Entrepreneurship Flashcards
(68 cards)
1
Q
Define entrepreneurship
A
Entrepreneurship is the process of identifying, evaluating and exploiting business opportunities
2
Q
Contrast entrepreneurship with innovations
A
Innovation by comparison involves the creation of something new - not necessarily a business opportunity (specific products or technology).
Entrepreneurship on the other hand identified the opportunities in great innovations to add value and improve this over periods of time → ALL of the business processes
3
Q
what are the biases in entrepreneurial decision making
A
- Overconfidence bias → overestimate ability to make correct prediction
- Representativeness bias → overgeneralise from limited information
- Egocentric bias → focusing more on own competencies and neglecting competitive environment
- Status quo bias → selecting previously chosen alternatives disproportionally more often. its a dynamic world and people may steal your ideas
- Escalation bias → expanding firms despite negative market feedback
4
Q
give reasons why one may choose to become an entrepreneur
A
- Low opportunity cost
- Risk-preference - entrepreneurship is a high-risk job
- Overconfidence
- Non-pecuniary (monetary) benefits
- Option value of experimentation
- Entrepreneurs place more importance on vision, power, leadership, independence and challenge than non-entrepreneurs (Amit et al, 2001)
- However, entrepreneurs need to focus on what they want i.e., making money at the beginning of the venture. They also need to be clear and focus on what their customers want.
5
Q
what is the difference between pushed and pulled entrepreneurs
A
Pushed entrepreneurs are people pushed to become entrepreneurs because there is no other option.
The pulled entrepreneurs become entrepreneurs because they want to become one.
6
Q
what 3 main questions must you ask yourself if you want to undertake an entrepreneurial journey
A
Where do i want to go?
How will i get there? Do i have the right strategy
Can i do it?
They all have mini questions so learn them
7
Q
in reality where does majority of entrepreneurship idea come from?
A
Previous employment
8
Q
Explain the broad strategy for the typology of entrepreneural opportunities
Draw Matrix
A
The needs/problems of your market/customer matched to the solutions (your product/service)
- The more tightly linked this is, the better your offering is
The idea is to identify the need/problem and define a solution (market opportunities)
This can be either through technological push or market pull
9
Q
Explain technological push
A
- hen the solution or tech already exists but you move it into a different market/setting/product (i.e, a new technology but no set way to use it)
- I.e. there is no need in the market, but this proposes an alternative
E.g Cycle VR and post-it notes
Also new heart valves used for oil drillng
10
Q
Explain Market pull
sometimes it’s not clear
A
Finding a specific problem that has not really been dealt with and then introducing a new product/service.
E.g Proteus
- Babylon health: GP at hand
11
Q
Give reasons why many opportunities and businesses fail and give factors to avoid
57%
A
- 2/3 failures avoidable (Birley & Niktari 1995)
- Weak business proposition and planning
How to avoid
- Knowing when to walk away is a key strength
- Focusing on one opportunity but consciously keeping related market options open, can enhance new venture flexibility and contribute to success
- Keep revising ur idea and pivot
12
Q
Give the 3 main phases of how to evaluate entreprenuerial opportunities after you have come up with an idea
A
Phase1: Search Broadly
Phase 2: Assess Deeply
Phase 3: Strategise smartly
13
Q
Opportunity
Explain the stages of Phase 1
A
- Generate market opportunity set, i.e. different markets for the product.
- List the idea/venture core abiities /tech elements
- Decide which application (market) can your core ability tackle, which customer may need them and then segment
14
Q
Opportunity
Broadly explain the component of phase 2 of evaluating opportunties
for each market opportunity
A
It is ultimately used to plot an attractiveness map (if unsure then use pref of stakeholders)
Stage 1: evaluate opportunity potential in tems of market
Stage 2: evaluate challenges involved
15
Q
Opportunity
Explain phase 2.1
A
-
Is there compelling reason to buy?
- Is there a real unmet need? – related to the hypothesis-driven approach and test it by talking to people through e.g., surveys.
- Can we provide an effective solution to this need?
- Can we address it (much) better than current solutions?
-
What is expected market volume?
- What is current market size? – not expected to solve 100 people’s problems, need to go beyond this.
- How much is it expected to grow? – determine the scale up of it.
-
Is it economically viable?
