Flashcards in Unit 2 Deck (85):
a grouping of businesses that interact in a
common environment as part of the value chain or distribution channel.
a grouping of customers that an entrepreneur targets
What if the "First customer"?:
the segment of themarketplace that needs the product or service most—in other words, the customer in the most pain.
What two forces influence ROI in an industry?
(1) forces that tend not to change such as brand equity and intellectual property and forces that are dynamic, such as the number of potential buyers or changing demographics;
(2) the aggregate strength of the market forces.
What is a business' external environment?
The industry in which a new venture will operate in.
Data collected for Industry Analysis should answer the following key questions:
๏ What does the industry look like?
๏ Is the industry growing?
๏ Where are the opportunities?
๏ What is the status of any new technology?
๏ How much do industry companies spend on research and development?
๏ Who are the opinion leaders in the industry?
๏ Are there young, successful firms in the industry?
๏ What does the future look like?
๏ Are there any threats to the industry?
๏ What are the typical margins in the industry?
the classification system that was developed by the United States, Canada, and Mexico to identify industries and to allow for common standards and statistics across North America.
The North American Industry Classification System (NAICS).
It’s generally wise to begin any research by...?
looking at secondary sources of information such as Google, Wikipedia, journals, and trade magazines to gather background data.
What are some tips for researching smaller industries that don't have as much available info as larger?
๏ Check the business press
๏ Talk to trade associations
๏ Consult trade association journals
๏ Check organizations that list government and agency
๏ Look at blogs, wikis, websites, and social networking sites
Secondary industry data needs to be validated by talking to which six sources of primary industry data?
๏ Industry observers
๏ Suppliers and distributors
๏ Employees of key firms in the industry
๏ Professionals from service organizations
๏ Trade shows
Industries and products move through a life
cycle that includes:
๏ Growth and adaptation
๏ Differentiation and competition
๏ Maturity and decline
What is the Industry Life Cycles?
-> New industry emerges
-> Demographic shifts
-> Changes in customer markets
-> Intense product differentiation, Uncertainty reduced, Proprietary rights less exclusive
-> Exit of firms unable to compete
-> Domination of a few firms
What are Porter’s Five Forces Model?
Porter asserts that there are five forces
in any industry that affect the ultimate profit potential of a venture in terms of
long-run return on investment.
1. Barriers to entry
2. Threats from substitute products
3. Threats from buyers’ bargaining power
4. Threats from suppliers’ bargaining power
5. Competitive rivalry among existing firms
Name some of the Barriers to entry.
• Economies of scale
• Brand loyalty
• Capital requirements
• Switching costs for the buyer
• Access to distribution channels
• Proprietary factors
• Government regulations
describe the impact of the variables of each of the five forces.
Threat of new entry or substitution is extremely high and impact will be very
Threat of new entry or substitution is high or strong =↓
Threat of new entry or substitution is moderate = +
Supplier/buyer power is extremely high and impact will be very negative =↓ ↓
Supplier/buyer power is high or strong =↓
Supplier/buyer power is moderate = +
Supplier/buyer power is not a threat = 0
Which specific aspects of the macro-environment does PEST Analysis examine?
1. Sociocultural: demographics and cultural
2. Technological: R&D, rate of change
3. Economic: cost of capital, customers’ purchasing power, inflation, employment
4. Political facets: government, regulation, and legal.
What are the key questions to answer when characterizing the target market?
๏ What are the potential markets for the product or service?
๏ Of these potential markets, which customers are most likely
to purchase the product or service at market introduction?
๏ How much do these customers typically buy, how do they
buy , and how do they hear about the product or service?
๏ How often do they buy? What is their buying pattern?
๏ How can the new venture meet these customers’ needs?
goals in market research?
1. Identify and profile the first customer
2. Estimate potential demand from that customer
3. Identify subsequent customer segments and needs to grow the company
Name the four steps in market research:
1. Assess your information needs
2. Research secondary sources first
3. Measure the target market with primary research
4. Forecast demand for the product or service
The most important data that entrepreneurs can collect on potential customers is:
What are the Primary research techniques for Exploring the Market with Primary Data?
