W212 IU Entrepreneurship Midterm Review
Terms
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- OPM
- Other People's Money
- MBO
- Management by Objectives
- PIK
- Payment in Kind
- GEM
- Global Entrepreneurship Monitor
- CEAI
- Corporate Entrepreneurship Assessment Instrument
- SBIR
- Small Business Innovation Research
- STTR
- Small Business Technology Transfer
- SBA
- Small Business Administration
- NFIB
- National Federation of Independent Business
- PEO
- Professional Employer Organization
- ADA
- Americans with Disabilities Act
- EBITDA
- Earnings Before Interest, Taxes, Depreciation and Amortization
- COGS
- Cost of Goods Sold
- ROI
- Return on Investment
- NPV
- Net Present Value
- IRR
- Internal Rate of Return
- P & L
- Profit and Loss statement
- COLA
- Cost Of Living Adjustment
- The Corridor Principle
- With every venture launched, new and unintended opportunities often arise. (3M post it notes)
- Entrepreneur is derived from the French entreprendre, meaning “__ _______â€.
- Entrepreneur is derived from the French entreprendre, meaning “to undertakeâ€.
- Developing a Web Site
- Attractive and Useful Marketing the Website “Stickiness†– keeping people on your website longer.
- Smaller ventures use the Internet for a variety of operations, including:
- Smaller ventures use the Internet for a variety of operations, including customer-based identification, advertising, consumer sales, business-to-business transactions, e-mail, and private internal networks for employees
- Smaller ventures use the Internet for a variety of operations, including customer-based identification, advertising, consumer sales, business-to-business transactions, e-mail, and private internal networks for employees. #1 use of company internet sites
- Smaller ventures use the Internet for a variety of operations, including customer-based identification, advertising, consumer sales, business-to-business transactions, e-mail, and private internal networks for employees. #1 use of company internet sites – for Company Information
- The common myth is that ___% of all firms fail in the first year.
- The common myth is that 85% of all firms fail in the first year.
- The more accurate statement is that about half of all start-ups last between _ and _ years.
- The more accurate statement is that about half of all start-ups last between 5 and 7 years.
- Intrapreneurship
- entrepreneurship within large organizations/businesses
- A “gazelle†is a business establishment with at least __% sales growth every year (for _____ years), starting with a base of at least $______.
- A “gazelle†is a business establishment with at least 20% sales growth every year (for five years), starting with a base of at least $100,000.
- Gazelles produce _______ as many product innovations per employee as do larger firms
- Gazelles produce twice as many product innovations per employee as do larger firms
- Macro View
- Environmental School of Thought Financial School of Thought Displacement School of Thought
- Micro View
- Entrepreneurial Trait School of Thought (People School) Venture Opportunity School of Thought Strategic Formulation School of Thought
- The Macro View(External locus of control)
- The Environmental School of Thought The Financial/Capital School of Thought The Displacement School of Thought 1. Political Displacement 2. Cultural Displacement 3. Economic Displacement
- The Micro View(Internal locus of control)
- The Entrepreneurial Trait School of Thought The Venture Opportunity School of Thought The Strategic Formulation School of Thought
- Unique Markets:
- Unique Markets: mountain gap strategies
- Unique People:
- Unique People: great chef strategies
- Unique Products:
- Unique Products: better widget strategies
- Unique Resources:
- Unique Resources: water well strategies
- Process Approaches: “Integrative†Approach Entrepreneurial Assessment Approach Multidimensional Approach
- “Integrative†Approach - Combines theoretical and practical processes p 43 combine common sense and theory Entrepreneurial Assessment Approach - More practical – takes environment, type of venture, and type of entrepreneur and puts those three together to calculate how likely a venture is to succeed. Multidimensional Approach - takes the assessment approach together with the process of how you build your organization - did you write a business plan? Did you market? Predicts the success value of your new venture.
- 3M’s Innovation Rules
- Don’t kill a project Tolerate failure Keep divisions small Motivate the champions Stay close to the customer Share the wealth
- A venture team (V-team) is composed of ___ or more people who formally _____ and ____ the ownership of a new organization.
- A venture team is composed of two or more people who formally create and share the ownership of a new organization.
- The v-team leader is called a “_____ _______†or an “__________â€
- The leader is called a “product champion†or an “intrapreneur†– someone inside a large company who is an entrepreneur.
- The Top Ten Characteristics Today’s Entrepreneurs Share:
- Recognize and take advantage of opportunities Resourceful Creative Visionary Independent thinker Hard worker Optimistic Innovator Risk taker Leader
- The Dark Side of Entrepreneurship
- Confrontation with Risk Stress Ego
- 1. The Entrepreneur’s Confrontation with Risk
- Financial Risk Career Risk Family and Social Risk Psychic Risk
- 3. Ego: Out of Control
- Extreme Sense of Distrust Overbearing Need for Control Overriding Desire for Success Unrealistic Optimism
- _________ is the generation of ideas that result in the improved efficiency or effectiveness of a system.
