Entrepreneurship Chapter 6

What are the three major categories of causes for failure?

1) product/market problems 2) financial difficulties 3) managerial problems

What is the failure prediction model?

Based on financial data from newly founded ventures; assumes the financial failure process is characterized by too much initial indebtedness and too little revenue financing

What are the six most important pitfalls encountered in selecting a new venture?

1) Lack of objective evaluation -unaware of need for scrutiny they would give to a design or project ordinarily -subject idea to rigorous study and investigation 2) No real insight in the market -managerial shortsightedness -timing is critical 3) Inadequate understanding of technical requirements -failure to anticipate difficulties related to developing a new product 4) Poor financial understanding -overly optimistic estimate of the funds required to carry the project to completion 5) Lack of venture uniqueness -Special characteristics and/or design concepts that draw the customer to the venture and should provide performance or service superior to competitive offerings 6) Ignorance of Legal issues -safe workplace for employees -safe products and services -necessity for patents, trademarks, copyrights

During the prestart-up and start-up phases, what are the five critical segments or factors?

1) relative uniqueness of the venture -amount of innovation required during prestart-up -length of time a nonroutine venture will remain nonroutine 2) relative investment size at start-up - 3) expected growth of sales and/or profits as the venture moves through its start-up phase -growth pattern anticipated for new-venture sales and profits -lifestyle ventures: small venture in which the primary driving forces include independence, autonomy, and control -small profitable ventures: A venture in which the entrepreneur does not want venture sales to become so large that he or she must relinquish equity or ownership position and thus give up control over cash flows and profits -high-growth ventures: when sales and profit growth are expected to be significant enough to attract venture capital money and funds raised through public or private placements 4) the availability of products during the prestart-up and start-up phases -product availability: the availability of a salable good or service at the time the venture opens its doors 5) availability of customers during the pre-startup and start-up phases -having customers available before a venture starts

What are the steps of the failure process?

1) role of profitability and cash flows -ensure products are able to yield positive profitability and cash flows in the first years 2) role of debt -enough stockholders capitial is in initial balance sheet to buffer future losses 3) Combination of both -should not start if share of stockholders capital in initial balance sheet is low and if negative cash flows in first years are probable 4) role of initial size -smaller size of business if more probable negative cash flows and larger debt share 5) role of velocity of capital -dont budget for fast velocity of captial in initial years if risk of negative cash flows is high 6) role of control -monitor financial ratios from first year -identify reasons for poor ratios and keep profitability at planned level

What are the seven components of new-venture motivation?

1) the need for approval 2) the need for independence 3) the need for personal development 4) welfare (philanthropic) considerations 5) perception of wealth 6) tax reduction and indirect benefits 7) following role models

What are the three A's of metrics?

Actionable: clear cause and effect Accessible: clear to entre who are supposed to guid their decision making Auditable: need ability to spot check the data with real customers and report mechanisms should not be too complex

What are the categories of proof of concept?

Feasibility: -whether potential venture concept can be produced or possible Desirability: -whether it is attractive to customers Viability: -whether venture concept can produce viable financial outcomes

What are microiterations?

Iterating within each action stage to improve the outcome

What are macroiterations?

Moving from one particular action stage back to a previous stage for further development

What is the definition of a "fully developed new firm"?

One that requires the full-time commitment of one or more individuals, is selling a product or service, has formal financial support, and has hired one or more individuals

What do the entrepreneurial motivations relate to?

Personal characteristics of entrepreneur, environment, and venture itself

What is a lean startup methodology?

Provides a scientific approach to creating early venture concepts and delivers a desired product to customers hands faster hypothesis-drive and entre. must work to gather and incorporate customer feedback early and often

What is design methodology?

Takes an initial concept idea and develops a proof of concept that elicits feedback from relevant stakeholders

What are internal vs external problems?

internal: -involve adequate capital, cash flow, facilities/equipment, inventory control, human resources, leadership, organizational structure, and accounting systems external: -related to customer contact, market knowledge, marketing planning, location, pricing, product considerations, competitors, and expansion

What is design?

learning process that shapes and converts ideas into form, whether that is a plan of action, an experience, or a physical thing

What is a build-measure-learn feedback loop?

most critical section of the loop to ensure you are measuring the correct thing

What is validated learning?

process in which one learns by trying out an initial idea snd then measuring it to validate the effect.

What is a pivot?

structured course correction designed to test a new fundamental hypothesis about the product, strategy, and engine of growth

What are product/market problems?

poor timing: -premature entry into marketplace product design problems: -essential makeup of the product or service changed inappropriate distribution strategy: -had to be geared toward the product and customer unclear business definition: -uncertain about exact business they were in overreliance on one customer: -failure to diversify and demise

What is the feasibility criteria approach?

A criteria selection list from which entrepreneurs can gain insights into the viability of their venture 1) proprietary? 2) are initial production costs realistic? 3) are initial marketing costs realistic? 4) does the product have potential for very high margins? 5) is time required to get to market and reach breakeven realistic? 6) potential market large? 7) product the first of a growing family? 8) initial customer exist? 9) developer costs and calendar times realistic? 10) growing industry? 11) can product be understood by financial community? NEED at least 7 to have good chance at funding

What are start-up problems?

A perceived problem area in the start-up phase of a new venture, such as lack of business training, difficulty obtaining lines of credit, and inexperience in financial planning

What is the comprehensive feasibility approach?

A systematic analysis incorporating external factors Technical: -producing a product or service that will satisfy the expectations of potential customers ----design and attractiveness, flexibility, durability, reliability, product safety, reasonable utility, ease and low cost of maintenance Marketability: -Assembling and analyzing relevent information about a new venture to judge its potential success ---investigate full market potential and identify customers, analyze extent which enterprise will exploit potential of market, using market analysis to determine opp. and risks [general economic trends, market data, pricing data, competitive data]

What is a profile analysis approach?

A tool that enables entrepreneurs to judge a business venture's potential by sizing up the venture's strength and weaknesses along a number of key dimensions or variables

What is design-centered entrepreneurship?

The entrepreneur applies design methods in four action stages of developing an opportunity : -ideation; market engagement; business model ideation: -involves taking action and learning that culminates in a venture concept prototyping stage: -addresses technical issues of concept, ensures feasible product market engagement: -refines concept for customer, contributing acquisition of knowledge business model: -completes development of opp. by identifying varying components of the model that will need to be in place for concept to be financially viable

What is the "fit" for the entrepreneur?

The idea that an individual's cognitive abilities must match with the organization or venture that he or she is attempting to develop

What is growth stage?

The third stage of a new venture life cycle, typically involving activities related to reformulating strategy in the light of competition

What is MVP (minimum viable product)?

To get started learning as soon as possible, version of product that enables a full turn on the feedback loop with minimum effort

What are critical factors?

Important new venture assessments

What are the managerial problems?

concept of team approach: -hirings and promotions basis of nepotism rather than qualifications -poor relationships with parent companies and VCs -founders who focused on their weaknesses rather than their strengths -incompetent support professionals (attorneys) human resource problems: -kickbacks and subsequent firings that resulted in almost total loss of customers -deceit on the part of a venture capitalist in one case and on part of a company president -verbal agreement between entre and VCs no honored -protracted lawsuits around time of discontinuance

What are the financial difficulties?

initial undercapitalization assuming debt too early venture capital relationship problems: -differing goals, visions, and motivations