MGMT 160
The article discusses a "Three-Dimensional Business Landscape." What point is the author trying to make using it, i.e. what does the Three-Dimensional Business Landscape represent and why are they talking about it?
There are many ways a business can choose where to compete and how to do so - Business landscape is useful way to conceptualize this - A business' choices can lead to higher or lower profitability, represented by points on the landscape - A firm may choose where to compete by moving into a market segment where competition is less intense, innovation cannot be easily replicated, or customers are more fragmented - Business could move off the landscape altogether, finding an opportunity to create a market where none exists - Objective of strategy is to steer the business to a high point of profitability on the landscape. Only a clear perspective on the environment and its forces make this possible - Firms that command and sustain a larger wedge than their peers are said to have a competitive advantage - Wedge is the difference between supplier opportunity cost and their customer's willingness to pay - Just like being internally consistent, a firm also has to be externally consistent → finding and occupying these points on the landscape is strategic positioning It's not easy to find this point, many firms end up resembling one another, deploying "me too" strategies, competing against one another for the same customers - Surveying the business landscape, there are many different strategic options (for mousetrap example) - Different Target Market Rather than compete for the household consumer market, it could redeploy its skilled sales team to the institutional market, where it serves hotels, office buildings, etc. → less competition here - Different Business Model The mousetrap company continues to serve the same market but changes its business model Rebrand and reposition itself as a luxury option for more-discerning consumers willing to pay a premium - Different Positioning and New Target Market Repurpose to catch and protect small pets → willingness to pay is much higher, the relevant retail channel is more fragmented, and competition is almost nonexistent - Different Business Landscape The structural forces shaping the landscape are not static Countless examples of successful firms positioning/repositioning themselves on the business landscape ex.) In the rental car market, Enterprise Rent-A-Car deliberately chose a different target market than its competitors. - Rather than entering the crowded and very competitive market for travelers at airports, it focused on local market needs such as consumers who need replacement car because their own car is repaired ex.) FedEx reimagined parcel delivery, inventing an overnight service that served a wholly new pace on the business landscape Southwest offers a no-frill airline → aims to be a low-cost competitor, focused on the market segment willing to forgo the amenities offered by typical airlines
What is "intellectual property"?
Those rights which result from the physical manifestation of original thought, either naturally or in compliance with statue
What does the term "bootstrapping" when referring to a startup?
To achieve early cash flow and become profitable by drawing on personal resources, without giving up any equity to investors
List the three types of "fit" discussed in the text. Specifically, for each "fit", list the "name" (e.g. foo-bar fit), the "slang" term used for each (e.g. "on-the-exam fit"). Describe the key attributes of each fit in a sentence of two.
(On Paper) Problem-Solution Fit: Takes place when you have evidence that customers care about certain jobs, pains, and gains. Also you have designed a value proposition that address those jobs, pains, and gains (In the Market) Product-Market Fit: Takes place when you have evidence that your products and services, pain relievers, and gain creators are actually creating customer value and getting traction in the market (In the Bank) Business Model Fit: Takes place when you have evidence that your value proposition can be embedded in a profitable and scalable business model
The BMC text distinguishes between two broad classes of business model Cost Structures. Define each "broad class" in a sentence or two.
- Cost driven → This class focuses on minimizing costs wherever possible. It also aims to create and maintain the leanest possible Cost Structure. - Value driven → This class focuses on value creation.
The "Business Model Canvas" consists of nine basic building blocks. Sketch the canvas and label each of the nine blocks. For each labeled block, describe it in a sentence or two.
- Customer Segments: Defines the different groups of people or organizations an enterprise aims to reach and serve → try and group people with the same needs or behaviors - Value Propositions: Describes the bundle of products and services that create value for a specific Customer Segment - Channels: Describes how a company communicates with and reaches its Customer Segments to deliver a Value Proposition - Customer Relationships: Describes the types of relationships a company establishes with specific Customer Segments → driven by: customer acquisition, customer retention, boosting sales (upselling) -Revenue Streams: Represents the cash a company generates from each Customer Segment - Key Resources: Describes the most important assets required to make a business model work - Key Activities: The most important things a company must do to make it business model work - Key Partnerships: Describes the network of suppliers and partners that make the business model work - Cost Structure: Describes all costs incurred to operate a business model
As discussed in the article, what are some of the primary differences between "debt" and "equity" fundraising? How are the motivations of debt and equity financiers different? Give an example of a debt investor and an example of an equity investor as discussed in the reading.
