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March 09, 2006

What's Your EQ (entrepreneurial quotient)?

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Here's a quiz to determine your “entrepreneurial quotient.” My intent is to test a person's knowledge of entrepreneurship. However, scoring high doesn't mean you're the next Steve Jobs, and scoring low doesn't mean you're not. Some answers are debatable, so there will be many comments. #10, in particular, is tricky so read it very carefully.

If you'd like to take an online version, go here on the Tickle site:

http://snipurl.com/eqtest

1. Your company is creating a new software product. The lead programmer has just shown you a working prototype and has promised that it will be done in six months. You should assume that it will really be completed in:

a. 3 months
b. 6 months
c. 12 months
d. 18 months
e. Shortly after money runs out

2. When you’re starting a new company, you shouldn’t be afraid of polarizing people with a new product or service that flies in the face of convention.

a. True
b. False

3. Patents are the main way to make your company defensible and able to withstand the challenges of competitors.

a. True
b. False

4. The foundation of a successful brand is:

a. Effective marketing
b. Evangelistic customers
c. Extensive advertising
d. Attractive packaging
e. An excellent product or service

5. Ultimately, who positions a product or service—establishing how customers will come to view it?

a. The company that makes it.
b. The company’s advertising agency
c. The company’s PR firm
d. The customers themselves
e. The press, and industry analysts

6. If you want your company to be successful, it’s most important to strive for which objective?

a. To be the lowest cost producer
b. To be the best known brand
c. To be the most profitable company
d. To be the sole provider of something people really want
e. To have the largest customer base

7. When pitching potential investors, you should keep your presentation to how many slides?

a. 0-5
b. 10-15
c. 30-40
d. 1
e. 60

8. As long as the founders own more than half of the company, they control the company.

a. True
b. False

9. Pick the statement that means a venture capitalist isn’t interested in your business.

a. “You’re too early right now.”
b. “We don’t have expertise in that area.”
c. “If you find other investors, come back to us.”
d. “Come back to us after you’re shipped.”
e. All of the above.

10. Which part of a business plan is the most important?

a. The financial projections
b. The management biographies
c. The competitive analysis
d. The executive summary
e. The product description

11. More than anything, you don’t want your business model to be:

a. Specific
b. Simple
c. Unique
d. Scalable
e. Proven

12. Which of the following key assumptions do you have to test when starting a company?

a. Number of sales calls a salesperson can make
b. Conversion rate of prospects to customers
c. Length of sales cycle
d. Amount of technical support needed per unit sold
e. All of the above

13. A company that is bootstrapping should avoid which management practice?

a. Managing for cash flow, not profitability
b. Trying to recruit a “dream” management team of proven executives
c. Positioning against the industry leader
d. Building a bottom-up forecast
e. Collecting fast and paying slow

14. Many behemoth companies like Microsoft, General Electric, and 3M have broad and disparate product lines, but ironically started out with singular focus on one specific product.

a. True
b. False

15. You’ve just met with a key potential account. It could be a large sale and also bolster your company’s credibility in the industry. However, the account is afraid to do business with a “startup.” The best way to win them over is to:

a. Ask your world-famous venture capitalist investor to call the customer.
b. Arrange for the CEO of your company to meet with the buyer.
c. Offer to do a pilot implementation at a deep discount.
d. Tell the customer that you will contact them once your company is “proven” in the marketplace.
e. Have your mom provide a character reference for you.

16. In the first sixty seconds of a presentation, you should:

a. Furnish your biographical background
b. Establish the size of the market you are addressing
c. Provide a summary of your financial projections
d. Summarize the technical foundation of your product or service
e. Explain what your company does

17. What’s the most important factor to consider when selecting the first employees at a startup?

a. The candidate’s academic background
b. The candidate’s work experience
c. The candidate’s love of your product or service
d. The candidate’s willingness to work for stock options in lieu of salary
e. The candidate’s prior personal relationship with you

18. Why should you never offer stock to an employee in lieu of salary?

a. Doing so sets an implicit price for your stock.
b. It could take a long time to raise venture capital, so the employee might amass a large amount of stock.
c. This practice is prohibited by law.
d. A and B
e. A, B, and C

19. The purpose of providing an offer letter to a job candidate is to:

a. Establish a starting point for negotiation
b. Demonstrate that the company is serious about an offer
c. Confirm what both parties have already verbally agreed to
d. Create an audit trail for the human resource department
e. All of the above

20. The best reason to form a partnership is to:

a. Increase revenues or decrease costs
b. Get the attention of analysts
c. Garnering press coverage
d. Scare your competitors
e. Impress potential investors

21. The reason to put an “out clause” in a partnership agreement is

a. To enable you to get out of a bad deal
b. To make your lawyers happy
c. To enable both parties to work comfortably with each other
d. Because all agreements have “out clauses”
e. None of the above.

