1) Among all firms that apply for U.S. patents on new inventions, small businesses receive 13 times more patents per employee than larger firms.
Answer: TRUE
Explanation: Among all firms that apply for U.S. patents on new inventions, small businesses receive 13 times more patents per employee than larger firms.
Page Ref: 117
Difficulty: Easy
Chapter LO: 1
Course LO: Describe the role of small businesses in the economy
Classification: Concept
2) A 12-empoyee executive recruiting firm making $750,000 per year would be a small business.
Answer: TRUE
Explanation: Small business refers to a company that is independently owned and operated, is not dominant in its field, and employs fewer than 500 people (although this number varies by industry).
Page Ref: 117
Difficulty: Moderate
Chapter LO: 1
Course LO: Describe the role of small businesses in the economy
Classification: Concept
3) Lifestyle businesses are small only because they are new and have ambitious plans to grow.
Answer: FALSE
Explanation: Small businesses such as a self-employed consultant, a corner florist, or a small e-commerce venture are sometimes called lifestyle businesses because they are built around the personal and financial needs of an individual or a family. In contrast, other firms are small simply because they are young, but they have ambitious plans to grow.
Page Ref: 118
Difficulty: Easy
Chapter LO: 1
Course LO: Describe the role of small businesses in the economy
Classification: Concept
4) Business start-ups decline when the economy sours.
Answer: FALSE
Explanation: Business start-ups often soar when the economy sours. During hard times, many companies downsize or lay off talented employees, who then have little to lose by pursuing self-employment.
Page Ref: 120
Difficulty: Easy
Chapter LO: 1
Course LO: Describe the role of small businesses in the economy
Classification: Concept
5) Outsourcing reduces opportunities for small businesses and entrepreneurs.
Answer: FALSE
Explanation: Outsourcing, the practice of engaging outside firms to handle either individual projects or entire business functions, creates numerous opportunities for small businesses and entrepreneurs.
Page Ref: 120
Difficulty: Moderate
Chapter LO: 1
Course LO: Describe the role of small businesses in the economy
Classification: Concept
6) The practice of engaging outside firms to handle either individual projects or entire business functions is called downsizing.
Answer: FALSE
Explanation: Outsourcing is the practice of engaging outside firms to handle either individual projects or entire business functions.
Page Ref: 120
Difficulty: Easy
Chapter LO: 1
Course LO: Describe the role of small businesses in the economy
Classification: Concept
7) Intrapreneurship is a term coined by business consultant Gifford Pinchot to designate entrepreneurial efforts within a larger organization.
Answer: TRUE
Explanation: Intrapreneurship is a term coined by business consultant Gifford Pinchot to designate entrepreneurial efforts within a larger organization.
Page Ref: 121
Difficulty: Easy
Chapter LO: 2
Course LO: Explain the entrepreneurship process
Classification: Concept
8) In large organizations, mechanisms put in place to prevent mistakes can also hamper innovative thinking by restricting people to tried-and-true methods.
Answer: TRUE
Explanation: In large organizations, mechanisms put in place to prevent mistakes can also hamper innovative thinking by restricting people to tried-and-true methods.
Page Ref: 122
Difficulty: Easy
Chapter LO: 2
Course LO: Explain the entrepreneurship process
Classification: Concept
9) Compared to starting a new business, buying an existing business can involve more work and more risk.
Answer: FALSE
Explanation: Compared to starting a new business, buying an existing business can involve less work and less risk–provided, of course, that you check out the company carefully.
Page Ref: 123
Difficulty: Moderate
Chapter LO: 3
Course LO: Explain the entrepreneurship process
Classification: Concept
10) Financing a business you are starting from scratch is often easier than financing an existing business
Answer: FALSE
Explanation: Financing an existing business is often much easier because lenders are reassured by the company’s history and existing assets and customer base.
Page Ref: 123
Difficulty: Easy
Chapter LO: 3
Course LO: Explain the entrepreneurship process
Classification: Concept
11) A business plan summarizes the proposed business venture, goals, and plans for achieving those goals.
Answer: TRUE
Explanation: A business plan summarizes the proposed business venture, goals, and plans for achieving those goals.
Page Ref: 124
Difficulty: Easy
Chapter LO: 3
Course LO: Explain the entrepreneurship process
Classification: Concept
12) The start-up schedule section in a business plan would forecast its income, expenses, and cash flow for the first 3 years of business.
Answer: FALSE
Explanation: The start-up schedule forecast development of the company in terms of completion dates for major aspects of the business plan.
Page Ref: 124
Difficulty: Easy
Chapter LO: 3
Course LO: Explain the entrepreneurship process
Classification: Concept
13) In the business plan, the exit strategy explains how and when the owner will close her business.
Answer: FALSE
Explanation: An exit strategy explains how investors will be able to cash out or sell their investment, such as through a public stock offering, sale of the company, or a buyback of the investors’ interest.
Page Ref: 125
Difficulty: Easy
Chapter LO: 3
Course LO: Explain the entrepreneurship process
Classification: Concept
14) Motivational collapse occurs when the would-be entrepreneur encounters one too many setbacks and simply doesn’t have the drive to keep going.
Answer: TRUE
Explanation: Motivational collapse occurs when the would-be entrepreneur encounters one too many setbacks and simply doesn’t have the drive to keep going.
Page Ref: 126
Difficulty: Easy
Chapter LO: 4
Course LO: Explain the entrepreneurship process
Classification: Concept
15) SCORE is an acronym for the Service Corps of Retired Entrepreneurs.