- Debt investors (traditional banks) lend a fixed sum of money for a specified period at a given interest rate - Equity investors (VC and angel investors) receive a long-term ownership stake in a venture in exchange for capital Like debt investors, they can lose the full value of their principal, but unlike debt investors... Equity investors enjoy huge upside potential ex.) Debt Investor will take less risky option as they are guaranteed their money while a VC wants that one "home run"
Professor Stevenson discusses two historical definitions of entrepreneurship which he argues are both flawed. What were the two "Schools of Thought" on the way to define entrepreneurship according to Stevenson? According to Stevenson, what is the major flaw to each of the two?
- Economic Function - Entrepreneurs all have a common set of individual traits. - The flaw for the first school is that it doesn't make sense to decide what economic functions are entrepreneurial. - The flaw for the second school is that a single psychological profile of an entrepreneur doesn't exist
What is a sole proprietorship?
A person who undertakes a business without any of the formalities associated with other forms of organization; the individual and the business are one and the same for tax and legal liability purposes
The book describes "five data traps to avoid". Name THREE data traps and describe each in a sentence or two
- False-Positive Trap Risk: Seeing things that aren't there Occurs: when your testing data mislead you to conclude, for example, that your customer has a pain when in fact it is not true - False-Negative Trap Risk: Not seeing thing that are there Occurs: When your experiment fails to detect, for example, a customer job it was designed to unearth - The "Local Maximum" Trap Risk: Missing out on the real potential Occurs: When you conduct experiments that optimize around a local maximum while ignoring the larger opportunity For example, positive testing feedback might result in you sticking with a much less profitable model when a more profitable one exists - The "Exhausted Maximum" Trap Risk: Overlooking limitations (e.g. of a market) Occurs: When you think an opportunity is larger than it is in reality. For example, when you think you are testing with a sample of a large population but the sample is actually the entire population - The Wrong Data Trap Risk: Searching in the wrong place Occurs: When you abandon an opportunity because you are looking at the wrong data. For example, you might drop an idea because the customers you are testing with are not interested and you don't realize that there are people who are interested
What is the typical length of time for financial forecasts (i.e. pro-forma financial statements) included in the business plan? Are there reasons why these may be shorter or longer? Explain.
- Financial forecasts are typically projected over 3-5 years This time frame may be longer for a venture that requires long-term investments prior to turning cash flow positive
The BMC text discusses four characteristics of "Cost Structures". List three of the four and define in a sentence.
- Fixed Costs → These are costs that remain constant despite the volume of goods or services produced - Variable Costs → These are costs that can vary proportionally with the volume of goods/services being sold. - Economies of scale → These are cost advantages that a business employs as its output expands. - Economies of scope → These are cost advantages that a business employs due to a larger scope of operations.
When describing "Customer Jobs", the text distinguishes between three main types of customer jobs to be done and supporting jobs. List the three types of customer jobs to be done and briefly describe in a sentence
- Functional Jobs are jobs when your customers try to perform or complete a specific task or solve a problem. - Social Jobs are jobs when your customer wants to look good or gain power/status. These jobs describe how customers want to be perceived by others. - Personal/emotional Jobs are jobs when your customers seek a specific emotional state, such as feeling secure or good at work.
Restrictions of S-Corporations (lecture)
- Have only one class of stock, although differences in voting rights are allowed - Have 100 or fewer stockholders - Have only individuals, estates, and certain trusts as shareholders (US persons) If you meet? --> the corporation files a tax return but doesn't pay any tax on that - Income passes through the owners distributed based on the percentage of ownership in the company - Pay tax on the income
The article discusses five benefits of crowdfunding for startups. Please list three of them.
- Helps alleviate the capital crunch that many startups face - Aims to raise a relatively small sum of money for a one-time project or event - Crowdfunding further establishes a loyal community of engaged customers
What is a "limited partnership"? Define in a few sentences.
- Hybrid form of organization → a limited partnership is a partnership which has both limited and general partners - The general partner assumes the management responsibility and unlimited liability for the business and must have at least a 1% interest in profits and losses - The limited partner has no voice in management and is legally liable only for the amount of capital contribution plus any other debt specifically accepted
Who are angel investors? Give some characteristics and discuss their motivations, etc.
