MGMT 4520: Entrepreneurship Concepts

These flashcards cover essential concepts, definitions, and important questions regarding entrepreneurship, startup dynamics, and the venture capital environment.

Entrepreneurship

The pursuit of opportunity without regard to resources currently controlled.

Trait-based definitions

These are considered weak because there is no consistent demographic or personality profile shared by entrepreneurs.

Risk management by entrepreneurs

Entrepreneurs try to manage, share, and reduce risk rather than embrace it.

Entrepreneurial decision environment

It involves searching for opportunities first and then finding resources, unlike administrative decision-making.

Tesla's approach to entrepreneurial thinking

Pursuing electric vehicles (EVs) first rather than hybrid cars.

Origin of most entrepreneurs

Most entrepreneurs statistically come from prior employment at VC-backed or entrepreneurial firms.

Xerox and entrepreneurship

Large firms like Xerox spawn entrepreneurs due to ideas that cannot be pursued because of rigid processes.

Historical significance of Fairchild Semiconductor

It acted as a 'mother hen,' spawning companies like Intel and AMD.

Non-compete clauses

A legal issue that arises from entrepreneurial spawning.

Failure percentage of VC-backed startups

Approximately 75% of VC-backed startups fail.

Common exit for startups

Acquisition is more common than initial public offerings (IPOs).

VCs replacing founders

VCs often replace founders as CEOs because founders may not scale operationally.

Role of VCs beyond capital

Professionalization of the venture.

Chasm in startups

The gap between early adopters and the early majority.

Danger of the chasm

It's dangerous because early adopters and pragmatists value fundamentally different things.

Innovators' value

They primarily value technology performance and novelty.

Early adopters' perspective

They value strategic advantage and business impact.

Early majority customers need

References and proof from similar users are required before adoption.

Late Majority differ from Early Majority because

They avoid technology, wait for something to become standard, and comprise 1/3 of the tech market

The value Laggards provide

They only adopt technology when it is buried deep in the product, and their presence can indicate faults with your product such as if it’s over engineered or over designed

Importance of pragmatists

They make up about one-third of the total market, making them critical to profitability.

High-tech marketing illusion

Markets do not progress smoothly across adoption segments.

Most important factor for VCs

Market size (Total Addressable Market or TAM) is the single most important factor VCs evaluate first.

Beachhead market

The initial focused niche a startup targets first.

VCs' avoidance of 'science projects'

They avoid them because they are too early and lack immediate, acute customer pain.

Attractive problem for VCs

A problem that is acute and frequent is most attractive.

'Horse vs jockey' concept

It refers to whether the opportunity or the team matters more.

Insufficiency of patents as competitive advantage

Patents can be invented around.

Sahlman's view on projections

Projections beyond one year are considered an act of imagination.

Purpose of writing a business plan

It forces entrepreneurs to think through their assumptions.

Placement of financial projections in a business plan

They should appear toward the back.

Critical aspect over precision in business plans

A credible, transparent story of how events will unfold matters more than precision.

TAM (Total Addressable Market)

Represents the total revenue opportunity if 100% market share is achieved.

Preferred TAM estimation method by VCs

Bottom-up TAM estimates are preferred because they are grounded in empirical customer data.

Least reliable TAM method

Overly simplistic top-down estimates.

Lean Startup definition of a startup

A startup is best described as a set of falsifiable hypotheses.

Goal of Lean Startup

Maximize learning per unit of resources spent.

MVP (Minimum Viable Product)

The smallest product that allows validated learning.

Decisions following customer testing in Lean Startup

Persevere, pivot, or perish.

Most common reason startups fail according to Eisenmann

They build the wrong product.

Common dispute type in startups

Founder-founder disputes.

Three core elements of a founder's agreement

Roles, decision authority, and ownership.

Equity splitting in startups

Equity shouldn't always be split equally due to differing contributions over time.

Purpose of vesting

To prevent non-contributing founders from retaining equity.

Legal startup commencement

A startup legally begins as soon as ideas are discussed or outsiders are contacted.

Critical nature of entity choice early on

Entity choice affects liability, taxes, and investor interest.

Investors' avoidance of legally sloppy startups

Poor legal structure increases risk and can force dissolution.

Purpose of forming a separate legal entity

To protect personal assets and house intellectual property.

Customer group enabling mainstream adoption

Early majority (pragmatists).

Competition startups should avoid

Head-on competition with large incumbents.

Key factors that make a company investable

A strong opportunity, capable team, defensible advantage, and sound legal structure.

Best source of validation in entrepreneurship

Customers.

The pros & cons of Sole Proprietorships

Suited for lifestyle companies, are easy to form, & taxes pass through the entity; however, the owner is entirely responsible for debt & other duties, and their business and personal assets are at risk

What LLC stands for

Limited Liability Company

The pros & cons of LLCs

The owner’s liability is limited to investment in the entity & pass through tax status can be chosen, but they cannot issue stock & the entity isn’t investor friendly especially if pass through chosen

The pros & cons of a C Corp

Limited personal liability, is the preferred business entity by investors, easy to transfer ownership, & sell shares (of different types) to others; however, a lot more paperwork is involved (in part due to well established law), formalities have to be maintained, & the owner can potentially be double taxed