๏ Anthropological techniques: Step One: Induction. Step 2: Abduction, Step 3: Deduction, Step 4: The test, Step 5: Conclusions
๏ Structured interviews
๏ Informal focus groups (group interviews)
๏ Survey techniques: online, in-person, phone
Name the segment of a customer matrix:
Name the information a Primary Customer Profile should include:
๏ Income level
๏ Buying habits – when, where, how much
๏ Where customer finds products/services
๏ How customer would like to purchase
Name the 3 types of competitors for a product or service identified:
2. Indirect or substitute
3. Emerging or potential
Name some of the steps to find information about competitors:
๏ Visit competitors’ websites or outlets where product is sold
๏ Buy competitors’ products
๏ Use internet search engines to read what customers are saying
๏ Find information on public companies to serve as benchmarks for
Name the learning objectives of Chapter 5:
1. Explain the difference between an industry and a market.
2. Discover effective ways to research and analyze an industry.
3. Determine first customer and the characteristics of the market.
4. Understand anthropological techniques for understanding customers.
5. Gather competitive intelligence.
Name the learning objectives of Chapter 6:
1. Discuss the current trends in product/process design and development.
2. Describe the product development cycle.
3. Compare the advantages and disadvantages of outsourcing product development.
4. Explain the process of intellectual property
development for patents, trademarks, copyrights, and trade secrets.
Describe the environment of New Product Design:
• Intensely competitive.
• Customers demand products that reflect lifestyles and value systems.
• Technology shortens product life cycles.
• Entrepreneurs must manage innovation pipeline to remain competitive.
What is the challenge of an entrepreneur when starting the development of a new product?
Perform R&D that results in high-quality, engineered prototype as quickly and inexpensively as possible.
What impact does insufficient resources have?
• Poor execution
• Time-to-market increases
• First-to-market opportunities are missed
• Projects are made simpler so that more can be done with less
• Team morale declines
What is the probability of success
at launch for a new product?
about 60 percent.
Complete the following sentence: Innovators
can be successful at creating value but unless...
they have found a way to capture
sufficient value, the returns from their innovation will be tapped by imitators,
providers of complementary products, and others in the value chain.
New product failure results from:
• Lack of good market and industry analysis
• Technical problems
Name some of the strategies to consider when competing effectively in product development:
• Design products right the first time
• Shorten the time-to-market
• Outsource some product developments tasks to create a lean structure
Name the 8 components of the Product Development Process Cycle:
2. Opportunity identification
3. Technical and market feasibility analysis
4. Intellectual property & regulatory requirements
5. Prototype development
6. Initial market tests
7. Launch strategy
8. Execution plan
Name some of the areas suitable for outsourcing that require engineering
analysis, design and expertise:
• Component design
• Materials specifications
• Machinery to process
•Assembly drawings & specifications
•Parts and material sources (suppliers)
•Operator’s and owner’s manuals
Definition of intellectual property rights:
The group of legal rights associated with patents,trademarks, copyrights, and trade secrets.
What are intellectual property rights used for?
•Protect entrepreneur’s property
•Avoid infringing on the rights of others
What are Patents used for?
used as the primary means of protecting
an original invention.
What are some questions used to assess whether a patent is necessary?
• Does the invention solve a significant problem and change the way things are done?
• Does the invention fall under FDA regulations?
• Will the invention achieve revenues that exceed the potential cost of patent enforcement?
• Is there a plan to license?
Name the USPTO criteria for patentability:
• Must meet established classed by congress
• The invention must have utility (it must be useful).
• The invention must not contain prior art; that is, it must be new or novel in some important way.
• The invention must not be obvious to someone with ordinary skills in the field.
Name the five classes an invention must fit into as established by Congress for it to be patentable:
• Machine or something with moving parts or circuitry
• Process or method for producing a useful and tangible result
• Article of manufacture
• Composition of matter
• A new use or improvement for one of the above that does not infringe on the patents associated with them
Name the Patents Types:
๏ Utility Patents: Protects functional part of machines/processes
๏ Design Patents: Protects new, original ornamental designs for manufactured articles
๏ Business method Patents: Protects fundamentally different ways of doing business in which the embedded process must produce a useful, tangible, and concrete result
Name some of the problems with patents as it relates to globalization:
๏ Patent rights granted to an individual extend only to the borders of the United States.
๏ Every country has different laws regarding intellectual property.
What is a Provisional patent?
a way for inventors to undertake a first patent filing in the United States at a lower cost than a formal patent application.
• Permits use of the term patent pending
• On par with international applications
• Granted for 12 months
What is a Non-provisional patent?
•Required for all patents
•Granted for 20 years
•Must be specific enough to demonstrate the invention’s
uniqueness but broad enough to make it difficult for
others to circumvent patent
What is Patent Infringement and what are the results when it occurs?
