Chapter 1: The
Foundations of Entrepreneurship
Study Guide
Learning Objectives
1.
Define the role of the entrepreneur
in business in the United
States and around the world.
2.
Describe the entrepreneurial profile
and evaluate your potential as an entrepreneur.
3.
Describe the benefits and drawbacks
of entrepreneurship.
4.
Explain the forces that are driving
the growth in entrepreneurship.
5.
Explain the cultural diversity of
entrepreneurship.
6.
Describe the important role small
business plays in our nation’s economy.
7.
Put failure into the proper
perspective.
8.
Explain how entrepreneurs can avoid
becoming another failure statistic.
Class Instruction
Introduction
Throughout
the world growing numbers of people are realizing their dreams of owning and
operating their own business. Entrepreneurship is thriving. The past two
decades have seen record numbers of entrepreneurs launching new businesses each
year.
The World of the Entrepreneur LO 1
A study by the Global
Entrepreneurship Monitor (GEM)
found that 12.3 percent, or one in eight people, of the adult population in the
United States
is working to start a business. North America, South America, and Latin America lead the world in entrepreneurial activity.
Eastern European countries, China,
Vietnam,
and other nations whose economies were state–controlled and centrally planned
now hold potential for entrepreneurs. Even war torn Afghanistan is benefitting.
Entrepreneurship is impacting business around the world.
What is an Entrepreneur?
LO 2
An entrepreneur is one who
creates a new business in the face of risk and uncertainty for achieving profit
and growth opportunities and assembles the necessary resources to capitalize on
those opportunities.
While we may not be able to teach
entrepreneurship, we can teach the skills of small business management. This is
an important distinction to make to students.
Noted psychologist David McClelland
characterized high achievers/entrepreneurs as possessing these traits:
1.
Desire for responsibility
2.
Preference for moderate risk (risk eliminators)
3.
Confidence in their ability to
succeed
4.
Determination
5.
Desire for immediate feedback
6.
High level of energy
7.
Future orientation (serial entrepreneurs)
8.
Skill in organization
9.
Value of achievement over money
Other characteristics of entrepreneurs
include:
·
High degree of commitment
·
Tolerance for ambiguity
·
Flexibility
·
Tenacity
The
Benefits of Entrepreneurship
LO 3-A
The primary benefits entrepreneurs enjoy include
the opportunity to:
·
Opportunity to create their own destiny
·
Opportunity to make a difference
·
Opportunity to reach their full potential
·
Opportunity to reap impressive profits
·
Opportunity to contribute to society and be recognized for your efforts
·
Opportunity to do what you enjoy and have fun at it
The Potential Drawbacks of Entrepreneurship LO 3-B
With
these potential rewards, entrepreneurship also presents risk and uncertainty.
Entrepreneurs may experience:
·
Uncertainty of income: “The
entrepreneur is the last one to be paid.”
·
Risk of losing their entire
investment
·
Long hours and hard work
·
Lower quality of life until the
business gets established
·
High levels of stress
·
Complete responsibility
·
Discouragement
Behind the Boom: Feeding the Entrepreneurial Fire LO 4
The rapid increase in entrepreneurs has been a result of:
·
Entrepreneurs as heroes
·
Entrepreneurial education
·
Demographic and economic factors
·
Shift to a service economy
·
Technological advancements
·
Independent lifestyles
·
The Internet and cloud computing
·
International opportunities
The Cultural Diversity in Entrepreneurship LO 5
Entrepreneurs
are found virtually every walk of life.
This includes:
·
Young Entrepreneurs
·
Women Entrepreneurs
·
Minority Enterprises
·
Immigrant Entrepreneurs
·
Part–time Entrepreneurs
·
Home–Based Businesses
·
Family Businesses
·
Copreneurs
·
Corporate Castoffs
·
Corporate Dropouts
There is not a set “profile” for entrepreneurs. This is a
group that is diverse in every way and appreciating these types of
entrepreneurs illustrates this variety of people and lifestyles.
The Power of “Small” Business LO 6
Because big business is more visible
than small business, most people underestimate the role of the small firm in
the U.S.
economy.
The definition of a “Small Business”
is:
1. One
which is independently owned and operated and not dominant in its field.
2. Eligibility
requirements are based on the specific industry.
·
Retailing – Annual sales/receipts not exceeding $3.5 to $13.5
million.
·
Services – Annual receipts not exceeding $2.5 to $14.5 million.
·
Wholesaling – Yearly sales must not be over $9.5 to $22 million.
·
Agriculture – Annual receipts not exceeding $1.0 to $3.5 million.
·
Construction – General construction with annual receipts not exceeding
$17 million.
·
Special
Trade Construction – Annual
receipts not exceeding $7 million.
·
Manufacturing – Maximum number of employees may range from 500 to 1,500
depending on the industry.
The most common measure of small
business is the number of employees on a firm’s payroll. The White House
Conference on Small Business definition for small business is: “A firm
employing 500 people or fewer.”
The Committee for Economic Development states that a small
business must meet at least two of the four stated criteria:
1. Management
is independent.
2. Capital
is supplied and ownership is held by an individual or a small group.
3. Area
of operation is mainly local; markets need not be local.
4. Size
is small when compared to the biggest unit in the field.
Putting Failure into Perspective LO 7
Entrepreneurs
do not Fail —the venture fails.
·
There are no such things as
failures, only results.
·
Always look to turn a negative
situation into a positive opportunity.
·
Have no fear of failure and be sure
to have a contingency plan.
·
The only people who never fail are
those who never do anything or never attempt anything new.
The successful entrepreneur understands the meaning of these
clichés and knows how to deal with adversity in a proactive and positive
manner.
The
following material in this section is in addition to the text.
The Ten Deadly Mistakes of Entrepreneurship
Studies
have indicated that there are common reasons for new business ventures to fail.
These causes of small business failure may include:
1. Management
mistakes
2. Lack
of experience
3.
Poor financial control
4.
