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Entrepreneurship The Art, Science, and Process for Success 3Rd Edition By Charles Bamford – Test Bank
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Chapter 2 Individual Leadership and Entrepreneurial Start-Ups
1) There is one crucial person in a large organization: the chief executive officer.
Answer: FALSE
Explanation: In large, well-established organizations, no one person is crucial to the survival of the business, even the president of the company.
Difficulty: 1 Easy
Topic: Founders Are the Reason Why Entrepreneurial Businesses Work So Well
Learning Objective: 02-01 Explain how entrepreneurial founders impact the business world as a whole.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2) The excess resources that large companies tend to have to assist them are referred to as organizational redundancies.
Answer: FALSE
Explanation: Large organizations have greater excess resources, including financial resources, which allow them to hire outside experts to fill any critical need that arises. These excess resources are referred to as organizational slack.
Difficulty: 1 Easy
Topic: Founders Are the Reason Why Entrepreneurial Businesses Work So Well
Learning Objective: 02-01 Explain how entrepreneurial founders impact the business world as a whole.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
3) Organizational slack allows large organizations flexibility that is not available to smaller companies.
Answer: TRUE
Explanation: These excess resources are referred to as organizational slack; they allow large organizations flexibility that is not available to smaller companies.
Difficulty: 1 Easy
Topic: Founders Are the Reason Why Entrepreneurial Businesses Work So Well
Learning Objective: 02-01 Explain how entrepreneurial founders impact the business world as a whole.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
4) The most important person in an entrepreneurial business is the founder.
Answer: TRUE
Explanation: The founder of an entrepreneurial business plays a critical role in the business’s success.
Difficulty: 1 Easy
Topic: Founders Are the Reason Why Entrepreneurial Businesses Work So Well
Learning Objective: 02-01 Explain how entrepreneurial founders impact the business world as a whole.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
5) New entrepreneurial businesses tend to have slack financial resources that they can rely on, which gives them high flexibility in responding to emergencies.
Answer: FALSE
Explanation: A new entrepreneurial business has limited slack financial resources, which means the firm has limited flexibility in responding to emergency issues such as the need to hire replacements if the company loses key individuals. As a result, the founders of an entrepreneurial business and the leadership they provide play a far more critical role in the business’s success than does the senior leadership of the typical large organization.
Difficulty: 2 Medium
Topic: Founders Are the Reason Why Entrepreneurial Businesses Work So Well
Learning Objective: 02-01 Explain how entrepreneurial founders impact the business world as a whole.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
6) In a small family business, the most important support group is the family.
Answer: TRUE
Explanation: In some businesses the family is a more valuable support than in others as the family may all work in the firm; these businesses are referred to as “family businesses.”
Difficulty: 1 Easy
Topic: Founders Are the Reason Why Entrepreneurial Businesses Work So Well
Learning Objective: 02-01 Explain how entrepreneurial founders impact the business world as a whole.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
7) Unlike the owners of entrepreneurial ventures, the people who manage operations at large, established corporations do not typically have substantial ownership in the company.
Answer: TRUE
Explanation: The greatest advantage for an entrepreneurial business is that it is owned and run by the same person(s), whereas the individuals who manage the operations of a large, established corporation do not typically have substantial ownership in the company. The managers (agents of the owners) may own some stock, but in a large business they tend to own a very small percentage of the total stock.
Difficulty: 1 Easy
Topic: Founders Are the Reason Why Entrepreneurial Businesses Work So Well
Learning Objective: 02-01 Explain how entrepreneurial founders impact the business world as a whole.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
8) Large firms can fill market niches that small companies cannot afford to fill.
Answer: FALSE
Explanation: Entrepreneurial firms fill niches that large firms simply cannot afford to fill. Large firms do have an advantage in those situations where there are economies of scale.
Difficulty: 1 Easy
Topic: Founders Are the Reason Why Entrepreneurial Businesses Work So Well
Learning Objective: 02-01 Explain how entrepreneurial founders impact the business world as a whole.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
9) One advantage that a large firm has over a small firm is economies of scale.
Answer: TRUE
Explanation: Large firms do have an advantage in those situations where there are economies of scale.
Difficulty: 2 Medium
Topic: Founders Are the Reason Why Entrepreneurial Businesses Work So Well
Learning Objective: 02-01 Explain how entrepreneurial founders impact the business world as a whole.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
10) The unlimited theory suggests that individuals act to maximize their own individual benefit.
Answer: FALSE
Explanation: The agency theory argues that individuals act to maximize their own benefit.
Difficulty: 1 Easy
Topic: Founders Are the Reason Why Entrepreneurial Businesses Work So Well
Learning Objective: 02-01 Explain how entrepreneurial founders impact the business world as a whole.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
11) According to the agency theory, a manager at a large firm is more likely to exploit organizational resources for his or her own benefit than the owner of a small firm.
Answer: TRUE
Explanation: According to the agency theory, a manager at a large firm is more likely to exploit organizational resources for his or her own benefit than the owner of a small firm. The theory argues that individuals act to maximize their own benefit.
Difficulty: 2 Medium
Topic: Founders Are the Reason Why Entrepreneurial Businesses Work So Well
Learning Objective: 02-01 Explain how entrepreneurial founders impact the business world as a whole.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
12) One of the greatest assets of a small business is the owner.
Answer: TRUE
Explanation: One of the greatest assets of a new business is the owner of the business due to their personal involvement in, and dedication to, the business.
Difficulty: 1 Easy
Topic: Founders Are the Reason Why Entrepreneurial Businesses Work So Well
Learning Objective: 02-01 Explain how entrepreneurial founders impact the business world as a whole.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
13) Potential entrepreneurs must determine the level of risk that they are able to tolerate.
