TEST BANK for Entrepreneurship, Canadian Edition 1st Edition by William Bygrave, Andrew Zacharakis a by StudyGuide

Test bank for Entrepreneurship, 1stCanadian Edition by Bygrave, Zacharakis, and Wise

Chapter 1: The Power of Entrepreneurship True/False Statements 1. In general, established businesses with less than 500 employees are considered SMEs or “small and medium-sized enterprises.” Answer: True Learning Objective: 1.1 Describe entrepreneurship and small business in Canada Section Reference: Entrepreneurship and Small Business in Canada

2. A majority of small business owners feel their companies have increased their overall standard of living. Answer: False Learning Objective: 1.1 Describe entrepreneurship and small business in Canada Section Reference: Entrepreneurship and Small Business in Canada

3. In 2014, the two sectors dominating the S&P/TSX 60 Index Fund were the energy and financial sectors. Answer: True Learning Objective: 1.1 Describe entrepreneurship and small business in Canada Section Reference: Entrepreneurship and Small Business in Canada

4. Venture Capital is a source of growth funding exclusively for technology companies with the potential for rapid, scalable growth. Answer: False Learning Objective: 1.1 Describe entrepreneurship and small business in Canada Section Reference: Entrepreneurship and Small Business in Canada

5. Historically, annual returns for venture capitalists have averaged 143% over the past several decades. Answer: False Learning Objective: 1.1 Describe entrepreneurship and small business in Canada Section Reference: Entrepreneurship and Small Business in Canada

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

6. The boom and bust cycle of the dot-com era is similar to other periods of commercial innovation Answer: True Learning Objective: 1.1 Describe entrepreneurship and small business in Canada Section Reference: Entrepreneurship and Small Business in Canada 7. Yahoo! Inc.’s IPO set the all-time record, in terms of capital raised, for Silicon Valley companies. Answer: False Learning Objective: 1.1 Describe entrepreneurship and small business in Canada Section Reference: Entrepreneurship and Small Business in Canada

8. Entrepreneurship did not grow very much after the Great Depression, until it began increasing in the 1970’s. Answer: True Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

9. Baby boomers are not as concerned about job security as were their parents. Answer: True Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

10. The Fortune 500 employed 15 percent of the workforce in 2005. Answer: False Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

11. There was a burst of venture capital backed startups in the last half of the 1960s. Answer: True Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

12. It is estimated that angel investors invest between $500 million and $1-billion annually in Canada’s growth-oriented companies Answer: True

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

13. The Canadian Business Youth Foundation has invested in more than 10,000 young Canadian entrepreneurs.(False) Answer: Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

14. Virtual companies are so called because they outsource much of their work. Answer: True Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

15. In 2005, North American incubators assisted more than 350,000 startup companies Answer: False Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

16. The professionalization of the entrepreneurial process, which has developed over the last 20 years, has almost eliminated the need for young entrepreneurs to write business plans themselves. Answer: False Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution 17. Five percent of American adults report they “invested” in someone else’s venture in the last three years. Answer: True Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

18. Churning is a main component of a healthy economy. Answer: True Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

19. The Global Entrepreneurship Monitor (GEM) is an organization created to gather information about the most successful start-ups for potential investors Answer: False Learning Objective: 1.3 Describe what the Global Entrepreneurship Monitor (GEM) is and outline the principal ﬁndings from GEM Section Reference: Global Entrepreneurship Monitor (GEM)

20. Baby business managers are owners-managers who are actively trying to start a new business but who have not yet done so. Answer: False Learning Objective: 1.3 Describe what the Global Entrepreneurship Monitor (GEM) is and outline the principal ﬁndings from GEM Section Reference: Global Entrepreneurship Monitor (GEM)

21. The Total Entrepreneurial Activity (TEA) index tracks the percent of the adult population that is trying to start or has started an infant business because all other options for work are either absent or unsatisfactory. Answer: False Learning Objective: 1.3 Describe what the Global Entrepreneurship Monitor (GEM) is and outline the principal ﬁndings from GEM Section Reference: Global Entrepreneurship Monitor (GEM)

22. Japan is among the leading countries, in terms of entrepreneurial activity. Answer: False Learning Objective: 1.4 Compare the Anglo-Saxon economic system and the social model Section Reference: Twenty-First-Century Economies: AngloSaxon or Social Models?

23. Thirty year old people fall into the most entrepreneurially active age demographic. Answer: True Learning Objective: 1.4 Compare the Anglo-Saxon economic system and the social model Section Reference: Twenty-First-Century Economies: AngloSaxon or Social Models?

24. In general, the number of female entrepreneurs is 2/3rds the number of male entrepreneurs. Answer: True Learning Objective: 1.4 Compare the Anglo-Saxon economic system and the social model Section Reference: Twenty-First-Century Economies: AngloSaxon or Social Models?

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

25. A High-Expectation Nascent Entrepreneur is an individual who expects to employ at least 50 employees within four years’ time, through his or her new firm. Answer: False Learning Objective: 1.4 Compare the Anglo-Saxon economic system and the social model Section Reference: Twenty-First-Century Economies: AngloSaxon or Social Models? 26. Approximately 66% of all businesses start in the owner’s home, but fail to grow primarily because the entrepreneur hires too many full-time workers. Answer: False Learning Objective: 1.4 Compare the Anglo-Saxon economic system and the social model Section Reference: Twenty-First-Century Economies: AngloSaxon or Social Models?

27. The former dean of the Nomura School of Advanced Management in Japan, Jiro Tokuyama, once said that the venture capital firms in Japan comprise one of the chief advantages for Japanese, technology start-ups. Answer: False Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

28. General Motors became the first company to earn over one billion dollars in a single year on December 31, 1985. Answer: False Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution 29. According to ACNielsen International Research, the most common reason for a person’s desire to start a business is to increase his or her income. Answer: True Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

30. Walmart and Home Depot, collectively, employ 1.8% of the US workforce. Answer: False Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

31. When surveyed, 46% of Canadian post-secondary students surveyed said they see themselves starting a business after graduation. Answer: True Learning Objective: 1.1 Describe entrepreneurship and small business in Canada Section Reference: Entrepreneurship and Small Business in Canada

32. The Toronto Stock Exchange (TSX) was created in 1908. Answer: False Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution 33. The stricter a country’s employment security, the lower its early-stage HEA rate. Answer: True Learning Objective: 1.4 Compare the Anglo-Saxon economic system and the social model Section Reference: Twenty-First-Century Economies: AngloSaxon or Social Models?

34. According to a study, 70% of the employment growth in the U.S. comes from only 10% of all firms. Answer: False Learning Objective: 1.1 Describe entrepreneurship and small business in Canada Section Reference: Entrepreneurship and Small Business in Canada

Multiple Choice 35. What was the world’s largest corporation in 2012? a) Southwest Airlines b) General Motors c) Walmart d) Google e) Apple Answer: c Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

36. What percentage of new business ventures in Canada typically survive their first 5 years of operation? a) 100 b) 81 c) 65 d) 36 e) 25 Answer: d Learning Objective: 1.1 Describe entrepreneurship and small business in Canada Section Reference: Entrepreneurship and Small Business in Canada

37. What percentage of Canadian post-secondary students surveyed said they see themselves starting a business after graduation? a) 6% b) 46% c) 76% d) 36% e) 26% Answer: b Learning Objective: 1.1 Describe entrepreneurship and small business in Canada Section Reference: Entrepreneurship and Small Business in Canada

38. According to the survey cited in this chapter, which of the following was not one of the most important innovations since 1980? a) The Internet b) Cell phones c) Personal computers d) Digital imagery e) E-mail Answer: d Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

39. Which software application was the predecessor to the Lotus 1-2-3 spreadsheet? a) Microsoft Excel b) MasterFile c) Financial Works d) FileMaker e) VisiCalc Answer: e

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Learning Objective: Section Reference: 40. Which of the trends below converged to spark the Internet revolution of the 1990’s? a) Personal Computers, Cell Phones, and Laser Printing b) Digital Technology, Information Technology, and Entrepreneurship c) Personal Computers, Modems, and Floppy Disks d) Entrepreneurship, Venture Capital, and Computer Software e) Venture Capital, Biotechnology, and Telecommunications Answer: b Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution 41. By 2011, what percentage of the world’s population had become Internet users? a) 2 b) 16 c) 33 d) 60 e) 57 Answer: c Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

42. Which of the following industries was the prime example of venture capital fueling the pace of commercial innovation? a) Semi-Conductors b) Mini-Computers c) Biotechnology d) Personal Computers e) All of the Above Answer: e Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

43. How much venture capital money (in billions) was invested in Ontario in 2013? a) $589 b) $676 c) $831 d) $245 e) $478

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Answer: b Learning Objective: Section Reference:

44. Which province had the highest level of VC investment? a) Alberta b) British Columbia c) Nova Scotia d) Ontario e) Québec Answer: d Learning Objective: 1.1 Describe entrepreneurship and small business in Canada Section Reference: Entrepreneurship and Small Business in Canada 45. What was the increase in Benchmark Capital’s investment of $5 million in eBay? a) 30-fold in two years b) 300-fold in two years c) 700-fold in two years d) 1500-fold in two years e) 4000-fold in two years Answer: d Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

46. The stock market collapse that led to the Great Depression occurred in what year? a) 1928 b) 1929 c) 1930 d) 1931 e) 1932 Answer: b

47. Who reasoned that capitalism would be inevitably destroyed by elites? a) Whyte b) Servan-Schreiber c) Schumpeter d) Lenin e) Marx

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Answer: c Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

48. According to the GEM model, how many sets of activities create the basis for national economic growth? a) 2 b) 3 c) 4 d) 5 e) 6 Answer: a Learning Objective: 1.3 Describe what the Global Entrepreneurship Monitor (GEM) is and outline the principal ﬁndings from GEM Section Reference: Global Entrepreneurship Monitor (GEM)

49. Which term is used to describe business churning? a) Artificial evolution b) Evolving transition c) Making the butter d) Business expansion e) Creative destruction Answer: e Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution 50. “Baby boomers” is the term used for Americans and Canadians born in: a) Early 1920’s b) 1920’s c) Early 1930’s d) Late 1930’s – 1940’s e) Mid 1940’s – early 1960’s Answer: e Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution 51. What percent of the American workforce did Fortune 500 companies employ in 1960’s? a) 10 b) 15 c) 20

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

d) 25 e) 30 Answer: c Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution 52. What percent of the executives downsized in the 1980’s and 1990’s started their own businesses? a) 10 b) 15 c) 20 d) 25 e) 30 Answer: c Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

53. How much new VC money in the United States was committed in 1975? a) $10 million b) $45 million c) $145 million d) $430 million e) $930 million Answer: a Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

54. What does SBIR stand for? a) Savings, Brokerage, and Investment Reserve b) Small Business Innovation Research c) Space Based Infra Red d) Speaker Boundary Interference Response e) Small Business Interest Rate Answer: b Learning Objective: 1.1 Describe entrepreneurship and small business in Canada Section Reference: Entrepreneurship and Small Business in Canada

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

55. The Canadian Business Youth Foundation (CYBF) has created how many Canadian jobs since it was established in 1996? a) 5,000 b) 12,000 c) 32,000 d) 18,000 e) 23,0000 Answer: e Learning Objective: 1.1 Describe entrepreneurship and small business in Canada Section Reference: Entrepreneurship and Small Business in Canada

56. What are the names of two Canadian federal government incentive programs offered to businesses conducting research and innovative projects? a) Scientific Research and Experimental Development b) Industrial Research Assistance Program c) Canadian Technology Research Incentive Program d) Bayh-Dole Program e) Technology and Innovation Canada Answer: a and b Learning Objective: 1.1 Describe entrepreneurship and small business in Canada Section Reference: Entrepreneurship and Small Business in Canada

57. How many startup incubators are in Canada? a) 240 b) 95 c) 550 d) 130 e) 17 Answer: d Learning Objective: 1.1 Describe entrepreneurship and small business in Canada Section Reference: Entrepreneurship and Small Business in Canada

58. What percent of American, four-year colleges have courses in entrepreneurship? a) 13 b) 43 c) 55 d) 60 e) 78 Answer: d Learning Objective: 1.4 Compare the Anglo-Saxon economic system and the social model

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Section Reference: Twenty-First-Century Economies: AngloSaxon or Social Models?

59. How much do informal investors contribute to startup businesses annually? a) $12 billion b) $50 billion c) $67 billion d) $86 billion e) $100 billion Answer: e Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution 60. At the turn of the 20th century, about 50% of US workers worked in either the agricultural or the domestic service spheres. Approximately 100 years later that percentage had decreased to which of the following figures? a) 4% b) 10% c) 16% d) 22% e) 35% Answer: a Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

61. Which of the following entrepreneurs was one of the pioneers of the biotechnology industry? a) Robert Noyce b) Arthur Blank c) Tim Nerners-Lee d) George Gendron e) Robert Swanson Answer: e Learning Objective: Section Reference:

62. Jim Balsillie, a Canadian entrepreneur, was the cofounder of what company? a) Microsoft Corp. b) Blackberry Inc. c) West Jet d) Netscape e) Lululemon Athletica

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Answer: b Learning Objective: 1.1 Describe entrepreneurship and small business in Canada Section Reference: Entrepreneurship and Small Business in Canada

63. In general, the most important source of capital for a new entrepreneurial venture is which of the following? a) Informal investors b) Venture Capital c) Banks d) Profits from the venture e) Incubators Answer: a Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

64. What is the second largest Canadian airline? a) Air Canada b) Delta c) Continental d) West Jet e) Pan-Am Answer: d Learning Objective: 1.1 Describe entrepreneurship and small business in Canada Section Reference: Entrepreneurship and Small Business in Canada

65. The highest average TEA rates are found in? a) Middle East & North Africa b) European Union c) United States d) Asia Pacific/South Asia e) sub-Saharan Africa and Latin America/Caribbean Answer: e Learning Objective: 1.4 Compare the Anglo-Saxon economic system and the social model Section Reference: Twenty-First-Century Economies: AngloSaxon or Social Models? 66. High-growth entrepreneurs, also known as “gazelles,” receive heightened attention from policymakers because: a) their firms have an average annual growth rate of 20%. b) they contribute a small number of jobs created by new firms.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise c) their firms account for approximately 10% of the world’s GDP. d) their firms contribute a disproportionate share of all new jobs created by new firms. e) they are mostly located in the European Union and the Middle East & North Africa. Answer: d Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

67. All of the following have Anglo-Saxon economic systems and high HEA rates except: a) Germany b) Canada c) Ireland d) Australia e) United States Answer: a Learning Objective: Section Reference: 68. Edited by Ian Portsmouth, what is Canada’s most read publication for entrepreneurs and small businesses? a) Growth Magazine b) Businessweek c) The Gazette d) Profit Magazine e) Canada Today Answer: d Learning Objective: Section Reference:

69. Small businesses represents what percentage of total R&D expenditure in Canada? a) 3% b) 11% c) 31% d) 66% e) 91% Answer: e Learning Objective: 1.1 Describe entrepreneurship and small business in Canada Section Reference: Entrepreneurship and Small Business in Canada

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Open ended 70. Why are small businesses an important consideration for Canadian policy makers? • • •

There are approximately 1.1 million employer owned Canadian businesses, of which approximately 98% are small businesses. They employ approximately 5 million individuals in Canada, or 48% of the total labour force in the private sector. At any one time, approximately 15% of Canadians in the labour force deem themselves “a nascent entrepreneur”

Learning Objective: 1.1 Describe entrepreneurship and small business in Canada Section Reference: Entrepreneurship and Small Business in Canada 71. Explain, in your own words, Schumpeter’s view of entrepreneurship’s role in an economy and society. • • •

Schumpeter argued that the innovation and technological change of a nation come from entrepreneurs. He believed that entrepreneurs are the ones who facilitate the functionality of an economy. He claimed that by destroying old businesses and creating new ones, entrepreneurs keep the economy healthy.

Learning Objective: 1.1 Describe entrepreneurship and small business in Canada Section Reference: Entrepreneurship and Small Business in Canada 72. Describe the World Economic Forum’s (WEF) 3 phases of economic development. • •

•

The factor-driven phase is dominated by subsistence agriculture and extraction businesses, with a heavy reliance on (unskilled) labor and natural resources. The focus of development efforts tends toward building a sufficient foundation of basic requirements. The efficiency-driven phase: an economy has become more competitive with further development accompanied by industrialization and an increased reliance on economies of scale, with capital-intensive large organizations more dominant. Generally accompanied by improved (and improving) basic requirements, and attention is then directed toward developing the efficiency enhancers. In the innovation-driven phase, businesses are more knowledge-intensive, and the service sector expands.

Learning Objective: 1.3 Describe what the Global Entrepreneurship Monitor (GEM) is and outline the principal ﬁndings from GEM Section Reference: Global Entrepreneurship Monitor (GEM)

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise 73. What was the most critical step in Federal Express’ rapid growth? • •

In the mid-1970s, Federal Express had taken a leading role in lobbying for air cargo deregulation that finally passed in 1977. These changes allowed Federal Express to use larger aircraft and spurred the company's rapid growth. Today FedEx has the world's largest all-cargo air fleet, including McDonnellDouglass MD-11s and Airbus A-300s and A-310s.

Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

74. What are the three primary reasons Industry Canada outlined for why Canadians, in recent years, are becoming more entrepreneurial? • • •

Recent economic downturns, though, have been accompanied by downsizing and people want to regain control over their pay cheques by starting their own business. People — especially younger people — increasingly prefer an independent lifestyle. Entrepreneurs have become influential. Canadian entrepreneurs are celebrated in their communities.

Learning Objective: 1.1 Describe entrepreneurship and small business in Canada Section Reference: Entrepreneurship and Small Business in Canada

75. Why is the Internet one of the most revolutionary developments in the history of commercial innovation? • • •

The internet provided businesses with millions of flexible space in which to conduct commerce. Small businesses gained a platform that allowed them to compete with multi-billion corporations. The internet spurred the proliferation of information. Any entrepreneur now has access to virtually any information he or she needs.

Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution 76. Why was the Netscape’s IPO so popular and successful? • •

Netscape Navigator was an instant hit with users, gaining 75 percent of the browser market within four months of its introduction. Marc Andreessen, the creator of Netscape, was well known among investors by the time he decided to take his company public.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise •

Venture capitalists saw huge potential in Netscape and believed that the company could become a legitimate rival to Microsoft.

Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

77. How did the advent of the PC churn up the entire computer industry? • •

It wiped out the typewriter industry. Changed the way office work is organized – secretaries had to learn computer skills

Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

78. Which factors led to American entrepreneurial revolution? • • •

In the 1960s a generation of Americans who had no first-hand memory of the Great Depression and did not believe an economy should be built on corporations only came of age. In the 1970s, Washington, after bailing out Penn Central, Lockheed, and Chrysler, started to pay more attention to small businesses Congress took steps in 1978 to stimulate the venture capital industry, which, in turn, led to more investments in start-ups

Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution Section Reference: Causes of the Entrepreneurial Revolution

79. How has the government incentivized the commercial development of intellectual property in Canada? The Canadian federal government offers two incentive programs to businesses conducting research and innovative projects: the Scientific Research and Experimental Development (SR&ED) and the Industrial Research Assistance Program (IRAP).

80. Who, in your opinion, would benefit from the creative destruction process and why? • • •

Economy – stays healthy and primed for growth. The customer – new ventures create better products. The companies themselves – the threat of creative destruction leads companies to constantly improve their operating and production processes and leads to faster learning curves.

Learning Objective: 1.2 Outline the causes of the entrepreneurial revolution

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Section Reference: Causes of the Entrepreneurial Revolution

81. Describe the three main measures of entrepreneurial activity. • •

•

TEA (total entrepreneurial activity) is the percentage of the adult population that is either nascent entrepreneurs or baby businesses owner-managers or both. It measures the overall entrepreneurial activity of a nation. TEA (opportunity) is the percentage of the adult population that is trying to start or has started a baby business to exploit a perceived opportunity. They are classified as improvement-driven opportunity motivated if they additionally seek to improve their income or independence through entrepreneurship. TEA (necessity) is the percentage of the adult population that is trying to start or has started a baby business because all other options for work are either absent or unsatisfactory.

Learning Objective: 1.3 Describe what the Global Entrepreneurship Monitor (GEM) is and outline the principal ﬁndings from GEM Section Reference: Global Entrepreneurship Monitor (GEM)

82. Explain what the Global Entrepreneurship Monitor (GEM) is. • • •

It was conceived in 1997 to study the economic impact and the determinants of nationallevel entrepreneurial activity. It is the largest coordinated research effort ever undertaken to study population-level entrepreneurial activity. GEM has become the world’s most influential and authoritative source of empirical data and expertise on the entrepreneurial potential of nations.

Learning Objective: 1.3 Describe what the Global Entrepreneurship Monitor (GEM) is and outline the principal ﬁndings from GEM Section Reference: Global Entrepreneurship Monitor (GEM)

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Chapter 2: The Entrepreneurial Process True/False Statements 1. One definition of an entrepreneur is someone who shifts economic resources out of an area of higher productivity into an area of lower productivity. Answer: False Learning Objective: 2.1 Identify the critical factors for starting a new venture. Section Reference: Critical Factors for Starting a New Enterprise

2. Entrepreneurship is a process that can be learned. Answer: True Learning Objective: 2.1 Identify the critical factors for starting a new venture. Section Reference: Critical Factors for Starting a New Enterprise

3. Entrepreneurs possess highly specialized behavioral attributes that are distinct from those of non-entrepreneurs. Answer: False Learning Objective: 2.1 Identify the critical factors for starting a new venture. Section Reference: Critical Factors for Starting a New Enterprise

4. Entrepreneurs have a higher internal locus of control than non-entrepreneurs. Answer: True Learning Objective: 2.1 Identify the critical factors for starting a new venture. Section Reference: Critical Factors for Starting a New Enterprise

5. Canada has twice the percentage of people self-employed compared to the United States. Answer: True Learning Objective: 2.1 Identify the critical factors for starting a new venture. Section Reference: Critical Factors for Starting a New Enterprise

6. Access to entrepreneurial role models can be a significant factor in determining whether or not someone will become an entrepreneur.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Answer: True Learning Objective: 2.1 Identify the critical factors for starting a new venture. Section Reference: Critical Factors for Starting a New Enterprise

7. The majority of the businesses started each year will eventually go bankrupt. Answer: False Learning Objective: 2.1 Identify the critical factors for starting a new venture. Section Reference: Critical Factors for Starting a New Enterprise

8. Raising venture capital is a critical step for most successful ventures. Answer: False Learning Objective: 2.1 Identify the critical factors for starting a new venture. Section Reference: Critical Factors for Starting a New Enterprise

9. Whether a company is successful is largely a matter of luck. Answer: False Learning Objective: 2.2 Evaluate the opportunity for a new business. Section Reference: Evaluating Opportunities for New Businesses

10. To be successful, a company must possess a unique and novel idea. Answer: False Learning Objective: 2.2 Evaluate the opportunity for a new business. Section Reference: Evaluating Opportunities for New Businesses

11. Financial literacy and management is not an important factor contributing to new venture success. Answer: False Learning Objective: 2.3 Identify the resources needed for a new business. Section Reference: Determining Resource Needs and Acquiring Resources 12. Secrecy about one’s idea is more likely to hurt the development of the business than help it. Answer: True

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Learning Objective: 2.2 Evaluate the opportunity for a new business. Section Reference: Evaluating Opportunities for New Businesses

13. Only the most skilled entrepreneurs should attempt to build a business around social or cultural fads. Answer: True Learning Objective: 2.2 Evaluate the opportunity for a new business. Section Reference: Evaluating Opportunities for New Businesses

14. Entrepreneurial companies should consider outsourcing responsibilities and functions that are not critical to the company’s success. Answer: True Learning Objective: 2.3 Identify the resources needed for a new business. Section Reference: Determining Resource Needs and Acquiring Resources

15. Marginal cost is a term that refers to expenses that are difficult to justify in an entrepreneurial environment. Answer: False Learning Objective: 2.3 Identify the resources needed for a new business. Section Reference: Determining Resource Needs and Acquiring Resources

16. Entrepreneurs should always seek to own the resources that they utilize while building a company. Answer: False Learning Objective: 2.3 Identify the resources needed for a new business. Section Reference: Determining Resource Needs and Acquiring Resources

17. The two types of startup capital are debt and equity. Answer: True Learning Objective: 2.4 Evaluate the proﬁt potential of a new business. Section Reference: Proﬁt Potential

18. The vast majority of entrepreneurs start their companies with their own personal savings.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Answer: True Learning Objective: 2.3 Identify the resources needed for a new business. Section Reference: Determining Resource Needs and Acquiring Resources

19. Pivoting refers to startups making the required course corrections during the development process to dramatically improve their odds for success. Answer: True Learning Objective: 2.2 Evaluate the opportunity for a new business. Section Reference: Evaluating Opportunities for New Businesses

20 A majority of companies require at least $100,000 to begin operations. Answer: False Learning Objective: 2.4 Evaluate the proﬁt potential of a new business. Section Reference: Proﬁt Potential

21. The cost to finance a startup ranges between $25,000 and $30,000 depending on the size of the startup. Answer: True Learning Objective: 2.4 Evaluate the proﬁt potential of a new business. Section Reference: Proﬁt Potential

22. It is possible for a company to have a positive cash flow and be unprofitable. Answer: True Learning Objective: 2.4 Evaluate the proﬁt potential of a new business. Section Reference: Proﬁt Potential

23. Startups that tend to focus on multiple markets are the most successful. Answer: False Learning Objective: 2.5 Identify the factors for a successful new business. Section Reference: Ingredients for a Successful New Business

24. Having multiple layers of management is the best way to ensure that a startup is flexible and quick to react to changes.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Answer: False Learning Objective: 2.5 Identify the factors for a successful new business. Section Reference: Ingredients for a Successful New Business

25. If companies A and B are in the same industry, and A has $200,000 in sales per employee while B has $325,000 in sales per employee, then B is the more productive company. Answer: True Learning Objective: 2.4 Evaluate the proﬁt potential of a new business. Section Reference: Proﬁt Potential

26. A serial entrepreneur is someone who starts multiple companies, one right after the other. Answer: True Learning Objective: 2.1 Identify the critical factors for starting a new venture. Section Reference: Critical Factors for Starting a New Enterprise

27. Generally speaking, entrepreneurs have a stronger need to be in control of their own fate. Answer: True Learning Objective: 2.1 Identify the critical factors for starting a new venture. Section Reference: Critical Factors for Starting a New Enterprise

28. Entrepreneurship reduces the overall health of an economy by destroying jobs in traditional industries. Answer: False Learning Objective: 2.1 Identify the critical factors for starting a new venture. Section Reference: Critical Factors for Starting a New Enterprise

29. For fledgling entrepreneurs, there are few free resources available for input and guidance. Answer: False Learning Objective: 2.2 Evaluate the opportunity for a new business. Section Reference: Evaluating Opportunities for New Businesses

30. For a company that goes public, the founding entrepreneur typically owns a majority of the shares of the corporation.

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Answer: False Learning Objective: 2.4 Evaluate the proﬁt potential of a new business. Section Reference: Proﬁt Potential

31. Anyone who wishes to pursue an entrepreneurial venture would be wise to take at least three of the widely distributed entrepreneur-attribute tests beforehand. Answer: False Learning Objective: 2.5 Identify the factors for a successful new business. Section Reference: Ingredients for a Successful New Business

32. The most famous geographic region for high-tech entrepreneurship is in California and often referred to as, “Silicon Valley.” Answer: True Learning Objective: 2.5 Identify the factors for a successful new business. Section Reference: Ingredients for a Successful New Business

33. Low-tech businesses, such as convenience stores, are not typically considered part of entrepreneurship because of their lack of innovation and intellectual property. Answer: False Learning Objective: 2.5 Identify the factors for a successful new business. Section Reference: Ingredients for a Successful New Business

34. The most costly expense that seed-stage biotechnology companies face in their early years is the initial expenditure on manufacturing equipment. Answer: False Learning Objective: 2.4 Evaluate the proﬁt potential of a new business. Section Reference: Proﬁt Potential 35. The majority of entrepreneurs’ business ideas come from area outside of their present line of employment or experience. Answer: False Learning Objective: 2.2 Evaluate the opportunity for a new business. Section Reference: Evaluating Opportunities for New Businesses

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36. One difference between having an idea vs. an opportunity is the ability to list potential customers by name. Answer: True Learning Objective: 2.5 Identify the factors for a successful new business. Section Reference: Ingredients for a Successful New Business 37. Two ingredients that determine an entrepreneur’s return on investment are (1) the amount invested and (2) the annual amount earned on that investment. Answer: True Learning Objective: 2.4 Evaluate the proﬁt potential of a new business. Section Reference: Proﬁt Potential

Multiple Choice 38. Which of the following could be a “trigger” for the entrepreneurial process? a) Being fired by an employer b) Deep frustration with one’s career c) A conversation with a friend or peer d) An unexpected financial windfall e) All of the above Answer: e Learning Objective: 2.1 Identify the critical factors for starting a new venture. Section Reference: Critical Factors for Starting a New Enterprise

39. What percentage of Canadians are self-employed? a) 5% b) 10% c) 15% d) 20% e) 25% Answer: d Learning Objective: 2.1 Identify the critical factors for starting a new venture. Section Reference: Critical Factors for Starting a New Enterprise

40. Where do most entrepreneurs get the idea for their businesses? a) Through brainstorming

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

b) From mentors c) From exposure to an industry d) By reading entrepreneurship books e) From venture capitalists Answer: c Learning Objective: 2.2 Evaluate the opportunity for a new business. Section Reference: Evaluating Opportunities for New Businesses

41. Which of the following is not cited by the chapter as a primary reason that entrepreneurs choose to go into business for themselves? a) Fame b) Innovation c) Financial success d) Independence e) Self-realization Answer: a Learning Objective: 2.1 Identify the critical factors for starting a new venture. Section Reference: Critical Factors for Starting a New Enterprise

42. Which of the following is not a critical component of the talent triangle of a successful management team except for: a) Business acumen b) Financial investment c) Domain knowledge d) Operational Experience Answer: b Learning Objective: 2.1 Identify the critical factors for starting a new venture. Section Reference: Critical Factors for Starting a New Enterprise

43. Which of the following contacts can be critical to the startup phase of a new business? a) Potential customers b) Lawyers c) Bankers d) Accountants e) All of the above Answer: e Learning Objective: 2.3 Identify the resources needed for a new business. Section Reference: Determining Resource Needs and Acquiring Resources

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44. What percentage of new startup firms in Canada survive the five year mark? a) 1% b) 12% c) 25% d) 36% e) 73% Answer: d Learning Objective: 2.2 Evaluate the opportunity for a new business. Section Reference: Evaluating Opportunities for New Businesses

45. Which of the following is not a critical favor attributed to lack of success of a new venture in Canada? a) Market entry in unfavorable conditions b) Overemphasis on market trends c) Lack of financial literacy d) Lack of financial management e) Inadequate business acumen. Answer: b Learning Objective: 2.2 Evaluate the opportunity for a new business. Section Reference: Evaluating Opportunities for New Businesses

46. Which of the following is not a critical component for a successful new business? a) The opportunity b) The management team c) The age of the lead entrepreneur d) The resources available e) None of the above Answer: c Learning Objective: 2.5 Identify the factors for a successful new business. Section Reference: Ingredients for a Successful New Business

47. A successful new business needs to provide a solution that is how much better than what is currently available? a) Equally as good b) Slightly better c) Twice as good d) 10 times better e) Not a factor in determining success

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Answer: d Learning Objective: 2.2 Evaluate the opportunity for a new business. Section Reference: Evaluating Opportunities for New Businesses

48. A good example of entrepreneurial frugality is: a) Providing cell phones for all employees b) Leasing more space than is immediately necessary d) Purchasing used office equipment and machinery d) Limiting employees to strict job responsibilities e) Renting top notch facilities Answer: d Learning Objective: 2.3 Identify the resources needed for a new business. Section Reference: Determining Resource Needs and Acquiring Resources

49. When determining how to allocate scarce resources, an entrepreneur should: a) Focus on the company’s key success factors b) Spread resources around to gain experience c) Focus exclusively on marketing d) Focus exclusively on technology e) None of the above Answer: a Learning Objective: 2.3 Identify the resources needed for a new business. Section Reference: Determining Resource Needs and Acquiring Resources

50. For an entrepreneurial company, leasing is better than buying because: a) Leasing can lead to more favorable terms b) Leasing preserves cash by spreading out payments c) Owning and maintaining property and equipment is rarely a company’s specialty d) All of the above e) None of the above Answer: d Learning Objective: 2.3 Identify the resources needed for a new business. Section Reference: Determining Resource Needs and Acquiring Resources

51. Which of the following is not a common stage in the financing of new businesses? a) Investing personal savings b) Building sweat equity c) Private investment by ‘angels’

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d) Bank debt e) Initial public offering Answer: e Learning Objective: 2.4 Evaluate the proﬁt potential of a new business. Section Reference: Proﬁt Potential

52. When a venture capital firm invests in a company, they typically expect which of the following in return: a) Cash b) Shares of the company c) Debt d) A personal guarantee e) Intellectual property Answer: b Learning Objective: 2.4 Evaluate the proﬁt potential of a new business. Section Reference: Proﬁt Potential

53. What ratio best reflects the number of companies that begin with venture capital in hand? a) 1 in 2 companies b) 1 in 20 companies c) 1 in 500 companies d) 1 in 2000 companies e) 1 in 10,000 companies Answer: e Learning Objective: 2.4 Evaluate the proﬁt potential of a new business. Section Reference: Proﬁt Potential

54. On average, small and medium-sized businesses in Canada make about what % net income.? a) 1% b) 12% c) 25% d) 50% e) 90% Answer: b Learning Objective: 2.4 Evaluate the proﬁt potential of a new business. Section Reference: Proﬁt Potential

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

55. Investors typically expect an annual rate of return in the range of _______, from a growing startup: a) -20% to 0% b) 0% to 10% c) 5% to 25% d) 40% to 60% e) 80% to 120% Answer: d Learning Objective: 2.4 Evaluate the profit potential of a new business. Section Reference: Profit Potential 56. The term ‘free cash flow’ generally refers to: a) Money that is raised through grants and donations b) Debt that requires no initial interest payments c) Cash that is generated in excess of fund required to sustain operations and purchase assets d) Capital raised through an initial public offering or other equity financing e) None of the above Answer: c Learning Objective: 2.4 Evaluate the profit potential of a new business. Section Reference: Profit Potential

57. Which of the following is not one of the Nine Fs of Entrepreneurial Success? a) Focused b) Frugal c) Flexible d) Frenetic e) Fun Answer: d Learning Objective: 2.5 Identify the factors for a successful new business. Section Reference: Ingredients for a Successful New Business