Weak marketing efforts
5. Failure
to develop a strategic plan
6. Uncontrolled
growth
7. Poor
location
8.
Improper inventory control
9.
Incorrect pricing
10. Inability to make the “entrepreneurial
transition”
How to Avoid the Pitfalls LO 8
These same studies have indicated that
entrepreneurs can increase
their changes for success if they:
1.
Know their business in depth.
2.
Develop a solid business plan in
writing.
3.
Manage financial resources.
4.
Understand financial statements.
5.
Learn to manage people effectively.
6.
Set your business apart from the
competition.
7.
Maintain a positive attitude.
Conclusion
Entrepreneurs are a key part of America’s free
enterprise system, and as we will discover, are changing the business of the
world as well. Their contributions are as many and as diverse as the businesses
themselves. There are steps that entrepreneurs can take to enhance the
probability of their success.
Discussion Questions
1. What forces have led to the boom in entrepreneurship in
the U.S. and across the globe? (LO 4)
Forces
that have influenced the U.S.
entrepreneurial boom include:
·
The dream of owning and operating a
business
·
The effect of downsizing
·
The belief that “small is beautiful”
·
The opportunity to enter profitable
niche markets
·
The growing international and
e–commerce markets
2. What is an entrepreneur? Give a brief description of the
entrepreneurial profile. (LO 2)
An entrepreneur is one who creates a
new business in the face of risk and uncertainty for the purpose of achieving
profits and growth by identifying opportunities and assembling the necessary
resources to capitalize on them. The entrepreneur has a:
·
Desire for responsibility
·
Preference for moderate risk (risk eliminators)
·
Confidence in their ability to
succeed
·
Determination
·
Desire for immediate feedback
·
High level of energy
·
Future orientation (serial entrepreneurs)
·
Skill in organization
·
Value of achievement over money
In addition, other characteristics
of an entrepreneurial profile include:
·
High degree of commitment
·
Tolerance for ambiguity
·
Flexibility
·
Tenacity
3. Inc. Magazine claims, “Entrepreneurship
is more mundane than it’s sometimes portrayed … you don’t need to be a person
of mythical proportions to be very, very successful in building a
company.” Do you agree? Explain.
(LO 2)
Anyone can become an entrepreneur. There are no limitations
to this form of economic expression and the skills of entrepreneurship and
innovation can be learned. There are thousands of examples where people have
become highly successful with ordinary businesses. This combination of skills,
desire, passion and drive and an understanding of the market opportunity may
result in entrepreneurial success.
4. What are the major
benefits of business ownership? (LO 3)
Major
benefits of business ownership include the opportunity to:
·
Gain control over your own destiny
·
Make a difference
·
Reach your full potential
·
Realize unlimited profits
·
Contribute to society and be
recognized for your efforts
·
Do what you enjoy
5. Which of the
potential drawbacks to business ownership are most crucial?
(LO 3)
(LO 3)
The
most crucial drawbacks to business ownership may include the:
·
Uncertainty of income
·
Risk of losing invested capital
·
Long hours and hard work without
guarantee of return
·
Quality of life until the business
gets established
·
High levels of stress
·
Complete responsibility of the
business – its success or failure
6. Briefly describe
the role of the following groups in entrepreneurship: women, minorities,
immigrants, part–timers, home–based business owners, family business owners,
copreneurs, corporate castoffs and corporate dropouts. (LO 5)
These entrepreneurial groups may
face challenges in the following areas:
·
Young
people can apply their knowledge and skills
to take advantage of the Internet, new technology and market opportunities.
·
Women often face discrimination in the workplace.
Entrepreneurship offers women opportunities for economic growth.
·
Minorities also face discrimination in the workplace and can benefit
from entrepreneurship.
·
Immigrant entrepreneurs arrive with more education and experience.
Their dedication and desire to succeed enables them to achieve their dreams.
·
Part–timers have the best of both worlds and can ease into a business
without sacrificing a steady paycheck and benefits.
·
Home–based businesses are booming. Technology and this “Homecoming”
support nearly 44 percent of US households with some form of home office
activity.
·
Family businesses are an integral part of our economy. 90 percent
of U.S businesses are family owned.
·
Copreneurs are entrepreneurial couples that work together. They
represent the fastest growing business sector.
·
Corporate
Castoffs have extensive on–the–job
experience and are dislocated workers due primarily to corporate downsizing.
·
Corporate
Dropouts leave organizations to pursue a
better way of life spearheaded by the “trust gap” over job security.
·
Social
Entrepreneurs address social problem and apply
entrepreneurial principles to organize, create and manage a social venture to
achieve a desired social change to further broaden social, cultural, and
environmental goals.
·
Retired
Baby Boomers are often experienced business
people and remain active and the level of entrepreneurial activity among people
ages 55 to 64 is higher than that of people between 20 to 34.
7. What is a small
business? What contributions do they
make to our economy? (LO 6)
A
small business is “one which is independently owned and operated and not
dominant in its field of operation.” One of the most common measure of small
business is the number of employees on a firm’s payroll. The White House
Conference on Small Business definition for small business is: “A firm
employing 500 people or fewer.”
The Committee for Economic Development states that a small
business must meet at least two of the four stated criteria:
1. Management
is independent.
2. Capital
is supplied and ownership is held by an individual or a small group.
3. Area
of operation is mainly local; markets need not be local.
4. Size
is small when compared to the biggest unit in the field.
There
are 28 million businesses in the United States and 99.7 percent of
these ventures are considered small businesses. The economic contribution of
small business is significant. Small businesses:
·
Produce 51 percent of the country’s
private GDP
·
Account for 44.5 percent of business
sales
·
Represent 65 percent of new jobs
between 1993 and 2009
·
Create 13 times more patents per
employee than large companies.
8. Describe the small
business failure rate. (LO 7)
Many
small businesses have inexperienced management and lack financial stability.
These businesses suffer a mortality rate significantly higher than that of
larger, more established businesses because of managerial inexperience and the
limited resources available to support the business when it is in need of cash.
