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Entrepreneurship > Midterm > Flashcards

Midterm Flashcards

1
Q
  1. Why is entrepreneurship important for economic growth
A
  1. Maintain competitive markets (increases competition)
    –Labor
  2. New firms means job creation (new firms = new things which = good)
  3. Introduces more innovation- increases economic growth
  4. Increases wages
  5. Increasing quality of life
    Create nearly all of the country’s net new jobs
    • Increases competition
    • Increases wages
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2
Q
  1. Is it young firms or small firms that generate more new jobs? How was this
    Proven?
A

young firms contribute to job growth
This is proven by two firms of equal size old vs young. The young firm will grow faster than the older firm. (Counterfactual- making a test with two different things and test them against one another and you can find the differences).

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3
Q
  1. What is the state of entrepreneurship in the U.S.? Is it on the rise or
    declining? Explain.
A

Declining after the economic recession (2008) but now it’s a little on the rise
New firms are hiring less
20% new entrepreneurs fail in their first 5 years
“Era of Incumbency” most fields have already been occupying the competition and they are decreasing the chances for newcomers to succeed.
Amazon, Microsoft are incumbents that reduce competition due to size and market share/hold.

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4
Q
  1. What is the difference between gazelles and unicorns?
A

Unicorns:
AirBnB, Uber
• Privately held companies 5 years old or less with $1 billion dollar market capitalization.
Gazelles:
Akervall Technologies (sports equipment), LlamaSoft
•A high-growth company that is increasing its revenues by at least 20% annually for four years or more, starting from a revenue base of at least $1 million.

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5
Q
  1. Why is it hard to find information on these firms?
A

Privately held so they don’t need to share information

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6
Q
  1. Name one unicorn and one gazelle.
A

Gazelle- PaySimple, Apple, Starbucks

Unicorn- Tinder, Dropbox, Evernote, Gametime, Halotop Creamery (Uber, Pinterest)

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7
Q
  1. What is the definition of entrepreneurship according to this class? Describe
    each component of this definition.
A

• The Pursuit of opportunity beyond resources controlled

  1. Pioneering a truly innovative product
  2. Devising a new business model
  3. Creating a better or cheaper version of an existing product
  4. Targeting an existing product to new sets of customers
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8
Q
  1. Why does it matter to have a definition? If you’d like, use an example to help
    answer this.
A

Because it then gives us a good idea of the common challenges entrepreneurs go through.

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9
Q
  1. What are the types of risk facing entrepreneurs? Identify and describe each.
A

DCATF

Demand risk -Will people actually want your product? Customer’s willingness to adopt the entrepreneur’s solution (driverless car)
Adoption Cost- How much will it cost to get your customers to use the product
Technology risk - Will technology actually work?
Execution risk - Ability to attract employees and partners who can implement the venture’s plans “Is it possible”
Financing risk - Whether the entrepreneur will be able to attract capital on reasonable terms

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10
Q
  1. What is the “catch-22” in financing of entrepreneurial ventures?
A

At first you will lose money but hopefully eventually you will make the money back and more
You need to raise money but people want proof u can make money but you can’t prove them yet bc you don’t have money

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11
Q
  1. What are four strategies entrepreneurs use to deal with access to financing
    Issues?
A

LSPB
Lean experimentation - Use the smallest possible set of activities required to rigorously test a business model hypothesis (minimum viable product) (prototype)
Staged investing - Designed for entrepreneurs to address risks sequentially. Resources allocated per stage.
Partnering - Leverage another organization’s resources, and sharing risk with this organization
“Storytelling” - Painting a picture of the world including the benefits of the product.
Bootstrapping/Self Funding

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12
Q
  1. In general, entrepreneurs exhibit several characteristics. What are they and
    why do they exhibit them?
A

More comfort with uncertainty
Pattern/Opportunity recognition
Resilience, passion, and optimistic towards failure
Leading something - Typically hiring a team
Innovative for what’s new and different

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13
Q
  1. What is pattern and opportunity recognition? Discuss both in the context of
    Uber.
A

Pattern recognition - The process through which people perceive complex and seemingly unrelated events as constituting identifiable patterns. Pattern is connecting the dots to find a need.
Opportunity recognition - understanding when you can make profit from supply and demand.
Uber - The pattern recognition would be realizing that people are willing to pay for taxis and are also fed up with the inability to actually get a taxi at times. While the opportunity recognition is that Uber saw the potential of using non-union cars/ privately owned cars to travel to work.

