Chapters 7 11 14 and 15 Study Terms Chapter 7 Building the Founding Team advisory board informal panel of experts and other people who are interested in seeing the new venture succeed Useful and less costly alternative to a formal board of directors Used when board of directors is not required or in startup phase Not subject to the same scrutiny as the board of directors because its actions are not binding on company Step in the direction of creating a more professional organization board member type of board member is better is a matter of opinion and circumstance Assist with business development act as arbitrators for dispute resolution and give credibility to the new company s image outside board member no direct connection to the business Outside directors are beneficial for succession planning and for raising capital Can bring a fresh POV to the strategic planning process consultants this industry is one of the fastest growing industries in the United States and it can provide a variety of services for a new venture Consultants can train the sales staff management conduct market research prepare policy manuals solve problems act as a temporary key management recommend market strategy design and engineer products design a plant layout and equipment conduct research and development and recommend operational and financial controls there are 10 different characteristics Used for one time advising or problem solving because they are Consultants could be paid in three different ways monthly retainer hourly rate or equity stake entrepreneur s extended network critical to the entire entrepreneurial process When an entrepreneurial firms interacts with another one they create additional networks Professional advisors government agencies manufacturing support sales support personal advisors and consultants independent contractor can make the very small startup venture look like an established corporation to anyone on the outside Many operate behind the scenes When an entrepreneur decides to outsource they go for the IC to undertake functions that they do not want to handle IC have their own companies and are hired per assignment that they do inside board member one who is a founder employee family member or retired manager of the firm leasing staff way for a new business to enjoy the advantages of major corporations without incurring many of the expenses Does payroll human resource functions safety and risk management benefits administration human resource management Chapter 8 Calculating Startup Capital Requirements bootstrapping term often applied to the minimizing of resources required to start and operate a business Means that entrepreneurs beg borrow or lease resources whenever they can so they can keep their overhead or fixed costs as low as possible cash inflows showed in a direct cash flow statement Records all the inflows of cash into the business when they are received cash outflows expenses of the business are recorded when the company actually pays the bill contribution margin one of the financial metrics employed at startup Expressed as a percentage It is found by subtracting variable costs from revenues and dividing the difference by revenues to yield a percentage cost of goods sold COGS consists of direct labor cost of materials and direct factory overhead Applying COGS as a percentage of sales will probably suffice for purposes of pro forma statements for the feasibility stage COGS is equivalent to the time expended to produce and deliver the service customer acquisition cost one of the financial metrics employed at startup In regards to CAC entrepreneurs must convert time to dollars but the time it takes to secure a customer is time that could have been spent elsewhere so there s an opportunity cost Direct selling expenses include advertising costs travel expenses sales salaries commissions and the cost of promotional supplies value chain consists of all the companies that contribute to the development and distribution of a good Where a company is located in the value chain normally reflects the entrepreneur s capabilities and risk taking propensity where the new venture lies in the value chain will determine what its margins are who its customer is and how much it cn charge for its products and services working capital cash needs are separated into types of capital resources that will be required and this one of them value proposition the benefit that the customer derives from the product or service the entrepreneur is offering the reason the customer will buy Chapter 9 Proof of Concept A New Approach to Business Plans balance sheet statement of financial position Different from other financial statements because it looks at financial health of business at a single point in time Divided into two parts that must balance Assets liabilities shareholders equity bankers lenders interested in company s margins and cash flow projections because they are concerned about how their loans or credit lines to the business will be repaid Bankers look at cash flow projections to see whether the business can pay all its expenses and still have money left over at the end of each month brand equity developing awareness of the product or service business model important for the business plan This needs to be feasible and have been market tested and is reliable business plan the parts of a business plan are operations plan organization plan marketing plan financial plan growth plan harvest exit strategy It is not a good idea to discuss deal structure in business plan Vital to investment decision making current ratio provides information on the company s ability to meet short term obligations CR total current assets total current liabilities equity one of the biggest incentives for taking on the risk of a startup is the opportunity to acquire equity or ownership stake Some consultants ask for equity for the companies they consult with An entrepreneur may enter into an argument with a supplier to provide necessary raw materials in exchange for an equity interest in the startup venture executive summary makes it easier to develop a full business plan Used to raise capital Questions they answer are frequently of great interest to an investor or lender Investors want to see a well written one that tells a compelling story and grabs their interest Needed whether or not seeking investor capital Pulling the executive summary and the pitch into a coherent story is critical to persuading others