9. Outline the causes
of small business failure. Which issues cause most business failures? (LO 7)
·
Poor
operations management – The
manager lacks the ability to operate a small business.
·
Lack of
experience – Many owners start businesses in
industries in which they have no experience.
·
Poor
financial management – Many owners start with too little money and with little or
no understanding of financial spreadsheet applications.
·
Over–investing
in fixed assets – Owners who over–invest in fixed
assets may find themselves with no access to funds for working capital or
expansion.
·
Poor
credit practices – Owners often sell on credit to
meet (or beat) the competition and find that they lack the additional working
capital required or the ability to collect on accounts.
·
Failure to
plan – The lack of a strategic plan to
guide the business in the long run.
·
Unplanned
and uncontrolled growth – Growth
is natural and healthy, but unplanned growth can be fatal to a business.
·
Inappropriate
location – Owners who choose a business
location without proper analysis, investigation, and planning often fail. Too
often, owners seek “cheap” sites and locate themselves straight into failure.
·
Lack of
inventory control – Although inventory is typically
the largest investment for the owner, inventory control is one of the most
neglected duties.
·
Inability
to make the “Entrepreneurial Transition”
– Can we learn to empower others to make decisions and act independently?
10. How does the
typical entrepreneur view the possibility of business failure?
(LO 7)
(LO 7)
Although failure is a possibility, it is not a deterrent to
the entrepreneur. The entrepreneur views failure as the unacceptable results of
actions taken that provide a valuable lesson for the future.
11. How can the small
business owner avoid the common pitfalls that lead to business failure? (LO 8)
A
small business owner can avoid common pitfalls by:
·
Knowing the business in depth
·
Developing a solid business plan
·
Managing financial resources
·
Understanding financial statements
·
Learning to manage people
effectively
12. Why is it important
to study the small business failure rate and the causes of small business
failures? (LO 8)
It is important to know what the major causes of small
business failures are so that the prospective entrepreneur can avoid those
pitfalls. Understanding these causes of failure may enable entrepreneurs to
learn and avoid these mistakes and improve their chance for business success.
13. Explain the typical
entrepreneur’s attitude toward risk. (LO
8)
Risk is inherent to all future actions. Entrepreneurs are
not necessarily high–risk takers, but rather prefer, and are willing to accept
and manage, low–to–moderate risk situations. Some consider entrepreneurs as
“calculated” risk takers.
14. Are you interested
in launching a small business? If so,
when? What kind of business? Describe it.
What can you do to ensure its success?
(LO 8)
This
set of questions may provide an opportunity for dialog with students in your
class. Encourage them to talk about their business concept and insights they
gained from the chapter to improve the opportunity for success.
Chapter Overview
1. Define the role of the entrepreneur in business in the
United States and around the world.
Entrepreneurship is thriving
in the United States, but the current wave of entrepreneurship is not limited
to the United States; many nations across the globe are seeing similar growth
in their small business sectors. A variety of competitive, economic, and
demographic shifts have created a world in which “small is beautiful.”
Capitalist societies depend
on entrepreneurs to provide the drive and risk taking necessary for the system
to supply people with the goods and services they need.
2. Describe the entrepreneurial profile.
Entrepreneurs have some
common characteristics, including a desire for responsibility, a preference for
moderate risk, confidence in their ability to succeed, desire for immediate
feedback, a high energy level, a future orientation, skill at organizing, and a
value of achievement over money. In a phrase, they are tenacious high
achievers.
3-A. Describe the benefits of entrepreneurship.
Driven by these personal
characteristics, entrepreneurs establish and manage small businesses to gain
control over their lives, make a difference in the world, become
self-fulfilled, reap unlimited profits, contribute to society, and do what they
enjoy doing.
3-B. Describe the drawbacks of entrepreneurship.
Entrepreneurs also face
certain disadvantages, including uncertainty of income, the risk of losing
their investments (and more), long hours and hard work, a lower quality of life
until the business gets established, high stress levels, and complete
decision-making responsibility.
4. Explain the forces that are driving the growth of
entrepreneurship.
Several factors are driving
the boom in entrepreneurship, including the portrayal of entrepreneurs as
heroes, better entrepreneurial education, economic and demographic factors, a
shift to a service economy, technological advances, more independent
lifestyles, and increased international opportunities.
5. Explain the cultural diversity of entrepreneurship.
Several groups are leading
the nation’s drive toward entrepreneurship: young people, women, minorities,
immigrants, part-timers, home-based business owners, family business owners,
copreneurs, corporate castoffs, corporate dropouts, social entrepreneurs, and
retired baby boomers.
6. Describe the important role small businesses play in
our nation’s economy.
The small business sector’s
contributions are many. They make up 99.7 percent of all businesses, employ 51
percent of the private sector workforce, have created two-thirds to three-fourths
of the net new jobs in the economy, produce 51 percent of the country’s private
GDP, and account for 47 percent of all business sales.
7. Put failure into proper perspective.
Entrepreneurs recognize that
failure is a natural part of the creative process. Successful entrepreneurs
have the attitude that failures are simply stepping-stones along the path to
success, and they refuse to be paralyzed by a fear of failure.
8. Explain how an entrepreneur can avoid becoming another
business failure statistic.
Entrepreneurs can employ
several general tactics to avoid these pitfalls. They should know their
businesses in depth, prepare a solid business plan, manage financial resources
effectively, understand financial statements, learn to manage people, set their
businesses apart from the competition, and maintain a positive attitude.
Self-Study
Quiz
1) Entrepreneurial activity is essential to a strong economy and a
recent GEM study noted that entrepreneurs are most likely to launch their
businesses between the ages of:
a. 25–44
b.
19–35
c.
30–49
d.
23–59
e.
35–44
(See "The World of the Entrepreneur," page 3.)
2) Economies that were state controlled and centrally planned are now
fertile for growing small businesses. The countries being part of this group
include the following EXCEPT:
a.