Answer: FALSE
Explanation: Service Corps of Retired Executives (SCORE) is a resource partner of the Small Business Administration.
Page Ref: 127
Difficulty: Easy
Chapter LO: 4
Course LO: Explain the entrepreneurship process
Classification: Concept
16) An advisory board is a form of “group mentoring” in which you assemble a team of people with subject-area expertise or vital contacts to help review plans and decisions.
Answer: TRUE
Explanation: An advisory board is a form of “group mentoring” in which you assemble a team of people with subject-area expertise or vital contacts to help review plans and decisions.
Page Ref: 128
Difficulty: Easy
Chapter LO: 4
Course LO: Explain the entrepreneurship process
Classification: Concept
17) Unlike a corporate board of directors, an advisory board has legal responsibilities.
Answer: FALSE
Explanation: Unlike a corporate board of directors, an advisory board does not have legal responsibilities, and you don’t have to incorporate to establish an advisory board.
Page Ref: 128
Difficulty: Easy
Chapter LO: 4
Course LO: Explain the entrepreneurship process
Classification: Concept
18) Facilities that house small businesses and provide support services during the company’s early growth phases are called angel investors.
Answer: FALSE
Explanation: Facilities that house small businesses and provide support services during the company’s early growth phases are known as business incubators.
Page Ref: 129
Difficulty: Easy
Chapter LO: 4
Course LO: Explain the entrepreneurship process
Classification: Concept
19) The first infusion of capital that a business receives is called seed money.
Answer: TRUE
Explanation: Seed money refers to the first infusion of capital used to get a business started.
Page Ref: 130
Difficulty: Easy
Chapter LO: 5
Course LO: Explain the entrepreneurship process
Classification: Concept
20) Angel investors provide money to finance new businesses in exchange for a large rate of interest.
Answer: FALSE
Explanation: Angel investors are private individuals who invest money in start-ups, usually earlier in a business’s life and in smaller amounts than VCs are willing to invest or banks are willing to lend.
Page Ref: 131
Difficulty: Easy
Chapter LO: 5
Course LO: Explain the entrepreneurship process
Classification: Concept
21) Funding a business with credit cards or a personal line of credit is extremely risky.
Answer: TRUE
Explanation: Funding a business with credit cards or a personal line of credit might be the only option many people have, but it is extremely risky.
Page Ref: 131
Difficulty: Easy
Chapter LO: 5
Course LO: Explain the entrepreneurship process
Classification: Concept
22) When companies go public, they put out an IPO, or independent public offering.
Answer: TRUE
Explanation: The shares offered for sale at this point are the company’s initial public offering (IPO). Going public is an effective method of raising needed capital.
Page Ref: 132
Difficulty: Easy
Chapter LO: 5
Course LO: Explain the entrepreneurship process
Classification: Concept
23) Baskin-Robbins gives its franchisees the right to resell its trademarked goods that must be purchased from Baskin-Robbins. This is an example of a product franchise.
Answer: TRUE
Explanation: Franchise is a business arrangement in which one company (the franchisee) obtains the rights to sell the products and use various elements of a business system of another company (the franchisor).
Page Ref: 133
Difficulty: Moderate
AACSB: Analytic Skills
Chapter LO: 6
Course LO: Explain the benefits and challenges of engaging in international business
Classification: Application
24) If you invest in a successful franchise, you know you are getting a viable business model, one that has worked many times before.
Answer: TRUE
Explanation: If you invest in a successful franchise, you know you are getting a viable business model, one that has worked many times before.
Page Ref: 133
Difficulty: Easy
Chapter LO: 6
Course LO: Explain the entrepreneurship process
Classification: Concept
25) If customer demand for the goods or services sold by your franchise changes, you have the ability to quickly adapt your business in response.
Answer: FALSE
Explanation: If the customer-demand for the goods and services you sell declines, a franchisor doesn’t have the option of independently changing your business in response.
Page Ref: 133
Difficulty: Moderate
Chapter LO: 6
Course LO: Explain the entrepreneurship process
Classification: Concept
26) A small business is defined as a company that ________.
A) is newly launched and has fewer than 100 shareholders
B) is dominant in its field and employs fewer than 1,500 employees
C) has revenue of less than $750,000
D) is independently owned and operated and not dominant in its field
E) is funded through personal lines of credit and has fewer than 1,000 employees
Answer: D
Explanation: D) A small business is an independently owned and operated company that employees fewer than 500 people and is not dominant in its field of operation.
Page Ref: 117
Difficulty: Easy
Chapter LO: 1
Course LO: Describe the role of small businesses in the economy
Classification: Concept
27) Which of the following is true about a small business?
A) A small business is one which employs between 500 to 1000 employees.
B) A small business is usually funded by personal lines of credit, and not through bank loans and microlenders.
C) A small business is one that is not dominant in its field.
D) A small firm usually curtails the freedom to innovate.
E) A small firm avoids risks that larger firms are willing to take.
Answer: C
Explanation: C) A small business is an independently owned and operated company that employees fewer than 500 people and is not dominant in its field of operation.
Page Ref: 117
Difficulty: Moderate
Chapter LO: 1
Course LO: Describe the role of small businesses in the economy
Classification: Concept
28) Which of the following is an example of a lifestyle business?
A) A paper recycling unit that employs about 800 employees.
B) A self-employed landscape designer.
C) Nature’s Delights, an international gourmet food chain that is considered to be the world’s leading retailer of natural and organic foods.
D) Museum of Fine Arts, a government-funded museum that houses a collection of 19th and 20th century American, German, and French paintings.
E) Freedom Books, a firm that is the leader in the English-language book publishing sector.
