Chapter 6 Terms

employee stock ownership plan (ESOP)

A formalized legal method to transfer some or all of the ownership of a business to its employees.

lean business practices

An application created by Eric Ries that addresses the specifics of new business creation, particularly Internet-based businesses, where rapid experimentation and constant monitoring of viewers' choices are possible.

walkaway

Business termination in which the entrepreneur ends the business with its obligations met.

affordable loss

The minimum possible expenditure of capital and other resources in order to bring an entrepreneurial idea to market.

point of indifference

The price at which a buyer is indifferent about buying or not buying the business.

due diligence

The process of investigating a business to determine its value and potential for investment.

bootstrapping

Using low-cost or free techniques to minimize your cost of doing business.

replacement value

The cost to acquire an essentially identical asset.

book value

The difference between the original acquisition cost and the amount of accumulated depreciation.

takeover

The seizing of control of a business by purchasing its stock to be able to select the board of directors.

discounted cash flows

Cash flows that have been reduced in value because they are to be received in the future.

strategic partnerships

Formal or informal relationships with customers, vendors, or mentors to ensure the success of an entrepreneurial venture.

buyout

The purchase of substantially all of an existing business.

caveat emptor

A Latin expression that means "let the buyer beware," which has been made into a philosophy sometimes used by businesses to put the burden for consumer protection onto the customer.

spin-off

A business that is created by separating part of an operating business into a separate entity.

synergy

A combination in which the whole is greater than the sum of its component parts.

heuristic

A commonsense rule; a rule of thumb.

minimum viable product

A concept central to lean business practices where you make a minimum product, but one that can be sold. By selling to customers and collecting feedback, an entrepreneur can develop a product at minimum cost.

revolving credit

A credit agreement that allows the borrower to pay all or part of the balance at any time; as the loan balance is paid off, it becomes available to be borrowed again.

workout

A form of business termination in which the firm's legal or financial obligations are not fully met at closing.

effectual reasoning

A logical process in which one analyzes the resources available and restraints on the use of resources to create an attainable goal.

start-up

A new business that is started from scratch.

serial entrepreneur

A person who opens multiple businesses throughout his or her career.

franchise

A prepackaged business bought, rented, or leased from a company called a franchisor.

pass off

A type of business transfer where the owner gives the business to someone else without a payment. This is most often done to maintain employment for the staff and service for the customers, but the business is not profitable enough to give the original owner any revenue.

sell off

A type of business transfer where the seller gets only a fraction of the value of the business. This is most often done to maintain employment for the staff and service for the customers, but the business can generate only a small amount of profit with which the original owner can be paid, or the new owner does not have much money to buy the business.

bricolage

A word derived from the French word bricoler ("to tinker"). In entrepreneurial usage it refers to the process of analyzing the resources available and creating a product or service from them.

business format franchising

An agreement that provides a complete business format, including trade name, operational procedures, marketing, and products or services to sell.

conversion franchising

An agreement that provides an organization through which independent businesses may combine resources.

product distribution franchising

An agreement that provides specific brand-name products that are resold by the franchisee in a specified territory.

trade name franchising

An agreement that provides to the franchisee only the rights to use the franchisor's trade name and/or trademarks.

transfer

An endgame strategy in which ownership is moved from one person or group to another.

termination

An endgame strategy in which the owner closes down a business.

bankruptcy

An extreme form of business termination that uses a legal method for closing a business and paying off creditors when debts are substantially greater than assets.

accelerator

An organization that supports start-ups, typically of a particular type (e.g., Internet, biotech, fashion, sports, women-owned firms, etc.) with a financial investment, free or inexpensive office space, mentoring, a variety of free or low-cost support services, and other resources. The goal of an accelerator is to accelerate a start-up from its early stages to being ready for pitch for investment. Most accelerators take an equity stake in the companies they help.

intangibles

Assets, such as patents or trademarks, and liabilities, such as accounts payable, that have no physical existence.

asset

Something the business owns that is expected to have economic value in the future.

net realizable value

The amount for which an asset will sell, less the costs of selling.

leveraging contingencies

The practice of and ability to seize upon novel opportunities that become apparent during the conduct of business.

causal (predictive) reasoning

The process of setting a goal and then determining the strategy and resources required to attain the goal.

earnings multiple

The ratio of the value of a firm to its annual earnings.

founders

people who create or start new businesses.