๏ Occurs when someone other than the inventor (patent holder) or licensee makes and sells a product that contains every one
of the elements of a claim
๏ If lawsuit is successful, court may issue injunction preventing infringer from making further use of invention and award inventor royalties.
๏ Doctrine of equivalents – U.S. Patent Office protects investors from infringers who would violate a patent from making small,
insignificant changes in the claims.
๏ Courts tend to favor the inventor
What is a Trademark?
a symbol, logo, word, sound, color, design,
or other device that is used to identify a business or a product in commerce.
๏ It has a longer life than a patent.
๏ Grants a business exclusive rights to a trademark for as
long at it is actively using it.
• ® Registered trademark
• ™ Intent-to-use application filed for product
• SM Intent-to-use application filed for services
What marks cannot be Trademarked?
• Anything immoral or deceptive
• Anything that uses official symbols of the U.S. or any state/municipality such as the flag
• Anything that uses a person’s name or likeness without permission
What is Trademark Infringement?
A mark that is likely to cause confusion
with a trademark already existing in the marketplace.
What is Trademark Counterfeiting?
The deliberate copying of a mark.
What is Dilution?
The value of the mark is substantially reduced through competition or through the likelihood of confusion from another mark.
What are Copyrights?
Protects the form of the original works of authors, composers, screenwriters, and computer programmers.
๏ Does not protect the idea itself.
๏ Lasts for the life of the holder + 70 years.
๏ Works for hire and works published anonymously have copyrights of 95 years from date of publication.
What is the Doctrine of Fair Use?
reproduction of a copyrighted work is “fair” when it is done for purposes of criticism, comment, news reporting, teaching, scholarship, and research
What is The Digital Millennium Copyright Act 1998?
Prohibits the falsification, alteration, or removal of copyright management data on digital copies. It made it a crime to circumvent an encrypted work without authorization
How do you obtain copyright protection?
Federal protection is available if the work is in a fixed and tangible form; contains a copyright notice and year, and the full name of the responsible person (i.e. © 2011 Stephen Barry).
A trade secret consists of?
• A formula, device, idea, process, pattern, or
compilation of information that gives the owner a competitive advantage in the marketplace.
• A novel idea that is not common knowledge
and is kept in a confidential state.
๏ A trade secret is not protected by federal law.
Name the learning objectives of Chapter 7:
1. Explain how to effectively build a founding team.
2. Understand how to work with professional advisers.
3. Discuss when to add a board of directors.
4. Compare and contrast the pros and cons of outsourcing
with independent contractors versus hiring employees.
Why do teams lead to a better chance for success?
• Shared intense effort required by a startup
• Loss of one member less likely to result in startup
• Team concept permits expertise across major functional areas
• A Skilled team lends legitimacy to the startup
• Diverse experience of the team allows for better decisions
Who does the Entrepreneur’s Network consists of?
Professional Advisors: Attorneys, Accountants, Bankers, Insurance
Consultants: Management, Sales, Market
Personal Advisors: Board of directors, Board of advisors, Mentors
Sales Support: Manufacturer reps, Sales agencies, Distributors, Foreign reps
Manufacturing Support: Subcontractors,
Design engineers, Manufacturers
Governmental Agencies: Grants, Regulatory
Name the benchmarks for an effective team:
• Shared vision
• Shared passion
• Industry experience
• Solid industry contacts
• Functional areas of the business are
• Team members with good credit ratings
• Team members have time and money
What are unique issues for Virtual teams?
๏ Virtual teams function differently and affect how the team interacts.
๏ Synchronous-asynchronous communication
media alleviate physical distance issues.
๏ Trust is critical to effective virtual teamwork.
What are some guidelines for Founding Teams for International Ventures:
๏ Success in the international market depends on the skills and knowledge of the team.
๏ Successful characteristics include:
• Extent to which founding team members have traveled or worked abroad
• The number of languages they speak
๏ Experienced founding teams likely to form
partnerships to facilitate entering the foreign
What are some Rules for Friends and Families when founding a team?
๏ Friends/family members must possess skills and expertise.
๏ They need to share the same work ethic as the entrepreneur.
๏ The advisory board must include outsiders.
๏ All relationships are business oriented and must be stated clearly spelled out.
What is some advice for Seeking Professional Advisers?
๏ Outsourcing solutions for professional help:
• Insurance agents
๏ “As-needed” assistance for information, assistance in reviewing business concept, and reality checks.
