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Principles of Innovation Exam 2 (Pitfalls)
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These statements could give an investor doubts about how well an entrepreneur understands the business:
A. "The market is wrong";
B. "Large company X just doesn't get it";
C. "If we get only 2 percent of the market...";
D. "We got hot responses from equity crowdfunding";
E. "I have skin in the game";
F. "The only people who have told me my idea is awesome are related to me".
Search Stage
-during this stage, a start-up searches for a business model that works.
-If customer feedback reveals that its business hypotheses are wrong, it either revises them or "pivots" to new hypothese
When model is proven...
-the start up starts executing, building a formal organization.
-each stage of customer development is iterative.
-a start-up will probably fail several times before finding the right approach.
Customer creation
-millions of dollars are often spent to fuel rapid customer growth in customer creation.
The Toughest Question of All: Pivot or Proceed?
There are three steps to answering the crucial "pivot or proceed" question:
1. Assemble and review all key discovery and validation findings;
2, Review the business model hypotheses and their interactions with one another
3. Focus on the "metrics that matter" in the financial model
Work flow map of the prototypical customer
diagrams how customers do their jobs or live their lives both with and without the new product.
Important hard data to review
-customer feedback, particularly from sales report cards evaluating customer enthusiasm for the product and its potential sales revenue over time.
-pricing, customer acquisition costs, any major product cost changes, channel, and important stakeholders.
These could be good metrics to validate financial model in this phase:
A. How much are customers impacted by the network effect in a two-sided market?
B. What are customer acquisition costs, prospect conversion rates, customer lifetime value, and customer switching costs?
C. What are the costs of selling through the channel? Channel margin, promotion, shelf-space charges?
D. Should we choose a small market or medium market?
E. How much cash is the company "burning" (spending) a month? When will the company run out of cash?
Toughest Startup Questions
-Do you want to pivot?
Or do you want to proceed?
-Did the product sell well and easily?
-Is it absolutely, unequivocally clear that when more money is spent to acquire customers, they'll arrive at a steady, predictable, profitable pace?
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Verified questions
QUESTION
A television costs $750 in the United States. The same television costs 637.5 euros. If purchasing power parity holds, what is the spot exchange rate between the euro and the dollar?
QUESTION
In late 1980, the U.S. Commerce Department released new data showing inflation was 15%. At the time, the prime rate of interest was 21%, a record high. However, many investors expected the new Reagan administration to be more effective in controlling inflation than the Carter administration had been. Moreover, many observers believed that the extremely high interest rates and generally tight credit, which resulted from the Federal Reserve System’s attempts to curb the inflation rate, would lead to a recession, which, in turn, would lead to a decline in inflation and interest rates. Assume that, at the beginning of 1981, the expected inflation rate for 1981 was 13%; for 1982, 9%; for 1983, 7%; and for 1984 and thereafter, 6%. a. What was the average expected inflation rate over the 5-year period 1981–1985? (Use the arithmetic average.) b. Over the 5-year period, what average nominal interest rate would be expected to produce a 2% real risk-free return on 5-year Treasury securities? Assume MRP=0. c. Assuming a real risk-free rate of 2% and a maturity risk premium that equals $0.1 \times(t) \%$, where t is the number of years to maturity, estimate the interest rate in January 1981 on bonds that mature in 1, 2, 5, 10, and 20 years. Draw a yield curve based on these data. d. Describe the general economic conditions that could lead to an upward-sloping yield curve. e. If investors in early 1981 expected the inflation rate for every future year to be 10% (i.e., $\mathrm{I}_{\mathrm{t}}=\mathrm{I}_{\mathrm{t}+1}=10 \%$ for t=1 to $\infty)$, what would the yield curve have looked like? Consider all the factors that are likely to affect the curve. Does your answer here make you question the yield curve you drew in part c?
QUESTION
One-year Treasury securities yield 4.85%. The market anticipates that 1 year from now, 1-year Treasury securities will yield 5.2%. If the pure expectations theory is correct, what is the yield today for 2-year Treasury securities? Calculate the yield using a geometric average.
QUESTION
Assume that interest rate parity holds and that 90-day risk-free securities yield a nominal annual rate of 3% in the United States and a nominal annual rate of 3.5% in the United Kingdom. In the spot market, 1 pound=$1 53. a. What is the 90-day forward rate? b. Is the 90-day forward rate trading at a premium or a discount relative to the spot rate?
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