Entrepreneurship: Successfully Launching New Ventures, 4e (Barringer/Ireland) Chapter 6 Developing an Effective Business Model 1) Stroome, the focus on the

opening feature for Chapter 6, has developed a new Web-based service for editing and remixing video. Stroome s initial business model is based on ma!ing mone" in the following two wa"s# $) subscription fees and licensing its software to film producers %) a &freemium& pricing model and white labeling its site C) online advertising and affiliate fees ') white labeling its site and subscription fees () )oogle $dSense and affiliate fees $nswer# % *) +he opening feature in Chapter 6 focuses on Stroome, an exciting new Web-based service for editing and remixing video. +he idea for Stroome emerged in# $) a graduate communications class at the ,niversit" of Southern California %) a student-run incubator at the ,niversit" of -llinois C) a technolog" commerciali.ation class at Cornell ') a cit"-owned new business incubator in Cleveland () a business plan class at /ansas State $nswer# $ 0) Catherine Smith has 1ust finished writing a business plan for a startup in the medical products industr". She has now reached the point where she needs to develop a plan for how her firm will compete, use its resources, structure its relationships, interface with customers, and create value to sustain itself on the basis of the profits it earns. 2ennifer needs to establish her firm s# $) tactical plan %) feasibilit" plan C) business model ') business template () operating plan $nswer# C 3) -n regard to business models, which of the following statements is incorrect4 $) +here is a standard business model that most firms follow. %) $ firm s business model is inherentl" dependent on the collection of resources it controls and the capabilities it possesses. C) -t is dangerous for a compan" to assume that it can be successful b" simpl" cop"ing the business model of another firm. ') $ firm s business model is its plan or diagram for how it competes. () -t is often difficult to determine what another firm s business model is. $nswer# $ 5) +he term 66666666 refers to initiatives, such as 7etflix in movie rentals and 8ipcar in car sharing, which revolutioni.e how products are sold in an industr". $) product model modernism B) business model innovation
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6) +he Savv" (ntrepreneurial =irm feature in Chapter 6 focuses on three business model innovators# Warb" ;ar!er, Shop!ic!, and Sun>un. What is Shop!ic! s business model innovation4 $) rewarding shoppers b" the number of times the" visit a Web site %) rewarding shoppers b" simpl" wal!ing into a retail store C) rewarding shoppers b" the amount of time the" spend in a particular store ') rewarding shoppers b" the number of times the" visit a particular store () rewarding shoppers b" the number of times the" &tweet& about a particular store on +witter $nswer# % ?) Which of the following is not one of the purposes of a business model4 $) serves as an ongoing extension of feasibilit" anal"sis %) serves as a template for conducting industr" anal"sis C) focuses attention on how all the elements of a business fit together ') describes wh" the networ! of participants needed to ma!e a business idea viable is willing to wor! together () articulates a compan" s core logic to all sta!eholders $nswer# $ @) -n the Web<ouse example included in Chapter 6, Web<ouse failed because# $) it did not complete a feasibilit" anal"sis %) it did not write a complete business plan C) it couldn t motivate its suppliers or customers to participate at a sufficient scale to support the overhead of the business ') it charged too much for its services () it failed to focus on developing a core strateg" $nswer# C A) +he 66666666 is the string of activities that moves a product from the raw material stage, through manufacturing and distribution, and ultimatel" to the end user. $) conseBuence seBuence %) business chain C) meaning chain ') value chain () worth procession $nswer# ' 1:) Which of the following is not a &primar"& activit" in the value chain4 $) inbound logistics %) mar!eting and sales C) service ') technolog" development () outbound logistics $nswer# '

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11) Which of the following is a &primar"& activit" in the value chain4 $) resource procurement %) technolog" development C) outbound logistics ') firm infrastructure () human resource management $nswer# C 1*) $ccording to the textboo!, b" stud"ing a product s or service s value chain an organi.ation can# $) identif" wa"s to create additional value and assess whether it has the means to do so %) determine if its business plan needs to be revised C) determine if it is cost effective to manufacture the product or sell the service ') determine if an attractive niche mar!et is available () determine if a product or service will be successful in the mar!etplace $nswer# $ 10) +wo fatal flaws can render a business model untenable from the beginning. +hese are# $) failure to complete a business plan and failure to get funding %) a complete misread of the customer and utterl" unsound economics C) failure to cop" the industr" leader s business plan and a complete misread of the customer ') failure to complete a business plan and overemphasi.ing the importance of feasibilit" anal"sis () overemphasi.ing the importance of feasibilit" anal"sis and utterl" unsound economics $nswer# % 13) Which of the following is a &support& activit" in the value chain4 $) inbound logistics %) service C) mar!eting and sales ') outbound logistics () resource procurement $nswer# ( 15) 66666666 involves a firm s relationship with its suppliers and involves all the activities of receiving, storing, and shipping component parts to the place where the" will be added to the final product. $) >esource procurement %) Cperations C) Cutbound logistics ') +echnolog" development () -nbound logistics $nswer# (