58. Which of the following is not one of the 10 Ds of Successful Entrepreneurs? a) Driven b) Details c) Dedicated d) Distribute e) Dream Answer: a

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Learning Objective: 2.5 Identify the factors for a successful new business. Section Reference: Ingredients for a Successful New Business

59. In entrepreneurship, luck is where ______________ and opportunity meet. a) Intelligence b) Fortune c) Strategy d) Focus e) Preparation Answer: e Learning Objective: 2.5 Identify the factors for a successful new business. Section Reference: Ingredients for a Successful New Business

60. Which of the following is not a characteristic of most entrepreneurial ideas? a) They are unique b) They offer improved performance c) They offer lower pricing d) They offer higher quality e) They offer better service Answer: a Learning Objective: 2.2 Evaluate the opportunity for a new business. Section Reference: Evaluating Opportunities for New Businesses

61. The best would-be entrepreneur will have a track record of: a) Working consistently at one company b) Increasing sales and profits c) Managing multiple employees d) Work in numerous industries e) Strong relationships with managers Answer: b Learning Objective: 2.2 Evaluate the opportunity for a new business. Section Reference: Evaluating Opportunities for New Businesses

62. Commonly outsourced responsibilities include all of the following except: a) Payroll B) Accounting C) Legal work D) Customer service

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E) Janitorial Services Answer: d Learning Objective: 2.3 Identify the resources needed for a new business. Section Reference: Determining Resource Needs and Acquiring Resources

63. The situation that arises when an entrepreneur is reliant on his or her company for a salary and has most of his or her personal net worth tied up in the company is called: a) Sweat equity b) Venture capital c) Double jeopardy d) Factoring e) Locus of control Answer: c Learning Objective: 2.4 Evaluate the proﬁt potential of a new business. Section Reference: Proﬁt Potential

64. A $150,000 dollar investment in a company that yielded a $30,000 dividend in the first year would have achieved which of the following returns on investment? a) 2% b) 5% c) 15% d) 20% e) 30% Answer: d Learning Objective: 2.4 Evaluate the proﬁt potential of a new business. Section Reference: Proﬁt Potential

65. Which of the following is not one of the global conditions increasing the rate of change in business? a) Managerial specialization and layering. b) The industrial sector’s reliance on advanced knowledge. c) Advancements in communications. d) Changes in government regulations. e) All of the above Answer: a Learning Objective: 2.2 Evaluate the opportunity for a new business. Section Reference: Evaluating Opportunities for New Businesses

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

66. Often start-ups can reduce overhead by using outside firms for… a) Payroll b) Accounting c) Advertising d) All of the above e) None of the above Answer: d Learning Objective: 2.3 Identify the resources needed for a new business. Section Reference: Determining Resource Needs and Acquiring Resources 67. To reduce the cost of office space you may be able to convince a landlord to… a) Reduce rent b) Defer rent payments for a period of time c) Allow subletting of unused space d) B and C e) A and B Answer: e Learning Objective: 2.3 Identify the resources needed for a new business. Section Reference: Determining Resource Needs and Acquiring Resources

68. The factors that give birth to a new enterprise and influence its development can be categorized as a) Innovation, Triggering, Environmental, Growth b) Sociological, Environmental, Innovation, Personal c) Personal, Sociological Organizational, Environmental d) Innovation, Triggering Event, Implementation, Growth Answer: c Learning Objective: 2.1 Identify the critical factors for starting a new venture. Section Reference: Critical Factors for Starting a New Enterprise

69. One of the biggest misconceptions about an idea for a new business is that a) It must be technology related b) It must be unique c) It must be patentable d) None of the above Answer: b Learning Objective: 2.2 Evaluate the opportunity for a new business.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Section Reference: Evaluating Opportunities for New Businesses

Open Ended 70. Give several examples of triggering events that give birth to a new organization. • • • •

Job dissatisfaction Loss of job Dissatisfaction with current level of income Desire to be independent

Learning Objective: 2.1 Identify the critical factors for starting a new venture. Section Reference: Critical Factors for Starting a New Enterprise

71. What are the stages described in the model of the entrepreneurial process? What are the factors that give birth to a new enterprise and influence how it develops from an idea to a viable enterprise? • •

Stages: innovation => triggering event => implementation => growth Factors: personal, sociological, organizational, and environmental

Learning Objective: 2.1 Identify the critical factors for starting a new venture. Section Reference: Critical Factors for Starting a New Enterprise 72. What are some characteristics of Canada’s fastest growing startup CEOs? • • •

They are on average 39-years old. They clock in 61-hour work weeks (compared to the average person’s week of 40 hours); 66% of the CEOs are serial entrepreneurs

Learning Objective: 2.1 Identify the critical factors for starting a new venture. Section Reference: Critical Factors for Starting a New Enterprise 73. What is the ‘talent triangle’ and what are the key components? The talent triangle refers to the attributes that make up a successful management team. It includes three elements:

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

• • •

Business acumen (skills and expertise in the development of strategy and the execution of business planning) Operational experience (prior know-how with regard to the building and delivery of the solution) Domain knowledge (understanding the customers and the industry within the business domain)

Learning Objective: 2.1 Identify the critical factors for starting a new venture. Section Reference: Critical Factors for Starting a New Enterprise

74. What are some examples and ways that organizations in Canada help fledgling entrepreneurs? •

• •

The Small Business Association (SBA) of Canada and Startup Canada provides free or minimal cost assistance to entrepreneurs and startups across the country. Startup Canada is one of the country’s most followed national entrepreneurship organizations. Many colleges and universities also provide help. Some are particularly good at writing business plans, usually at no charge to the entrepreneur. There are dozens of incubators and accelerators in Canada where fledgling businesses can rent space, usually at a very reasonable price, and spread some of their overhead by sharing facilities such as copying machines, secretarial help, answering services, and so on.

Learning Objective: 2.1 Identify the critical factors for starting a new venture. Section Reference: Critical Factors for Starting a New Enterprise

75. What are some of the sociological reasons that starting a company becomes more risky or difficult as people grow older? • • •

When one has been in an industry a long time, that person knows so many pitfalls that he or she may become pessimistic about the chance of success of any new venture. Young people, on the contrary, are usually optimistic about future and have the energy to implement their ideas, regardless of the current conditions. A beginner's mind looks at situations from a new perspective.

Learning Objective: 2.2 Evaluate the opportunity for a new business. Section Reference: Evaluating Opportunities for New Businesses

76. What contacts will you need as an entrepreneur?

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• • • • • •

Customers Suppliers Investors Bankers Accountants Lawyers

Learning Objective: 2.3 Identify the resources needed for a new business. Section Reference: Determining Resource Needs and Acquiring Resources

77. How did the Pita Pit founders address the gap in their management team? When opening the first location of Pita Pit, the founders Nelson Lang and John Sotiriadis fulfilled the business acumen and domain knowledge corners of the talent triangle, but were lacking operational experience. The two founders made it a high-priority to find people with experience in fast food and the restaurant industry to ensure they had someone with superior operational knowledge on their team. Learning Objective: 2.2 Evaluate the opportunity for a new business. Section Reference: Evaluating Opportunities for New Businesses 78. Explain the rationale behind the statement, “A first class team with a second class idea is better than a second class team with a first class idea.” • • •

If you have identified an excellent opportunity but your team lacks the experience to implement it, you will not be able to fulfill the idea’s potential. The crucial ingredients for entrepreneurial success are: a superb entrepreneur with a firstrate management team and an excellent market opportunity. Entrepreneurship is not a matter of luck, but of an ability to combine one’s experience with one’s knowledge and to bring an idea to life.

Learning Objective: 2.2 Evaluate the opportunity for a new business. Section Reference: Evaluating Opportunities for New Businesses 79. Why do you suppose the authors say that in entrepreneurship, “Ideas are a dime a dozen,”? What does this statement imply about an idea’s importance to a successful business? • • •

Almost any idea that a would-be entrepreneur might have has also occurred to others. A good idea in itself is not guaranteed to become a profitable venture. Developing the idea, implementing it, and building a business are the important aspects of entrepreneurship.

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Learning Objective: 2.3 Identify the resources needed for a new business. Section Reference: Determining Resource Needs and Acquiring Resources

80. Explain the benefits and drawbacks of debt and equity financing, respectively. • •

Debt does not require an entrepreneur to give up any ownership stake in the business. However, debt does require the business to pay current interest and eventually repay the principal. Equity financing compels the founder to relinquish a portion of ownership in the business, but does not demand repayment or even a dividend.

Learning Objective: 2.4 Evaluate the proﬁt potential of a new business. Section Reference: Proﬁt Potential

81. Describe the likely progression of financing for a startup that achieves an IPO. • • • • •

The entrepreneurs develop a prototype with personal savings, contributions from friends and family, and sweat equity. Then a wealthy investor invests some personal money in return for equity. After the company begins generating revenue, it may be able to secure a bank line of credit by leveraging its inventory and accounts receivable. If the company is growing quickly in a large market, it may be able to raise capital from a formal venture capital firm in return for equity. Further expansion capital may come from additional rounds of venture capital founding or from a public stock offering.

Learning Objective: 2.4 Evaluate the proﬁt potential of a new business. Section Reference: Proﬁt Potential 82. What is ‘free cash flow’ and why is it such a critical factor for a growing business? • • •

The ability to generate a positive free cash flow indicates that the business can sustain its operations and purchase the assets necessary to keep the company on its growth trajectory. If a venture does not generate enough cash to sustain its growth, it may self-destruct. The inability to generate free cash flow forces a firm to either dive more deeply into debt or dilute the owner’s share in the venture in order for the business to finance further growth.

Learning Objective: 2.4 Evaluate the proﬁt potential of a new business.

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Section Reference: Proﬁt Potential

83. The three crucial components of a successful venture are the opportunity, the entrepreneur/management team, and the resources needed to start the company. Explain the interrelation of these items. • • •

The crucial driving force of any new venture is the lead entrepreneur and the founding management team. In entrepreneurship, success is a question of recognizing a good opportunity and having the skills to convert that opportunity into a thriving business. The ability to find the necessary resources and to use them efficiently is the metaphoric chain linking the entrepreneur and the opportunity.

Learning Objective: 2.5 Identify the factors for a successful new business. Section Reference: Ingredients for a Successful New Business

84. How do salary and return on investment, for the founding entrepreneur, factor into the regular operations of a startup? • • •

A wage expenses for the founder and any family members working for the business should be considered in profitability calculations, regardless of whether or not cash has actually been paid to them. Any salary earned but not paid out by the business should be recorded as deferred compensation to be paid at a later date. The entrepreneur’s investment in the business should earn a reasonable return to be paid as a dividend, or as capital gains, when the business is sold.

Learning Objective: 2.4 Evaluate the proﬁt potential of a new business. Section Reference: Proﬁt Potential

85. Discuss some issues around being secretive about your business idea • • • •

It complicates evaluating the idea for lack of others input It can prevent a poor idea from being abandoned before it absorbs too many resources It can let an excellent idea die for the entrepreneurs lack of confidence The idea itself is less critical than the ability to execute on it.

Learning Objective: 2.3 Identify the resources needed for a new business. Section Reference: Determining Resource Needs and Acquiring Resources

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86. How can an entrepreneur’s location in Canada improve chances for success? • •

Locating in a hotbed of entrepreneurial activity can make role models more accessible, and lower barriers to starting. Places like Montreal and Toronto for tech start-ups have a high concentration of needed resources for high-potential start-ups, from money to talent.

Learning Objective: 2.3 Identify the resources needed for a new business. Section Reference: Determining Resource Needs and Acquiring Resources

87. Discuss the impact that greater family responsibilities may have on the decision to become and entrepreneurs. • Clearly the risk is higher in terms of the financial and personal costs • Such entrepreneurs may wish to spend more time preparing themselves financially to go without income for some time • Entrepreneurs may choose to start a venture on the side, confirm the existence of a market and initial viable business model, before putting more time and effort into the company. • Entrepreneurs may choose to start companies with different business models, such as online companies, that enable them flexible work locations. Learning Objective: 2.1 Identify the critical factors for starting a new venture. Section Reference: Critical Factors for Starting a New Enterprise

88. Describe the importance of identifying how much start-up capital you will need to reach a positive cash flow. • •

Without an understanding of an initial figure, and the key drivers of the figure, an entrepreneur risks failure by running out of money, or by giving away too much equity to raise funds and thereby failing to achieve a sufficient return on investment. New ventures must have the resources need to growth fast enough to a position where it can sustain itself on its own cash flow from operations. Insufficient cash early on could do irreparable damage a venture likelihood of success.

Learning Objective: 2.3 Identify the resources needed for a new business. Section Reference: Determining Resource Needs and Acquiring Resources

89. Discuss some of the reasons why customers are so important.

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Chapter 3: Opportunity Recognition, Shaping, and Reshaping True/False Statements 1. Most successful ideas are driven by the entrepreneur’s personal experience. Answer: True Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea?

2. If an entrepreneur is going to fail, they should do so quickly. Answer: True Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea?

3. Starting a company in a sphere of business that you really enjoy is not the best idea, in terms of the chance of success. Answer: False Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea?

4. No one knows about your strengths better than you do. Answer: False Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea?

5. You will likely fail if you start a business in an area you have no experience in Answer: True Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea?

6. One of the best ways to look for new venture ideas is to think up a solution first before looking or a problem you want to solve. Answer: False Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea.

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Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea?

7. Cocktail-party entrepreneurs can provide you with invaluable advice about how to run a venture Answer: False Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea? 8. New, entrepreneurial ideas frequently sprout from an entrepreneur’s desire for a product that he or she cannot currently find in the market. Answer: True Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea?

9. Double dipping is the ability to generate multiple revenue streams from one product. Answer: True Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea?

10. According to IDEO, the first step in the creation of a product is to make a set of assumptions. Answer: False Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea?

11. Asking leading questions is the best method of discovering the appeal of a potential product or concept. Answer: False Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea? 12 The key to success in comedy improvisation is to always say, “Yes, but…” Answer: False Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea?

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise 12. Saying, “That will not work because…” is important at later stages of business development. Answer: True Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea? 13. Playing the role of devil’s advocate is important at the “optimize practicality” stage of concept development. Answer: True Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea?

14. An entrepreneur should try to broaden his or her customer base definition at the early stages of developing an idea. Answer: False Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea?

15. A viable opportunity contains a favourable set of circumstances that are attractive (financially), durable (long-lasting), timely (the market is ready for it), and creates and/or adds value for the enduser. Answer: True Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea? 16. A company’s attention should focus equally on primary, secondary and tertiary customers. Answer: False Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea?

17. A company will make a better growth decision by identifying the most lucrative PTA. Answer: True Learning Objective: Section Reference:

18. In aggregate, baby boomers create powerful trends for Canadian businesses.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Answer: True Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity? 19. The millennial generation’s prolific use of the Internet coupled with a sense of digital mastery will be the driving force for social transformation Answer: True Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

20. The first domain name on the Web was assigned in 1986. Answer: False Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity? 21. To target goods and services specifically to Hispanic populations in the US is to focus one’s market too narrowly. Answer: False Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

22. Customer and market trends change too rapidly to be of any predictive use for an entrepreneur. Answer: False Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

23. The S-curve is a forecasting tool designed to measure the power of competition. Answer: True Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

24. The market enters a fast growth phase when customer awareness and demand exceed supply. Answer: True Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

25. A penetration pricing strategy is one of the most simple and successful initial approaches for a new venture. Answer: False Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

26. A highly priced product will usually be perceived as better quality by the customer. Answer: True Learning Objective: 3.2 Discuss the five major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity? 27. The cost-plus pricing technique is the most reliable one as it sets the price equal to the product’s value. Answer: False Learning Objective: 3.2 Discuss the five major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity? 28. It is important to lower your gross margins early in the venture’s life. Answer: False Learning Objective: 3.2 Discuss the five major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

29. It typically takes 1-2 years for a firm to reach stability and for operating costs to stabilize. Answer: False

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

30. Customers can assist you to determine direct competitors, indirect competitors, and substitutes. Answer: True Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity? 31. Scalability refers to a company’s ability to generate exponential revenue growth while maintaining a stagnant fixed and variable cost. Answer: True Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

32. A venture whose vendors are primarily commodity suppliers, will retain a large portion of the value chains gross margin. Answer: False Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

33. The Business Development Bank of Canada is the only Canadian bank exclusively dedicated to entrepreneurs. Answer: True Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

34. With the mass use of the Internet, the world is no longer a level playing field. Answer: False Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

35. A startup will likely fail if the entrepreneur ignores feedback from his or her customers. Answer: True Learning Objective: 3.3 Explain how entrepreneurs can strengthen their idea opportunity. Section Reference: ‘‘I Don’t Have an Opportunity’’

36. Pre-launch analysis will determine the required variables of your business model and should be assumed to be true in the absence of contrary facts. Answer: False Learning Objective: 3.3 Explain how entrepreneurs can strengthen their idea opportunity. Section Reference: ‘‘I Don’t Have an Opportunity’’

37. Another beneficial tool to cross-reference your idea opportunity is the step-by-step stage-gate process. Answer: True Learning Objective: 3.3 Explain how entrepreneurs can strengthen their idea opportunity. Section Reference: ‘‘I Don’t Have an Opportunity’’

Multiple Choice 38. According to the chapter, into what type of opportunity should a business idea translate? a) Realistic b) Easy to implement c) Attractive d) Unique e) Technologically advanced Answer: c Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea?

39. What is the concept of double dipping? a) Having another income source while starting a new venture b) Generating multiple revenue streams from one product c) Launching two products simultaneously d) Partnering with another company to launch a product e) None of the above Answer: b

40. What does moving a seed of an idea to a more concrete possibility require? a) Practical thinking b) Market research c) Input from others d) A business plan e) Maturity Answer: c Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea? 41. Which of the following most typifies a “cocktail entrepreneur?” a) Fails to take action b) Popular c) Productive d) Decisive e) Possesses a predilection for cocktails Answer: a Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity? 42. Which of the following is not a part of IDEO’s product design steps? a) Optimize practicality b) Multiply stimuli c) Gather stimuli d) Create customer concepts e) Create stimuli Answer: e Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea? 43. What is the only action that the “gather stimuli” stage requires of the entrepreneur? a) Ask b) Think c) Do nothing d) Observe

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

e) Research Answer: d Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea?

44. An important technique in brainstorming is to say: a) “Yes and…” b) “Yes, but…” c) “That won’t work because…” d) “We need to avoid…” e) “Nice!” Answer: a Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea?

45. What is the name of the process that is the equivalent of brainstorming, but with a focus on writing rather than verbal communication? a) Paper-writing b) Brain-writing c) Mute-storming d) Brain-exploding e) Paper-storming Answer: b Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea? 46. In which stage is it important to play devil’s advocate? a) Optimize practicality b) Multiply stimuli c) Gather stimuli d) Create customer concepts e) Create stimuli Answer: a Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

47. What is considered the minimum viable product? a) The finished product that is ready to go to market

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

b) The first prototype of a product that is not able to be sold c) The minimum feature set that a customer is willing to pay for d) The product with enhanced features and functionality. e) None of the above Answer: c Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

48. On what category of customers should a startup business focus most of its attention? a) STA b) PTA c) TTA d) An even share of STA, PTA, and TTA e) None of the above Answer: b Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

49. An understanding of your STA helps you to: a) Train your employees b) Find better management c) Develop a penetration strategy d) Make better growth decisions e) Build your value chain Answer: d Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

50. How is TAM calculated? a) Size of the customer pain point multiplied by the number of customers b) Size of customer pain point multiplied by profit margin c) Number of customers multiplied by number of products available d) Profit margin multiplied by number of products available e) None of the above Answer: a Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Section Reference: Is Your Idea an Opportunity?

51. When analyzing an opportunity which trends should you focus on? a) Historical micro trends b) Current Macro trends c) Present micro trends d) Future Macro trends e) A & B f) C & D g) None of the above Answer: f Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

52. Which of the following is not a venture stage specifically enumerated in the chapter? a) Investigation b) Launch c) Growth d) Operations e) All of the above are stages Answer: c Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

53. What is the approximate number of baby boomers in Canada? a) 1.7 million b) 3.0 million c) 4.9 million d) 8.5 million e) 9.6 million Answer: e Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

54. According to studies, Millennials are how much more likely to use smartphones to go online? a) 20% b) 42%

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

c) 15% d) 18% e) 37% Answer: b Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

55. To replace $70,000 of forgone salary and benefits, an entrepreneur will need the new venture to generate approximately how much in annual revenue? a) $70,000 b) $200,000 c) $400,000 d) $600,000 e) $800,000 Answer: d Learning Objective: Section Reference:

56. The graphical depiction that highlights the diffusion of product acceptance over time is: a) S-Curve b) C-Curve c) U-Curve d) V-Curve e) J-Curve Answer: a Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

57. When starting web business, which measure of effectiveness matters most? a) The number of “eyeballs” looking at your site b) Profits c) Click thru rates d) Overhead expenses e) Revenue Answer: b Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

58. Generally speaking, what is the minimum annual growth rate needed for interest from venture capitalists? a) 15% b) 25% c) 30% d) 50% e) 75% Answer: b Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

59. What is an example of a relatively inelastic product? a) Burgers b) Train tickets c) Gasoline d) DVD discs e) Notebooks Answer: c Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

60. What is the short-sighted thinking behind the penetration-pricing strategy? a) Pricing below competitors will lead to higher market share b) Gross margins should be very high for a new product. c) Loyal customers demand the lowest price. d) The simplest method of selective prices saves time. e) Prices should match the value of products. Answer: a Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

61. Research suggests that a gross margin of what percent is a good benchmark for distinguishing more attractive opportunities from less attractive ones? a) 5% b) 15% c) 40%

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

d) 70% e) None of the above. Answer: c Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

62. Based on existing research, how long in the life of a startup do operating costs take to stabilize? a) 1-2 years b) 3-5 years c) 4-6 years d) 6-7 years e) 8 years Answer: b Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity? 63. The weak link in Gourmet Stew’s business model was? a) Value proposition b) Customer segments c) Distribution channels d) Cost structure Answer: c Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

64. When markets are emerging, which factor matters most long term? a) Gross margins b) Number of new entrants annually c) Determining and securing the dominate customer value proposition d) Attracting a diverse pool of investors Answer: c Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity? 65. What markets are characterized by “stealth” competition?

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

a) Growing b) Primitive c) Developed d) Speculative e) Emerging Answer: e Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

66. How does the Canadian Government support entrepreneurship? a) Offering a bank exclusively for entrepreneurs b) Offering a number of programs to help entrepreneurs with financing options c) Lower tax rates for incorporated companies and sole proprietorships d) All of the above e) None of the above Answer: d Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

67. According to the text, who is the market leader for Canadian technology trends and news? a) TechCrunch b) SBA Canada c) ESAC d) CanSIA e) ITbusiness Answer: a Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

68. Which of the following is NOT related to competitive profiling? a) Net margins b) Revenues c) Tax rates d) Pricing Answer: c Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Section Reference: Is Your Idea an Opportunity?

69. Which of the following is an example of a perfect business? a) Blackberry b) Wal-Mart c) Amazon.com d) McDonalds e) There is no such thing as a perfect business Answer: e Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

70. Better Opportunities tend to exist when: a) The core customer group is small b) There is existing and strong competition c) The net margins greater than 10% d) There are mature market structures Answer: c Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

71. When pre-launch analysis predicts unfavorable outcomes you should: a) Abandon the venture b) Go forward strongly in spite of negative forecasts c) Seek to confirm/deny the variable that underpin outcomes during execution d) Seek to confirm/deny all variable prior to starting the venture Answer: c Learning Objective: 3.3 Explain how entrepreneurs can strengthen their idea opportunity. Section Reference: ‘‘I Don’t Have an Opportunity’’

Open ended

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

72. How does one turn a seed of idea into an actual idea? • • •

Ask for input from others Brainstorm your idea Avoid becoming a “cocktail-party entrepreneur”

Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea?

73. Why is it important to be passionate about your venture? • • • •

Passion gives you extra energy. Launching a venture is a demanding process that is made more difficult if the entrepreneur is apathetic about the business. Passionate entrepreneurs are the most successful ones. Your passion can influence your investors and partners.

Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea?

74. What is a factors make up a viable opportunity? A viable opportunity contains a favourable set of circumstances that are attractive (financially), durable (long-lasting), timely (the market is ready for it). Learning Objective: 3.1 Describe how to come up with a good entrepreneurship idea. Section Reference: From Glimmer to Action: How Do I Come Up with a Good Idea?

75. Describe the process IDEO suggests an entrepreneur needs to go through to design a product. • • • •

Gather stimuli (Beware the leading question) Multiply stimuli (Build upon the input of others) Create customer concepts (Build prototypes) Optimize practicality (Add/remove features)

Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

76. What categories of customers exist? How do you prioritize and address them?

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise • • •

Primary Target Audience (PTA) – Focus on this group Secondary Target Audience (STA) – Use this segment to generate additional revenues. Tertiary Target Audience (TTA) – Keep an eye on this one. Though TTA may seem merely auxiliary, this group might have more potential than expected.

Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

77. Give examples of some of the biggest trends in the recent history that have shaped business. How did they influence business in general? • • • •

Baby Boom Generation – shaped business for decades (Pampers, Rock & Roll, Television, Minivans, Real Estate, McMansions, etc.) Personal Computing - IT breakthrough (Internet, media on demand, electronic publishing, spreadsheets, electronic communication Obesity - Drain on healthcare system, growth of diet industry, changes in food industry, health clubs, home gyms Dual-Income households - Child care, Home services – landscaping, house cleaning, prepared foods

Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

78. Who are the millennial generation and what is the important difference between them and baby boomer generation? The millennial generation,—those born after 1980—are accustomed to a digital life. These children are more comfortable and technology literate than their parents. The millennial generation’s prolific use of the Internet coupled with a sense of digital mastery will be the driving force for social transformation. Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

79. How can one best predict the acceptance of the product by the customer? • •

Use the S-curve tool Forecast, which stage your product is at (window of opportunity, new competitors enter, or obsolescence phase) and act accordingly

80. What are the ways of pricing a new product and what mistakes should entrepreneurs avoid? • • •

Cost-plus pricing – price your product based on its cost You may set a price based on what your competitors charge for the same/similar product You should avoid penetration pricing strategy unless you have virtually unlimited access to financial recourses

Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity? 81. Why is the statement, “My startup has no competition,” always wrong? How can you find out about your competitors? • • •

There is always competition, sometimes in the form of substitutes. One of the forms of competition is “stealth” competition You can use suppliers, VCs, Angels, databases, etc. to track down “stealth” competitors

Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

82. What can an entrepreneur do when there are no business opportunities at all? • • • •

There are always opportunities. Don’t be all negative about an idea; try to find positive sides in it. Modify your business model to eliminate its weaknesses. Don’t be rigid with your idea, constantly adjust it.

Learning Objective: 3.3 Explain how entrepreneurs can strengthen their idea opportunity. Section Reference: ‘‘I Don’t Have an Opportunity’’

83. Give a brief checklist of information that an entrepreneur should investigate. • Customer, Market Size, Trends, Market growth Rate, Price/Frequency/Value, Distribution, Competition, Key Success Factors, Vendors. Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

84. Discuss the limitation of first mover advantage in an emerging market where intellectual property protections are not a major factor. •

It is uncertain if the position occupied by the first mover will remain the dominate position as the market develops

•

Second movers have the advantage of conserving resources that the first mover must expend to learn about the market If first movers increase operating scale by incurring fixed costs before a general understanding of the dominant offering is understood, its risks being out-maneuvered by an agile entrant with a differentiated offering and a more variable cost structure.

•

Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity? 85. Why can’t companies raise prices after using penetration pricing strategy? • • • • •

First, attractive ventures are often launched in emerging markets where demand exceeds supply. Second, many new products are designed to be better than existing alternatives. Third, price sends a signal to the customer. Fourth, even if customers flock to the low-priced product, this rapid increase in demand can sometimes cause serious problems for a startup. Finally, these same customers may resist when companies try to recapture value by raising prices in the future.

Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

86. In contrast to the dangers of employing a penetration pricing strategy, describe the dangers of employing a maximal pricing strategy. • A maximal pricing strategy can signal to other potential entrants that the market is attractive and increase competition. • Maximal pricing with an early offering can reduce volume and make your operations vulnerable to fast followers and substitutes. • A maximal price can slow the diffusion of your offering through customers segments, which in an emerging market risks early success at the expense of longer term dominance. • In short, neither extreme is wise, and pricing decisions have implication in both the near and long term to your volume, positioning, competition, revenue, and margins.

87. List some vulnerabilities of competitors in larger, mature, consolidate market vis-à-vis a new entrant. •

High fixed cost structure, slower to respond to customer needs, limited by boundaries of its “brand” (i.e. people may not buy food from a washing detergent company), focused only on the needs of current customers, and optimized to compete against current rivals.

Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

88. What is scalable business model and what is an example? •

•

A scalable business model refers to the ability to generate exponential revenue growth while maintaining a stagnant fixed and variable cost. An example of an extremely scalable business is downloadable software. One the application is developed, it can be sold and distributed at almost no additional cost, which dramatically increases revenue and streamline’s any expen ses the company may have.

Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

89. Give two examples showing vendor power, both strong and weak. •

•

Referring back to the value chain we created for Gourmet Stew, we notice that suppliers are providing commodity goods such as beef, vegetables and other food products. These types of vendors usually have limited power, which means that more of the ultimate gross margin in the chain goes to Gourmet. Microsoft, as the dominant operating system and core software provider, and Intel, as the dominant microprocessor supplier, have considerable power over PC manufacturers. Microsoft has gross margins of 85% and Intel has gross margins of 70%, whereas average gross margins for PC manufacturers are between 8 and 25%. The fact that suppliers have so much power lessens the opportunity potential for entrepreneurs entering the PC market unless they find an innovation to supplant the Intel chip or the Microsoft operating system.

Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Section Reference: Is Your Idea an Opportunity?

90. What other value chains, besides those of direct competitors, should be analyzed? • • •

Value chains of indirect competitors and substitutes need to be explored to determine the risk they may pose as entrants into your market. Value chains which share similar channels & production means, and have overlapping offering attributes to your own need to be explored to identify potential disruptors Example: Some handheld video game consoles (i.e. Nintendo 3DS) appeal to the everyday non-sophisticated gamers, but so do tablets and smartphones. Few customers purchase the iPad as a substitute for a gaming console. However once they own one, free app games (i.e. Angry Birds) can be viewed as a substitute. For many customers, the difference in the game experience is marginal, but the price difference is large, leading to the disruption of the handheld video game industry.

Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

91. How does the Canadian Government support the process of enterprise creation? •

•

The Canadian Government is extremely supportive of entrepreneurship. Corporate taxes are lower for incorporated companies while sole proprietors, or independent business owners, are allowed to offset income tax using expenses incurred to generate their business revenue. Additionally, the Canadian government runs several programs to help aspiring entrepreneurs. The Canadian government created The Business Development Bank of Canada (BDC), the only Canadian bank exclusively dedicated to entrepreneurs. The bank pays special attention to SME’s in sectors such as exporting, manufacturing, innovation and knowledge-based industries and to startups in innovative and fast-growth industries attempting to commercialize their R&D efforts

Learning Objective: 3.2 Discuss the ﬁve major areas that determine if an idea is a viable entrepreneurship opportunity. Section Reference: Is Your Idea an Opportunity?

92. How can a business separate its target customers into categories of importance? •

Starting with initial definition, people usually break customers down into three categories: 1) Primary Target Audience (PTA), 2) Secondary Target Audience (STA) and 3) Tertiary Target Audience (TTA).

