New Venture Creation

ADM3313B Midterm

Tuesday, November 1, 2015

Professor: Dr. Barbara Orser Duration: 2 hours

INSTRUCTIONS

Books, notes and calculators are not permitted. The midterm consists of 7 short
answer questions. Several are multi-part. Answer the questions in the space
provided. If more space is required, use the back of the question page. Point form
and/or short sentences are acceptable, however, ensure you answer the questions
completely. Grades will be allocated on your ability to demonstrate a depth of
knowledge about the question posed. Good luck!

First and last name: __________________________________________

STUDENT #: ________________________

Statement of Academic Integrity

The School of Management does not condone academic fraud, an act by a student that
may result in a false academic evaluation of that student or of another student. Without
limiting the generality of this definition, academic fraud occurs when a student commits
any of the following offences: plagiarism or cheating of any kind, use of books, notes,
mathematical tables, dictionaries or other study aid unless an explicit written note to the
contrary appears on the exam, to have in his/her possession cameras, radios (radios with
head sets), tape recorders, pagers, cell phones, or any other communication device which
has not been previously authorized in writing.
Statement to be signed by the student:
I have read the text on academic integrity and I pledge not to have committed or attempted
to commit academic fraud in this examination.

Signed:______________________________________

Note: an examination copy or booklet without that signed statement will not be graded and
will receive a final exam grade of zero.
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Q1. Scenario for screening start-up ideas: A friend has approached you with the idea
of starting a social enterprise. At the same time, you have been considering the merit of
launching an unrelated venture. You must now create a list of criteria to evaluate the
pros and cons of each business opportunity. Drawing on the 19 distinct factors that
describe an ideal business model (as outlined in chapter 1 of the text), describe 10 of
these criteria that can inform your decision-making process. (10 marks)

This question examines your ability to article decision criteria that can be used to
assess the viability of one or more startup ideas.

Grades are based on (a) identification and (b) explanation of 10 discrete criteria.
For additional ideas and critiera, reference you text (pages 25 to 28).

Sample criteria follow.

• Requires no investment
• Has a recognized, measurable market
• A perceived need for product or service
• Dependable source of supply
• Little government regulation
• Required no labour force
• High margins
• Buyers purchase frequently
• Receives favorable tax treatment
• Has receptive, established distribution system
• Has great publicity value
• Customer pays in advance
• No risk of product liability
• No technical obsolesce
• No competition
• Long lifecycle
• Little perishability
• Impervious to weather conditions
• Possesses some proprietary right

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Q2. Define and describe 5 of the 7 entrepreneurial terms and concepts. (10 marks)
Sample definitions follow.
Some students defined all 7 concepts or terms. The grader marked the first 5 of 7
responses.

1. Minimum viable product (MVP) (p. 35): smallest set of activities needed to
disprove the hypothesis. Hypothesis driven refers to maximization – per unit of
resources expended – the amount of information gathered for resolving uncertainty.
2. Business model: A business model is an "abstract representation of an
organization, be it conceptual, textual, and/or graphical, of all core interrelated
architectural, co-operational, and financial arrangements designed (WIKIPEDIA)
3. Pivot (p. 23) changing some business model elements while retaining others.
(p. 44) understanding that opportunities lie elsewhere. See pivot types….
4. Waterfall planning (p. 36) dividing planning into discrete phases; (p. 47) stage-gate
planning –iterative planning that moves beyond sequential processes. “Effort on a
downstream stage only commences when the preceding stage is completed and
successfully passes through the ‘gate’ of a formal review – hence the name stage-gate
planning.
5. Bottom-up approach to estimate market size (P. 91/115) aggregating information
from the customer level to the total market level. For example: product usage per
household – total number of household in Atlantic Provinces – Estimate of Total market
in Atlantic Provinces.
6. Smoke testing: (p. 51) first tests after initial assembly to determine if product ‘goes
up in smoke’- testing initially ideas. (p.23) “A test that gauges demand for a product that
does not yet exist, for example, a web landing page that describes a planned
product/service and invites a page visitor to register to be notified when the product is
launched.
7. Sunk cost fallacy p. 19): sunk expenses cannot be recovered and should not be
considered when making decisions. ENT reluctant to let go – flawed logic…. Focus on
future earnings.

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Q3. Describe and then explain differences between planned strategy and effectuation
process of new venture creation. Use examples to illustrate your points. (10 marks)
Planned strategy Effectuation process
• …ideas emerge over time: “Ready, fire,
• Linear process aim.”
• Opportunities are recognized by those • …ideas are the operationalization of
who possess the requisite skills, human aspiration—hence, not a single
knowledge and experience to effect
appreciate their unique value • There are multiple effects, multiple
proposition. possible outcomes, regardless of the
• “Entrepreneurial opportunities are like initial idea or goal.
lost luggage in a train station: they exist • Actions create opportunities – actions
just waiting to be claimed by alert such as listening to customers, building
individuals who know of their networks, responding to serendipitous
existence.” events
• Prior knowledge influences discovery 1. Determination of affordable loss
of products and services and ability to What is at stake?
exploit a new technology (Shane, How much loss is affordable?
2000) How much can I lose?
• Sources of entrepreneurship lie in 2. Forging of alliances and collaborations
differences in how information is Network relationships are used as a
viewed means to reduce risk and uncertainty.
• Alliances build reputational capital and
trust.
3. Exploitation of contingencies
Entrepreneurs seek to control the
unpredictable future rather than assume
outcomes are predictable.
Entrepreneurs respond to contingencies

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Q4. The lean start-up: In the article ‘Why the Lean Start-Up Changes Everything,’
entrepreneur by Steve Blank refers to the lean start-up as a temporary organization
designed to search for a repeatable and scalable business model. He also presents 3
principles of the lean start-up.

Describe each of the 3 principles of the lean start-up approach to venture creation. (10
marks)

This question was a little more challenging – and you needed to have read the
article carefully to retain the key concepts.

• Instead of writing intricate business plans, founders summarize ideas on

the business model canvas, a diagram of how a company creates value for
itself and customers.

• Get out of the building: customer development is used to test ideas

(hypothesis) ask questions, emphasis on being nimble, pivoting, refining
product features based on customer feedback

• AGILE development – don't waste time develop product iteratively and

incrementally

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Q5. Customer attraction and retention Drawing customers to a firm’s website is an

ongoing challenge for all new online ventures. Describe 5 creative ‘user acquisition’
strategies that can increase viewership. Hint: provide examples, such as the strategies
employed by Dropbox and reddit. (10 marks)

This question required some creativity. There was no fixed

response. The challenge was to consider how to acquire
customer or attacht customers to an empty web-site, where no=
no content = no users.

Sample responses might include:

• Use testimonial

• Create a story to engage the consumer

• Start local and build

• Leverage others’ customer lists

• Offer free something… incentive for purchase

For those students who completed the optional reading, there were a number of
examples provided in several of the articles.

For example, see: OPTIONAL READING: http://buff.ly/1DCPHIf

• Dropbox going from 5000 to 75,000 wait-list signups in one night: simple,
video showing off how Dropbox worked. Because the service doesn't
sound as impressive in text, having a video to show off how it actually
functioned worked wonders

• Fill content themselves including Q&A; create fake users to make it look
like there were multiple people submitting links. Their 'submit link' form
featured a third slot: "Username".

• Groupon started as local as they could get. They went around the office
building that they were renting a space in, asking people to sign up. Their
first campaign? Half-priced pizzas at the restaurant on the first floor. The
first 500 signups came from here.