Answer: B
Explanation: B) Lifestyle businesses are built around the personal and financial needs of an individual or a family.
Page Ref: 118
Difficulty: Difficult
AACSB: Analytic Skills
Chapter LO: 1
Course LO: Describe the role of small businesses in the economy
Classification: Application
29) Barbara owns a small florist shop that employs a couple of part-time floral designers. She doesn’t expect her business to grow much, but it provides her with a comfortable income and she enjoys what she does. Barbara’s business would be described as a ________.
A) mid-size enterprise
B) retail business
C) lifestyle business
D) high-growth venture
E) service business
Answer: C
Explanation: C) Lifestyle businesses are built around the personal and financial needs of an individual or a family.
Page Ref: 118
Difficulty: Difficult
AACSB: Analytic Skills
Chapter LO: 1
Course LO: Describe the role of small businesses in the economy
Classification: Application
30) One of the general characteristics of a small business is that it typically sells fewer products ________.
A) to a larger customer base
B) to fewer market segments
C) to foreign companies
D) at lower costs to government agencies
E) at higher costs
Answer: B
Explanation: B) Most small firms have a narrow focus, offering fewer goods and services to fewer market segments.
Page Ref: 119
Difficulty: Easy
Chapter LO: 1
Course LO: Describe the role of small businesses in the economy
Classification: Concept
31) Which of the following is true regarding high-growth ventures?
A) They are usually run by one individual rather than a team.
B) They refer to businesses such as a self-employed consultant, a corner florist, or a small e-commerce venture.
C) They are mostly family businesses.
D) They are are built around the personal and financial needs of an individual.
E) They expand rapidly by obtaining a sizable supply of investment capital.
Answer: E
Explanation: E) High-growth ventures are usually run by a team rather than by one individual, and they expand rapidly by obtaining a sizable supply of investment capital and by introducing new products or services to a large market.
Page Ref: 118
Difficulty: Easy
Chapter LO: 1
Course LO: Describe the role of small businesses in the economy
Classification: Concept
32) Small companies tend to differ from large ones because ________.
A) they have a wider focus compared to larger companies
B) they are mostly launched with more financial backing than larger companies
C) they have less freedom to innovate and move quickly compared to larger companies
D) they can react to market changes and make decisions more quickly than larger companies
E) they are more bureaucratic compared to larger companies
Answer: D
Explanation: D) Small, entrepreneurial firms usually find it easier to operate “on the fly,” making decisions quickly and reacting to changes in the marketplace.
Page Ref: 119
Difficulty: Easy
Chapter LO: 1
Course LO: Describe the role of small businesses in the economy
Classification: Concept
33) Three factors contributing to the increased number of small businesses are technologies such as e-commerce, growing diversity in entrepreneurship, and ________.
A) downsizing and outsourcing
B) increased ease in going public
C) nationalization
D) market regulation
E) monopolistic business practices
Answer: A
Explanation: A) Three factors are contributing to the increase in the number of small businesses today: e-commerce, social media, and other technological advances; the growing diversity in entrepreneurship; and corporate downsizing and outsourcing.
Page Ref: 119; 120
Difficulty: Easy
Chapter LO: 1
Course LO: Describe the role of small businesses in the economy
Classification: Concept
34) TechPoint, a technical writing and business documentation firm, finds it difficult to handle its training requirements. The company forms a one-year contract with Impact Inc., a language training firm, to conduct training and refresher courses for their employees. This is an example of ________.
A) downsizing
B) outsourcing
C) vertical integration
D) market penetration
E) diversification
Answer: B
Explanation: B) Outsourcing refers to the practice of engaging outside firms to handle either individual projects or entire business functions.
Page Ref: 120
Difficulty: Moderate
AACSB: Analytic Skills
Chapter LO: 1
Course LO: Describe the role of small businesses in the economy
Classification: Application
35) Technical Solutions Inc., a leading software solutions firm in Dallas with 1000 employees, is facing a financial crunch because of the economic downfall. Several of its key investors have backed out, and it has lost some projects to its competitors. The SEO of the company considers cost-cutting measures to turn around the organization. An analysis of the situation reveals that many of its employees have become redundant as their work roles have reduced considerably. The firm also employs a large number of people who are almost at the retirement age. Which of the following measures will be most appropriate for the company, from a business perspective?
A) downsizing
B) vertical integration
C) outsourcing
D) diversification
E) market penetration
Answer: A
Explanation: A) During hard times, many companies downsize or lay off talented employees.
Page Ref: 120
Difficulty: Difficult
AACSB: Analytic Skills
Chapter LO: 1
Classification: Application
36) The positive, forward-thinking desire to create a profitable, sustainable business is called ________.
A) optimism
B) entrepreneurial spirit
C) fiscal discipline
D) marketing strategy
E) business implementation
Answer: B
Explanation: B) Entrepreneurial spirit refers to the positive, forward-thinking desire to create profitable, sustainable business enterprises.
Page Ref: 120
Difficulty: Easy
Chapter LO: 2
Course LO: Explain the entrepreneurship process
Classification: Concept
37) Which of the following is a quality that a successful entrepreneur is most likely to have?
A) unwillingness to take risks
B) unwilling to make any sacrifices in other areas of life
C) high need to be motivated by an external agent
D) always measures success in strictly financial terms
E) views failure as a chance to grow
Answer: E
Explanation: E) While there is no single personality profile that fits all successful entrepreneurs, most entrepreneurs tend to learn from mistakes and view failure as a chance to grow.
