Chapter 1 - Study Guide/Review

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)
      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)
      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:

FibroidsFighter said...

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!

Unknown said...

Good Stuff

Unknown said...

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Unknown said...

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