Intro to Business Exam 1

Balance sheet

(big picture) a statement of the assets, liabilities, and capital of a business in a point in time, detailing the balance of income and expenditure over the preceding period

Problem/Solution Fit

*Do I have a problem worth solving?* 1. Is it something customers want? (must-have) 2. Will they pay for it? If not, who will? (viable) 3. Can it be solved? (feasible)

Product/Market Fit

*Have I built something people want?* - building traction is the first significant milestone of a startup

Scale

*How do I accelerate growth?* - after product/market fit, some level of success is almost always guaranteed, your focus is then shifted toward growth, or scaling your business model

Unique Value Proposition

*Why you are different and worth getting attention* - first-time visitors spend eight seconds on average on a landing page; your UVP is their first interaction with your product; craft a good UVP and they might stay and view the rest of your site

Revenue Streams

- you don't need a lot of users to support learning, and if you intend to charge for your product, you should charge from day one 1. Price is a part of the product - price has the power to change the perception of the product 2.Price defines your customers 3. Getting paid is the first form of validation

Rank your business models

1. Customer pain level (problem); 2. Ease of reach (channels); 3. Price/gross margin (revenue streams/cost structure); 4. Market Size (Customer Segments); 5. Technical feasibility (solution)

Brainstorm Possible Customers

1. Distinguish between customers and users: customers pay for your product, users do not 2. Split broad customer segments into smaller ones: you can't build, design, and position a product for everyone 3. Put everyone on the same canvas at first (if you have a multisided business) 4. Sketch a Lean Canvas for each customer segment: the elements of your business model can and will vary greatly by customer segment - start with the top two or three customer segments you feel you understand the best of find most promising

Essence of Running Lean

1. Document your Plan A 2. Identify the riskiest parts of your plan 3. Systematically test your plan

Lean Canvas adjectives

1. Fast - when compared to 60 page business plans 2. Concise - forces you to pick your words carefully 3. Portable - can be read by more people and updated frequently

Characteristics of Channels

1. Freer versus paid; no such thing as a free channel 2. Inbound vs. outbound; inbound channels use "pull messaging" to let customers find you organically (ex. blogs) while outbound channels rely on "push messaging" to reach customers (ex. print/TV ads or trade shows) 3. Direct versus automated; direct selling is one of the most effective; first sell manually, then automate 4. Direct versus indirect: you have to first sell your product yourself, before letting others do it 5. Retention before referral: you need to have a product worth spreading first

Problem and Customer Segments

1. List the top one to three problems - jobs customers need to get done 2. List existing alternatives 3. Identify other user roles 4. Hone in on possible early adopters

Order of tackling the Lean Canvas

1. Problem 2. Customer Segments 3. UVP 4. Solution 5. Channels 6. Revenue Streams 7. Cost Structure 8. Key Metrics 9. Unfair Advantage

Sketching a Lean Canvas

1. Sketch a canvas in one sitting 2. It's OK to leave sections blank 3. Be concise 4. Think in the present 5. Use a customer-centric approach

Running Lean Illustrated

1. Understand the Problem: He called readers and asked why they wanted the book and what would be different about the book from others on the market (UVP) 2. Define the Solution: Built a demo, riskiest part was nailing the Table of Contents, asked readers if they would buy it and their feedback helped define the table of contents and a strong signal to move forward. He left the cite up for people to sign up for emailing list and he could then see the interest level 3. Validate Qualitatively: Realized he needed to create an MVP so he could learn from the customers. Made the TofC into an outline and held workshops. He then created a pre-order system so he could receive customer feedback during the writing process - wrote a better book faster 4. Verify Quantitatively: because he was able to sell 1,000 copies of the book on his own, there was less risk for the publishers, and they were quicker in grabbing the project; sold 10,000 copies on his own and was writing an updated version - continuous feedback loop with customers

Iteration Pattern and Risks

1. Understand the problem- conduct formal customer interviews to understand whether you have a problem worth solving; 2. Define the Solution- build a demo that helps the customer visualize the solution, then test it with customers; 3. Validate qualitatively- build your MVP and then soft-launch it to your early adopters; 4. Verify quantitatively- launch your refind product to a larger audience

How to craft a unique value propostition

1. be different, but make sure your difference matters 2. Target early adopters 3. focus on finished story benefits 4. Pick your words carefully and own them 5. Answer: what, who, and why 6. Study other good UVPs 7. Create a high-concept pitch (ex. youtube: flikr for video)

Unique value proposition

A concise description of what you are selling, why customers should buy from you, and what differentiates you from competitors.