Russia
b.
China
c. Canada
d.
Eastern European countries
e.
Vietnam
(See "The World of the Entrepreneur," page 3.)
3) Which of the following is NOT a common profile characteristic of a
typical entrepreneur?
a. Enjoy managing people
b.
More energetic than the average person
c.
High level of optimism and self confidence
d.
Calculated risk taker
e.
Deep sense of responsibility
(See "What is an Entrepreneur," pages 5–9.
4) The benefits of entrepreneurship include the following EXCEPT:
a.
Opportunity to reach your full potential
b. Opportunity to take significant
risk with other's money
c.
Opportunity to make a difference
d.
Opportunity to contribute to society
e.
Opportunity to create your own destiny
(See "The Benefits of Entrepreneurship," pages
9–12.)
5) Which of the following is a commonly experienced drawback to being
an entrepreneur?
a.
Lack of vacation
b.
Lack of creativity and innovation
c.
Lack of contribution to society
d.
Ability to earn a large income
e. Long hours required
(See "The Potential
Drawbacks of Entrepreneurship," pages 12–13.)
6) What factors and forces are encouraging the current trend in
entrepreneurial activity?
a.
Growing number of colleges and students involved with entrepreneurial
studies
b.
Ability to acquire investors
c.
Low entry investment to start a business
d.
Cooperation of government with tax incentives
e.
Availability of various franchises
(See "Behind the Boom: What's Feeding the Entrepreneurial
Fire," pages 14–18.)
7) Home-based businesses are increasing at a significant rate. Which
one of the following is NOT a factor in the home being the first choice
location?
a.
Technology increases flexibility in type of
business
b. Less inventory of product
required
c.
Flexible lifestyle
d.
Minimal start-up and operating costs
e.
Use of Internet for e-businesses
(See "Home-based Businesses"
under "The Cultural Diversity of Entrepreneurship," pg. 22.)
8) Small business creates 60 percent to 80 percent of all new jobs in
the United States. The majority of these businesses are involved in what type
of industry?
a.
Financial
b. Service and Retail Industries
c.
Construction
d.
Manufacturing
e.
Food
(See "The Power of "Small" Business,"
pages 26–27.)
9) Ways to avoid becoming a failure statistic includes the following
EXCEPT:
a.
Understand the company's financial statements
b.
Have a passion
c.
Have adequate startup capital
d.
Create a competitive edge
e. Borrow the total investment
needed
(See "How to Avoid Pitfalls," pages 29–31.)
10) Setting your business apart from the competition can include
______, _____, _____, and ______.
a.
give away samples; low rent location; high
volume traffic; quality
b.
customer service; taking credit cards; low
inventory; speed
c.
low payroll; convenience; uniforms; appointments
d. customer service; convenience;
speed; quality
e.
inventory; increase credit availability; close
store early; lack of focus on customer service
(See "How to Avoid Pitfalls," pages 29–31.)
Chapter Review
MULTIPLE CHOICE
1) One of the most significant economic developments in recent business history relates to the:
A)
growth of blue-chip corporations.
B)
development of Pacific Rim countries.
C) entrepreneurial spirit.
D)
additional employment opportunities offered by government institutions.
2) All of the
following are characteristics of the typical entrepreneur except:
A)
confidence in his/her ability to succeed.
B) value of money over achievement.
C)
desire for immediate feedback.
D)
a future orientation.
3) Entrepreneurs are
characterized by:
A)
skill at organizing.
B)
desire for immediate feedback.
C)
high energy levels.
D) All of the above
4) An entrepreneur is
one who:
A)
is willing to attempt to implement a business concept and then give up if it
does not meet immediate expectations.
B)
understands the process of developing an idea and does not need to understand
what it means to bring that idea to a viable business concept.
C)
knows that the concept they are about to develop will result in a profitable
business.
D) creates a new business concept for
the purpose of achieving profit and growth by assembling the necessary
resources to capitalize on identified opportunities.
5) Entrepreneurs who
repeatedly start businesses and grow to a sustainable size before striking out
again are known as ________ entrepreneurs.
A)
opportunistic
B)
persistent
C) serial
D)
classic
6) Entrepreneurs
typically possess:
A)
the ability to easily access capital.
B)
a set of unique skills that is usually accompanied by advanced degrees in
several areas.
C) a high level of commitment, have a
tolerance for ambiguity, are flexible and tenacious.
D)
specialized technical abilities.
7) In a large
organization, an individual may be stifled and limited by a wide variety of
factors. However, by owning one's own business, the only limits are one's
own creativity, talent, and determination. In this sense, small business
ownership offers the advantage of the:
A) opportunity to reach one's full
potential.
B)
opportunity to reap unlimited profits.
C)
chance to learn from others' mistakes.
D)
ability to accumulate certain wealth.
8) In addition to the
opportunity to create their own destiny and enjoy what they do, entrepreneurs
also benefit from the ability to:
A)
earn tremendous wealth without risk and uncertainty.
B) make a difference in an area
important to them and be recognized for those efforts.
C)
create wealth without providing true value.
D)
exploit the opportunities that the free enterprise system offers.
9) Which of the
following is a benefit of entrepreneurship?
A)
The opportunity to gain control over your own destiny
B)
The opportunity to reach your full potential
C)
The opportunity to do what you enjoy
D) All of the above
10) Potential
drawbacks of entrepreneurship may include:
A) uncertainty of income, risk, long
hours, and high stress.
B)
uncertainty of income, risk, easy hours, and frequent vacations.
C)
uncertainty of income, risk, long hours, and the immediate accumulation of
wealth.
D)
certainty of income, risk, long hours, and high stress.
11) It is estimated
that ________ percent of new businesses fail within two years, while ________
percent fail within four years.
A) 35; 54
B)
51; 64
C)
35; 80
D)
64; 80
12) Within 6 years,
________ percent of new businesses will fail.
A)
35
B)
50
C) 64
D)
75
13) The majority of
new business owners work:
A)
fewer than 40 hours per week.