Page Ref: 121
Difficulty: Easy
Chapter LO: 2
Course LO: Explain the entrepreneurship process
Classification: Concept
38) Todd D. Morrison is the manager of an advanced research team at LCM Inc., a pharmaceutical company. Todd is keen to introduce process improvements aimed at making the business unit more profitable. He also uses innovative leadership methods, such as giving team members greater flexibility and freedom. Todd takes direct responsibility for turning an idea into a profitable finished product through assertive risk-taking and innovation. Todd Morrison’s efforts are an example of ________.
A) intrapreneurship
B) outsourcing
C) downsizing
D) vertical integration
E) horizontal integration
Answer: A
Explanation: A) Intrapreneurship is a term coined by business consultant Gifford Pinchot to designate entrepreneurial efforts within a larger organization.
Page Ref: 121
Difficulty: Moderate
AACSB: Analytic Skills
Chapter LO: 1
Course LO: Compare and contrast different economic systems
Classification: Application
39) Intrapreneurship refers to ________.
A) entrepreneurial efforts within a larger organization
B) starting a business by buying into a franchise system
C) starting a business by buying an existing independent business
D) individuals who are responsible for strategic corporate social responsibility activities within an organization
E) the processes, customs, policies, laws, and institutions which have impact on the way a company is controlled
Answer: A
Explanation: A) Intrapreneurship is a term coined by business consultant Gifford Pinchot to designate entrepreneurial efforts within a larger organization.
Page Ref: 121
Difficulty: Easy
Chapter LO: 2
Course LO: Explain the entrepreneurship process
Classification: Concept
40) Which of the following is most likely to encourage entrepreneurship?
A) inability to find attractive employment anywhere else
B) increased market regulations
C) inadequate protection of property rights
D) excessive market regulation
E) monopolistic business practices
Answer: A
Explanation: A) A reason why people start a business, one that becomes more common during tough job markets, is the inability to find attractive employment anywhere else.
Page Ref: 121
Difficulty: Easy
Chapter LO: 2
Course LO: Explain the entrepreneurship process
Classification: Concept
41) Which of the following statements is true about intrapreneurship?
A) It increases bureaucracy and hinders innovation.
B) It refers to individuals who start new, independent businesses.
C) It refers to individuals who start a business by buying into a franchise system.
D) It involves working with tried-and-true methods.
E) It can be risky behavior that may or may not be rewarded.
Answer: E
Explanation: E) Innovating within a larger organization is often much easier said than done. Intrapreneurship can be risky behavior that may or may not be rewarded.
Page Ref: 122
Difficulty: Moderate
Chapter LO: 2
Course LO: Explain the entrepreneurship process
Classification: Concept
42) Barbara decided to open an independent bookstore. However, after careful consideration, she decided to purchase an existing book shop called BookStop from an owner who was retiring. Which of the following statements, if true, is most likely to make Barbara’s business successful.
A) Barbara decides to change the layout of the bookstore and repaint the walls.
B) The government increases the taxes on small businesses.
C) Barabara decides to reduce the freedom given to the existing employees by the previous owner of BookStop.
D) Barabara does not like the existing business processes and systems, so she decides to build them from scratch.
E) BookStop was a profitable business with many loyal customers.
Answer: E
Explanation: E) When you buy a healthy business, you generally purchase an established customer base, functioning business systems, proven products or services, and a known location.
Page Ref: 123
Difficulty: Difficult
AACSB: Analytic Skills
Chapter LO: 3
Course LO: Explain the entrepreneurship process
Classification: Application
43) Which of the following is true about creating a new, independent business?
A) The possibility for borrowing start-up capital or getting investors is more, compared to buying an existing business.
B) The owner’s freedom is less, compared to buying an existing business.
C) The business processes and systems are usually already in place.
D) The workforce is usually already in place.
E) The customer base must be built from the ground up.
Answer: E
Explanation: E) Starting a new business involves building the customer base, brand recognition, and sales from the ground up, which can put serious strain on company finances until sales volume builds.
Page Ref: 123
Difficulty: Moderate
Chapter LO: 3
Course LO: Compare and contrast different economic systems
Classification: Concept
44) Matthew decides to open a cafe in his neighborhood, called Coffee Beans. While analyzing the start-up options, he decides against buying an existing independent business, or even buying into a franchise system. Because of a recent reduction in the availability of loans to entrepreneurs, he is unable to get a bank loan. He is likely to have which of the following benefits?
A) He will have an established brand recognition.
B) Since business processes and systems are usually in place, he need not create them.
C) Support networks are already in place, so he need not update them.
D) He need not hire and train the workforce at his own expense.
E) He will experience very high freedom and flexibility.
Answer: E
Explanation: E) Starting a new business provides very high freedom and flexibility to the owner, particularly during early phases, although low capital can severely restrict the owner’s ability to maneuver.
Page Ref: 123
Difficulty: Moderate
AACSB: Analytic Skills
Chapter LO: 3
Course LO: Explain the entrepreneurship process
Classification: Application
45) Which of the following is an advantage of buying into a franchise system?
A) It comes with an established business system.
B) It comes with a workforce.
C) It already has a customer base with ongoing sales.
D) It allows the owner to have a very high level of freedom.
E) It requires the owner to establish brand recognition from scratch.
Answer: A
Explanation: A) Buying a franchise combines many of the benefits of independent business ownership with the support that comes with being part of a larger organization. One of the key advantages of buying a franchise is that it comes with an established business system.
Page Ref: 123
Difficulty: Moderate
Chapter LO: 3
Course LO: Explain the entrepreneurship process
Classification: Concept
46) A business plan is a written document that summarizes the ________.