22. The CEO of your company just told you that he and the CEO of another company have agreed to a partnership. Your first task, as vp of strategic alliances, is to

a. Contact the PR firms of both organizations to coordinate the announcement
b. Contact the vp of marketing of both organizations to coordinate the announcement
c. Meet with the middle managers and individual contributors in your company who are going to have to make this partnership work
d. Thoroughly research the other company to determine how best to work with it
e. Begin drafting a rollout plan for the partnership

Answers

1. c; 2. a; 3. b; 4. e; 5. d; 6. d; 7. b; 8. b; 9. e; 10. d; 11. c; 12. e; 13. b; 14. a; 15. c; 16. e; 17. c; 18. d; 19. c; 20. a; 21. c; 22. c

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Comments

Yes, great idea. I have to laugh at myself because many of the correct answers are things that I learned after my 1st startup ran out of money ;)

I guess I'll just have to apply them to the next business.

FYI - It would be great to put this up in a survey format that would provide an instant score.

Entrepreneurs are rare breed, they are not trained. This EQ brings to focus a challenging task of appointing set criteriums for entrepreneurship.
I practically condemn it....

Great quiz! Every prospective entrepreneur should have to pass this with flying colours before getting their funding. :-)

Ha Trung,

You're right! I'll fix. Thanks for catching this.

Guy

In question 13 (regarding the management practice that a bootstrapping company should avoid), the choice (a) should be changed to "managing for cash flow, not profitability"--to make it a wrong answer.

Got all of them right but one! What do I get, Guy?

You said you gonna invest in my unique business model :)

P.S. Excellent post, always a pleasure to read your blog.

Guy, have you tried to take your own survey on Tickle? When I tried to sign in it said, "I'm sorry, we can't offer you this service". So I used bugmenot. After going through the entire survey (including one question disguised to look like it was from you but actually was a spam offer) it proceeded to hit me with page after page of "special offers". I couldn't figure out how to get past them, so I'll never know how I did on the test... and will never use tickle again. Thanks, Tickle.

Very cool test! I'm gradually learning about all of this as I go.

Great test Guy, I only got a 69%. I must be less talented than the others around here, or just less knowledge of the process. I can rectify the lack of knowledge at least.

Not entirely sure the low cost producer is always the way to go, although in the tech world it tends to work. there is a huge demand for high quality products too, and a plan that involves competing around quality in some market segments may be very profitable.

My wrongs...

1. c not b - you must be an optimist to be an entrepreneur! :)
4. b not e - having a great product won't stop a great second mover. Loyal customers and a unique business model will mean you can fight another day.
6. c not d - c'mon... now were being too optimistic! "Patient for growth, impatient for profit" is the way to success. C.M.C.
11. e not c - I guess I just can't stop at product innovation...
15. d not c - I will follow Geoff Moore's advice on this one. If their not ready, find a customer that is.
19. b not c - I can see the error in my ways.
21. a not c - believe me, people leave, partners sell. Keep an out.

... and I have paid for them.

Good test Guy, but as you say they are open to debate, which like everything in this world is context dependent.

Maybe this isn't the place for this but I'm one to show that who they use is actually hurting them... Tickle is worthless.

first it asks for my personal information, including my email addresses so they can send me the results.

second, I do fill it out with good information and I get

"Thank you for your interest in this Tickle service. Unfortunately, we cannot permit you access to this service. Our apologies for any inconvenience."

Is this a scam to collect email addresses? Is Guy part of this scheme? Since Tickle is a Monster-owned company, what are they really doing with my information?