- Individuals, or groups of individualism, who invest their own money in startup ventures → distinguished by their use of personal rather than professionally raised and managed funds - The advantage of this funding is that it may be easier to get from FFF (friends, family, fools) - Downside: FFF may have limited resources, expertise, or connections to industry and professional networks - Helping startups bridge the gap between the generation of a raw idea and the achievement of sufficient maturity and momentum to attract VC investment - Some of the most active angels in major cities have formed angel groups, which allow collective screening and investing in startup ventures
The VPC text discusses that value propositions in business-to-business (B2B) transactions typically involve six stakeholders in the search, evaluation, purchase, and use of a product or service. Each one has a different profile and a different value proposition canvas. Stakeholders can tilt the purchasing decision in one direction or another. List FOUR of stakeholders given in the text and describe in a sentence describing each, OR list all six stakeholders without definitions to receive full credit.
- Influencers → Individuals or groups whose opinions might count and whom the decision maker might listen to, even in an informal way - Recommenders → The people carrying out the search and evaluation process and who make a formal recommendation for or against a purchase - Economic Buyers → The individual or group who control the budget and who makes the actual purchase - Decision Makers → The person or group ultimately responsible for the choice of a product/service and for ordering the purchase decision - End Users → The ultimate beneficiaries of a product or service → can be within their own organization, or they can be external customers - Saboteurs → The people and groups who can obstruct or derail the process of searching, evaluating, and purchasing a product or service
When describing "Customer GAINS", the text distinguishes between four types of customer GAINS. List the four types of customer gains OR list two types and briefly describe each in a sentence or two
- Required gains --> Gains without which a solution wouldn't work, for example, the most basic expectation with a smartphone is that we can make a call with it - Expected Gains --> Relatively basic gains that we expect from a solution (e.g. since Apple launched the iPhone, we expect it to look good every year) - Desired Gains --> Gains that go beyond what we expect from a solution but would love to have if we could (e.g. we wish to have our smartphones seamlessly integrated with our other devices) - Unexpected Gains --> Gains that go beyond a customer's expectations and desires
Sketch and label the "Value Proposition Canvas" (hint: the "circle" and the "square"). After labeling each, please provide a few sentences describing each of the label quadrants / "pie" sections.
- The map has a section that lists all the products and services a value proposition is built around. - Pain relievers describe how your product alleviates your customer's pains. - Gain creators describe how your product creates gains/value for your customer. - Gains describe the outcomes that the customer wants to achieve or "gain" from the product/service. - Pains describe the risks, or negative aspects, related to customer jobs. - Customer Jobs describe the jobs that the customer has in their daily life. These can be anything from work-related or life-related.
TAM vs TSM vs Beachhead (lecture)
- Total Addressable Market: 100% of the market for type of product you sell (e.g. all coffee drinkers in USA) - Total Serviceable Market: 100% of the market you could actually sell to (e.g. all coffee drinkers on campus) - Target (Beachhead) Market: Your initial most likely buyers
The text discusses that a business model can involve two different types of revenue streams. What are the two types?
- Transaction revenues resulting from one-time customer payments - Recurring revenues resulting from ongoing payments to either deliver a Value Proposition to customers or provide post-purchase customer support
Cash vs Accrual Accounting (lecture)
1.) Accrual basis of accounting: revenues and expenses are recorded when they are earned, regardless of when money is actually received or paid - Gives a more realistic idea of income and expenses during a period of time, therefore providing a long-term picture that cash accounting can't provide - However, doesn't provide any awareness of cash flow 2.) Cash basis of accounting: recognizes revenues when cash is received, and expenses when they are paid → does not recognize accounts receivable or accounts payable - Simple to maintain (small businesses use this)
The text describes approximately 12 experiment types in the "Experiment Library". For example, the text describes "Ad Tracking" as one type of experiment. Name 4 others and describe in a sentence.