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16) 66666666 involves all the activities reBuired to manufacture a product. $) >esource procurement %) $dministration C) Cperations ') Cutbound logistics () -nbound logistics $nswer# C 1?) +wo fatal flaws can render a business model untenable from the beginning. +hese are utterl" unsound economics and# $) a complete misread of the customer %) failure to cop" the industr" leader s business plan C) overemphasis on the importance of feasibilit" anal"sis ') overemphasis on the importance of industr" anal"sis () failure to complete a business plan prior to developing a business model $nswer# $ 1@) +he four components of a firm s business model are# $) mar!eting plan, core strateg", business plan, and customer interface %) core strateg", strategic resources, partnership networ!, and customer interface C) economic environment, social environment, technological environment, and legal-regulator" environment ') opportunit" recognition, feasibilit" anal"sis, business plan, and human resource plan () mar!eting plan, operating plan, financial plan, and human resource plan $nswer# % 1A) Which of the following is not one of the components of a firm s business model4 $) core strateg" %) strategic resources C) partnership networ! ') business plan () customer interface $nswer# ' *:) +he What Went Wrong4 feature in Chapter 6 focuses on 2oost, a compan" that launched in *::6 as a premier online video service that aggregated and streamed premium video online. 2oost failed 1ust three "ears after it launched. $ccording to the feature, 2oost s most critical mista!e dealt with subtle aspects of its business model. -n particular, its# $) core strateg" wasn t focused %) pricing model was misguided C) partnership networ! never came together ') customer interface was poorl" conceived () customer service strateg" was poorl" executed $nswer# $

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*1) 2eff Dommer is starting an environmentall" friendl" lawn and garden service. Cne thing that 2eff has wor!ed hard on is determining how his compan" will compete in the mar!etplace. +his element of 2eff s business model is referred to as# $) core strateg" %) strategic resources C) partnership networ! ') fulfillment and support () customer interface $nswer# $ **) Which of the following are the primar" elements of a startup s core strateg"4 $) target customer, fulfillment and support, pricing structure %) suppliers, partners, other !e" relationships C) pricing structure, suppliers, strategic assets ') core competencies, strategic assets, funding model () mission statement, productEmar!et scope, basis for differentiation $nswer# ( *0) Steven +anner is in the process of putting together the business model for his startup and is currentl" wor!ing on his mission statement, productEmar!et scope, and basis for differentiation. Steven is wor!ing on the 66666666 component of his business model. $) core strateg" %) strategic resources C) partnership networ! ') customer interface () feasibilit" anal"sis $nswer# $ *3) $ firm s 66666666 describes wh" it exists and what its business model is supposed to accomplish. $) mission statement %) vision statement C) feasibilit" statement ') dut" statement () responsibilit" statement $nswer# $ *5) &Crgani.e all the world s information and ma!e it universall" accessible and useful& is )oogle s# $) function %) dut" C) credo ') purpose statement () mission statement $nswer# (

