Innovation & Entrepreneurship Class Notes

Three critical elements an entrepreneur must solve for success: 1. 2. 3.

1. An effective sales generation model - You are only as good as your pipeline. You must develop the ability to generate consistent growing sales 2. Sustainable operating profit margins 3. Being properly financed - It is crucial that you have sufficient resources (either yourself or by raising funds) to get the business to the point where it is self-funding

3 Threats to business success:

1. Threats to profit margin (its the ability to establish and maintain a high-margin product or service) 2. Threats to sales generation schemes (a new venture must have the opportunity to sell to many customers and obtain repeat business) 3. Threats to operational financing (high developing costs, rapid expansion plans, and high inventory needs are examples) - This 4th one is also a threat just not in the top 3 --> competitors (a new business must be realistic about its competitors)

A venture capital backed business plan runs from _____ to _____ pages long; whereas the business plan for a small business firm is generally _____ to ____ pages long

25 to 45 15 to 25

________ - an organization's ability easily adapt to increased workload or market demand

Ease of scalability

Which periodical is published annually and documents the 500 largest corporations by sales in the United States?

Fortune

Attributes of ____________ businesses: - Replication of an existing business model - Resource & revenue sharing

Franchise - Guidance and direction from franchisor - Capital and execution from franchisee

_______ is the difference between what it costs you to produce and how much you can sell it for

Margin

What is high margin?

Margin is the difference between what it costs you to produce and how much you can sell it for

__________ - is one of the most widely used personality tests - test focuses on 4 pairs of variables: extroversion-introversion (focus on external or internal world), sensing-intuiting (how people gather info), thinking-feeling (how they make decisions), and judgement-perception (order vs flexibility)

Myers-Briggs

_______ - The connection between the entrepreneur's skills, understanding of an industry, and the ability to create a competitive advantage such that the sum of the parts of the new business is greater than the individual parts alone

Synergy

According to the 2019 statistics from the United States Small Business Administration, 99.9 percent of all businesses in the United States are:

small

The greatest advantage of an entrepreneurial business is that it is owned and run by _____.

the same person(s)

When starting a business, one must understand the relationship between _____ and the expected return

time commitment

True or false: Small businesses have greater flexibility in responding to changes that take place in their external environment.

true

_________ is a creation by a family that has exited a business and is now left with a pile of cash and is looking for a place to invest that money - Ex: She will rent a small place and hire a few employees to invest that money for her, rather than giving her 500 mill to Stan and Morgan or another big place to invest for her

Family office - it is NOT a family business

Franchisor = ______ Franchisee = ______

Franchisor = Mcdonalds (takes a portion of Franchisee's revenue) Franchisee = person wanting to open another McDonald's location

Which of the following are true regarding the process of generating ideas? (Check all that apply.) a. The process typically requires interaction. b. The process is typically completed in a single setting. c. The process typically requires consideration. d. The process typically requires iteration.

a. The process typically requires interaction. c. The process typically requires consideration. d. The process typically requires iteration.

_____ is a managerial theory that believes individuals act to maximize their own benefit.

agency theory

What are included in the first column of the chart used in the gap analysis? (Check all that apply.) a. An estimation of personal resources b. A brief explanation of the idea c. The category used to analyze the idea d. The business idea

b. A brief explanation of the idea d. The business idea

Identify a characteristic of a gap analysis for a new venture. a. It is a quantitative analysis. b. It is supposed to be completed by the entrepreneur or entrepreneurial team. c. It is a continuous and time-consuming research process. d. It requires extensive and detailed research.

b. It is supposed to be completed by the entrepreneur or entrepreneurial team.

Which of the following statements are true regarding robber barons? (Check all that apply.) a. They put small operations out of business. b. They took advantage of the economies of scale. c. They were responsible for some of the great abuses in business. d. They dominated the industrial sectors.

b. They took advantage of the economies of scale. c. They were responsible for some of the great abuses in business. d. They dominated the industrial sectors.

Which of the following are questions an entrepreneur should answer regarding work experience? (Check all that apply.) a. How much money did the job pay? b. What aspects of the job were most enjoyable? c. In what areas would you be considered an expert? d. In what businesses have you worked? e. What skills were critical to the jobs you performed?

b. What aspects of the job were most enjoyable? c. In what areas would you be considered an expert? d. In what businesses have you worked? e. What skills were critical to the jobs you performed?