1.) Ad Tracking → Test customer interest with Google AdWords 2.) Unique Link Tracking → Set up a unique link tracking to verify potential customers' or partners' interest beyond what they might tell you in a meeting 3.) MVP Catalog (Minimum viable product) → The goal is to test the MVP as quickly, cheaply, and as efficiently as possible. 4.) Illustrations, Storyboards, and Scenarios Prototype alternative VPs → Define Scenarios → create compelling visuals → test with customers → debrief and adapt 5.) Life-Size Experiments Get your customers to interact with life-size prototypes and real-world replicas of service experiences 6.) Landing Page Typical Landing Page MVP is a single web page or simple website that describes a value proposition → invited to perform a CTA that allows tester to validate one or more hypotheses Main learning instrument is conversion rate from # of visitor to # of people performing the CTA 7.) Split Testing Technique to compare the performance of two or more options 8.) Innovation Games Using collaborative play with your (potential) customers → online or in person 9.) Speed Boat Get your customers to explicitly state the problems, obstacles, and risks that are holding them back from successfully performing their jobs to be done by using analogy of speed boat held back by anchors 10.) Product Box Ask customer to design a product box that represents the value proposition they'd want to buy from you → you'll learn what matters to customers and which features they'd get excited about 11.) Buy a Feature Customer get a limited budget of play money to buy their preferred features, which you price based on real-world factors
Three financing models (lecture)
1.) Bootstrapping (FFF) - Limits: Pace of growth, Excess spending, Chasing too many ideas 2.) Debt financing (get from banks [a loan]) - Lend a fixed amount of money for specific period of time at a given interest rate - Downside is complete loss of principal --> Upside is bounded - Result: debt investors primarily concerned about downside protection and only lend to less risky ventures 3.) Equity Financing - Seed & early stage - Types: Angel Investors, VCs, Strategic Investors - Receive a long-term ownership claim over the venture - Downside is complete loss of investment --> Upside is unbounded - Result: companies with significant uncertainty must rely on equity investors
What four problems does crowdfunding solve? (lecture)
1.) Coordination 2.) Gatekeeping 3.) Patronage 4.) Inexperience
What are deal sorters and aggregators? (lecture)
1.) Deal sorters - Accelerator application process seems among a larger population of startups to identify high-potential candidates 2.) Aggregators - Accelerators aggregate these candidates into a single location - May attract investors to regions they otherwise could not afford to visit
Markets and Industries (lecture)
1.) Industry → consists of sellers - typically organizations - that offer products or classes of products that are similar and close substitutes for one another 2.) Market → consists of a group of current and/or potential customers having the willingness and ability to buy products (goods or services) to satisfy a particular class of wants of needs
Industry Life Cycle (lecture)
1.) Introduction stage - The product/service is being invented and initially developed 2.) Growth stage - Customer purchases increase at a dramatic rate 3.) Boom - Marked by a rapid increase in sales in a relatively short time 4.) Shake-out - Rapid decrease in the number of firms in an industry 5.) Maturity stage - Stabilization of demand 6.) Decline stage - Sales and profits of the firm begin a falling trend 7.) Retrenchment Find new approaches to improve the business and its chances for survival
Elements of patent? (lecture)
1.) Inventors 2.) Assignees 3.) Dates 4.) References 5.) Foreign patent filing information 6.) Claims (the heart of the patent) 7.) Description, including diagrams
Three types of accounting and describe (lecture)
1.) Managerial accounting - Accounting methods that are specifically intended to be used by managers for planning, directing, and controlling a business (forecasting) 2.) Tax accounting - An accounting approach based on specific accounting requirements set by governmental taxing agencies 3.) Financial accounting - A formal, rule-cased set of accounting principles and procedures intended for use by outside owners, investors, banks, and regulators
According to the article, what are the four common types of business plans? Briefly define each in a sentence or two, and discuss if the plan type is for external stakeholders or internal stakeholders.
1.) Mini Business Plans → contain a summary of essential components of a new venture's strategy, its go-to-market and operating plans, and how these plans translate into financial forecasts (for external stakeholders) 2.) Traditional Business Plans → contain a more detailed discussion of the strategy and the go-to-market and operating plans and provide significant detail on how these plans translate into financial forecasts (for external stakeholders) 3.) Go-to-market Plans → describe the unmet needs of early adopter customers; the product, service, or solution that will be developed to address these needs; and the value proposition and benefits that will be delivered (internal planning) 4.) Operating Plans → define the key activities and milestones that must be accomplished as founders develop, produce, and deliver the venture's first offering (for internal planning)
3 Patentability Tests (lecture)
1.) Novelty - Must not be known or used by others, patented, or described in printed publication 2.) Non-obviousness - An "invention" may be novel, but not really simple minded 3.) Usefulness - Must have a legal and moral use - Must have utility
According to the article, what are the four common forms of intellectual property (IP)? For each of the forms, list the approximate length of time of exclusivity and the common use (i.e. what does it cover). Note: for the purposes of this class, "Contractual Agreements" are NOT a form of intellectual property, so you cannot use it as part of your answer to this question.