Guy, I agree with most of the test and it's very cool. However, I feel the answer to question #15 "to offer a deep discount" discredits the selling party some by saturating the market with a lower price. That will saturate the market with a lower price and the customer may expect you to continue with such a low cost implementation. In my experience, cutting your price only hurts a business and the marketplace

I would be interested to hear what your reasons for that answer were?

for #6, shouldn't we assume there's always competition in any market,
so brand recognition is the long term goal to win the game? Mightbe I misunderstand the "sole provider" context here...
please advise.

It turns out I scored highest in currency arbitrage...and I thought I might have done better in portfolio management theory...who would have thought?

Jeremy E.,

(on your disagreement with # 15)
I think you're right to urge caution -- organizations try to sucker freebies out of start-ups, but that should affect the continual assessment of whether the prospect is indeed a "key potential" client.

In any such negotiation, both parties must get "equal value" from the transaction. If I give you a freebie pilot, I should be aware of what I just cost myself and be able to put that cost against something I'm gaining (access to brand or something) ... something that I value. If we cannot craft such an equitable deal, then one of us is indeed a sucker.

In short, if I'm being jipped, then I'm not working with a "key potential" client.

-h

hey guy -

re: #22, while i agree with your answer as an *eventual* step that needs to be done, before i spend time with my organization's middle mgmt i'd like to make sure i understand how the other company fits into the overall picture (and btw, if it doesn't i'd go back to my CEO and ask him why he cut a partnership deal that didn't make sense for us ;). after i'm clear on how it fits in with our company, only then would i spend time with the rest of my team.

so i'd say the "first" task is to make sure the deal makes sense, and that i understand it. *then* i'd got to middle mgmt & get my team behind it & deliver.

- dave mcclure
www.SimplyHired.com

Tickle sucks! They want my personal info so bad, that they refused to provide my score after I took the test, b/s i would not give an email address!

Score that a BIG FAT ZERO for TICKLE!!

btw, I got 19 of 22 correct and haven't seen the "S" tatoo glowing on my chest!!! :-)

In response to question # 6 - If you want your company to be successful, it’s most important to strive for which objective?

Jack Welch once said, "It takes three things; Customer Satisfaction, Employee Satisifaction and Cash Flow".

I very much disagree with your answer to 15. If you offer a deep discount to one large customer, lots of bad things will happen. You will spend a disproportionate amount of time servicing what is probably your least profitable deal (or worse, your biggest loser). You will also be hurting your cash flow. And worst of all, after all that effort, you may not even get the larger deal after all, even if the product does everything it says it can, because they may not be able to convince their big company to do the deal.

For example, the large company that I work for just plain won't do deals with companies whose financials they don't like, but there is no way for me to know if the financials will be good enough until after I've selected the vendor and done the pilot.

I speak from experience here, being someone who works for one of those big companies that tries to take advantage of startups by offering them crappy deals for "pilot" programs. I always tell my friends I would never want to have to negotiate with our company lawyers.

Someone (I thought it was you) said, "Don't spend all of your time chasing the big fish." That is excellent advice. The big fish aren't always as great as they seem.

I got a 77%, roughly a "C". But that won't dissuade me from bringing my service to market. Spot on blog entry GK.

10 is the easiest one of all - if a person can't explain (clearly!) the business plan in a paragraph, than the plan isn't worth much.

After all, all business plans are subject to change, but changes must be subjected to a plan.

Great list. I found the first question both amusing and sad. I'm afraid there are many 'e' realities but 'c' is certainly the average 2X factor for IT estimates.

Differences of opinion:
#15 - most startups would have the CEO at the meeting anyway. However, selling your first customer at a deep discount can be problematic as well, especially if there is an ongoing revenue component.

#21 - out clauses are good business which is why C is the right answer. BUT, you should never, ever, ever, never enter into a partnership where there is even an inkling of a business (not contract lawyer) thought that it might not work out. In other words, if you think at the time you sign there is a probability that you will use the out clause, walk away.

question 18 is tricky. In WA state you must pay minimum wage to non-officers. that would make d the right answer.

I got every single question wrong. 0 out of 22.

I just took the test and would disagree with one of answers. It's the question on whether to compensate an employee with just stock. You can properly balance your startup's interest this by having a vesting schedule, a cliff, and allowing a conditional pre-purchase of the stock at a very low valuation (when you start the company).

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