Chapter 4—Developing and Testing a Business Model
TRUE/FALSE
1. Drucker’s five questions are the basis for the development of the business concept.
2. Business concepts are developed quickly and can be funded and operational within two days.
3. A business concept is a concise description of an opportunity that contains seven essential elements.
4. Business models are doomed to failure when the underlying logic about the future is incorrect.
5. The value proposition is the benefit that the company derives from the product or service it will
produce⎯in other words, it is the reason for the company to be in business.
6. Most businesses produce either a product or a service, but not both.
7. How to deliver the benefit to the customer is the issue addressed by the distribution channel element of
the business concept.
8. Investors are moving away from written business plans in favor of a brief, well constructed executive
summary or pitch.
9. An effective business model should be built in seven stages.
10. Stage 3 of the business model is to calculate how to create value for the customer.
MULTIPLE CHOICE
1. The two fundamental activities that comprise a/an ____ are creating and capturing value.
a.
business model
b.
business plan
c.
action plan
d.
business concept
e.
value network
2. A ____ is the community of partners, suppliers, and other members of the value chain with which the
venture does business.
a.
customer network
b.
value network
c.
business network
d.
shareholder network
e.
None of these choices
3. Which of the following is not a component of a business model?
a.
Pricing model
b.
Revenue model
c.
Value proposition
d.
Internet commerce
e.
Action plan
4. The strategic choices that a business model addresses should reflect both the ____ and the ____
processes.
a.
business concept / business plan
b.
value chain / action plan
c.
action plan / value capture
d.
value creation / value capture
e.
value creation / business concept
5. Entrepreneurs must create a great story to describe how they will make value for all except which of
the following?
a.
Customers
b.
Value-chain partners
c.
Internet
d.
Investors
e.
Shareholders
6. The business concept should ____.
a.
contain charts and graphs
b.
be a quick “elevator pitch”
c.
be in an outline form
d.
present an analysis of the industry
e.
answer investors’ detailed questions
7. Which of the following is not essential to a business concept?
a.
Customer definition
b.
Value proposition
c.
Product/service offered
d.
Distribution channel
e.
Revenue model
8. What of the following is not a benefit to the customer?
a.
Reliability
b.
Speed
c.
Convenience
d.
Uniqueness
e.
Better health
9. A precise ____ increases the chances that the business concept will meet the customers’ needs.
a.
customer definition
b.
distribution channel
c.
value proposition
d.
customer benefit
e.
elevator pitch
10. What of the following components of the business concept is least likely to ensure the success of the
venture?
a.
Customer demand
b.
An effective business model
c.
Money
d.
A broad distribution channel
e.
Value proposition
11. A new venture’s ____ will convey its specific assets and capabilities, and make the venture more
comprehensible and compelling.
a.
business concept
b.
business model
c.
story
d.
elevator pitch
e.
None of these choices
12. The first two steps in building a business model involve ____ and ____.
a.
identifying position in the value chain / developing competitive advantage
b.
identifying position in the value chain / creating customer value
c.
identifying investors / identifying competition.
d.
creating customer value / identifying sources of revenue
e.
developing competitive advantage / determining cost drivers
13. In a/an ____ cost structure, the primary costs of the business come from customer acquisition.
a.
marketing
b.
retail space
c.
support centered
d.
direct
e.
inventory
14. The more information an entrepreneur acquires through ____, the higher the chance that his or her
predictions will be close to the mark, risk will be reduced and uncertainty managed.
a.
market research
b.
feasibility analysis
c.
business concepting
d.
concept analysis
e.
value creation
15. The feasibility analysis is about ____ a new business concept.
a.
developing
b.
testing
c.
planning
d.
implementing
e.
None of these choices
16. The feasibility analysis includes all of the following except ____.
a.
industry analysis
b.
market customer analysis
c.
product service analysis
d.
competitive analysis
e.
investor analysis
17. Which type of business is most likely to be launched on the strength of a feasibility analysis alone?
a.