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Chapter 4: Understanding Your Business Model and Developing Your Strategy True/False Statements 1. By merging different revenue sources into as few categories as possible, you make your business model more comprehensive. Answer: False Learning Objective: 4.1 Describe the two components of the business model. Section Reference: The Business Model

2. Non-profit organizations do not need revenue to operate. Answer: False Learning Objective: 4.1 Describe the two components of the business model. Section Reference: The Business Model 3. Twitter uses a “long-tail” business model. Answer: False Learning Objective: 4.3 Describe the long-tail theory. Section Reference: Long-Tail Theory

4. If you do not fully understand your revenue drivers, you cannot achieve the highest success. Answer: True Learning Objective: 4.1 Describe the two components of the business model. Section Reference: The Business Model

5. In a Freemium business model, your COGS for free offerings can be viewed as a marketing expense. Answer: True Learning Objective: 4.1 Describe the two components of the business model. Section Reference: The Business Model

6. COGS is a cost measure that applies to companies that manufacture tangible products; COGS cannot be computed for firms that deal exclusively in a service-based revenue model.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Answer: False Learning Objective: 4.1 Describe the two components of the business model. Section Reference: The Business Model

7. The Business Model Canvas is a blueprint to help businesses to implement new strategies. Answer: True Learning Objective: 4.1 Describe the two components of the business model. Section Reference: The Business Model

8. The Lean Canvas is better suited for existing businesses and is not an appropriate tool for startups. Answer: False Learning Objective: 4.1 Describe the two components of the business model. Section Reference: The Business Model 9. Outsourcing is a powerful tool that can reduce a venture’s upfront fixed costs. Answer: True Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

10. The primary purpose of outsourcing is to increase net margins Answer: False Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

11. Lowering COGS allows companies to reach their break even date earlier. Answer: True Learning Objective: 4.1 Describe the two components of the business model. Section Reference: The Business Model

12. Companies should not outsource an activity if it is critical to its competitive advantage. Answer: True Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

13. Markets that truly do not have competition are the most profitable, though such markets are nearly impossible to find. Answer: True Learning Objective: 4.2 Explain why the ﬁrst-mover advantage is a myth. Section Reference: The First-Mover Myth 14. A strategy that attempts to capture the first-mover’s advantage is usually the most inexpensive. Answer: False Learning Objective: 4.2 Explain why the ﬁrst-mover advantage is a myth. Section Reference: The First-Mover Myth

15. Long tail theory is focused on cultural shift away from mainstream products towards specialty products and services. Answer: True Learning Objective: 4.3 Describe the long-tail theory. Section Reference: Long-Tail Theory

16. A business strategy that maximizes long tail theory would focus on initial high sale numbers that taper off quickly. Answer: False Learning Objective: 4.3 Describe the long-tail theory. Section Reference: Long-Tail Theory 17. Maintaining trade secrets is one way to protect a company’s competitive advantage. Answer: True Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

18. Hiring a corporate lifer who is used to working in one functional area and has experience with comprehensive administrative support is always the right strategy for a startup firm. Answer: False Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

19. People are the most critical component of any new or existing venture.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Answer: True Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

20. It is better to formulate the organizational culture after your company begins to grow, rather than at the company’s inception. Answer: False Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy 21. Learning from others is less efficient than learning from one’s own mistakes. Answer: False Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy 22. Certain stages of the “initial market test” can be cheap or even free. Answer: True Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy 23. Franchising speeds growth, but lowers a company’s revenue overall. Answer: False Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

24. The more products you sell through your distribution channels, the greater your negotiating power. Answer: True Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

25. Entrepreneurs benefit from developing and following a coherent geographic expansion strategy Answer: True Learning Objective: 4.4 Describe the components required to formulate a winning business strategy

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Section Reference: Formulating a Winning Strategy

26. Franchising requires you to finds extensive capital to support growth Answer: False Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

27. Going global increases risk and requires capital. Answer: True Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

28. Online ventures are not considered global ventures until they reach $10 million in sales. Answer: False Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

29. Technology licensing is a good opportunity to extend your brand image into new markets. Answer: False Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

30. Exporting is one of the most expensive ways to enter new markets. Answer: False Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

31. Under the Foreign Direct Investment strategy, the startup retains control of the assets and facilities, which results in a cheap and easy means to go global. Answer: False Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

32. Venture capital funding rarely leads to mergers and acquisitions with foreign companies.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Answer: False Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy 33. Mergers and acquisitions are likely to increase a company’s survival rate when used as a means for growth. Answer: True Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

34. Developments in technology have spurred companies to expand to other countries increasingly early in their business lives. Answer: True Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

Multiple Choice 35. Which of the following is the main component of a business model? a) The revenue model b) The net income model c) The cost model d) The cash flow mode e) Both A and C Answer: e Learning Objective: 4.1 Describe the two components of the business model. Section Reference: The Business Model

36. What of the following is not a component of the Business Model Canvas? a) Key partners b) Customer relationships c) Cost structure d) Investor financing e) Revenue stream Answer: d Learning Objective: 4.1 Describe the two components of the business model. Section Reference: The Business Model

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

37. Which of the following influence a company’s revenue? a) “Markers” b) “Headers” c) “Drivers” d) A and B e) None of the above Answer: c Learning Objective: 4.1 Describe the two components of the business model. Section Reference: The Business Model

38. What is the goal of outsourcing? a) To lower production costs b) To increase gross margins c) To increase revenue d) To decrease labor costs e) All of the above Answer: e Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

39. What is the revenue strategy of both Walmart and Amazon? a) low costs, high margins b) low margins, high volumes c) high margins, high volumes d) high costs, low volumes e) none of the above Answer: b Learning Objective: 4.1 Describe the two components of the business model. Section Reference: The Business Model

40. Which of the following is part of the first-mover myth? a) You must launch the first product in the market. b) Creating a new market is easier than entering an existing one. c) Creating a market is inexpensive. d) A first mover’s advantage is expensive. e) B and C Answer: e Learning Objective: 4.2 Explain why the ﬁrst-mover advantage is a myth.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Section Reference: The First-Mover Myth

41. To successfully exploit being a first mover, one must be able to: a) Mass sufficient resources (people, cash, expertise) to open and develop a market in order to identify and secure the dominate position b) Obscure your efforts from competitors until the last possible moment before publicizing your offering to minimize competitors’ time to respond c) Resist installing to much operating leverage until you’ve identified the new market’s dominate position d) Be prepared to defend the dominate market position through legal means, raising entry costs, or increasing the customers cost of switching. e) All of the above f) None of the above Answer: e Learning Objective: 4.2 Explain why the ﬁrst-mover advantage is a myth. Section Reference: The First-Mover Myth

42. According to the chapter, what portion of all firms receives venture capital? a) Less than 0.01% b) Less than 0.1% c) Between 1% and 5% d) Between 5% and 10% e) More than 10% Answer: b Learning Objective: 4.2 Explain why the ﬁrst-mover advantage is a myth. Section Reference: The First-Mover Myth

43. Which business was mentioned in the chapter as having maximized on the benefits of long tail theory? a) Amazon b) Walmart c) Microsoft d) Blackberry e) General Electric Answer: a Learning Objective: 4.3 Describe the long-tail theory. Section Reference: Long-Tail Theory 44. The ‘tail’ of the long tail theory refers to what type of company? a) Mainstream mass markets sales with high sales

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

b) Specialty products that experience a short lived spike in sales c) Specialty products that have low sales numbers but continue for a longer period of time d) A and C e) None of the above. Answer: c Learning Objective: 4.3 Describe the long-tail theory. Section Reference: Long-Tail Theory

45. Of the following differentiators, which most commonly determines the success of a company? a) The number of distinct products offered b) Competitive advantage c) Being the first player to enter a market d) Better execution than the competition e) A and C Answer: d Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

46. It is a good idea for a startup to hire employees who are: a) Used to working in one functional area b) Overqualified for their initial roles c) Young and have little experience, but big potential d) Educated for the tasks, but have little experience e) All of the above Answer: b Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

47. Examples of an interactive launch strategy would be: a) Launching a web advertising campaign nationwide in beta b) Contracting multiple outsourcing manufacturers for your first production run of a single product c) Opening a food truck business using a short term truck lease in a single market. d) None of the above Answer: c Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

48. Before raising capital, the company should identify which of the following? a) Its strategy

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

b) Its core customers c) Its major cost categories d) Its sources of competitive advantage e) All of the above Answer: e Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

49. How many beta-tests of the product should the company do before releasing it to the market? a) As many as necessary b) At least 3 c) Not more than 5 d) 5 to 10 e) B and C Answer: a Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

50. If you have a replicable business model, it is wise to use which of the following strategies to expand internationally: a) Foreign Direct Investment b) Venture financing c) Exporting d) Franchising e) Technology Licensing Answer: d Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

51. Approximately what share of all new products are failures? a) Less than 30% b) 40 % c) 50-60% d) 80% e) Over 90% Answer: d Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

52. What risks does the company take when expanding its product mix? a) The company may incur unwieldy development expenses. b) The market may not accept the new product. c) Unsuccessful products can damage the brand. d) All of the above e) None of the above Answer: d Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

53. Which of the following is true about all of the large, retail corporations in existence today? a) They started as multinationals. b) They employed a franchising strategy. c) They had roots in one geographic region. d) They attracted venture capital. e) None of the above Answer: c Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

54. Which of the following are keys to successful franchising. a) Replicability b) Financing c) Control d) B and C e) A and C f) All of the above Answer: e Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

55. Which of the following is not mentioned in the chapter as a factor you need to weigh when planning geographic expansion? a) Do the customers differ between the existing and the new location? b) Can you continue to use the same vendors? c) Can you use the same distribution channels? d) Is your brand name well-known in the new location? e) None of the above Answer: d Learning Objective: 4.4 Describe the components required to formulate a winning business strategy

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Section Reference: Formulating a Winning Strategy

56. Dickson describe three types of global entrepreneurial firms. a) Born global, born-again global, full global b) Born-again global, direct global, gradual global c) Gradual global, born global, born-again global d) Born-again global, gradual global, diversified global. Answer: c Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

57. According to Dickson, there are how many types of global, entrepreneurial firms? a) 2 b) 3 c) 4 d) 5 e) None of the above Answer: b Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy 58. Which of the following is not related to Dickson’s eight primary means to expand globally? a) Technology Licensing b) Outsourcing c) Foreign Direct Investment d) Mergers and Acquisitions e) Initial Public Offering Answer: e Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

59. What opportunity do you lose when choosing to use Technology Licensing as a means to grow? a) Generate more revenue b) Conserve resources c) Increase your brand name recognition d) None of the above e) All of the above Answer: Learning Objective: 4.4 Describe the components required to formulate a winning business strategy

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Section Reference: Formulating a Winning Strategy

60. Which of the following is the cheapest and easiest way to enter new markets? a) Venture financing b) Technology Transfer c) Exporting d) Outsourcing e) Foreign Direct Investment Answer: c Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

61. Which of the following is the primary means for FDI? a) Acquiring foreign assets b) Building new facilities overseas c) Expanding current facilities overseas d) None of the above e) All of the above Answer: a Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

62. Some advantages to going global through merger and acquisition are a) Instant presence b) Rapid growth and expansion c) Low capital requirements d) A and B e) B and C Answer: d Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

63. By selling a higher volume of your product through a particular distribution channel, you increase your: a) Average variable cost b) Inventory c) Negotiating power d) Brand Awareness e) Gross margin per product

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Answer: c Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

64. What is the side effect of a positive work culture? a) Open communication and job satisfaction encourages innovation b) Decreases turnover (lower costs for training new employees) c) Team unity fosters cooperation and between employees d) Satisfied employees are more willing to work longer hours to get the job done e) All of the above Answer: e Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

65. In 2014, what was the total value of Canadian merchandise exports? a) $40.6 billion b) $20.5 billion c) $780 million d) $100 billion e) $4.7 billion Answer: a Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

Open ended 66. Explain how a company that lowers its net income margins can generate more profit. • •

First, the lower net income margin may be due to a decrease in price. This should increase the quantity of the product demanded. The increase in volume sold may compensate for the decreased margins. Expansion can lead to additional costs, but, if the expansion leads to increased revenues, the company may generate more total profit, even with smaller margins.

Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

67. Explain why it is important to break down the revenue model into categories.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise • • •

The more detailed your categories, the more information you can glean about how certain segments of your business perform. You can segment your revenue by geographic regions, customer profiles, product mix, etc. Breaking down you revenue helps you understand which revenue streams drive your business, and which diminish your profits.

Learning Objective: 4.1 Describe the two components of the business model. Section Reference: The Business Model

68. Explain the relationship between your broad strategy, business model, and operating/tactical plan • • •

Broad strategies identify the competitive advantages the business will focus on to deliver its value proposition The business model describes how these competitive advantages will be created and sustained to deliver the value proposition to the customer Operating and tactical plans address the details of how the business model will be executed, are inherently flexible to change, and constantly being assessed and improved.

Learning Objective: 4.1 Describe the two components of the business model. Section Reference: The Business Model

69. What is the Lean Canvas, and how does it differ from the Business Model Canvas? • • • •

The Lean Canvas is very entrepreneur focused while mapping out all actionable business activities. With slight modifications made to the Business Model Canvas, the Lean Canvas was designed with the entrepreneur in mind. The key partners, key activities, key resources and customer relationships boxes are replaced with ‘problem’, ‘solution’, ‘key metrics’ and unfair advantage to allow the entrepreneur to focus on the core competencies during the startup phase. Often entrepreneurs will use the Lean Canvas during the startup phase, and then once they have started growing and making progress, they will transition to the Business Model Canvas.

Learning Objective: 4.1 Describe the two components of the business model. Section Reference: The Business Model 70. Provide an example of Amazon.com’s “drivers” that can influence the company’s revenue. •

Number of customers buying products from the site has the greatest influence on the revenues generated.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise • •

It is also important to know how much customers spend per purchase and how often they make purchases. Finally, the percentage of visitors who make a purchase and the number of times that customers visit the site before completing a transaction are also among Amazon’s revenue drivers.

Learning Objective: 4.1 Describe the two components of the business model. Section Reference: The Business Model

71. Discuss some considerations of executing a Freemium business model. • • • •

Distribution costs must be essentially zero, or negligible The conversion rate of free to premium customers will determine scalability COGS for free offering are effectively advertising costs, or must be allocated proportionally to premium offerings. Demand for all things free wildly outpace the demand for low cost offerings, even offering costing a dollar or less.

Learning Objective: 4.1 Describe the two components of the business model. Section Reference: The Business Model

72. Why do some products have COGS lower than others? • • •

Cost of raw materials is different for different products Labor costs are part of a company’s COGS and differ between companies. Due to economies of scale, COGS per unit lowers as you increase your output. If you produce more, you will have a higher aggregate COGS, but higher profits.

Learning Objective: 4.1 Describe the two components of the business model. Section Reference: The Business Model

73. Explain the importance of start-ups having clear values and hiring those who will share those values. • • •

Start-ups must be agile and adapt quickly. Clear values allow start-ups to retain alignment during multiple “pivots” during uncertain times. Entrepreneurs are time constrained to supervise execution, and an organization with clear values supported by its members can exercise more initiative with decentralized execution when organizational values are clear, accepted, and complimented with a sound strategy. Organizational values provide guidance in uncertain times

Learning Objective: 4.1 Describe the two components of the business model. Section Reference: The Business Model

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

74. What is long tail theory and how has a company like Amazon used it successfully? • • •

The long tail theory is focused on the shift in today’s culture away from mainstream products and blockbuster hits towards niche markets and specialty products or services. Products/services that fall into this part of the diagram include niche markets and specialty products that although they have low sales numbers, continue for a longer period of time. Amazon is a great example of a business strategy that maximizes the benefits of the long tail theory. Most of Amazon’s sales are generated from obscure and specialty books that are not available in the traditional, physical retail spaces such as Indigo or Chapters.

Learning Objective: 4.3 Describe the long-tail theory. Section Reference: Long-Tail Theory 75. Why do venture capitalists avoid dealing with entrepreneurs who claim that they don’t have any competition? • • •

If an entrepreneur claims there is no competition, it means he or she does not understand the market and substitutes for his or her product. Consequently, such an entrepreneur is likely to overestimate his/her competitive advantage. Every product has competition, even if that competition comes from an indirect source.

Learning Objective: 4.2 Explain why the ﬁrst-mover advantage is a myth. Section Reference: The First-Mover Myth

76. Discuss some check points an entrepreneur should confirm before expanding a product mix • • • •

Is the expanded product line delivering more value to existing customers or to new customers? Do the new products share portions of its value chain with existing products? Do new products enhance the switching costs? Do new products derive from the company’s competitive advantage?

Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy 77. What are some of the trade-offs of the first mover’s advantage? • •

You have to be first (or very early) into the market. You need to capture a large percentage of the market quickly.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise • •

You need to create switching costs so the customer will stick with your product or service, which can be extremely difficult in today’s Internet world. The process is very expensive.

Learning Objective: 4.2 Explain why the ﬁrst-mover advantage is a myth. Section Reference: The First-Mover Myth 78. Why is it so important to create the organization’s culture in the beginning of a startup? • • •

As the founder, you need to identify what values you want to drive your organization and instill them into your workforce. Values create the foundation on which your company will grow. While the original culture will evolve, companies tend to be derivatives of what they were in the past. Developing the correct culture at the beginning is critical for both the foundation and the future evolution of the company.

Learning Objective: 4.4 Describe the components required to formulate a winning business strategy Section Reference: Formulating a Winning Strategy

79. Explain why every startup that plans to grow must benchmark its competitors, devise an initial market test, and create a platform for its business. • • •

Benchmarking - learn “best practices” from firms that operate inside and outside your industry of interest. Initial Market Test - test your product/business model, find out where its strengths/weaknesses lie, and avoid the when you launch or scale the business. Creating a Platform – build yourself a base upon which to grow. A platform can be a vehicle for awareness and distribution.

Learning Objective: 4.1 Describe the two components of the business model. Section Reference: The Business Model

80. Describe business model available to digital businesses which may be impractical for a traditional “brick and mortar” businesses. • • •

Freemium because of lower COGS and distribution costs. Ad-supported because of extensive and growing reach of the internet Long-tail because digital companies can greatly increase offering without having to increase showroom/storefront space.

Learning Objective: 4.1 Describe the two components of the business model. Section Reference: The Business Model

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Chapter 5: Entrepreneurial Marketing True/False Statements 1. Marketing is at the heart of an organization because its role is to identify and serve customers’ needs. Answer: True Learning Objective 5.1 Explain why marketing is critical for entrepreneurs. Section Reference: Why Marketing Is Critical for Entrepreneurs

2. The marketing of products and services are similar. Answer: False Learning Objective 5.1 Explain why marketing is critical for entrepreneurs. Section Reference: Why Marketing Is Critical for Entrepreneurs

3. Customer acquisition and retention are the core processes of marketing. Answer: True Learning Objective 5.1 Explain why marketing is critical for entrepreneurs. Section Reference: Why Marketing Is Critical for Entrepreneurs

4. The scope of marketing ranges only from advertising to promotion. Answer: False Learning Objective 5.1 Explain why marketing is critical for entrepreneurs. Section Reference: Why Marketing Is Critical for Entrepreneurs

5. Many entrepreneurs rely heavily on their cash expenditures to achieve a compelling image in a noisy marketplace. Answer: False Learning Objective 5.1 Explain why marketing is critical for entrepreneurs. Section Reference: Why Marketing Is Critical for Entrepreneurs

6. New ventures must differentiate their product or service to make its distinctiveness and value clear to customer.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Answer: True Learning Objective 5.1 Explain why marketing is critical for entrepreneurs. Section Reference: Why Marketing Is Critical for Entrepreneurs

7. New ventures cannot survive in competition with larger corporations, since the latter can spend intimidating sums on marketing research, testing their strategies, or designing marketing campaigns. Answer: False Learning Objective 5.2 Identify the unique marketing challenges entrepreneurs face. Section Reference: Entrepreneurs Face Unique Marketing Challenges

8. Entrepreneurs frequently stumble in their marketing, because of personal biases and beliefs. Answer: True Learning Objective 5.2 Identify the unique marketing challenges entrepreneurs face. Section Reference: Entrepreneurs Face Unique Marketing Challenges

9. A segment is a group of customers defined by certain commonalities or characteristics that may be demographic, psychographic, or behavioral. Answer: True Learning Objective 5.3 Describe how entrepreneurs acquire market information. Section Reference: Acquiring Market Information

10. Entrepreneurs should not initially consider their resources and capabilities when first developing their marketing strategies. Answer: False Learning Objective 5.2 Identify the unique marketing challenges entrepreneurs face. Section Reference: Entrepreneurs Face Unique Marketing Challenges

11. Pay-Pal used freebie marketing, which is also known as lost leader marketing, to initially attract customers. Answer: True Learning Objective 5.2 Identify the unique marketing challenges entrepreneurs face. Section Reference: Entrepreneurs Face Unique Marketing Challenges

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

12. Targeting is essentially a linear process that is completed at the beginning of strategy formulation and is not repeated in the start-up phase. Answer: False Learning Objective 5.3 Describe how entrepreneurs acquire market information. Section Reference: Acquiring Market Information

13. Positioning a product or service with a distinct competitive advantage will ensure sustainable value over existing competition. Answer: True Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs

14. The stages of the product life cycle are introduction, growth, maturity, and introduction again. Answer: False Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs

15. Price promotions are short term and use regular price levels as a base from which to discount. Answer: True Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs

16. Distribution is not as problematic for service-based ventures as it is for those that manufacture goods. Answer: False Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise 17. Marketing communications convey messages to the market; messages about the company’s products and services, as well as about the company itself. Answer: True Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs

18. The three primary types of sales promotion are consumer promotions, trade promotions, and sales force promotions. Answer: True Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs

19. Sales focuses on a wide range of people while marketing typically focus on a smaller sub-set of individuals.

Answer: False Learning Objective 5.5 Describe guerrilla marketing. Marketing Skills for Managing Section Reference: Guerrilla Marketing

20. Guerrilla marketing consists of activities that are non-traditional, grassroots, and captivating, which gain consumers’ attention and build awareness of the company. Answer: True Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs

21. Guerilla marketing is, at its essence, an asymmetric manner of competing in which a low resource entrant seeks to outmatch competitors by concentrating creativity, boldness, agility, and local knowledge within their marketing methods that are practically (if not economically) difficult for larger competitors to imitate or keep pace with. Answer: True Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

22. People usually use guerrilla tactics in wide-spread advertising, rather than in personal selling. Answer: False Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs

23. Guerrilla tactics have become increasingly difficult to execute in recent years, because corporate marketing executives are now employing non-traditional tactics as well and have much larger budgets at their disposal. Answer: True Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs

24. Intuition-based decision making should always supersede other methods in planning a marketing campaign for an entrepreneurial startup. Answer: False Learning Objective 5.6 Describe two key marketing capabilities necessary for strong growth. Section Reference: Growth

25. Brand equity is the combined result of brand awareness and brand image. Answer: True Learning Objective 5.6 Describe two key marketing capabilities necessary for strong growth. Section Reference: Growth

26. Brand equity is always a positive influence for your company. Answer: False Learning Objective 5.6 Describe two key marketing capabilities necessary for strong growth. Section Reference: Growth 27. The customer’s direct experience with the brand has a strong effect on brand image.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Answer: True Learning Objective 5.6 Describe two key marketing capabilities necessary for strong growth. Section Reference: Growth

28. Early stage companies often find it necessary to scale up or change focus. Answer: True Learning Objective 5.6 Describe two key marketing capabilities necessary for strong growth. Section Reference: Growth

29. During the introduction phase of the product life cycle, marketers must cultivate customer loyalty and build the brand. Answer: False Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs

30. The cost-based method of pricing is marking up a product based on its cost plus a desired profit margin. Answer: True Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs

31. Channel partnerships and relationships have important implications for entrepreneurs. In fact, the channel member with the most power will often prevail in a competitive market. Answer: True Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs

32. Marketing helps entrepreneurs acquire resources by selling their ideas to potential investors and partners.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise Answer: True Learning Objective 5.6 Describe two key marketing capabilities necessary for strong growth. Section Reference: Growth

Multiple Choice 33. An important part of gaining the market’s acceptance is___. a) Building brand awareness b) Reducing the product’s cost of goods sold c) Franchising the brand d) Building celebrity client network e) None of the above. Answer: a Learning Objective 5.1 Explain why marketing is critical for entrepreneurs. Section Reference: Why Marketing Is Critical for Entrepreneurs

34. In addition to acquiring and retaining customers, marketing serves the venture by function as its___. a) Moral compass b) “Eyes and ears” in the marketplace c) Talent scouts. d) None of the above e) All of the above. Answer: b Learning Objective 5.1 Explain why marketing is critical for entrepreneurs. Section Reference: Why Marketing Is Critical for Entrepreneurs 35. It is difficult for small companies to save money on “media buys” because ___. a) they do not have a large enough advertising expenditure. b) their marketing is not creative enough to generate viral exposure. c) their product mix is too diverse. d) they are the first in a new market. e) None of the above. Answer: a Learning Objective 5.2 Identify the unique marketing challenges entrepreneurs face. Section Reference: Entrepreneurs Face Unique Marketing Challenges

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

36. Entrepreneurs market to which of the following audiences? a) Investors b) Business partners c) Customers d) Employees e) All of the above Answer: e Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs 37. Positioning describes a company’s offering relative to the product attributes that are most important to whom? a) Investors b) Shareholders c) Competitors d) Customers e) Marketers Answer: d Learning Objective 5.3 Describe how entrepreneurs acquire market information. Section Reference: Acquiring Market Information

38. Studies show that accurate pre-venture market analysis can reduce the failure rates of new ventures by what percent? a) 10% b) 30% c) 60% d) 80% e) 95% Answer: c Learning Objective 5.3 Describe how entrepreneurs acquire market information. Section Reference: Acquiring Market Information

39. The core product is______, while the augmented product collection of offerings are peripherally related to it. a) The brand b) The technology c) The cost d) The essential product

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise e) None of the above Answer: b Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs

40. A positioning statement has which of the following: a) Target group and need b) Brand and concept c) Point of difference d) All of the above e) None of the above Answer: d Learning Objective 5.3 Describe how entrepreneurs acquire market information. Section Reference: Acquiring Market Information 41. The entrepreneur’s decision on how to segment a market is critical because___. a) the entrepreneurs cannot go back to revise them in the future b) segmentation becomes the lens through which the market is viewed, and the choice of a particular lens can both highlight and obscure different critical aspects of the actual market. c) the segmentation function will often be outsourced to a marketing firm who requires clear instructions. d) None of the above Answer: b Learning Objective 5.3 Describe how entrepreneurs acquire market information. Section Reference: Acquiring Market Information

42. The rate at which people will accept and use a new product is illustrated by a: a) Position map b) Adoption Curve c) Linear growth model d) All of the above e) None of the above Answer: b Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

43. Customer understanding enables the entrepreneur to ______: a) create value. b) capture value. c) communicate value. d) deliver value. e) All of the above Answer: e Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs

44. Price discrimination is a pricing strategy that: a) Limits sales to a specific demographic. b) Charges different prices to different customer segments. c) Prices below the prevailing market prices in order to gain market share. d) Sets the price at a predetermined level above the per unit cost of production. e) None of the above Answer: b Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs

45. Which of the following most directly affects revenue, profits, and how consumers perceive a product’s position in the market? a) Pricing b) Promotion c) Place d) Product e) None of the above Answer: a Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs 46. The selection of a company’s key communication tools is determined by: a) Cost b) Target market c) Timing d) All of the above

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise e) None of the above Answer: d Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs

47. The communications mix includes a) Advertising, cross selling, investor relations, personal selling, and direct marketing. b) Advertising, sales promotion, public relations, personal selling, and direct marketing. c) Sales promotion, advertising, consumer relations, multi-level reselling, personal selling. d) A and C only. e) A and B only. Answer: b Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs

48. What type of strategy aims to proactively move the volume of products through the channel using tools such as trade promotions, trade shows, and personal selling to distributors? a) Pull strategy b) Push strategy c) Penetration pricing d) Product differentiation e) None of the above Answer: b Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs

49. Which of the following is an approach to Guerrilla Marketing? a) Identifying challenges and developing creative solutions. b) Using the “inherent drama” in your offerings to your benefit. c) Capturing people’s attention by targeting the local news media with a public, promotional event. d) Creating an entertaining digital video that can be viewed and shared online. e) All of the above Answer: e Learning Objective 5.5 Describe guerrilla marketing. Marketing Skills for Managing

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise Section Reference: Guerrilla Marketing

50. Entrepreneurs must obtain information that will allow them to understand consumer buying behavior and customer expectations related to: a) Product design, pricing, and distribution b) Product design, pricing, or distribution c) Product design or pricing d) Pricing and distribution e) Pricing or distribution Answer: a Learning Objective 5.6 Describe two key marketing capabilities necessary for strong growth. Section Reference: Growth

51. ______ is the customer's ability to recognize and recall the brand. a) Technique awareness b) Brand awareness c) Value awareness d) All of the above e) None of the above Answer: b Learning Objective 5.6 Describe two key marketing capabilities necessary for strong growth. Section Reference: Growth 52. Brand awareness is created through a customer’s exposure to what? a) Advertising or publicity b) Social media c) Education d) Promotion e) Price reductions Answer: a Learning Objective: Section Reference:

53. ______ are key marketing dimensions that set the strategic framework. a) Segmentation, targeting, and positioning b) Price, Promotion and Product c) Global Brand Awareness

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise d) Price setting e) None of the choices above Answer: a Learning Objective 5.3 Describe how entrepreneurs acquire market information. Section Reference: Acquiring Market Information

54. Price discrimination happens when a company charges different prices to different ____ segments. a) product b) customer c) risk d) A or B e) none of the above Answer: b Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs

55. Why must a company continue new product development even after launching a successful product into the market? a) To gain an advertising advantage b) Competition c) To keep the firm profitable d) To ensure maturity in the market e) Both B & C Answer: e Learning Objective 5.6 Describe two key marketing capabilities necessary for strong growth. Section Reference: Growth

56. The attractiveness of a market segment is related to its size, growth rate, and ___. a) cost b) price c) competitive advantage d) potential profit e) none of the above Answer: d Learning Objective 5.6 Describe two key marketing capabilities necessary for strong growth.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise Section Reference: Growth

57. A critical marketing task for a venture desiring high growth is to ___. a) In addition to serving current customers, marketers must rapidly identify, and acquire, new profitable segments to serve. b) Deepen relationships with current customers to determine which other segments they may belong to which the venture could also serve profitably. c) Develop a system to measure the effectiveness of marketing efforts that incorporates leading indicators. c) Develop a system to measure the effectiveness of marketing efforts that incorporates trailing indicators. d) All of the above. e) None of the above. Answer: d Learning Objective 5.6 Describe two key marketing capabilities necessary for strong growth. Section Reference: Growth 58. While segmentation profiles a company’s customers, what does positioning outline? a) Customer perceptions b) Cost c) Operational advantage d) Revenue e) None of the above Answer: a Learning Objective 5.3 Describe how entrepreneurs acquire market information. Section Reference: Acquiring Market Information 59. Some methods employed to develop a “listening system” include: a) Transactional surveys b) Customer advisory panels c) Cookies planted in customers’ computers when they visit a ventures web page. d) B and C only e) A and B only Answer: a Learning Objective 5.6 Describe two key marketing capabilities necessary for strong growth. Section Reference: Growth

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise 60. If a company can cultivate brand equity, what type of price can it expect loyal customers to pay? a) A fair price b) A minimum price c) A premium price d) A discounted price e) All of the above Answer: c Learning Objective 5.6 Describe two key marketing capabilities necessary for strong growth. Section Reference: Growth

61. All entrepreneurs face the need for brand building, which is ___. a) the task of building brand awareness. b) the task of building brand equity. c) the dual task of building brand awareness and building brand equity. d) building either brand awareness, or brand equity. e) the task of building other issues. Answer: c Learning Objective 5.6 Describe two key marketing capabilities necessary for strong growth. Section Reference: Growth

Open Ended 62. In your own words, define “marketing”. •

An organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stake holders.

Learning Objective 5.1 Explain why marketing is critical for entrepreneurs. Section Reference: Why Marketing Is Critical for Entrepreneurs

63. Why is marketing critical for entrepreneurs? •

Marketing is a vital process for entrepreneurs, because it builds awareness of your product and your company. Without brand awareness, even customers that would benefit from your service and would want to purchase your product will not.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise •

Marketing builds brand equity and imprints an image of your products in the minds of customers.

Learning Objective 5.1 Explain why marketing is critical for entrepreneurs. Section Reference: Why Marketing Is Critical for Entrepreneurs 64. What are the “4 P’s” of marketing, and which activities define them? The “4 P’s” of marketing are: product, price, place, and promotion. • The process of acquiring and retaining customers is at the core of marketing. Entrepreneurs must create the offer (design the product and set the price), take the offer to the market (place and distribution), and, at the same time, tell the market about the offer (promotion). Learning Objective 5.1 Explain why marketing is critical for entrepreneurs. Section Reference: Why Marketing Is Critical for Entrepreneurs

65. Why is the marketing done by entrepreneurs different from marketing done by established companies? •

Entrepreneurial marketing is different from marketing done by established companies for a number of reasons: o First, entrepreneurial companies typically have limited resources – both financial limitations and time constraints. o Entrepreneurs have little or no market share and a confined geographic market. As a result, they enjoy few economies of scale. o Not only is market information limited, but decision-making can be muddled by strong, personal biases and beliefs. Early-stage companies often stumble in their marketing because of a product focus that is excessively narrow. o Entrepreneurs market to multiple audiences: investors, customers, employees, and business partners. Because none of these bonds is well established for early stage companies, entrepreneurs must be both customer-oriented and relationship-oriented.

Learning Objective 5.2 Identify the unique marketing challenges entrepreneurs face. Section Reference: Entrepreneurs Face Unique Marketing Challenges

66. What methods can an entrepreneur leverage to identify the most appropriate price for his or her product? •

Cost-based pricing, competitive pricing, and perceived value pricing are three options. Perceived value pricing is especially viable for pricing a new or innovative product.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise • •

If possible, approach perceived value pricing with pre-market price testing, estimating the number of units customers will purchase at different price points. Two well known pricing strategies, which represent opposite ends of the pricing spectrum, are price skimming and penetration pricing.

Learning Objective 5.3 Describe how entrepreneurs acquire market information. Section Reference: Acquiring Market Information

67. What is the difference between price skimming and penetration pricing, and when will a skimming strategy be best? Why? • • •

Price skimming sets high margins; entrepreneurs can expect to gain limited market share because their prices will be relatively high. Penetration pricing aims to gain high market share with lower margins and relatively lower prices. However, the lower price may signal lower quality, especially in regards to a new product. For entrepreneurs with a product that brings something new to the marketplace, a skimming strategy is usually best. Unless channels of distribution are very well established, a penetration strategy, generally reserved for mature products, is hard to use to your advantage.

Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs

68. Distribution channel strategy includes three types of channel coverage, please define them. • •

•

Distribution channel strategy includes three types of channel coverage: intensive, selective, and exclusive. The appropriate strategy depends on the type of product or service that entrepreneurs will sell. Intensive coverage works for consumer goods and other fast-moving products. The carbonated soft drink category is one of the most intensively distributed: products are sold in supermarkets, drug stores, convenience stores, restaurants, vending machines, sporting event concessions, and fast food outlets. Selective distribution brings the product to specific distributors, often limiting selection geographically by establishing a dealer network. Kate Spade sells her handbags and other fashion accessories to high-end department stores but not to mainstream retailers or mass merchandisers. Selective distribution can protect dealers and retailers from competition, while helping manufacturers maintain prices by thwarting price competition.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise •

Exclusive distribution is often used for luxury products. For some time, NeimanMarcus had exclusive rights to distribute the Hermes line of very high-end leather goods and fashion accessories.

Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs

69. What are some defining characteristics of the five categories of people who engage with technology? • • • • •

The innovators (2.5%) are risk takers who have the resources to try new things. The early adopters (13.5%) are selective with which type of innovation they interact with. They are also more willing to convince others to use a product that they themselves enjoy. The early majority (34%), take their time before embracing a new trend in technology. They tend to accept a new technology when they fully understand how it works and how it can integrate within their lives. The late majority (34%), tend to adopt in response to peer pressure and embrace the norms of so Finally, laggards (16%) are traditional and take their time adopting any new technology. Most of their decision are based on past experiences and are often too economical to take on new risks.