Answer: TRUE
Explanation: Potential entrepreneurs must determine their own individual level of tolerance to risk.
Difficulty: 2 Medium
Topic: Evaluating Your Entrepreneurial Orientation
Learning Objective: 02-02 Discuss the importance of an entrepreneurial orientation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
14) The break-even point is the time when a new business starts to profit from incoming revenues.
Answer: FALSE
Explanation: The break-even point is the time when a new business has reached a level where the revenue coming into the firm is sufficient to cover expenses. It usually takes some time for a new business to reach this level.
Difficulty: 1 Easy
Topic: Evaluating Your Entrepreneurial Orientation
Learning Objective: 02-02 Discuss the importance of an entrepreneurial orientation.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
15) In a small business, an owner needs to consider how much debt he or she wants to accumulate in the business. The greater the debt, the lower the risk tolerance.
Answer: FALSE
Explanation: In general, the greater the debt you are willing to take to start your business, the higher is your risk tolerance.
Difficulty: 2 Medium
Topic: Evaluating Your Entrepreneurial Orientation
Learning Objective: 02-02 Discuss the importance of an entrepreneurial orientation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
16) In the context of risk tolerance, most new business owners must set their risk tolerance based on the average level of risk in their specific market or industry.
Answer: FALSE
Explanation: There is not one correct answer as to what level of risk tolerance new business owners should be willing to take on. Instead, the key is that individual entrepreneurs must be aware of their tolerance of risk and establish their business in a manner that is consistent with that tolerance.
Difficulty: 1 Easy
Topic: Evaluating Your Entrepreneurial Orientation
Learning Objective: 02-02 Discuss the importance of an entrepreneurial orientation.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
17) The owner must be aware of his or her own tolerance of risk and establish a business that is consistent with that tolerance.
Answer: TRUE
Explanation: Individual entrepreneurs must be aware of their tolerance of risk and establish their business in a manner consistent with that tolerance.
Difficulty: 2 Medium
Topic: Evaluating Your Entrepreneurial Orientation
Learning Objective: 02-02 Discuss the importance of an entrepreneurial orientation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
18) Entrepreneurial orientation relies on an owner’s prior work experience.
Answer: TRUE
Explanation: The second element of entrepreneurial orientation is prior experience.
Difficulty: 1 Easy
Topic: Evaluating Your Entrepreneurial Orientation
Learning Objective: 02-02 Discuss the importance of an entrepreneurial orientation.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
19) Bounded rationality offers an individual from outside an industry the unconstrained role of decision-making that was not previously considered.
Answer: TRUE
Explanation: Bounded rationality is rational decision-making that is constrained by the background and history of the person making the decision.
Difficulty: 2 Medium
Topic: Evaluating Your Entrepreneurial Orientation
Learning Objective: 02-02 Discuss the importance of an entrepreneurial orientation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
20) Future business owners need to understand how their own version of rationality affects their decision-making.
Answer: TRUE
Explanation: It is important for individuals to understand how their decision-making is bounded by their own version of rationality. These issues will impact how they act as they run the firm and as they analyze problems that arise in the development of business.
Difficulty: 2 Medium
Topic: Evaluating Your Entrepreneurial Orientation
Learning Objective: 02-02 Discuss the importance of an entrepreneurial orientation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
21) The Myers-Briggs test is used for personality evaluations.
Answer: TRUE
Explanation: The Myers-Briggs test is one of the most widely used tests for personality evaluations.
Difficulty: 1 Easy
Topic: Evaluating Your Entrepreneurial Orientation
Learning Objective: 02-02 Discuss the importance of an entrepreneurial orientation.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
22) A Myers-Briggs test analyzes four variables to indicate the different ways in which individuals deal with other people and their environment.
Answer: TRUE
Explanation: A Myers-Briggs test analyzes four variables to indicate the different ways in which individuals deal with other people and their environment. The different potential arrangements of variables are believed to indicate the different ways that individuals deal with other people and their environments.
Difficulty: 1 Easy
Topic: Evaluating Your Entrepreneurial Orientation
Learning Objective: 02-02 Discuss the importance of an entrepreneurial orientation.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
23) The philosophy of the Enneagram test is that a person is the result of all the experiences in his or her life.
Answer: TRUE
Explanation: The underlying philosophy of this test is that a person is the result of all the experiences in his or her life.
Difficulty: 1 Easy
Topic: Evaluating Your Entrepreneurial Orientation
Learning Objective: 02-02 Discuss the importance of an entrepreneurial orientation.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
24) The Big Five test is composed of five factors in decision-making criteria.
Answer: FALSE
Explanation: The Big Five test is composed of five factors considered to be by many researchers the key components of an individual’s environment.
Difficulty: 2 Medium
Topic: Evaluating Your Entrepreneurial Orientation
Learning Objective: 02-02 Discuss the importance of an entrepreneurial orientation.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
25) In the context of the triggers that encourage new business formations, circumstance motivators tend to result in more of a defensive positioning.
Answer: TRUE
Explanation: Circumstance motivators tend to result in more of a defensive positioning. The environment and environmental changes make opportunities available to potential business owners, but the motivation is substantially different. This is an opportunistic start-up whose staying power is more determined by other competing opportunities.
Difficulty: 2 Medium
Topic: Triggers for Starting a Business
Learning Objective: 02-03 List the triggers that encourage new business formations.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
26) Having very little to lose financially by a failure could be a trigger for a new business.
Answer: TRUE
Explanation: Typical triggers include having very little to lose financially by a failure.