A) business’ cost benefit analysis
B) business’ sources of finances for the business
C) proposed business venture, goals, and plans for achieving those goals
D) personal financial statements of the business owners
E) organization’s exposure to internal and external threats
Answer: C
Explanation: C) A business plan summarizes a proposed business venture, communicates the company’s goals, highlights how management intends to achieve those goals, and shows how customers will benefit from the company’s goods or services.
Page Ref: 124
Difficulty: Easy
Chapter LO: 3
Course LO: Explain the entrepreneurship process
Classification: Concept
47) Preparing a business plan serves which of the following functions?
A) It assists the owners in preparing publicity releases for the business.
B) It helps persuade lenders and investors to finance the business.
C) It identifies sources of potential employees for the business.
D) It fulfills the requirements set forth by the Small Business Administration.
E) It meets licensing regulations established by the local government.
Answer: B
Explanation: B) Preparing a business plan serves important functions. It helps persuade lenders and investors to finance your business if outside money is required.
Page Ref: 124
Difficulty: Easy
Chapter LO: 3
Course LO: Explain the entrepreneurship process
Classification: Concept
48) A business plan outlines that investors will be able to sell their investment through a public stock offering, or a buyback of the investors’ interest. This is an example of which of the following elements of a business plan?
A) start-up schedule
B) operations plan
C) exit strategy
D) marketing strategy
E) target market
Answer: C
Explanation: C) An exit strategy explains how investors will be able to cash out or sell their investment, such as through a public stock offering, sale of the company, or a buyback of the investors’ interest.
Page Ref: 125
Difficulty: Easy
Chapter LO: 3
Course LO: Explain the entrepreneurship process
Classification: Concept
49) Which of the following statements is true regarding the failure rates of new businesses?
A) It is possible to calculate a precise figure that represents all types of businesses across all industries.
B) The definition of “failure” remains the same across businesses and business owners.
C) Establishing a time frame is not essential for a failure rate to have any meaning.
D) Structural changes in the economy are unrelated to the failure rates of new businesses.
E) The failure rate of new businesses is usually high during the first year.
Answer: E
Explanation: E) Establishing a time frame is essential for a failure rate to have any meaning. For example, ill-conceived or undercapitalized businesses often don’t survive the first year, so the early failure rate is quite high.
Page Ref: 126
Difficulty: Easy
Chapter LO: 4
Course LO: Explain the entrepreneurship process
Classification: Concept
50) At the federal level, small businesses can apply for loans backed by the ________.
A) Center for Emerging Technologies
B) U.S. Chamber of Commerce
C) Service Corps of Retired Executives
D) Venture Capitalists Association (VCA)
E) Small Business Administration
Answer: E
Explanation: E) At the federal level, small businesses can apply for SBA-backed loans.
Page Ref: 126
Difficulty: Easy
Chapter LO: 4
Course LO: Explain the entrepreneurship process
Classification: Concept
51) Which of the following statements is true about the Service Corps of Retired Executives (SCORE)?
A) It is a resource partner of the SBA.
B) It works on a contractual basis with large businesses.
C) It offers advice and one-to-one counseling to entrepreneurs, in return for company shares.
D) It offers resources and programs to minority-owned businesses.
E) It hires retired executives to work as consultants for a nominal fee.
Answer: A
Explanation: A) The Service Corps of Retired Executives (SCORE) is a resource partner of the SBA. These experienced business professionals offer free advice and one-to-one counseling to entrepreneurs.
Page Ref: 127
Difficulty: Moderate
Chapter LO: 4
Course LO: Explain the entrepreneurship process
Classification: Concept
52) SCORE is a resource partner of the ________.
A) Small Business Online Community
B) Minority Business Development Agency
C) Small Business Administration
D) United States Chamber of Commerce
E) Center for Emerging Technologies
Answer: C
Explanation: C) Some of the best advice available to small businesses is delivered by thousands of volunteers from the Service Corps of Retired Executives (SCORE), a resource partner of the SBA.
Page Ref: 127
Difficulty: Easy
Chapter LO: 4
Course LO: Compare and contrast different economic systems
Classification: Concept
53) A(n) ________ is a form of “group mentoring” in which you assemble a team of people with subject-area expertise or vital contacts to help review plans and decisions.
A) advisory board
B) business incubator
C) venture capitalist
D) angel investor
E) micro lender
Answer: A
Explanation: A) An advisory board is a form of “group mentoring” in which you assemble a team of people with subject-area expertise or vital contacts to help review plans and decisions.
Page Ref: 128
Difficulty: Easy
Chapter LO: 4
Course LO: Explain the entrepreneurship process
Classification: Concept
54) An advisory board differs from a corporate board of directors, because ________.
A) an advisory board has legal responsibilities
B) you don’t have to incorporate to establish an advisory board
C) you usually require high amounts of financial compensation to consult an advisory board
D) members of an advisory board lack subject-area expertise
E) advisors are required to obtain certification from SBA
Answer: B
Explanation: B) Unlike a corporate board of directors, an advisory board does not have legal responsibilities, and you don’t have to incorporate to establish an advisory board.
Page Ref: 128
Difficulty: Easy
Chapter LO: 4
Course LO: Explain the entrepreneurship process
Classification: Concept
55) ________ are centers that provide a small business with a wide array of support resources and services during its early growth phase.
A) Seed centers
B) Business incubators
C) Microlenders
D) Angel investors
E) Intrapreneurs
Answer: B
Explanation: B) Business incubators are centers that provide “newborn” businesses with various combinations of advice, financial support, access to industry insiders and connections, facilities, and other services a company needs to get started.