- Creativity is the generation of ideas that result in the improved efficiency or effectiveness of a system.
- Innovation
- The process by which entrepreneurs convert opportunities into marketable ideas. More than just a good idea.
- Types of Innovation:
- Invention Extension Duplication Synthesis
- Sources of Innovation
- Unexpected Occurrences Incongruities Process Needs Industry and Market Changes Demographic Changes Perceptual Changes Knowledge-Based Concepts
- The four rationalizations are believing⬦
- …..that the activity is not “really†illegal or immoral; …..that it is in the individual’s or the corporation’s best interest; …..that it will never be found out; and …..that because it helps the company, the company will condone it.
- Types of Morally Questionable Acts
- non-role - expense acct cheating role failure - no performance appraisal role distortion- bribery role assertion - Not withdrawing product line in face ofinitial allegations of inadequate safety
- A ____ __ _______ is a statement of ethical practices or guidelines to which an enterprise adheres.
- A code of conduct is a statement of ethical practices or guidelines to which an enterprise adheres.
- Immoral Management
- Managerial decisions, actions and behavior imply a positive and active oppositions to what is moral (ethical). Decisions are discordant with accepted ethical principles. An active negation of what is moral is implied.
- Amoral Management
- Management is neither moral or immoral, but decisions lie outside the sphere to which moral judgments apply. Managerial activity is outside or beyond the moral order of a particular code. A lack of ethical perception and moral awareness may be implied.
- Moral Management
- Managerial activity conforms to a standard of ethical, or right, behavior. Managersconform to accepted professional standards of conduct. Ethical Leadership is common-place on the part of management.
- A Holistic Approach, Principles 1-4
- Principle 1: Hire the right people Principle 2: Set standards more than rules Principle 3: Don’t let yourself get isolated Principle 4: The most important principle is to let your ethical example at all times be absolutely impeccable
- Some firms simply react to social issues through obedience to the laws – social ___________; others respond more actively; accepting responsibility for various programs – social ______________; still others are highly proactive and are even willing to
- Some firms simply react to social issues through obedience to the laws – social obligation; others respond more actively; accepting responsibility for various programs – social responsibility; still others are highly proactive and are even willing to be evaluated by the public for various activities – social responsiveness.
- Pitfalls in Selecting New Ventures (6):
- Lack of Objective Evaluation No Real Insight into the Market Inadequate Understanding of Technical Requirements Poor Financial Understanding Lack of Venture Uniqueness Ignorance of Legal Issues
- Critical Factors for New-Venture Development (8)
- Uniqueness Investment Sales Growth Lifestyle ventures Small profitable ventures High-growth ventures Product Availability Customer Availability
- Why New Ventures Fail
- Product/Market Problems Financial Difficulties Managerial Problems
- Types and Classes of First-Year Problems (9)
- 1. Obtaining external financing 2. Internal financial management 3. Sales/marketing 4. Product development 5. Production/operations management 6. General management 7. Human resource management 8. Economic environment 9. Regulatory environment
- a Business _________ is a facility with adaptable space that small businesses can lease on flexible terms and at reduced rents.
- Business incubator is a facility with adaptable space that small businesses can lease on flexible terms and at reduced rents.
- Types of Incubators
- Publicly Sponsored Nonprofit-sponsored University-related Privately sponsored
- A ______ is a group of consumers (potential customers) who have purchasing power and unsatisfied needs. A new venture will survive only if a _______ exists for its product or service.
- A market is a group of consumers (potential customers) who have purchasing power and unsatisfied needs. A new venture will survive only if a market exists for its product or service.
- Marketing Philosophies
- Production-driven philosophy Sales-driven philosophy Consumer-driven philosophy
- ______ ____________ is the process of identifying a specific set of characteristics that differentiate one group of consumers from the rest (market niche).
- Market segmentation is the process of identifying a specific set of characteristics that differentiate one group of consumers from the rest (market niche).
- Five Major Classifications of Consumer Behavior:
- Convenience goods Shopping goods Specialty goods Unsought goods New products (and name types of goods identified with each classification)
- Pricing for the Product Life Cycle, Introductory Stage Unique product
- Skimming – deliberately setting a high price to maximize short-term profits
- Pricing for the Product Life Cycle, Nonunique product
- Penetration – setting prices at such a low level that products are sold at a loss
- Pricing for the Product Life Cycle, Growth Stage
- Consumer Pricing – combining penetration and competitive pricing to gain market share; depends on consumer’s perceived value of product
- Pricing for the Product Life Cycle, Maturity Stage
- Demand-Oriented Pricing – a flexible strategy that bases pricing decisions on the demand level for the product
- Pricing for the Product Life Cycle, Decline Stage
- Loss Leader Pricing – pricing the product below cost in an attempt to attract customers to other products
- The Balance Sheet
- Represents the financial condition of a company at a certain date. It details the items the company owns (assets) and the amount the company owes (liabilities). It also shows the net worth of the company and its liquidity.
