EEE Midterm
2. Compare and contrast Sarasvathy's effectuation and causation. Include discussion of the starting points and principles for each. When might you prefer causation over effectuation?
- Effectual Reasoning—begins with a given set of means and allows goals to emerge contingently over time form the varied imagination and diverse aspirations of the founders and the people they interact with. Used in the early stages of a new venture. Inherently creative, all about execution. Emphasizes affordable loss, built upon strategic partnerships, stresses the leveraging of contingencies. "to the extent that we can control the future, we do not need to predict it" o The affordable loss principle o Strategic partnerships principle o Leveraging contingencies—turn unexpected into the profitable o Process of Effectuation: § Definition of one of several possible markets § Adding segments/strategic partners § Customer definition § Customer identification o Effects could be negative and problematic for the society, reflect ignorance and cupidity as well as the will and aspirations of the people who participate in the creation of new urns and games of the future - Causation—Focuses on expected return, depends on competitive analysis, urges the exploitation of pre-existing knowledge and prediction. "To the extent that we can predict the future, we can control it" o Classic Causation Model from Marketing: § Market definition § Segmentation—age, income § Targeting—based on evaluation criteria such as expected return § Positioning To Reach—through marketing strategies) § The Customer
Different geographic areas (countries, regions, cities) differ in terms of their level and type of entrepreneurship. Why? If you were in a position of power to create a new entrepreneurial 'environment' encouraging high-potential/growth startups, what three specific things would you prioritize in order to get the largest number of high-potential firms?
-Many factors play into this: -One is the role governments play in helping to foster and promote entrepreneurship, how much money the government has to spend on this, and how the government is run overall. Some governments have a strong focus on aiding entrepreneurs, and implement programs, taxing strategies, and laws to support entrepreneurs, while others are unable to give much aid due to their financial situation (less developed countries), or it is not in their interest due to their political philosophy. There are different rules/regulations on starting a business in different places, which can make it easier or harder. -Logistical systems: access to a consumer market, methods of transportation (roads, airports etc.) -Ability to acquire bank loans...easier in companies with stronger economy -Education due to the environment -Role Models/Overall mindset due to upbringing education, growing economy, growing population
As part of your responsibilities at your first job upon graduation, you are given responsibility for generating a large bank of new business ideas. Describe and exemplify what you would do to develop these new ideas, and include at least three different approaches. Where might you start in order to develop the largest number and best ideas?
-brain storm, look at strengths and weaknesses of company, research on other companies, look at the economy and notice gaps
All firms have stakeholders and networks. Explain what these two terms mean and what strong and weak ties are. In what ways are both strong and weak ties important for you as an entrepreneur?
A stakeholder is a group, individual, or other organization that are directly effected by the practices of an organization and therefore have a stake in its performance. They influence how the company works and runs. Strong-tie relationships are characterized by frequent interaction, such as ties between coworkers, friends, and spouses. Strong-ties can benefit you because they are like-minded individuals that can reinforce the insights and ideas your already have. Weak-tie relationships are characterized by infrequent interaction, like ties between casual acquaintances. These kind of relationships can spark a completely new idea, since you are not as apt to be as like-minded, and you may come up with something you have never thought of before.
A business concept is different from both an opportunity and a business model. Explain what a business concept consists of and its components. What are the differences between features and benefits? In what ways can the firm create value for its customers?
An idea for a business that includes basic information such as the service or product, the target demographic, and a unique selling proposition that gives a company an advantage over others. Firms can create value for its customers by giving them new products/services they would not have had before. Features are defined as surface statements about your product, such as what it can do, its dimensions and specs and so on. Benefits, by definition, show the end result of what a product can actually accomplish for the reader.
After having earned an "A" in EEE370, your friends and family see you as being very knowledgeable about entrepreneurship. One of your friends has a "great idea" and wants you to carry out an industry analysis for her. What industry factors are you going to look at in doing this? In an ideal world and in support of this really being a "great idea", what (specifically!) would your analysis of these factors show? Make sure to refer to Porter's five forces as well as other factors.
An industry analysis is business research that focuses on the potential of an industry. There are three questions in this analysis: Is the industry accessible/realistic for your new venture? Does the industry have markets that are ripe for innovation and are under deserved? Are there positions in the industry that will that will avoid some of the negative attributes of the industry as a whole?Michael Porter's 5 forces model: the threat of substitutes, the threat of new competitors, rivalry among existing firms, the bargaining power of suppliers, and the bargaining power of buyers—determines the average rate of return for the firms competing in a particular industry.
Entrepreneurs need money in order to operate their firms. However, there are different methods for entrepreneurs to acquire money, including bank loans, venture capital, and family/friends. Explain these three types of financing and specifically compare and contrast them in terms of the demands placed on the entrepreneur, the entrepreneur's need for control, financial returns, and the amount of money needed.