Learning Objective 5.4 Describe the key dimensions and elements of a marketing strategy. Section Reference: Marketing Strategy for Entrepreneurs

70. What is guerrilla marketing, and what are the main categories of guerilla marketing? • Guerrilla marketing consists of activities that are non-traditional, grassroots, and captivating – that gain consumers’ attention and build awareness of the company. • Types of Guerrilla Marketing: o Word-of-Mouth marketing: “Giving people a reason to talk about your products and services, and making it easier for that conversation to take place.” o Buzz marketing: “Using high-profile entertainment or news to get people to talk about your brand.” o Viral Marketing: “Creating entertaining or informative messages that are designed to be passed along in an exponential fashion, often electronically or by e-mail.” Learning Objective 5.5 Describe guerrilla marketing. Marketing Skills for Managing Section Reference: Guerrilla Marketing

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

71. Why is defining what guerrilla marketing does easier than defining what it is? Guerrilla marketing is heard above the noise in the marketplace and makes a unique impact: • It makes people talk about the product and the company, in essence, relaying the brand message. • It creates drama and interest and positive emotion. • But, in fact, effective guerrilla marketing is as difficult – maybe more so – than good traditional marketing. Many companies are trying to do it, and because guerrilla marketing is nontraditional, tried and true marketing axioms seldom apply. Learning Objective 5.5 Describe guerrilla marketing. Marketing Skills for Managing Section Reference: Guerrilla Marketing

72. What are the key skills for managing growth and why? • Two key areas for entrepreneurs to focus on are understanding and listening to customers and building a visible, enduring brand. • Understanding the customer: o Although intuition-based decision making can work well initially, it has limitations. o Entrepreneurs must obtain information that will allow them to understand consumer buying behavior and customer expectations related to product design, pricing, and distribution. o Entrepreneurs following a high growth strategy need to continuously find new customer segments to support that growth. o There are a number of ways to listen to customers; some require formal research, and others use informal systems for soliciting information and scanning the market environment. • Building the Brand o All entrepreneurs face the need for brand building, which is the dual task of generating brand awareness and building brand equity. o Brand awareness is the customer's ability to recognize and recall the brand. Marketing practices that create brand awareness also help shape customer perceptions. o Brand equity is the cumulative value that customers associate with a company or product. Any positive perceptions and customer recognition add to a company’s brand equity. Learning Objective 5.6 Describe two key marketing capabilities necessary for strong growth. Section Reference: Growth

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise 73. Describe how an entrepreneur may think about selected primary and secondary target audiences from a segmented market. • Consider how critical your value proposition is to the customer segment. Are you selling “oxygen or Tylenol?” How essential is your product or service to THIS segment? • Can you access this segment NOW? Do you have the resources, knowledge, and capability etc. to link your value chain to this specific segment? If yes, how much of the segment? • How quickly does this segment require a product or services again to fulfill its needs after value is delivered the first time? Once a year, weekly, or three times per day? • How many competitors can serve this segment with an equal or greater value proposition? • What will be the effect of your marketing effects on this segment? Can you create loyal customers? Raving fans? One-time customers? • Can this segment be recognized clearly or does it require a lot of effort to actually know a member of a given segment is standing in front of you? Age, gender, and geographic locations are easily recognized. Ethnicity, religion, and language are recognized with a little more effort. However cultural proclivity, temperament, education level, and favorite color can take more effort to ascertain. Learning Objective 5.6 Describe two key marketing capabilities necessary for strong growth. Section Reference: Growth

74. Explain how your marketing listening system and market segmentation are intertwined. • Ultimately any venture is in search of the most profitable segments to serve, whether profit is defined as economic profit or a combination of economic profit and social value creation. • Segmentation is the process by which profitable segments are selected • Listening systems serve two purposes. First they help measure if you are serving your targeted segments effectively. Secondly, they should also measure if you are targeting the right segments. • A well-known example of this is Southwest Airlines versus all other airlines back in the late 1960’s and early 1970’s. Established airlines segmented their market by those who currently flew airlines. Southwest segmented the market to include people who travelled long distances…including by car. Southwest chose to serve this traveler segment by offering them an affordable way to fly instead of driving. Southwest then was able to measure effectiveness by paying attention to which service attributes would appeal most to new segments, such as existing air travelers who simply wanted the lowest price possible.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise Learning Objective 5.1 Explain why marketing is critical for entrepreneurs. Section Reference: Why Marketing Is Critical for Entrepreneurs

75. With all the discussion of the disadvantages an entrepreneur faces in marketing, what would be some of the advantages? • •

Flexibility allows the entrepreneur to adapt and modify any part of its value chain and business model based upon critical information gained from initial operations.. New products and services are not bound by established customer expectations which constrain established companies options. For example, even if as higher end “fast-casual” food becomes more and more popular, there is a limit to how much an established firm like McDonald’s or Burger King could hope to serve this segment. The customers perception of these established firms are simply too ingrained to change quickly.

Learning Objective 5.6 Describe two key marketing capabilities necessary for strong growth. Section Reference: Growth

76. What might be some common marketing mistakes likely to be made by an entrepreneur who is part of a one or two person marketing team? •

•

Trying to compete against larger players at their own game. The flashiest YouTube video advertisement will easily be outdone by a large competitor who can afford to hire George Lucas to make their advertisement. A more creative and edgy ad made with an iPhone and hand drawn caption signs can become viral if it reaches and resonates with its audience…especially if the video includes floating 40,000 rubber ducks with your company logo on it down a well-traveled river. Focusing on tactics before strategy. The principle job of the entrepreneur is to set strategy. Trial and error can modify and refine tactics, but this will only waster limited resources (including time) if not tied to a solid strategy. Military strategist Sun Tzu famously observed that “Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” Placing too great an emphasis on detailed marketing planning using secondary information at the expense of creating a simple base plan designed for flexibility with multiple conceptual-level contingency plans that will enable the entrepreneur to rapidly adapt and pivot as primary market data is gained through initial operations. Failing to realize that the condition which the original marketing plan was based on have changed substantially, turning the present plan from a profitable to unprofitable course of action. Entrepreneurs can fall in love with their marketing objectives, but not with the tactics that achieve those objectives. They must

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise remain flexible to change, because changing faster than the competition are one of the entrepreneurs few competitive advantages. Learning Objective 5.1 Explain why marketing is critical for entrepreneurs. Section Reference: Why Marketing Is Critical for Entrepreneurs

77. What are few tips on how to create content to go viral? Write a compelling title—Research has shown that a clever title can significantly increase an advertisements penetration rate. • •

Use strong emotional drivers to make people share and care—Hit the target audience hard and fast with emotional triggers, which will create maximum emotional excitement and uphold a viewer’s engagement. Create content that strikes the correct emotional chord—Negative emotions are typically not strong viral marketing stimulants, unless coupled with anticipation and the element of surprise. Emotions such as curiosity, amazement, astonishment, admiration and curiosity all work best in viral marketing ads.1

Learning Objective 5.1 Explain why marketing is critical for entrepreneurs. Section Reference: Why Marketing Is Critical for Entrepreneurs 78. For a rapidly growing company seeking greater growth, a large established channel partner who wishes to place large orders at high prices would seem like a great opportunity. What factors could make this a terrible idea for a new venture, that an entrepreneur must first look at? • Will you need to incur fixed costs to serve this channel partner, and what share of your present, and near-term revenue is this partner representing? This is necessary to avoid entering into a situation where your channel partners bargaining power is too great and where you will be unable to cover your fixed costs if they demand a lower price or volume in the future. • Does this channel partner compete with your other channel partners? There’s a reason many sports supplement companies only sell through certain outlets in certain regions. Channel conflict will result in price and promotion competition between channel partners in the same geographic (or virtual) marketplaces, and they will discount your product until their margin is too small for them to continue to be your partner, or until you refuse to lower your margin to preserve theirs. Future efforts to raise your price again through a new channel partner could be futile once the customer’s price expectations have been set lower. • Will the new channel partner require you to create new marketing initiatives that have little to nothing in common with your present efforts in existing segments? The impact of a new channel partner must be examined across your entire value chain to include advertising, productions, etc. A large customer could offer more gross margin, but force inefficiencies at scale that reduce your net margin.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Chapter 6: Selling in an Entrepreneurial Context True/False Statements 1. Value selling is a relationship-building process through which the salesperson communicates the potential value of a product or service to prospective customers. Answer: True Learning Objective: 6.1 Describe the mindset an entrepreneur needs for successful selling. Section Reference: Mindset for Successful Selling: Good Selling versus Bad Selling 2. In this context, opportunity is defined by the extent to which there is a good fit between a need in the marketplace and the entrepreneur’s offering. Answer True Learning Objective: 6.1 Describe the mindset an entrepreneur needs for successful selling. Section Reference: Mindset for Successful Selling: Good Selling versus Bad Selling

3. Establishing trust is important in entrepreneurial selling but not crucial during startup and early growth. Answer: False Learning Objective: 6.1 Describe the mindset an entrepreneur needs for successful selling. Section Reference: Mindset for Successful Selling: Good Selling versus Bad Selling

4. Providing follow-through after closing is not a component of the selling process. Answer: False Learning Objective: 6.1 Describe the mindset an entrepreneur needs for successful selling. Section Reference: Mindset for Successful Selling: Good Selling versus Bad Selling

5. Entrepreneurs most often pursue opportunities in markets that are settled with well-established customers. Answer: False Learning Objective 6.2 Describe how an entrepreneur ﬁnds, assesses, and prepares to pursue sales opportunities. Section Reference: Finding, Assessing, and Preparing to Pursue Sales Opportunities

6. The process of identifying and assessing the factors and trends in the external context that may

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

drive decision- making by customers is called environmental analysis. Answer: True Learning Objective 6.2 Describe how an entrepreneur ﬁnds, assesses, and prepares to pursue sales opportunities. Section Reference: Finding, Assessing, and Preparing to Pursue Sales Opportunities

7. Qualifiers are key success factors that set players apart from others in a given industry. Answer: False Learning Objective 6.2 Describe how an entrepreneur finds, assesses, and prepares to pursue sales opportunities. Section Reference: Finding, Assessing, and Preparing to Pursue Sales Opportunities 8. Knowing both the buyer and seller’s s requirements for success in a given industry should be important to the salesperson Answer: True Learning Objective 6.2 Describe how an entrepreneur finds, assesses, and prepares to pursue sales opportunities. Section Reference: Finding, Assessing, and Preparing to Pursue Sales Opportunities 9. Assessing the company’s competitiveness may start with an understanding of its strategic position compared to that of directly competing firms. Answer: True Learning Objective 6.2 Describe how an entrepreneur finds, assesses, and prepares to pursue sales opportunities. Section Reference: Finding, Assessing, and Preparing to Pursue Sales Opportunities 10. Government issued information is not a good data source to find out about a given customer’s industry. Answer: False Learning Objective 6.2 Describe how an entrepreneur finds, assesses, and prepares to pursue sales opportunities. Section Reference: Finding, Assessing, and Preparing to Pursue Sales Opportunities

11. A comprehensive understanding of the level of problems the customer is facing is not necessary for a value proposition. Answer: False Learning Objective 6.3 Describe how to develop a value proposition.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Section Reference: Developing a Compelling Value Proposition

12. Cold calling is less effective than warm calling. Answer: True Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities

13. Establishing relationships with gatekeepers is not beneficial to the should focus just on the individuals who make the decisions. Answer: False Learning Objective 6.3 Describe how to develop a value proposition. Section Reference: Developing a Compelling Value Proposition

14. Preparing for sales calls is not a major factor of sales success. Answer: False Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities

15. Establishing common ground is an important step when making first contact with a potential buyer. Answer: True Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities

16. Asking yes or no questions is tactic to make potential buyers feel comfortable. Answer: False Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities

17. A salesperson should ask for referrals for other buyers to build their network. Answer: True Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise 18. It’s important for new salespeople to view objections as rejection and move quickly on to the next customer. Answer: False Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities

19. It is important for the salesperson not to address common objections until the buyer raises them. Answer: False Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities 20. Trial closing shouldn’t take place until the very end of the buying process. Answer: False Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities 21. “He who speaks, loses” is an important closing technique outlined in this chapter. Answer: False Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities 22. As long as the seller is convinced that the buyer is best served by purchasing the seller’s product, then the appropriate approach by the seller is to be professionally persistent. Answer: True Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities

23. The job of the consultative salesperson (buying consultant) is to use professional skills, knowledge, and attitudes to help the buyer through the buying process to the optimal outcome. Answer: True Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities

24. The job is done when the purchase order is signed.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Answer: False Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities

25. The easiest sale is repeated sale to a satisfied customer. Answer: True Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities

26. Even highly competent salespeople do not quickly and easily establish trust with the buyer. Answer: False Learning Objective 6.5 Explain how to develop sales skills. Section Reference: Developing Sales Skills

27. You do not need practice or experience to be a competent salesperson. Answer: False Learning Objective 6.5 Explain how to develop sales skills. Section Reference: Developing Sales Skills

28. A deep understanding of the environmental context of both competitors and the target buyer is important for the salesperson. Answer: True Learning Objective 6.5 Explain how to develop sales skills. Section Reference: Developing Sales Skills

29. A good place for a salesperson to start is by building a pipeline of potential sales leads. Answer: True Learning Objective 6.5 Explain how to develop sales skills. Section Reference: Developing Sales Skills

30. The most important aspect of selling is a successful presentation of the features of the product or service. Answer: False Learning Objective 6.5 Explain how to develop sales skills. Section Reference: Developing Sales Skills

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

31. Sales training programs provide better sales training than on-the-job training and experience. Answer: False Learning Objective 6.5 Explain how to develop sales skills. Section Reference: Developing Sales Skills

32. For the most part, one does not need extensive experience to become a relatively competent and successful salesperson. Answer: True Learning Objective 6.5 Explain how to develop sales skills. Section Reference: Developing Sales Skills

33. The highly effective consultative salesperson will likely know as much or more about the customer’s environmental context, industry, and competitive strategy as does the customer. Answer: True Learning Objective 6.5 Explain how to develop sales skills. Section Reference: Developing Sales Skills

Multiple Choice

34. An individual who has a well-developed entrepreneurial mindset focuses on ____: a). Recognizing and assessing opportunity b) a proactive, passionate, persistent, and professional pursuit of the opportunity. c) Ability to apply pressure and manipulation to obtain customers d) A and B e) B and C Answer: d

35. The relationship-building process through which the salesperson communicates the potential value of a product to prospective customers is called ______: a) Hard selling b) Nonselling c) Value selling

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

d) Consultative selling e) Business-to-business selling Answer: c Learning Objective: 6.1 Describe the mindset an entrepreneur needs for successful selling. Section Reference: Mindset for Successful Selling: Good Selling versus Bad Selling

36. If it is in the prospective customers best interest to buy your product, you should help them. If it is not, you should help the customer to recognize that and steer them to another alternative. This is an example of: a) Consultative selling b) Passive selling c) Cold calling d) Hard selling e) Prospect selling Answer: a Learning Objective: 6.1 Describe the mindset an entrepreneur needs for successful selling. Section Reference: Mindset for Successful Selling: Good Selling versus Bad Selling

37. To determine which potential customers may have the greatest motivation to consider the offerings of a new entrant into the marketplace, the entrepreneur needs to develop deep understanding of: a) The overall environment in which the industry operates b) The characteristics of the industry c) The characteristics of each individual firm competing in that industry. d) All of the above e) None of the above Answer: d Learning Objective 6.2 Describe how an entrepreneur ﬁnds, assesses, and prepares to pursue sales opportunities. Section Reference: Finding, Assessing, and Preparing to Pursue Sales Opportunities

38. When an attractive industry is identified, then the seller begins identifying potential buyers, a process referred to as_______. a) Marketing b) Prospecting c) Distribution d) Channeling

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

e) None of the above. Answer: b Learning Objective 6.2 Describe how an entrepreneur ﬁnds, assesses, and prepares to pursue sales opportunities. Section Reference: Finding, Assessing, and Preparing to Pursue Sales Opportunities

39. To identify potential customers the entrepreneur needs to develop a deep understanding of: a) The environment in which the industry operates b) The characteristics of the industry c) Characteristics of each individual firm competing in that industry d) All of the above. e) None of the above. Answer: d Learning Objective 6.2 Describe how an entrepreneur ﬁnds, assesses, and prepares to pursue sales opportunities. Section Reference: Finding, Assessing, and Preparing to Pursue Sales Opportunities

40. What are the components of a commonly used framework for environmental analysis? a) Political and legal factors and trends b) Economic factors and trends c) Social and cultural factors and trends d) Technological factors and trends e) All of the above Answer: e Learning Objective 6.2 Describe how an entrepreneur ﬁnds, assesses, and prepares to pursue sales opportunities. Section Reference: Finding, Assessing, and Preparing to Pursue Sales Opportunities

41. The following are all frequently cited business industry imperatives except for: a) Minimum amount of market coverage b) Critical mass c) Minimum amount of marketing d) Required focus e) Required level of integration Answer: c Learning Objective 6.2 Describe how an entrepreneur ﬁnds, assesses, and prepares to pursue sales opportunities. Section Reference: Finding, Assessing, and Preparing to Pursue Sales Opportunities

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

42. Customers are willing to pay what category of service: a) Technology services b) Process support and improvement c) Sales and marketing support d) Administrative services e) All of the above Answer: e Learning Objective 6.3 Describe how to develop a value proposition. Section Reference: Developing a Compelling Value Proposition

43. The most effective communication is achieved through: a) Advertising b) Direct sales-buyer relationship c) Unique packaging and branding d) Consistent social media presence e) All of the above. Answer: b Learning Objective 6.3 Describe how to develop a value proposition. Section Reference: Developing a Compelling Value Proposition

44. A successful value proposition includes: a) Buyer’s Environment b) The buyer’s Industry c) Target customer d) Ability to articulate the value that would be added e) All of the above Answer: e Learning Objective 6.3 Describe how to develop a value proposition. Section Reference: Developing a Compelling Value Proposition

45. Reaching out at potential buyer without an established relationship is called: a) Guerilla marketing b) Cold calling c) Lead generation d) Gatekeeping e) Hard selling Answer: b Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

46. A secretary that answers the phone of a potential buyer is an example of: a) Decision influencer b) Decision maker c) Gatekeeper d) Decision approver e) None of the above Answer b or c Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities

47. Attending a cocktail reception for Information Technology professionals who may be potential buyers is an example of: a) Guerrilla marketing b) Networking c) Cold calling d) Conventional selling e) Selling through Answer: b Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities

48. When initial contact is made, the salesperson should first: a) Try to develop a relationship with the potential buyer b) Develop a precall planning list c) Immediately try to close the deal d) Ask to be introduced to key decision markers e) None of the above Answer: a Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities

49. The most important skills for a sales person are: a) Asking open questions, b) Active listening c) Observation d) all of the above e) B and C Answer: d Learning Objective 6.4 Explain how to pursue sales opportunities.

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Section Reference: Pursuing Sales Opportunities

50. It is common for inexperienced salespeople to misinterpret an objection as: a) Genuine interest from the buyer b) Rejection c) A closed deal d) A win-win e) None of the above Answer: b Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities

51. The best time to trial close is: a) At the beginning of the sales process b) At the end of the sales process c) Only after the sale has been made d) Throughout the buying process e) None of the above Answer: d Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities 52. Based on your understanding of our product, how do you see it fitting your needs?” is an example of what type of question? a) Closing question b) Hard selling c) A pressure tactic d) Pipeline generation e) Negotiation Answer: a Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities

53. As mentioned in this chapter, what is the easiest type of sale? a) A repeat sale made through cold calling a different department b) A sale made through internet marketing c) A sale made through networking d) A repeat sale to a satisfied customer e) A repeat sale to a dissatisfied customer

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Answer: Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities

54. As mentioned in the chapter, it is important to gather data and analysis for the selling/buying process in what area? a) Environmental context b) The industry c) The strategy d) The roles of the individuals within the company e) All of the above Answer: e Learning Objective 6.5 Explain how to develop sales skills. Section Reference: Developing Sales Skills

55. An important way to generate sales leads is through: a) Networking b) Email marketing c) Cold calling d) Company newsletters e) Website traffic Answer: a Learning Objective 6.5 Explain how to develop sales skills. Section Reference: Developing Sales Skills

56. According this chapter, the most valuable sales skill is: a) Focusing on the seller instead of the buyer b) Developing a successful presentation c) Focusing on understanding the benefits and features of the product d) Asking questions and listening effectively e) All of the above Answer: d Learning Objective 6.5 Explain how to develop sales skills. Section Reference: Developing Sales Skills

57. Mentioned in the chapter, asking questions and listening help the salesperson focus on the following, except for: a) Fully absorb what the buyer is communicating b) Uncover all the buyer’s issues, concerns, and objections that must be addressed c) Keep the engagement going forward to closure or until it’s clear that the process should be

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terminated d) Focus on applying pressure to make the sale e) Explore and document the buying process, including influencers, approvers, and decision makers Answer: d Learning Objective 6.5 Explain how to develop sales skills. Section Reference: Developing Sales Skills

58. According to this chapter, highly competent salespeople are able to quickly and easily ____ a) Make sales b) Get past the gatekeeper to the key decision makers c) Establish trust with the buyer d) Develop compelling sales presentations e) Turn objections into rejections Answer: c Learning Objective 6.5 Explain how to develop sales skills. Section Reference: Developing Sales Skills

59. The best way to fully develop the skill set of a highly competent salesperson is through: a) Internally sponsored training programs b) On-the-job training c) Outside training organizations d) Reading sales books and materials e) Obtaining an advanced degree in a sales field Answer: b Learning Objective 6.5 Explain how to develop sales skills. Section Reference: Developing Sales Skills

60. Why do many people entering sales never achieve competence in selling? a) Because they become discouraged and quit before becoming skillful and successful b) Because being skillful is a different skill set than being successful c) Because they receive too much support for sales managers d) Because they are often too direct and honest in the early stages of the sales process e) All of the above Answer: a Learning Objective 6.5 Explain how to develop sales skills. Section Reference: Developing Sales Skills

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Open ended 61. According to the chapter, what are a few differences between good and bad selling? • • •

Bad selling makes customers feel they are being manipulated into buying something they don’t want or need Bad selling can also take the form of non selling. If a customer needs the product being offered but the seller does not help the customer through the process. Good selling is a relationship-building process through which the salesperson communicates the potential value of a product or service to prospective customers. If the product is not a good fit for the customers needs, the salesperson is responsible for communicating this to the customer.

Learning Objective: 6.1 Describe the mindset an entrepreneur needs for successful selling. Section Reference: Mindset for Successful Selling: Good Selling versus Bad Selling

62. Define consultative selling Consultative selling focuses the seller’s effort on engaging with the buyer in a process of determining the ideal value proposition from the buyer’s perspective. Although the salesperson rarely has the freedom to ignore his or her firm’s own selling process, efficiency and effectiveness will improve to the extent that the seller can adapt and align the selling process to the buyer’s purchasing process.

Learning Objective: 6.1 Describe the mindset an entrepreneur needs for successful selling. Section Reference: Mindset for Successful Selling: Good Selling versus Bad Selling

63. What are industry imperatives and how are they different from core competencies? Industry’s imperatives are a collection of things a company must do. They are different from mere core competencies, which describe what a company does well. Imperatives are important for a company to know, because they must be observed for long-term success. Learning Objective 6.2 Describe how an entrepreneur ﬁnds, assesses, and prepares to pursue sales opportunities. Section Reference: Finding, Assessing, and Preparing to Pursue Sales Opportunities

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64. What are ‘strategic dilemmas and what is their importance for the salesperson? Strategic dilemmas are similar to forks in the road: A decision has to be made as to which fork to take, but it is not always clear which one. The entrepreneurial salesperson should look out for major strategic dilemmas confronting players in an industry. The strategic dilemmas will often drive a firm’s strategy to win. Customers place a premium on salespeople that demonstrate knowledge of a client firm’s strategic dilemmas. This demonstrates an understanding of the client’s business. Such understanding builds credibility and opens the door to more business. Beyond providing credibility with the customer, this kind of close relationship also reveals additional opportunities for the salesperson’s firm to deliver value to the customer, and hence to develop additional sales opportunities. Learning Objective 6.2 Describe how an entrepreneur ﬁnds, assesses, and prepares to pursue sales opportunities. Section Reference: Finding, Assessing, and Preparing to Pursue Sales Opportunities

65. What is a resulting experience? • • • • •

An event or sequence of events, physical or emotional, that happens in the customer’s life because of doing what some supplier business propose The end-result consequence of this event for the customer An experience that is superior, equal, or inferior in comparison to a customer’s alternative experience The value for the customer of this relative consequence Specific and measurable—one can objectively determine if the customer experienced the events, consequences, and value compared to alternatives

Learning Objective 6.3 Describe how to develop a value proposition. Section Reference: Developing a Compelling Value Proposition

66. What role does communication play in developing an effective value proposition? The process of understanding a customer’s environment, industry, and strategy to win in that industry is complex and demanding. However, done well, it provides a foundation for determining how to create value for a customer, which a salesperson must then convert into a compelling value proposition, and finally communicate and deliver to the customer. The most compelling communication is carried out through the direct salesperson–buyer relationship. The salesperson should be continuously communicating the value proposition to the client company.

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Learning Objective 6.3 Describe how to develop a value proposition. Section Reference: Developing a Compelling Value Proposition

67. What is a difference between a cold call and a warm call? • •

A cold call is when the salesperson reaches out via phone or e-mail to a customer with whom the they has no prior relationship and no reference to a trusted intermediary—is the least effective method of getting an appointment. A warm call is when the salesperson identifies an individual within the company with whom the salesperson has some connection and who might be willing to serve as an advocate on the salesperson’s behalf. This is a more effective way for the salesperson to get an audience with a decision maker.

Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities

68. What are some actions items that should be included in a precall planning list? • • • • • • • • • •

A written sales call objective A list of needs analysis questions to ask Something tangible to show—a prototype, a chart, a picture of the product or service in use by others A list of benefits that could be important to customers. An analysis of the customer’s investment return An analysis of points of difference vis-à-vis competitors A list of typical or likely concerns and objections that the customer might raise Strategies for handling/resolving each potential objection or concern Description of possible alternative scenarios for reaching agreement on a sale (closing strategies) A list of individuals with whom the salesperson will try to connect, including an assessment of whether each individual is a gatekeeper, influencer, decision approver, or decision maker

Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities

69. How does a salesperson start establishing common ground with a potential customer? When initial contact is made, the salesperson should engage first in trying to develop a relationship. It signals that the salesperson is genuinely interested in the buyer as a human being, rather than just a vehicle through which a transaction is to be made. It doesn’t have to take a lot of time, but it gets a conversation started. Generally, finding common ground starts with asking open questions, active listening, and observation—three of the most important skills of a

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successful salesperson. Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities

70. What is an objection and how does it differ from a rejection? Buyers may have reservations or concerns, which are referred to as objections. It is common for new salespeople to view objections as a form of rejection. In fact, as the buyer raises concerns, it shows that he or she is thinking about purchasing the salesperson’s product or service and has identified areas of concern where the product or service may not align properly with customer needs. Recognizing and understanding these misalignments gives the salesperson an opportunity to better understand the customer’s needs and address their concerns and issues. Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities

71. When is the right time to close and how does a salesperson utilize trial closes? The best time is when all the customer’s objections has been answered however, in actuality, the salesperson should be asking closing questions throughout the buying process. These trial closes are the salesperson’s way of checking whether the buying process is still on track, what issues the buyer still needs to get resolved before moving ahead, and the comfort level of the buyer. The salesperson is testing how far along the buyer is in the due diligence process and the readiness of the buyer to buy, and is looking for both buying signals and indicators from the buyer regarding remaining issues to be resolved. Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities

72. Why is follow-through so important to the selling process? Investing time and energy in ensuring follow-through and attentive customer service will generate a highly attractive return on investment, because customer service and support help lay the groundwork for future sales. Learning Objective 6.4 Explain how to pursue sales opportunities. Section Reference: Pursuing Sales Opportunities

73. What are some of the skills of successful and competent salespeople? •

Asking open questions to uncover all the buyer’s issues, concerns and objections

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise • • • •

Active listening fully absorb what the buyer is communicating—verbally and nonverbally Observation to understand the buying process, including influencers, approvers, and decision makers Establishing common ground and treat the buyer like a person Relatively quickly and easily establishing trust with the buyer and a shared commitment to achieving a mutually beneficial outcome from the buying process.

Learning Objective 6.5 Explain how to develop sales skills. Section Reference: Developing Sales Skills

74. How does a novice develop sales skills to become a highly competent sales person? • • • • •

Learning about them and practicing them in training programs Continually refreshing skills through periodic retraining On-the-job training is the only way to fully develop the skill set Ask for support and guidance from sales managers or veteran salespeople Selecting initial target customers who may be tolerant of a novice salesperson

Learning Objective 6.5 Explain how to develop sales skills. Section Reference: Developing Sales Skills

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Chapter 7: Building the Founding Team True/False Statements 1. A talented entrepreneur should be able to substitute for an experienced management team. Answer: False Learning Objective 7.2 List the beneﬁts of teamwork to entrepreneurs. Section Reference: Power of the Team

2. The size of your organization is inversely correlated to the amount of revenue your business can derive. Answer: False Learning Objective 7.2 List the beneﬁts of teamwork to entrepreneurs. Section Reference: Power of the Team

3. Hiring a salesperson is more attractive than increasing support staff in regards to revenue generated. Answer: True Learning Objective 7.2 List the beneﬁts of teamwork to entrepreneurs. Section Reference: Power of the Team

4. In the early years, it is critical for firms to focus on revenue-generating employees, instead of support staff. Answer: True Learning Objective 7.2 List the beneﬁts of teamwork to entrepreneurs. Section Reference: Power of the Team

5. Your team members can help you to evaluate feedback from outside sources. Answer: True Learning Objective: 7.3 Explain the various roles entrepreneurs can take in their business. Section Reference: Where Do You Fit?

6. A business superstar is unlikely to possess all the business skills needed for long term success. Answer: True Learning Objective: 7.3 Explain the various roles entrepreneurs can take in their business.

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Section Reference: Where Do You Fit?

7. If the business is your idea, it is best if you are the CEO. Answer: False Learning Objective: 7.3 Explain the various roles entrepreneurs can take in their business. Section Reference: Where Do You Fit?

8. Analysis of your resume will help you decide what other team members your firm needs. Answer: True Learning Objective: 7.3 Explain the various roles entrepreneurs can take in their business. Section Reference: Where Do You Fit?

9. Entrepreneurs who are overly conscious of their own weaknesses are more likely to fail Answer: True Learning Objective: 7.3 Explain the various roles entrepreneurs can take in their business. Section Reference: Where Do You Fit? 10. You can’t build a successful team unless you understand your strengths and the best place for you at the company. Answer: True Learning Objective: 7.3 Explain the various roles entrepreneurs can take in their business. Section Reference: Where Do You Fit? 11. The Myers-Briggs personality type indicator can accurately predict an individual’s likelihood for success in an entrepreneurial endeavor. Answer: False Learning Objective: 7.3 Explain the various roles entrepreneurs can take in their business. Section Reference: Where Do You Fit?

12. Certain personalities are better suited for entrepreneurship than others. Answer: False Learning Objective: 7.3 Explain the various roles entrepreneurs can take in their business. Section Reference: Where Do You Fit?

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13. Fast, dramatic growth can be a mistake for a business. Answer: True Learning Objective: 7.3 Explain the various roles entrepreneurs can take in their business. Section Reference: Where Do You Fit?

14. Early stage companies tend to be hierarchal. Answer: False Learning Objective: 7.4 Explain how entrepreneurs build successful teams. Section Reference: How to Build a Powerful Team

15. Entrepreneurship is hard work but most entrepreneurs become millionaires in five years. Answer: False Learning Objective: 7.5 Explain how entrepreneurs build teams based on stage-of-venture life. Section Reference: Bootstrapping: Building the Team Based on Stage-of-Venture Life

16. Co-founders of a start-up should work on every task and decision together. Answer: False Learning Objective: 7.4 Explain how entrepreneurs build successful teams. Section Reference: How to Build a Powerful Team

17. It is more common for teams to self-destruct because of personal conflicts than for lack of funding. Answer: True Learning Objective: 7.8 Explain the issues entrepreneurs face in keeping their team together Section Reference: Keeping the Team Together

18. If you decide to start a venture, you should notify your current employer as soon as possible. Answer: True Learning Objective: 7.5 Explain how entrepreneurs build teams based on stage-of-venture life. Section Reference: Bootstrapping: Building the Team Based on Stage-of-Venture Life

19. After you have started a business, it is a bad idea to combine your new job with working fulltime elsewhere. Answer: False

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Learning Objective: 7.5 Explain how entrepreneurs build teams based on stage-of-venture life. Section Reference: Bootstrapping: Building the Team Based on Stage-of-Venture Life

19. It often takes four months or more to identify and hire key employees. Answer: True Learning Objective: 7.5 Explain how entrepreneurs build teams based on stage-of-venture life. Section Reference: Bootstrapping: Building the Team Based on Stage-of-Venture Life

20. If employees own equity in the company, they usually work harder. Answer: True Learning Objective: 7.6 Describe the various forms of compensation entrepreneurs can oﬀer their teams. Section Reference: Compensation

21. In general, founder shares should be granted to at least 10 people. Answer: False Learning Objective: 7.6 Describe the various forms of compensation entrepreneurs can oﬀer their teams. Section Reference: Compensation

22. Founder shares should be distributed equally between all founders. Answer: False Learning Objective: 7.6 Describe the various forms of compensation entrepreneurs can oﬀer their teams. Section Reference: Compensation

23. It is a mistake to distribute the entire supply of options to existing employees. Answer: True Learning Objective: 7.6 Describe the various forms of compensation entrepreneurs can oﬀer their teams. Section Reference: Compensation

24. Startups should negotiate employee salaries below market levels. Answer: True

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Learning Objective: 7.6 Describe the various forms of compensation entrepreneurs can oﬀer their teams. Section Reference: Compensation

25. You may find an angel investor who will guide you at the early stages of your venture. Answer: True Learning Objective: 7.7 Describe the external team members entrepreneurs may hire. Section Reference: External Team Members

26. Free resources are poor substitutes for a qualified lawyer. Answer: False Learning Objective: 7.7 Describe the external team members entrepreneurs may hire. Section Reference: External Team Members

27. Board members should be encouraged to act in the best interest of the principal owner exclusively. Answer: False Learning Objective: 7.7 Describe the external team members entrepreneurs may hire. Section Reference: External Team Members

28. Company culture is incredibly difficult to change after it has been established. Answer: True Learning Objective: 7.8 Explain the issues entrepreneurs face in keeping their team together Section Reference: Keeping the Team Together

29. Less that half of successful high-growth companies had similar management elements. Answer: False Learning Objective: 7.1 Describe the three elements of the talent triangle. Section Reference: The Talent Triangle

30. The talent triangle refers to business acumen, operational experience and domain knowledge. Answer: True Learning Objective: 7.1 Describe the three elements of the talent triangle. Section Reference: The Talent Triangle

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31. The core five dimensions of a startup are: customer, product, team, business model and financials Answer: True Learning Objective: 7.3 Explain the various roles entrepreneurs can take in their business. Section Reference: Where Do You Fit?

32. Startups who scale prematurely focus on careful and consistent development of new customers. Answer: False Learning Objective: 7.3 Explain the various roles entrepreneurs can take in their business. Section Reference: Where Do You Fit?

