Chapter 4 Prove Bottom-Up Assumptions

Question 1

What percentage of entrepreneurs will not get VC or will fail with VC?

Answer 1

99.98 percent

Question 2

What do the remaining 0.02 percent of entrepreneurs do regarding VC?

Answer 2

They control their venture and the wealth they create by delaying VC

Question 3

What is one of the most difficult aspects of business?

Answer 3

Raising money for a new business or a growing venture

Question 4

What is the perspective of financiers compared to entrepreneurs regarding potential?

Answer 4

Financiers see risk where entrepreneurs see potential

Question 5

What do billion-dollar entrepreneurs in Silicon Valley typically do with VC?

Answer 5

They use VC to build capital-intensive ventures but delay it until there is proof of potential

Question 6

What do billion-dollar entrepreneurs outside Silicon Valley tend to be?

Answer 6

Capital efficient and mainly grow without VC

Question 7

What do early-stage VC funds do?

Answer 7

They raise money from institutional investors to invest in high-potential ventures

Question 8

What return do institutional investors want from VC funds?

Answer 8

High annual returns of more than 20 percent

Question 9

Why is it difficult for VCs to achieve desired portfolio returns?

Answer 9

Due to the large proportion of failing ventures in a VC portfolio

Question 10

What type of investment do Silicon Valley VCs typically use?

Answer 10

High-risk equity instruments such as preferred stock

Question 11

What is a consequence of VCs investing large amounts per venture?

Answer 11

Significant dilution to the entrepreneurs

Question 12

What do finance-smart entrepreneurs do?

Answer 12

They grow with control and manage their wealth

Question 13

What is the first strategy finance-smart entrepreneurs use?

Answer 13

Prove bottom-up assumptions

Question 14

What is a critical aspect for entrepreneurs to manage their business?

Answer 14

Knowing their numbers

Question 15

What are the two key areas where new businesses usually fail to project accurately?

Answer 15

• Level and timing of revenues
• Investment required to achieve sales targets

Question 16

What does developing reasonable projections for sales focus on?

Answer 16

Sales and how to achieve them

Question 17

What are the two ways entrepreneurs can develop their financial projections?

Answer 17

• Top-down projections
• Bottom-up projections

Question 18

What is the primary flaw in top-down projections for new ventures?

Answer 18

New ventures lack historical data for accurate market share estimates

Question 19

What do bottom-up projections start with?

Answer 19

Evaluating alternate sales drivers based on industry practices

Question 20

Why are bottom-up projections better for entrepreneurs?

Answer 20

They help better estimate cost, revenues, and time to revenues

Question 21

What can affect how long it takes customers to switch to a new product?

Answer 21

• Attractiveness of the value proposition
• Knowledge about the product
• Cost to switch
• Complexity of understanding and using the product

Question 22

What did Lloyd Sigel test before developing his final projections?

Answer 22

Various options for packaging, pricing, and stores

Question 23

What is a common sales growth pattern in high-growth companies?

Answer 23

Hockey stick shape: slow at the start, faster growth after learning to sell

Question 24

What did Jill Blashack Strahan do to maintain positive cash flow?

Answer 24

Kept costs low and inventory under control

Question 25

What sales strategy did Ed Flaherty employ for his quick oil-change service?

Answer 25

Local marketing with direct mail and door-to-door coupons

Question 26

What did John Wanamaker famously say about advertising?

Answer 26

Half the money I spend on advertising is wasted; the trouble is, I don’t know which half

Question 27

What is crucial for selling a product, especially one involving human life?

Answer 27

Credibility

Question 28

What did Medtronic try when marketing the cardiac pacemaker?

Answer 28

A variety of sales drivers, including distributors, reps, and trade shows

Question 29

What is the significance of credibility in sales?

Answer 29

Credibility is crucial when selling a product, especially when it involves human life.

Question 30

What is bottom-up sales-driver analysis?

Answer 30

It helps understand what works best for you when credibility is key.

Question 31

What sales drivers did Medtronic use to market the cardiac pacemaker?

Answer 31

* Distributors * Reps * Internal sales personnel * Trade shows

Question 32

Who were the key figures in convincing other physicians to use Medtronic pacemakers?

Answer 32

* Dr. C. Walton Lillehei * Dr. William M. Chardack

Question 33

What lesson can be learned from Medtronic's experience in selling pacemakers?

Answer 33

Find the best sales driver for the highest return on your sales investment in the shortest time.

Question 34

What are the key financial elements of a business plan for a start-up venture?

Answer 34

* Sales * Gross margins * Expenses * Cash flow

Question 35

What was Guy Schoenecker's initial market strategy after World War II?

Answer 35

He focused on selling diamonds to GIs entering college under the GI Bill.

Question 36

How did Schoenecker find a cost-effective way to build his business?

Answer 36

He offered barbers a commission to spread the word about his products.

Question 37

What was Schoenecker's most productive sales driver?

Answer 37

Word of mouth from satisfied customers.

Question 38

True or False: Bottom-Up Selling is conducive to testing various sales drivers.

Answer 38

True

Question 39

What was Steve Shank's objective when starting Capella?

Answer 39

To generate leads for enrollments cost-effectively.

Question 40

What advertising method did Capella initially test?

Answer 40

Online advertising, including through sites like AOL.

Question 41

What is crucial to know for effective marketing?

Answer 41

Know where and how to find your customers.

Question 42

How did Don Kotula track customer responses to ads?

Answer 42

He coded every ad and catalog and tracked prospects, customers, and their lifetime sales.

Question 43

What insights did Kotula gain from tracking customer data?

Answer 43

* Catalogs are better than ads * Ads in July don’t work * Correlation between tool users, fishers, and cabin buyers

Question 44

What return rate did Kotula achieve through his mailing lists?

Answer 44

Returns of 10 percent.

Question 45

What is the common return rate expected by many companies on their mailings?

Answer 45

3 to 7 percent.

Question 46

What is the approach of billion-dollar entrepreneurs towards planning?

Answer 46

They plan from tactics to strategy.

Question 47

What should entrepreneurs do after finding what works?

Answer 47

Improve forecasts and start to expand.

Question 48

Fill in the blank: To grow more with less, focus on _______ projections.

Answer 48

[bottom-up]

Question 49

What should be monitored to ensure the right direction in sales?

Answer 49

Monitor the actual results.