Bank Loans: a bank loans you a certain amount of money for your business endeavors. (you MUST pay it back. They are interested in cashflow, character, and collateral). Venture Capital: money invested from a group of founders, key employees, and advisers that either manage or help manage a new business in its start-up years (give you lots of money to own a stake, they will make a profit off of the profit you are making.) Family/Friends can also contribute initial capital to jumpstart the company (smaller amounts of money, no stake or control)
What is bootstrapping? Explain its fundamental principles and what it (practically) involves. Relate it to cash flow. Provide examples from the course about how bootstrapping could be used.
Bootstrapping is finding ways to avoid the need for external financing or funding through creativity, ingenuity, thriftiness, cost-cutting, or any means necessary. The goal is to minimize start of expenses by using money saving techniques. Examples of bootstrapping are buying used instead of new equipment, leasing equipment instead of buying it, hire interns, share office space, buying products on eBay. Ex: Steve Jobs sold a car and a calculator to get initial capital for Apple.
Explain contribution margin. How does the contribution margin fit in with other vital aspects of the financial performance of the firm, such as breakeven and profit? Why is the contribution margin important for understanding the economic model and strategy of the firm?
Contribution margin is the amount per unit of sale that's left over and is available to "contribute" to covering the business's fixed costs and producing a profit. Contribution margin is what makes profit for a company.
Why do people become entrepreneurs? In what way might these differ depending on 1) the "type" of entrepreneur, and 2) the background (ethnicity, gender, employment and financial situation, etc.)? Why?
People become entrepreneurs to be their own boss, to pursue their own ideas, to pursue financial rewards, and many other reasons. Some people become entrepreneurs through "need based entrepreneurship" as a last resort for financial income. Others may just have a very driving and controlling personality and need to be their own boss. Some people could also just have a huge passion for an idea, and need to pursue it themselves. Women could start their own business because of sexism in the work place, and what to feel as if they are on top of the corporate ladder instead of always being underneath the men in a company.
Describe segmenting. What is it? How does one do it? Why is it important? How does the term segmenting and targeting fit into a discussion of opportunities?
Segmenting is the process of dividing the market into distinct segments. The segments could be geography, gender, age, lifestyle, etc. It is important because it helps companies identify the specific target market they want to focus on. The more a start-up knows about the consumers in its target market, the more opportunities it has to gear products or services to accommodate their needs.
New firms are frequently started by teams. What are the advantages of working in a team in the context of a new, startup firm? What are the disadvantages? If you were to start building a team for your startup, what types of things would you look for in other team members? Why? Don't forget to include what should be heterogeneous and homogeneous.
The advantages of working in a team brings you more talent, resources, ideas, and professional contacts to a new venture. The disadvantages are that you and your team mates could differ in work habits, tolerance for risk, passion for the business, how it should be run, and other conflicting ideas on how the business will operate. In other team members, I would look for diligence, passion, punctuality, dedication, and willingness to compromise and hear out other people. I would want my team to be heterogenous, bringing several different abilities and experiences to the table. This will enable for more creativity and willingness to try new things and branch out.
What is Entrepreneurship? Why is it important for society, businesses, and for you?
The process by which individuals pursue opportunities without regard to resources they currently control for the purpose of exploiting future goods and services. Important for job creation, social change, new industries, new products.
What is a feasibility analysis and what are the main components? What are the main benefits? What are primary and secondary research and how do they help in carrying out feasibility analysis?
The process of determining if a business idea is viable. The 4 components are product/service feasibility, industry/target market feasibility, organizational feasibility, financial feasibility. It is important because, according to John Mullins, it prevents entrepreneurs of inheriting certain risks that come with pursuing your business idea. Primary research is research done by the entrepreneur doing the analysis. This could be talking to potential customers, getting feedback from industry experts, creating surveys, etc.. Secondary research is data that is already collected through industry studies such as library and internet research.
You are trying to do a feasibility analysis for your business model assignment. You realize that the "economic model" is pretty important, and also reflects the true nature of the opportunity you are evaluating. Explain, in moderate detail, the four components of the economic model. Discuss also how they need to be informed by and satisfy: 1) the needs of the target market, 2) your entrepreneurial aspirations, and 3) your differentiation from competitors. Summarize by explaining how the economic model informs the true feasibility of your opportunity.
operating leverage- the extent to which the underlying cost structure is dominated by fixed costs, or is driven more by variable costs volumes- whether the firm is organized for low, medium, or high volume in terms of market opportunity and internal capacity margins- decides whether to have low, medium, or high margins revenue sources- deciding whether the revenue sources are fixed or variable
