MHR 322 - Final Exam
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 $1100 $30 $19.99
300
A debt investor cannot lose the entire value of the investment. True False
False
A debt investor is generally willing to take a risk on a startup company if the company's innovation or technology appears to have good long-term potential. True False
False
A good starting point for figuring out COCA (cost of customer acquisition) is to figure out how long it will take one salesperson to sell product to one customer. The proportion of the salesperson's annual salary required to make the sale is the COCA. True False
False
Because they could lose the full value of the investment if the company defaults on the loan, debt investors generally expect a higher return than equity investors. True False
False
Long-term sales processes are focused almost entirely on word of mouth and advertising. True False
False
Once you have identified your beachhead market, you should identify 10-12 adjacent markets and calculate TAM for each. True False
False
One of the major advantages of crowdfunding is that a successful fundraising campaign (for example, on KickStarter) requires nothing more than a brief description of the product idea-- the platform takes care of generating a web-savvy pitch to potential investors. True False
False
The persona for your product is also the primary economic buyer. True False
False
True (A) or False (B): Banks are the primary source of initial investment dollars for startup companies in the software industry. True False
False
Venture capital firms are generally investing their own money True False
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. True False
False
A business loan is substantively no different than other types of debt such as student loans or a home mortgage. True False
True
Calculating the total addressable market size for follow-on markets helps you stay aware of the long-term potential of your business True False
True
Hayek argued that knowledge of time and place is more important than scientific knowledge in The Use of Knowledge in Society paper. True False
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 False
True
Mapping the process to acquire a paying customer can help you identify hidden obstacles that inhibit your ability to sell your product. True False
True
The best way to figure out the decision-making unit is to talk to your potential customers. True False
True
The business model you select and implement for your venture will have a significant impact on both whether you need to raise external capital as well as how you raise external capital. True False
True
The difference between the lean startup "MVP" (minimum viable product) and Disciplined Entrepreneurships "MVBP" (minimum viable business product) is that the MVP only requires a product that tests specific assumptions about the venture. True False
True
When identifying key assumptions about your venture, you should carefully review your "next 10 customers" list. True False
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 False
True
When testing assumptions, the initial price of the product is not as important as showing that target customers will pay to acquire the product. True False
True
A "Series A" funding event is likely to be: $2 million to $10 million $500,000 to $2 million At least $10 million $100,000 to $500,000
a
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. The total cost to acquire and keep a customer for a given period of time. The total profit generated by a customer. How much a customer is willing to pay in order to acquire the products or services you sell.
a
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. Reduce COCA (cost of customer acquisition) to ensure that the MVBP becomes the dominant product in the market segment. Focus on dominating the current target market with the MVBP until your venture achieves profitability. Expand sales of the MVBP to as many additional market segments as possible.
a
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 The continuation of price controls allowed for a steady supply The lack of price controls had no impact on the market The lack of price controls caused the prices to initially climb and then stay at that high level
a
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. bringing the VC on board meant that the founders had significantly reduced work loads because the VC supported a lot of the operational activities. bringing the VC on early meant that they would never have to raise capital again. they needed an enormous amount of money that they just couldn't raise any other way
a
Mapping the process to acquire a paying customer usually requires all of the following steps EXCEPT: Estimating the per unit cost of acquiring a new customer Estimating how long it will take to generate a lead for a potential customer Estimating the time and effort required to make the actual sale Identifying which members of the decision-making unit you will need to access
a
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 The average customer subscribes for 10 months and then drops the service Placing 1,000 Google ads will cost $200. 5% who see the ad go to the website to request more info. 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 Cost of Customer Acquisition at DanO.com? $40 $24 $1200 $50
a
Which business model charges customer for the products or services actually used or consumed? Usage-based "Cell phone" plan Shared savings Parking meter or penalty charges
a
Which business model sells product at a very low margin but incorporates high-margin add-on products? Upsell with high-margin products One-time upfront charge plus maintenance Transaction fee Consumables
a
According to the Mullins article on customer cash, companies that charge customers a predictable monthly fee in advance are using a: value pricing model. subscription model. scarcity model. deposit model.