What is some advice for Seeking Personal Advisors?
๏ Building a board of directors
• Boards should provide expertise in establishing corporate strategy and philosophy.
• Legal form of the business influences the decision to have a BoD.
• Boards of publicly traded companies are elected by shareholders
• Members assist with business development, act as arbitrators for
dispute resolution, and give credibility to the new company’s image.
What is an Advisory Board?
๏ Consists of a panel of experts
๏ Ranges from infrequent meetings and no pay to frequent
๏ Often used when board of directors is not required or in
the startup phase
๏ Helps the entrepreneur to overcome “tunnel vision”
What is a Mentor Board?
๏ The entrepreneur’s personal board who serve as a sounding board, coach, advisor
๏ A safe haven for entrepreneur’s to air their fears, concerns, hopes, dreams
๏ Generally role models and individuals who have businesses and lifestyles like the one the entrepreneur wants to create
What are some mistakes to avoid with Teams and Boards?
๏ All team members should have the required experience, qualifications, and goals
๏ Avoid using only family and friends.
๏ Only give stock incentives after an individual has proven him or herself.
๏ It is important to clearly understand what each team member is contributing and value it appropriately.
๏ Buy-sell agreement are used to prevent an owner from selling his/her interests in company without consent of the other owners
What are Independent contractors (ICs)?
own their own businesses and are hired by the entrepreneur to do a specific job.
• Including: consultants, manufacturers, distributors, employee leasing firms, and professional advisers.
To ensure compliance with IRS regulations, entrepreneurs who use independent contractors should:
• Consult an attorney
• Draw up a contract
• Indicate only the desired result
• Verify the IC’s workers’ compensation insurance and IC’s licenses to do business
What are some of the types of Independent Contractors?
๏ Professional employer organizations (PEOs)
๏ Manufacturing support
๏ Sales support
Name the learning objectives of Chapter 8:
1. Demonstrate an understanding of entrepreneurial resource
2. Explain the rationale for a business process map.
3. Discuss the process for calculating startup requirements.
4. Explain the role of pricing in forecasting sales.
5. Identify typical startup financial metrics.
6.Discuss the role of risk in the entrepreneur’s assessment of
Startup resources include:
๏ People (founding team, employees, advisors, independent
๏ Physical assets (equipment, inventory, office or plant space)
๏ Financial resources (cash, equity, debt)
What is bootstrapping?
๏ Minimizing resources to keep low overhead
๏ Creating innovative combinations of resources to generate
competitive advantage and wealth.
What are some Questions to answer when Constructing a Business Process Map:
• Who does the work in this business ?
• Where do these people work ?
• What do they need to do the work ?
• What information is being generated ?
• Where does that information go ?
What is the importance of positioning the Venture in the Value Chain?
๏ Position in the value chain defines the business the entrepreneur is in.
๏ Position determines margins, customer, and
Discuss some points of Pricing Strategies:
๏ Product pricing is a part of marketing strategy and financial strategy.
๏ How a product or service is priced is a function of a company’s goals.
๏ Customer goals also influence entrepreneurs’ pricing strategies.
Name the Common Pricing
Strategies at Startup:
1. Premium Pricing.
2. Price Skimming
3. Demand-based Pricing
4. Captive Product Pricing
5. Psychological Pricing
6. Product Bundle Pricing
7. Geographical Pricing
Discuss the Startup Financial Metrics:
๏ Customer acquisition costs (CAC)
๏ Average order size, time to reorder, lifetime value per customer
๏ Revenues per salesperson and time to revenue for direct sales
๏ For Web 2.0 Ventures: acquisition, retention, revenue, viral coefficient
๏ Contribution margin
๏ Monthly burn rate
What are some ways to Develop Financial Assumptions?
๏ Estimate new product/service demand
• Use historical analogy or substitute products
• Talk to customers
• Interview prospective end-users and
• Use the entrepreneur’s knowledge and
• Go into limited production
As far as Sales Forecast, Increases in sales are influenced by:
• Growth rates in the market segment
• New innovations offered to make the product/service more attractive
• Technological innovations to enable production at a lower cost
What are some expenses to consider?
• Cost of goods sold (COGS)
• Sales, general, and administrative expenses
What are some of Calculating a Startup’s Cash Requirements?
๏ Develop cash flow statement.
๏ Clearly depicts cash inflows and outflows.
๏ Add contingency factor for safety.
๏ Identify types of capital resources required: capital expenditures, startup expenses, working capital, safety margin.