The United States Small Business Administration was organized to: (Check all that apply.) a. fund the start-up costs for new entrepreneurial businesses. b. provide information at all levels of organizational development for entrepreneurial businesses. c. provide assistance at all levels of management for entrepreneurial businesses. d. I aid, counsel, and protect the interests of small businesses.

b. provide information at all levels of organizational development for entrepreneurial businesses. c. provide assistance at all levels of management for entrepreneurial businesses. d. I aid, counsel, and protect the interests of small businesses.

The United States Small Business Administration was organized to: (select all that apply) a. fund the start-up costs for new entrepreneurial businesses. b. provide information at all levels of organizational development for entrepreneurial businesses. c. provide assistance at all levels of management for entrepreneurial businesses. d. aid, counsel, and protect the interests of small businesses.

b. provide information at all levels of organizational development for entrepreneurial businesses. c. provide assistance at all levels of management for entrepreneurial businesses. d. aid, counsel, and protect the interests of small businesses.

_________ - Rational decision making that is constrained by the background and history of the person making the decision

bounded rationality - it is the presence of bounded rationality that leads young people to be pioneers in an area because they are not limited by restrictions of the past

_________ - the point where the revenue coming into the firm is sufficient to cover expenses

break-even point

The European Union considers any business with fewer than _____ employees to be a small business. a. 500 b. 100 c. 50 d. 250

c. 50

According to the text, which of the following is an important driver of the economic success of a community? a. Increased tax base b. Continued downsizing of large corporations c. New business development d. Multiple angel investors

c. New business development

You should note the following when _________: 1. Don't use cookie cutter plan programs you can find online 2. You should plan to develop the elements of your plan as you finish each chapter 3. Don't be intimidated by the effort needed to bring fourth a business 4. Craft a one page pitch for your business

creating a business plan

Without the needed skills, the founders would be faced with not holding any advantage over the _______ who have the necessary depth in the area. a. suppliers b. investors c. employees d. competitors

d. competitors

The initial analysis is a process of: a. moving from a single idea to multiple ideas. b. analyzing the business opportunities in the marketplace. c. assess the skills and abilities of the entrepreneur. d. moving from three to five ideas to a single idea.

d. moving from three to five ideas to a single idea.

Entrepreneurs' prior experience plays a role in new business creation through _____. a. their traits and tendencies b. their risk tolerance c. their financial contribution from the past business's profits d. their view of the world

d. their view of the world

_______ - suggests that individuals act to maximize their own individual benefit

Agency theory

_________ - popular personality test in universities - composed of 5 factors: open-mindedness, conscientiousness, agreeableness, emotional stability, and extroversion

Big Five Test

_________ - underlying philosophy of this test is that is a result of all the experiences in his or her life - test suggests 9 types of personalities: reformer (idealist/perfectionist); helper (caring/good interpersonal skills); achiever (competent/driven); individualist (sensitive/dramatic); investigator (cerebral/focused); loyalist (committed/pessimistic); enthusiast (fun-loving/impatient); challenger (action oriented/cynical); and peacemaker (easygoing/passive aggressive)

Enneagram

The most critical resource in a new venture is the _______ or _______

Entrepreneur or entrepreneurial team

_________ - those that are primarily in business for the benefit of the founders and their families

Entrepreneurial firms

__________ can be characterized by the following descriptions: 1. The start-up is self-funded or funded by those close to them 2. The development plan is oriented around positive cash flow 3. The management structure is designed to take advantage of the skills of the founder or founders 4. The operation is designed in the image of the founder(s) 5. The business is oriented toward the personal goals of the founder(s) 6. The number of employees may be zero or as few as one and typically would not be expected to grow to more than 50 to 100

Entrepreneurial firms

One of the strongest factors in the growth of a nations Gross National product (GNP) is the presence of ___________

Entrepreneurial small and medium sized enterprises (SMEs)

Aspects of __________: - High research and development costs - Low production costs - High margin - Ease of scalability

High tech/high growth

_________ - Leading edge or new application of technology

High tech/high growth

Profits: - what's the equation? What's another term used for profits?

Profits (gross profits) = revenues - expenses - Also referred to as "gross income"

Revenues: - what's the equation? - where is it on the income statment?