Page Ref: 129
Difficulty: Easy
Chapter LO: 4
Course LO: Explain the entrepreneurship process
Classification: Concept
56) In exchange for a small share of ownership, KMC Group makes a small investment in TechPro, a new, independent software firm. KMC Group provides support to TechPro during its early stages by helping the founders refine their ideas, hire suitable employees and train them, establish connections with industry insiders, and deal with legal issues. KMC Group is most likely to be a(n) ________.
A) advisory board
B) mentor
C) business incubator
D) seed center
E) microlender
Answer: C
Explanation: C) Business incubators are centers that provide “newborn” businesses with various combinations of advice, financial support, access to industry insiders and connections, facilities, and other services a company needs to get started.
Page Ref: 129
Difficulty: Moderate
AACSB: Analytic Skills
Chapter LO: 4
Course LO: Explain the entrepreneurship process
Classification: Application
57) Money used or needed to set up a new business is ________.
A) an incubator fund
B) seed money
C) an initial public offering
D) public financing
E) an advisory board loan
Answer: B
Explanation: B) The first infusion of capital used to get a business started is called seed money.
Page Ref: 130
Difficulty: Easy
Chapter LO: 5
Course LO: Explain the entrepreneurship process
Classification: Concept
58) ________ is a combination of private and public financing, in which an entrepreneur invites people to fund a share of a new business venture or a new product.
A) Crowdfunding
B) Microlending
C) Angel investment
D) Business incubator
E) Threshold pledge system
Answer: A
Explanation: A) A combination of private and public financing is crowdfunding, in which an entrepreneur invites people to fund a share of a new business venture or a new product.
Page Ref: 130
Difficulty: Easy
Chapter LO: 5
Course LO: Explain the entrepreneurship process
Classification: Concept
59) Keri Sears uses the funding platform Kickstarter to solicit money to start a not-for-profit organization that promotes folk musicians and revives interest in the folk and traditional forms of music in America. She invites people to fund the business project and she states that donors will be honored on the organization’s website. She sets a six month goal to raise the money. Keri is using which of the following forms of financing?
A) angel investors
B) business incubator
C) threshold pledge system
D) fund and release system
E) crowdfunding
Answer: E
Explanation: E) A combination of private and public financing is crowdfunding, in which an entrepreneur invites people to fund a share of a new business venture or a new product.
Page Ref: 130
Difficulty: Difficult
AACSB: Analytic Skills
Chapter LO: 5
Course LO: Explain the entrepreneurship process
Classification: Application
60) ________ are organizations, often not-for-profit, that lend smaller amounts of money to business owners who might not qualify for conventional bank loans.
A) Angel groups
B) Venture capitalists
C) Angel investors
D) Microlenders
E) Franchises
Answer: D
Explanation: D) Microlenders are organizations, often not-for-profit, that lend smaller amounts of money to business owners who might not qualify for conventional bank loans.
Page Ref: 131
Difficulty: Easy
Chapter LO: 5
Course LO: Explain the entrepreneurship process
Classification: Concept
61) Investors who provide money to finance new businesses or turnarounds in exchange for a portion of ownership, with the objective of reselling the business at a profit are called ________.
A) angel investors
B) microlenders
C) venture capitalists
D) advisory boards
E) business incubators
Answer: C
Explanation: C) Investors who provide money to finance new businesses or turnarounds in exchange for a portion of ownership, with the objective of reselling the business at a profit are called venture capitalists.
Page Ref: 131
Difficulty: Easy
Chapter LO: 5
Course LO: Explain the entrepreneurship process
Classification: Concept
62) Private individuals who put their own money into start-ups, with the goal of eventually selling their interest for a profit, are called ________.
A) angel investors
B) microlenders
C) venture capitalists
D) advisory boards
E) business incubators
Answer: A
Explanation: A) Angel investors are private individuals who invest money in start-ups, usually earlier in a business’s life and in smaller amounts than VCs are willing to invest.
Page Ref: 131
Difficulty: Easy
Chapter LO: 5
Course LO: Explain the entrepreneurship process
Classification: Concept
63) Funding a new business with credit cards or a personal line of credit ________.
A) is the least expensive form of financing
B) is subject to a lot of bureaucratic procedures
C) involves minimum amount of risk
D) is used by very few entrepreneurs
E) is a widely available form of financing
Answer: E
Explanation: E) Although they tend to be one of the most expensive forms of financing, credit cards are also widely available and sometimes the only source of funding an entrepreneur has.
Page Ref: 131
Difficulty: Moderate
Chapter LO: 5
Course LO: Explain the entrepreneurship process
Classification: Concept
64) Which of the following statements is true about venture capitalists?
A) They are private individuals without specialized investment skills.
B) They make investments in large, established businesses.
C) They usually make investments in low-risk, low-potential areas.
D) They simply provide money to new ventures, and do not provide managerial advice.
E) They are extremely focused and selective while investing in companies.
Answer: E
Explanation: E) Because one-third of venture capitalist-funded start-ups don’t succeed, those that do succeed need to really pay off to compensate. VCs are therefore extremely focused and selective.
Page Ref: 131
Difficulty: Easy
Chapter LO: 5
Course LO: Explain the entrepreneurship process
Classification: Concept
65) Which of the following is a major difference between banks and venture capitalists as categories of private financing?
A) Unlike banks, which recruit investment specialists, venture capitalists are private investors without any specialized investment skills.
B) Unlike banks, which provide investment for high-risk businesses, venture capitalists won’t lend money to a start-up that hasn’t established a successful track record.