Baked goods business
b.
Technology business
c.
Internet-related business
d.
Clothing business
e.
Investment business
18. Which of the following is one of the three broad questions that a feasibility analysis answers?
a.
How will the operating systems be structured?
b.
Do the capital requirements, based on estimates of sales and expenses, make sense?
c.
Does the entrepreneur have enough passion for the business?
d.
Does the entrepreneur have the experience to be competitive in the chosen industry?
e.
Does the entrepreneur have enough family support to be successful?
19. Many weak business concepts can be eliminated from consideration ____.
a.
by answering a few simple questions
b.
by researching the concept in depth
c.
when there is competition
d.
when there are no investors
e.
when expenses are high
20. Most successful startups involve ____.
a.
only the founders
b.
people with skills and capabilities beyond those that the business requires
c.
solo entrepreneurs rather than teams
d.
teams rather than solo entrepreneurs
e.
people with MBAs
21. The value chain includes the ____.
a.
investors
b.
capital requirements
c.
distribution channel
d.
product/service design
e.
employees
22. In general, the ____ is the one who pays for the product.
a.
company
b.
customer
c.
importer
d.
founder
e.
None of these choices
23. A clear and precise definition of the ____ increases the chances that the business concept will meet the
needs of the market.
a.
competition
b.
employee base
c.
customer
d.
management structure
e.
product
24. Most businesses today produce both products and services that provide ____, which gives the
company a competitive advantage.
a.
better customer warranties
b.
multiple revenue streams
c.
better channels of distribution
d.
more benefits to the customers
e.
All of these choices
25. The question of how to deliver the benefit to the customer is answered by ____.
a.
the value chain
b.
the product
c.
the service
d.
the distribution channel
e.
testing the concept
26. A/An ____ starts with a concept statement, specifying the pain or need in the market, the potential first
customer, the value proposition for that customer, and how the value proposition will be delivered to
the customer.
a.
new venture
b.
feasibility analysis
c.
quick screen
d.
business plan
e.
elevator speech
27. For a new product or service to be successful, it should ____.
a.
not be too expensive
b.
provide long-term utility
c.
solve a problem that customers have
d.
have a good warranty
e.
be the leader in the product line
28. One part of the feasibility analysis addresses the business process. This part is called the ____.
a.
product/service analysis
b.
financial analysis
c.
founding team assessment
d.
industry analysis
e.
None of these choices
29. ____ with customers should give the entrepreneur confidence that the solution being provided is
recognized as valuable by customers.
a.
Product/service analysis
b.
Customer analysis
c.
Feasibility analysis
d.
Competitive analysis
e.
Market research
30. ____ is very different from a business model because it considers more than the customer and how the
new venture will create and capture value; it considers the competition.
a.
Strategy
b.
Feasibility analysis
c.
Competitive analysis
d.
Industry analysis
e.
Market research
SHORT ANSWER
1. Imagine a college campus in an historic section of town with few affordable restaurants for students.
The campus also has a large group of international students without transportation. You are a
restaurant owner on the edge of town looking to provide food delivery to campus. Write a value
proposition and a compelling story for this scenario.
2. Give a concise description of the four elements of a business concept opportunity.
3. What are the primary reasons that business models fail?
4. Briefly discuss the differences between a feasibility analysis and a business plan.
5. What are the three questions that a feasibility analysis will answer?
6. Briefly discuss the importance of the feasibility test.
7. Prepare a feasibility analysis for a product or service you have thought about in the past and that may
have market value. Answer the following questions: Is there a customer base? Do the capital
requirements make sense? Can an appropriate start-up team be assembled?
8. According to Peter Drucker, what five questions form the basis for developing a business model?
9. Imagine that ATMs have never existed. Write a business concept statement for ATMs.
10. Discuss the fundamental activities involved in creating a business model.