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14
Q
  1. How do opportunities emerge?
A

Opportunities emerge from a complex pattern of changing external conditions:
Technology; Economic; Political; Social; Demographic conditions
They come into existence at a given point in time because of a juxtaposition or confluence of conditions which did not exist previously but that are now present

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15
Q
  1. What is the motivation for Porter’s 5 forces?
A

Return on investment varies on the industry’s so it motivates and helps us to study the industry

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16
Q
  1. Why do we study Porter’s 5 forces in an entrepreneurship class?
A

By understanding how these forces influence profitability, you can develop a strategy for enhancing your firm’s long-term profitability

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17
Q
  1. What is the main idea of Porter’s 5 forces?

Does it make sense?

A

Find where industry forces are the weakest and locate them. That’s how you can be successful as a firm. (Something to this effect)

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18
Q
  1. What are the 5 forces? Identify each.
A

CSBTT
Competitive Rivalry. This looks at the number and strength of your competitors. How many rivals do you have? Who are they, and how does the quality of their products and services compare with yours?
Supplier Power. This is determined by how easy it is for your suppliers to increase their prices. How many potential suppliers do you have? How unique is the product or service that they provide, and how expensive would it be to switch from one supplier to another?
Buyer Power. Here, you ask yourself how easy it is for buyers to drive your prices down. How many buyers are there, and how big are their orders? How much would it cost them to switch from your products and services to those of a rival? Are your buyers strong enough to dictate terms to you?
Threat of Substitution. This refers to the likelihood of your customers finding a different way of doing what you do. For example, if you supply a unique software product that automates an important process, people may substitute it by doing the process manually or by outsourcing it. A substitution that is easy and cheap to make can weaken your position and threaten your profitability.
Threat of New Entry.
Barriers to Entry
Retaliation of Incumbents
Your position can be affected by people’s ability to enter your market. So, think about how easily this could be done. How easy is it to get a foothold in your industry or market? How much would it cost, and how tightly is your sector regulated?

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19
Q
  1. What factors determine the threat of entry?
A
  1. Entry barriers

2. Retaliation of incumbents- (already there)

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20
Q
  1. What factors determine barriers to entry? Identify each and discuss their
    relationship to threat of entry.
A
  1. Supply side economies of scale- you have an advantage to get the supplies you need
  2. Demand side benefits of scale- more consumers you have the higher the value your product has.
  3. Customer switching costs- Switching costs are high, barrier costs are high, and lower the threat.
  4. Capital requirements-
  5. Incumbency advantages outside of just size
  6. Unequal access to distribution networks
  7. Restrictive government policies- high Barriers To Enter low Threat Of Entry
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21
Q
  1. Discuss one industry with high barriers to entry, identifying which factor that
    determines this barrier.
A

An Oil company has a high barrier of entry because to get in it you need a lot of capital, technology, access to location with oil that you can drill.

22
Q
  1. Discuss how you would view an industry’s threat of entry differently if you
    are a new entrant or an incumbent?
A

Incumbent it’s a threat- you want it to be high

New entrant- opportunity you want it to be low

23
Q
  1. What factors determine the retaliation likelihood of incumbent firms?
A

IN SHORT:
If the Incumbent has reacted strongly in the past, you can assume they will do the same thing again.
If the incumbent has sufficient resources to fight back, assume that they will.

24
Q
  1. What factors determine supplier power? Buyer power? Discuss how each of
    these impact supplier/buyer power?
A
  1. It is more concentrated than the industry it sells to. Microsoft’s
    near monopoly in operating systems, coupled with the
    fragmentation of PC assemblers, exemplifies this situation.
  2. The supplier group does not depend heavily on the industry for
    its revenues.
  3. Industry participants face switching costs in changing suppliers
  4. Suppliers offer products that are differentiated
  5. There is no substitute for what the supplier provides
  6. Supplier can credibly threaten to integrate forward
25
Q
  1. Discuss the relationship between supplier/buyer power and industry
    Attractiveness
A

The flow of money goes from the buyer to the producer to the supplier. Suppliers will have more power in concentrated markets, meaning there are few companies in the market (like OS X and Microsoft). The supplier will also have more power if it is not dependent on the producer. Buyers can also exert power over the supplier which will lead to decreases in price and increase in quality.
Suppliers can exert bargaining power over producers which will lead to changes in price and quality which can affect the producer

26
Q
  1. Discuss what determines the threat of substitutes in an industry.
A 
Attractive price (price-value)
Switching cost
27
Q
  1. Discuss an industry and the substitute that it should/should have been
    worried about that we did not discuss in class.
A

Us postal and emails
The online banking industry has been threatened in the last few years with popup private equity firms that are providing similar services at expedited speeds at lower costs. Meaning, you can now go online and input data to a private online bank and get the same services at cheaper rates.