Difficulty: 1 Easy
Topic: Triggers for Starting a Business
Learning Objective: 02-03 List the triggers that encourage new business formations.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
27) Entrepreneurs driven by circumstantial motivators are often more proactive than those with personal motivation for starting a business.
Answer: FALSE
Explanation: Entrepreneurs driven by personal motivators are often more proactive than those with circumstantial motivation for starting a business. Personal motivations come from the individuals themselves and as such are the strongest motivations available.
Difficulty: 1 Easy
Topic: Triggers for Starting a Business
Learning Objective: 02-03 List the triggers that encourage new business formations.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
28) Small business owners who are driven by circumstance motivators tend to be more proactive and drive relentlessly toward their goals.
Answer: FALSE
Explanation: Entrepreneurs driven by personal motivators will tend to be more proactive and drive relentlessly toward their goals.
Difficulty: 2 Medium
Topic: Triggers for Starting a Business
Learning Objective: 02-03 List the triggers that encourage new business formations.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
29) The “glass ceiling” refers to the practical reality that many working women face which prevents them from advancing beyond certain levels of corporate hierarchies.
Answer: TRUE
Explanation: The “glass ceiling” refers to the practical reality that many working women face which prevents them from advancing beyond certain levels of corporate hierarchies. It does not involve formal rules, but the practical reality that in some organizations there are limits to the levels within organizations to which women are allowed to progress.
Difficulty: 2 Medium
Topic: Triggers for Starting a Business
Learning Objective: 02-03 List the triggers that encourage new business formations.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
30) Two triggers for staring a new business are talking to successful entrepreneurs and being laid off from your job.
Answer: TRUE
Explanation: Being laid off from established employment and being spurred to action by attending a seminar, reading a book, or talking with successful entrepreneurs are triggers for starting a business.
Difficulty: 2 Medium
Topic: Triggers for Starting a Business
Learning Objective: 02-03 List the triggers that encourage new business formations.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
31) Family members are in a unique position to keep an individual focused on pursuing the wrong approach to an issue.
Answer: TRUE
Explanation: Few people know you—including your abilities and shortcoming—like your family. Family members are in a unique position to provide you with key insights when you may be pursuing the wrong approach to an issue.
Difficulty: 1 Easy
Topic: Supports
Learning Objective: 02-04 Compare and contrast various types of new business supports.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
32) The reason a business is called a family business is that the owner’s family plays a critical role in the success of the business.
Answer: TRUE
Explanation: In a family business, the principal staff members of the business are family members. There may be other employees in the firm, but typically, family members hold the key managerial decision-making positions.
Difficulty: 2 Medium
Topic: Supports
Learning Objective: 02-04 Compare and contrast various types of new business supports.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
33) Established businesses may be hesitant about buying from a start-up small business.
Answer: TRUE
Explanation: Established businesses are often hesitant about buying from a start-up business because it is not clear if the new business will be able to fulfill an order or service the product in the future.
Difficulty: 1 Easy
Topic: Supports
Learning Objective: 02-04 Compare and contrast various types of new business supports.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
34) A community could have an incubator, which is a facility that houses new businesses and provides many critical services for them.
Answer: TRUE
Explanation: An incubator is a facility that houses new businesses and provides many critical services for the new ventures. New businesses are expected to develop and typically leave the facility often within 18 months of founding.
Difficulty: 2 Medium
Topic: Supports
Learning Objective: 02-04 Compare and contrast various types of new business supports.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
35) Business incubators work best with small manufacturing-based firms.
Answer: TRUE
Explanation: Business incubators work best with office-based service firms, scientific-based firms requiring lab space, or small, clean manufacturing firms.
Difficulty: 1 Easy
Topic: Supports
Learning Objective: 02-04 Compare and contrast various types of new business supports.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
36) One of the negative aspects to being the owner of a family business has to do with firing a family member.
Answer: TRUE
Explanation: If a family member is not a good employee, it can be hard to fire that person or even reprimand him or her without rupturing the close relationship.
Difficulty: 1 Easy
Topic: Supports
Learning Objective: 02-04 Compare and contrast various types of new business supports.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
37) An entrepreneur needs to set limits to how much time he or she spends on a business for it to be successful.
Answer: FALSE
Explanation: An entrepreneur will need to spend considerable time at the business for it to be successful. In fact, the entrepreneur will likely spend more time in starting and running the business than doing anything else in life.
Difficulty: 1 Easy
Topic: Form a Business Doing What You Like
Learning Objective: 02-05 Explain how you can evaluate those things that you enjoy the most and discover how they may lead to business opportunities.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
38) You should start a business doing something you have a passion for because you will spend more time starting and running the business than if you start a business that does not excite you.
Answer: TRUE
Explanation: An entrepreneur will need to spend considerable time at the business for it to be successful. Therefore, you need to enjoy what you do.
Difficulty: 2 Medium
Topic: Form a Business Doing What You Like
Learning Objective: 02-05 Explain how you can evaluate those things that you enjoy the most and discover how they may lead to business opportunities.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
39) ________ occur(s) in large companies that have excess resources such as equipment and employees.
- A) Unlimited boundaries
- B) Limited boundaries
- C) Organizational slack
- D) Organizational resources
Answer: C
Explanation: Organizational slack is having excess resources in a large organization.
Difficulty: 1 Easy
Topic: Founders Are the Reason Why Entrepreneurial Businesses Work So Well
Learning Objective: 02-01 Explain how entrepreneurial founders impact the business world as a whole.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
40) Identify a true statement about a large firm that has organizational slack.
- A) The loss of an employee barely affects the abilities of its workforce.
- B) Each employee is crucial to the survival of the firm.