b
All of the following are key principles of the "prototype mindset" EXCEPT: Prototypes are disposable Prototypes are no better than the ideas behind them You can prototype anything Build just enough to learn, but not more
b
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 lifetime value of customer Decreasing the cost of customer acquisition Increasing the cost of customer acquisition Increasing the number of customers you acquire
b
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 $200 $100 $2500 $5000
b
Companies that utilize the Lean Startup approach will demonstrate: An emphasis keeping few employees Experimentation Indifference to costs A very low ratio of employees-to-managers
b
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 $12,500 $10,000 It can't be determined from the information provided $15,000
b
If your company is successful, which of the following is the most likely financial exit that generates returns for external investors? Chapter 11 bankruptcy filing Sale of the company to another business Initial Public Offering (IPO) Sale of the company to the venture capital firm
b
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: Value proposition Key partners Channels (distribution) Revenue
b
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: People magazine Rappers NFL Athletes Fashion bloggers
b
In the decision-making unit, an influencer is: The person who wants the customer to purchase the product The person with depth of experience whose opinion can affect the rest of the decision-making unit The person or department who handles the logistics of the purchase An individual or organization with the ability to reject a purchase for any reason
b
In the video "To Raise Money or Not Part 1," the speaker identifies a significant advantage of bootstrapping as: keeping control of the company limited to the founding team and key managers. the flexibility to try lots of projects, seeing what worked, building and launching products quickly, and improving based on feedback. getting access to industry experts and people who really understand the customers. the opportunity to take salary and have relatively normal work lives even in the early stage of the venture.
b
The concept of using customer cash to finance your start-up relies on: generating the product or service to be sold before receiving cash from customers. receiving cash from customers before having to spend money for to generate the product or service to be sold. matching your working capital requirements to the cash conversion cycle. getting customers to invest in your business by purchasing stock or giving you a loan.
b
Which of the following tools would be the most useful for identifying key assumptions about your business idea that should be tested? 3-D printer Business model canvas / lean canvas Lifetime value calculation Entity selection (LLC, C-Corp, S-Corp) table
b
Which part of the Business Model Canvas describes the cash a company generates from each customer segment? Value proposition Revenue streams Customer relationships Products and services
b
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 majority Laggards (skeptics) Early adopters Late majority Technological enthusiasts
c
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 Test hypotheses Establish clear goals Build incrementally and iteratively
c
Which business model relies on the customer providing their credit card or billing information in advance and then being charged for small purchases, usually of digital goods with no physical value? Advertising Franchise Microtransactions Operating and maintenance Reselling the data collected
c
Which of the following would be the best way to test assumptions about a potential new restaurant in downtown Madison? Conduct an extensive online survey of Madison residents to understand their preferences for eating at restaurants Invest $25,000 to set up a food cart next to Grainger Hall. Set up a table on Library Mall or on the Capitol Square, give away small free samples, and see if you can convince people to buy larger portions. Get a bank loan to open the restaurant on State Street
c
According to Disciplined Entrepreneurship, the correct order of steps to bring an innovation to market is: Build an End User Profile, Market Segmentation, Quantify the Value Proposition Market Segmentation, Quantify the Value Proposition, Build an End User Profile Quantify the Value Proposition, Build an End User Profile, Market Segmentation Market Segmentation, Build an End User Profile, Quantify the Value Proposition
d
According to the Art of Startups by Bhide, savvy bootstrappers will build relationships with potential banking partners: only after it has exhausted all other potential sources of capital, such as angel investors and venture capital firms. by sending promotional materials about the venture to every local bank. as soon as it realizes it needs outside capital. before the venture is actually creditworthy enough to justify a bank loan.
d
All of the following are primary roles in the decision-making unit EXCEPT: Champion Primary economic buyer End-user Purchasing agent
d
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 A-round investors will expect to get a higher rate of return than the Seed investors The entrepreneur will receive a personal financial return as a result of the A-round. The valuation in the A-round will be exactly the same as in the Seed round The perceived risk of the venture should reduced
d
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: Studying market reports about instant messaging and online platforms Launching an online survey Thinking about how they used IM themselves Inviting them to their office to try the technology
d
Think about a McDonald's Happy Meal. Which of the following customer types is the most accurate for a parent? Influencer Champion End-user Economic buyer
d
Which of the following is a key principle of the "prototype mindset? Prototypes are only as good as the ideas behind them More prototypes are always better Prototype now, build later The prototype must appear real
d
Which part of the Business Model Canvas describes the different groups of people or organizations an enterprise aims to reach and serve? Markets Channels Key resources Customer segments
d
Which part of the Business Model Canvas describes the types of relationships a company establishes with specific customer segments? Channels Revenue streams Value proposition Customer relationships
d
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? $6 5 shirts 3.33 shirts 10 shirts
d