28
Q
  1. Why is it important to understand your industry (outside of being able to do
    a 5 forces analysis!)
A

To understand who are competitors are or substitute

29
Q
  1. Discuss what an SIC code is. What do more digits mean and how does this
    relate to thinking about industry?
A

Standard industry identification code
Identifies what industry you are in
More digits more narrow

30
Q 
30. Discuss one narrow versus broad outlook on an actual industry we did not
talk about in class and who are the competitors in each. How does this relate
to substitutes versus rivals?
A

The narrower we are in our definition of an industry more substitutes less rivals.
The broader… more rivals less substitutes

31
Q
  1. What are the prescriptions of Porter’s 5 forces?
A

. Position your company where forces are the weakest

b. Exploit changes in the forces-
c. Reshape the forces in your favor-

32
Q
  1. Discuss two limitations of this framework.
A

A. Homogeneity of resources in the same industry
B. Doesn’t tell you how to make profit. It tells you where to enter the market, but not how.
C. Unattractive businesses often end up being the best one.
D. An entrepreneur does not usually get to pick his industry.

33
Q
  1. What are the elements of an environmental analysis?
A 
DSTMP 
Demographic Trends
Socio cultural influences
Technological development
Macroeconomic and global trade
Political/Legal influences
34
Q
  1. Discuss two of these using a company we did not talk about in class.
A

Ages baby boomers and drug companies
sociocultural - everyone doing everything online like dating apps
The Demographic Trend of american social relationships have been taking place over the internet and not in person due to the number of Americans with smartphones. This has lead to the Socio cultural influences be increased of singles using Dating Sites as their method of meeting new people.

35
Q
  1. What is a concentrated industry?
A

Few companies own most of the market share

36
Q
  1. How can we measure industry concentration? What are the two measures we
    talked about in class? How are they different? You can give a numerical
    example if that makes it easier.
A

Concentration Ratio- sums up the concentration or market share of the top 4 companies.
Example: Soda Industry: Coke 20%, Pepsi 20% Snapple 10% = The largest companies together take up 50% of the market.
Herfindahl= ms1(squared)+ ms2 (squared)

37
Q
  1. What is the difference between a reconstructionist versus structural approach to strategy?
A

Structural approach- external environment, industry controls you
Reconstructrual- you control the industry innovative mindset.
Determine by- resources and strategic mindset

38
Q
  1. How is blue ocean strategy like one or the other?
A

Blue Ocean = structuralist

39
Q
  1. What is blue ocean strategy?
A

The goal of a Blue Ocean Strategy is to invent and capture new demand, offer customers a leap in value (higher WTP and lower cost to the
producer than rivals).

40
Q
  1. Explain blue ocean strategy visually, by showing differences in willingness to
    pay and cost of consumer relative to the other generic strategies.
A

(E-mailed her)

41
Q
  1. Discuss two limitations of blue ocean strategy.
A

New market space if still comparing with rivals? - How can you compare and contrast and learn from a competitor if you are in a new market.
Is there really EVER a brand new market that is uncontested. Everything has a rival.

42
Q
  1. What is the resource-based view?
A

A management tool that is used to assess the availability of business’ assets. In sum, the RBV is based on the notion that the effective and efficient application of all useful resources that the company can obtain helps determine its competitive advantage.