1.) Patents - 20 years for utility and plant patents and 14 for design patents - Prevents others from making, using, selling, or importing the same invention 2.) Copyrights - Endure for the life of the author(s) plus 70 years or, in the case of pseudonymous and anonymous works and works made for hire, a flat 95 years from publication or, if less, 120 years from creation - Protects works of authorship → tangibly fixed expressions of literary, graphic, audiovisual or other ideas 3.) Trademarks - Any word name, symbol, phrase, design, or the like that is used to identify one's goods or services and to distinguish them from those of others - Can go on forever, but it has to be renewed every ten years 4.) Trade Secrets - Any ideas, know-how, compilations of information, or routines that are: - Used in one's business - Not generally known - The source of a competitive advantage - Not limited to a set term and no disclosure is required for the award of protection
Six things to consider when choosing business model (lecture)
1.) Personal liability of the business owner 2.) Taxation of both the entity and its owners 3.) Complexity and organizational costs in setting up 4.) Control of the business 5.) Continuity of the business 6.) Ability of the business to raise capital
The article discusses an 11-slide investor pitch. Name FOUR of the slides or describe the contents of four of the slides.
1.) Title Slide - Include: company name, names, titles, contact info, the team, and key partners - Use the title slide to begin establishing credibility by briefly mentioning relevant biographical information for the entrepreneur, partners, and advisers 2.) Slide 1: Executive Summary - High level summary of the problem or opportunity that the entrepreneur plans to exploit 3.) Slide 2: Market Positioning/Problem Description - Describe the market and the "pain" that customers experience today and provide information on the size and growth rate of the total addressable market 4.) Slide 3: Product Positioning - Explain the product or service and how it will address the market opportunity or alleviate the "pain' described in Slide 2
The article discusses three key criteria which can be used help choose a legal form of organization. Name two of the three
1.) Who will the investors and owners be? 2.) What are the capital requirements and cash flow characteristics of the business likely to be? 3.) What is the time frame for the life of the business?
The article discusses that a good pitch should answer three "Why" questions. What three questions to (e.g. "Why ...?") are discussed? Briefly describe each
1.) Why this? Why is this opportunity unique and compelling for this specific audience and for the stakeholders whose support will be needed to make the business a reality? 2.) Why now? Why is this a good time to launch this venture? For example, is the window of opportunity opening and will it say open long enough to build a sustainable business and deliver expected returns? 3.) Why this team? Why are the founder and team best positioned to exploit this opportunity? Do they have the passion, commitment, connections, and mind-set to make the decisions and hard choices needed to turn their vision into reality?
As defined in the text, what is a "Call to Action"? How is a "call to action" used (i.e. why is it discussed in the text)?
A "Call to Action" prompts a subject to perform an action. It is used in an experiment in order to test one or more hypotheses.
According to Osterwalder & Pigneur, what is the definition of a "business model"?
A Business Model describes the rationale of how an organization creates, delivers, and captures value.
The "Dual Aspect" explains that every transaction affects at least two items in the basic accounting equation and preserves the equation's equality. What is the fundamental accounting equation?
A=L+OE
Advantages and Disadvantages of Corporations (lecture)
Advantages: - Key one --> limited liability for shareholders - Easy to raise large amounts of capital - Exxon Mobil owner didn't lose his house because of scandal Disadvantages: - Impersonal - High taxes (double taxation)
Advantages and Disadvantages of Partnerships (lecture)
Advantages: - Two minds better than one - Easy to form Disadvantages: - All partners are equally liable (if partner runs over dog, I am ALSO liable) - Limited life
Advantages and Disadvantages of Sole Proprietorship (lecture)
Advantages: - Unique tax advantages - Secrecy - Owner doesn't have to share profits Disadvantages: - Limited capital - Liability (Nathan's lawn mowing runs over dog, YOU are liable)
According to the text, Steve Blank coined the term "Earlyvangelist". What is an "Earlyvangelist"? The book lists five traits of an Earlyvangelist. List three of the five traits.
An Earlyvangelist is described as customers who are willing and able to take a risk on a new product or service. - Has a problem or need - Is aware of having a problem - Is actively looking for a solution - Has put together solution out of piece parts - Has or can acquire a budget
What are the three core financial statements? Briefly define the purpose of each statement (i.e. what is the gist of each statement). Indicate for each statement if it is for a point in time or a period of time. Hint: "The Statement of Changes in Shareholders Equity" and "The Footnotes" are NOT one of the three core financial statements!