- C) The firm’s knowledge is concentrated around a few key personnel.
- D) The firm enjoys extreme financial flexibility and can survive huge annual losses if necessary.
Answer: A
Explanation: The loss of an employee barely affects the abilities of a large firm with organizational slack. Excess resources allow it a flexibility that is not available to the typical entrepreneurial venture.
Difficulty: 2 Medium
Topic: Founders Are the Reason Why Entrepreneurial Businesses Work So Well
Learning Objective: 02-01 Explain how entrepreneurial founders impact the business world as a whole.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
41) In contrast to the role of leadership in a typical large organization, the founder of a new entrepreneurial business tends to play a very critical role because
- A) outside experts generally work with entrepreneurial businesses.
- B) the concentration of knowledge tends to be with her or him.
- C) the founder tends to be the only worker at entrepreneurial businesses.
- D) the employees of such new businesses tend to be unskilled or unmotivated.
Answer: B
Explanation: In contrast to the role of leadership in a typical large organization, the founder of a new entrepreneurial business tends to play a very critical role because the concentration of knowledge tends to be with her or him. As a result, the founders of an entrepreneurial business and the leadership they provide play a far more critical role in the business’s success than does the senior leadership of the typical large organization.
Difficulty: 2 Medium
Topic: Founders Are the Reason Why Entrepreneurial Businesses Work So Well
Learning Objective: 02-01 Explain how entrepreneurial founders impact the business world as a whole.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
42) Which of the following is an advantage that small firms have over large businesses?
- A) The ability to produce services and products quickly and cheaply
- B) Significant financial resources slack
- C) The ability to respond quickly to changes
- D) Critical knowledge spread across the firms’ human resources pool
Answer: C
Explanation: Small firms have some significant advantages over large businesses. One of these is the ability of small firms to respond quickly to changes around them.
Difficulty: 2 Medium
Topic: Founders Are the Reason Why Entrepreneurial Businesses Work So Well
Learning Objective: 02-01 Explain how entrepreneurial founders impact the business world as a whole.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
43) ________ states that individuals make decisions that maximize their own individual benefits.
- A) Individual benefit theory
- B) Organizational benefit theory
- C) Self-fulfilling prophesy
- D) Agency theory
Answer: D
Explanation: Agency theory is a managerial theory that believes individuals act to maximize their own benefit.
Difficulty: 1 Easy
Topic: Founders Are the Reason Why Entrepreneurial Businesses Work So Well
Learning Objective: 02-01 Explain how entrepreneurial founders impact the business world as a whole.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
44) Ray, a manager in Fir Tree Inc., a large and established firm, must travel to attend an annual conference. He books the most convenient flight tickets and a room in a luxurious hotel right next to the venue of the conference. Ray justifies these decisions by stating that these are time-saving measures. Ray’s decisions can be best explained ________.
- A) by the agency theory
- B) as bounded rationality
- C) through the Myers-Briggs test
- D) as organizational slack
Answer: A
Explanation: Ray’s decisions can be best explained by the agency theory. The agency theory suggests that individuals act to maximize their own individual benefit. Here, Ray exploits organizational resources at Fir Tree Inc. for his own benefit.
Difficulty: 3 Hard
Topic: Founders Are the Reason Why Entrepreneurial Businesses Work So Well
Learning Objective: 02-01 Explain how entrepreneurial founders impact the business world as a whole.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
45) Why can a small business owner make decisions quicker than a big business?
- A) Because the decision maker is both the owner and the manager of the business
- B) Because the owner can delegate the decisions to committees
- C) Because managers in big businesses have less knowledge than a small business owner
- D) All of these
Answer: A
Explanation: The greatest advantage for an entrepreneurial business is that it is owned and run by the same person.
Difficulty: 2 Medium
Topic: Founders Are the Reason Why Entrepreneurial Businesses Work So Well
Learning Objective: 02-01 Explain how entrepreneurial founders impact the business world as a whole.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
46) Zeus Cisterns is a large manufacturing firm with several employees. Many of the firm’s employees are knowledgeable about the firm’s various operations and requirements. Accordingly, the organization’s functioning is barely affected when an experienced employee quits. Further, in an emergency, various employees can fulfill any critical role that needs to be handled immediately. Given these characteristics, Zeus Cisterns can be said to have ________.
- A) bounded rationality
- B) organizational slack
- C) a strong resource network
- D) a loyal worker-base
Answer: B
Explanation: Zeus Cisterns has organizational slack, which refers to resources in an organization that allow for redundancy and the quick deployment of personnel in crisis. Firms with organizational slack are able to respond to emergencies with a flexibility that is not available to most entrepreneurial firms.
Difficulty: 3 Hard
Topic: Founders Are the Reason Why Entrepreneurial Businesses Work So Well
Learning Objective: 02-01 Explain how entrepreneurial founders impact the business world as a whole.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
47) In the context of entrepreneurial businesses, which of the following is an advantage that small businesses have over big businesses?
- A) A diverse pool of workers
- B) Ability to be financially flexible
- C) Large-scale manufacturing
- D) Ability to produce small niche products
Answer: D
Explanation: Small businesses can fill niches, such as producing small volumes of a particular activity. Large business cannot afford to fill such niches.
Difficulty: 2 Medium
Topic: Founders Are the Reason Why Entrepreneurial Businesses Work So Well
Learning Objective: 02-01 Explain how entrepreneurial founders impact the business world as a whole.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
48) What does a potential entrepreneur need to consider when starting a new business?
- A) Risk tolerance
- B) Prior experience
- C) Personality orientation
- D) All of these
Answer: D
Explanation: Potential entrepreneurs need to consider a number of issues. These include risk tolerance, prior experience, and personality orientation of the individual.