- Can we have sizeable margins? (even if you solve a big problem, you might only make a bit of money – difference between a social entrepreneurship and profit business). Need to see if there is economic sustainability; value vs. cost argument
- Can customers pay? – WTP
- How sticky will customers be?
16
Q
Opportunity
Explain Phase 2.2 for each opportunity (from phase 1)
A
-
What are the implementation obstacles?
- How difficult is it to develop product?
- Sales + distribution difficulties - How difficult is it to access market? – convincing them to even TRY your product/service.
- How challenging is it to raise funding?
-
What is expected time to revenue?
- What is estimated development time? – when is the breakeven point?
- Is the market ready for our solution? – need to consider timing.
- How long is expected sales cycle?
-
What are the external risks? – country with higher political risk? Covid-19?
- How threatening is competition?
- How dependent are you on others?
- How susceptive are you to adoption barriers?
17
Q
Opportunity
Explain Phase 3
A
Agile focus dartboard
Assess products based on market relatedness and product relatedness
Need to seperately keep backup and growth option
back-up option: should NOT share samE risk as primary
Growth : allows you create additional value if og works so should be related to primary oppportunity
18
Q
Does agile methodology work?
A
Yes
- Higher performance (revenues) for ventures that considered more than one market opportunity
- Initial opportunity set shapes diversification after entry (Gruber et al, 2013)
19
Q
Hypothesis
What is the difference between traditoinal approach and hypothesis drivien approach
A
Traditional
* ‘Build it and they will come’ approach
* ‘First mover advantage’
Hypothesis:
* Testing using a scientific and systematic approach to see whether your market segment is what you think it is.
* Involves repetition
* Enables you to fail but at a much smaller rate
20
Q
Outline the 6 steps of hypothesis driven approach
A
Step 1: Set vision (e.g., problem that you’re solving)
Step 2: Make falsifiable (can be scientifically tested) hypotheses based on your vision
Step 3: Design tests for hypotheses
Step 4: Prioritise tests for hypotheses
Step 4: Run tests, collect results and evidence
Step 5: Either confirm your hypotheses and move on to other hypotheses, or pivot (i.e., revise hypothesis) and go back to Step 4
Step 6: If product-market fit is achieved, implement, then scale and/or optimise
21
Q
Explain pivot and give examples
A
- This is a major change to the business model
- A change in element(s) of business plan without changing a key direction or vision
- Not a failure; a natural process of developing your business model
- Pivoting is universal
E.g Youtube and Netflix
22
Q
What are the key elements of a value proposition
A
- Key target needs - How your product solves customers’ problems or improves their situation
- Key product offerings - What specific benefits does your product deliver?
- Key product uniqueness - Why your target customer should buy from you but not from the competitors; USP mportant because in the beginning the business has no brand loyalty.
Should be tested
Shouls be delivered in a clear way
E.g weebly: a beautiful website starts here
23
Q
Hypothesis on Markets- customer segments
A
Need to test anf discern
- Their needs (why)
- Who they are
Can be done through observation and focus group study
24
Q
Market size, explain the different component, and explain the dilemma
A
TAM
SAM
SOM
There needs to be a timeline and you can’t penetrate into multiple different markets cus you can lose your keey offering.
Need to divide and conquer
25
As a start-up how do you divide and conquer market size?
- Fully understand your target customers (behaviour)
- Pick the customers that your product/service can serve the best
-
- Devise the best go-to-market strategy - channel, price, marketing campaign
- **Dominate them & create positive reputation**
- **Network effects**: Can be harming in luxury goods or those that rely on exclusivity/selection of users e.g., gyms. *Therefore, need to understand what kind of customer you are targeting.*
- **Word-of-mouth**: When the current users’ view strongly influences whether new users will use your product. Can have:
- **Promotor** – brand advocates
- **Neutral** – brand awareness
- **Saboteur** – brand detractors
26
Explain and give examples of the different ways of testing hypothesis
Qualitative
- Interview
- **Experimenting with MVPs**
- Usability tests
- Focus groups
Quant
- Secondary data
- Surveys
- Split test
- Market trials
27
How do you design and test the MVP
| Gold standard on Truth curve
- Design MVP that has the smallest possible set of key features, yet sufficient to test hypotheses of interest
- Tests the hypotheses to target customers with their preferences and behaviours.