B) more than 40 hours per week.
C)
more than 70 hours per week.
D)
more than 80 hours per week.
14) Socioeconomic
forces that are driving the positive entrepreneurial trend in the U.S. economy
include:
A)
America's view that entrepreneurs are considered to be "heroes."
B)
entrepreneurial education has increased.
C)
the shift to a service-based economy.
D) All of the above
15) Which of the
following is NOT one of the forces driving the entrepreneurial trend in our
country?
A) Shift away from a service economy
B)
Independent lifestyle
C)
International opportunities
D)
E-commerce and the World Wide Web
16) Which of the
following forces is driving the entrepreneurial trend in our nation?
A)
Increased entrepreneurial educational opportunities
B)
E-commerce and the World Wide Web
C)
Technological advancements and modern business machinery
D) All of the above
17) Entrepreneurs may
find benefit from the Internet due to its potential:
A)
if the organization is willing to invest millions of dollars in this effort.
B)
only if the entrepreneur has a high level of technical abilities.
C) as a relatively low-cost solution to
expand its revenue generating abilities.
D)
to take all pressure off other attributes of the business venture.
18) International
opportunities are:
A)
clearly out of reach for entrepreneurial businesses.
B) now within the reach of
entrepreneurial businesses and may present significant opportunities.
C)
highly limited for entrepreneurs.
D)
risky and do not merit serious consideration by the entrepreneur.
19) Which of the
following statements concerning small businesses and international markets is false?
A)
Although terrorism and global recession have slowed the growth of international
trade somewhat, global opportunities for small businesses have a long-term
positive outlook.
B)
Although the U.S. is an attractive market, approximately 95 percent of the
world's population lives outside its borders.
C) Because exporting is so complex and
requires a company to have so many international experts on staff, exporting is
not feasible for small businesses.
D)
Small companies comprise 97 percent of all businesses engaged in exporting, yet
they account for only 30 percent of the nation's export sales.
20) Small companies
that have expanded successfully into foreign markets tend to rely on all but
which of the following strategies?
A)
Research foreign markets thoroughly.
B) Focus on many countries initially.
C)
Utilize government resources designed to help small companies establish an
international presence.
D)
Forge alliances with local partners.
21) Although there is
a trend toward younger entrepreneurs, most entrepreneurs launch their
businesses between the ages of ________ and ________.
A)
20; 34
B) 25; 44
C)
30; 44
D)
35; 49
22) Which of the
following statements is true of Generation X?
A)
They are the most entrepreneurial generation in history.
B)
They are three times more likely to start businesses than other generations.
C)
They are responsible for approximately 80 percent of all business start-ups.
D) All of the above are true.
23) According to a
study conducted by the Center for Women's Business Research, the most common
reason women give for starting their own businesses is to:
A)
seize a market opportunity.
B)
avoid the limitations of the "glass ceiling."
C) gain control over their schedule.
D)
create the opportunity to leverage their full skill set.
24) The demographic
attributes of successful entrepreneurs are:
A)
limited to specific ages, genders, and ethnic backgrounds.
B)
uncertain and have not been fully studied or analyzed.
C)
are key predictors that determine how long the business will survive.
D) highly diverse relating to age,
gender, and ethnicity.
25) Women owned
businesses dominate ________ and ________ industries.
A)
manufacturing; retail
B) services; retail
C)
services; professional
D)
retail; agricultural
26) Which of the
following statements is not
true regarding the diversity of entrepreneurs?
A)
Minority-owned businesses have come a long way in the past decade, and their
success rate is climbing.
B) Minority-owned businesses now
account for approximately one-third of all businesses in the U.S.
C)
Immigrants with more education and experience than those of the past are coming
to the U.S. and succeeding in entrepreneurial ventures.
D)
The numbers of part-time and home-based entrepreneurs are rising.
27) Women own an
estimated ________ percent of all privately-held U.S. businesses.
A)
18
B)
28
C) 41
D)
51
28) Which of the
following statements about women-owned businesses is false?
A)
The businesses women start tend to be smaller than those men start.
B)
Women own about 28 percent of all privately held businesses in the U.S.
C) The survival rate of women-owned
businesses is much lower than that of U.S. businesses overall.
D)
Most women-owned companies are concentrated in retailing and services.
29)
"Copreneurs" represent one of the fastest growing business sectors
and are defined as:
A)
entrepreneurs that work part-time.
B)
highly successful entrepreneurs with prior company experience and background.
C)
those entrepreneurs that will eventually combine their business with another
venture.
D) entrepreneurial couples that work
together as co-owners of their business.
30) Which of the
following is NOT a characteristic of a successful working relationship between
copreneurs?
A) A clear definition of one partner as
"boss" and the other as "subordinate"
B)
Compatible business and life goals
C)
Complementary business skills
D)
A clear division of roles and authority based on each partner's skills and
abilities
31) Which of the
following is a characteristic of copreneurs?
A)
Mutual respect
B)
Complementary business skills
C)
A clear division of roles and authority
D) All of the above
32) Approximately
________ percent of corporate managers who are "cast off" as
companies downsize become entrepreneurs.
A)
5
B)
15
C) 20
D)
45
33) Melinda and John
Perez, both corporate attorneys in New York City, have grown tired of their
lengthy daily commute, the stress of their jobs, and the overbearing policies
of their employers. They have decided to leave their six-figure jobs and
together open a guide service in Wyoming. Melinda and John are examples
of:
A) corporate castoffs and corporate
dropouts.
B)
corporate dropouts and copreneurs.
C)
corporate castoffs and copreneurs.
D)
copreneurs and serial entrepreneurs.
34) ________ percent
of all U.S. businesses are family owned and managed.
A)
Twenty-five
B)
Fifty
C)
Seventy
D) Ninety
35) Small companies
pay more than ________ percent of total private payroll in the United
States.