Elevator pitch

A concise summary of a company's service, business, or product idea that can be delivered in a very short time.

Income statement

A key financial statement, also called a P& L (for profit and loss). The income statement shows a summary of the income and expenses of a company.

Cash flow statement

A key financial statement. The cash flow statement shows how much actual cash went into and out of the company.

Minimal Viable Product

A product that has been created quickly in order to get it to market as soon as possible. Over time, and based on the experience of actual customers, the product is improved on and refined.

Tagline

A short, catchy, and memorable group of words, representing a company's message and branding.

Business model canvas

A tool for describing some elements of a new business in a one-page, visual format. It was originally created by Swiss management consultant Alexander Osterwalder.

Profit

Amount a company earns after expenses. Can be gross profit or net profit or profit after taxes.

Gross profit

Amount of income a company realizes on each sale after accounting for the hard costs of acquiring inventory or raw materials (cost of goods) and before accounting for sales and administrative expenses.

Net profit

Amount of income after deducting all costs of doing business, including administrative overhead and other fixed costs.

Channel

An avenue through which a company sells its products or services (such as through distributors, retailers, or online).

Business

An entity organized for the purpose of buying and selling a product, service, knowledge, or other thing of value; a company set up with the intention of making a profit; an activity established to provide income and financial well-being for the business owner.

Venture

An entrepreneurial undertaking, usually referring to a new business.

Entrepreneur

An individual who, through their own initiative and hard work, launches a new undertaking— typically a business— that involves risk and uncertainty. Ordinarily, entrepreneurs seize on opportunities, innovate, experiment, and pioneer to bring to market a new, better, less expensive, or somehow improved product or service, or to open up new markets. Many entrepreneurs also aim to advance social goals in their ventures.

Debt

An ongoing obligation of the company, such as a bank loan or line of credit.

Current liabilities

Any bills, debts, or obligations occurring in the ongoing course of business; any debt due within the next year. Includes accounts payable, accrued payroll expenses, and loans and credit lines with less than one year's maturity date.

Liabilities

Any outstanding financial obligation or debt of a company.

Assets

Anything the company owns that has a positive monetary value. The two main types of assets are — Current assets. Assets that can be converted quickly to cash, with relative ease; these assets are designed to be turned over in the normal course of doing business, such as bank deposits, inventory, and accounts receivable. — Fixed assets (or property, plant, and equipment). Assets that are the ongoing means of doing business; such assets are generally cumbersome to turn into cash; includes buildings, land, and equipment.

Entrepreneurial thinking

Applying the characteristics of entrepreneurs— such as innovation, creativity, risk-taking, the willingness to accept failure, and fast response time— to other endeavors, such as corporate enterprises, education, and social programs.

Variable costs

Costs that change depending on how many sales or products you make. For example, rent is fixed, but cost of goods will vary depending on how many units you produce.

UVP Formula

End Result Customer Wants + Specific Period of Time + Address the Objections

Cost of goods sold (COGS)

Expenses directly associated with producing and making a product or service. Companies differ as to which expenses they attribute to cost of goods, but generally items such as source materials, direct labor, and freight are included. Not included are indirect costs, such as rent, utilities, and other overhead.

Start-up costs

For a new business, shows the initial investment necessary to begin operations.

Net Profit/Loss

Gross Profit-Operating Expenses = Net Profit

Risk

Identify the riskiest parts of your plan, building a successful product is fundamentally about risk mitigation - the bigger risk for most startups is building something nobody wants

Risk

In entrepreneurial terms, risk involves uncertainty, with the possibility of encountering unexpected setbacks, suffering losses, and even failing. New ventures present various types of risk, such as market risk in that target customers may not be ready for the product or service; or technology risks in that the necessary technology may not be able to be developed in an acceptable time frame; or execution risks, in that the planned activities may not be able to be carried out.

Lean Canvas

Lean Canvas helps deconstruct your business model into nine distinct subparts that are then systematically tested, in order of highest to lowest risk

Cost Structure

List the operational costs you will incur while taking your product to market and use revenue streams and cost structure inputs to calculate a break-even point and estimate how much time, money, and effort you need to get there

Long-term liabilities

Loans and other debts that come due in more than a year's time. This year's interest payments on such loans, or debt service, are included in current liabilities.