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*6) $ compan" s 66666666 defines the products and mar!ets on which it will concentrate. $) tactical anal"sis %) business mission C) productEmar!et scope ') supplierEbu"er scope () basis of differentiation $nswer# C *?) Which of the following statements is incorrect regarding the &core strateg"& component of a firm s business model4 $) $ firm s core strateg" describes how it competes relative to its competitors. %) +he product a firm chooses has little impact on its core strateg" and business model. C) $ compan" s productEmar!et scope defines the products and mar!ets on which it will compete. ') =rom a broad perspective firms t"picall" choose one of two generic strategies# cost leadership or differentiation. () +he generic strateg" a firm chooses greatl" affects its business model. $nswer# % *@) =rom a broad perspective, firms choose one of two generic strategies to position themselves in the mar!etplace. +hese are# $) high Bualit" and low cost %) discount pricing and premium pricing C) value and low cost ') cost leadership and differentiation () cost premium and separation $nswer# ' *A) /endra 2ohnson is starting a firm in the shoe industr". <er shoes will be ver" high Bualit" and will be priced at the top end of the mar!et. /endra has chosen the generic strateg" referred to as# $) value pricing %) differentiation C) competitive superiorit" ') separation () Bualit" plus $nswer# % 0:) 2ared /ing is starting a firm in the electronic games industr". +he firm will produce games similar to popular games on the mar!et, but the" won t be as sophisticated and will be priced at the low end of the mar!et. 2ared has chosen the generic strateg" referred to as# $) price reduction %) differentiation C) Bualit" plus ') cost leadership () cost differentiation $nswer# '
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01) =irms that have a 66666666 strateg" strive to have the lowest costs in the industr", relative to competitors costs, and t"picall" attract customers on that basis. -n contrast, firms using a 66666666 strateg" compete on the basis of providing uniBue or different products and t"picall" compete on the basis of Bualit", service, timeliness, or some other important dimension. $) differentiation, cost leadership %) cost emphasis, Bualit" leadership C) cost leadership, differentiation ') price reduction, Bualit" plus () cost differentiation, Bualit" plus $nswer# C 0*) Datch the business model component with its explanation# $) core strateg"Ehow a firm structures and nurtures its partnerships %) customer interfaceEhow a firm acBuires and uses its resources C) strategic resourcesEhow a firm acBuires and uses its resources ') partnership networ!Ehow a firm competes () core strateg"Ehow a firm interfaces with its customers $nswer# C 00) Susan Spector is in the process of putting together the business model for her startup and is currentl" wor!ing on her core competencies and strategic assets. Which of the components of her business model is Susan wor!ing on4 $) core strateg" %) strategic resources C) partnership networ! ') customer interface () feasibilit" anal"sis $nswer# % 03) $ 66666666 is a resource or capabilit" that serves as a source of a firm s competitive advantage over its rivals. $) foundational competenc" %) core competenc" C) distinctive attribute ') center attribute () core element $nswer# % 05) 8appo s competence in customer service, $pple s competence in designing consumer products, and 7etflix s competence in suppl" chain management are examples of 66666666, which serve as each of these respective firms competitive advantage of their rivals. $) foundational competencies %) core competencies C) core elements ') distinguishing attributes () foundational attributes $nswer# %
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06) 66666666 is the process of adapting a firm s core competencies to exploit new opportunities. $) >esource leverage %) Capacit" proficienc" C) $bilit" leverage ') $ptitude embellishment () Capacit" extension $nswer# $ 0?) 66666666 are an"thing rare and valuable that a firm owns. $) +actical assets %) +actical properties C) 'eliberate assets ') Strategic assets () Cperational assets $nswer# ' 0@) -n a business model context, the three components of a firm s partnership networ! are# $) business mission, partners, and strategic assets %) core competencies, suppliers, and target customer C) suppliers, partners, and other !e" relationships ') business mission, productEmar!et scope, and basis for differentiation () pricing structure, fulfillment and support, and target customer $nswer# C 0A) $ supplier is a compan" that# $) purchases a compan" s products %) helps a firm put together its networ! of contacts C) provides startups with funding ') provides startups with business advice () provides parts or services to another compan" $nswer# (

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3:) +he networ! of companies that participate in the production of a product, from the acBuisition of raw materials to the final sale, is referred to as the# $) input chain %) participation chain C) suppl" chain ') involvement networ! () contribution chain $nswer# C 31) $ hub and wheel configuration with a local firm at the hub organi.ing the interdependencies of a complex arra" of firms is referred to as a# $) trade association %) strategic alliance C) networ! ') 1oint venture () consortia $nswer# C 3*) $n arrangement between two or more firms that establishes an exchange relationship but has no 1oint ownership involved is called a# $) networ! %) trade association C) consortia ') 1oint venture () strategic alliance $nswer# ( 30) $ 66666666 is a group of organi.ations with similar needs that band together to create a new entit" to address those needs. $) 1oint venture %) networ! C) consortia ') strategic alliance () trade association $nswer# C 33) Crgani.ations Ft"picall" nonprofit) that are formed b" firms in the same industr" to collect and disseminate trade information, offer legal and technical advice, furnish industr"-related training, and provide a platform for collective lobb"ing are called# $) strategic alliances %) trade associations C) networ!s ') 1oint ventures () consortia $nswer# %

