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Test 2- 50 multiple choice(10-15 which of the following are NOT…)Questions are more thought processed and ideasMay be questions from textbook/ in class notesONLY articles covered in class will be included****- Means in-class notes the professor actually saidThe Highlighted lines are the titles of the Slides in the chapter notesAt the end of all the chapters there are notes from the textbook chapters-------------------------------------------------------------------------------------------------------------------------------Chapter 4- Developing and Testing a Business ModelThe Business ModelBusiness models:State how ventures intend to create and capture valueHelp recruit stakeholders, organize entrepreneurs’ thoughts and efforts, and create accountabilityShould be communicable (in elevator pitches, etc.)Business model should:Identify targeted customers and their wantsSpecify the solutions to such wantsEstimate revenues, costs, and capital requirements associated with satisfying such wantsDefine the distribution systemBusiness models are more likely to fail when:**** flawed logic, limited strategic choices, imperfect value creation or capture assumptions, incorrect assumptions in value chainKey assumptions are inaccurate or the logic is flawedGrowth opportunities are limitedCustomersIdentifying customersThe customers are the entities purchasing the product offeringsCustomers may or may not be end-usersCustomers for the same product offerings vary in their accessibility, preferences, finances, etc.Identifying customers’ wantsWhat problems do customers have?Are they willing to pay to solve those problems?Wants may be intangible and go beyond the physical attributes of product offeringsThe wants of both customers and end-users are importantSolutionsValue propositionSolutions address problems customers haveThe amount customers are willing to pay for such solutions determines value creationThe ventures’ ability to retain what customers pay determines value captureSolution attributesVentures’ solutions must be unique; they must outperform rivals’ solutions in some wayCustomer perceptions, rather than objective attributes per se, of solutions are importantCustomers are mindful of switching costsCustomers’ requirements shift over timeRevenues, Cost, CapitalRevenuesPremium (low-cost) pricing: low (high) sales volumes for solutions with advanced (limited) featuresRevenue streams include money received for subscriptions, units or time, licensing, and advertisingCostsVariable (fixed) costs vary (do not vary) with the volume of product offerings producedCosts vary in their size, necessity, frequency, etc.; it might be beneficial to focus on the most significantCapitalCapital requirements vary by business and industryCapital requirements shape competition, stakeholder inclusion and claims, firm growth and survival, etc.Distribution SystemValue chainProcess (often involving several firms) through which solutions move from raw materials to the end-userThe points where customer benefits are addedUpstream (downstream): toward design and raw materials (customers and after-sales service)Value chain positions affect the:Solutions provided, value created, and value capturedLevel of competition and riskAltering the value chain affects revenues and costsReshaping the value chain is a source of opportunities (e.g., eliminating steps in the value chain)Customers have expectations for the ways goods are delivered (they may be resistant to change)CompetitionVentures are interdependent (what one venture does affects other ventures)Ventures compete for:Customers’ purchasesResources (e.g., human capital, finance, real estate)Influence (e.g., political favors)Competition is often a zero-sum gameVenture strategies should:Balance uniqueness (promotes inimitability) with similarity (promotes legitimacy)Place the firm in niches with limited competitionTarget resources competitors cannot accessFeasibility AnalysisFeasibility pertains to:The success of the business model, given competitionThe financial and nonfinancial outcomes ventures can achieve, as well as the probabilities of the outcomesEstimates of both are impreciseFeasibility analysis involves analyzing:The industry (including competitors)Products and servicesFinances (including revenue and cost alignment)The founding teamThe business model and the feasibility analysis are built on assumptions; it is important to consider:Each under different assumptionsHow conditions change after assumptions are madeCommon Problems in Feasibility AnalysisAmong other biases, entrepreneurs often display:Optimism: they overstate the positive and understate the negative outcomes that could occurOverconfidence: they believe outcome and probability estimates are more accurate than is the caseThe planning fallacy: they underestimate the time it will take ventures to reach profitability or sustainabilityEntrepreneurs sometimes reject ideas that have enormous yet poorly understood potentialFeasibility analysis should be conducted throughout the venture formation processThe probability, magnitude, effect, and response to change are important yet challenging to assessChanging the Business ModelFactors necessitating changes include:Feasibility analysis and market feedbackExternal environment changesChanging goals, such as the desire to grow (in general, firms should focus early and should diversify later)Changes may occur in several waysIncremental expansion (e.g., add distribution channels)Revitalize an established model (e.g., add new revenue streams at the point of sale)Apply models to new product offeringsAdd new models (e.g., through acquisition)Use strengths to build new business models (seemingly minor skills can facilitate expansion into new areas)Reinvent business models (i.e., change the firm’s focus)Building a Business ModelImportant Factors to ConsiderIndustry and customer/market analysisIndustry trends and lifecycle stagesEntry barriersLevel and cost of innovationTypical profit marginsOpinion leaders and what they thinkValue chain members’ perceptions of the industryTarget market demographicsFirst customer profile; the profile of other potential customers (if there are any)How to approach customers to learn about themCompetition and how to differentiateProduct/service analysisFeatures, benefits, and differentiationSpecific product development tasks, timeline, and costs to create a marketable productWindow of opportunityIntellectual property protection

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FSU ENT 3003 - EXAM 2

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