Revenue (gross sales) = number of units x sales price - Top line on the income statement

___________ - are funded by the Small Business Administration and advise individuals that intend to start a new business

Small Business Assistance Centers

The following are examples of __________: 1. Being laid off from established employment 2. Being approached by one or more people with a new business idea 3. Reaching a point financially where the risk-return level of a proposed new business is tolerable 4. Having very little to lose financially by a failure 5. Receiving evidence that an idea is not only doable but that there is a concrete way to address a given problem 6. Being spurred to action by attending a seminar, reading a book, or talking with successful entrepreneurs 7. Experiencing a midlife (or early-life or even late-life) crisis 8. Observing the establishment of an incubator, accelerator, or business development effort within the community 9. Experiencing the inability to climb the corporate ladder due to circumstances beyond a person's control 10. After graduating from college, you may identify new opportunities that others have not seen

Typical triggers for starting a business (can be pos or neg)

__________ - those that are funded by large amounts of outside venture capital with the intent of growing them as fast as possible

Venture-capital start-ups

__________ can be characterized by the following descriptions: 1. The businesses are well-funded by venture capital or angel investment 2. These businesses are formed with a harvest plan in place; this is a plan to exit the business that allows the investors to take advantage of growth 3. As a result of the harvest plan, these firms are organized to grow as quickly as possible and are generally heavily laden with debt 4. They have a developed organizational structure 5. They often hire an experienced president to grow the company 6. They tend to develop operations in multiple locations very shortly after the initial investment 7. They are inherently risky operations whose growth is dependent on the exploitation of unknowns in the market (a new invention, unique patents, etc.).

Venture-capital start-ups - they are formed as high-growth, and often high-tech ventures

Two main types of businesses:

Venture-capital start-ups and entrepreneurial firms

Which of the following statements about incubators are correct? (Check all that apply.) a. They provide office machines and basic furniture to new businesses. b. They provide common receptionists to new businesses. c. They provide many critical services to new businesses. d. They often provide start-up capital to new businesses.

a. They provide office machines and basic furniture to new businesses. b. They provide common receptionists to new businesses. c. They provide many critical services to new businesses.

The finance category on the gap analysis chart examines the: (Check all that apply.) a. amount of money required to start a business. b. amount of money required to operate a business. c. amount of family resources that could be committed. d. amount of money the company is worth.

a. amount of money required to start a business. b. amount of money required to operate a business. c. amount of family resources that could be committed.

What are the typical categories used to analyze a business idea? (Check all that apply.) a..Risk b. Nonfinancial resources c. Time d. Talent e. Finance f. Competitors

a..Risk b. Nonfinancial resources c. Time e. Finance f. Competitors

Which of the following statements is directly associated with the circumstantial motivators for starting a business? a. People desire more flexibility with their families, living in a region they want, or improving their standard of living. b. Motivations come from the individuals themselves. c. The staying power of an opportunistic start-up is mainly determined by other competing opportunities. d. People make career moves irrespective of practical advice.

c. The staying power of an opportunistic start-up is mainly determined by other competing opportunities.

A difference between entrepreneurial businesses and venture capital-backed firms is that _____. a. venture capital-backed firms have smaller business plans than entrepreneurial businesses b. entrepreneurial ventures hire professional consultants more than venture capital-backed businesses c. entrepreneurial businesses' resources are more constrained than those of venture capital-backed businesses d. entrepreneurial businesses rather than venture capital-backed firms develop business plans as a promotional tool

c. entrepreneurial businesses' resources are more constrained than those of venture capital-backed businesses

Examples of High research and development costs: Give 4 examples

coding, analysis, problem solving, intellectual resources

_______ - an unofficially acknowledged barrier to advancement in a profession, especially affecting women and members of minorities

glass ceiling

Several areas entrepreneurs may examine to figure out their skills: list 4

hobbies, education, work experience, and family history

__________ - are a facility that house new businesses, providing many critical services for these new businesses

incubator

The term _______ indicates that a start-up business will need to rapidly change

lean start-up

Examples of low production costs: Give 3 examples

low overhead; minimal physical resources; lower human resources

If you have a ____ risk tolerance, you tend to spend less and save more for that proverbial rainy day. If you have a _____ risk tolerance, you will spend more, assuming there will not be as many rainy days.

low; high

Every Fortune 500 company started as a _________

new venture

Excess resources in an organization that allow for redundancy and the quick deployment of personnel in crisis are referred to as _________

organizational slack

Unofficial formula to developing a quality business idea: 3 parts

- First, potential founders should list and evaluate their own personal skill sets - Second, potential founders should carefully analyze the market and look for a gap, or some need that is not being met effectively - Finally, the potential founders need to compare their ability to fill those gaps with the opportunity that seems to be available