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35) 66666666, a relativel" new approach to partnering, ta!es place when a service provided comes inside a partner s facilities and helps the partner design and manage its suppl" chain. $) ;ermeating %) -nfiltrating C) ;enetrating ') =ulfilling () -nsourcing $nswer# ( 36) +he ;artnering for Success feature in Chapter 6 focuses on AAdesigns, an online compan" that features a &crowdsourcing& model for getting design wor! done. AAdesigns approach to partnering with 66666666 is the essence of its disruptive business model. $) professional art studios %) freelance designers C) art students ') )oogle, Gahoo, and Dicrosoft () art teachers $nswer# % 3?) -n a business model context, the three components of a firm s customer interface are target customer, fulfillment and support, and# $) pricing structure %) productEmar!et scope C) basic for differentiation ') strategic assets () business mission $nswer# $ 'iff# * ;age >ef# 1A? +opic# Customer -nterface $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business 3@) $ firm s 66666666 is the limited group of individuals or businesses that it goes after or tries to appeal to. $) target ob1ective %) goal ob1ective C) intention mar!et ') target mar!et () ob1ect mar!et $nswer# ' 'iff# * ;age >ef# 1A? +opic# Customer -nterface $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business

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3A) )ar" Smith 1ust launched a firm in the sports drin! industr". <e has decided to focus his efforts on appealing to extreme sports enthusiasts Fexamples include hang gliders, roc! climbers, and parachutists). -n )ar" s case, extreme sports enthusiasts represent his firm s# $) target ob1ective %) target mar!et C) goal ob1ective ') intention mar!et () ob1ect mar!et $nswer# % 'iff# * ;age >ef# 1A? +opic# Customer -nterface $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business 5:) =ulfillment and support describes# $) how a firm manages its customer relationships %) the wa" a firm s product or service &goes to mar!et& or how it reaches its customers C) how a firm manages its emplo"ees ') the products and mar!ets on which a firm will compete () how a firm competes relative to its competitors $nswer# % 'iff# * ;age >ef# 1A@ +opic# Customer -nterface $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business 51) $ business plan is a firm s plan or diagram for how it competes, uses its resources, structures its relationships, interfaces with customers, and creates value to sustain itself on the basis of the profits it earns. $nswer# =$HS( 'iff# 1 ;age >ef# 1@: +opic# %usiness Dodels $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business 5*) $ firm s business model resides within its own boundaries. $nswer# =$HS( 'iff# 1 ;age >ef# 1@: +opic# %usiness Dodels $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business