C) Unlike banks, which dont require collateral, venture capitalists provide investments only when an entrepreneur puts up marketable collateral.
D) Unlike banks, which only provide money, venture capitalists also provide management expertise.
E) Unlike banks, which are extremely focused and selective in giving loans, venture capitalists are less focused and provide loans to a large number of start-ups.
Answer: D
Explanation: D) Unlike banks or most other financing sources, venture capitalists do more than simply provide money. They also provide management expertise in return for a sizable ownership interest in the business.
Page Ref: 131
Difficulty: Easy
Chapter LO: 5
Course LO: Explain the entrepreneurship process
Classification: Application
66) Unlike venture capitalists, angel investors tend to ________.
A) invest larger amounts of money in start-ups
B) remain involved with the company for a very short time
C) have a more local focus
D) be investment specialists with an extremely focused and selective approach
E) invest mostly in high-potential areas
Answer: C
Explanation: C) Angel investing tends to have a more local focus than venture capitalism, so you can search for angels through local business contacts and organizations.
Page Ref: 131
Difficulty: Easy
Chapter LO: 5
Course LO: Explain the benefits and challenges of engaging in international business
Classification: Concept
67) The institution that actually provides the money for an SBA-backed loan is the ________.
A) venture capitalist
B) bank
C) SBIC
D) business incubator
E) IPO
Answer: B
Explanation: B) To get an SBA-backed loan, you apply to a regular bank or credit union, which actually provides the money.
Page Ref: 132
Difficulty: Easy
Chapter LO: 5
Course LO: Explain the entrepreneurship process
Classification: Concept
68) A corporation’s first offering of shares to the public is called ________.
A) private placement
B) secondary market offering
C) secondary equity offering
D) IPO
E) crowdfunding
Answer: D
Explanation: D) A corporation’s first offering of shares to the public is called initial public offering (IPO).
Page Ref: 132
Difficulty: Easy
Chapter LO: 5
Course LO: Explain the entrepreneurship process
Classification: Concept
69) Celera Inc., a soap manufacturing firm based in Colorado, needs to raise capital to fund its product development plans. The firm decides to offer its shares of ownership to the public for the first time, and lists its securities on a public exchange. This is termed as ________.
A) private placement
B) secondary market offering
C) secondary equity offering
D) IPO
E) crowdfunding
Answer: D
Explanation: D) A corporation’s first offering of shares to the public is called initial public offering (IPO).
Page Ref: 132
Difficulty: Moderate
AACSB: Analytic Skills
Chapter LO: 5
Course LO: Explain the entrepreneurship process
Classification: Application
70) A company that licenses elements of its business system to other companies is called a ________.
A) franchisor
B) venture capitalist
C) angel investor
D) intrapreneur
E) business mentor
Answer: A
Explanation: A) A company that licenses elements of its business system to other companies is called a franchisor.
Page Ref: 132
Difficulty: Easy
Chapter LO: 6
Course LO: Compare and contrast different economic systems
Classification: Concept
71) A(n) ________ enables the buyer to use a larger company’s trade name and sell its goods or services in a specific territory.
A) trademark
B) franchise
C) initial public offering
D) open source contract
E) network effect
Answer: B
Explanation: B) An alternative to creating or buying an independent company is to buy a franchise, which enables the buyer to use a larger company’s trade name and sell its goods or services in a specific territory.
Page Ref: 132
Difficulty: Easy
Chapter LO: 6
Course LO: Explain the entrepreneurship process
Classification: Concept
72) You have decided to open a pet store and signed an agreement with Dogz-N-Catz Centers Inc. You and the company have drawn up an agreement that allows you to use the Dogz-N-Catz name and its business format, to receive training, and to use its advertising materials. Under this agreement, Dogz-N-Catz Inc. is the ________.
A) franchisor
B) microinvestor
C) angel investor
D) venture capitalist
E) business mentor
Answer: A
Explanation: A) A company that licenses elements of its business system to other companies is called a franchisor.
Page Ref: 132
Difficulty: Moderate
AACSB: Analytic Skills
Chapter LO: 6
Course LO: Compare and contrast different economic systems
Classification: Application
73) A car dealer in Ohio has the rights to sell trademarked automobiles manufactured by Armadillo Motors Inc., which does not have a distribution network in Ohio. The car dealer purchases the automobiles from Armadillo Motors Inc. and then resells them in Ohio. Which of the following models does the dealer use?
A) product franchise
B) joint venture
C) shakeout
D) vertical integration
E) intrapreneurship
Answer: A
Explanation: A) A product franchise gives you the right to sell trademarked goods, which are purchased from the franchisor and resold.
Page Ref: 133
Difficulty: Easy
AACSB: Analytic Skills
Chapter LO: 6
Course LO: Explain the entrepreneurship process
Classification: Application
74) R&M Group, a consumer products company based in Libya, conducted a market research. The research indicated that there was a lack of branded soft drinks in the market, even though there were several local soft-drink manufacturers. The company purchased the right to produce and distribute soft drinks of Fizzpop Inc.(a leading U.S. based soft-drinks firm) R&M Group also sources the supplies from Fizzpop Inc. to ensure that the taste of the product remains the same. In this scenario, which of the following business methods does R&M Group use?
A) joint venture
B) shakeout
C) vertical integration
D) manufacturing franchise
E) delayering
Answer: D
Explanation: D) A manufacturing franchise, such as a soft -drink bottling plant, gives you the right to produce and distribute the manufacturer’s products, using supplies purchased from the franchisor.
