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Finance Secrets of Billion-Dollar Entrepreneurs > Chapter 3 Develop Capital-Smart Skills > Flashcards

Chapter 3 Develop Capital-Smart Skills Flashcards

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1
Q

What are capital-smart skills?

A

Capital-smart skills help link your business to your finance strategies.

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2
Q

What skills do billion-dollar entrepreneurs possess?

A

They possess entrepreneurial accounting skills, controlled financing skills, and capital-efficient launch skills.

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3
Q

Define entrepreneurial accounting.

A

Financial management for entrepreneurs, focusing on understanding numbers and their impact on business.

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4
Q

What is Level One of financial expertise for entrepreneurs?

A

Understanding Financial Statements.

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5
Q

What did Joel Ronning learn after his first venture?

A

He learned the importance of developing a good accounting system.

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6
Q

What are the key financial documents entrepreneurs should monitor?

A

Sales data, income statements, cash-flow statements, and balance sheets.

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7
Q

What is Level Two of financial expertise?

A

Evaluating Impact of Assumptions.

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8
Q

Why are assumptions critical in a startup?

A

They can significantly impact the business and need to be tested.

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9
Q

What is Level Three of financial expertise?

A

Analyzing the Financial Impact of the Business Model.

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10
Q

What should entrepreneurs measure about their business model?

A
  • Potential sales and cash flow
  • Money needed to generate sales and cash flow.
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11
Q

What is Level Four of financial expertise?

A

Reducing Financial Needs with Capital Efficiency.

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12
Q

How did Bob Kierlin demonstrate capital efficiency?

A

By using residential garage space for inventory storage.

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13
Q

What is Level Five of financial expertise?

A

Finding the Right Financing to Control.

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14
Q

What percentage of billion-dollar entrepreneurs avoid VC?

A

About 94 percent.

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15
Q

What is Level Six of financial expertise?

A

Real-Time Tracking to Launch with Control.

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16
Q

Why is tracking important for business?

A

To manage performance and make informed decisions.

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17
Q

What are the three types of financing discussed?

A
  • Corporate Financing
  • VC Financing
  • Billion-Dollar Entrepreneurial Financing.
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18
Q

What do corporations prefer to finance?

A

Proven opportunities and evolutionary expansions.

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19
Q

What are VCs looking for in investments?

A

High returns from ventures that dominate high-potential emerging industries.

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20
Q

What is a key skill billion-dollar entrepreneurs use to avoid losses?

A

Adjusting strategy and operations to make scarce money an advantage.

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21
Q

What is a strategy billion-dollar entrepreneurs use to reduce working capital needs?

A

Increasing throughput and selling directly to consumers.

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22
Q

How did Amancio Ortega control inventory?

A

By believing in fast turnaround to reduce inventory needs.

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23
Q

What is one benefit of selling directly to consumers?

A

Getting paid in advance.

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24
Q

What strategy did Brett Shockley use to finance his venture?

A

Developing an interactive voice response system that encouraged upfront payments.

