Entrepreneurship Flashcards
Define entrepreneurship
Entrepreneurship is the process of identifying, evaluating and exploiting business opportunities
Contrast entrepreneurship with innovations
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
what are the biases in entrepreneurial decision making
- 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
give reasons why one may choose to become an entrepreneur
- 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.
what is the difference between pushed and pulled entrepreneurs
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.
what 3 main questions must you ask yourself if you want to undertake an entrepreneurial journey
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
in reality where does majority of entrepreneurship idea come from?
Previous employment
Explain the broad strategy for the typology of entrepreneural opportunities
Draw Matrix
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
Explain technological push
- 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
Explain Market pull
sometimes it’s not clear
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
Give reasons why many opportunities and businesses fail and give factors to avoid
57%
- 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
Give the 3 main phases of how to evaluate entreprenuerial opportunities after you have come up with an idea
Phase1: Search Broadly
Phase 2: Assess Deeply
Phase 3: Strategise smartly
Opportunity
Explain the stages of Phase 1
- 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
Opportunity
Broadly explain the component of phase 2 of evaluating opportunties
for each market opportunity
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
Opportunity
Explain phase 2.1
-
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?
Opportunity
Explain Phase 2.2 for each opportunity (from phase 1)
-
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?
Opportunity
Explain Phase 3
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
Does agile methodology work?
Yes
- Higher performance (revenues) for ventures that considered more than one market opportunity
- Initial opportunity set shapes diversification after entry (Gruber et al, 2013)
Hypothesis
What is the difference between traditoinal approach and hypothesis drivien approach
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
Outline the 6 steps of hypothesis driven approach
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
Explain pivot and give examples
- 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
What are the key elements of a value proposition
- 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
Hypothesis on Markets- customer segments
Need to test anf discern
- Their needs (why)
- Who they are
Can be done through observation and focus group study
Market size, explain the different component, and explain the dilemma
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
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
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
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
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
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
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
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
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.
what are the 4 pillars of a business model
Value proposition
Value Creation
Value Delivery
Profit Formula
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
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
give examples of ownership and subscription music model
Itunes vs spotify
Apple is shfiting away from itunes to stop self-cannabilisation (from Itunes)
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 modelsE.g Babylon : intermediary GTM was online appointment and used that to get good quality data for their real business model
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
what are the differences between red and blue ocean strategy
what are the 4 principles of blue ocean strategy and give examples
- Eliminate - What factors should be eliminated that the industry has taken for granted?
- Reduce - What factors should be reduced well below industry standard?
- Raise - What factors should be raised beyond industry standard?
- 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
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
Need to show VC you have some internal first to show commitment
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
outline the VC investment cycle
VC normally keep 20% carried interest and 2% management fees
Thye are looking for unicorns ($1bn)
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
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?
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
what are the different types of crowdfunding?
Donation based
Reward based
Credit based
Equity based
