Test Flashcards
What are the differences between start-ups and normal new businesses?
- Institution designed to create new products or services under conditions of extreme uncertainty
- Any business which replicates a business model is not a startup becuase its success depend on the execution of an existing business model. The level of risk and uncertainty is already known. Such a person is a buiness person, but not an entrepreneur.
- Blue Ocean Strategies have 4 actions, Eliminate, Reduce, Raise, Create. Describe each of these in terms of the approach Yellow Tail wines entered the American wine market.
- Blue Ocean strategy contrasts with Red Ocean Strategy
- Features of Red Ocean strategy:
- Compete in existing markets
- Beat the competition
- Exploit existing demand
- Make value-cost trade-offs
- Choose ‘low-cost’ or differentiation
- Features of Blue Ocean:
- Create new market space
- Make the competition irrelevant
- Create and capture new demand
- Break value-cost trade-off
- Choose both
- ELIMINATE - Which of the industry factors taken for granted in the industry should be eliminated
- REDUCE - What factors should be reduced well below the industry standard
- RAISE - Which factors should be raised well above the industry’s standard
- CREATE - Which factors should be created that the industry has never offered
Startup Definition
A startup company or startup is a comapany, a partnership, or temporary organization designed to search for a scalable, repeatable business model.
What kinds of businesses attract Angel Investors?
Attracted to new companies with:
- high risk/reward profile
- scalability
- low startup costs
Sources of funding for Startups?
- Venture Capital Firms
- Angel Investors
- Founders themselves
- Flexible loans
- Crowd Funding
Case Study 1 - Blue Ocean Strategy
Name: South-West Airlines
- Eliminated:
- Meals
- Lounges
- Seating class choices
- Hub connectivity
- Raised:
- Friendly service
- Speed
- Reduced:
1. Price versus average airlines - Create:
1. Frequent point-to-point departures
What is a value proposition?
Value propositions are services/products that are of value to the customers of a company. They are a promise of value to be delivered. The value propisition is the primary reason that a customer should buy your product.
Case Study 2 - Blue Ocean Strategy
Name: Yellow Tail Wines
- Eliminated:
1. Oenological terminology and distinctions, such as aging qualities. Simplified. - Reduced:
1. Wine complexity, wine range, vineyard prestige - Raised:
- Price vs. Budget wines.
- Simplicity of retail store environment.
- Enthusiasm of sales people.
- Created:
- Easy drinking
- Ease of selection
- Sense of fun and adventure
In 2001, Yellow Tail hoped to sell 25,000 cases in their first year. Today, they are 11% of the US’s total wine imports. They sell 25 million cases each year. They created a brand new market and achieved success.
What is a Angel Investor?
- More likely to provide funding for early startups
- Size of investment rarely exceeds $1 million
- Can be ‘hands on’ or ‘hands off’ in how they work with the entrepreneur
- Can bring much needed contacts into the fold
- Individuals (VCs - money from college endowments or large pension funds on behalf of a number of individuals)
- VC will require a seat on the board in order to have some say on the company’s future
How are value propisitions different in both consumer and business markets?
In business markets a value proposition should promise a saving in time and/or money.
However, in consumer markets this is only one aspect of a vlaue propisition and other factors may also be critical (i.e. aesthetics, fashion, cars, psychological).
4 Key differences between Angel and VC Investors
- Amount of money being invested
- Professionalism of investor
- Whose money is being invested
- Whether the investor takes a seat on the company’s board
Emergence of Angel Investment
- Ben Horowitz
- Emerged as a response to changing market conditions, when technology startups first appeared
- High tech or s/w companies often need little money to get started, do not want to be suffocated by VCs and have the potential to make high revenue
- Not until the company’s growth is guaranteed that a VC becomes more attractive
What is a business model?
- The process that transforms the technical merit of the technology/service into the context of a value proposition for a customer.
- The rational of how an organization creates, delivers and captures value.
- The essence of a business model is that it defines the means by which the business enterprise delivers value to the customer, entices customers to pay for value,and converts these payments to profit.
Explain major components of the LSM
- Build-Measure-Learn loops
- Goal to create an MVP asap and quickly get it throught the BML loop
- Proposed strength of model is to get valuable feedback early, so that they can feed this into the product development - ensures that a company will not invest heavily into a product that is not valued by its imagined customers
- MVP - build phase, the customer feedback is measured and lessons are learned
- Possible weakness of model: company can choose to pivot after the first iteration of the cycle - prevent genuine disruptive innovation (contradicts Christensen)
Explain ordinary share
- Voting rights
- When the company does well, you do well
- When the company flops, you flop
- Profits are uncertain and variable
- Little security - when dividends are paid out or when a company’s assets are liquidated, preferences shareholders are paid first
Preference Shares
- No voting rights
- Guaranteed a fixed rate dividend regardless of the company’s performance
- Profits are thus more secure and stable
- More security: Preference shareholders are always paid first and the company’s assets can be sold to pay the balance
Give an example of where a technology with a failed business model became sucessful when the business model was changed.
Xerox
Conventional: Charge customers for the cost of equipment and make a profit on the supplies and paper.
Xerox Model:
- Customers lease the 914 copier for $95 p/month.
- free for first 2,000 copies
- 4 cents for each copy therefter
- Lease can be cancelled with 15 days notice
Value propisition = low cost ($95) and low risk (15 days notice)
Convertible Preference Shares
- Allow the shareholder to convert their fixed-return shares into a specified number of ordinary shares at some specified date in the future
- Balance of risk vs. security
Authorized Share Capital
Authorized share captial can be best described as the maximum amount of share capital that the company is authorized to sell based on its Memorandom of Articles of Association
List the minimum prerequisites e.g. number of directors, and documents required by Irish law to incorporate a comapny
- 2 directors min.
- Physical mailable address
- Memo of articles of incorporation - what company does, rules & regs
- Outline of authorized share capital
- Company name
- Board of directors
- Company Secretary
- Shareholders