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25
What is a common approach to minimize fixed-asset needs?
Leasing instead of buying.
26
How did Bob Kierlin utilize local resources?
By renting garage space on an as-needed basis.
27
What is the importance of flexibility in financing equipment and real estate?
To avoid tying up capital unnecessarily.
28
What is a strategy for reducing capital tied up in inventory?
Rent garages locally on a short-term lease instead of using a warehouse. ## Footnote This allows flexibility and reduces the need for a large upfront investment in real estate.
29
What should entrepreneurs consider when deciding to buy or lease equipment?
Monthly costs, cash needs for down payments, and potential lack of flexibility. ## Footnote Renting may be preferable if the equipment will not be fully utilized.
30
How can outsourcing benefit entrepreneurs?
Reduces fixed assets and lowers break-even levels, enabling faster profitability. ## Footnote This is particularly useful for startups with lower levels of cash.
31
What is a key financial benefit of outsourcing and leasing?
Easier to obtain nondilutive financing for fixed assets, and lower financing costs. ## Footnote Nondilutive financing means that the entrepreneur does not have to give up equity.
32
What financing strategy did Glenn Hasse of Ryt-Way use?
Relied on customers to fund fixed assets. ## Footnote This approach minimizes the need for external capital.
33
What is essential for achieving high growth with positive cash flow?
Real-time management and financial skills. ## Footnote These skills help entrepreneurs beat their competitors.
34
What financing approach did Sam Walton use for his stores?
Leased all fixed assets and used vendors for inventory. ## Footnote This strategy allowed him to maintain control and minimize risk.
35
What is the key skill for effective financial management?
Getting accurate financial statements in a timely manner and knowing how to interpret them. ## Footnote This helps avoid surprises and reach business goals.
36
What is critical for entrepreneurs launching with limited cash?
Skills to launch efficiently while maintaining control over the venture. ## Footnote This often involves securing seed capital from personal networks.
37
What is the benefit of focusing efforts and money for long-term dominance?
Keeps control during growth and avoids over-expansion. ## Footnote This approach is exemplified by Medtronic's transition to a professionally managed corporation.
38
How did Ray Barton of Great Clips grow his business?
Employed a rifle-based strategy, focusing on one market at a time. ## Footnote This allowed for saturation and dominance in each market before expansion.
39
What sales strategy is crucial for customer satisfaction?
Selling directly to customers to monitor and control relationships. ## Footnote This approach helps ensure customer satisfaction and loyalty.
40
What is the importance of finding the right sales driver?
To achieve the highest return on sales investment in the shortest time. ## Footnote Credibility is crucial when selling products.
41
What role does publicity play in entrepreneurship?
Helps build relations with the press and reach target markets effectively. ## Footnote Successful entrepreneurs often excel at generating buzz for their products.
42
What are the three speeds entrepreneurs need to consider for growth?
* Cash flow speed * Customer speed * Competitor speed ## Footnote Balancing these speeds is essential for sustained growth.
43
What is the right way to price products?
Based on perceived value to the customer. ## Footnote Understanding customer needs and competition is key.
44
What skill is crucial for dominating emerging trends?
Ability to jump on and dominate trends in the market. ## Footnote Many successful entrepreneurs excel at recognizing and capitalizing on emerging trends.
45
Why is tracking the business in real time important?
To monitor for potential problems and avoid running out of cash. ## Footnote This allows entrepreneurs to react quickly to changes and challenges.
46
What does it mean for entrepreneurs to adjust based on real feedback?
Launching, testing, and adjusting based on customer input and market demands. ## Footnote This is critical in navigating uncertainties in new ventures.
47
What can entrepreneurs learn from adjusting to market realities?
To pivot when initial ideas do not work and align with customer needs. ## Footnote Successful adjustments can lead to better business outcomes.
48
What was a significant adjustment made by Sam Walton during his retail journey?
Adopting a self-service store layout for better inventory control. ## Footnote This innovation changed retailing by reducing employee needs.
49
What adjustment did Travis Kalanick make with Uber?
Shifted from a limo rental service to connecting riders with drivers. ## Footnote This pivot significantly expanded Uber's market and user base.
50
How did Bill Gates and Paul Allen adapt their business model at Microsoft?
Licensed an operating system to IBM after identifying an opportunity. ## Footnote This strategic pivot was crucial for Microsoft's success.
51
What is the importance of adjusting after launch?
To incorporate new technologies and improvements as they arise. ## Footnote Continuous innovation is key to maintaining competitive advantage.
52
What is the Greatbatch implantable pacemaker known for?
Longer-term pacing, more convenience, and fewer surgical complications ## Footnote Medtronic licensed the technology on an exclusive basis.
53
What should entrepreneurs do when the market points in a different direction?
Pivot
54
What did Horst Rechelbacher do when hairdressers wanted a bigger cut?
Sold his salons and opened a training school
55
What is a key skill to develop for successful business take-off?
Skills to price, sell, grow, and monitor
56
How do the finance strategies of billion-dollar entrepreneurs differ from corporations and VCs?
They seek growth without the intention of staying small
57
What is the relationship between risk and internal rate of return (IRR) for venture capital?
Higher risk corresponds to higher target IRR
58
True or False: VCs expect lower returns than corporations.
False
59
What is the most important factor affecting VC investing?
Exit timing and valuation
60
How do VCs typically finance their investments?
In stages, investing more in later stages if projections are met
61
What do VCs often expect from early-stage portfolios?
Many failures
62
What is a common strategy VCs use to reduce portfolio risk?
Finance in syndicates
63
What type of financing do VCs primarily use?
All equity financing
64
How do corporations typically compare to VCs in terms of risk and return?
Corporations accept lower annual returns and reduce risk
65
What financial structures do corporations prefer?
Consistency in debt and equity levels and payback periods
66
What is a key principle of billion-dollar entrepreneurs regarding capital efficiency?
Spend to make customers happier
67
Fill in the blank: Billion-dollar entrepreneurs bootstrap before _______ to reduce needs.
Aha
68
What is the sequence of financing sources for billion-dollar entrepreneurs?
* Internal cash flow * Nonfinancial sources * Debt * Low-dilution equity * VC
69
What is crucial for billion-dollar entrepreneurs to retain?
Control
70
What should the structure of financing balance for billion-dollar entrepreneurs?
Risk and return, cash flow, debt, and equity
71
What is a key factor in managing debt for billion-dollar entrepreneurs?
Debt should be within limits of cash flow repayment capacity

Finance Secrets of Billion-Dollar Entrepreneurs (19 decks)

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