A)
33
B) 45
C)
55
D)
99
36) Entrepreneurs
that use their skills to create a profitable business that is designed to
achieve social and environmental goals for the common good are known as:
A) social entrepreneurs.
B)
not-for-profit entrepreneurs.
C)
copreneurs.
D)
serial entrepreneurs.
37) According to the
U.S. Small Business Administration, a common delineation of a small business is
one that employs fewer than:
A)
50 people.
B) 100 people.
C)
250 people.
D)
500 people.
38) What percentage
of companies in the U.S. are considered "small"?
A)
69
B)
79
C)
89
D) 99
39) The nation's
small businesses:
A)
employ more than 51 percent of the nation's private sector workforce.
B)
create more jobs than do big businesses.
C)
account for 47 percent of business sales.
D) All of the above
40) Small companies:
A)
created fewer jobs than big companies in the last decade.
B)
are concentrated in the manufacturing and retail sectors.
C) are the leaders in offering training
and advancement opportunities to workers.
D)
account for approximately 10 percent of the nation's GDP and 25 percent of
business sales.
41) The majority of
small companies are concentrated in the ________ and ________ industries.
A)
manufacturing; retail
B)
manufacturing; service
C) retail; service
D)
wholesale; retail
42) David Birch,
president of the research firm Cognetics, suggests that three percent of small
businesses create approximately ________ percent of new jobs.
A)
50
B)
60
C) 70
D)
80
43) David Birch
describes small companies growing at 20 percent or more per year with at least
$100,000 in annual sales that create 70 percent of the net new jobs in the
economy as:
A)
"assertive."
B)
"antelopes."
C)
"aggressive."
D) "gazelles."
44) In terms of
innovation and research, small businesses:
A)
create four times the innovations per research and development dollar than
medium-sized firms and 24 times the innovations per research and development
dollar than large companies.
B)
contribute 20 percent more innovations per employee than large companies.
C)
have created such important innovations as air conditioning, FM radio, the
laser, the automatic transmission, and the personal computer.
D) All of the above
45) According to the
NFIB Small Business Policy Guide, after 10 years in business, the
percentage of small firms surviving is ________.
A)
32
B)
27
C) 25
D)
22
46) John has come to
you for advice on starting a business venture. He wants to know the best
way to gain the experience he'll need. You suggest that he:
A)
read a small business book.
B) seek experience in the field he
wishes to enter by working for another firm.
C)
determine his weaknesses and return to school for a term or two.
D)
just jump in and learn as he goes.
47) Most startup
companies can expect to need ________ capital than they anticipate.
A)
less
B)
the same
C) more
D)
within 10% of the
48) The primary cause
of small business failures is:
A)
the lack of capital.
B) management mistakes.
C)
poor location.
D)
improper inventory control.
49) Entrepreneurs
tend to be overly ________ and commonly misjudge the ________ requirements of
going into business.
A)
optimistic; personal
B) optimistic; financial
C)
pessimistic; financial
D)
optimistic; professional
50) The only people
who ________ are those who never do anything or never attempt anything new.
A)
succeed
B)
prosper
C)
profit
D) fail
51) One hallmark of
successful entrepreneurs is the ability to:
A)
be willing to gamble.
B) fail intelligently.
C)
overlook past successes.
D)
repeat the same mistake.
52) Which of the following
was not identified as one
of the suggestions for small business success?
A) Develop a business plan as you grow
your business.
B)
Manage your financial resources and understand financial statements.
C)
Know your business in depth.
D)
Learn to manage people successfully.
53) Which of the
following is/are true regarding business plans?
A)
Provide a pathway to success.
B)
Allow entrepreneurs to replace faulty assumptions with facts before making the
decision to go into business.
C)
Create a benchmark against which entrepreneurs can measure actual company
performance.
D) All of the above
54) Most
entrepreneurs believe that ________ is what matters most, but ________ is the
most important financial resource for a small business owner.
A)
cash; profit
B) profit; cash
C)
profit; inventory
D)
inventory; cash
55) Entrepreneurs can
increase their chances for success if they:
A)
know their business in depth and develop a solid business plan.
B)
manage their financial resources and understand financial statements.
C)
learn to manage people and keep in touch with how they react to stress and
balance their health needs with the needs of the business.
D) All of the above
TRUE OR FALSE
56) The 21st century
has seen record numbers of entrepreneurs launching businesses.
Answer: TRUE
57) Current
competitive conditions favor large companies over smaller ones because of their
ability to use their size to achieve efficiency and economies of scale.
Answer: FALSE
58) Increased
entrepreneurial activity is a phenomenon unique to the U.S.
Answer: FALSE
59) One study
conducted by the Global Entrepreneurship Monitor (GEM) reports that nearly one
in five people in the United states is working to start a business. .
Answer: TRUE
60) Serial
entrepreneurs repeatedly start businesses and grow them to a sustainable size
before striking out again.
Answer: TRUE
61) Surveys show that
small business owners believe that, as entrepreneurs, they work harder, earn
more money, and are happier than if they worked for a large company.
Answer: TRUE
62) The opportunity
to reap impressive profits is the primary motivation for most entrepreneurs.
Answer: FALSE
63) To most
entrepreneurs, there is little difference between work and play; the two are
synonymous.
Answer: TRUE
64) The majority of
new business owners work fewer than 40 hours per week.
Answer: FALSE
65) The majority of
new business owners devote more than 40 hours per week to their companies.
Answer: TRUE
66) One advantage of
being your own boss and owning a small business is that work hours are very
flexible and leisure time is abundant.
Answer: FALSE
67) Entrepreneurs are
not willing to give up a steady paycheck.
Answer: FALSE
68) The market need
and the relatively low startup costs make service businesses popular with
entrepreneurs.
Answer: TRUE
69) An important
factor helping to drive the entrepreneurial trend in our economy is the
favorable attitude Americans have towards entrepreneurs.
Answer: TRUE
70) Modern technology
and office machines enable one-person, home-based businesses to look much
bigger than they are to their customers.