Difficulty: 1 Easy
Topic: Evaluating Your Entrepreneurial Orientation
Learning Objective: 02-02 Discuss the importance of an entrepreneurial orientation.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
49) The break-even point is defined as
- A) the time when a firm experiences steady losses during its initial stages of operation.
- B) the level where a firm starts to profit from the revenue it makes from its products.
- C) the time when a business must liquidate its holdings and declare bankruptcy.
- D) the level where revenue coming into the firm is sufficient to cover expenses.
Answer: D
Explanation: The break-even point is the level where revenue coming into the firm is sufficient to cover the expenses. When starting a businesses, it usually takes some time for a new business to reach this level.
Difficulty: 1 Easy
Topic: Evaluating Your Entrepreneurial Orientation
Learning Objective: 02-02 Discuss the importance of an entrepreneurial orientation.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
50) In general, the greater the debt a business owner is willing to take on, the ________ the risk tolerance.
- A) lower
- B) higher
- C) less predictable
- D) more predictable
Answer: B
Explanation: In general, the greater the debt you are willing to take to start a business, the higher your risk tolerance.
Difficulty: 1 Easy
Topic: Evaluating Your Entrepreneurial Orientation
Learning Objective: 02-02 Discuss the importance of an entrepreneurial orientation.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
51) ________ is a rational decision-making process that is constrained by our experiences, history, and culture.
- A) Logic rationality
- B) Constrained rationality
- C) Bounded rationality
- D) Unbounded rationality
Answer: C
Explanation: Bounded rationality is rational decision-making that is constrained by the background and history of the person making the decision.
Difficulty: 1 Easy
Topic: Evaluating Your Entrepreneurial Orientation
Learning Objective: 02-02 Discuss the importance of an entrepreneurial orientation.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Entrepreneurship, 3e (Bamford)
Chapter 4 External Analysis
1) In an external environment analysis, the first step is to research your customers.
Answer: FALSE
Explanation: The first part of an external analysis is to determine the industry within which the new business will compete, as well as the general makeup of the industry.
Difficulty: 1 Easy
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2) A small business owner must understand when an opportunity for a new business is truly an opportunity.
Answer: TRUE
Explanation: The entrepreneur must ensure that what he or she is observing is truly an opportunity.
Difficulty: 1 Easy
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
3) The key to recognizing an opportunity is completing a detailed analysis of the internal environment.
Answer: FALSE
Explanation: The key to effective opportunity recognition is a detailed understanding of the external environment.
Difficulty: 1 Easy
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
4) In an external analysis, the first step is to determine where the business is expected to compete.
Answer: TRUE
Explanation: The first part of an external analysis is to determine the industry within which the new business will compete, as well as the general makeup of the industry.
Difficulty: 1 Easy
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
5) Basic industry information can be obtained only by participating in focus groups.
Answer: FALSE
Explanation: Most information can be obtained on the Web or via a magazine or journal that covers a broad category of firms to which you believe your new business will belong.
Difficulty: 1 Easy
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
6) Defining the firm’s industry is something that can be taken lightly; the small business owner really needs to learn only about the local market. Industry information can be learned later.
Answer: FALSE
Explanation: Defining the firm’s industry is not something that should be taken lightly. The entrepreneur should seek to be as specific as possible.
Difficulty: 1 Easy
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
7) The North American Industry Classification System (NAICS) is a code generated by the U.S. government to gather, track, and publish data on specific industries.
Answer:TRUE
Explanation: The NAICS code can vary from two to seven digits in length generated by the U.S. government in an effort to gather, track, and publish data on specific industries.
Difficulty: 1 Easy
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
8) The easiest way to locate the NAICS (North American Industry Classification System) code is to use the Internet.
Answer: TRUE
Explanation: You can either locate this code on the Internet via a number of sources or locate a public company that might be a direct competitor to the new business and simply use its NAICS code to look up overall industry data.
Difficulty: 1 Easy
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
9) One way to obtain the NAICS (North American Industry Classification System) code is to locate a direct competitor and research it through Dunn and Bradstreet, Lexis Nexis, etc.
Answer: TRUE
Explanation: One way to find nationwide information is to locate a public company that might be a direct competitor to the new business and simply use its NAICS code to look up overall industry data.
Difficulty: 2 Medium
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
10) Most of the NAICS (North American Industry Classification System) data is based on the local market area.
Answer: FALSE
Explanation: Most of the data available will be on a national basis, which provides you some information on national trends but provides little understanding of the local competitive environment.
Difficulty: 1 Easy
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
11) An owner, when researching a new business, needs to be aware of, and be able to describe, all potential customers.
Answer: TRUE
Explanation: Entrepreneurs should define the industry in which they will compete broadly enough to be inclusive of all potential competitors.
Difficulty: 2 Medium
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
12) When starting a new business, an owner needs to take into account how far a customer will travel for the product or service to be sold.
Answer: TRUE
Explanation: An entrepreneur should ask, “What is a reasonable geographic customer draw for a new business?” There are limits to show how far someone will travel.
Difficulty: 2 Medium
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
13) An industry is defined as a group of companies within a specified radius that will be in direct competition for the same customers.
Answer: TRUE
Explanation: An industry is defined as those companies within a specified geographic radius that will be in direct competition for the same customers and sales as that of the new business.
Difficulty: 1 Easy
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
14) Starting an entrepreneurial business should be based on the observance of an opportunity.