- Get evi of REAL behaviouor
- Can guide whetehr to perservere, pivot or perish
- Make MVP available for purchase/use
28
Explain How and the Goal of Customer Interviews
Goal
* Understand the problems and needs of your potential
customers
* Learn about any competing solutions to the problem you’re
looking to address
* Develop industry contacts and experience.
How:
* Identify potential stakeholders (e.g., customers/industry
informants)
* Use/develop connections to make contact (or cold call)
* Make it clear that you’re not selling anything
* Don’t pitch at them
* Allow them to lead the conversation
* Ask about specifics, not generalities
29
Explain the Goal and How you would use **Usability Testing **
Goal:
* Find out whether
prospective customers
have problems with
specifics of current
product design
* Or whether there is no
demand for the proposed
solution, regardless of
form.
How:
* Find prospective or current
customers
* Ask them to use MVP in
particular way
* Ask subject to “think aloud”
as they try to do this
* Observe and record
* For apps/websites,
usertesting.com
30
Explain the goal and how you would conduct focus groups
Goal:
* Identify key dimensions along
which participants evaluate
products
* Understand your competitors
How:
* Recruit small groups of selected
users/non-users
* Ask to discuss how multiple products
are similar and different
* Identify key dimensions along with
participants perceive and evaluate
products
* Consider hiring professional he
31
Explain the Goal of and how you would conduct Secondary sources
Goal:
* Get broad idea of potential market size & trends
Good starting point but need more data
How:
* Look at industry or market reports in archives, such as Imperial
College databases
* National Statistics agencies
* Industry trade associations
* National & financial press (use Factiva)
* Company websites & databases, such as Amadeus, FAME, and
COMPUSTAT
32
explain the goal of and how to conduct surverys
Goal:
* Get idea of preferences of consumer
group(s) that you’re targeting
* Figure out awareness or preferences
for competitors
How:
* Draw random sample from population
of target consumers
* Develop informative (non-biased!)
survey questions
* Keep it short!
Do not send to people you know
* Chase, chase, chase!
* Analyse results
33
explain margin of error for surveys
- **Margin of error**: I.e., with a larger sample, your margin of error decreases
- Random sample of 100 = 95% of surveys are right within ±10%
- Random sample of 1000 = 95% of surveys are right within ±3.1%
34
explain the goal of and how you would conduct split tests
Goal:
* Identify key product and/or marketing factors influencing user
behaviour
How:
* Randomly assign new users to one of several versions of the
product (e.g. existing version vs. version with a new feature)
* Measure differences in behaviour between user groups
* Are there significant differences in behaviour between groups?
* Do these differences support your hypothesis?
* Requires sizable samples to draw statistically valid inferences
e.g obama campaign group (simpler design worked better)
35
what are th elements of industry hypothesis testing?
- What are the general trends of the industry?
- Who are the key players and your **potential competitors**?
- What are their strengths and weaknesses?
- How much important your target market to the competitors?
- What are the substitutes to your product?
36
# Industry Hypothesis Testing
Explain adjacent markets
- Think and focus on customer needs
- Categorise stakeholders according to freind or foe (future comp)
- identify current and potential players in category
- Annotate market value for each category
- Carve out your USP from research on each company using comp grid approach
37
define a business model
An overarching framework on how to create, deliver, and capture value. How to configure and integrate an organisation’s entire products and activities around a single objective (i.e., problem).
it's not just about revenue generation, it's how you synchronise all activities
38
Give reasons for a good business model
- It’s a *necessary* but not sufficient condition for the success!
- Examples:
- Personal urban transportation = **Uber**
- Payments and financial services = **PayPal, Revolut**
- Temporary accommodation = **Airbnb** (business model began with ‘authenticity’ of a place to stay)
Therefore, any company’s potential worth will be determined by **how good their business model is**.
39
what are the 4 pillars of a business model
**Value proposition**
Value Creation
Value Delivery
Profit Formula
40
Explain the difference between business model and strategy
Strategy - A plan about which business model to use according to contingency (e.g., competition and macroeconomics). Your strategy will change depending on environmental factors. This refers to a temporal dimension – various time dimensions.
Business model: a snapshopt of configuration for a firm's operations.
it can change as firms grown
Scaling up is neccssary for an easily replicable business model
41
what are the components of vale proposition
**Value Proposition** - An offering (product/service) that helps customers solve the specific problem(s)
- Unmet need - Customers’ problem/jobs-to-be-done
- Solutions/offerings - your solution(s) to the unmet need
- USP
42
what are the components of value creation?