Balance Sheet: - A corporation's financial position at a point in time by reporting its assets (things of worth) versus its liabilities plus stockholders' equity (claims to the assets) Income Statement: - Results of the operating activities of a firm for a specific time period Statement of Cash Flows: (period of time) Shows the changes in cash that occurred during the period in three categories Operating Investing Financing
Fill-in-the-blank-question: In the article, Prof. Stevenson defines "Entrepreneurship as a *Blank* Phenomenon".
Behavioral
The article discusses 12 basic accounting concepts and assumptions that anyone interested in financial statements need to understand. Excluding the "Dual Aspect", list FOUR of the other 11 and describe in a sentence or two.
Business Entity: Financial statements are prepared for a business entity that is separate and distinct from its owners Monetary Unit: Accounting is a measurement process dealing only with events that can be measured in monetary terms Historical Cost: Nonmonetary and monetary assets are ordinarily initially recorded at their acquisition price Accounting Period: Accounting measured activities for a specific interval of time, called the accounting period Consistency: Similar transactions are reported in a consistent fashion
According to the article, what are a "business pitch" and an "elevator pitch"? How do they differ?
Business plan pitch → a compelling presentation that can be used to pitch a new venture to investors and to customers, partners, advisers, or key employees Elevator pitch → a one paragraph description of a new business or opportunity - An elevator pitch got its name from the idea that you pitch your idea in the time period of an elevator ride. It should be concise and straight to the point and you want to garner interest (not to complete the sale). A business pitch is a more formal method of a pitch as you make a presentation to present to big investors.
In the figure above, according to the book, why is the "step" 4, i.e. necessary? That is, to some, it initially may seem redundant to step #2 above, but it isn't. Explain.
Consider testing the most critical hypotheses with several experiments. Start with cheap and quick tests which then you follow up with more elaborate and reliable tests. Then you can create your test cards. Prioritizing your Test Cards is necessary so you can know what evidence is reliable and which insights are growing with certainty.
What is "convertible preferred stock"? In other words, how does convertible preferred stock differ from common stock?
Convertible preferred stock → a form of stock that can be redeemed at the face value of equity in each round of the investment (plus any accumulated dividends) or converted into common stock to get a pre-negotiated share of the company CPS feature higher dividends, but they are limited in the total profit they can earn or the dividends they can collect Common stocks are riskier than CPS, although they may give larger returns
What is crowdfunding?
Crowdfunding is the outsourcing of an organizational function to a strategically defined network of actors (crowd) in the form of an open call via dedicated websites
The VPC text discussed the "Customer Development" process as proposed by Steve Blank for hypothesis-driven entrepreneurship. Please fill in all the blanks of the figure below
Customer Discovery → Customer Validation → Customer Creation → Company Building
The article discusses three types of crowdfunding. What are they and briefly define each in a sentence or two. (6 points) Note: the article "Financing Entrepreneurial Ventures" uses four types of crowdfunding, while the JOBS Act of 2012 used three main categories of regulated crowdfunding. You can alternatively list the categories from one of these articles for full credit, but you can't mix and match since the categories overlap!
Donation Crowdfunding: - Fundraisers usually do not offer anything in return for the donations that they receive Lending Crowdfunding: - Raises money with the expectation that founders will repay supporters Equity Crowdfunding: - Raises money from a crowd in exchange for an ownership stake in the firm - Offered equity or bond-like shares
The article discusses the "Four Actions Framework." Describe the four forces and discuss how you can use the framework to develop a business strategy.
Eliminate: Which of the factors that industry takes for granted should be eliminated? Reduce: Which factors should be reduced well below the industry's standard? Raise: Which factors should be raised well above the industry's standard? Create: Which factors should be created that the industry has never offered? The first two questions (eliminating and reducing) allows for a company to gain insight into how to drop its cost structure The second two questions provide a company with insight into how to lift buyer value and create new demand
Define "Entrepreneurship" according to Stevenson.
Entrepreneurship is the pursuit of opportunity without regard to resources currently controlled.