Page Ref: 133
Difficulty: Difficult
AACSB: Analytic Skills
Chapter LO: 6
Course LO: Compare and contrast different economic systems
Classification: Application
75) Andy, an entrepreneur, plans to open a bakery in his neighborhood. He realizes that there are no branded bakeries in the locality, even though there are a number of independent bakeries. He approaches Soft Bakes, an international bakery chain, and signs an agreement with them that gives him the right to open a bakery shop that uses Soft Bakes’ name and management methods. In this scenario, which of the following business methods does Andy use?
A) business-format franchise
B) joint venture
C) shakeout
D) vertical integration
E) delayering
Answer: A
Explanation: A) A business-format franchise gives you the right to open a business using a franchisor’s name and format for doing business.
Page Ref: 133
Difficulty: Difficult
AACSB: Analytic Skills
Chapter LO: 6
Course LO: Compare and contrast different economic systems
Classification: Application
76) Define a small business? What is the economic role of small businesses?
Answer: A small business is a company that is independently owned and operated, is not dominant in its field, and employs fewer than 500 people (although this number varies by industry).
Some of the major contributions small firms make are:
∙ They provide jobs.
∙ They introduce new products.
∙ They supply the needs of larger organizations. Many small businesses act as distributors, servicing agents, and suppliers to larger corporations and to numerous government agencies.
∙ They inject a considerable amount of money into the economy. Small businesses pay nearly half the private-sector payroll in the United States and produce half the country’s gross domestic product.
∙ They take risks that larger companies sometimes avoid. Entrepreneurs play a significant role in the economy as risk takers – people willing to try new and unproven ideas.
∙ They provide specialized goods and services.
Page Ref: 117; 118
Difficulty: Moderate
Chapter LO: 1
Course LO: Describe the role of small businesses in the economy
Classification: Concept
77) Compare and contrast lifestyle businesses with high-growth ventures.
Answer: The majority of small businesses are modest operations with little growth potential, although some have attractive income potential for the solo business person. Small businesses such as a self-employed consultant, a corner florist, or a small e-commerce venture are sometimes called lifestyle businesses because they are built around the personal and financial needs of an individual or a family. In contrast, other firms are small simply
because they are young, but they have ambitious plans to grow. These high-growth ventures are usually run by a team rather than by one individual, and they expand rapidly by obtaining a sizable supply of investment capital and by introducing new products or services to a large market.
Page Ref: 118
Difficulty: Difficult
AACSB: Reflective Thinking Skills
Chapter LO: 1
Course LO: Explain the entrepreneurship process
Classification: Synthesis
78) Compare and contrast small companies with large ones?
Answer: Small companies tend to differ from large ones in a variety of important ways. First, most small firms have a narrow focus, offering fewer goods and services to fewer market segments. Second, unless they are launched with generous financial backing, which is rare, small businesses have to get by with limited resources. Third, smaller businesses often have more freedom to innovate and move quickly. As they grow larger, companies tend to get slower and more bureaucratic. In contrast, entrepreneurial firms usually find it easier to operate “on the fly,” making decisions quickly and reacting to changes in the marketplace.
Page Ref: 119
Difficulty: Difficult
AACSB: Reflective Thinking Skills
Chapter LO: 1
Course LO: Describe the role of small businesses in the economy
Classification: Synthesis
79) How do downsizing and outsourcing influence the number of small businesses?
Answer: Business start-ups often soar when the economy sours. During hard times, many companies downsize or lay off talented employees, who then have little to lose by pursuing self-employment. Outsourcing, the practice of engaging outside firms to handle either individual projects or entire business functions, also creates numerous opportunities for small businesses
and entrepreneurs. Some companies subcontract special projects and secondary business functions to experts outside the organization, while others turn to outsourcing as a way to permanently eliminate entire departments, and some laid-off employees even become entrepreneurs and sell services to their former employers.
Page Ref: 120
Difficulty: Moderate
Chapter LO: 1
Course LO: Describe the role of small businesses in the economy
Classification: Concept
80) Describe the qualities of a successful entrepreneur. How is an intrapreneur different from an entrepreneur? What are the unique challenges faced by an intrapreneur?
Answer: Successful entrepreneurs tend to love what they do and are driven by a passion to succeed at it, they are disciplined and willing to work hard, they are confident and optimistic, and they like to control their own destiny. Moreover, they relate well to others and have the ability to inspire others, they are curious, they learn from their mistakes without letting failure drag them down, they are adaptable and tuned into their environments, and they are moderate but careful risk takers.
The entrepreneur’s innovative spirit is so compelling that many large companies and individuals within companies now try to express it through intrapreneurship, a term coined by business consultant Gifford Pinchot to designate entrepreneurial efforts within a larger organization.
Page Ref: 121
Difficulty: Difficult
AACSB: Reflective Thinking Skills
Chapter LO: 2
Course LO: Explain the entrepreneurship process
Classification: Synthesis
81) Compare and contrast creating a new, independent business with buying an existing independent business.
Answer: Creating a new, independent business usually has very limited possibilities for borrowing start-up capital or getting investors. It gives a lot of freedom and flexibility to the owner and must be designed and created from scratch, which can be time consuming and expensive. Support networks, workforce, customer base, brand recognition, and sales must be built from scratch.
Compared to starting a new business, buying an existing business can involve less work and less risk – provided, of course, that you check out the company carefully. When you buy a healthy business, you generally purchase an established customer base, functioning business systems, proven products or services, and a known location. In addition, financing an existing business is often much easier because lenders are reassured by the company’s history and existing assets and customer base.