Answer: TRUE
Explanation: Starting an entrepreneurial business should be based on the observance of an opportunity. The recognition of an opportunity may come from a frustration with the way that existing businesses operate (poor service, lack of selection); a new technology that makes an idea that was previously impractical become available (i.e., an Internet-based service, computer animation); a hobby that provides you unique skills and insight; or a new vacancy at the perfect location for a business.
Difficulty: 1 Easy
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
15) Industry associations have extensive data on their industry and usually are quite willing to share that with the public.
Answer: TRUE
Explanation: Industry associations exist primarily to support and promote their industry. They have extensive data on their industry and are usually quite willing to share that with the public.
Difficulty: 1 Easy
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
16) The greatest barrier to the spread of an application is the social media that promotes the application.
Answer: TRUE
Explanation: The greatest barrier to the spread of an app is the social media that promotes the app. While there will be written media on an app that is very helpful, the greatest factor that spreads its use is how customers and potential customers communicate with each other on the app.
Difficulty: 1 Easy
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
17) In determining the industry within which a new business will compete, an entrepreneur should seek to be as generalist in his or her approach as possible.
Answer: FALSE
Explanation: The first part of an external analysis is to determine the industry within which the new business will compete, as well as the general makeup of the industry. In doing so the entrepreneur should seek to be as specific as possible.
Difficulty: 1 Easy
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
18) An NAICS (North American Industry Classification System) code is a code that is standard 15-digit in length.
Answer: FALSE
Explanation: An NAICS (North American Industry Classification System) code is a code that can vary from two to seven digits in length (the more digits, the more specific the classification). The codes were generated by the U.S. government in an effort to gather, track, and publish data on specific industries.
Difficulty: 1 Easy
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
19) In defining the industry, an application should be conceptualized not in its use but as a physical item.
Answer: FALSE
Explanation: In defining the industry, the app should be conceptualized in its use and not as a physical item. The greatest barrier to the spread of an app is the social media that promotes the app.
Difficulty: 1 Easy
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
20) The greatest factor that spreads the use of an application is how customers and potential customers communicate with each other on the application.
Answer: TRUE
Explanation: While there will be written media on an application that is very helpful, the greatest factor that spreads its use is how customers and potential customers communicate with each other on the application. Thus, in defining the industry, the app should be conceptualized in its use and not as a physical item.
Difficulty: 1 Easy
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
21) The egalitarian approach helps the small business owner clearly focus on their core customers.
Answer: FALSE
Explanation: The egalitarian approach is probably appropriate for a political movement, but is a poor approach to business success.
Difficulty: 2 Medium
Topic: Defining Your Customers
Learning Objective: 04-02 Discuss how to create a profile of the target customers for a new business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
22) New business owners do not need to identify customers because they have already been identified by their competitors. All you have to do is copy your competitors.
Answer: FALSE
Explanation: You have to identify the exact competitors within that industry. These competitors are those firms that directly compete for the same set of ideal customers as your proposed business.
Difficulty: 2 Medium
Topic: Developing the Information for the External Analysis of Competitors
Learning Objective: 04-03 Explain how to categorize competitors of the new business using external analysis.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
23) The first step in defining your customer base is to draw a geographical radius around your location; inside this radius is where you will find the majority of your potential customers.
Answer: TRUE
Explanation: The first step in defining your potential customer base is to draw a radius around your business that will draw a majority of the business.
Difficulty: 2 Medium
Topic: Developing the Information for the External Analysis of Competitors
Learning Objective: 04-03 Explain how to categorize competitors of the new business using external analysis.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
24) James is opening up a gourmet hamburger shop. To define his customer base, the first step is to draw a geographical radius around the proposed location.
Answer: TRUE
Explanation: The first step in defining your potential customer base is to draw a radius around your business that will draw a majority of the business.
Difficulty: 3 Hard
Topic: Developing the Information for the External Analysis of Competitors
Learning Objective: 04-03 Explain how to categorize competitors of the new business using external analysis.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
25) Once an entrepreneur has established a reasonable radius from which he or she would draw his or her primary customers, the next step is to examine each potential competitor.
Answer: TRUE
Explanation: Once an entrepreneur has established a reasonable radius from which he or she would draw his or her primary customers, the next step is to examine each potential competitor. The entrepreneur must identify those competitors, what they do well, and where they are located.
Difficulty: 1 Easy
Topic: Developing the Information for the External Analysis of Competitors
Learning Objective: 04-03 Explain how to categorize competitors of the new business using external analysis.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
26) In the context of external analysis of competitors, if new business owners are very clear regarding their customers’ needs, then the ability to identify direct competitors becomes significantly challenging.
Answer: FALSE
Explanation: If the new business owners are very clear regarding their customers’ needs, then the ability to identify direct competitors becomes significantly easier. For many new entrepreneurial ventures, these businesses will be geographically local.
Difficulty: 1 Easy
Topic: Developing the Information for the External Analysis of Competitors
Learning Objective: 04-03 Explain how to categorize competitors of the new business using external analysis.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
27) Once entrepreneurs have defined the industry that interests them, determined who their potential customers might be and why they might want to buy from the business, the next step is to start understanding the competitive advantage of the business.
Answer: FALSE
Explanation: Once entrepreneurs have defined the industry that interests them, determined who their potential customers might be and why they might want to buy from the business, the next step is to identify the exact competitors within that industry. These competitors are those firms that directly compete for the same set of ideal customers as the entrepreneur’s proposed business.
Difficulty: 1 Easy
Topic: Developing the Information for the External Analysis of Competitors
Learning Objective: 04-03 Explain how to categorize competitors of the new business using external analysis.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
28) Fragmented markets are markets where no one competitor has a majority share of the market.
Answer: TRUE
Explanation: These markets have no clear dominant competitor and are instead made up of a large number of similar-sized established firms.
