ENTR 3100 Final Exam Review

Types of income

- Active income: dependent on showing up and doing something - Passive income: you make money regardless of what you actually do

General partnerships

- Advantages: A bit more cost in starting up do to the need for a formal contract to delineate rights of partners, Agency problems are small, but start to exist, Taxed at the partners personal tax rates - Disadvantages: Unlimited liability, Legal actions directed towards the group, not individual partners, Finite organizations, Difficult to raise additional equity as ownership rights have to be defined

Proprietorship

- Advantages: Cheap and quick to set up, No agency problems, Taxed at personal rate of the owner - Disadvantages: Unlimited liability for the owner, Limited funding, Finite life based on life of the owner, Very difficult to transfer ownership.

Corporations

- Advantages: Unlimited number of owners and investors, Unlimited life of the organization, Liability limited to the value of the capital invested - Disadvantages: Very costly to organize, Earnings are taxed twice (once at the corporate level and then dividends taxed at personal tax level)

Lean startup framework

- Build a solution and launch it, as you get feedback, you change it - Create the absolute minimum product in order to see if the customers are interested, and then you start building the actual product - Build - Measure - Learn: You test the information and you rebuild the product using what you learned

Copyrights

- Digital media, such as music, movies or plays - Software coding or programs, such as Excel - This could refer to books, magazines or research articles - You don't necessarily need to file for a copyright, you only have to put the symbol on your work to establish your rights. But if you do file with the Copyright Office, you can establish damages for improper use without having to establish that you were damaged in future hearings.

Validating ideas

- First we come up with the hypothesis, formulate a business idea and mix it with the problem into one sentence - Focusing on quantity over quality, it's better to test the idea many times than keep it to yourself until you think it gets better - Set a minimum criteria for success, establish what kind of responses you expect - Surveys can be one of the most effective methods of getting feedback, "The wisdom of crowds": If you ask enough people a question, they will be more correct than if you ask only one of two

Validated learning

- Learning information that came from a real life experiment, not just guessing

Types of entrepreneurs

- Lifestyle - Side businesses - Startup founders - Social entrepreneurs

Eureka myth

False narrative that all people that have brilliant ideas just have them in a magic moment, That's just a great story to tell people and for movies

New/old business models

Old models - Retail (physical store, or online/physical store combo) - Franchise (owner pays to use name of famous brand) New business models - On demand (People use an app to order a service, ex: Uber, Postmates, etc.) - Sharing economy (people share access to things they own, ex: Airbnb, getaround, etc.) - Crowdsourcing (ask what people want to buy then provide that item, ex: teespring) - Freemium (customers can use limited app free, but pay for additional features, ex: evernote) - Direct to customer (skip retail and sell directly to customer, ex: warby parker glasses)

Minimum viable product

The absolute minimum amount of effort and resources you have to spend in order to get to a point where you can determine if a customer wants to buy your product

Intellectual property

- Non-disclosure agreements: contract to keep the information confidential - Non-compete clauses in contracts: Keep key employees locked into their position. Very difficult to enforce. - Trade secrets: Not granted by the government, but you must take steps to ensure that your secrets are protected. Only a few people can know the secret. Everyone with access must sign non-disclosure agreements. Must take steps to protect it. - Patent: In application one must describe the product in full detail, and with enough drawings that a professional in the same area could recreate the product. You must describe ways your product will be used. If you tried to hide the main use by describing secondary uses, it could invalidate the patent. - Trademarks: Rights that protect a firm's ability to differentiate their product and services from others (trademarks, service marks, collective marks, certification marks.) - Copyrights: Protect the use of printed or creative material.

C-Corporation

- Not a great option for small business owners - Oversold to new business owners, especially in Nevada and Delaware - Good for companies going public - Double taxation; a mess trying to get profit out - Typically, not good for someone just starting out

S-Corporation

- Not a type of corporation - This corporation designation offers tax benefits to shareholders, shareholders still have limited liability, income is only taxed at the personal level - Limited to no more than 75 shareholders, and none of them can be another corporation - Makes it more difficult to raise additional capital - Even higher startup costs than a regular corporation to keep that tax status - Optimal for an operational business, sales and services - Great way to save on self employment tax and start the salary method

Business phases

- Phase 1: Pre-launch (they spot an opportunity and gather resources, work by themselves or with a co-founder, research the market) - Phase 2: Startup (taking everything you've done in the previous stage and going out and doing it, hiring people, bringing in your first customers, small operations, the entrepreneur is doing everything that's necessary) - Phase 3: Growth (growing the business, increased revenue, growing the client base, the entrepreneur is settled in an executive position) - Phase 4: Maturity and potential decline (you're in multiple countries or cities, the growth rate is slowing, if you don't expand or pivot you might expect decline) ** Entrepreneurs are optimistic and defined in their view of the future

Types of innovation

- Price - Convenience - Speed - Quality - Self expression

Steps in recognizing a business opportunity

- Recognizing the opportunity: a problem, an opportunity for adding a benefit - Conceptualization: you realize there's an opportunity and you research markets and validate the idea - Planning: gathering resources, figuring out how you're going to tackle the opportunity, thinking about the business model - Launching the business: going out and trying the idea

Limited partnerships

- Shield some partners from legal liability - In this case, you will have one or more general partners, and one or more limited partners. - The limited partners only have liability up to the amount they have invested into the partnership. - The tradeoff is that they are not allowed to make operating decisions relative to the firm.

Scalability

- Side businesses are not very concerned with scalability - Lifestyle businesses: medium concern - Startups: very concerned, they need scalability *In order for business to have more scalability there needs to be less marginal costs

Types of legal entities

- Sole Proprietorship - Partnerships (Limited/General) - Corporations (S & C) - Limited Liability Companies (LLC)

Entrepreneur definitions

- Someone who starts their own business - Harvard Business School:"The pursuit of opportunity without regard to resources currently controlled." - The Economist magazine: "There are two distinctive views. The first is the popular view that entrepreneurs are people who run their own companies, the self-employed or small business people. The second view is that entrepreneurs are innovators, people who come up with ideas and embody those ideas in high-growth companies." - U.S. Small Business Administration: "An entrepreneur is a person who organizes and manages a business undertaking, assuming the risk for the sake of profit." **The notion that "You're born an entrepreneur and if you're not born one, you can't do it" is a myth

Reasons a patent may be rejected

- The product must be useful: Just because something is new, doesn't make it eligible for patent protection. It must have utility - It must be novel: During the process, there will be a search of prior patents to see if there is anything similar. If the idea is obvious to anyone, it is not patentable - The filing must be timely: It must be filed within one year of the products introduction to the market. An initial advertisement or description in the media counts as an introduction to the market, not an actual sale.

Limited liability company (LLC)

- This is a hybrid form of company that has similarities to both corporations and partnerships - Limited liability for the owners - Income taxed at the personal level; doesn't save on taxes - Owners are only liable for their own personal actions, and not the actions of other owners.

Types of patents

- Utility: A new product that can be used for new uses, or an improvement in prior designs. These include mechanical, chemical, electrical or general inventions - Design: Protects the ornamental design of the product - Plant: Modifications to plants or other organic organisms - Business: New ways of running a business or improving the process.