EXAM 2 INTRO TO ENTREPRENEURSHIP 03 05 2014 Test 2 50 multiple choice 10 15 which of the following are NOT Questions are more thought processed and ideas May be questions from textbook in class notes ONLY articles covered in class will be included Means in class notes the professor actually said The Highlighted lines are the titles of the Slides in the chapter notes At the end of all the chapters there are notes from the textbook chapters Chapter 4 Developing and Testing a Business Model The Business Model Business models o State how ventures intend to create and capture value o Help recruit stakeholders organize entrepreneurs thoughts and efforts and create accountability o Should be communicable in elevator pitches etc Business model should o Identify targeted customers and their wants o Specify the solutions to such wants o Estimate revenues costs and capital requirements associated with satisfying such wants o Define the distribution system Business models are more likely to fail when flawed logic limited strategic choices imperfect value creation or capture assumptions incorrect assumptions in value chain o Key assumptions are inaccurate or the logic is flawed o Growth opportunities are limited Customers Identifying customers o The customers are the entities purchasing the product offerings o Customers may or may not be end users o Customers for the same product offerings vary in their accessibility preferences finances etc Identifying customers wants o What problems do customers have o Are they willing to pay to solve those problems o Wants may be intangible and go beyond the physical attributes of product offerings o The wants of both customers and end users are important Solutions Value proposition o Solutions address problems customers have o The amount customers are willing to pay for such solutions determines value creation o The ventures ability to retain what customers pay determines value capture o Ventures solutions must be unique they must outperform rivals solutions in some o Customer perceptions rather than objective attributes per se of solutions are Solution attributes way important o Customers are mindful of switching costs o Customers requirements shift over time Revenues Cost Capital Revenues o Premium low cost pricing low high sales volumes for solutions with advanced limited features o Revenue streams include money received for subscriptions units or time licensing o Variable fixed costs vary do not vary with the volume of product offerings o Costs vary in their size necessity frequency etc it might be beneficial to focus on o Capital requirements vary by business and industry o Capital requirements shape competition stakeholder inclusion and claims firm and advertising Costs produced the most significant Capital growth and survival etc Distribution System Value chain o Process often involving several firms through which solutions move from raw materials to the end user o The points where customer benefits are added o Upstream downstream toward design and raw materials customers and after sales service Value chain positions affect the o Solutions provided value created and value captured o Level of competition and risk Altering the value chain affects revenues and costs o Reshaping the value chain is a source of opportunities e g eliminating steps in the o Customers have expectations for the ways goods are delivered they may be resistant value chain to change Competition Ventures are interdependent what one venture does affects other ventures Ventures compete for o Customers purchases o Resources e g human capital finance real estate o Influence e g political favors Competition is often a zero sum game Venture strategies should o Balance uniqueness promotes inimitability with similarity promotes legitimacy o Place the firm in niches with limited competition o Target resources competitors cannot access Feasibility Analysis Feasibility pertains to o The success of the business model given competition o The financial and nonfinancial outcomes ventures can achieve as well as the probabilities of the outcomes o Estimates of both are imprecise Feasibility analysis involves analyzing The industry including competitors o Products and services o Finances including revenue and cost alignment o The founding team The business model and the feasibility analysis are built on assumptions it is important to consider o Each under different assumptions o How conditions change after assumptions are made Common Problems in Feasibility Analysis Among other biases entrepreneurs often display o Optimism they overstate the positive and understate the negative outcomes that o Overconfidence they believe outcome and probability estimates are more accurate could occur than is the case o The planning fallacy they underestimate the time it will take ventures to reach profitability or sustainability Entrepreneurs sometimes reject ideas that have enormous yet poorly understood potential Feasibility analysis should be conducted throughout the venture formation process The probability magnitude effect and response to change are important yet challenging to assess Changing the Business Model Factors necessitating changes include o Feasibility analysis and market feedback o External environment changes o Changing goals such as the desire to grow in general firms should focus early and should diversify later Changes may occur in several ways o Incremental expansion e g add distribution channels o Revitalize an established model e g add new revenue streams at the point of sale o Apply models to new product offerings o Add new models e g through acquisition o Use strengths to build new business models seemingly minor skills can facilitate expansion into new areas o Reinvent business models i e change the firm s focus Building a Business Model Important Factors to Consider Industry and customer market analysis o Industry trends and lifecycle stages o Entry barriers o Level and cost of innovation o Typical profit margins o Opinion leaders and what they think o Value chain members perceptions of the industry o Target market demographics o First customer profile the profile of other potential customers if there are any o How to approach customers to learn about them o Competition and how to differentiate Product service analysis o Features benefits and differentiation o Specific product development tasks timeline and costs to create a marketable product o Window of opportunity o Intellectual