**Value Creation** - Activities needed to produce your solution(s)
- Key activities - activities needed to create your solutions (e.g., working with intermediaries to distribute your product to your customers)
- Key resources - Resources needed for the activities(e.g., machinery, designers)
- Key partners - From whom to acquire those resources
43
what are the component of value delivery?
**Value Delivery** - How you are going to deliver your solution(s) to the customer; customer characteristics and purchasing habits
- Customer segments - For who are we creating value? Who are our most important customers?
- Marketing & distribution channels - How will we reach our customers? How do they expect to be reached?
- Customer relationships - What relationships do our customers want and how much do they cost? e.g., John Lewis vs. McDonalds
44
explain component of profit formula
**Profit Formula** - Your commercialisation plans and cost structure
- **Cost structure** (e.g., subscription plans vs one-off product)
- **Revenue streams**
45
give examples of ownership and subscription music model
Itunes vs spotify
Apple is shfiting away from itunes to stop self-cannabilisation (from Itunes)
46
Explain Go to market strategy and what it entails
GTM: “how to execute your business model”
- A broad term that includes any plan needed to get your
business model implemented, including
* Marketing strategies
* Intermediary business model(s)
* How you would develop your products
* Roadmap and milestones (e.g., by when would you
begin the production?)
47
Explain scaling up strat
Where to go next:
- growth option in agile focus , as you have already successfully executed your business model
- investors ask this
48
explain why GTM and scaling up are relative terms?
- Often you need to change some parts of your business model over time - e.g., in relation to the environment
- Or, you may need entirely new business models
-
E.g Babylon : intermediary GTM was online appointment and used that to get good quality data for their real business model
49
what are the other pertinent details to be included in the GTM
- How will you produce your first product/service (e.g., licensing? OEM?)? With whom will you work with to do so?
- Where will be your first target market? How will you deliver your product/service to the market (i.e., logistics)? Where will you be located your office?
- E.g., London - which borough? and why?
- How will you get first set of key employees?
- If you’re building an online platform, how will you get your first set of participants from each side?
- If you’re building an AI, how will you develop it?
50
in GTM what are the differentation types/focus and give examples
Old/new Market against Old/New Product
E.g
- Resegment can be low cost such as Ryanair
- Resegment can also be differentiation to target specific needs, e.g tech crunch newspaper focus on tech and samuel adams beer
51
what are the differences between red and blue ocean strategy
52
what are the 4 principles of blue ocean strategy and give examples
1. Eliminate - What factors should be eliminated that the industry has taken for granted?
2. Reduce - What factors should be reduced well below industry standard?
3. Raise - What factors should be raised beyond industry standard?
4. Create - What factors should be created that industry never offered?
e.g Cirque du Soliel and build a value curve
Still NEED to test assumptions
53
What are the two main sources of finance
Internal
- FFF
- Own income and savings
- Cash flow from business activities
External
- Equity (Angels or VC)
- Incubators /Acceleratos
- Crownfunding
- Govt
- Bank Loan
## Footnote
Need to show VC you have some internal first to show commitment
54
How are VCs set up?
VCs are intermediaries providing advice and money in the exchange of equity and fees.
They are specialised according to field and stage of investment
55
outline the VC investment cycle
VC normally keep 20% carried interest and 2% management fees
Thye are looking for unicorns ($1bn)
56
explain the basics of VCs
- Each investment round consists of multiple **tranches** (based on achievements)
- E.g., invest 10m into trench A (2m), B (5m) and C (3m) – given on milestones of what you achieve
- VCs almost **always require a board seat**, thereby having decision powers – you need to follow their advice
- Deal structures vary widely and often concealed
57
Compare the contrast the multiple VC funding rounds
Seed:
- they help you fine tune business model and idea
- You should be in initial market testing,etc
- they want converitble notes and/or high equity or preferred stock option
- could be angel or VC and normally pay 250k to 1.5m
Series A
- Achieve previous milestone but now expected to GROW FAST
- Have clear prodcut-market fit and they recieve only equity
- VC or super angels paying 1.5M to 5M
Series B, C+
- GROW rapdily, large investment and explosive hires
58
Explain Angels and their function
Wealth private guys who wants fun or help other entrepreneurs
Thye invest earliest and incur higher risks
Usually wants hands on involvement and are specialised
Investment normally capped at 500k
They want higher return (30%) and consider themselves part of the team
DO not always go for the largest money, just go for what you need
59
How do VC exit?
