Unit 3 Flashcards

(26 cards)

1
Q

What is Proof of concept?

A

Evidence that a technology, product, business model or idea is feasible
2 types of POC:
1) Technology or product POC
2) Business model POC

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2
Q

Proof of Concept Scale

A
  1. Working Prototype
  2. Letter of Intent for Beta Test
  3. Final Product
  4. Purchase Order
  5. Customer Sales
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3
Q

Entrepreneur’s Micro Strategy for Proof of Concept consists of three primary elements

A
  1. Outcomes: near-term goals the entrepreneur is attempting to achieve
  2. Assets: human, social, physical, and financial needed to achieve the desired outcomes
  3. Actions: tasks entrepreneur must undertake to achieve the necessary outcomes
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4
Q

Micro Strategy Decision Making Points:

A
  • Today’s environment necessitates a greater use of intuitive decision making.
  • Avoid potential failure points by conducting a premortem.
  • **Common failure points:
    1) Pattern recognition bias (“We always do it that way”)
    2) Overly optimistic forecast of markets
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5
Q

Benefits of Proof of Concept with a Prototype:

A
  1. Entrepreneur develops clear understanding of customer needs.
  2. Changes can be made early in the process when they are less costly.
  3. The prototype reduces the risk of failure
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6
Q

Proof of concept with purchase orders and customer sales tip:

A

Customers that pay up front save company on inventory costs and fund manufacturing costs.

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7
Q

Name the Investors Interests:

A

Rate of growth
Return on investment
Degree of risk
Degree of protection

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8
Q

Name the Bankers’ & Lenders’ Interests:

A
  • Company margins and cash flow projections
  • The amount of money needed
  • The kind of positive impact the loan will have on the business
  • The kinds of assets the business has for collateral
  • How the business will repay the loan
  • How the bank will be protected if the business does not meet its projections
  • The entrepreneur’s stake in the business
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9
Q

Name the Strategic Partners’ Interests:

A
  • Licenses for manufacturing and assembly
  • Supply of raw materials in exchange for equity interest
  • Formal or informal partnership agreements
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10
Q

Components of Business Plan:

A
Executive Summary
 The Business
 Founding/Management team
 Industry/market analysis
 Product/service development
 Operations plan
 Organization plan
Marketing plan
 Financial plan
 Growth plan
 Contingency plan & harvest strategy
 Timeline to launch
 Appendices
 Endnotes
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11
Q

Financial Plan Components:

A
1.  Complete set of financial statements:
Statement of cash flows
Income statement
Balance sheet
2. Key ratios to gauge progress
Current ratio 
 Profit margin 
 Return on Investment (ROI)
 Inventory turnover
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12
Q

Mistakes in Developing the Business Plan:

A
  • Projected rapid growth that requires capabilities beyond those of the founding team
  • Envisioning a three-ring circus with only one ringleader
  • Reporting performance that exceeds industry averages
  • Using price as a market strategy for a product/service
  • Not investing capital in their own businesses
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13
Q

Answering Questions Tips:

A
  • Investors like to ask what they already know the answer to.
  • Trick questions are likely.
  • Don’t be afraid to not know the answer.
  • Founding team can join the CEO for questions.
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14
Q

Name the different Legal Forms of Organizations:

A

Sole Proprietor or Partnership
LLC - S Corporation
Nonprofit - C Corporation

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15
Q

Advantages & Disadvantages of Sole Proprietorships:

A

Advantages:
Easy and inexpensive to create
100% of ownership + profits stay with the owner
Complete decision making authority for the owner
Income is taxed only at the owner’s personal income tax rate
No major reporting requirements exist

Disadvantages:
Legal and tax ramifications:
Owner has unlimited liability for all claims against the business-all debts must be paid from the owner’s assets.
Difficult for the owner to raise debt capital.
Survival of the business depends upon the owner.

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16
Q

Advantages & Disadvantages of Partnerships:

A

Advantages:
Same advantages as sole proprietorships
Shared risk of doing business
Shared partner clout with multiple financial statements
Shared ideas, expertise, decision making
Partners receive pass-through earnings and losses taxed at their personal tax rates.

Disadvantages:
Partners are personally liable for all business debts and obligations.
Individual partners can bind the partnership contractually.
Partnership dissolution results when a partner leaves or dies (unless otherwise stated in partnership agreement).
Partners can be sued individually for the full amount of partnership debt.

17
Q

Corporation (U.S. Supreme Court Definition)

A

“An artificial being, invisible, intangible, and existing only in contemplation of the law.”

18
Q

Powers of Corporations include rights to:

A

Sue and be sued
Acquire and sell real property
Lend money

19
Q

Owners rights of Corporations:

A

As stockholders they invest capital in exchange for shares of ownership
No liability for corporation’s debts
Can only lose the money they invest

20
Q

Advantages of C-Corporation:

A

Limited liability for owners
Capital can be raised through sale of stock
Ownership is transferable
Enjoys status and deference in business circles
Employee access to retirement funds, defined-contribution, profit-sharing and stock option plans
The entrepreneur can hold personal assets which can be leased back to the corporation for a fee

21
Q

Disadvantages of C-Corporation:

A

More complex to organize
Subject to more governmental regulation
Cost more to create
Stockholders do not receive benefit of losses
Ownership control passes to the board of directors

22
Q

S-Corporation:

A

Not a tax-paying entity
Has largely been replaced by the LLC (Limited Liability Company), a more flexible form
May have no more than 100 shareholders who must be U.S. citizens or residents
Profits & losses must be allocated in proportion to each shareholder’s interest

23
Q

Advantages & Disadvantages of S-Corporation

A

Advantages:
Business losses can be passed through for taxation at entrepreneur’s personal tax rate
Avoids double taxation of income

Disadvantages:
Not a favorable option if there is desire to retain earnings for expansion or diversification
No deductions on medical reimbursements or health insurance plans

24
Q

LLC (and PLLC, etc)

A

Licensed service professionals’ corporation organized to provide their services

25
Two distinct hurdles for nonprofit operation and tax-exempt status:
1. Must meet state requirements for being designated as a nonprofit corporation and operating as such in a given state 2. Must meet the federal and state requirements for exemption from paying taxes by forming a corporation that falls within the IRS’s narrowly defined categories
26
Choosing the right Legal Form at each milestone:
Know the strategic plan from the outset. Know the possibilities for changing legal form. Know the expected capital and liquidity needs. Know the tax implications for owners and members.