Chapter 2

Question 1

Salary replacement firms

Answer 1

Firms that provide their owners with income levels, comparable to what they could’ve earned working for much larger firms.

Question 2

Lifestyle firms

Answer 2

Firms that allow owners to pursue specific lifestyles while being paid for doing what they like to do.

Question 3

Entrepreneurial ventures

Answer 3

Entrepreneurial firms that are flow and performance oriented as reflected in rapid value creation overtime.

Question 4

Sound business model

Answer 4

A framework for generating revenues, making profits, and producing free cash flows.

Question 5

Generate revenues

Answer 5

You must have customers and sell them something.

Question 6

Make profits

Answer 6

You must eventually have revenues that exceeded the expenses of generating those revenues.

Question 7

Produce free cash flows

Answer 7

You must generate cash inflows that exceed net-working capital and capital expenditures.

Question 8

Best practices of high growth, high-performance firms

Answer 8

1) marketing practices
2) financial practices
3) management practices
4) operations/production practices

Question 9

Best practices: marketing

Answer 9

1) deliver high-quality products or services
2) demonstrate innovative leadership
3) command, higher prices and margins
4) develop efficient, distribution channels, and superior service support facilities

Question 10

Best practices: financial

Answer 10

1) prepare detailed monthly financial plans for the next one to two years and annual financial plans for the next 3 to 5 years.
2) anticipate and obtain multiple rounds of financing as the venture grows.
3) efficiently and effectively manage the firms assets, financial resources, and operating performance.
4) plan an exit strategy consistent with the entrepreneurs objectives and business plan.

Question 11

Best practices: operation

Answer 11

Operation practice is also important: the promised quality, and timing of delivery is the responsibility of this department.

Question 12

Best practices: management

Answer 12

1) assemble a management team, balance, and functional area coverage and industry/market knowledge
2) employee a decision-making style that is viewed as being collaborative.
3) identify and develop managers that support entrepreneurial spirit.
4) well balanced board of directors between external and internal members.
5) some potential investors view a detailing of the management team as the most important section of a business plan.

Question 13

Time to market and other timing implications

Answer 13

• Business opportunities exist in real time
• Most ideas have a relatively narrow window of opportunity to become a successful business venture
• Sometimes ideas are ahead of their time
• of course, being first to market does not necessarily ensure success
• first advantage: eBay

Question 14

Viable venture opportunity

Answer 14

1) An opportunity that creates or meets a customer need
2) provides an initial competitive advantage
3) is timely in terms of time to market
4) offers the expectation of added value to investors.

Question 15

Litmus test

Answer 15

Does the business
1) create or meet a customer need,
2) provide an initial competitive
3) have an attractive time to market profile
4) offer the expectation of an attractive returns to investors.

Incorporate SWOT analysis

Question 16

Venture opportunity screening

Answer 16

Assessment of an idea, commercial potential to produce revenue growth, financial performance, and value.

Question 17

Caterpillars

Answer 17

An entrepreneurial term referring to ideas that are likely to become butterflies – successful business, or venture opportunities.

Question 18

Venture opportunity screening: qualitative screening

Answer 18

Interview with the founder, marketing manager, operations manager, financial manager.

Question 19

Venture opportunity screening: quantitative screening

Answer 19

VOS indicator

Question 20

VOS indicator

Answer 20

A checklist of selected criteria and metrics used to screen venture opportunities for potential attractiveness as business opportunities.

Question 21

Cost of good sold

Answer 21

‘Direct cost of producing a product or providing a service

Question 22

Gross profit margin

Answer 22

Gross profit / by revenues.

Question 23

Net profit

Answer 23

Dollar profit left after all expenses, including financial costs and taxes, have been deducted from the revenues.

Question 24

Net profit margin

Answer 24

Net profit divided by revenues.

Question 25

Asset intensity

Answer 25

Total assets divided by revenues; the reciprocal of asset turnover

Question 26

Return on assets (ROA)

Answer 26

Net after tax profit / by total assets.

Question 27

Return on assets model (ROA) model

Answer 27

Return on assets is the product of the net profit margin and the asset turnover ratio.

Question 28

Operating cash flow

Answer 28

Cash flow from producing and selling a product or providing a service.

Question 29

Free cash flow to equity

Answer 29

Cash remaining after operating, cash outflows, financing in tax, cash flows, investment and assets needed to sustain the ventures growth, and net increases in debt capital.

Question 30

Internal rate of return (IRR)

Answer 30

Compound rate of return that equates the present value of the cash flows received with the initial investment.

Question 31

Financial bootstrapping

Answer 31

Minimizing the need for external financial capital and finding unique sources for financing a new venture.

Question 32

Business plan

Answer 32

A written document that describes the proposed product or service opportunity, current resources, and financial projections.

Question 33

Real options

Answer 33

Real or non-financial options available to managers as the venture progresses through its life cycle.