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50) $lmost all firms partner with others to ma!e their business models wor!. $nswer# +>,( 'iff# * ;age >ef# 1@: +opic# %usiness Dodels $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business 53) +here is no standard business model that dictates how firms in a particular industr" should compete. $nswer# +>,( 'iff# * ;age >ef# 1@1 +opic# %usiness Dodels $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business 55) $ clearl" articulated business model articulates a compan" s core logic to all sta!eholders, including the firm s emplo"ees. $nswer# +>,( 'iff# * ;age >ef# 1@3 +opic# %usiness Dodels $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business 56) %" stud"ing a product s value chain, an organi.ation can identif" wa"s to create additional value and assess whether it has the means to do so. $nswer# +>,( 'iff# * ;age >ef# 1@6 +opic# %usiness Dodels $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business 5?) +he primar" activities in a firm s value chain include# inbound logistics, operations, outbound logistics, mar!eting and sales, and service. $nswer# +>,( 'iff# * ;age >ef# 1@? +opic# %usiness Dodels $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business 5@) +wo fatal flaws can render a business model untenable from the beginning# a complete misread of the customer and underutili.ation of the -nternet. $nswer# =$HS( 'iff# * ;age >ef# 1@? +opic# %usiness Dodels $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business
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5A) +he four components of an effective business model include# core strateg", strategic resources, partnership networ!, and customer interface. $nswer# +>,( 'iff# * ;age >ef# 1@A +opic# Components of (ffective %usiness Dodels $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business 6:) =ortunatel", if three of the four components of a firm s business model are in place, the firm has a high probabilit" of success. $nswer# =$HS( 'iff# * ;age >ef# 1@A +opic# Core Strateg" $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business 61) $ compan" s productEmar!et scope defines the products and mar!ets on which it will concentrate. $nswer# +>,( 'iff# * ;age >ef# 1A1 +opic# Core Strateg" $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business 6*) <istoricall", it has been difficult for a new venture to use a differentiation strateg". $nswer# =$HS( 'iff# * ;age >ef# 1A* +opic# Core Strateg" $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business 60) $ core competenc" is a resource or capabilit" that serves as a source of a firm s competitive advantage over its rivals. $nswer# +>,( 'iff# * ;age >ef# 1A* +opic# Strategic >esources $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business 63) +he process of adapting a compan" s core competencies to exploit new opportunities is referred to as resource leverage. $nswer# +>,( 'iff# * ;age >ef# 1A0 +opic# Strategic >esources $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business
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65) Strategic assets are an"thing rare and valuable that a firm owns. $nswer# +>,( 'iff# * ;age >ef# 1A0 +opic# Strategic >esources $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business 66) Companies ultimatel" tr" to combine their core competencies and strategic assets to create a sustainable competitive advantage. $nswer# +>,( 'iff# * ;age >ef# 1A0 +opic# ;artnership 7etwor! $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business 6?) $ resource chain is the networ! of all the companies that participate in the production of a product, from the acBuisition of raw materials to the final sale. $nswer# =$HS( 'iff# * ;age >ef# 1A3 +opic# ;artnership 7etwor! $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business 6@) $ networ! is a hub-and-wheel configuration with a local firm at the hub organi.ing the interdependencies of a complex arra" of firms. $nswer# +>,( 'iff# * ;age >ef# 1A5 +opic# ;artnership 7etwor! $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business 6A) $ firm s target mar!et is the limited group of individuals or businesses that it goes after or tries to appeal to. $nswer# +>,( 'iff# * ;age >ef# 1A? +opic# Customer -nterface $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business ?:) =ulfillment and support describes the wa" a firm s product or service &goes to mar!et& or how it reaches its customers. $nswer# +>,( 'iff# * ;age >ef# 1A@ +opic# Customer -nterface $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business
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?1) What is meant b" the statement, &$ firm s business model ta!es it be"ond its own boundaries&4 ;rovide an example to illustrate "our answer. $nswer# $lmost all firms partner with others to ma!e their business models wor!. =or example, Stroome s business model is based on the idea that users will voluntaril" upload video and then wor! together to edit and mix the video in a collaborative manner. Stroome plans to partner with companies and organi.ations to use its technolog" to create their own collaborative video editing platforms. -n both instances, Stroome is rel"ing on outsiders to help its business model coalesce and add value. 'iff# 1 ;age >ef# 1@: +opic# %usiness Dodels $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business ?*) Wh" is it important for a firm to have a well-thought-out business model4 $nswer# <aving a well-thought-out and clearl" articulated business model is important for the following reasons# I Serves as an ongoing extension of feasibilit" anal"sis. $ business model continuall" as!s the Buestion, &does the business ma!e sense4& I =ocuses attention on how all the elements of a business fit together and constitute a wor!ing whole. I 'escribes wh" the networ! of participants needed to ma!e a business idea viable is willing to wor! together. I $rticulates a compan" s core logic to all sta!eholders, including the firm s emplo"ees. 'iff# * ;age >ef# 1@* +opic# %usiness Dodels $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business ?0) 'escribe the two potential fatal flaws of business models. $nswer# +wo fatal flaws can render a business model untenable from the beginning# a complete misread of the customer and utterl" unsound economics. %usiness models that fall victim to one of these two flaws have lost the race before leaving the starting gate. 'iff# * ;age >ef# 1@? +opic# %usiness Dodels $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business

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?3) %riefl" describe the four main components of a business model. -dentif" the subcomponents of each the four main components of a business model. $nswer# +he four main components of a business model are as follows# I Core strateg". +he first component of a business model is the core strateg", which describes how a firm competes relative to its competitors. +he core strateg" s subcomponents are business mission, productEmar!et scope, and basis for differentiation. I Strategic resources. $ firm is not able to implement a strateg" without resources, so the resources a firm has affects its business model substantiall". +he two main subcomponents of a firm s strategic resources are core competencies and strategic assets. I ;artnership networ!. $ firm s networ! of partnerships is the third component of its business model. 7ew ventures, in particular, t"picall" do not have the resources to perform all the tas!s reBuired to ma!e their business models wor!, so the" rel" on partners to perform !e" roles. +he subcomponents in this categor" are suppliers, partners, and other !e" relationships. I Customer interfaceJhow a firm interfaces with its customersJis the fourth component of a business model. +he t"pe of customer interface depends on how a firm chooses to compete. +he subcomponents in this categor" include target mar!et, fulfillment and support, and pricing strateg". 'iff# 0 ;age >ef# 1@A +opic# %usiness Dodels $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business ?5) What is a strategic asset4 ;rovide an example of a strategic asset that is utili.ed b" an entrepreneurial firm. $nswer# Strategic assets are an"thing rare and valuable that a firm owns. +he" include plant and eBuipment, location, brands, patents, customer data, a highl" Bualified staff, and distinctive partnerships. $ particularl" valuable strategic asset is a compan" s brand. Starbuc!s, for example, has wor!ed hard to build the image of its brand, and it would ta!e an enormous effort for another coffee retailer to achieve this same level of brand recognition. 'iff# * ;age >ef# 1A0 +opic# Strategic >esources $$CS%# >eflective +hin!ing Cb1ective# 'escribe the role of entrepreneurs and small business

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