ES 212 - Quiz 2

Prof Tim Webb Umich WN26

In the IDEO model innovation best occurs

in between Viability, Feasibility, Desirability, and sustainability

What makes sense to people and for people?

Desirability

What is technically possible within the foreseeable future?

Feasibility

Viability

What is likely to become part of a sustainable business model?

Is it ethical and does it avoid unintended harm?

Sustainability

What is the categories of innovation(matrix)

Architectural , Radical, Incremental, Disruptive

Innovation that builds on an established knowledge base and improves an existing product/service.

Incremental

Innovation that new technologies are created to serve an existing market.(ex:uber, Netflix)

Disruptive

Innovation that is a new product reconfigured old architecture of a old product(smart watches)

Architectural

Innovation that draws on novel methods or materials and is derived wither from an entirely different knowledge base or from a recombination of existing knowledge bases with a new stream of knowledge(introduction to airplanes, Chat GPT)(usually faces alot of resistance at first because it is so new)

Radical

What are the ten types of innovation

Configuration: Profit model,Network, Structure, Process

Offering: Product Performance, Product System

Experience: Service, Channel, Brand,Customer Engagement

Profit Model

The way in which you make money

Network

Connections with others to create value

Structure

Alignment of your talent and assets

Process

Signature ot superior methods for doing your work

Product Performance

Distinguishing features and functionality

Product System

Complimentary products and services

Service

Support and enhancements that surround your offerings

Channel

How your offerings are delivered to customers and users

Brand

representation of your offerings and business

Customer Engagement

Distinctive interactions you foster

What are the steps of the Product-market fit guide

Formation: Idea, Concept

Validation: Committing, Validating, Scaling

Growth: Establishing

Value Proposition

Market Sizing(Top-Down)

Starts with the industry and drills down to the niche.

TAM,SAM,SOM

TAM(Total Addressable Market)

The largest possible market opportunity

SOM(Serviceable Obtainable Market)

The portion of the market that best fits your company

SAM(Serviceable Addressable Market)

The Portion of the market you can realistically reach

Market sizing (Bottom-Up) explanation

Preferred by investors because it begins with current customer base and estimates revenue generation per customer

Market sizing (Bottom-Up) formula

market size = # of customers * Avg revenure per customer per year

2×2 matrix

Value Stick

STP Model

S in STP model

Segmentation: Divide market into distinct groups of customers(segments) using fragmentation practices

T in STP model

Targeting: Determine which customer group(segment) to focus your marketing efforts on

P in STP

Positioning: Create product positioning and marketing mix that is likely to appeal to the selected audience

Price elasticity of demand(formula)

change in quantity demanded divided by the percentage change in price.(delta q/delta p_

>1 elastic

<1 inelastic

assets formula

Assets = Liability + Equity

Gross Profit Margin

GPM = (Gross Profit/Revenue) * 100

Net Profit Margin

NPM = (Net Income/ Revenue) * 100

Return of Asset

ROA = (Net Income/ Avg total Assets

Current Ratio

CR = Current Assets/Current Liabilities

sub 1 = too much short term debt

Debt to equity Ratio

DER = Total liabilities / Shareholders equity

Accounts Receivable Turnover

ART = Net Credit sales/ Avg Accounts Receivable

Lifetime value

LTV - ARPUX Gross Margin/ Churn Rate

Customer Acquisition Cost

CAC = total segment marketing spend / # of new customer in segment

IPO

Initial Public Offering (IPO) is the process where a private company raises capital by selling shares to the public for the first time, transitioning into a publicly traded entity.

When does a company have to go public

when it exceeds 500 non-accredited investors (or 2,000 total investors) and has over

million in assets, triggering mandatory registration with the SEC.

Post-money Valuation

=Pre-money Valuation + Investment

% Ownership

= Investment / Post - Money Valuation

Post-money valuation

= pre money + investment

% Ownership

= Investment / Post-money Valuation.

Growth Flywheel

Attract, Engage, delight

Value Creation vs. Value Capture:

Creation involves understanding needs and innovating; Capture involves setting price levels and executing sales based on value.