Fixed costs

Ongoing expenses or overhead of a business that occur regardless of the amount of sales. These expenses usually include items such as rent, utilities, salaries, and loan repayments.

Equity

Ownership of a company, usually distributed by means of shares of stock or percentage ownership of a company. A person who owns part of a company is said to have an equity interest in the company.

Valuable Work Detector

Problem or Potential->Solution or Suggestion, Issue->Innovation, Needs->Resource, Trend->Positioning Idea

Three stages of a startup

Problem/Solution Fit --> Product/Market Fit --> Scale

Types of Risk

Product risk- Getting the right product; Customer risk- building a path to customers; Market risk- building a viable business

Gross Profit

Revenue-Cogs = Gross profit

Profit margin

The amount earned after the cost of goods (gross profit margin) or total operating expenses (net profit margin) are deducted; often expressed in percentage terms.

Brand

The complete public identity of a company, product, or service based on all the words, symbols, design, messages, and values connected with it.

Demographics

The description of a market by the most basic, objective aspects of the customer base. These specific, observable traits define a target market, such as age, income, gender, and occupation for consumers, or company size, revenue, and industry affiliation for business customers.

Consumer or end user

The individual who will actually use the product or service and not necessarily the person or entity that purchases it.

Target market

The people, businesses, and organizations most likely to buy a product or service; the people, businesses, and organizations a company tries to reach so these groups will purchase its goods or services.

Market segmentation

The process of dividing a market into sections or "niches" that share something in common— either they behave in similar ways, or they have similar requirements. The goal of market segmentation is to tailor a product or service to appeal to each segment. This "tailoring" can include marketing, pricing, or distributing differently, or adding or deleting features.

Disruption

This occurs when entrepreneurs create new companies that challenge and transform older, established industries. These cutting-edge start-ups apply fresh thinking, develop new business models, and typically use technology to change the way business is done.

Gross sales

Total sales from all product line categories.

Revenue

Total sales of a company before any expenses. Profit refers to the amount a company earns after expenses.

Pivot

a change in direction of a startup while staying grounded in learning; finding a plan that works - validate parts of the business model hypotheses in order to find a plan that works; goal is course correction aka pivot

Bootstrapping

a collection of techniques used to minimize the amount of external debt or funding needed from banks or investors

Experiment

a cycle around the validate learning loop (i.e. build, measure, learn)

Traction

a measure of your product's engagement with its market; investors care about traction more than everything else

Risk

a state eof uncertainty where some of the possibilities involve a loss, catastrophe, or other undesireable outcome

What is Running Lean?

a systematic process for iterating from Plan A to a plan that works, without running out of resources - speed, learning, and focus - testing a vision by measuring how customers behave - engaging customers throughout the product development cycle - disciplined and rigorous process

Optimizations

after finding a plan that works (pivot) it is the acceleration of that plan - attempt to refine parts of the business model hypotheses in order to accelerate the working plan; goal is efficiency

When is the ideal time to raise funding?

after the product/market fit, because at that time, both you and your investors have aligned goals: to scale the business

Cost of Goods Sold (COGS)

all costs used to create your product/service that has been sold (direct labor, materials, overhead, etc.)

Profit Margin

amount by which revenue from sales exceeds costs in a business

Iteration Meta-Pattern

an iteration strings multiple experiments together toward achieving a specific goal, such as getting to product/market fit *Understand Problem --> Define Solution --> Validate Qualitatively --> Verify Quantitatively - first two stages are about getting to problem/solution fit or finding a problem worth solving - then you iterate toward product/market fit by testing whether you've built something people want using a two-stage approach

Waste

any human activity which absorbs resources but creates no value

Feedback loop

build, measure, learn

Lean Canvas

business model validation tool, a companion tool to this book that helps you document your business model, measure progress, and communicate learning with your internal and external stakeholders

Value creation

can be created through pricing, purpose, underlying message or meaning

Testing of Unfair Advantage

can only be tested in the face of competition

Bootstrapping vs. Lean Startup

complementary; both cover techniques for building low-burn startups by eliminating waste through maximization of existing resources before expending effort on acquisition of new or external resources *Bootstrapping + Lean Startup = Low-Burn Startup*

USERcycle

customer lifecycle management software that helps companies convert their users into passionate customers; passionate customers come back and use your product, tell others about your product, and pay for your product (or get you paid)