33. Bottom up hiring is a very traditional approach to hiring and is often used by large, wellestablished, corporate organizations. Answer: False Learning Objective: 7.4 Explain how entrepreneurs build successful teams. Section Reference: How to Build a Powerful Team 34. Dilution refers to the change in an entrepreneur or current shareholder’s percentage of ownership when a company issues additional equity. Answer: True Learning Objective: 7.6 Describe the various forms of compensation entrepreneurs can oﬀer their teams. Section Reference: Compensation

Multiple Choice 35. According to a study by Babson College and London Business School, businesses with growth aspirations plan on employing more than 20 people within the next: a) 2 Years b) 3 Years c) 4 Years d) 5 Years e) None of the above Answer: d Learning Objective 7.2 List the beneﬁts of teamwork to entrepreneurs. Section Reference: Power of the Team

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36. How much, according to Deloitte & Touche, do restaurants generate in net income before taxes on average, approximately? a) 2% b) 3% c) 10% d) 13% e) 17% Answer: b Learning Objective 7.2 List the beneﬁts of teamwork to entrepreneurs. Section Reference: Power of the Team

37. Which of the following is true about teams? a) Teams provide constructive feedback for your ideas. b) Teams increase your contact network exponentially. c) Teams increase your revenue. d) Teams provide you with moral support. e) All of the above Answer: e Learning Objective 7.2 List the beneﬁts of teamwork to entrepreneurs. Section Reference: Power of the Team

38. Which of the following should the founder of the venture do first when deciding whether or not to be the CEO of his company? a) Ask for his/her friends opinion b) Take at least three personality tests c) Review his/her resume d) Work as a hired manager for at least 4 years e) Consult with his/her team members Answer: c Learning Objective: 7.3 Explain the various roles entrepreneurs can take in their business. Section Reference: Where Do You Fit?

39. Individuals that possess which of the following traits are most likely to launch their own businesses? a) Overly conscious of their own weaknesses b) An aptitude for benchmarking their competitors’ strengths c) Can objectively evaluate his strengths and weaknesses d) Emphasizes his or her strengths e) Oblivious to his or her own weaknesses

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Answer: e Learning Objective: 7.3 Explain the various roles entrepreneurs can take in their business. Section Reference: Where Do You Fit?

40. Which of the following personality traits best predicts entrepreneurial success? a) Analytical b) Driver c) Expressive d) Amiable e) None of the above Answer: e Learning Objective: 7.3 Explain the various roles entrepreneurs can take in their business. Section Reference: Where Do You Fit?

41. A study by Inc. 500 found that many CEOS had what quality in common? a) Patience b) An ability to work well under highly stressful conditions c) High risk tolerance d) A high IQ e) An ability to accept constructive criticism Answer: b Learning Objective: 7.3 Explain the various roles entrepreneurs can take in their business. Section Reference: Where Do You Fit?

42. According to Inc. 500, what percent of entrepreneurs start businesses with their friends or family members? a) Less than 5% b) About 10% c) About 20% d) Approximately 40% e) More than 65% Answer: d Learning Objective: 7.4 Explain how entrepreneurs build successful teams. Section Reference: How to Build a Powerful Team

43. What opportunities can a young company offer its potential team members? a) Growth into higher management positions b) Above average market salaries c) More attractive social benefits packages

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d) Secure and stable jobs e) All of the above Answer: a Learning Objective: 7.5 Explain how entrepreneurs build teams based on stage-of-venture life. Section Reference: Bootstrapping: Building the Team Based on Stage-of-Venture Life

44. Which of the following should an entrepreneur do when creating a venture? a) Expropriate her current employer’s intellectual property b) Use her employer’s resources for the new venture c) Notify her current employer about the intention to create a new venture d) Spend all her time working for the new venture e) Live off her savings Answer: c Learning Objective: 7.5 Explain how entrepreneurs build teams based on stage-of-venture life. Section Reference: Bootstrapping: Building the Team Based on Stage-of-Venture Life

45. According to the chapter, which of the following is not an acceptable means of maintaining an entrepreneurs’ personal cash flow? a) Working full-time and devoting time to the new venture b) Working part-time and devoting time to the new venture c) Living off personal savings d) Living for his/her spouses’ income e) All of the above are acceptable Answer: e Learning Objective: 7.6 Describe the various forms of compensation entrepreneurs can oﬀer their teams. Section Reference: Compensation

46. Which of the following is not a reason for distributing equity among employees? a) New companies often can’t pay market rates for salary and wages b) Including some equity in the compensation package aligns the employee with the company c) The sense of ownership boosts morale d) Distributing equity among employees reduces the risk of hostile takeover e) Having some equity, the team sticks together during the rough times in the early launch phase Answer: d Learning Objective: 7.6 Describe the various forms of compensation entrepreneurs can oﬀer their teams. Section Reference: Compensation

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47. How much equity is commonly set aside for employee options? a) 15-20% b) 20-25% c) 25-30% d) 35-40% e) 45-50% Answer: a Learning Objective: 7.6 Describe the various forms of compensation entrepreneurs can oﬀer their teams. Section Reference: Compensation

48. What is the most commonly used form of equity compensation? a) Restricted stock b) Phantom stock c) Options d) Stock appreciation rights e) None of the above Answer: c Learning Objective: 7.6 Describe the various forms of compensation entrepreneurs can oﬀer their teams. Section Reference: Compensation 49. None of the following tools are usually considered a reward for “sweat equity,” except: a) Founder shares b) Option pool c) Restricted stock d) Stock appreciation rights e) Phantom stock Answer: a Learning Objective: 7.6 Describe the various forms of compensation entrepreneurs can oﬀer their teams. Section Reference: Compensation

50. What are the disadvantages of distributing founder shares equally among all co-founders? a) The lack of a primary shareholder slows down the decision making process b) CEO may be doing as much work as CEOs of comparable companies, but have less potential upside c) Such distribution makes unwanted acquisitions easy d) A and B e) A and C

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Answer: d Learning Objective: 7.6 Describe the various forms of compensation entrepreneurs can oﬀer their teams. Section Reference: Compensation

51. Options give the holder the right to: a) Increase the number of the company shares he is allowed to purchase b) Buy a share in the company at a below-market rate c) Secure a salary increase on a regular basis d) Sell his stocks on the open market for more than the prevailing market price e) Demand a refund on his contribution to company’s equity Answer: b Learning Objective: 7.6 Describe the various forms of compensation entrepreneurs can oﬀer their teams. Section Reference: Compensation 52. What attribute characterizes “restricted stock”? a) Does not grant voting rights b) Cost less per share c) Become vested over time d) Has a reduced interest rate e) Higher liquidation priority than unsecured debt Answer: c Learning Objective: 7.6 Describe the various forms of compensation entrepreneurs can oﬀer their teams. Section Reference: Compensation

53. Stock appreciation rights of employees accrue only if: a) The stock price decreases b) Combined with options c) The employees perform well d) The stock price increases e) None of the above Answer: d Learning Objective: 7.6 Describe the various forms of compensation entrepreneurs can oﬀer their teams. Section Reference: Compensation

54. All of the following is true about phantom stocks except: a) They are expensed over the vesting period

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b) They give employees the right to own equity c) The company needs cash when phantom stocks are exercised d) They grant the holders additional voting power e) They lower the dilution effect Answer: d Learning Objective: 7.6 Describe the various forms of compensation entrepreneurs can oﬀer their teams. Section Reference: Compensation

55. Which of the following are not mentioned in the chapter as external team members? a) Board of Directors b) Lawyers c) Accountants d) Angel investors e): Foreign partners Answer: e Learning Objective: 7.7 Describe the external team members entrepreneurs may hire. Section Reference: External Team Members 56. What is the minimum expected level of lawyers’ fees? a) $50/hour b) $100/hour c) $150/hour d) $200/hour e) $250/hour Answer: c Learning Objective: 7.7 Describe the external team members entrepreneurs may hire. Section Reference: External Team Members

57. Which factor should you consider when choosing a lawyer: a) Size of the firm b) Billing rates c) A lawyer that has a deep knowledge of the industry d) If you get along e) All of the above Answer: e Learning Objective: 7.7 Describe the external team members entrepreneurs may hire. Section Reference: External Team Members

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58. Inappropriate sources of members for Board of Advisors include: a) Shareholders’ representatives b) Entrepreneurs c) Individual with insights about your target customer d) Your professors e) Venture capitalists Answer: a Learning Objective: 7.7 Describe the external team members entrepreneurs may hire. Section Reference: External Team Members

59. Why should you have one or two board members who can be considered independent? a) So they can act in the interest of the principal owner b) They are not susceptible to potential conflicts of interest c) They usually make the final decisions d) They have a long list of business and professional contacts e) They will answer the majority of the entrepreneur’s questions Answer: b Learning Objective: 7.7 Describe the external team members entrepreneurs may hire. Section Reference: External Team Members 60. Which of the following is true about a company’s culture? a) A company’s culture is relatively easy to change b) As a company grows, it is common for the culture to evolve c) More team members will fit your company’s culture over time d) Problems with the team do not arise in companies with strong culture e) All elements of a company’s culture constantly change Answer: b Learning Objective: 7.8 Explain the issues entrepreneurs face in keeping their team together Section Reference: Keeping the Team Together

61. By making your team members work long hours, you put them at risk of a) Burnout b) Family pressure c) Stress d) Reduced efficiency e) All of the above Answer: e Learning Objective: 7.8 Explain the issues entrepreneurs face in keeping their team together Section Reference: Keeping the Team Together

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62. You are least likely to resolve an interpersonal conflict in your team by: a) Firing one of the parties b) Hiring an outside expert who is perceived as a neutral party c) Explaining to the parties involved that their arguments reduce the team’s efficiency d) Mediating between the parties e) Transferring one of the parties to another team Answer: c Learning Objective: 7.8 Explain the issues entrepreneurs face in keeping their team together Section Reference: Keeping the Team Together

63. What are the management elements that make up the talent triangle? a) business acumen, operational experience and domain knowledge b) business acumen, profits and domain knowledge c) Investment backing, profits and operational experience d) Operational experience, domain knowledge and venture capital e) None of the above Answer: a Learning Objective: 7.1 Describe the three elements of the talent triangle. Section Reference: The Talent Triangle

64. Hiring specific people with specific skills and experience is referred to as_____. a) Top down hiring b) Premature scaling c) Talent Triangle d) Bottom Up hiring e) None of the above Answer: d Learning Objective: 7.4 Explain how entrepreneurs build successful teams. Section Reference: How to Build a Powerful Team

65. An individual, or group of individuals, who provides an intense developmental relationship whereby advice, counseling and developmental opportunities are given to a protégé is commonly referred to as a: a) Board of directors b) Mentor c) Angel Investor d) Board of Advisors e) None of the above Answer: b

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Learning Objective: 7.5 Explain how entrepreneurs build teams based on stage-of-venture life. Section Reference: Bootstrapping: Building the Team Based on Stage-of-Venture Life

Open ended 66. Explain why solo entrepreneurs are generally less successful than team players. • • • • •

A team is able to do more than the entrepreneur can on his or her own. Solo entrepreneurs suffer from a number of shortcomings, including a limited perspective, little moral support, and a small network Solo entrepreneurs often fail to get sufficient feedback on their ideas. If you build your team wisely you will gain access to a broader range of contacts. A team rounds out the skill set needed to launch a business

Learning Objective 7.2 List the beneﬁts of teamwork to entrepreneurs. Section Reference: Power of the Team 67. What are some of the methods used to identify an entrepreneur’s strengths and weaknesses? • • • •

Self-assessment Conducting feedback analysis Talk to people who know you well and whom you respect. Take a psychological or a personality test.

Answer: Learning Objective: 7.3 Explain the various roles entrepreneurs can take in their business. Section Reference: Where Do You Fit?

68. Explain how entrepreneurs should use psychological or personality tests as one way to develop self-awareness. • • •

The tests are designed to help individuals understand things like their underlying interests, motivations, and communication styles. However, they cannot accurately predict an individual’s likelihood for success in an entrepreneurial endeavor. Can only give you a deeper understanding of your strengths and weaknesses. Industry newsletter HRfocus recommends that you have a professional administer and interpret the test for you and that you take a test that has been statistically validated.

Learning Objective: 7.3 Explain the various roles entrepreneurs can take in their business. Section Reference: Where Do You Fit?

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69. What valuable contributions can your team members bring to your company? • • • •

Professional knowledge Money required to start a business Resources/contacts Managerial skills

Learning Objective: 7.3 Explain the various roles entrepreneurs can take in their business. Section Reference: Where Do You Fit?

70. What are some indicators of the right co-founders and team members for your start-up? • • •

Everyone can contribute meaningful skills to the business. You can work together without personal issues standing in the way. Your team members are excited about the venture and its future.

Learning Objective: 7.3 Explain the various roles entrepreneurs can take in their business. Section Reference: Where Do You Fit?

71. Describe what a sample staffing plan might look like. • • • •

Early on, you likely need only one or two other team members. Roles should be complementary and each co-founder should also participate extensively in shaping the vision of the business. The lead entrepreneur may take on the role of product development while the other founder does market development. If the team needs a strong finance person with previous experience raising equity capital, may want to identify that person but delay bringing him or her onto the team until needed

Learning Objective: 7.3 Explain the various roles entrepreneurs can take in their business. Section Reference: Where Do You Fit?

72. Describe the pros and cons of a dual job strategy at the early stages of the venture. • •

Pros: you have a source of cash for you to live on while you are developing your idea; you can keep the job if you see that your new start-up is not progressing well. Cons: dual jobs mean that you have to work over nights and weekends; you cannot use your current company’s resources or compete with it until you quit; and, simply, your current job limits the time that you can dedicate to the venture.

Learning Objective: 7.5 Explain how entrepreneurs build teams based on stage-of-venture life. Section Reference: Bootstrapping: Building the Team Based on Stage-of-Venture Life

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73. Give examples of compensations used to make your start-up attractive for valuable team members. • • • • •

Founder Shares Option pool Restricted stock Stock appreciation rights Phantom stock

Learning Objective: 7.6 Describe the various forms of compensation entrepreneurs can oﬀer their teams. Section Reference: Compensation

74. Explain the benefits, to the firm, of a vesting schedule for employee options and shares. • • •

Vesting basically means that people earn their shares or options over time, usually over four or more years. Without a vesting schedule, employees can leave the company soon after being hired and retain 100% of their options or shares. A vesting schedule adds additional incentives for employees to remain with the company for the entire vesting period, usually four or more years.

Learning Objective: 7.6 Describe the various forms of compensation entrepreneurs can oﬀer their teams. Section Reference: Compensation

75. How can entrepreneurs ensure that options improve organizational performance? • • • •

Employees need to fully understand the stock ownership program and how they will participate in it. Staff must know how to measure company success, know how company is doing, and how to achieve it through individual roles Entrepreneurs need to listen to their workforce for solutions or innovations. A stock ownership plan should offer employees a true opportunity to earn a financial reward.

Learning Objective: 7.6 Describe the various forms of compensation entrepreneurs can oﬀer their teams. Section Reference: Compensation

76. Who should you invite to join the Board of Advisors of your firm and why?

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise • • • •

Professors – for their fundamental knowledge Current and former entrepreneurs – for their practical knowledge and experience Professional investors such as venture capitalists and angels – for network extension and fund raising Suppliers for your firm – for insights about new customer and market trends

Learning Objective: 7.7 Describe the external team members entrepreneurs may hire. Section Reference: External Team Members

77. Describe the balance between too much and too little communication with a board of advisors. • • • •

Don’t email or phone every time you have a question. Try to find alternative answers on your own and accumulate questions. Prepare – so you can have more productive conversations. Touching base too rarely or when you want help raising money suggests interest only in the advisor’s network. Produce a monthly newsletter with information about the company’s progress.

Learning Objective: 7.7 Describe the external team members entrepreneurs may hire. Section Reference: External Team Members

78. Why are lawyers and accountants considered to be external members of your team? • • •

Your lawyer will most likely work very closely with you and will know everything about your company. Therefore, it is essential that he offers a highly customized service to you and his contributions are usually as important as those of your team members. An accountant is a trained business professional who can help you analyze the strengths and weaknesses of your company’s financial performance. He or she may be able to find ways to improve cash flow, strengthen margins, and identify tax benefits. Both lawyers and accountants represent another spoke in your network, as both groups frequently have a long list of business and professional contacts. This can include everything from potential partners, customers, angel investor networks, and venture capital firms.

Learning Objective: 7.7 Describe the external team members entrepreneurs may hire. Section Reference: External Team Members

79. Explain why company culture is important. • •

It is the key to building and growing a successful team. It evolves from the way the founders interact among themselves and with other employees. It reflects the values and skills of the CEO and other leaders.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise •

The most successful cultures are those rooted in core values and beliefs that are a part of the company’s mission, vision, and mantra.

Learning Objective: 7.8 Explain the issues entrepreneurs face in keeping their team together Section Reference: Keeping the Team Together

80. Three major problems your team may face are burnout, interpersonal conflicts and family pressure. Describe how you can prevent and overcome them. • • • •

Listen to each team member, not only about the progress of their assignments, but also about the stresses they may be feeling You can introduce stress-relieving activities, or bonding experiences such as the Friday happy hour, or the lunchtime basketball game Counsel your team members to set expectations for their families even before they join your team Resolve interpersonal conflicts as quickly as possible or they may escalate to the point where they are destructive – mediate, hire an outside expert, or fire one of the arguing parties

Learning Objective: 7.8 Explain the issues entrepreneurs face in keeping their team together Section Reference: Keeping the Team Together

81. Describe the type of person that would make up each component of the talent triangle. •

•

Business acumen: a team member with business acumen often has the title of President, CEO, or CFO, as he or she has the skills, knowledge and experience to make business decisions. This person is often responsible for the businesses’ success of the core competencies, HR management, investor relations and overall company development and growth. It is likely they have previous years of professional experiences and/or experience running a business and are familiar with the leadership role and have the ability to make toplevel decisions for the company. Operational knowledge: a team member with expertise in operational knowledge is focused on logistics, infrastructure and product development. Management with this experience often has titles such as VP of R&D, COO, and CTO. Day to day, they make decisions directly related to the businesses’ implementation and execution of the overall business plan. They are responsible for the building, shipping and support of the product or service the company is selling. Hands-on experience at the product development level, logistics management, inventory management and selecting outsourcing partners is critical for this person to succeed. Domain knowledge: the team member with domain knowledge understands the industry’s key value motivators, is aware of any domain impediments, ensuring that the company’s supply chain is not interrupted, as well as focuses on the necessary relationships within the industry to make the desired sales. Management possessing these qualities often has titles such as VP Sales, VP Business Development or Director of Corporate Development. This person must have direct hands-on experience within the target industry, even if it is from a larger, more corporate perspective.

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Learning Objective: 7.1 Describe the three elements of the talent triangle. Section Reference: The Talent Triangle

82. Premature scaling is often a problem for new ventures. List the factors that can cause premature scaling. • • • • • •

Failing to build a management team that covers all three points of the talent triangle Hiring too many or too few people to properly serve customer(s) Paying high salaries before the startup has a consistent and strong cash flow Attempting to increase the startup’s revenue while decreasing profit Failing to hire people who are sales oriented Not paying attention to the difference between users and customers

Learning Objective: 7.5 Explain how entrepreneurs build teams based on stage-of-venture life. Section Reference: Bootstrapping: Building the Team Based on Stage-of-Venture Life

83. What is the difference between top down and bottom up hiring? •

•

Top down hiring is a very traditional approach to hiring and is often used by large, wellestablished, corporate organizations. This approach is implemented when a company is looking for top executives or people with experience in the industry to join the team to bring in new leadership and management. Startups and new businesses often avoid taking a top-down hiring approach because there is a risk in the new employee not understanding the startup culture and might not be on the same page as the founder’s growth and scaling plan(s). When a company is taking a bottom up approach to its hiring practices, it hires specific people with specific skills and experience to fill a specific role. It can be considered a grassroots approach to building a company’s team, allowing them to find the right people to handle various tasks and responsibilities within the company. A bottom up approach to hiring can benefit a company that is trying to scale at an appropriate speed, bringing skilled people on for various responsibilities as they arise and the company grows. Employees can learn and adopt the corporate culture and values from the ground up, and develop alongside the company and other employees.

Learning Objective: 7.4 Explain how entrepreneurs build successful teams. Section Reference: How to Build a Powerful Team

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Chapter 8: The Business Planning Process True/False Statements 1. The chapter takes the view that the self-examination required to develop a tight, well written business plan is more important than the plan itself. Answer: True Learning Objective 8.1 Describe the business planning process. Section Reference: The Planning Process

2. The business plan must establish that there is an opportunity worth exploiting and must detail how to take advantage of it. Answer: True Learning Objective 8.1 Describe the business planning process. Section Reference: The Planning Process

3. Business planning, in a literal sense, begins when you start to look for external funds. Answer: False Learning Objective 8.1 Describe the business planning process. Section Reference: The Planning Process 4. It’s a common misperception that a business plan is primarily used for raising capital. Answer: True Learning Objective 8.1 Describe the business planning process. Section Reference: The Planning Process

5. Your business plan should be designed to be flexible, to allow for rapid adjustments as more information becomes available. Answer: True Learning Objective 8.1 Describe the business planning process. Section Reference: The Planning Process

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6. Since the executive summary is the most important part of the finished plan, an entrepreneur should write that section first, in order to frame the rest of the plan. Answer: False Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

7. New ventures will have better chances for success in an emerging market, on the verge of rapid growth. Answer: True Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

8. An important end result of the business planning process is that it allows the entrepreneur to articulate the business opportunity to various stakeholders in the most effective manner. Answer: True Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

8. Market analysis looks at current trends in the market; anticipating future trends is reserved for later steps in the business planning process. Answer: True Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

9. Competitive profile matrices can aid in identifying undeserved or vulnerable parts of the market susceptible to a new entrant. Answer: True Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

10. Both positive and negative trends will help shape the businesses. Answer: True Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

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11. The biggest risk any new venture faces is dilution of equity. Answer: False Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan 12. As mentioned in earlier chapters and reiterated in this chapter, “cost plus” pricing is the best strategy, because it wastes the least amount of time. Answer: False Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan 13. Your distribution strategy can define your company’s fortune as much as the product itself. Answer: True Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

14. Examining how customers currently acquire similar products is a poor use of time for an entrepreneur launching an innovative, new product. Answer: False Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

15. It is appropriate to discuss the geographic location of production facilities and how this enhances your firm’s competitive advantage. Answer: True Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

16. The Scope of Operations section should discuss partnerships with vendors, suppliers, and partners. Answer: True Learning Objective 8.3 Describe each section of a business plan.

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Section Reference: The Business Plan

17. A development strategy includes a schedule that highlights major milestones for the venture. Answer: True Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan 18. An ‘A’ entrepreneur with a ‘B’ idea is better than a ‘B’ entrepreneur with an ‘A’ idea.” Answer: True Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

19. A simple, flat organization chart is often useful to visualize what roles you have filled and what gaps remain. Answer: True Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan 20. The Board of Directors’ primary role is to oversee the company on behalf of the employees, and to that end the board has the power to replace top executives if it feels doing so would be in the best interests of the staff. Answer: False Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

21. Strategic partners are required by law to be offered seats on your Board of Directors. Answer: False Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan 22. It is important to explain why the team’s compensation is appropriate. Answer: True

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Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

23. Entrepreneurs often enter markets and find, to their surprise, either that direct competition does not exist, or that it is complacent and slow to react. Answer: False Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

24. The appendices of a business plan can include anything and everything that you think adds further validation to your concept, but does not fit in the main parts of the plan. Answer: True Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

25. All plans have risks, and a solid business plan should acknowledge critical assumptions made, the risk of those assumptions proving false, and a plan to confirm/deny those assumptions in a timely manner. Answer: True Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

26. A three-ring binder filled with initial intelligence can be a good starting point in the business planning process. Answer: True Learning Objective 8.1 Describe the business planning process. Section Reference: The Planning Process

27. The biggest difference between an internal operation plan and the one that you might present to a potential investor is the level of detail, which tends to be greater in the disclosure to the investor. Answer: False Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

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28. When presenting your plan, you should tailor the information, style, and format of the presentation to the information needs and formatting preferences of your audience. Answer: True Learning Objective 8.5 Describe how to do a written or oral business plan presentation. Section Reference: Style Pointers for the Written Plan and Oral Presentation 29. It’s best to keep an idea to yourself until it has been patented and developed. Answer: False Learning Objective 8.1 Describe the business planning process. Section Reference: The Planning Process

30. There are no regulations or restrictions on who business owners can seek capital from in Canada. Answer: False Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan 31. Roger’s Communications, a communications and media company, made a conscious effort to dramatically improve customer service and transparency in fees to its customers. Answer: True Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

32. Product development has rapidly evolved from the agile development to waterfall method. Answer: False Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

33. Having a unifying theme is an important part of the business plan story. Answer: True Learning Objective 8.2 Explain what a story model is. Section Reference: The Story Model

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Multiple Choice

34. Which of the following is not a reason that business planning can help entrepreneurs to articulate the business opportunity to stakeholders? a) The plan provides background information that enables the entrepreneur to communicate the upside potential to investors. b) It provides the validation needed to convince potential employees to leave their current jobs for the uncertain future of a new venture. c) It can help secure a strategic partner, d) It can help secure a key customer, or supplier. e) All of the above. Answer: e Learning Objective 8.1 Describe the business planning process. Section Reference: The Planning Process

35. A proper organization is critical to making a business plan easy to read. Thus, it should include which of the following? a) Major sections b) Sub-sections c) Exhibits d) Appendices e) All of the above Answer: e Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

36. Which of the following is the most important part of the business plan? a) Executive Summary b) Operations c) Team d) Critical Risks e) Financial Plan Answer: a Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

37. Detailed information which expands upon main areas of your business plan should be included in which portion of the plan?

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a) Operations b) Appendices c) Financial Plan d) Market Plan e) None of the Above Answer: b Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

38. Which of the following subsections is traditionally NOT placed in the executive summary? a) Description of opportunity b) Industry overview c) Critical risks d) Competitive advantage e) Team and offering Answer: c Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

39. When an entrepreneur understands who his customers are, he can assess _____: a) what compels them to make purchases. b) how his company can sell to them. c) the cost of sales. d) how his company can retain customers. e) All of the above. Answer: e Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan 40. A company’s sales channels can include all of the following except: a) Internal sales stream b) Retail c) Internet d) Cost reduction e) Direct mail Answer: d Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

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41. Advantages of a price skimming are: a) You can gauge what price the customer is willing to pay b) You’ll gain increased market penetration c) It’s easier to lower prices than to raise them d) A and B e) A and C Answer: e Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

42. If business planning predicts that your gross margins will be 5%, you would be best advised to: a) redesign your concept or abandon your concept. b) keep your business small so that you can manage costs. c) focus on guerilla marketing to target a niche. d) All of the above e) None of the above Answer: a Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

43. What are the two methods of forecasting future revenues, as stated in the chapter? a) The comparable method and the build-up method; b) The comparable method and the distributed method; c) The distributed method and the precise method; d) The random method and the precise method; e) None of the above. Answer: a Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

44. Which of the following is NOT a common category in the critical risks section? a) Market Interest and Growth Potential b) Competitor Actions and Retaliation c) Time and Cost of Development e) Operating Expenses f) Offering of Financing

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Answer: f Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

45. Which of the following is the key to creating visual catch-points in a business plan? a) Write long, descriptive paragraphs b) Use clearly marked headers and sub-headers throughout the document. c) Maintain 1 inch margins on the sides and top and ½ inch on bottom. Single spaced text. d) None of the above. e) All of the above. Answer: b Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

46. When writing a business plan it is best to: a) Use a creative format to capture the investor’s attention. b) Lead the plan with the TEAM section because investors often focus on the team members, rather than the idea. c) Follow a common outline because it helps spot reading. d) Avoid appendices because nobody reads them. e) All of the above. Answer: c Learning Objective 8.1 Describe the business planning process. Section Reference: The Planning Process

47. Which of the following is not a standard subsection of a marketing plan? a) Product strategy; b) Market strategy of the competitors; c) Pricing strategy; d) Distribution strategy; e) Sales strategy. Answer: b Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

48. Considerations to include in your Financing plan should include a) Options to slow the “burn rate” if needed. b) Financing requirements by phase of growth

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c) Milestones to be met between rounds of financing d) None of the above e) All of the above. Answer: e Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

49. Which of the following is a common subsection of an Operations plan? a) Operations strategy; b) Scope of operations; c) Ongoing operations; d) All of the above; e) None of the above. Answer: d Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

50. In the development plan, which issue should be the focus? a) Development strategy; b) Development timeline; c) Development segments; d) Both A and B; e) None of the above. Answer: d Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

51. How can entrepreneurs minimize risk?. a) Market research; b) Focus groups; c) Beta testing; d) All of the above; e) None of the above. Answer: d Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

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52. Considering competitor actions and reactions, which of the following would be dangerous for entrepreneurs? a) Assuming that competitors will be the same tomorrow as they are today. b) Identifying future competitors that might enter the market. c) Considering when and how your technology might become obsolete. d) None of the above; e) All of the above. Answer: a Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

53. Which of the following is not a goal of business planning? a) To attract various stakeholders; b) To help entrepreneurs gain a deeper understanding of the opportunity; c) To convince stakeholders of the business potential; d) To inform competitors of your intentions e) To convince potential employees to join. Answer: d Learning Objective 8.1 Describe the business planning process. Section Reference: The Planning Process

54. The best way to develop a winning business plan is to: a) Have an accountant develop your financials; b) Hire your professor to write the plan; c) Go through several iterations to refine the strategy and business model; d) Don’t bother writing a plan, it is not an efficient use of time; e) All of the above. Answer: c Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

55. Which of the following should NOT appear in the compensation section a) Salary previously earned from prior employment b) Salary due to employees c) A fixed schedule for increasing the entrepreneurs salary d) None of the above. Answer: c Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

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56. Which of the following is NOT in the operations plan? a) Locations b) Insurance c) Employees d) Suppliers e) Customers. Answer: e Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

57. Which of the following is not in the contents of marketing plan? a) Marketing communications; b) Growth strategy. c) Product mix d) Pricing; e) Customer analysis. Answer: b Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

58. To truly understand your customers, you MUST ___ a) tell them why they need your product. b) hire the best marketing research firm available. c) listen carefully and adapt based upon what they say. d) advertise in multiple media forms, like the Internet. e) All of the above Answer: c Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

59. Considerations in your offering section should include a) Asking for enough money to last 12-18 months b) Not asking for more money than you need. c) Not detailing the sources and uses of funds over time. d) None of the above e) A and B f) B and C

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Answer: e Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

60. Entrepreneurs should focus on the key success factors that often lead a customer to buy one product over another, such as___. a) Price b) Quality c) Speed d) All of the above; e) None of the above. Answer: d Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

61. One of the most pressing challenges for entrepreneurs is to maintain adequate levels of cash. Which of the following is the best way to ensure that a lack of cash does not bankrupt your startup? a) Raise initial capital. b) Give your customers, both businesses and individuals, generous credit terms. c) Carefully monitor your burn rate. d) Avoid accepting too much early capital in exchange for diluting your equity. e) Answers A and B. Answer: c Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

62. If you are thinking about venturing into a market and cannot find any competitors, what should you do as an entrepreneur? a) Begin raising capital. b) Examine additional opportunities within the same competitive arena. c) Focus on product quality. d) Expand your definition of the market. e) None of the above. Answer: d Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

63. What is a key element of the elevator pitch?

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise a) Irrefutable – the pain statement should not be subjective b) Greed Inducing – should illustrate how an investor can make money c) Easily Understandable - simple enough that both an investor and your Grandmother could understand it d) Succinct – short enough to be said in 3 to 4 sentences or 1 to 2 minutes e) All of the above. Answer: e Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

64. Kickstarter and Indiegogo are examples of what type of marketing and financing platform? a) Angel investing b) Micro-finance c) Crowd Sourcing d) Direct Mail advertising e) None of the Above Answer: b Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

65. What type of business plan was not mentioned in this chapter? a) Agile Method b) Business Model Canvas c) Lean Canvas d) Waterfall e) Project Delegation Method Answer: e Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

Open Ended 66. Inexperienced entrepreneurs often believe the misconception that a business plan is solely designed as a brochure for investors. The financial benefits of using a business plan to raise capital are well known. What are some additional benefits?

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Although a good business plan assists in raising capital, the primary goal of the process is to help entrepreneurs gain a deeper understanding of their venture and their opportunity: • Lacking a deep understanding of the business model, many would-be entrepreneurs doggedly pursue ideas that have no possibility of success. • Given the enormous financial and emotional toll a failed startup can have, the weeks or months it will take to complete a thorough business plan is a relatively small investment. • In comparison, the cost of launching a flawed business concept can quickly accelerate into millions in lost capital for the founders and investors. So entrepreneurs should spend the time and money up front and go through the planning process. Learning Objective 8.1 Describe the business planning process. Section Reference: The Planning Process

67. Generally speaking, what is the greatest benefit of the business planning process? The business planning process provides the entrepreneur with the deep understanding she needs to answer the critical questions various stakeholders will ask. Completing a wellfounded business plan gives the entrepreneur credibility in the eyes of each group. Subsequently, the entrepreneur understands the business and the opportunity more thoroughly and is able to better articulate both to various stakeholders. • First, the plan provides background information that enables the entrepreneur to communicate the upside potential to investors. • Second, it provides the validation needed to convince potential employees to leave their current jobs for the uncertain future of a new venture. • Finally, it can also help secure a strategic partner, key customer, or supplier. Learning Objective 8.1 Describe the business planning process. Section Reference: The Planning Process

68. What factors should be kept in mind when we are preparing the cover of the business plan? • •

• •

First, the contact person for a new venture should be the president or some other founding team member. Second, business plans should have a disclaimer along these lines: “This business plan has been submitted on a confidential basis solely to selected, highly qualified investors. The recipient should not reproduce this plan, nor distribute it to others without permission. Please return this copy if you do not wish to invest in the company.” The cover should also have a line stating which number copy it is. Finally, the cover should be eye-catching.

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Learning Objective 8.1 Describe the business planning process. Section Reference: The Planning Process

69. What kind of information in a business plan do entrepreneurs need to provide? • • • • • • • • • • •

A hook to capture the reader’s attention Description of Opportunity Business Concept Industry Overview Target Market Competitive Advantage Business Model and Economics Team and Offering Critical risks Financials Appendices

Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

70. What would be a counter-argument to the critique that business plans are obsolete soon after they are finished? Business planning, as with any planning, must be proportional to the amount and quality of available information. As start-ups often have more assumptions than facts in the early stages of a venture, an excessively detailed business plan will find most of its plans overcome by changing events. A good technique would be to develop a solid base plan, and then determine the assumption this plan depends upon, and determine how you’ll adjust your plan if those assumption prove false. Last, a deliberate plan to confirm/deny each critical assumption needs to be built into your base plan. Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

71. What are the key issues in the Industry Section? The goal of the Industrial Section is to illustrate the opportunity and how entrepreneurs intend to capture it, thus: • Entrepreneurs need to provide a context, including both the current market size and how much you expect it to grow in the future. • Entrepreneurs need to indicate what kind of market they’re facing.

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Another key attribute to explore is industry economics. Finally, entrepreneurs need to describe the overall industry in terms of revenues, growth and future trends that are pertinent.

Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

72. How should entrepreneurs introduce the basic details of their company, before moving on to a more detailed analysis of the marketing and operations plans? • • • •

Provide a brief overview of the concept for the company, and then highlight what the company has achieved to date. Take some time to communicate the product and its differentiating features. Identify market entry and growth strategies. Finally, sell the entrepreneur’s vision for the company’s long term growth potential.

Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

73. What are the critical risks entrepreneurs need to identify in the business plan? • • • • •

Market Interest and Growth Potential Competitor Actions and Retaliation Time and Cost to Development Operating Expenses Availability and Timing of Financing

Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

74. What slides are useful in oral presentations of your business? • • • • • • • •

Cover page showing product picture, company name, and contact information Opportunity description, which emphasizes a customer need Illustration of how the product or service solves the customer’s problem Some details to better describe the product Competition overview Entry and growth strategy, which show how to gain access into the market and then how to grow Overview of the business model Team description

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Current status with timeline Summary, including how much capital the venture needs and how that investment will be used

Learning Objective 8.5 Describe how to do a written or oral business plan presentation. Section Reference: Style Pointers for the Written Plan and Oral Presentation

75. Why should entrepreneurs go out and interview potential customers, especially in the early conceptualization stages? The typical reason is too often entrepreneurs figure that if they love their product concept, so should everybody else. But even if their needs and wants are the best place to start, they must recognize that their tastes may not be the same as everyone else’s. So to truly understand customers, they need to talk and listen to them. This process also helps create a product that is more likely to gain customer acceptance. As they get closer to launching, entrepreneurs will likely have a beta customer use their product or service to further refine the concept. The key once again is that business planning is the process, not the output (written plan). Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

76. What are the primary components of marketing plan section in a business plan? Describe them. • • • • • • •

a description of the target market strategy the product/service strategy pricing strategy distribution strategy advertising or promotion strategy sales strategy sales and marketing forecasts

Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

77. What are some of the critical outcomes of competitive profile and product attribute analysis in terms of your initial business plan. New entrants may not enjoy many (or any) direct competitive advantages against incumbent players, but no competitor can be strong everywhere. Analysis of competitors and products can reveal unexpected opportunities to deliver a superior value proposition

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to a portion of the market. This analysis can help confirm/deny the manner in which a new venture seeks to gain a foothold in the market but determining an approach that leverage your strength and while taking advantage of the competitions relative weakness. Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

78. Discuss the criticality of the financing portion and its connection to the offering section of the business plan. Many new ventures run out of cash. The financing plan needs to lay out the sources and uses of funds for the new venture, detail how invested funds will be used to de-risk the venture, and lay the groundwork for future profits. The offering section is where the funds are asked for, and how those funds will be used. If the offering section asks for too few funds, the venture may run out of cash before the next round of financing. If the offering sections asks for more cash than needed the founders equity and personal return is reduced. Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

79. Discuss the importance of critical risks management in your business plan. Every venture has risks. If a given return on investment is desired by an investor, then it is all too easy to adjust numbers and figure to yield a set of calculations that result in a high expected ROI. Investors are less concerned with your ability to conduct financial projections, but instead in your ability to connect the financial results to the underlying assumptions that will drive those results. The more critical assumptions that exist, the greater the perceived risk investing in your venture will be, for yourself, as well as an investor. A critical skill that can set an entrepreneur apart from others in not simply the ability to identify and assess the risks in a new venture, but to systematically confirm/deny those risks as early as possible in the life of a new venture. Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

80. Explain the importance of finding an entry point in the market analysis that holds a substantial (30-40%) gross margin for a new venture. As new ventures will burn through cash according to their business plan, many other things could happen that were not expected, and many of these events will undoubtedly require cash. Marketing expenses can be higher than expected, channel partners can have greater bargaining power than predicted, and input costs can rise unexpectedly. In order

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to have enough working capital to continue to meet growth milestones, high gross margins provide breathing room for the unexpected. High gross margins decrease the likelihood of running out of cash between finance rounds.

81. What are the 7 Ps that investors look for? List chronologically, from most important to least important. 1. People –Who are the people behind the venture? Can they successfully build a company? 2. Pain – The bigger the “pain” the company is solving, the better 3. Product – Is the product or service 10 times better, 10 times faster, 10 times cheaper. 4. Placement (industry) – Is the cumulative annual growth rate (CAGR) of the industry > 25% 5. Go to market Plan – Is the plan reasonable, not right 6. Pitch – Is the pitch clear, confident and concise 7. Proposal – Is the reward worth the risk Learning Objective 8.1 Describe the business planning process. Section Reference: The Planning Process

82. Describe the three types of competition. • • •

The first type of competitor is Direct Competition, which are companies that have a similar product offering, are in the same market, and target the same users The second type of competitor is Indirect Competition, which are companies that are in the same space, target the same users, but offer a different product or service. The last and most overlooked type of competition is Status Quo. People are usually set in their ways and typically do not like change.

Learning Objective 8.3 Describe each section of a business plan. Section Reference: The Business Plan

83. How and why would you use a persona in your business plan? Personas are fictitious characters that are created by marketers to target a specific customer segment. They aim to re-create a character that suffers from the same ailments as their target market. Marketers would then solve the personas ailment by using the company’s product or service. The goal of using a persona as a marketing tool is making the persona as relatable to target audience, thereby attracting more attention story being

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Chapter 9: Building Your Pro-Forma Financial Statements True/False Statements 1. It is better to let your accountant articulate the numbers of your business idea to potential investors. Answer: False Learning Objective 9.1 Identify common mistakes in entrepreneurs’ business proposals. Section Reference: Common Mistakes 2. Entrepreneurs who claim their estimates are “conservative” are usually overly optimistic about their ventures’ future. Answer: True Learning Objective 9.1 Identify common mistakes in entrepreneurs’ business proposals. Section Reference: Common Mistakes

3. Pro-forma financials often project sales occurring 5 years in the future. Answer: True Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

4. When we graph costs over time, we see them decreasing exponentially. Answer: False Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

5. Typically, a business begins to generate revenue within the first two months after it launches. Answer: False Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

6. Investors often predict the market share of startups as 3% after Year 3, because of the ease with which 3% can be captured. Answer: False Learning Objective 9.1 Identify common mistakes in entrepreneurs’ business proposals.

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Section Reference: Common Mistakes 7. An optimistic attitude about your business’s future helps achieve positive cash flow sooner. Answer: False Learning Objective 9.1 Identify common mistakes in entrepreneurs’ business proposals. Section Reference: Common Mistakes

8. The income statement shows the standing of a company at any given point of time. Answer: False Learning Objective 9.2 Provide an overview of the three standard ﬁnancial statements. Section Reference: Financial Statement Overview

9. The expenses that a business incurred appear on a different financial document than the amount of cash that it spent. Answer: True Learning Objective 9.2 Provide an overview of the three standard ﬁnancial statements. Section Reference: Financial Statement Overview

10. Many noncash transactions are represented in the balance sheet. Answer: True Learning Objective 9.2 Provide an overview of the three standard ﬁnancial statements. Section Reference: Financial Statement Overview

11. It is possible to have negative earnings on the income statement and a positive statement of cash flows. Answer: True Learning Objective 9.2 Provide an overview of the three standard ﬁnancial statements. Section Reference: Financial Statement Overview

12. For an asset to appear on the balance sheet it must generate revenue. Answer: False Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

13. Under rare occasions, we may introduce additional elements to the balance sheet equation.

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Answer: False Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

14. In the build-up method, you look at the revenue you might generate and the cost you might incur in a typical day. Answer: True Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

15. The first step in Revenue Projections is to calculate the median revenue of your products in the product mix. Answer: False Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements 16. Revenue projections help you to understand the company’s revenue drivers. Answer: True Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

17. Most pro-forma projections for new companies show monthly income figures for the first two years. Answer: True Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

18. Gross profit margin can be calculated by dividing the Cost of Goods Sold by Total Revenues. Answer: False Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

19. You should attempt to calculate your operating costs before you start a business. Answer: True

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

20. Financial analysis is simply the mathematical expression of an overall business strategy. Answer: True Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

21. The process of examining and reexamining your assumptions over and over is a waste of time Answer: False Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

22. In financial analysis, the step that follows forecasting revenues and expenses is formulating a cash flow statement from those forecasts. Answer: False

23. In the comparable method, you look at how your company compares to industry averages and benchmark companies. Answer: True Learning Objective 9.4 Use the comparable method to validate pro forma ﬁnancial statements. Section Reference: Comparable Method

24. Different companies may calculate COGS differently, even if their actual costs are identical. Answer: True Learning Objective 9.4 Use the comparable method to validate pro forma ﬁnancial statements. Section Reference: Comparable Method

25. Businesses should expect to build their sales and start operating efficiently within a five-year period. Answer: True Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

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26. Seldom are revenues in retail spread evenly across the calendar year. Answer: True Learning Objective 9.6 Prepare an overview of completed ﬁnancial statements. Section Reference: Putting It All Together 27. By closing your sales for credit, you can increase your company’s cash flow. Answer: False Learning Objective 9.5 Prepare integrated ﬁnancial statements. Section Reference: Building Integrated Financial Statements

28. The expense of acquiring land should appear in full on your annual income statement. Answer: False Learning Objective 9.5 Prepare integrated ﬁnancial statements. Section Reference: Building Integrated Financial Statements

29. If, after all calculations, your balance sheet does not balance, you should adjust retained earnings accordingly. Answer: False Learning Objective 9.6 Prepare an overview of completed ﬁnancial statements. Section Reference: Putting It All Together

30. It is critical to show the first two years of pro-forma projections on a monthly basis because this is when a company is most vulnerable to failure. Answer: True Learning Objective 9.6 Prepare an overview of completed ﬁnancial statements. Section Reference: Putting It All Together 31. Investors love it when they hear entrepreneur’s say that “they have no competition”. Answer: False Learning Objective 9.1 Identify common mistakes in entrepreneurs’ business proposals. Section Reference: Common Mistakes

32. It is important to overestimate when creating financial models, especially during the initial phases of their startup.

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Answer: False Learning Objective 9.2 Provide an overview of the three standard ﬁnancial statements. Section Reference: Financial Statement Overview

33. A company can calculate its CLV by taking the total number revenue divided by the total number of customers. Answer: False Learning Objective 9.2 Provide an overview of the three standard ﬁnancial statements. Section Reference: Financial Statement Overview

34. Cost of client acquisition refers to all of the incurred costs associated in a single customer purchasing a company’s product and/or service. Answer: True Learning Objective 9.2 Provide an overview of the three standard ﬁnancial statements. Section Reference: Financial Statement Overview

35. Many technology and online driven new companies are very scalable because of their lower cost of goods sold. Answer: True Learning Objective 9.2 Provide an overview of the three standard ﬁnancial statements. Section Reference: Financial Statement Overview

36. Financial statements are based on reasonable assumptions and represent predictions of a company’s performance; whereas financial models are hard numbers based on the company’s past performance. Answer: False Learning Objective 9.5 Prepare integrated ﬁnancial statements. Section Reference: Building Integrated Financial Statements

Multiple Choice 37. Which of the following is not a common mistake of entrepreneurs? a) Underestimating costs b) Finding a lack of comparable companies c) Underestimating the time required to secure financing d) Underestimating power of going public

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e) Expecting to generate revenues within too short of a timeframe Answer: d Learning Objective 9.1 Identify common mistakes in entrepreneurs’ business proposals. Section Reference: Common Mistakes

38. An income statement will never include a line for: a) Depreciation b) COGS c) SG&A costs d) Taxes on profits e) Accounts payable Answer: e Learning Objective 9.2 Provide an overview of the three standard ﬁnancial statements. Section Reference: Financial Statement Overview 39. The bottom line of the income statement states the company’s _______. a) net size b) net income c) revenue less expenses d) net assets value e) gross profit margin Answer: b Learning Objective 9.2 Provide an overview of the three standard ﬁnancial statements. Section Reference: Financial Statement Overview

40. The statement of cash flows starts with which of the following? a) Net Income b) Costs c) Expenses d) Net Assets e) Net Liabilities Answer: a Learning Objective 9.2 Provide an overview of the three standard ﬁnancial statements. Section Reference: Financial Statement Overview

41. Under the Build-Up Method, you should start with the: a) Income statement b) Balance Sheet c) Statement of Cash Flows

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d) Industry averages e) None of the above Answer: a Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

42. The build-up method drills down revenue projections to a typical ______. a) hour b) day c) month d) quarter e) year Answer: b Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

43. In the build-up method, after you identify all your revenue sources, what is the next step? a) Identify all your costs b) Think about how much revenue you can generate in a year c) Determine operating expenses by the most appropriate time frame d) Break down revenue into a typical day e) Write a two- to three- page description of financial statements Answer: a Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

44. Gross margin is calculated with the formula a) Revenue plus COGS b) Gross Profit times COGS c) Price plus Gross Profit d) Revenue minus COGS e) Revenue times profit Answer: d Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

45. Which of the following columns is not included in the revenue worksheet? a) Product/Service Description b) Price

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c) Units Sold d) Units Ordered e) Total Revenue Answer: d Learning Objective 9.4 Use the comparable method to validate pro forma ﬁnancial statements. Section Reference: Comparable Method

46. Which of the following can be used to strengthen your assumptions? a) Industry research b) Competitor analysis c) Own observations d) Surveying customers e) All of the above Answer: e Learning Objective 9.4 Use the comparable method to validate pro forma ﬁnancial statements. Section Reference: Comparable Method

47. The following are examples of operating expenses, except: a) Property purchases b) Rent expenses c) Interest expenses d) Salaries e) Administrative expenses Answer: a Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

48. According to the chapter, the process of creating a detailed schedule of every operating expense is called: a) Clarifying b) Purifying c) Refining d) Polishing e) Improving Answer: c Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

49. A financial statement that displays each item as a percentage of a common-base figure is called:

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a) A Keynesian statement b) A common-size statement c) A statement of residuals d) A comparable statement e) A matching statement Answer: b Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

50. What does the Comparable Method help an entrepreneur to do? a) Estimate project cost b) Research the industry c) Benchmark competitors d) Calculate operating expenses e) Validate projections Answer: e Learning Objective 9.4 Use the comparable method to validate pro forma ﬁnancial statements. Section Reference: Comparable Method

51. Under the Comparable Method, you can see how the model changes overall when you: a) Increase your revenues b) Leverage your drivers c) Tweak your inventories d) Change one of the assumptions e) Decrease your costs Answer: d Learning Objective 9.4 Use the comparable method to validate pro forma ﬁnancial statements. Section Reference: Comparable Method

52. An entrepreneur must be able to ___________, if his income statement does not match the industry average? a) remove any information that deviates from the average b) adjust and refine your metrics accordingly c) understand and explain the differences d) change the metrics to more appropriate ones e) rewrite your projections from scratch Answer: c Learning Objective 9.4 Use the comparable method to validate pro forma ﬁnancial statements. Section Reference: Comparable Method

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53. The chapter recommends that you should construct monthly income and cash flow statements for the first: a) 1 year b) 2 years c) 3 years d) 4 years e) 5 years Answer: b Learning Objective 9.4 Use the comparable method to validate pro forma financial statements. Section Reference: Comparable Method

54. The standard term for most business plans is: a) 2 years b) 4 years c) 5 years d) 8 years e) Until the break-even date Answer: c Learning Objective 9.5 Prepare integrated ﬁnancial statements. Section Reference: Building Integrated Financial Statements

55. If a business is profitable and growing, which of the following is most likely to be a reason for failure? a) High COGS b) Low clientele c) Strong competition d) Failure to estimate the size of the market e) Insufficient financing Answer: e Learning Objective 9.5 Prepare integrated ﬁnancial statements. Section Reference: Building Integrated Financial Statements

56. According to the chapter, it takes time to: a) Build up your clientele b) Learn to operate efficiently c) Develop track record d) Understand seasonality e) All of the above Answer: e

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise Learning Objective 9.5 Prepare integrated ﬁnancial statements. Section Reference: Building Integrated Financial Statements

57. It is critical to show the pro-forma projections on a monthly basis when a company is: a) Experiencing negative cash flow b) Not earning any revenue c) Most vulnerable to failure d) Facing strong competition e) Managing an inventory-to-asset ratio of 10% or higher Answer: c Learning Objective 9.5 Prepare integrated ﬁnancial statements. Section Reference: Building Integrated Financial Statements

58. Seasonality is important because it affects which of the following: a) Product or service demand b) Financial decisions c) Key operations and decisions such as hiring d) A & C e) All of the above Answer: e Learning Objective 9.5 Prepare integrated ﬁnancial statements. Section Reference: Building Integrated Financial Statements

59. What effect can selling on credit have on your business? a) Reduce assets b) Decrease accounts payable c) Delay cash inflows d) Reduce liabilities e) Increase inventory Answer: c Learning Objective 9.6 Prepare an overview of completed ﬁnancial statements. Section Reference: Putting It All Together

60. An accumulated depreciation line item on your balance sheet shows how much of the asset has been: a) Used up b) Acquired c) Written-off d) None of the above e) All of the above

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Answer: a Learning Objective 9.6 Prepare an overview of completed ﬁnancial statements. Section Reference: Putting It All Together

61. How long should the explanation of the financial statements be? a) 1 page b) 2 - 3 pages c) 10 - 15 pages d) Approximately 20 pages e) 25 - 30 pages Answer: b Learning Objective 9.6 Prepare an overview of completed ﬁnancial statements. Section Reference: Putting It All Together

62. Approximately how many subsections in the section of the planning process should your explanation of the financial statements have, if you follow the model in the chapter? a) 1 b) 3 c) 4 d) 7 e) 8 Answer: c Learning Objective 9.6 Prepare an overview of completed ﬁnancial statements. Section Reference: Putting It All Together

63. What is the best way to validate costs? a) Validating costs is not necessary. b) Adjust your business model. c) Ask your customers. d) Compare your balance sheet with your competitors’ balance sheets. e) Compare your common-sized income statement with the industry averages or some benchmark companies. Answer: e Learning Objective 9.6 Prepare an overview of completed ﬁnancial statements. Section Reference: Putting It All Together

64. What is type of competition are present in industry? a) Pure Competition b) Imperfect Competition

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c) Oligopoly d) Monopoly e) All of the above Answer: e Learning Objective 9.1 Identify common mistakes in entrepreneurs’ business proposals. Section Reference: Common Mistakes

65 .What is the calculation that entrepreneurs have to consider when developing their financial models? a) Average revenue per user/unit (ARPU) b) Customer lifetime value (CLV) c) Trailing twelve-month profit margin (TTM). d) All of the above e) Calculations aren’t important to developing financial models Answer: d Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

66. What questions are financial models and statements NOT able to answer? a) Is there enough business acumen in the management team to move forward? b) Is the business sustainable? c) Is the business culture suitable for growth? d) Is the business scalable? e) What is the variability of the business? Answer: c

67. Which of the following is NOT a type of revenue model? a) Recurring revenue b) Technology revenue c) Transactional revenue d) Project revenue e) Services revenue Answer: b Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

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Open ended 68. Explain why it is important to construct pro forma financial statements for new ventures. • Building pro forma statements helps a lead entrepreneur to understand the numbers. • Financial statements serve to bridge the entrepreneur’s great idea and what that idea amounts to, in terms of dollars and cents. • A startup does not have any past trends in revenue and costs. Therefore, you cannot use the past as a basis to project future revenues and costs; you need to forecast them. Learning Objective 9.1 Identify common mistakes in entrepreneurs’ business proposals. Section Reference: Common Mistakes 69. What is a “hockey stick” projection and what is so unrealistic about it? • A “hockey stick” graph is a projection of costs and revenues, when revenues skyrocket over time while costs slowly progress upward. • This faulty projection means that the entrepreneur underestimates the infrastructure needed in terms of employees and physical assets to achieve the projected level of sales. • Poor projections lead to cash shortages and, ultimately, to failure. Learning Objective 9.1 Identify common mistakes in entrepreneurs’ business proposals. Section Reference: Common Mistakes

70. What is the difference between the respective purposes of the balance sheet and the income statement? • • •

The balance sheet enumerates all the company’s assets, liabilities and shareholder equity. It reflects a company’s state of affairs at a given point of time. The income statement describes how well a company conducted its business over a period of time. Both of them form a basis that helps you to understand the company and how it is doing

Learning Objective 9.2 Provide an overview of the three standard ﬁnancial statements. Section Reference: Financial Statement Overview

71. Briefly describe the principle of the build-up method and its advantages. • •

Identify all your sources of revenues and determine your revenues for a “typical day” Understand your revenue drivers and validate driver assumptions, multiply the typical day by the number of days in a year

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise • • •

Determine Cost of Goods Sold (COGS) for typical day, multiply COGS by number of days in a year Determine operating expenses by most appropriate time frame and refine operating costs Create preliminary income statement

The build-up method gives you a better understanding of the business and how it functions every day, its cycles, etc. This method allows you to overcome the often intimidating task of building a pro-forma financial statement by reducing the task to small, easily understood pieces. Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

72. When building a revenue worksheet, an entrepreneur has to begin with certain assumptions. What are three ways for an entrepreneur to later strengthen those initial assumptions? • • •

Observe the behavior of customers of similar businesses. Learn about customer needs through analytical and empirical research (surveys, market reports, articles, etc.). Benchmark your competitors.

Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

73. What is the purpose of creating a headcount table? A headcount schedule is an important step in refining your labor projections. It allows you to break down a day into hours and predict peaks and lulls in intraday customer activity. The table also helps you to identify how many employees you will need, when you will need them, and thereby project salary expenses. Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

74. Explain the comparable method. • • •

In the comparable method, you look at how your company compares to industry averages and benchmark companies. First, gauge whether your revenue projections and your cost structure are reasonable. Then run some scenario analysis. By going through scenario analysis and understanding your business model, you should be able to explain why your firm differs

Learning Objective 9.4 Use the comparable method to validate pro forma ﬁnancial statements. Section Reference: Comparable Method

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75. What is the importance of building integrated financial statements? • • • •

The income statement, cash flow, and balance sheet are the core statements for managing any business. Integrated financial statements answer the questions of when you expect to start making revenue, run out of cash, and become profitable, and how you are going to grow your business through the most dangerous stages of any venture’s life. The integration among the statements helps you to find out how a change in one affects the others. Additionally, monthly statements open new perspectives, ones that you might have otherwise missed.

Learning Objective 9.5 Prepare integrated ﬁnancial statements. Section Reference: Building Integrated Financial Statements 76. Explain what a “brief description of your financial spreadsheets” should include. • • • • •

It should be a two to three page explanation of the financial spreadsheets. This section of the planning process should include a description of the key drivers that affect your revenues and costs. The first subsection should discuss the income statement. The next subsection should discuss the cash flow statement. The final subsection explains the balance sheet.

Learning Objective 9.5 Prepare integrated ﬁnancial statements. Section Reference: Building Integrated Financial Statements

77. The chapter says financial statements are obsolete immediately after they come off the printer. Why? • • • • •

Once the business is operating, the nature of your financial statements changes. Your operations will not match your predictions. There may be some factors you did not take into account or some that you were ultimately wrong about. Also, since business environment is very flexible, you will have to constantly adjust your financial statements accordingly. Financial statements cover specific periods of points in time. That relevant moment in time is over before the statements are read.

Learning Objective 9.6 Prepare an overview of completed ﬁnancial statements. Section Reference: Putting It All Together

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78. What are examples of revenue drivers? • • • •

How many customers you will serve How much product they will buy How much they will pay for each product How often they will buy

Learning Objective 9.5 Prepare integrated ﬁnancial statements. Section Reference: Building Integrated Financial Statements

79. What are the different types of revenue models and how are they used? • Recurring revenue is based on reoccurring revenue for a one-time deliverable. This requires additional time and capital to implement but it is more attractive compared to revenue models based on individual transactions. • Transactional revenue models are based on individual transactions of products or services. This type of revenue model demands more from the company since there are costs associated with each transaction (employees, manufacturing, advertising, cost of goods sold, etc.). • Project revenues are based on a company’s individual consecutive projects. This revenue model is used by companies who respond to RFP’s (request for proposals) or contracts, often requiring continuous bids and efforts to obtain each individual project. • A service revenue model is the least attractive revenue model for a company. Since service revenue models are based on selling a company’s time, it is very easy for competition to appear and steal customers. Learning Objective 9.3 Prepare pro forma ﬁnancial statements. Section Reference: Building Your Pro Forma Financial Statements

80. What is the difference between financial statements and financial models? Financial models are based on reasonable assumptions and represent predictions of a company’s performance; whereas financial statements are hard numbers based on the company’s past performance. Before you can have a financial statement, you have to have a financial model. Financial models are malleable and allow an entrepreneur to modify specific numbers to forecast and predict future performance. The model relies on assumptions; investors care more that the assumptions are reasonable (based on multiple factors including industry forecasts, past performance, external factors, etc.) versus right. Learning Objective 9.5 Prepare integrated ﬁnancial statements. Section Reference: Building Integrated Financial Statements

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Chapter 10: Financing Entrepreneurial Ventures Worldwide True/False Statements 1. It is very difficult for entrepreneurs to raise debt financing from conventional banks because they require as many as three years of actual—not projected—financial statements and assets that adequately cover the loan. Answer: True Learning Objective: 10.1: Describe the ﬁnancing available for entrepreneurs in underdeveloped countries.

Section Reference: Entrepreneurial Financing for the World’s Poorest

2. It is generally agreed that wealth-substitution is a powerful tool in the fight to reduce poverty in less-developed nations.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Answer: False Learning Objective: 10.1: Describe the ﬁnancing available for entrepreneurs in underdeveloped countries. Section Reference: Entrepreneurial Financing for the World’s Poorest

3. In 1976 Muhammad Yunus, an economist, started what today is the Grameen Bank. Answer: True Learning Objective: 10.1: Describe the ﬁnancing available for entrepreneurs in underdeveloped countries. Section Reference: Entrepreneurial Financing for the World’s Poorest

4. Microfinancing is not available in very many nations. Answer: False Learning Objective: 10.1: Describe the ﬁnancing available for entrepreneurs in underdeveloped countries. Section Reference: Entrepreneurial Financing for the World’s Poorest

5. Self-funding by entrepreneurs, along with funding from informal investors, is the life blood of an entrepreneurial society. Answer: True Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

6. For all the GEM nations combined, generally speaking, the amount needed to start a business is highest in the business services sector and lowest in the consumer-oriented sector. Answer: True Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

7. The businesses that need the most startup capital are those created with the intent to grow and hire employees. Answer: True

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

8. Usually, businesses started by men require less capital than those started by women. Answer: False Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

9. Using GEM data for the United States, we can point out that the informal investor prevalence rate among entrepreneurs is much higher than the rate among nonentrepreneurs. Answer: True Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

10. Entrepreneurs in search of startup funding should target self-made entrepreneurs with high incomes. More specifically, they should first talk with entrepreneurs among their relatives, friends, and neighbors. Answer: True Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

11. The median expected payback time of an investment is one year, and the median amount returned is two times the original investment. Answer: False Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

12. Most business angel networks in developed nations look for high-potential startups that have prospects of growing into substantial enterprises. Answer: True

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors 13. Japan has almost two-thirds of the world’s total venture capital. Answer: False Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

14. In general, venture capital is invested in companies that are already in business. Answer: True Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital 15. The term, “business angels,” strictly refers to just former entrepreneurs who invest some of their wealth in seed and early stage businesses. Answer: False Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

16. Angel investment frequently precedes formal venture capital. Answer: True Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

17. The formal venture capital industry was born in Massachusetts at the end of WWII when a group of investors were inspired by General Georges Doriot. Answer: True Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

18. The limited partners of venture capital funds raise money from the general partners. Answer: False Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital 19. The general partners’ share of investment returns is called carried interest. Answer: True Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

20. The highest return on a venture capital investment is produced when the company has a management buyout. Answer: False Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

21. In general, trade sales produce nearly as big a capital gain as IPOs. When a company executes a trade sale, it almost always has the option of an IPO, as well. Answer: False Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

22. One of the principal reasons for the failure of classic venture capital in Europe at the start of the 1990s was the failure of the secondary markets after the general stock market crash of October 1987. Answer: True Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

23. It is unreasonable to hypothesize that the higher the rate of taxation, the less likely that a person will have discretionary money to invest.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Answer: False Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

24. For all the GEM nations, the prevalence rate of informal investors is positively correlated with social security taxes and with taxes on capital and property. Answer: False Learning Objective: 10.4: Identify the factors affecting the availability of financing. Section Reference: Factors Affecting Availability of Financing

25. Although there is no direct link between classic venture capital investment and taxation, there is an indirect link via informal investors, who are influenced by how much they pay in taxes. Answer: True Learning Objective: 10.4: Identify the factors affecting the availability of financing. Section Reference: Factors Affecting Availability of Financing

26. Among the G7 nations, the United States has the highest prevalence rate (3.8%) and the United Kingdom has the lowest (1.1%). These two nations also have the highest and lowest TEA (Total Entrepreneurial Activity) rates; from this we can conclude that the prevalence rate for informal investors and the TEA rates among all nations are perfectly correlated. Answer: False Learning Objective: 10.4: Identify the factors affecting the availability of financing. Section Reference: Factors Affecting Availability of Financing

27. The fact that a country has sufficient startup capital overall means that every deserving nascent business receives funding. Answer: False Learning Objective: 10.4: Identify the factors affecting the availability of financing. Section Reference: Factors Affecting Availability of Financing

28. In every nation, there is far more informal than formal investment from venture capitalists.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Answer: True Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

29. Eighty percent of the venture capital invested in the United States finances hi-tech companies; by contrast only 29 percent of the venture capital invested in other G7 nations is in hi-tech companies. Answer: True Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

30. The expected internal rate of return or IRR (compound annual return on investment) is calculated from the expected payback time and the times return for formal investors and entrepreneurs who reported both. Answer: True Learning Objective: 10.4: Identify the factors affecting the availability of financing. Section Reference: Factors Affecting Availability of Financing

31. Crowdsourcing refers to the entrepreneur funding their own project by using existing resources available to them coupled with careful management of current finances. Answer: False Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

32. In North America, the average amount required to start a business is between $100,000 and $200,000. Answer: False Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

33. An incubator attempts to improve a startups chance for success by providing office space, professional services, and business advice.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Answer: True Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

34. In Canada, venture-capital-backed companies have generated nearly 150,000 jobs. Answer: True Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

Multiple Choice 35. What was the percentage increase of poor women who were reached by microfinance from December 1999 to December 2010? a) 1% b) 10% c) 100% d) 1001% e) None of the above Answer: d Learning Objective: 10.1: Describe the ﬁnancing available for entrepreneurs in underdeveloped countries. Section Reference: Entrepreneurial Financing for the World’s Poorest

36. What is the average amount of a microenterprise loan through the Grameen Bank? a) $150 b) $360 c) $420 d) $530 e) $670 Answer: b Learning Objective: 10.1: Describe the ﬁnancing available for entrepreneurs in underdeveloped countries. Section Reference: Entrepreneurial Financing for the World’s Poorest

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

37. Almost every new business raises its initial money from the founders themselves and what we call informal investors, including: a) Venture capitalists. b) Family members. c) Private equity firms. d) Institutional investors. e) All of the above. Answer: a Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors 38. Who comprises the “4Fs”? a) Founders, Family, Friends, and Financial advisors. b) Founders, Family, Financial advisors, and Foolhardy investors. c) Founders, Financial advisors, Friends, and Foolhardy investors. d) Financial advisors, Family, Friends, and Foolhardy investors. e) Founders, Family, Friends, and Foolhardy investors. Answer: e Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

39. The amount of capital that entrepreneurs need to start their ventures depends mainly on______. a) the type of business b) the ambitions of the entrepreneur c) the location of the business d) the country of origin e) all of the above Answer: e Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

40. Which of the following categories of informal investors expects the highest return on his or her investment, since it is made in a more detached manner? a) Founders. b) Family.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

c) Friends. d) Foolhardy investors. e) All of the above expect the same returns. Answer: d Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors 41. According to Figure 9.5, an R2 of 0.78 indicates that 78% of the variation in annual amount per informal investor is explained by: a) amount of startup funding b) total entrepreneurial activity (TEA) c) Income per capita d) GDP per capita e) Expected IRR Answer: d Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

42. The split of the percent of entrepreneurs who expect to profit from their ventures and the percent of those that do not is almost ________ of the split among informal investors. a) the same b) the reverse c) positively correlative d) in-correlative e) None of the above. Answer: b Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

43. The rarest source of capital for nascent entrepreneurs is______. a) friends b) family c) venture capital d) financial advisors e) foolhardy investors Answer: c

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

44. While classic venture capitalists finance very few companies, some of the ones that they do finance play a crucial role in the development of ______industries. a) knowledge-based b) return-based c) risk-based d) core economy-based e) none of the above Answer: a

45. In contrast to informal investments, classic venture capital invests only to companies with a ______. a) low degree of innovation and a low rate of growth b) high degree of innovation but a low rate of growth c) high degree of innovation and a high rate of growth d) low degree of innovation but a high rate of growth e) All of the above Answer: c Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

46. Most new ventures are often not up and running before ____ is raised. a) the first venture capital b) the second venture capital c) trade credit d) the investment from family and friends e) the investments from IPO Answer: d Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

47. What subset of informal investor is relatively sophisticated and invests primarily in glamorous companies? a) Friends

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

b) Family c) Founders d) Financial advisors e) Business angels Answer: e Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

48. Venture capital funds are limited partnerships that typically begin with how long of a term? a) Two years. b) Four years. c) Six years. d) Eight years. e) Ten years. Answer: e Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

49. The capital gain on the harvest is shared with ____% for the limited partners and ____% for the general partners, once the limited partners have received their entire original principal. a) 80% - 20% b) 20%-80% c) 40%-60% d) 60%-40% e) 50%-50% Answer: a Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

50. What category of venture capital participant employs gatekeepers to advise it on what projects to invest in and to monitor the investment afterwards? a) General partners. b) Limited partners. c) Investment advisors. d) All of the above.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

e) None of the above. Answer: b Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

51. If a venture capital fund is successful, as measured by the financial return to the limited partners, the general partners usually raise another fund ______ years later. a) 1 - 3 years b) 4 - 6 years c) 7 - 9 years d) 10 - 12 years e) 13 - 16 years Answer: b Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

52. Since the mid-1990s, venture capital grew rapidly, and most nations were striving to emulate the classic venture capital model of which country? a) India b) Japan c) The U.S. d) China e) None of the above. Answer: c Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

53. The three fundamental elements of an entrepreneurial society are: a) an abundance of existing entrepreneurs, plenty of market opportunities for new ventures, and sufficient resources for entrepreneurs to launch their new ventures. b) an abundance of would-be entrepreneurs, plenty of market opportunities for existing ventures, and sufficient resources for entrepreneurs to launch their new ventures. c) an abundance of would-be entrepreneurs, plenty of market opportunities for new ventures, and sufficient resources for entrepreneurs to continue their existing business. d) an abundance of would-be entrepreneurs, plenty of market opportunities for new ventures, and sufficient resources for entrepreneurs to launch their new ventures.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

e) an abundance of existing entrepreneurs, plenty of market opportunities for existing ventures, and sufficient resources for entrepreneurs to continue their existing ventures. Answer: d

54. More or less, informal investment and venture capital are related to_____ factors. a) environmental b) societal c) governmental d) all of the above e) none of the above Answer: d Learning Objective: 10.4: Identify the factors affecting the availability of financing. Section Reference: Factors Affecting Availability of Financing

55. Which three component TEA indices have a positive correlation with the prevalence of informal investors? a) The amount of investment, consumer preference, and population b) Taxes, consumer preference, and high job growth potential c) Opportunity, market expansion potential, and consumer preference d) Opportunity, the amount of investment, and high job growth potential e) Social mobility, market expansion potential, and high job growth potential Answer: d Learning Objective: 10.4: Identify the factors affecting the availability of financing. Section Reference: Factors Affecting Availability of Financing

56. The amount of informal investment as a percent of GDP correlates positively with two TEA indices; _______. a) necessity and high job growth potential b) Opportunity and market expansion potential c) the amount of investment and high job growth potential d) consumer preference and high job growth potential e) opportunity and market expansion potential Answer: a Learning Objective: 10.4: Identify the factors affecting the availability of financing. Section Reference: Factors Affecting Availability of Financing

57. What is the relationship between informal investing and entrepreneurship? a) Informal investment facilitates entrepreneurship.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

b) entrepreneurship brings about a need for informal investment. c) They depend on each other. d) They are all the effects from a mutual cause. e) There is not a direct relationship between them. Answer: c Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

58. For informal investment, the amount invested by _______ is the highest, and the median return expected is ____ times the original investment. a) Strangers; 1.5 b) Friends; 2.0 c) Venture Capitalists; 1.0 d) Relatives; 1.0 e) Work Colleagues; 1.5 Answer: a Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

59. Nations with higher taxes on individuals have ___ rates of informal investing, as high tax rates ___ informal investing. a) higher; benefit b) lower; inhibit c) higher; inhibit d) lower; benefit e) none of above Answer: b Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

60. From the following sources of funding, which contributes the most money to classic venture capital? a) Individuals b) Corporations c) Insurance companies d) Pension funds e) Gatekeepers

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Answer: d Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

61. According to the GEM study, entrepreneurs contribute about ______ of the capital needed to launch their ventures. a) one-third b) two-thirds c) one hundred percent d) half e) none of the initial capital needed Answer: b Learning Objective: 10.4: Identify the factors affecting the availability of financing. Section Reference: Factors Affecting Availability of Financing

62. All of the following were listed as new types of informal investing, expect for: a) Microfinancing b) Angel Investing c) Crowdfunding d) Bootstrapping e) Equity Crowdfunding Answer: b Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

63. As of 2008, roughly how much was the cost of launching an Internet based startup? a) $25,000 b) $50,000 c) $100,000 d) $500,000 e) $750,000 Answer: b Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

64. What percent of the venture capital invested in Canada finances high-technology companies? a) 80% b) 33% c) 49% d) 15% e) 92% Answer: c Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

65. From 1970 to 2012, how many companies did the venture capital industry invest in? a) 1,000 b) 5,000 c) 11,000 d) 25,600 e) 41,000 Answer: e Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

Open Ended 66. What is the Microcredit Summit Campaign, and how does it work? •

•

The Microcredit Summit Campaign was held in 1997. Its aim was "...to reach 100 million of the world’s poorest families, especially the women of those families, with credit for self-employment and other financial and business services by the year 2005." The Campaign defines the 'poorest' people as those who are in the bottom half of those living below their nation's poverty line, or any of the 1.2 billion people in the world who live on less than $1 per day based on purchasing power parity. Women accounted for 82.3 percent of the total number of ‘poorest’ clients. Assuming five persons per family, the 137.5 million poorest clients reached by the end of 2010 affected some 687 million other family members.