Answer: TRUE
71) A recent small
business Internet survey shows small businesses that use the Web to market
their products and services outperform those that don't.
Answer: TRUE
72) Approximately 95
percent of the world's population lives within the borders of the U.S.
Answer: FALSE
73) The number of
colleges and universities offering courses in small business management and
entrepreneurship is declining.
Answer: FALSE
74) There is concern
over the future of entrepreneurship because so few high school and college
students want to start their own companies.
Answer: FALSE
75) Most
entrepreneurs start their business between the ages of 20 and 29.
Answer: FALSE
76) Nearly two-thirds
of entrepreneurs start their businesses between the ages of 25 and 44.
Answer: TRUE
77) Research has
isolated a set of characteristics that can predict who will succeed as an
entrepreneur.
Answer: FALSE
78) Although about 83
percent of women-owned companies are concentrated in the retailing and service
sectors, female entrepreneurs are branching out rapidly into previously
male-dominated industries.
Answer: TRUE
79) Small companies
comprise 97 percent of all businesses engaged in exporting, yet they account
for only 29 percent of the nation's export sales.
Answer: TRUE
80) Members of
Generation X no longer see launching a business as being a risky career path.
Answer: TRUE
81) Women now own 41
percent of all privately-held businesses in the United States.
Answer: TRUE
82) Increasing
numbers of women are discovering that the best way to break the "glass
ceiling" that prevents them from rising to the top of many organizations
is to start their own companies.
Answer: TRUE
83) Diversity may be
considered a characteristic of entrepreneurs, as they don't fit any statistical
norm.
Answer: TRUE
84) A major advantage
of launching a business part-time is the lower risk it offers in case the
business fails.
Answer: TRUE
85) Most home-based
businesses are simple cottage industries such as crafts or sewing.
Answer: FALSE
86) Not all
family-owned businesses are small; in fact, over one-third of the Fortune
500 companies are family businesses.
Answer: TRUE
87) Of the 25 million
businesses in the U.S., about 40 percent are family owned and managed.
Answer: FALSE
88) Ninety-percent of
businesses in the United States are family-owned and managed and account for 62
percent of total U.S. employment.
Answer: TRUE
89) Family-owned and
managed businesses account for 78 percent of all new jobs.
Answer: TRUE
90) Most family
businesses survive to the second and third generations.
Answer: FALSE
91) Successful
"copreneurs" create a division of labor based on expertise.
Answer: TRUE
92) About 20 percent
of downsized corporate managers have become entrepreneurs.
Answer: TRUE
93) Corporate
downsizing has spawned a generation of entrepreneurs known as "corporate
castoffs."
Answer: TRUE
94) Because they have
college degrees, a working knowledge of business, and years of management
experience, both corporate castoffs and corporate dropouts who become
entrepreneurs will most likely increase the small business survival rate.
Answer: TRUE
95) Minority-owned
businesses have come a long way in the past decade, and their success rate is
climbing.
Answer: TRUE
96) David Birch
considers "gazelles" those businesses that grow at 20 percent or more
per year and gross at least $100,000 in annual sales.
Answer: TRUE
97) Small companies
have created two-thirds to three-fourths of the net new jobs in the U.S.
economy.
Answer: TRUE
98) Small businesses
actually create more jobs than do big businesses.
Answer: TRUE
99) Large companies
create significantly more innovations per research and development dollar spent
than small firms.
Answer: FALSE
100) Because of their
size and limited resources, small businesses rarely create innovations that are
important to the U.S. economy.
Answer: FALSE
101) About 25 percent
of new businesses fail within six years.
Answer: FALSE
102) Most entrepreneurs
have invested the time to develop a sound business plan.
Answer: FALSE
103) An often fatal
error made by many small business owners is to open their businesses on a
"shoestring," causing them to be undercapitalized.
Answer: TRUE
104) The primary cause
of small business failure is lack of capital.
Answer: FALSE
105) The faster a
small company grows, the greater its appetite for cash.
Answer: TRUE
106) Expanding a
business usually requires no significant changes in structure or business
practices.
Answer: FALSE
107) About 75 percent
of the businesses in the U.S. can be considered "small" businesses.
Answer: FALSE
108) The lifeblood of
the "brick and mortar" small-business-sales
is influenced heavily by choice of
location.
Answer: TRUE
109) To boost sales,
small businesses, especially start-ups, should grant credit to anyone who wants
to buy their products or services.
Answer: FALSE
110) As an
entrepreneur, you are always working for someone else
- your customers.
Answer: TRUE
111) Establishing
prices that will generate the necessary profits means that business owners must
understand how much it costs to make, market, and deliver their products and
services.
Answer: TRUE
112) Small business
owners are more likely to underprice their products and services rather than
overprice them.
Answer: TRUE
113) If an
entrepreneur has a good enough product or service to sell, a business plan is
not really necessary since the product or service will sell itself.
Answer: FALSE
114) Successful entrepreneurs
recognize that their most valuable asset is their time, and they learn to
manage it effectively to make themselves and their companies more productive;
having passion about their businesses, products, and customers enables them to
stay motivated.
Answer: TRUE
Short Answer
115) What is an
entrepreneur? Give a brief profile of a typical entrepreneur. What
is the primary motivation for the typical entrepreneur?
Answer: An entrepreneur is someone who
creates a new business in the face of risk and uncertainty for the purpose of
achieving profit and growth by identifying opportunities and assembling the
necessary resources to capitalize on them.
While entrepreneurs tend to exhibit no isolated set of
required traits, an entrepreneurial profile contains the following
characteristics:
∙
Desire for responsibility
∙
Preference for moderate risk
∙
Confidence in their ability to succeed
∙
Desire for immediate feedback
∙
High level of energy
∙
Future orientation
∙
Skill at organizing
Entrepreneurs are motivated most by a desire to control
their own destiny, reach their own potential, make a difference, reap unlimited
profits, and enjoy what they are doing.
116) Discuss the
potential benefits and drawbacks of entrepreneurship.