The VPC text describes the "Testing Process". The following figure was discussed in class. For example, the exclamation point (!) stands for "Make progress". Label each of the remaining six images below (6 points) to indicate the steps in the testing process
Extract Hypothesis -> Prioritize Hypothesis -> Design Tests -> Prioritize Tests -> Run Tests -> Capture Learnings -> Make Progress
True or false: In the article, Prof. Stevenson argues that entrepreneurship and intrapreneurship are very different. Why or why not?
False: They are similar because intrapreneurship is just entrepreneurship but in larger companies. Intrapreneurship is when larger, established businesses adopt principles of entrepreneurship into their business model.
What has led to the rise of crowdfunding? (lecture)
General familiarity of the public with online transactions
What does "LLC" stand for?
Limited Liability Company
Lean startup
Organizations that follow the principles of hypothesis-driven entrepreneurship
The article discusses "Porter's Forces that Shape Industry Competition." As discussed in the article, what are the six forces? Sketch a simple diagram showing the six forces. In a sentence, define and describe each force.
Potential Entrants (Threat of New Entrants) New entrants can quickly erode profits by increasing competition, introducing alternative products, and capturing market share There are low barriers to entry to developing apps → all it takes are a few software engineers and an idea Allows for startup developers to grow fast and doesn't allow for existing app providers to charge a premium price (this is why most apps are cheap) Suppliers (Bargaining Power of Suppliers) If suppliers offer a unique product, have made it difficult to switch to other suppliers, or are more concentrated than the industry they serve → They can raise the prices which they supply the industry Coca-Cola sells its exclusive soda to bottlers, they can't do anything about the price Buyers (Bargaining Power of Buyers) An industry's buyers are powerful if they are concentrated or are free to direct their purchases elsewhere The US retail industry has seen buyer power increasingly consolidated to Walmart, Target, etc. Substitutes (Threat of Substitute Products) Substitute products place a ceiling on an industry's ability to increase prices and grow → ex.) Taxi fares are kept in check in cities with robust public transportation Industry competitors (Intensity of Rivalry) Common when the competitors are of similar size and sell undifferentiated productsMost harmful when it results in aggressive, sustained price wars, which decrease the available profit pool for everyone Automobile industry has significantly more production capacity than the market's ability to absorb new vehicles The shift in consumer preference to small, fuel-efficient, and lower-priced vehicles has further contributed to very intense competition Complements A firm has a complement when its goods are made more valuable by those of another firm Microsoft and Intel → Windows OS could only work with Intel processors, they boomed the industry
How are pre-money and post-money valuations linked? Hint: this can be given by a simple equation.
Pre-money valuation + investment amount = post-money valuation
The article discusses a framework for startup crowdfunding. The framework breaks the startup stage into three phases: Pre-startup, Startup, and Growth. According to the article, what is the optimal type of crowdfunding for each stage? You DO NOT need to explain why each is best, simply list the best type for each! Hint: question #2 above lists the three types of crowdfunding!
Pre-startup: Donation Startup: Lending Growth: Equity
Fill-in-the-blank question: In the article, Prof. Stevenson discussed strategic orientation as a continuum from "_______________________" (nickname) to "_________________" (nickname) as the level of controlled resources increased. Hint: we are not looking for a definition here in the blanks, but rather the nickname that Prof. Stevenson assigned to each.
Promoter, Trustee
Define the terms "red oceans" and "blue oceans" according to Kim & Mauborgne. (4 points)
Red represents all the industries in existence today (known market space) --> It is considered red as it is a competitive and cutthroat marketplace, so there can be "violence" or "conflict" which creates the "blood." Blue represents all the industries not in existence today (unknown market space)
What is a "strategy canvas"? How is a "strategy canvas" to be used? What does the horizontal axis (i.e. "x-axis") represent on the strategy canvas? What does the vertical axis (i.e. "y-axis") represent on the strategy canvas? What is the "line" connecting the dots on the strategy canvas called and what does it stand for?
Strategy canvas: both a diagnostic and action framework for building a compelling blue ocean strategy and serves two purposes - Captures current state of play in known market space; allows you to understand where the competition is currently investing, the factors the industry currently competes on in products, service, and delivery, and what customers receive from the existing competitive offerings on the market - Horizontal axis represents the range of factors the industry competes on and invests in - Vertical axis captures the offering level that buyers receive across all of these key competing factors - A high score means that a company offers buyers more, and hence invests more, in that factor - The value curve is a graphic depiction of a company's relative performance across its industry's factors of competition
Define "strategy" as given in the article
Strategy is the integrated set of choices that positions the business in its industry so as to generate superior financial returns over the long run
In addition to "Strategic Orientation", there were five additional critical dimensions of business practice as defined by Stevenson. List the five additional dimensions. Hint: These were also discussed in lecture in the form of a question so you can alternatively list the question form as an answer here.