- Assets = ____________ + ______ ______
- Assets = Liabilities + Owners Equity
- The Income Statement
- Commonly referred to as the P & L (profit and loss) statement, which provides the owner/manager with the results of operations.
- Statement of Cash Flow
- An analysis of the cash availability and cash needs of the business.
- The _________ budget is a statement of estimated income and expenses over a specified period of time
- The operating budget is a statement of estimated income and expenses over a specified period of time
- The ____ budget is a statement of estimated ____ receipts and expenditures over a specified period of time
- The cash budget is a statement of estimated cash receipts and expenditures over a specified period of time
- The _______ budget is used to plan expenditures on assets whose returns are expected to last beyond one year.
- The capital budget is used to plan expenditures on assets whose returns are expected to last beyond one year.
- Typically, the first step in creating an _________ _______ is the preparation of the sales forecast. An entrepreneur can prepare the sales forecast in several ways. One way is to implement a statistical forecasting technique such as simple linear regres
- Typically, the first step in creating an operating budget is the preparation of the sales forecast. An entrepreneur can prepare the sales forecast in several ways. One way is to implement a statistical forecasting technique such as simple linear regression. Y = a + bx
- Y = a + bx Y is a dependent variable (it is dependent on the values of a, b, and x), x is an independent variable (it is not dependent on any of the other variables), a is a constant (in regression analysis, Y is dependent on the variable x, all ot
- Y = a + bx Y is a dependent variable (it is dependent on the values of a, b, and x), x is an independent variable (it is not dependent on any of the other variables), a is a constant (in regression analysis, Y is dependent on the variable x, all other things held constant), and b is the slope of the line (the change in Y divided by the change in x)
- The first step in the preparation of the cash-flow budget is the identification and timing of the cash inflows. For the typical business, cash inflows will come from three sources:
- (1) cash sales, (2) cash payments received on account, and (3) load proceeds.
- ___ ______ statements are projections of a firm’s financial position over a future period (___ ______ income statement) or on a future date (___ ______ balance sheet).
- Pro forma statements are projections of a firm’s financial position over a future period (pro forma income statement) or on a future date (pro forma balance sheet).
- The first step in _______ budgeting is to identify the cash flows and their timing. The inflows, or returns as they are commonly called, are equal to net operating income before deduction of payments to the financing sources but after the deduction of ap
- The first step in capital budgeting is to identify the cash flows and their timing. The inflows, or returns as they are commonly called, are equal to net operating income before deduction of payments to the financing sources but after the deduction of applicable taxes and with depreciation added back.
- Payback Method
- In this method the length of time required to “pay back†the original investment is the determining criterion.
- Net Present Value (NPV method)
- The concept works on the premise that a dollar today is worth more than a dollar in the future. The cost of capital is the rate used to adjust future cash flows to determine their value in present period terms. This procedure is referred to as discounting the future cash flows, and the discounted cash value is determined by the present value of the cash flow.
- Internal Rate of Return (IRR method)
- This method is similar to the net present value method in that the future cash flows are discounted. However, they are discounted at a rate that makes the net present value of the project equal to zero.
- Contribution Margin Approach
- The difference between the selling price and the variable cost per unit. It is the amount per unit that is contributed to covering all other costs. 0 = (SP –VC)S – FC or FC = (SP – VC)S where SP = Unit selling price VC = Variable cost per unit S = Sales in units FC = Fixed cost
- Pitfalls to Avoid in Planning (5)
- Pitfall 1: No Realistic Goals Pitfall 2: Failure to Anticipate Roadblocks Pitfall 3: No Commitment or Dedication Pitfall 4: Lack of Demonstrated Experience (Business or Technical) Pitfall 5: No Market Niche (Segment)
- Putting the Business plan Package Together
- Appearance Length – no more than 40 pages The cover and title page The executive summary – never more than 2 pages The table of contents
- Key Points of a Business Plan
- How is it a business plan written? What are the sections? What is the key section? What is the largest section? Who do you write it for (audience)? Covenant not to compete – Non-compete agreement
- convenience good
- something you buy on a casual basis.. food impulse goods, things you don't spend time shopping for
- shopping goods
- consumers take time to evaluate the product for quality and price - comparison shop
- specialty goods
- products or services you take a special effort to find (uggs, bose, or something like a special musical instrument)
- unsought goods
- something consumers don't usually seek out or need (cemetery plots, caskets, life insurance)
- new products
- items that are unknown that take time to understand (first personal computer)
- Sections of a business plan (10)
- Executive Summary, Business Description, Marketing, Operations, Management, Finances, Critical Risks, Harvest Strategy, Milestone schedule, Appendix
- What are the key section and largest section of a business plan?
- key section = executive summary longest = market