrating on a narrow buyer segment (market niche) & outcompeting rivals by having lower costs than rivals. and thus being about to serve niche members at a lower price
Focused Differentiation
concentrating on a narrow buyer segment (market niche) & outcompeting rivals by offering niche members customized attributes that meet their tastes/requirements better than rivals/products
Marketing
consists of everything that a company des to identify consumers' needs (i.e. market research) & design products to meet those needs
Economies of Scale
cost advantages that a business enjoys as its output expands causes average cost per unit to fall as output ruses
Economies of Scope
cost advantages that a business enjoys due to a large scope of operations
Why is it "Cost" Leadership & Not "Price" Leadership?
cost leadership deals with profit margins for the company while price reflects just how much the product is sold for
Fixed Costs
costs that remain the same despite the volume of goods or services produced
Variable Costs
costs that vary proportionally with the volume of goods or services producted
Divisional
creates a structure composed of self-contained units based on product, customer, process, or geographical divisions Types of Divisions: - Product Divisions - Customer Divisions - Process Divisions - Geographical Divisions Advantages: - enhance the ability to respond to changes in environment Disadvantages: - if services are duplicated across units, costs are higher - units tend to focus on their own needs/goals at the expense of the whole organization
Jobs to Be Done Theory
customers don't purchase products based solely on their attributes, but rather "hire" products to do "jobs" they need to get done what do people need (not just what they want)
9) Cost Structure
describes all costs incurred to operate a business model Cost Driven: - focus on minimizing costs wherever possible - aims at creating/maintaining the leanest possible cost structure using low price value propositions / maximum automation / extensive outsourcing Value Driven: - less concerned with the cost implications & instead focus on value creation - premium value propositions & a high degree of personalized service
Business Model
describes the rationale of how an organization creates, delivers, and captures value the unique configuration of elements through which a company creates & captures value explains how a business runs / how it creates & captures value
Job Specialization
dividing tasks into jobs organizing activities into clusters of related tasks that can be handled by certain individuals or groups
Matrix
employees from various functional areas form teams to combine their skills in working on a specific project/product *violates unity of command principle
Relationship-Oriented Behaviors
everything that someone does to show concern for others & make it enjoyable to be a member of the group
Motivation
forces within a person that affect the direction / intensity / persistence of voluntary behavior
Departmentalization
grouping specialized jobs into meaningful units
Functional
groups together people who have comparable skills & perform similar tasks Advantages: - simple to understand - enables staff to specialize in particular areas Disadvantages: - can hinder communication - can promote interdepartmental conflict
3) Channels
how a company communicates with & reaches its customer segments to deliver a value proposition
2) Value Proposition
how a company solves a customer problem / satisfies a customer need
Best Cost Provider
hybrid strategy that blends elements of low-cost provider & differentiation strategies - better product at same price - same product at lower price
Partner Channels
indirect only & span a whole range of options (ex. wholesale distribution / retail / partner-owned websites) lower margins allows organization to expand its reach & benefit from partner strenghts
Management
involves planning for, organizing, leading, and controlling a company's resources so that it can achieve its goals responsible for the work performance of others the pursuit of organizational goals through the use of organizational resources
Public Company
listed on a public exchange (easily bought/sold) has public reporting obligations because (1) IPO or (2) investor base reached a certain size
Accounting
measure, summarize, and communicate financial/managerial information & advise other managers on financial matters must provide accurate / relevant / timely financial information
Span of Control
measures the number of people reporting to a particular manager - wide span of control = many direct reports = few layers of management = flat organization - narrow span of control = few direct reports = many layers of management = tall organization
Centralization
most decision-making is concentrated at the top Advantages: - consistency in decision making - decisions made more quickly Disadvantages: - lower-level managers feel under-utilized & don't develop decision making spills - might fail to consider information that only front-line employees have
Psychological Safety
people feel comfortable speaking up & sharing ideas
Groupthink
pressure to conform
Counterdependent Behavior
seeing a boss as someone who, by virtue of the role, is a hindrance to progress / obstacle to be circumvented or at best tolerated aversion/resistance to authority
Broad Differentiation
seeking to differentiate the company's product or service from rivals' in ways that will appeal to a broad spectrum of buyers
Decentralization
spreads decision making throughout the organization
Broad Low-Cost Provider
striving to achieve lower overall costs than rivals & appealing to a brad spectrum of customers, usually by under-pricing rivals
Self-Fulfilling Prophecy
suggests that behavior is heavily influenced by the expectations of those around us (positive or negative)
Venture Capital (VC)
technically a form of private equity, but us usually used during the startup phase rather than investing in stable companies - small companies with incredible growth potential - hard to get & very risky
Self-Serving Bias
tendency to attribute our own successes to internal factors & our failures to external factors
Fundamental Attribution Error
tendency to overemphasize internal causes of another person's poor behavior/performance & underemphasize external factors (while believing the opposite for oneself)
Social Loafing
tendency to put forth less effort when working in a group
6) Key Resources
the most important assets required to make a business model work Types: 1) Physical 2) Intellectual 3) Human Capital 4) Financial
Interactional Justice
the perceived degree that respect is given
Distributive Justice
the perceived fairness of an outcome
Procedural Justice
the perceived fairness of the process used to determine an outcome
Perpective Taking
try to see/understand things from other person's point of view
Perspective Getting
trying harder to get another person's perspective instead of trying to take it by asking meaningful questions
Confirmation Bias
we search out & prioritize data that supports our preconceived notions & ignore information that contradicts our choices - too much weight given to supporting evidence - too little weight given to unsupporting evidence
Escalation of Commitment
we tend to stick with a decision even though there are rational reasons to change our minds because we fear that changing plans will result in a loss of sunk costs & embarrassment
Profit
what is left after all the bills are paid (Revenue - Expenses)
Private Equiry
when a group of investors makes a direct investment in a company - mature companies past the growth stage - businesses in distress (turn them around)
Small Business
work for yourself / be your own boss / generate steady income