The Commitment to Opportunity, The Resource Commitment Process, The Concept of Control Over Resources, The Concept of Management, Compensation Policy
The VPC text describes six techniques to gain customer insights. These techniques help you understand the customer's perspective when designing value proposition's. Name four of the techniques and in a sentence and describe each
The Data Detective → build on existing work with research. Secondary research reports and customer data you might already have provide a great foundation The Journalist → talk to potential customers as an easy way to gain customer insights The Anthropologist → Observe potential customers in the real world to get good insights into how they really behave; Stay with family, work alongside, observe shopping behavior, and shadowing your customer for a day can all help understand the customer better The Impersonator → "Be your customer" and actively use products and services; Gain firsthand experience of jobs, pains, and gains Not always representative of your real customer The Co-Creator → Integrate customers into the process of value creation to learn with them The proximity with customers can help you gain deep insights The Scientist → get customers to participate (knowingly or unknowingly) in an experiment
What is an "S (or Subchapter S) Corporation" and how does it differ from a "C (or ordinary)" Corporation?
The S corporation is a creature of the law which is afforded the tax status of a partnership, but the protection from legal liability of a corporation. The C corporation is considered a taxpaying entity and the earnings of a corporation are taxed twice: once at the individual level and once at the corporate level; The firm's owners are personally protected from liability (corporate shareholders not held liable).
The text discusses the idea "Same Customer, Different Contexts" when discussing value propositions. What are the authors talking about? Hint: If you remember the example in the book when discussing "Same Customer, Different Contexts", you can use it here to help you answer.
The authors were talking about if a person was trying to go to the movies, but there were different situations. For example, if she was going with her kids, she would want a quieter movie or something not as violent. Compare this to if she was going on a date night, where she may want some more excitement so a scarier movie might be the answer.
The article discusses the purpose of strategy is to create a "competitive advantage". What is competitive advantage?
The purpose of strategy is to create a competitive advantage that generates superior, sustainable financial returns Competitive advantage: refers to factors that allow a company to produce goods or services better or more cheaply than its rivals. These factors allow the productive entity to generate more sales or superior margins compared to its market rivals. To do this successfully: Understand the business landscape (forces that shape competition, dynamics among players, drivers of industry evolution) and choice of position on this landscape (firm's positioning shapes the choice of a business model and underlying set of activities that sustains it)
According to the article, has the prevalence of full-length business plans changed? If so, why and what has replaced them?
Traditional business plans used to be the gold standard but are now being replaced by pitch decks and mini-plans
The article discusses three core financial implications of the business model. What are the three core financial implications, and explain each in a sentence or two.
Underlying profitability: - Commodities and products in very competitive industries generally cannot command a large profit because customers have many options and can seek the lowest prices Asset intensity of their business models: - Asset intensity → the amount of assets that must be tied up in the business (net working capital plus net fixed assets) in order to generate sales - The longer the payment cycle, the more asset-intensive the business is, because a greater proportion of it assets are tied up Pace of growth: - For many businesses, growth is an option that depends on the goals of the entrepreneur - Social media sites need to build up a large customer base first to make any revenue
What is an "up round" and a "down round"?
Up round → which the value of a venture increases between financing events Down round → means the value decreases between financing events
The article discusses that "strategy is a firm's answer to two fundamental questions". What are the two questions?
Where should we compete and how we should compete
The following table was in the reading (see Exhibit 5 - Sample Cap Table). Initially, the founding team owns 80% of the equity, but by the end of two rounds of financing the team only owns 51%. Are the founders financially better off after the two rounds of fundraising? Why or why not?
Yes, the founders are better off because they have increased their value from $1M to $10M. A good entrepreneur increases the value of their venture so that their holdings become more valuable implied value = %equity diluted X post-money valuation
Strategy canvas
both a diagnostic and action framework for building a compelling blue ocean strategy and serves two purposes
The article provides simple equations for "Current Investors' Ownership" and "Previous Investors' Ownership". Please list the two equations
current investors' ownership = (investment amount)/(post-money valuation) previous investors' ownership = (pre-money amount)/(post-money valuation)