Attributes of ____________ businesses: - Limitless business models - Varying production costs - Varying margins

Family - usually multi-generational - 1 to make, 3 to break - Scalability MAY be hampered by family issue

Categories an entrepreneur needs to consider for a gap analysis: List 4

Finances, time, non-financial resources, and risk

3 established personality tests:

Myers-Briggs, Enneagram, and the Big Five Test

The U.S. government considers any business with fewer than _____ employees to be a small business. a. 500 b. 100 c. 50 d. 250

a. 500

Which of the following statements about agency theory are correct? (Check all that apply.) a. Agents often maximize their own benefit. b. Owners always act to maximize the value of the business. c. Managers are considered agents. d. Agents can be relied on to always act in the best interests of the business.

a. Agents often maximize their own benefit. b. Owners always act to maximize the value of the business. c. Managers are considered agents.

Which of the following are reasons why entrepreneurial businesses are successful? (Check all that apply.) a. Fewer layers of management b. Tend to be more focused than large corporations c. Increased use of policies and procedures d. Free to place energy into satisfying the needs of customers

a. Fewer layers of management b. Tend to be more focused than large corporations d. Free to place energy into satisfying the needs of customers

Identify the characteristics of a gap analysis for a new venture using a chart. (Check all that apply.) a. It is a reasonably quick analysis. b. It requires minimal or no research. c. It is a quantitative analysis. d. It determines if the business can be profitable in the long term.

a. It is a reasonably quick analysis. b. It requires minimal or no research.

Which of the following are components of the entrepreneurial orientation concept? (Check all that apply.) a. Risk tolerance b. Personality orientation c. Prior experience d. Financial expertise

a. Risk tolerance b. Personality orientation c. Prior experience

Which of the following are pairs of variables in the Myers-Briggs test? (Check all that apply.) a. Sensing-intuiting b. Judgment-perception c. Extroversion-introversion d. Risk-experience

a. Sensing-intuiting b. Judgment-perception c. Extroversion-introversion

Which of the following are advantages that small, new businesses have? (Check all that apply.) a. Small businesses are owned and run by the same person(s). b. Small businesses have more resources available to them. c. Small businesses fill niches that large firms simply cannot afford to fill. d. Small businesses can respond quickly to opportunities or threats as they arise.

a. Small businesses are owned and run by the same person(s). c. Small businesses fill niches that large firms simply cannot afford to fill. d. Small businesses can respond quickly to opportunities or threats as they arise.

__________ - A condition that allows the long-run average cost to continue downward as production increases; think about big corporations, they are able to operate more efficiently because of their ability to operate on a larger scale (like buying in bulk is cheaper)

economies of scale

The support and resource areas an entrepreneur should seek to understand to make their efforts successful: list 4

family, social networks, community, and financial resources

The business plan for a new __________ is developed with 3 goals in mind: 1. To be a guide to managing the business in its early development 2. To provide a self-evaluation: Putting the information down in writing allows for evaluation and honest analysis 3. To provide potential closely held investors with the critical information necessary to evaluate the key criteria of the business: its cash flow, management team, and competitive advantage

entrepreneurial business

The following are ways to help identify _________ in the marketplace: 1. Examining trends around the region, nation, or world that may not have reached your particular geographic location 2. Interview and talk about opportunities with key successful entrepreneurs in the area 3. Discuss potential businesses with family members 4. Look for environmental changes that create opportunities that did not exist before 5. Brainstorming with key entrepreneurs and family members can also be useful to the potential entrepreneur 6. Take a look at the things that frustrate you and your family (incredible source of ideas) 7. Examination of patent files (Millions of patents exist and are maintained by the original inventors but have never been the subject of a commercial attempt)

gaps (or business opportunities)

_________ - Excess resources in an organization; typically found in large organizations rather than small businesses

organizational slack

3 issues that entrepreneurs need to consider about themselves as they look at starting a new business

risk tolerance, prior experience, and personality orientation of the individual

Another critical difference between an entrepreneurial business and a venture capital backed firm is in the _____ and ____ required in their initial business plans

size; detail

Attributes of ____________ businesses: - Generally is already deployed technology/business model that's just re-envisioned - Varying production costs - Low(er) margins (costs $12 to make, sell for $14, only $2 profit) - Difficult to scale

small and medium sized

________ - Individuals or other organizations that impact the success of a business

stakeholders

GAO stands for

the federal general accounting office