- **Initial Public Offering** (IPO)
- Ideal, but not prevalent (<5%) because need to consider many factors to determine your valuation e.g., market conditions, macro-economic environment.
**Trade Sale**
- Sale of a firm’s equity in its early stages to other financial investors
- I.e., being acquired by another company
**Bankruptcy / Liquidation**: Selling every asset you have. “Nobody makes real money until the exit”
60
what do VCs or Angels look for?
- **The team & record**: Especially positive if have worked together successfully in past. Team they can trust in.
- **Clean IP portfolio**: Especially in early stage tech firms. Patent is NOT perfect protection – can be detrimental in 20% of cases.
- **Sector**: Tend to invest in sectors that they know (check their investment portfolio)
- **Large, growing markets**: Looking for unicorns
- **Financial indicators**: e.g., gross margin, cash flow – can you produce profit in a relatively short time?
- **Exit route**: Can I get out? When? How?
- **Due diligence**: Any skeletons in the closet?
61
what are the deal killers for VCs/Angels
- **Wrong personnel**: Leave positions vacant rather than recruit wrong people e.g., CEO
- **Insufficient market size**: Best plans is to address huge opportunities
- **Insufficient “critical mass” to technology**: VCs will not back a one-shot wonder
- **Problems with IP portfolio** – if a competitor has a similar product with strong IP, it ain’t happening chief
62
explain the dilemma of growing too fast
- If some entrepreneurial companies **grow really fast**, the **chance of Founder-CEO’s success of achieving critical milestones rises dramatically**.
- If you **negotiate down**, i.e. ask for less investment than offered, then you are **more likely to reach milestones**.
- Sometimes, **even if you reach the milestones**, with a fast-growing company, the investor may **think that you are not suited for a bigger company** and want someone who is experienced in this.
- Basically, **if your company is growing too quick the investors will look for a better CEO**.
- So, don’t want to be failing or growing too quick
63
Explain the fetures and benefits of accelerators/incubators
- **Incubators often focus on earlier stage than accelerators** (accelerators are after getting angel investment but before getting VC investment)
- To get into accelerator/incubator programme you need to apply for it
- Only top programs actually accelerate and most important benefit is intensive learning
64
explain crowdfund and give examples of successes
- Funding a project by raising contributions from a large number of people
- NOT going for financial investment from wealthy person or intermediary, it is from the public!
- Range of platforms – e.*g., Kickstarter, Indiegogo, Funding Circle, Crowd Cube*
- Diverse categories – *art, comics, dance, design, film, food, games, music, theatre etc.,*
VC dont like it
E.g , Chilango, brewdog, Patch
65
what are the different types of crowdfunding?
Donation based
Reward based
Credit based
Equity based
66
Explain benefits and problems with crowdfunding
**Benefits **
- Many think crowdfunding is the best choice as you don’t deal with asshole investors with Angel/VC investment
- You cannot be kicked off as CEO
- Also good if product is **technologically simple** and needs **public endorsement**.
**BUT, problems: …**
- Public **may not understand the technical difficulties**
- **Equity spreading thinly across many different individuals so many stakeholders** – potential financial and control loss
- **Impatient**
- **High status VCs generally don’t appreicate it**
- **Cannot get (valuable) advice from public**
## Footnote
VC want clear equity structure and stop herding
67
Explain govt support
- Varies widely across countries & regions
- Some common types
- **Research grants** – Imperial spin-off idea is that a research paper based on the research done at Imperial
- **Co-investment** with private investment partners
- **Loan guarantees**
- **Fiscal measures** (Grants, subsidies, tax breaks)
- **Incubation structures**
| difficult to get in, START UP Briain
68
# Financial
Explain commercial loan from bank
- No transfer of control/equity and no advertising
- Loan decision criteria:
- **Collateral** – *real estate, receivable, inventory, equipment*
- **Capital** – *debt ratio, risk evaluation*
- **Character of business** – *business plan* (go through detail of business plan!)
- **Capacity** – *cash flows, debt coverage ratio*
- May or may not be applicable for entrepreneurs (depending on their history)
- E.g., restaurants, small retail shops (bank is a good option)
- Depends on the company’s cash flow and collateral
- Generally do not ask for loan when building a new technological product; good that they are not asking for equity