Learning Stage:

data is used to derive specific "learning" that serves to validate or refute a hypothesis, which in turn drives the next set of actions

Customer Development

describes the parallel process of building a continuous feedback loop with customers throughout the product development cycle - get out of the building

Activation

describes the point when the interested customer has his first gratifying user experience

Acquisition

describes the point when you turn an unaware visitor into an interested prospect ex. getting someone to do anything other than leave your website

Three must-haves in a team

development, design, and marketing

Solution

do not get carried away with fully define your solution yet; bind a solution to your problem as late as possible

First goal of startup:

establish just enough of a runway to allow you to start testing and validating your business model with customers

Operating expenses

expenses not directly related to production of products/service (indirect labor, rent, marketing, fees, taxes, etc.)

Channels

failing to build a significant path to customers is among the top reasons why startups fail

Speed and learning

fall into the premature optimization trap

Cash flow statement

financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities

Key Metrics

find the key number that tells you how your business is doing in real time, before you get the sales report: acquisition, activation, retention, revenue, referral

Genchi gembutsu

go and see for yourself

Another top top contributer of waste:

incorrect prioritization

Unfair Advantage

insider information, the right "expert" endorsements, a dream team, personal authority, large network effects, community, existing customers, SEO ranking

Seek External Advice

it is imperative that you share your model with at least one other person

Validated learning

learning generated by trying out an initial idea and then measuring it against potential customers to validate the effect

Effective Experiments

maximize for speed, learning, and focus (you need all three); Identify a Single Key Metric or Goal - a startup can focus on only one metric. So you have to decide what that is and ignore everything else; do the smallest thing possible to learn; formulate a falsifiable hypothesis (statement that can be clearly proven wrong); validate qualitatively and quantitatively; correlate results to specific actions; communicate learning early and often

Retention

measures "repeated use" and/or engagement with your product

Revenue

measures the events that you get paid

Liabilities

money going out

Referral

more advanced form of a user acquisition channel where your hapy customers refer or drive potential prospects into your conversion funnel

Lean and Vision

most startups start with a strong vision, Lean Startup strives to uphold a strong vision with facts, not faith. It is important to accept that your initial vision is built largely on untested assumptions (hypotheses) and Running Lean helps you systematically test and refine that initial vision

Customer Persona

name and role, design your person, what do they really want, what are positive trends they experience, what are positive opportunities they experience, what are their hopes for the future, what are negative trends they experience, what are their fears for the future

What separates successful startups from unsuccessful ones?

not the fact that successful startups began with a better initial plan, but rather that they find a plan that works before running out of resources

Brand

promise (consistent and dependable), values (values customers relate to), identity (name, logo, colors, packaging, tagline), story (the narrative expressing the company's core message

Measure stage:

put this artifact in front of customers and "measure" their response using a combination of qualitative and quantitative data

Income statement

reports company's financial performance over a specific accounting period

Lean Startup

represents a synthesis of Customer Development, Agile Software Develop methodologies, and Lean practices

Toyota

revived Japanese economy w/ a different system, the "just in time" system, less is best (eliminate waste)

Build stage:

set of ideas or hypotheses that are used to create some artifact (mock-ups, code, landing page, etc.) for the purpose of testing a hypothesis

Growth hypothesis

tests how new customers will discover a product or service

Value hypothesis

tests whether a product is valuable to potential customers

Uncertainty

the lack of complete certainty, that is, the existence of more than one possibility

Outsourcing

the one thing you should never outsource is learning about customers

The Problem Team

the problem team is mostly involved with "outside-the-building" activities such as interviewing customers, running usability tests, and so on

Iteration

the repetition of a process

MVP

the smallest thing you can build that lets you quickly make it around the loop (hypoth. Design, test, learn)

The Solution Team

the solution team is mostly involved with "inside-the-building" activities such as writing code, running tests, deploying releases, and so on

Ideal Problem/Solution Team

two or three people, smallest team possible; communication is easier, you build less, you keep costs low

Assets

what you own

When do you learn the most?

when the probability of the expected outcome is 50%; that is, when you don't know what to expect

Learning and focus

when you are focus on the right think and learning but you are not moving quickly enough, you can run out of resources or be outpaced by a competitor

Speed and focus

when you are going fast and are focused, the image of a dog chasing its tail comes to mind

What is your product?

your product is not "the product" your business model is the product - not your job to build the best solution, but owning the entire business model and making all the pieces fit is