Difficulty: 1 Easy
Topic: Developing the Information for the External Analysis of Competitors
Learning Objective: 04-03 Explain how to categorize competitors of the new business using external analysis.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
29) A small business can compete on a cost basis with a larger firm.
Answer: FALSE
Explanation: If the entrepreneurial business is competing directly with well-established firms, this virtually guarantees that at a minimum, the entrepreneurial business will be operating at a cost disadvantage.
Difficulty: 2 Medium
Topic: Developing a Competitive Map
Learning Objective: 04-04 Explain how to construct competitive maps.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
30) A competitive map is an analytical tool to organize information about direct competitors.
Answer: TRUE
Explanation: A competitive map is an analytical tool to organize information about direct competitors.
Difficulty: 1 Easy
Topic: Developing a Competitive Map
Learning Objective: 04-04 Explain how to construct competitive maps.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
31) A competitive map does not require a visit to all potential customers.
Answer: FALSE
Explanation: Developing a competitive map requires that the entrepreneur visit all of the potential competitors in whatever form they run their business.
Difficulty: 2 Medium
Topic: Developing a Competitive Map
Learning Objective: 04-04 Explain how to construct competitive maps.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
32) One possible result of the development of a competitive map is the conclusion that the initial concept was not feasible.
Answer: TRUE
Explanation: After completing a map the potential entrepreneur could conclude that the competitive landscape was not at all what they had envisioned; the market was not as attractive as they had originally thought.
Difficulty: 2 Medium
Topic: Developing a Competitive Map
Learning Objective: 04-04 Explain how to construct competitive maps.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
33) A trade-in is a product that performs a similar function or achieves the same result as the original product.
Answer: FALSE
Explanation: A substitute exists if the service or product performs a similar function or achieves the same result as the planned business, but is not a precise imitation.
Difficulty: 1 Easy
Topic: Additional Issues for External Analysis
Learning Objective: 04-05 Ensure that the entrepreneur has considered a full set of concerns in his or her external analysis.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
34) A substitute exists if the service or product performs a similar function.
Answer: TRUE
Explanation: A substitute exists if the service or product performs a similar function or achieves the same result as the planned business, but is not a precise imitation.
Difficulty: 1 Easy
Topic: Additional Issues for External Analysis
Learning Objective: 04-05 Ensure that the entrepreneur has considered a full set of concerns in his or her external analysis.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
35) A new small business owner does not have to be aware of substitutes or the impact they could have.
Answer: FALSE
Explanation: A small business owner should keep in mind potential substitutes for the activities of the business.
Difficulty: 1 Easy
Topic: Additional Issues for External Analysis
Learning Objective: 04-05 Ensure that the entrepreneur has considered a full set of concerns in his or her external analysis.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
36) Elasticity of demand is the ease that exists when a customer can switch to a substitute.
Answer: TRUE
Explanation: Elasticity of demand refers to customers switching to substitutes or not using a product as the price of the product rises.
Difficulty: 1 Easy
Topic: Additional Issues for External Analysis
Learning Objective: 04-05 Ensure that the entrepreneur has considered a full set of concerns in his or her external analysis.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
37) A product/service for which customers are willing to pay any price has an elastic demand.
Answer: FALSE
Explanation: A product or service for which customers are willing to pay virtually any price is said to have a very inelastic demand.
Difficulty: 1 Easy
Topic: Additional Issues for External Analysis
Learning Objective: 04-05 Ensure that the entrepreneur has considered a full set of concerns in his or her external analysis.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
38) An exit barrier keeps an entrepreneur from leaving the business he or she has invested in.
Answer: TRUE
Explanation: An exit barrier keeps an entrepreneur from leaving a business he or she has invested in.
Difficulty: 1 Easy
Topic: Additional Issues for External Analysis
Learning Objective: 04-05 Ensure that the entrepreneur has considered a full set of concerns in his or her external analysis.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
39) James has invested a large amount of money in his business; he is reluctant to just give up this investment, which he would have to do if he closed his business. This is an example of an exit barrier.
Answer: TRUE
Explanation: A barrier, like an investment in capital assets, keeps an owner from leaving an industry.
Difficulty: 3 Hard
Topic: Additional Issues for External Analysis
Learning Objective: 04-05 Ensure that the entrepreneur has considered a full set of concerns in his or her external analysis.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
40) If the expenses incurred in operating a business are such that an entrepreneur cannot easily recoup the investment, then the level of competition will be more intense.
Answer: TRUE
Explanation: Once a business is in operation, expenses are being incurred. If those expenses are such that an entrepreneur cannot easily recoup the investment, then the level of competition will be more intense.
Difficulty: 1 Easy
Topic: Additional Issues for External Analysis
Learning Objective: 04-05 Ensure that the entrepreneur has considered a full set of concerns in his or her external analysis.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
41) If a business owner cannot easily exit an industry, then that owner is more likely to use predatory pricing in an effort to generate cash flow and survive.
Answer: TRUE
Explanation: If a business owner cannot easily exit an industry, then that owner is more likely to use predatory pricing in an effort to generate cash flow and survive. The ability to exit the industry must be taken into consideration when evaluating the competitive threat posed by existing businesses.
Difficulty: 1 Easy
Topic: Additional Issues for External Analysis
Learning Objective: 04-05 Ensure that the entrepreneur has considered a full set of concerns in his or her external analysis.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
42) The ability to exit a business relatively easily tends to increase the threat posed by a new entry.
Answer: FALSE
Explanation: The ability to exit a business relatively easily tends to limit the intensity of competition in the industry. It also reduces the threat posed by a new entry.