Answer: Entrepreneurs benefit by controlling their own
destiny, reaching their own potential, making a difference, reaping impressive
profits, contributing to society, and enjoying what they are doing.
Potential drawbacks include the uncertainty of income, risk of losing their
entire investment, long hours and hard work, a somewhat lower quality of life
until the business gets started, high levels of stress, and absolute
responsibility.
117) Describe the
factors that are driving the current entrepreneurial trend in the U.S. economy.
Answer:
·
A
more positive attitude toward entrepreneurs
·
Higher
levels and greater availability of entrepreneurial education
·
Demographic
and economic factors, such as younger people starting businesses and greater opportunities
for wealth
·
Shift
to a service economy, which opens up opportunities for small business owners
·
Technological
advancements make it easier for small businesses to compete on a more level
playing field with larger companies
·
Independent
lifestyle, allowing people more freedom to make choices about what they want to
do.
·
E-commerce
and the World Wide Web provide an additional opportunity for a level playing field
with larger companies
·
International
opportunities are opening more doors than ever before for entrepreneurs
118) Discuss the role
that the following groups are playing in leading the ongoing surge in
entrepreneurial activity:
Answer:
Women often face
discrimination in the workplace. Entrepreneurship offers women opportunities
for economic growth.
Minorities, like women, also
face discrimination in the workplace and can benefit through entrepreneurship.
Immigrant entrepreneurs arrive
with more education and experience. Their dedication and desire to succeed
enable them to achieve their entrepreneurial dreams.
Part-timers have the best of
both worlds and can ease into a business without sacrificing a steady paycheck
and benefits.
Home-based businesses are booming.
Technology and this "homecoming" support nearly 44 percent of U.S.
households with some form of home office activity.
Family businesses are an integral part
of our economy; 90 percent of all the businesses in the U.S. are family owned.
Copreneurs are entrepreneurial
couples who work together. They represent the fastest growing business sectors.
Corporate castoffs have extensive
on-the-job experience and are dislocated workers due to corporate downsizing.
Corporate dropouts leave organizations
to pursue a better way of life spearheaded by the "trust gap" over
job security.
119) Discuss the
impact of small businesses on the U.S. economy, including sales, GDP, job
creation, and innovation.
Answer: The resurgence of the entrepreneurial
spirit is the most significant economic development in recent business
history. Small businesses have introduced innovative products and
services, pushed back technological frontiers, created new jobs, opened foreign
markets, and in the process, sparked the U.S. economy into regaining its
competitive advantage in the world. Approximately 99 percent of all
businesses in the U.S. are small businesses. They employ 51 percent of
the nation's private sector workforce, created 66-75 percent of new jobs in the
U.S. since the early 1990s, produce 51 percent of the country's private GDP,
and account for 47 percent of business sales.
120) The following
lists the ten deadly mistakes of entrepreneurship.
1. Management mistakes
2. Lack of experience
3. Poor financial control
4. Weak marketing efforts
5. Failure to develop a strategic plan
6. Uncontrolled growth
7. Poor location
8. Improper inventory control
9. Incorrect pricing
10. Inability to make the entrepreneurial transition
Select one of these deadly mistakes,
describe what it may look like for the entrepreneur, and give an example.
Answer:
1. Management mistakes- Primary cause of business failure; may
include lack of knowledge, leadership ability, etc.
2.
Lack of experience-
In the field they
want to enter (technical ability).
3.
Poor financial control-
Undercapitalization;
lax customer credit policies; lack of understanding of financial aspects; lack
of proper cash management techniques.
4.
Weak marketing efforts-
Building a strong
customer base requires a sustained creative marketing effort. Keeping
them coming back requires that you provide them with value, quality,
convenience, service, and fun.
5.
Failure to develop a strategic plan- Failure
to plan, however, usually results in failure to survive. Without a clearly
defined strategy, a business has no sustainable basis for creating and
maintaining a competitive edge in the marketplace. Building a strategic plan
forces an entrepreneur to assess realistically a proposed business's
potential.
6.
Uncontrolled growth-
Expansion usually
requires major changes in organizational structure, business practices such as
inventory and financial control procedures, personnel assignments, and other
areas. However, the most important change occurs in managerial expertise.
7.
Poor location -The location question
is much too critical to leave to chance. Especially for retailers, the
lifeblood of the business-sales-is influenced heavily by choice of location.
8.
Improper inventory control- Insufficient inventory levels may lead
to dissatisfied customers; too much inventory leads to increased storage and
handling costs. Entrepreneurs must ensure that they not only have the
correct amount of inventory, but also the correct items in inventory.
9.
Incorrect pricing- Establishing prices
that will generate the necessary profits means that business owners must
understand how much it costs to make, market, and deliver their products and
services. They must ensure that they are not underpricing their products
and services.
10.
Inability to make the entrepreneurial transition -After the start-up, growth usually
requires a radically different style of management, one that requires
delegation of authority.
121) Describe the
small business failure rate. What are the primary causes of business
failures, and what steps can an entrepreneur take to avoid becoming a business
failure statistic?
Answer: Because of their limited
resources, inexperienced management, and lack of financial stability, small
businesses suffer a mortality rate significantly higher than that of larger,
established businesses. Some steps to take to avoid failure include: achieving
management competence, gaining experience, achieving financial control,
developing a strategic plan, controlling growth, seeking out a good location,
controlling inventory, knowing your business in depth, understanding financial
statements, developing a solid business plan, learning to manage people
effectively, and keeping in tune with yourself.
4 comments:
Thanks for a wonderful job you did here in getting this study guide to us. I just want to note that the answer for number nine, the Self-Study Quiz, is D "Create a competitive edge." according to its publishers, http://wps.prenhall.com/bp_scarborough_essbm_6/138/35450/9075212.cw/index.html.
Do you have the rest of the chapters published elsewhere? Thanks!
Good Stuff
posting such an informative post. Great work.Hey I just want to appreciate your ability to work. You have set an example for us by
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