43
Q
  1. Discuss the 4 tests of creating and sustaining a competitive advantage. What
    helps us create? What helps us sustain?
A

A: The tests of creating and sustaining a competitive adv. Are called VRIM.
VRIM refers to 4 different tests that identify the adv. A company should have in order to succeed in the long run.
V- Value- refers to the price difference between the real market value of a product/ commodity and the price paid to acquire it. (Ex. Adele is valued 100M$, if my record company signed her for 60M$, i get value through the difference).
Rare- how scarce the product or commodity is (if there are 20 other Adele’s and the customers won’t lose value while listening to a different artist, the artist is no longer RARE)
Substitution-
Mobile-

44
Q
  1. Prove that VR are both necessary conditions to create competitive advantage.
A

A: Value is a different concept from what we usually have in mind. In the VRIM model, Value refers to the price difference between the real market value of a product/ commodity and the price paid to acquire it. (Ex. Adele is valued 100M$, if my record company signed her for 60M$, i get value through the difference).
Rare meaning how scarce the product or commodity is (if there are 20 other Adele’s and the customers won’t lose value while listening to a different artist, the artist is no longer RARE)
Both are necessary to create a comp. Adv. because if i have value but not rare than other competitors can sign a rare artist and therefore demand more value / offer a better product for the same price.
If i only have rare but not valuable than i basically have no earnings out of this arrangement and all of the value will be projected on the supplier end (the artist).
If we have both value and rarity, a company could acquire a unique product which is hard to copy and earn from the difference in value. By doing so producers will benefit.

45
Q
  1. What determines inimitability?
A

A: Inimitability is determined when certain features in the company makes it harder for other competitors to imitate or copy. This is true when an asset cannot be transferred or replicated without losing value or without spending additional resources, efforts and capital.
Inimitable is divided into two different subcategories; Replicability and Transferability.
Replicability - Seven features determine the replicability of an asset / capability:
Causally ambiguous
Social complexity
Unique historical conditions
Tacitness
Legality (patents, trademarks, etc. )
Complementarities
Established first mover advantage
Transferability - Three features determine the transferability of an asset / capability:
Geographic / Physical
Existing complementarities
Require financial outlay difficult to undertake

46
Q
  1. What are strategies to limit replicability?
A

A:Replicability has seven features that help determine whether an advantage is easy to replicate or not:

  • Causally ambiguous
  • Socially complex
  • Unique historical conditions: A company uses a historical condition or a company, industry or culture readiness in order to leverage an advantage which a different company cannot.
  • Tacitness
  • Legality (such as patents, trademarks): Legal restrictions or patents could often prevent competitors from using a certain technology, product or service.
  • Complementarities
  • Established first mover advantage: First company do develop an idea usually enjoyed a period of time in which there is no competition and therefore can scale faster and sustain market hold.
47
Q
  1. Discuss substitutability.
A

A:Sustaining a competitive advantage is allowing a certain feature / advantage of a company to last longer. In today’s market competitors are always on the look for appealing technologies, startups and concepts. Once launched, an idea will probably be developed by several other companies in order to cut from a company’s market share.
Sustaining an existing advantage is an idea that is referring to the following:
- Competitors are unable to duplicate benefits of this strategy, meaning they cannot achieve the same results.
- We use 4 simple tests in order to assess a resource / capability and see whether it can confer its competitive advantage. These tests are also called VRIM.
Valuable – Company pays less than the full value the asset can create or obtain in the market.
Rare – Held by a small few.
Inimitable – Cannot be copied, transferred or replicated easily without losing value in next best use and also, without great deal of resources. Efforts and capital that could make this advantage non profitable.
Non-substitutable – Cannot be substituted (Uber is a substitution for the Subway system ).

48
Q
  1. Discuss one of these using an actual company we did not discuss in class.
A

?

49
Q
  1. Why do we discuss Porter’s, environmental analysis, RBV, and blue ocean in
    an entrepreneurship class?
A

A: As young entrepreneurs, students or simply individuals who seek opportunities or wish to develop a startup in the future, it is extremely important for us to understand both our internal environment and external.
Porter’s 5 forces introduce external conditions within an industry, which could affect greatly on the success / failure of a new company.
Environmental analysis discusses how will our environment will react, how can you create competitive advantages and what should be focusing on when approaching a new market.
Demographic Trends
Socio cultural influences
Technological development
Macroeconomic and global trade
Political/Legal influences
These are all ways that environment can influence success of a company.
RBV is discussing the internal features of a company and how they can leverage / use these features in order to create value and sustain it afterwards.
Blue Ocean strategies are opportunities that companies seek in order to have an advantage that eliminates competition and creates a new market that is free from competition. These strategic moves create a leap in value for the company, its buyers, and its employees while unlocking new demand and making the competition irrelevant.

50
Q
  1. Discuss Super Soccer Stars generic strategy
A

Hiring the best coaches and increasing the tacitness in training then

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