Difficulty: 1 Easy
Topic: Additional Issues for External Analysis
Learning Objective: 04-05 Ensure that the entrepreneur has considered a full set of concerns in his or her external analysis.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
43) A major cause for failure of a new business is lack of focus on the competitive advantage.
Answer: TRUE
Explanation: One of the causes of failure for new businesses is a lack of focus on their competitive advantages.
Difficulty: 1 Easy
Topic: Competitive Advantage
Learning Objective: 04-06 Differentiate between those elements of the business that provide a competitive advantage and those that do not.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
44) A normal or ordinary competitive factor is some kind of standard practice in the industry, and it is necessary for the business to succeed.
Answer: TRUE
Explanation: A normal or ordinary competitive factor describes those areas of a business that are simply standard practice in the industry and are necessary for the business to be a player.
Difficulty: 1 Easy
Topic: Competitive Advantage
Learning Objective: 04-06 Differentiate between those elements of the business that provide a competitive advantage and those that do not.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
45) Unusual or unique competitive factors are the means by which a business can differentiate itself from competitors.
Answer: TRUE
Explanation: An unusual or unique competitive factor describes those areas of a business that are unique or unusual when compared to the standard practices of the industry, and that provide the opportunity for the business to gain value over and above the ordinary returns in the industry.
Difficulty: 2 Medium
Topic: Competitive Advantage
Learning Objective: 04-06 Differentiate between those elements of the business that provide a competitive advantage and those that do not.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
46) Orthodox and unusual or unique competitive factors do not vary by industry.
Answer: FALSE
Explanation: What provides a competitive advantage varies by industry, and it varies with time in an industry.
Difficulty: 1 Easy
Topic: Competitive Advantage
Learning Objective: 04-06 Differentiate between those elements of the business that provide a competitive advantage and those that do not.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
47) To have a competitive advantage, the unusual products or services of a business need to meet these four criteria: rare, durable, valuable, and nonsubstitutable.
Answer: TRUE
Explanation: To develop a competitive advantage, the potentially unusual products or services offered by the new business must be rare, durable, relatively nonsubstitutable, and valuable.
Difficulty: 1 Easy
Topic: Competitive Advantage
Learning Objective: 04-06 Differentiate between those elements of the business that provide a competitive advantage and those that do not.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
48) Resource-based analysis is ineffective because it fails to define a business’s competitive advantages and differentiate these from their competitors.
Answer: FALSE
Explanation: Resource-based analysis has been developed over the past 50 years. It has become one of the most effective tools in defining a business’s competitive advantages and in differentiating these from their competitors.
Difficulty: 1 Easy
Topic: Competitive Advantage
Learning Objective: 04-06 Differentiate between those elements of the business that provide a competitive advantage and those that do not.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
49) The first part of an external analysis is to
- A) research potential substitutes.
- B) develop a competitive edge.
- C) identify potential customers.
- D) determine in which industry the new business will compete.
Answer: D
Explanation: The first part of an external analysis is to determine the industry within which the new business will compete as well as the general makeup of the industry.
Difficulty: 1 Easy
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
50) The information from the North American Industry Classification System (NAICS) can be found from
- A) the government.
- B) the library.
- C) the Internet.
- D) all of these.
Answer: D
Explanation: You can either locate this code on the Internet via a number of sources or locate a public company that might be a direct competitor to the new business and simply use its NAICS code to look up overall industry data.
Difficulty: 1 Easy
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
51) A(n) ________ is defined as those companies within a specified geographic radius that will be in direct competition for the same customers and sales as that of the new business.
- A) industry
- B) competitor’s files
- C) tracking system
- D) U.S. Government Blue Book
Answer: A
Explanation: An industry is defined as those companies within a specified geographic radius that will be in direct competition for the same customers and sales as that of the new business.
Difficulty: 1 Easy
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
52) Identify a true statement about the North American Industry Classification System (NAICS).
- A) It is generally used by entrepreneurs to get detailed information about local competitive environment.
- B) It provides potential entrepreneurs with data related to industry categorization.
- C) It provides an entrepreneur with a standard 15-digit industry code.
- D) It is unable to provide any information about national trends of specific industries.
Answer: B
Explanation: To obtain statistical data, the potential entrepreneur will want to obtain the industry categorization. One way to do this is to locate the industry’s NAICS code.
Difficulty: 2 Medium
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
53) Gerald is planning on setting up a burger joint in his hometown. He finds out the NAICS (North American Industry Classification System) code for his business. From this information, he is able to understand that his immediate area contains virtually no competitors and has the potential to do very well. In the context of the critical steps involved in conducting an external analysis, Gerald is ________.
- A) starting to develop an understanding of his competitive advantage
- B) drawing a set of competitive maps
- C) defining the industry in which he is competing
- D) examining and developing insights about substitutes
Answer: C
Explanation: In the context of the critical steps involved in conducting an external analysis, Gerald is defining the industry in which he is competing. An NAICS code can be used for looking up overall industry data.
Difficulty: 3 Hard
Topic: Defining Your Industry
Learning Objective: 04-01 Describe how to examine the industry that the new business plans to enter.
Bloom’s: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
54) Once a business is broadly defined, the next step is to
- A) visit all competitors.
- B) define the fragment markets.
- C) define a narrow group of customers.
- D) define a larger group of customers.
Answer: C
Explanation: Once the industry is broadly defined, then the exact nature of the customer should be developed. It is important to define a narrower group of individuals whom you believe will constitute your most likely customers.
Difficulty: 2 Medium
Topic: Defining Your Customers
Learning Objective: 04-02 Discuss how to create a profile of the target customers for a new business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
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