New Venture Strategies - Study Guide 2

What is a business model?

A firm’s plan or recipe for how it creates, delivers, and captures value for its stakeholders.

How does a freemium business model work?

A freemium business model offers a basic version of a service for free while making money by selling a premium version.

When is the best time for a firm to develop its business model?

After the initial validation of the business idea and prior to fleshing out operational details.

What is a standard business model?

Existing plans or recipes firms can use to create, deliver, and capture value.

What is a disruptive business model?

Models that disrupt or change the way business is conducted in an industry.

What are the four categories of the Barringer/Ireland Business Model Template?

Core Strategy, Resources, Financials, and Operations.

What is a firm’s core strategy?

The part of a business model template that includes business mission, differentiation, target market, and product/market scope.

What is the basis of differentiation?

What sets a business apart from competitors.

Why do most entrepreneurial firms compete in a narrow target market initially?

They typically lack sufficient resources to compete in broader markets.

What are key assets in a business model?

The assets that a firm owns that enable its business model to work.

What is a core competency?

A specific factor or capability that supports a firm’s business model.

What is a revenue stream?

The way a business makes money; critical for short- and long-term success.

What are fixed costs?

Costs that remain the same despite the volume of goods or services provided.

What are variable costs?

Costs that vary proportionally with the volume of goods or services provided.

What are the primary elements of Operations in the Barringer/Ireland Template?

Product/Service Production, Channels, and Key Partners.

Who are key partners?

Businesses that collaborate to help startups perform key tasks.

What is a business plan?

A written narrative that describes what a new business plans to accomplish.

Why write a business plan?

To develop a roadmap and attract investors and stakeholders.

When should a business plan be written?

Toward the end of developing an entrepreneurial firm.

What is a summary business plan?

A brief plan of 10 to 15 pages, suitable for early-stage companies.

What is a full business plan?

Typically 25 to 35 pages long, for ventures needing funding.

What is an operational business plan?

40 to 100 pages, meant for an internal audience.

Why should the executive summary be written last?

The plan evolves, making it easier to summarize accurately afterward.

What is industry analysis?

Describing the industry in which a business will operate.

What is market analysis?

Describing the specific target market within an industry.

What are financial projections?

Estimates of future income and expenses to inform business planning.

What is a founders' agreement?

A document addressing equity splits and compensation among founders.

What is a nondisclosure agreement?

A promise not to disclose a company's trade secrets.

What is mediation?

A process where a third party helps resolve disputes through agreement.

What are the types of business licenses?

Federal, state, and local licenses and permits necessary for operation.

What is the difference between a sole proprietorship and a partnership?

A sole proprietorship is owned by one individual, while a partnership involves two or more people.

What are the advantages of a corporation?

Limited liability for owners and easier access to capital.

What is double taxation?

When income is taxed at both corporate and dividend levels.

What is common stock?

Stock that provides voting rights and is typically last paid in liquidation.

What is preferred stock?

Stock that gives holders preferential treatment for dividends and assets in liquidation.

What does piercing the corporate veil mean?

When owners are held personally liable due to neglecting corporate formalities.

What is the purpose of financial ratios?

To depict relationships in financial statements and assess performance.

What is an income statement?

A financial statement that shows revenue and expenses over a specific period.

What is the purpose of a statement of cash flows?

It summarizes cash position changes and reasons during a period.

What are current assets?

Assets that are readily convertible to cash within a year.

What are fixed assets?

Assets used over a longer time frame like buildings and equipment.

What is the current ratio?

A measure of a firm's ability to pay short-term liabilities with current assets.

What is profitability?

A financial objective related to earning revenue over expenses.

What does liquidity refer to?

A firm's ability to meet its short-term financial obligations.

What is a sales forecast?

An estimate of anticipated sales revenue over a future period.

What is the percent-of-sales method?

A forecasting technique where expenses are expressed as a percentage of sales.

What is a pro forma financial statement?

Projected financial statements based on assumptions about future performance.

What is the difference between historical and pro forma statements?

Historical statements look back while pro forma statements look forward.

What is the difference between a concentrated and fragmented industry?

Concentrated industries have few firms, while fragmented industries have many.

What is the economics of the business?

Income logic and break-even analysis in a business plan.

Why is a management team important in a business plan?

It provides credibility, showcasing experience crucial for investors.

What is the purpose of a sources and uses of funds statement?

To explain the funding needed and its intended uses.

What are fixed and variable costs?

Fixed costs remain stable, whereas variable costs fluctuate with production levels.

What is an executive summary?

A concise overview of a business plan, summarizing key points.

What are major categories on a balance sheet?

Assets, liabilities, and owners’ equity.

What are operating activities in cash flow?

Cash flows from primary business operations.

What are investing activities in cash flow?

Cash flows from buying or selling fixed assets.

What are financing activities in cash flow?

Cash raised or spent in context of debt and equity financing.

What is the importance of financial management?

It ensures effective allocation and management of funds towards goals.

What is efficiency in financial management?

Utilizing assets productively in relation to revenue and profits.

What is stability in financial management?

The financial health and resilience of a firm.

How do forecasts assist businesses?

They guide firms in planning for future income and expenses.

What is the purpose of ratio analysis?

To evaluate a firm's performance relative to its financial objectives and industry peers.

Who are the primary readers of a business plan?

Firm employees, investors, and other stakeholders.

Why is ethical culture important for a firm?

It safeguards reputation and facilitates favorable business relationships.

What is the role of a code of conduct?

To outline the ethical standards and behavior expected within a firm.

What triggers a change in business organization form?

Shifts in strategy, legal, or tax issues affecting the business.

What are the disadvantages of a limited liability company?

Complexity and expenses in set up and maintenance, along with varying state regulations.

What are the advantages of a C corporation?

Limited owner liability, ease of raising capital, and stock liquidity.

What is a key part of financial management?

Making strategic decisions on raising funds and managing finances.

What does 'lead by example' mean in creating ethical culture?

Leadership should model ethical behavior for employees.

What is the purpose of an assumptions sheet in forecasts?

To explain the basis of numbers used in a business plan.

What is important about the timing of business license acquisition?

Licenses must be secured before launching to adhere to local regulations.

What is the significance of controlling costs?

It's crucial for maintaining profit margins and overall business health.