Learning Objective: 10.1: Describe the ﬁnancing available for entrepreneurs in underdeveloped countries.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise Section Reference: Entrepreneurial Financing for the World’s Poorest

67. What were the two goals of the 2006 re-launch of the Microcredit Summit Campaign? • •

Working to ensure that 175 million of the world’s poorest families, especially the women of those families, are receiving credit for self-employment and other financial and business services by the end of 2015 Working to ensure that 100 million families rise above the US$1 a day threshold, adjusted for purchasing power parity (PPP), between 1990 and 2015.

Learning Objective: 10.1: Describe the ﬁnancing available for entrepreneurs in underdeveloped countries. Section Reference: Entrepreneurial Financing for the World’s Poorest

68. How much startup capital does an entrepreneur need to start a business? • •

•

The amount of capital that entrepreneurs need to start their ventures depends, among other things, on the type of business, the ambitions of the entrepreneur, the location of the business, and the country where it is started. In the United States, the average amount required to start a business is $62,594, with entrepreneurs providing 67.9% of the funding. For all the GEM nations combined, the average amount needed to start a business is $53,673 and, as expected, more is needed for an opportunity-pulled venture ($58,179) than a necessity-pushed one ($24,467). The amount needed to start a business is highest in the business services sector ($76,263) and lowest in the consumer-oriented sector ($39,594). The businesses that need the most startup capital are those created with the intent to grow and hire employees.

Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

69. Describe the model developed by Bygrave and Reynolds that predicts whether or not a person was an informal investor. • •

Using GEM data for the U.S., they found that the informal investor prevalence rate among entrepreneurs was 4.3 times the rate among non-entrepreneurs. With just one criterion, whether someone was an entrepreneur, their model correctly classified 86% of the entire population as being or not being informal investors. With 2 criterion – correctly identified an informal investor 56% of the

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

•

time. The model was 11x better than a random choice singling out an informal investor. Entrepreneurs in search of startup funding should target self-made entrepreneurs with high incomes.

Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors 70. Describe venture capital investing from the perspective of the firm’s general partners. •

•

• •

At the center of the process are general partners of venture capital funds, which are limited partnerships with a ten-year life that is sometimes extended. The general partners of venture capital funds raise money from limited partners. In return for managing the partnership, the general partners receive an annual fee of 2% to 3% of the principal that has been paid into the fund. The general partners then invest money in portfolio companies in exchange for equity. If all goes well, the investment in the portfolio companies grows and the equity is eventually harvested, usually with an initial public offering (IPO) or a trade sale to a bigger company. The capital gain on the harvest is shared 80% - 20% between the limited partners and the general partners once the limited partners have received back all the principal they put into the limited partnership. Sometimes gatekeepers are employed by limited partners to advise them on what venture capital funds they should invest in and to watch over an investment once it has been made. The fee for gatekeepers is approximately 1% of the capital invested.

Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

71. Explain why when the IPO market is booming, the returns on venture capital are high, and vice versa? •

•

The importance of the IPO market for venture capital is demonstrated by the yearto-year IRRs of venture capital and the total amount of money raised by IPOs of companies backed with venture capital. There is close correlation between the two lines -- when the IPO market is thriving, as it was in 1999 and early 2000, the returns on venture capital are high. A single, profitable IPO has the potential to balance out all of the unprofitable investments of a venture capital fund. Venture firms depend on one or two highly lucrative exits to generate overall returns. Determining which investment will reach the fruition of an IPO is difficult.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise •

Not only do lucrative IPOs directly produce spectacular returns on venture capital invested in the companies going public, but they also indirectly raise the returns on acquisitions and mergers, because IPO market valuations tend to set the valuations of all private equity deals. For instance, in 2000 during the internet bubble, the average valuation for a venture capital backed merger/acquisition was $338.4 million, but by 2002 following the burst of the bubble, the average valuation fell to $52.2 million.

Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

72. Describe the IPO market in 2012. •

• •

An IPO boom in clean technology stocks had not yet occurred, and there were some highly visible venture-capital-backed clean technology failures. Lack of small investor interest in clean tech stocks meant a paucity of IPOs in that sector, which depressed venture capital returns. Venture capitalists believed social media companies would be the next big thing to rival the Internet boom. However, when Facebook’s IPO went awry, it made small investors wary of IPOs. Venture capitalists were still waiting for an IPO boom to boost their returns, which had been unsatisfactory for 10 years.

Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

73. How did the instability of European stock markets affect the development of the venture capital industry on the continent? One of the principal reasons for the failure of classic venture capital in Europe at the start of the 1990s was the failure of the secondary markets after the general stock market crash of October 1987. •

•

The launch of the Unlisted Securities Market in London, the Second Marché in Lyon, the Marché Hors-Côté in Paris, the Mercato Restritto in Milan, and the Secondary Market in Brussels had been significant contributors and enabling factors for the introduction of venture capital in those European countries in the early 1980s, because they provided a ready markets for floating IPOs of venture capital backed companies. Unfortunately, those European secondary markets, unlike the NASDAQ in the United States, did not recover, and so they faded, which left European venture capitalists without their favorite and most bountiful exit route from their investments: IPOs.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

In the late 1990s, markets for IPOs in Europe started to prosper, especially the AIM in the United Kingdom, but just as in the United States after 2001, it again became very difficult to float venture-capital-backed IPOs in Europe; consequently classic venture capital returns fell, and investments declined. Once more it demonstrated that classic venture capital cannot do well without a robust IPO market. Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

74. What is the relationship between the rate of taxation and informal investing? • Money for informal investing comes from a person’s after-tax income and savings, which more often than not are accumulated from after-tax income. Thus, it seems reasonable to hypothesize that the higher the rate of taxation, the less likely that a person will have discretionary money to invest and vice versa. In many nations, especially developed ones, the biggest taxes are social security, income taxes, indirect taxes such as sales tax on goods and services, and taxes on capital and property. • For all the GEM nations, the prevalence rate of informal investors is negatively correlated with social security taxes and with taxes on capital and property. For nations with an income of at least $5,000 per capita, the amount of informal investment per GDP correlates negatively with social security taxes, highest marginal income tax rate, indirect taxes, and taxes on capital and property. Stated another way, nations with higher taxes on individuals have lower rates of informal investing. High tax rates inhibit informal investing. Learning Objective: 10.4: Identify the factors affecting the availability of financing. Section Reference: Factors Affecting Availability of Financing

75. What is the relationship between the rate of taxation and Classic Venture Capital? In contrast to informal investing, the amount of classic venture capital per GDP does not correlate with taxes on individuals or corporations. The explanation is that only a small proportion of classic venture capital comes from individuals and corporations. Far more comes from pension funds, which are essentially investing money that has been entrusted to them by others, and hence they are not directly affected by taxes nearly as much as individuals are. The amount of classic venture capital per GDP correlates with the amount of informal investment per GDP. This occurs because almost all companies start out with informal investment; then if they show superstar potential, they attract classic venture capital. Thus vigorous informal investing paves the way for robust classic venture capital investing. So although there is no direct link between classic venture capital investment and taxation,

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

there is an indirect link via informal investors, who are influenced by how much they pay in taxes. Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

76. What is the relationship between Total Entrepreneurial Activity and Informal Investing? The prevalence of informal investors correlates positively with the overall TEA index and three component TEA indices—opportunity, market expansion potential, and high job growth potential. And the amount of informal investment as a percent of GDP correlates positively with two TEA indices—necessity and high job growth potential. Those correlations are convincing evidence that nations with more informal investing have more entrepreneurial activity, but they do not separate cause from effect. Informal investing and entrepreneurship depend on each other: informal investment facilitates entrepreneurship, and entrepreneurship brings about a need for informal investment. Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

77. What role does classic venture capital have in the way people work, live, and play? And why? While classic venture capitalists finance very few companies, some of the ones that they do finance play a crucial role in the development of knowledge-based industries, such as biotechnology; medical instruments and devices; computer hardware, software, and services; telecommunications hardware and software; Internet technology and services; electronics; semiconductors; and nanotechnology. Venture capitalists like to claim that the companies they invest in have the potential to change the way in which people work, live, and play. And indeed, an elite few have done just that worldwide; some famous examples are Intel, Apple, Microsoft, FedEx, Cisco, Facebook, Twitter, Genentech, Amazon, eBay, and Google. • It’s not by chance that almost all the venture-capital backed companies with global brand names are American; rather it is because the United States is the predominant nation with classic venture capital investments. • While 74 percent of the classic venture capital invested in the G7 nations was in the United States, only 36 percent of the companies that received that investment were there, because the amount invested per company in the United States was $8.9 million compared with an average of $1.7 million per company in the other G7 nations., according to the data of 2008.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise •

Eighty percent of the venture capital invested in the United States finances hi-tech companies; by contrast only 29 percent of the venture capital invested in the other G7nations, except Canada, is in high-technology companies.

Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

78. What is the crucial role of self-financing and informal investing? Grass-roots financing from the entrepreneurs themselves and informal investors is a crucial ingredient for an entrepreneurial society. Close family members and friends and neighbors are by far the two biggest sources of informal capital for startups. Hence, entrepreneurs should look to family and friends for their initial seed capital to augment their own investments in their startups. Many entrepreneurs waste a lot of valuable time by prematurely seeking seed capital from business angels and even from formal venture capitalists—searches that come up empty-handed almost every time. Entrepreneurs must also understand that they themselves will have to put up about two-thirds of the initial capital needed to launch their ventures. Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

79. Describe the four ways of classifying ventures, based on their degree of innovation and their rate of growth. •

• • •

Bottom left quadrant – Companies that have low innovation and low growth. They provide goods and services that are the core of the economy. For the most part, they have lots of competitors, and they grow at the same rate as the economy. Upper left quadrant – Companies that are innovative but are not fast growing because they are constrained, often because they are started and managed by entrepreneurs with limited ability. Bottom right quadrant – Companies with low innovation but outpace the growth rate of many of their competitors because they are run by ambitious entrepreneurs with superior management skills. Top right quadrant – Innovative companies with superior management. Among them are the superstar companies that attract media attention and venture capital.

80. If venture capital in the United States dried up, what would be the effect?

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise • •

•

There would be no noticeable change in the number of companies being started because so few have venture capital in hand when they open their doors for business. However, in the long-term, the effect on the economy would be catastrophic because venture capital-backed companies generate a disproportionate number of good-paying jobs and create many of the new products and services. Those companies make a major contribution to the U.S. economy. By 2010, venture-capital-backed companies accounted for 11% of jobs in the U.S. private sector and 21% of its GDP.

Learning Objective: 10.3: Explain what venture capital is and how it is used by entrepreneurs. Section Reference: Venture Capital

81. Describe four new types of informal investing: 1. Microfinancing has made it much easier for people who only need a small loan to kick-start their business. 2. Crowdfunding - Was created to help bring creative projects to life. Individuals can showcase their ideas, prototypes, or concepts to the entire world in hopes of receiving a small or large donation in return for future benefits or perks from the company. It is important to note that equity is not given in exchange for donations; instead, the individuals donating might receive special discounts or the opportunity for first purchase once project has come to fruition. 3. Bootstrapping – Refers to the entrepreneur funding their own project by using existing resources available to them coupled with careful management of current finances. For example, an entrepreneur might use existing sales, sell their car, or take a second mortgage on their home to fund their company; all would be considered bootstrapping. 4. Equity Crowdfunding – Refers to a startup’s ability to raise seed money through crowd investing. This is currently illegal in Canada and even though a bill to propose its legality has passed in the United States. Learning Objective: 10.2: Describe the relationship between entrepreneurs and informal investors. Section Reference: Entrepreneurs and Informal Investors

82. What is the difference between an incubator and an accelerator? An incubator attempts to improve a startups chance for success by providing office space, professional services, and business advice. An incubator will charge a monthly fee for these services, which usually ranges from a few hundred dollars per month to a few thousand dollars per month. Additionally an incubator does not have a strict goal-

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Chapter 11: Raising Money for Starting and Growing Businesses True/False Statements 1. According to the chapter, the most precise way of valuing a business is asset-based valuation. Answer: False Learning Objective 11.2 Describe the methods of valuing a company. Section Reference: Valuation

2. Valuation of a small, privately held corporation is difficult. Answer: True Learning Objective 11.2 Describe the methods of valuing a company. Section Reference: Valuation

3 The present value of company is the present value of the past free cash flows, plus the residual (terminal) value of the firm. Answer: False Learning Objective 11.2 Describe the methods of valuing a company. Section Reference: Valuation

4. A rapidly growing, high-potential firm will generate a lot of free cash flow in its first few years. Answer: False Learning Objective 11.2 Describe the methods of valuing a company. Section Reference: Valuation 5. Market-comparable valuation is based on the net income and the startup’s capitalization rate. Answer: False Learning Objective 11.2 Describe the methods of valuing a company. Section Reference: Valuation 6. The modified-book value method of valuation’s main weakness is that it reflects the past rather than the future. Answer: True Learning Objective 11.2 Describe the methods of valuing a company. Section Reference: Valuation

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

7. The difference between a seed-stage company and a startup is that the latter, unlike the former, is already in business. Answer: True Learning Objective 11.2 Describe the methods of valuing a company. Section Reference: Valuation

8. The first financing for your new business will come from angel investors. Answer: False Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

9. The liquidation value of a company is a strict valuation placed on an insolvent company by the courts during a bankruptcy proceeding. Answer: False Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

10. Venture capital investors expect a higher rate of return for mezzanine stage investments than for bridge financing. Answer: True Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

11. Banks expect loans to be secured by positive cash flow. Answer: False Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

12. According to the chapter, informal investors provide $100 billion per year to startup and young businesses in the US alone. Answer: True Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

13. After the internet bubble burst, angel groups stopped investing in seed-stage companies. Answer: False Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

14. Corporate angels may be a headache for a small company. Answer: True Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

15. Professional angels are a category of investors primarily comprised of retired entrepreneurs. Answer: False Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

16. Placing a value on your startup is the first thing you should do when raising a round of angel investment. Answer: True Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

17. Business angels are generally satisfied with a lower return than venture capitalists. Answer: True Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

18. Most angel investors prefer common stock that can later be converted into preferred stock. Answer: False Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

19. Venture capitalists traditionally view the potential return of four times their investment within five years as the standard, minimum threshold for investment.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Answer: False Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture 20. Buybacks of investors’ equity is a common exit strategy for venture capital firms. Answer: False Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

21. IPOs are rare, even among venture capital backed companies. Answer: True Learning Objective 11.4 Describe how investors can harvest or recoup their investment in a venture. Section Reference: Harvesting Investments

22. Going public is an expensive endeavor. Answer: True Learning Objective 11.4 Describe how investors can harvest or recoup their investment in a venture. Section Reference: Harvesting Investments

23. After the IPO, the company has to file a registration statement with the SEC. Answer: False Learning Objective 11.4 Describe how investors can harvest or recoup their investment in a venture. Section Reference: Harvesting Investments

24. The company planning a public offering must first select an investment bank. Answer: True Learning Objective 11.4 Describe how investors can harvest or recoup their investment in a venture. Section Reference: Harvesting Investments

25. Selling the company is the most common way of harvesting an investment Answer: True Learning Objective 11.4 Describe how investors can harvest or recoup their investment in a venture. Section Reference: Harvesting Investments

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

26. Venture capitalists prefer to invest in entrepreneurs who have long-term business plans. Answer: True Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture 27. A company’s growth rate vis-à-vis its industry is not considered when using the Asset-Based valuation method. Answer: False Learning Objective 11.2 Describe the methods of valuing a company. Section Reference: Valuation

28. Angel investors are one category of formal investors Answer: False Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

29. Friends and family should be your first sources of startup money. Answer: False Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

30. Entrepreneurs should be careful not to weight employee compensation too heavily with stock options to avoid risks to morale should the share price decline significantly. Answer: True Learning Objective 11.4 Describe how investors can harvest or recoup their investment in a venture. Section Reference: Harvesting Investments

31. Modified-book value is applicable to small, fast-growing, firms. Answer: False Learning Objective 11.2 Describe the methods of valuing a company. Section Reference: Valuation

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

32. The example at the beginning of the chapter showcases how an entrepreneur bootstraps a startup by scraping together resources. Answer: True Learning Objective 11.1 Explain how entrepreneurs can bootstrap a new venture. Section Reference: Bootstrapping New Ventures

33. The value of any startup is determined by the seller, not the buyer. Answer: False Learning Objective 11.2 Describe the methods of valuing a company. Section Reference: Valuation

34. Crowdfunding is currently illegal in Canada. Answer: False Learning Objective 11.3 Describe ways to finance a new venture. Section Reference: Financing a New Venture 35. Canada’s National Angel Capital Organization was created to promote and assist in the creation of the Angel community across the country. Answer: True Learning Objective 11.3 Describe ways to finance a new venture. Section Reference: Financing a New Venture 36. In recent years, Canada’s venture capital market has not experienced changes in the amount invested in innovative technology companies. Answer: False Learning Objective 11.3 Describe ways to finance a new venture. Section Reference: Financing a New Venture

37. Scalability is considered to be evidence of market demand, often shown through sales and signed contracts with clients. Answer: False Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise 38. Market Traction refers to the company’s potential to earn revenue faster than the growth of their related costs. Answer: False Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

Multiple Choice

39. The equation for the value of a company with the earnings capitalization method is: a) Company Value = Gross Revenue ÷ Book Value b) Company Value = Net Income ÷ Capitalization Rate c) Company Value = Net Income × Market price of stocks d) Company Value = Sum of Cash Flow for the past five years e) Company Value = Price of one share × number of shares Answer: b Learning Objective 11.2 Describe the methods of valuing a company. Section Reference: Valuation

40. Which of the following must be added to Operating Income when calculating Free Cash Flow? a) Depreciation b) Principal Payments c) Interest Payments d) Capital Expenditures e) Tax Payments Answer: a Learning Objective 11.2 Describe the methods of valuing a company. Section Reference: Valuation

41. Replacement Value is a variation of: a) Market-Comparable Valuation Method b) Earning Capitalization Method c) Present Value of Future Cash Flows Method d) Market Capitalization Method e) Asset-based Valuation Method Answer: e Learning Objective 11.2 Describe the methods of valuing a company.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Section Reference: Valuation

42. All of the following is mentioned in the chapter as possible sources of funding that the entrepreneur should explore prior to soliciting investments from family and friends, except: L.O. 11.3 a) Vendor financing b) Reduced rent from a landlord c) Selling infrastructural assets d) Customer financing e) Services at reduced rates Answer: c Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture 43. What percent of informal investment is directed to businesses founded by the investor’s relative? a) 25% b) 35% c) 40% d) 50% e) 65% Answer: d Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

44. According to the GEM study, half of all informal investors are expecting their money to be returned within how many years? a) 1 year b) 2 years c) 3 years d) 4 years e) 5 years Answer: b Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

45. How much do business angels invest annually in the US? a) $5 - 6 billion b) $10 - 15 billion c) $15 - 20 billion d) $20 - 30 billion

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

e) $50 - 60 billion Answer: c Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

46. Which of the following types of angels is usually a passive investor? a) Professional b) Entrepreneurial c) Corporate d) Micromanagement e) Enthusiast Answer: e Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

47. The least desirable way for venture capitalist to harvest an investment is: a) IPO b) Acquisition c) Buyback d) Stock swap e) They are equally attractive Answer: c Learning Objective 11.4 Describe how investors can harvest or recoup their investment in a venture. Section Reference: Harvesting Investments

48. Which of the following is a non-financial reason for an angel to invest? a) A desire to mentor entrepreneurs b) Recreation c) To indirectly benefit society d) All of the above e) None of the above Answer: d Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

49. Which of the following is not one of the six top factors venture capitalists evaluate in analyzing a candidate for investment? L.O. 11.3 a) Management team b) Business plan

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

c) Product/service d) Investors’ recommendations e) Target market Answer: d Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

50. Venture capitalists will invest only if the company has the potential to return at least: a) Seven times their investment in five years b) Four times their investment in three years c) Five times their investment in two years d) Ten times their investment in seven years e) Five times their investment in five years Answer: a Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

51. What are the most attractive companies that go public usually backed with? a) Angel capital. b) Venture capital. c) Positive cash flow. d) Investments from family members. e) Sweat equity Answer: b Learning Objective 11.4 Describe how investors can harvest or recoup their investment in a venture. Section Reference: Harvesting Investments 52. From a venture capitalist’s perspective, an introduction to an entrepreneur through which of the following people is most worrisome? a) Other entrepreneurs b) Lawyers c) Finders d) Angels e) Bankers Answer: c Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

53. In general, a venture capitalist should not sit on more than what number of portfolio company boards? a) 2 b) 5 c) 8 d) 10 e) 12 Answer: b Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

54. What will a VC usually receive in exchange for the money invested? a) Common stock b) Stock options c) Promissory notes d) Letter of deposit e) Convertible preferred stock Answer: e Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

55. What is the term for the event by which the investor realizes his or her investments? a) Crop b) Gain c) Exit d) Yield e) Cream Answer: c Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

56. What percent of all VC backed companies ever go public? a) <1% b) 5% c) 10% d) 25% e) 55% Answer: b Learning Objective 11.4 Describe how investors can harvest or recoup their investment in a venture. Section Reference: Harvesting Investments

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

57. The period when the prior shareholders are not permitted to sell any of their stock is called: a) Lockup period b) Blocking period c) Limited period d) Banning period e) None of the above Answer: a Learning Objective 11.4 Describe how investors can harvest or recoup their investment in a venture. Section Reference: Harvesting Investments 58. What is the term for the founder’s compensation to be paid a few years after the company is acquired, if the company meets certain targets? a) Added value b) Plus value c) Money on the table d) Premium for excess e) Earn-out Answer: e Learning Objective 11.4 Describe how investors can harvest or recoup their investment in a venture. Section Reference: Harvesting Investments

59. Which factor plays the largest role in a venture receiving a second round of venture capital? a) Number of media mentions the start-up receives b) Track record in meeting performance milestones. c) Success in recruiting talented employees d) None of the above Answer: b Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

60. In addition to money, what value should a venture capitalist bring to a start-up? a) Talent acquisition b) Industry contacts c) Professional Contacts d) All of the above Answer: d Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

61. Which factor is often more favorable in an acquisition, as compared to an IPO? a) Liquidity for founders b) Lower expenses and investment banker commissions c) Ability to sustain the existing culture d) None of the above e) All of the above Answer: b Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

62. Which of the following about a potential venture capitalist should be cause for concern? a) The venture capitalist sits on ten boards b) Venture capitalist visits the company weekly c) Venture capitalist retains significant funds for future investments d) The venture capitalist was successful as an Entrepreneur in a related industry Answer: a Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

63. Which of the following is NOT true about Angel groups? a) They often consist of successful entrepreneurs and business people b) They do not want unsolicited bids c) They grew in numbers during the late 1990s d) They focus on seed and early-stage funding. Answer: b Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

64. BigBelly Solar received financing from which of the following: a) Family b) Angel investing c) Personal savings d) Private investors e) All of the above Answer: e Learning Objective 11.1 Explain how entrepreneurs can bootstrap a new venture. Section Reference: Bootstrapping New Ventures

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

65. Investors also can influence price of a startup based on what factors? a) Prior investments made by the investor b) The maturity of the fund c) State of mind during the initial meeting d) A and B e) A,B and C Answer: e Learning Objective 11.2 Describe the methods of valuing a company. Section Reference: Valuation

66. Which of the following are examples of online crowdfunding platforms available in Canada? a) Kickstarter.com b) GoFundMe.com c) Indigogo.com d) KIVA.org e) All of the above Answer: e Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

67. NACO is a non-profit organization that to promote that type of investment in Canada? a) Venture capital b) Crowdfunding c) Angel investing d) Bootstrapping e) None of the above Answer: c Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

68) As mentioned in the chapter, which of the following is an example of a scalable business model? a) Facebook b) Rogers Communications c) Dragon’s Den d) BigBelly Solaer e) None of the above Answer: a Learning Objective 11.3 Describe ways to ﬁnance a new venture.

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Section Reference: Financing a New Venture 69 In Canada, which are the following are ways a company can become a “public company?” a) An initial public offering (IPO b) A reverse take-over (RTO) c) Through completing a qualifying transaction with a capital pool company (CPC). d) A and C e) All of the above Answer: e Learning Objective 11.4 Describe how investors can harvest or recoup their investment in a venture. Section Reference: Harvesting Investments

Open ended 70. Name the ways of valuing a business and explain why none of them can be called ideal. • Earning-capitalization valuation • Present value of future cash flows • Market-comparable valuation • Asset-based valuation No single method is ideal, because the value of a business also depends on opportunity, risk, purchaser’s financial resources, future strategies for the company, time horizon of the analysis, alternative investments, and future harvest. Also, while each method is appropriate for valuing some businesses, none fit for every business. Learning Objective 11.2 Describe the methods of valuing a company. Section Reference: Valuation

71. Give a list and a brief description of the possible ways to finance a new venture. • • • • •

Founder and partners’ resources Informal Investors Business Angels Venture Capital Loans (rare)

Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

72. Who are informal investors and what are the benefits of attracting investments from them? • • • •

Informal investors are family and friends. You may not need a formal loan agreement when you’re dealing with your family and friends. They often treat this lending more as help to you than an investment and will not sue if the investment is not fully repaid. Informal investing is often much easier for a startup to access, than other sources of funding.

Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

73. Why should you approach business angels? What are the ways of doing that? • • • • •

Business angels are more willing to finance start-ups than VCs. They can provide you with professional advice and leverage their personal networks to help you to make business connections. There are “formal” angel groups, which are comprised of angels who have joined together to invest in young companies –several thousand of them exist. Another possibility is finding individual angels (there are hundreds of thousands of them), but they are hard to find. You can also try to search for angels through your own network.

Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

74. Name at least eight criteria an ideal candidate for venture capital has to meet. • • • • • • • • • •

CEO/lead entrepreneur has significant management and entrepreneurial experience with demonstrated ability to manage a rapidly growing company in a fast-paced industry segment Vice-president of engineering is recognized as a star in the industry if it is a technology-based business Vice-president of marketing has a proven track record Some members of the top management team have worked together before The product/service is better than its competitors Intellectual capital such as patents and copyrights are protected The market segment is fragmented, growing rapidly, and expected to be big The company has satisfied customers The company projects sales of $50 million in five years The gross income margin is expected to be better than 60% with a net income margin better than 10%.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise • • •

The company has the potential to go public within 5 years Potential return of 7X or higher IRR of 60% or higher

Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

75. What are the advantages of having a venture capital backed company? • • • •

IPOs of such companies are generally very successful VCs help with recruiting key members of management, strategic advice, industry contacts, and professional contacts VCs have deep pockets and can in most cases raise new funds for additional venture financing Being a VC-backed company adds to your credibility and reputation

Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

76. Explain how VCs can harvest their investments. What ways do they prefer and what do they avoid? L.O. 11.4 • • •

Initial Public Offering – preferred method of harvesting investments An acquisition by another company (preferably a public company) A buyback of the investor’s stock – VCs don’t like this option, because their share is usually undervalued Learning Objective 11.4 Describe how investors can harvest or recoup their investment in a venture. Section Reference: Harvesting Investments

77. What are the pros and cons of going public? • The upsides of going public are: Financing, Follow-On Financing, Realizing Prior Investments, Prestige and Visibility, Compensation for Employees, and Possibly Acquiring Other Companies • The downsides of going public are: High Expenses, Public Fish Bowl, Short-Term Time Horizon, Post-IPO Compliance Costs, Management’s Time, Takeover Target, and Employee Disenchantment Learning Objective 11.4 Describe how investors can harvest or recoup their investment in a venture. Section Reference: Harvesting Investments

78. Explain why the underwriter of an IPO often tries to lower the price of the stocks in the offering.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise • • •

The worst thing that can happen to an underwriter during an IPO that the underwriter cannot sell all of the stock. Following a simple demand/supply rule, the higher the price of a stock, the fewer shares investors are willing to buy. Therefore, if underwriters see that the market is not ready to buy all the stock at a set price before the IPO, they may try to lower the price.

Learning Objective 11.4 Describe how investors can harvest or recoup their investment in a venture. Section Reference: Harvesting Investments

79. Why would a company want to be acquired? • • • • •

Managers can focus on building the company Easy access to additional capital Fast realization of investments The entrepreneurs and employees get cash immediately The expenses and investment banker’s commission are substantially lower for an acquisition than for an IPO.

Learning Objective 11.4 Describe how investors can harvest or recoup their investment in a venture. Section Reference: Harvesting Investments

80. Explain some benefits and risks of bootstrapping a start-up for as long as possible? • • • •

The founders will gave generated more sweat equity into the company. A company that has grown more will be slightly easier to value when the time comes for equity financing As long as boot strapping is producing learning about the market, value proposition, and business model, then the venture is gradually de-risking itself, which should be reflected in its valuation In terms of risk, the benefits of boot strapping must be weighed against the competitive environment the venture faces. Growing too slowly due to lack of funds carries its own risks that could exceed the risks of taking on equity financing too soon.

Learning Objective 11.1 Explain how entrepreneurs can bootstrap a new venture. Section Reference: Bootstrapping New Ventures

81. Discuss the most critical aspects of a 5 year pro-forma statement as it relates to risk and valuation • •

Certain factors will weigh more heavily in the attainment of desired financial results. Some of those factors will be facts, but others will be assumptions

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise • • • •

The assumptions must not merely be noted, but must be questions that the venture is aggressively trying to confirm/deny. The ability to test, iterate, market, and research to answer critical assumptions will directly impact a company’s valuation More assumptions can make an investment riskier, but entrepreneurs who aren’t able to confirm/deny assumption in time to adapt accordingly are a risky team to invest in. Answering assumptions is critical to achieving milestones, which directly impacts valuation and future availability of funding.

Learning Objective 11.2 Describe the methods of valuing a company. Section Reference: Valuation

82. Discuss some intangible factors in finding the right venture capitalist to partner with. • • • • •

Venture capitalist brings much more than money to the table. They bring other critical resources, but they will be fully compensated for those resources. That compensation will largely result in considerable influence over your venture’s future, thus it is critical that entrepreneurs ensure there exists good alignment with their investor, even if it means delaying acceptance of funding. This is particularly true if an entrepreneur seeks to have a large social impact with their venture. They must be suitably aligned with their investors Investors expect a legitimate return on risk for their investments. If part of the total return of your venture includes non-economic return (i.e., social value, etc.) then this should be discussed in advance with any investor to avoid misalignment and conflict in the future.

Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

83. What may be some drawback in getting acquired? • Management may prefer to move on to a new venture instead of working through an earn-out period. • The culture of your venture may clash with, or be impacted adversely by, the acquirer. • You company may be valued less in an acquisition than in an IPO • The strategic flexibility of your company may be impacted by its role in a parent companies portfolio. • Your cash could be harvested by the acquirer to support other ventures. • Employees may have different views on how the venture should be harvested and an acquisition may cause turn-over. Learning Objective 11.4 Describe how investors can harvest or recoup their investment in a venture. Section Reference: Harvesting Investments

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84. How is buying and selling a startup similar to real estate? The value of any startup is in the eyes of the buyer, not in the eyes of the seller. Even though a company’s assets may be worth a high amount in the eyes of the startup’s founder(s), it is really only worth what the buyer is willing to pay. If the company invests $100 dollars per unit into building a product or service, but the customer is only willing to pay $10 for it, the startup will be quick to fail. Just like in real estate, although the seller sets a price to list their house at, and they have the final decision regarding what they will accept for their property, there is no deal under the buyer offers the price they are willing to purchase it for. Learning Objective 11.2 Describe the methods of valuing a company. Section Reference: Valuation

85. Describe the purpose of the CYBF and BDC in Canada. In Canada, the Canadian Youth Business Fund (CYBF) and the Business Development Bank of Canada (BDC) can help when you are unable to secure a commercial bank loan through personal or business assets. The CYBF caters to young entrepreneurs between the ages of 18 to 39 with solid business ideas through providing them financial support and expert advice The Business Development Bank of Canada is a financial institution owned and operated by the Government of Canada.8 It has helped more than 28,000 businesses reach their full potential by offering financing, venture capital and consulting services all types of entrepreneurs, and with a special focus on businesses in the manufacturing, innovation, exporting and knowledge based industries. Learning Objective 11.3 Describe ways to ﬁnance a new venture. Section Reference: Financing a New Venture

86. What are the four types of venture capital? • Seed Venture Capitalists: When an entrepreneur is in the setup stage of their business they look for a venture capitalist for seed funding on their new idea or new business plan •

•

Early Venture Capitalists: The entrepreneur is beginning to set up their organization and build their management team; a thorough market analysis and business plan has to be analyzed by the venture capitalists to ensure the company has past the break even point and is increasing revenue as time progresses Late Venture Capitalists: The company has established itself in the market place, built their customer base and are seeking venture capitalists to invest, allowing them to expand; this is the last stage before the company considers launching an IPO

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Chapter 12: Debt and Other Forms of Financing True/False Statements 1. Only a handful of very large firms have access to funding sources such as asset-backed debt securitizations, A-l commercial paper ratings, and below-prime lending rates. Answer: True Learning Objective 12.1 Describe some of the ﬁrst places entrepreneurs should seek funding. Section Reference: Getting Access to Funds—Start with Internal Sources

2. Entrepreneurs requiring initial startup funding, generally seek capital from internal sources Answer: True Learning Objective 12.1 Describe some of the ﬁrst places entrepreneurs should seek funding. Section Reference: Getting Access to Funds—Start with Internal Sources

3. Home equity lines of credit are the only way in which entrepreneurs provide funding for their businesses. Answer: False Learning Objective 12.1 Describe some of the ﬁrst places entrepreneurs should seek funding. Section Reference: Getting Access to Funds—Start with Internal Sources

4. The business operating cycle for a traditional manufacturer begins with the purchase of raw materials and ends with collections from the customer. Answer: True Learning Objective 12.2 Explain what the cash conversion cycle is. Section Reference: Cash Conversion Cycle

5. The vast majority of organizations experience a gap between the time when they have to pay suppliers and when they receive payment from customers. This gap is known as the cost cycle. Answer: False Learning Objective 12.2 Explain what the cash conversion cycle is.

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Section Reference: Cash Conversion Cycle

6. The two major determinants of the credit decision are the character of the creditor firm and the capacity of the debtor company to repay the loan. Answer: True Learning Objective 12.1 Describe some of the ﬁrst places entrepreneurs should seek funding. Section Reference: Getting Access to Funds—Start with Internal Sources

7. Companies with a negative cash conversion cycle will see their working capital requirements increase with growth. Answer: False Learning Objective 12.1 Describe some of the ﬁrst places entrepreneurs should seek funding. Section Reference: Getting Access to Funds—Start with Internal Sources

8. Corporate insolvency usually results when the firm fails to service its debt obligations on time. Answer: True Learning Objective 12.3 Explain what working capital is. Cash Conversion Cycle Section Reference: Cash Conversion Cycle

9. Net working capital is difficult to calculate; the method of taking the difference between current assets and current liabilities leaves the entrepreneur with ambiguous figures. Answer: False Learning Objective 12.3 Explain what working capital is. Cash Conversion Cycle Section Reference: Cash Conversion Cycle 10. From an ongoing perspective, the company’s new ratio might be more indicative of liquidity than either the current ratio or the quick ratio. Answer: True Learning Objective 12.3 Explain what working capital is. Cash Conversion Cycle Section Reference: Cash Conversion Cycle

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11. Techniques for forecasting future sales are limited to methods that use external or economic information. Answer: False Learning Objective 12.3 Explain what working capital is. Cash Conversion Cycle Section Reference: Cash Conversion Cycle

12. Working capital requirements can fall short periodically as long as the company remains profitable. Answer: False Learning Objective 12.3 Explain what working capital is. Cash Conversion Cycle Section Reference: Cash Conversion Cycle

13. From a microeconomic perspective, a company operating below its optimal output should always offer generous credit terms in order to stimulate demand. Answer: True Learning Objective 12.1 Describe some of the ﬁrst places entrepreneurs should seek funding. Section Reference: Getting Access to Funds—Start with Internal Sources 14. The credit terms of “10/15, net 30” mean that the payment is due within 15 days, but if paid within 10 days, there is a net 30% discount. Answer: False Learning Objective 12.5 Identify the sources of short-term cash for entrepreneurs. Section Reference: Sources of Short-Term Cash: More Payables, Less Receivables

15. An entrepreneur may only cash in his accounts receivable by going to a finance company for a loan. Answer: False Learning Objective 12.6 Explain how entrepreneurs can obtain loans through accounts receivable financing. Section Reference: Obtaining Bank Loans through Accounts Receivable Financing

16. Accounts receivable represents liquid working capital that can be obtained prematurely without cost. Answer: False

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Learning Objective 12.4 Explain how accounts receivable can be used as working capital. Section Reference: Using Accounts Receivable as Working Capital

17. Building up inventory typically reduces cash levels. Answer: True Learning Objective 12.7 Identify the ways entrepreneurs can use inventory to secure loans. Section Reference: Other Loans and Financing

18. One way for entrepreneurs to stretch their payables (to take longer to pay bills) is to take discounts. Answer: False Learning Objective 12.5 Identify the sources of short-term cash for entrepreneurs. Section Reference: Sources of Short-Term Cash: More Payables, Less Receivables

19. When paying for working capital shortfalls, entrepreneurs look for short-term cash at the lowest possible rates. Answer: True Learning Objective 12.8 Describe the traditional short-term bank loan for entrepreneurs. Section Reference: Short-Term Financing

20. If an entrepreneur wants more credit and would like to stretch out her payables, she can negotiate with her suppliers for more generous credit terms. Answer: True Learning Objective 12.5 Identify the sources of short-term cash for entrepreneurs. Section Reference: Sources of Short-Term Cash: More Payables, Less Receivables

21. By paying bills more slowly, an entrepreneur will hurt his or her business. Answer: False Learning Objective 12.5 Identify the sources of short-term cash for entrepreneurs. Section Reference: Sources of Short-Term Cash: More Payables, Less Receivables

22. Some suppliers use generous terms on trade credit as a form of sales promotion. This is always less effective than an intensive advertising campaign or a high-pressure sales team.

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Answer: False Learning Objective 12.7 Identify the ways entrepreneurs can use inventory to secure loans. Section Reference: Other Loans and Financing

23. A chattel mortgage is a loan secured by specific assets. Answer: True Learning Objective 12.7 Identify the ways entrepreneurs can use inventory to secure loans. Section Reference: Other Loans and Financing

24. When using a public warehousing arrangement for a bank loan, the entrepreneur surrenders access to his/her inventory. Answer: False Learning Objective 12.7 Identify the ways entrepreneurs can use inventory to secure loans. Section Reference: Other Loans and Financing

25. Pledging means using accounts payable as collateral for a loan from a finance company or bank. Answer: False Learning Objective 12.6 Explain how entrepreneurs can obtain loans through accounts receivable financing. Section Reference: Obtaining Bank Loans through Accounts Receivable Financing

26. When a borrower instructs its customers to pay their invoices directly to the lender, the arrangement is called, “Pledging with notification.” Answer: True Learning Objective 12.8 Describe the traditional short-term bank loan for entrepreneurs. Section Reference: Short-Term Financing

27. Factoring with recourse implies that if a company does not pay its bill, the factor must absorb the loss. Answer: False

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Learning Objective 12.6 Explain how entrepreneurs can obtain loans through accounts receivable financing. Section Reference: Obtaining Bank Loans through Accounts Receivable Financing

28. The term, factoring, refers to selling accounts receivable at a discount to a finance company known as the factor. Answer: True Learning Objective 12.6 Explain how entrepreneurs can obtain loans through accounts receivable financing. Section Reference: Obtaining Bank Loans through Accounts Receivable Financing

29. An entrepreneur's inventory is an asset that legally cannot serve as collateral for a loan. Answer: False Learning Objective 12.7 Identify the ways entrepreneurs can use inventory to secure loans. Section Reference: Other Loans and Financing

30. An entrepreneur only requires enough cash to cover needs under the most likely scenario he/she has forecasted. Answer: False Learning Objective 12.10 Differentiate between cash flow and profit. Section Reference: Planning Cash Flow and Profits

31. Canadian entrepreneurs can make use of government financing, such as IRAP research grants and SRED tax incentive programs to help start-ups preserve cash and reduce debt. Answer: True Learning Objective 12.9 Identify the early sources of external ﬁnancing available to entrepreneurs. Section Reference: Equipment Financing Obtaining Early Financing from External Sources

32. A subscription model provides a predictable and recurring way for companies to use customer payments to finance day-to-day operations. Answer: True

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise Learning Objective 12.1 Describe some of the ﬁrst places entrepreneurs should seek funding. Section Reference: Getting Access to Funds—Start with Internal Sources

33. Spin Master is a company that used a CYBF loan to become a leading toy supplier and Ernst & Young Entrepreneur of the Year Answer: True Learning Objective 12.9 Identify the early sources of external ﬁnancing available to entrepreneurs. Section Reference: Equipment Financing Obtaining Early Financing from External Sources

34. The Business Development Bank of Canada only offers loans of up to $50,000 Answer: False Learning Objective 12.9 Identify the early sources of external ﬁnancing available to entrepreneurs. Section Reference: Equipment Financing Obtaining Early Financing from External Sources

Multiple Choice 35. Which of the following is NOT one of the Five Cs of credit? a) Character b) Capacity c) Capital d) Collateral e) Customers Answer: e Learning Objective 12.1 Describe some of the ﬁrst places entrepreneurs should seek funding. Section Reference: Getting Access to Funds—Start with Internal Sources

36. Although the opportunity costs for accounts receivable may be quite large, the largest current asset balances are usually in______. a) cash b) accounts receivable

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c) inventories d) property, plant, and equipment e) short-term investments Answer: Learning Objective 12.7 Identify the ways entrepreneurs can use inventory to secure loans. Section Reference: Other Loans and Financing

37. Which of the following assets represent the most important current asset of many manufacturing companies? a) Cash b) Accounts receivable c) Inventories d) Property, plant, and equipment e) Short-term investments Answer: c Learning Objective 12.7 Identify the ways entrepreneurs can use inventory to secure loans. Section Reference: Other Loans and Financing

38. The ______ of receivables collection and payment of accounts payable are key determinants in whether a firm is cash rich or cash poor. a) quantity b) cost c) difference d) interest e) timing Answer: e Learning Objective 12.4 Explain how accounts receivable can be used as working capital. Section Reference: Using Accounts Receivable as Working Capital

39. Which of the following should be (if available) the entrepreneurs most economical choice for short term cash.

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a) Inventory backed loan b) Credit card c) Home equity line of credit d) Sell receivables e) Receivables backed loan Answer: c

40. The magnitude of a company's accounts receivable obviously depends upon a number of factors, except _________. a) the level and the pattern of sales b) the breakdown between cash and credit sales c) the difference between current assets and current liabilities d) the nominal credit terms offered e) the enforcement of credit terms Answer: c Learning Objective 12.4 Explain how accounts receivable can be used as working capital. Section Reference: Using Accounts Receivable as Working Capital

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41. The basis of all receivables and collections is actual net sales, which is equal to ______. a) sales minus any returns. b) sales plus any returns. c) sales minus returns only if they are 90 days late. d) sales plus returns only if they are 90 days late. e) None of the above Answer: a Learning Objective 12.4 Explain how accounts receivable can be used as working capital. Section Reference: Using Accounts Receivable as Working Capital

42. Methods of forecasting environmental change fall into two broad groups. One group is primarily concerned with forecasting the future performance of the economy as a whole; the other group is more concerned with forecasting ______ for individual industries and products. a) sales b) cost c) inventory d) weather patterns e) None of above Answer: a Learning Objective 12.5 Identify the sources of short-term cash for entrepreneurs. Section Reference: Sources of Short-Term Cash: More Payables, Less Receivables

43. Which of the following sources of short term funding offer the highest degree of security to the lender? a) Chattel Mortgages b) Floating Liens c) Non-bank equipment financing d) Factor loan without recourse Answer: a Learning Objective 12.7 Identify the ways entrepreneurs can use inventory to secure loans. Section Reference: Other Loans and Financing

44. The relative proportions of cash sales and credit sales make an important difference to which of the following? a) Expected sales.

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b) Expected cost. c) Expected inventory. d) Expected cash flows. e) Expected accounts receivable. Answer: d Learning Objective 12.10 Differentiate between cash flow and profit. Section Reference: Planning Cash Flow and Profits 45. What economic factor concerning the entrepreneur’s product is the most significant for the company’s credit policy? a) Elasticity of demand b) Elasticity of supply c) Margin of profit d) Margin of utility e) None of above Answer: a Learning Objective 12.8 Describe the traditional short-term bank loan for entrepreneurs. Section Reference: Short-Term Financing

46. Banks prefer 90-day maturities on short term loans in order to a) Charge additional fees b) Hedge against changes in the LIBOR rate c) Have a chance to regularly check an entrepreneurs’ financial statements d) None of the above Answer: c Learning Objective 12.8 Describe the traditional short-term bank loan for entrepreneurs. Section Reference: Short-Term Financing

47. Which of the following is a method of pursuing payment from a customer whom the entrepreneur believes able to pay? a) Refusing any further supplies, or supplying only for cash b) Threatening legal action c) Actually undertaking legal proceedings, using a specialized collection agency d) All of the above e) None of the above Answer: d Learning Objective 12.5 Identify the sources of short-term cash for entrepreneurs. Section Reference: Sources of Short-Term Cash: More Payables, Less Receivables

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48. It’s safe to say that collection procedures are expensive and justifiable only when the expected results ______. a) are lower than the cost. b) exceed the cost. c) are equal to the cost. d) are at least 40% lower than the cost. e) None of the above. Answer: b Learning Objective 12.4 Explain how accounts receivable can be used as working capital. Section Reference: Using Accounts Receivable as Working Capital

49. A method of reducing overdue accounts and limiting bad debts is setting limits to the credit allowed on______. a) corporate buyers b) individual accounts c) high-cost goods d) low-cost goods e) none of the above Answer: b Learning Objective 12.4 Explain how accounts receivable can be used as working capital. Section Reference: Using Accounts Receivable as Working Capital

50. What does a trade-credit effectively amount to? a) Higher accounts payable. b) Higher trust among companies in the same industry. c) A loan to the entrepreneur’s working capital. d) Debt swaps. e) None of the above Answer: c Learning Objective 12.3 Explain what working capital is. Cash Conversion Cycle Section Reference: Cash Conversion Cycle

51. A routine condition which could cause an entrepreneur to regularly factor his/her accounts receivables could be ____. a) To buy out an existing partner’s equity b) To compensate for large, predictable, fluctuations in seasonal demand. c) To reduce current assets on the balance sheet d) None of the above.

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Answer: b Learning Objective 12.6 Explain how entrepreneurs can obtain loans through accounts receivable financing. Section Reference: Obtaining Bank Loans through Accounts Receivable Financing

52. Which of the following is NOT a way to use inventory as security for a loan? a) A chattel mortgage. b) A floating lien. c) Field warehousing. d) Public warehousing. e) Outside project financing. Answer: e Learning Objective 12.7 Identify the ways entrepreneurs can use inventory to secure loans. Section Reference: Other Loans and Financing 53. Typically, a company can borrow what percent of its accounts receivable’s face value if it has a good credit rating and its customers have excellent credit ratings. a) 15% to 25% b) 25% to 50% c) 50% to 75% d) 75% to 90% e) 90%to 100% Answer: d Learning Objective 12.6 Explain how entrepreneurs can obtain loans through accounts receivable financing. Section Reference: Obtaining Bank Loans through Accounts Receivable Financing

54. Banks and finance companies usually lend ______, in writing a floating lien. a) only a small fraction of the inventory’s book value b) only a small fraction of the inventory's market value c) the total amount as the inventory’s book value d) a small fraction of the sales of the last year e) a large fraction of the sales of the last year Answer: b Learning Objective 12.8 Describe the traditional short-term bank loan for entrepreneurs. Section Reference: Short-Term Financing

55. Which of the following is not suitable for using field warehousing?

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a) Especially bulky inventory. b) Especially valuable inventory. c) Structural steel d) An inventory of chemicals e) None of the above. Answer: e Learning Objective 12.7 Identify the ways entrepreneurs can use inventory to secure loans. Section Reference: Other Loans and Financing

56. Which of the following is NOT a factor that influences the interest borrowers pay? a) the dollar amount of the loan b) the length of time involved c) the nominal rate of interest d) the repayment location e) the method used to calculate the interest Answer: d Learning Objective 12.8 Describe the traditional short-term bank loan for entrepreneurs. Section Reference: Short-Term Financing

57. The bank discount method is common in ______. a) short-term business loans b) long-term business loans c) financing from customer prepayments d) collateral appraisal e) insurance Answer: a Learning Objective 12.8 Describe the traditional short-term bank loan for entrepreneurs. Section Reference: Short-Term Financing

58. Which of the following are sources of financing that an entrepreneur may choose before seeking a bank loan or external financing? a) Family b) Friends c) Bootstrapping d) Crowdfunding e) All of the above Answer: e

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59. According to the Bank of Canada, at the end of 2013 consumers had personal credit outstanding of close to? a) $5 Million b) $67 Million c) $2.7 Billion d) $63 Billion e) $1.36 Trillion Answer: e

60. Canadian Youth Business Foundation loans offer the following: a) Financing b)Mentorship c) Networking d) All of the above e) B & C only Answer: d

61. The Business Development Bank of Canada offers loans to: a) Small Businesses to start up b) Larger Companies to expand c) Multinational Companies to enter the Canadian market d) All of the Above e) A and B only Answer: Learning Objective 12.9 Identify the early sources of external ﬁnancing available to entrepreneurs. Section Reference: Equipment Financing Obtaining Early Financing from External Sources

Open Ended 62. Why do entrepreneurs usually want to keep inventory levels as low as possible? What are the challenges facing entrepreneurs who want to reduce their inventory levels? To reduce the inventory expenses such as storage costs and insurance. To ensure that as little capital as possible is tied up in inventory.

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The challenges to keeping inventory levels low include: • The costs of frequent reordering. • Loss of quantity discounts. • Loss of customer goodwill or plant efficiency due to items being unavailable when needed. Learning Objective 12.7 Identify the ways entrepreneurs can use inventory to secure loans. Section Reference: Other Loans and Financing

63. Net working capital is often thought of as the balance of completely liquid assets and liabilities. However, this is not completely true. Please explain why parts of working capital can become stagnant and hurt cash levels, even if a firm is growing and profitable. •

•

As a small firm grows, current operating assets will increase. Increased inventory requirements as company increases its number of stores is one example. Even as the actual products are being sold out of inventory, the number of products that must be held in inventory reserves remains the same. This obstructs liquidity and reduces the company’s available cash. If current operating liabilities do not increase at the same rate as the increase in current operating assets, then the entrepreneur will find that the firm's net liquid balance will decrease. More of the firm’s cash will become tied up in accounts receivable and inventory. If the increase in working capital requirements exceeds the increase in profits, then the firm will find its liquidity, and cash on hand, reducing.

Learning Objective 12.3 Explain what working capital is. Cash Conversion Cycle Section Reference: Cash Conversion Cycle

64. Is it a mistake for a company to offer credit terms to its customers for early payment? •

This depends on whether giving a cash discount speeds up collections, and whether the opportunity cost of the funds that would otherwise have been locked up in receivables justifies the reduction in net sales revenues.

Learning Objective 12.8 Describe the traditional short-term bank loan for entrepreneurs. Section Reference: Short-Term Financing

65. What are the advantages of trade credit over other sources of financing? •

The first advantage is convenience: trade credit is not negotiated; it requires no great expenditure of executive time, and no legal expenses.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise •

The second advantage is that the credit available from this source automatically grows as the company grows. Accounts payable are known as a spontaneous source of financing. As sales expand, production schedules increase, which in turn means that larger quantities of materials and supplies must be bought. In the absence of limits on credit, the additional credit becomes available automatically simply because the firm has placed orders for the extra material. Of course, if the manufacturing process is long and the company reaches the supplier's payment before selling the goods, it may need some additional source of credit. But the amount will be much less than if no trade credit had been available.

Learning Objective 12.8 Describe the traditional short-term bank loan for entrepreneurs. Section Reference: Short-Term Financing

65. Short of demanding payments, what sales terms could an entrepreneur choose in order to collect cash more quickly? •

• •

Introduce, increase, or eliminate discounts. A company can initiate a discount for prompt payment (for example, a 2% discount for payment within ten days). Similarly, a company with an existing discount may increase the discount (for example, increase discount from 1% to 2%). Finally, a company can eliminate the discount altogether and simply demand cash immediately or upon delivery (COD). Companies will have difficulty instituting these measures if competitors offer significantly more, lenient credit terms. Emphasize cash sales. Some entrepreneurs, particularly those selling directly to consumers, may be able to increase their percentage of cash sales. Accept credit cards. Sales made on bank credit cards or on travel or entertainment cards are convertible into cash within a couple of days. The credit card companies charge 3% to 7% of the amount of the sale for this service.

Learning Objective 12.10 Differentiate between cash flow and profit. Section Reference: Planning Cash Flow and Profits

66. What kind of information will the loan officer be interested in, when entrepreneurs are looking for a bank loan? • • • •

How much money the company needs. How the company will use this money. How the company will repay the bank, including financial statements from the company. When the company will repay the bank.

Learning Objective 12.8 Describe the traditional short-term bank loan for entrepreneurs. Section Reference: Short-Term Financing

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67. What are the three categories of restrictive covenants mentioned in the chapter, in relation to loan agreements? • • •

General provisions, which force the borrower to preserve liquidity and limit cash outflows. Routine provisions, which are common and non-variable restrictions. Specific provisions, which vary according to the situation.

Learning Objective 12.8 Describe the traditional short-term bank loan for entrepreneurs. Section Reference: Short-Term Financing

68. List two examples of Routine Provisions. • • • •

The borrower must furnish the bank with periodic financial statements and maintain adequate property insurance. The borrower agrees not to sell a significant portion of its assets. A provision forbidding the pledging of the borrower's assets is also included in most loan agreements. This provision is often termed a negative pledge clause. The borrower is restricted from entering into any new leasing agreements that might endanger the ability to pay the loan. The borrower is restricted from acquiring other firms unless prior approval has been obtained from the lender.

Learning Objective 12.8 Describe the traditional short-term bank loan for entrepreneurs. Section Reference: Short-Term Financing

69. Give an example of a Specific Provision that an entrepreneur might encounter in a loan agreement. • Key executives may be required to sign employment contracts or take out substantial life insurance. • The bank may require the right to be consulted before any changes are made in the company's top management. • Some covenants prevent increases in top management salaries or other compensation. Learning Objective 12.8 Describe the traditional short-term bank loan for entrepreneurs. Section Reference: Short-Term Financing

70. Discuss the importance of forecasting cash flow requirements as it pertains to working capital.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise • It is commonly heard that many entrepreneurs find themselves up late at night sweating over their cash flow statements, trying to sort out if they can make payroll at the end of the week. This is a problem of being short on cash, but one which often comes prior to running so short that suppliers cannot be paid such that they continue to do business with you. Forecasting cash flow is critical because, like oxygen, it will utterly consume the entrepreneurs’ full attention the moment it becomes scarce. Multiple factors can impact a venture need for cash, including the seasonality of demand, weather, stories in the press, or the occurrence of major cultural events. To the greatest practical extent possible, the entrepreneur must seek to forecast and source these needs for funds. That said, entrepreneurs must judiciously know when to stop allocating additional managerial time to further calculations, and adjust their forecasts to deal with the remaining uncertainties, and worst case contingencies, so that they can focus on execution successfully. Learning Objective 12.3 Explain what working capital is. Cash Conversion Cycle Section Reference: Cash Conversion Cycle

71. Discuss the importance of the cash collection cycle in terms of your ventures growth model. •

•

It is clear now that working capital requirements will increase when a venture with a positive cash conversion cycle (CCC) grows. This increased need requires additional funds and must be aligned with fund sources or else growth can lead to insolvency. Working capital is but one of many requirements to support growth, and all need to be planned in stages to the greatest practical degree possible. Entrepreneurs should consider organizing their growth plans into phases which make sense according to their ability to obtain funding for capital expenditures, new hires, working capital, expanded marketing efforts, and other expenses related to scaling up. When growth is the goal, and other peoples’ money is the means, then all intermediate objectives must be aligned with creating the conditions necessary to secure further financing of progressively higher orders. From the beginning, your CCC must be deliberately managed within acceptable parameters to support your growth plan, outside of which conditions-based growth plans must be either postponed, or the entrepreneur must be willing to accept greater strategic risk.

Learning Objective 12.2 Explain what the cash conversion cycle is. Section Reference: Cash Conversion Cycle

72. Discuss the distinction between profitability and solvency. •

Profitability is primarily an accounting concept that is of greater importance over longer horizons. Having enough cash to keep your venture solvent is a “vitality” issue that will immediately lead to the death of your venture if not properly

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planned for. Until a new venture acquires sufficient paid-in-equity to qualify for debt financing on its own, its ability to generate cash flow will play a greater role in whether banks will lend external funds. Learning Objective 12.10 Differentiate between cash flow and profit. Section Reference: Planning Cash Flow and Profits

73. When choosing to use internal funds as means to support growth, discuss to what ends this growth must be ultimately focused on (in terms of financing considerations). •

Entrepreneurs must constantly ensure a balance and alignment exist between their goals, their means to achieve said goals, and the ways in which theirs mean are applied to reach those goals. Misalignment between any parts of these three creates additional strategic risk. When entrepreneurs use internal funds they are pairing venture risk with at least some personal risk. Therefore the goal of using internal funds should be to obtain access to better sources of funds which entail less personal risk. Key metrics such as free cash flow and pre-tax undedicated cash flow vary in relative importance depending on whether the entrepreneurs’ goals include growth through debt financing or through acquisition, respectively. Unless the entrepreneur’s personal internal funds are vast, he/she should ensure his/her internal means are sufficient to realistically allow the venture to set the conditions to receive external funding in a reasonable period of time, with reserves built in for the unexpected crisis and opportunities. The absence of sufficient internal means necessitates the revision of the entrepreneurs’ goals, risk tolerance, or a combination of all the above.

Learning Objective 12.1 Describe some of the ﬁrst places entrepreneurs should seek funding. Section Reference: Getting Access to Funds—Start with Internal Sources 74. What actions towards the ventures’ cash collection cycle, should an entrepreneur take before seeking ways to prematurely extract short term cash from his/her operating assets? •

“An ounce of prevention is worth a pound of cure”- Before investing too much time in planning how to harvest short term cash from your operating assets, ensure you have done all that you can to optimize your CCC. Consider how variation on your value proposition, or value chain, can improve you CCC. Without misaligning priorities, strive to build the lowest possible requirements for working capital possible from the beginning, while retaining the ability to grow in the future. Removing 15% of your working capital requirements upfront will save time, worry, and money in the future as your venture grows, and could make or break your ability to set the conditions necessary to obtain future external funds. Attempting to mitigate the ill-effects of a bloated cash conversion system in the midst of growth would be far more difficult.

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Learning Objective 12.2 Explain what the cash conversion cycle is. Section Reference: Cash Conversion Cycle

75. Explain why the BDC small business loan is an attractive source of financing compared to other options • • •

The application process is 100% online Flexible repayment terms (defer payment options along with a 4-year allotted payback time) Affordable loan with an interest rate of 6%

Learning Objective 12.9 Identify the early sources of external ﬁnancing available to entrepreneurs. Section Reference: Equipment Financing Obtaining Early Financing from External Sources

76. What information is necessary in order to apply for a BDC or CYBF loan: •

•

Information about the business: o Name and address of your financial institution o Name and address of your accountant o HST/GST number Information about the business owners: o Name / date of birth / home address / telephone number o Assets, such as residences, ban accounts and RRSP’s o Liabilities, such as mortgages and credit card debt Required documents: o Basic year-end financial statements for the past two years, signed by an external accredited accountant (CA. CGA. CMA, CPA, or RPA) Or o Notice of assessment and income tax return, including your statement of business activities, for the past two years o Business bank account statements for the past three months o A void cheque from your business bank account for pre-authorized payments

Learning Objective 12.9 Identify the early sources of external ﬁnancing available to entrepreneurs. Section Reference: Equipment Financing Obtaining Early Financing from External Sources

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Chapter 13: Legal and Tax Issues, Including Intellectual Property True/False Statements 1. The corporate opportunity doctrine basically claims that a director cannot use his position to decide which acquisition deals the company should enter to. Answer: False Learning Objective 13.1 Outline the requirements for leaving a current position. Section Reference: Leaving Your Present Position

2. Persuading your co-workers to leave your employer is not very risky, as long as their defections do not impact the company’s ability to function and the conversations are occurring after working hours. False: True Learning Objective 13.1 Outline the requirements for leaving a current position. Section Reference: Leaving Your Present Position

3. The number of workers you draw from your former employer to your new company does not matter from the viewpoint of liability. Answer: False Learning Objective 13.1 Outline the requirements for leaving a current position. Section Reference: Leaving Your Present Position

4. Legally, an employee may not compete with his or her employer. Answer: True Learning Objective 13.1 Outline the requirements for leaving a current position. Section Reference: Leaving Your Present Position

5. Some lawyers in Canada concentrate on representing start-ups and small businesses. Answer: True Learning Objective 13.1 Outline the requirements for leaving a current position. Section Reference: Leaving Your Present Position 6. No good lawyer will be willing to make fee arrangements to ease the strain on start-up’s cash flow.

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Answer: False Learning Objective 13.1 Outline the requirements for leaving a current position. Section Reference: Leaving Your Present Position

7. Although formally there is only one owner in the sole proprietorship, two or more people control the company. Answer: False Learning Objective 13.3 Compare and contrast the diﬀerent types of legal forms of a business based on the factors of control, personal liability, and taxation. Section Reference: Choice of Legal Form 8. If a business is not able to pay its debts, under a general partnership, the debt is transferred to the owners. Answer: True

Learning Objective 13.3 Compare and contrast the diﬀerent types of legal forms of a business based on the factors of control, personal liability, and taxation Section Reference: Choice of Legal Form 9. Double taxation is more of a myth than a legitimate threat to small businesses. Answer: True Learning Objective 13.5 Outline the legal and tax issues to be considered when hiring employees. Section Reference: Hiring Employees 10. According to the doctrine of “vicarious liability,” the employer is responsible for any damage done by the employees occurring within the scope of their employment. Answer: True Learning Objective 13.5 Outline the legal and tax issues to be considered when hiring employees. Section Reference: Hiring Employees

11. Human Rights Codes prohibit employment discrimination on the basis of gender, race, national origin, religion, age, and disability. Answer: False Learning Objective 13.5 Outline the legal and tax issues to be considered when hiring employees. Section Reference: Hiring Employees

12. A partnership legal form of business is limited to two owners.

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Answer: False Learning Objective 13.3 Compare and contrast the diﬀerent types of legal forms of a business based on the factors of control, personal liability, and taxation Section Reference: Choice of Legal Form

13. A start-up can be considered a non-profit entity if it does not make a profit Answer: False Learning Objective 13.3 Compare and contrast the diﬀerent types of legal forms of a business based on the factors of control, personal liability, and taxation Section Reference: Choice of Legal Form

14. It is not unusual for a founder to forgo salary compensation even when external investors are brought in Answer: False Learning Objective 13.5 Outline the legal and tax issues to be considered when hiring employees. Section Reference: Hiring Employees

15. A founder may use an employment agreement to prevent themselves from being removed from the company without cause. Answer: True Learning Objective 13.4 Explain why shareholders’ agreements are important and outline the information that should be contained in such an agreement. Legal and Tax Issues in Section Reference: Shareholders’ Agreements

16. Laws regulating the offer and sale of securities are only applicable to large public companies in Canada. Answer: False Learning Objective 13.6 Explain the legal implications for entrepreneurs in raising money for their venture. Section Reference: Raising Money

17. Laws regulating the offer and sales of securities are not applicable to equity shares. Answer: False Learning Objective 13.6 Explain the legal implications for entrepreneurs in raising money for their venture.

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Section Reference: Raising Money

18. A specialist certification from the Law Society of Upper Canada is required in order to provide advice to aspiring Canadian entrepreneurs. Answer: False Learning Objective 13.1 Outline the requirements for leaving a current position. Section Reference: Leaving Your Present Position 19. Restrictive covenants limits an individual’s ability to start or work with a competitor, even if they resign from their current employment position. Answer: True Learning Objective 13.1 Outline the requirements for leaving a current position. Section Reference: Leaving Your Present Position

20. Courts will never adapt the length or scope of a non-competition agreement. Answer: False Learning Objective 13.1 Outline the requirements for leaving a current position. Section Reference: Leaving Your Present Position

21. Only once a company successfully patents an invention, is it allowed to make money on that invention. Answer: False Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

22. Patents are pretty much only applicable in high-technology new ventures Answer: False Learning Objective 13.1 Outline the requirements for leaving a current position. Section Reference: Leaving Your Present Position

23. Provincial and municipal government bodies in Canada are not subject to the action for breach of confidence where they are required to comply with legislated rights of access to information Answer: True Learning Objective 13.2 Describe the diﬀerent types of intellectual property.

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Section Reference: Intellectual Property

24. Once a company files for a patent, they must see it through to issue. Answer: False Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

25. Canadian inventors are free to apply for patents in other countries. Answer: True Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

26. Generally, public disclosure of a product or process does not invalidate it from being patented Answer: False Learning Objective 13.3 Compare and contrast the diﬀerent types of legal forms of a business based on the factors of control, personal liability, and taxation Section Reference: Choice of Legal Form

27. Once a patent is filed it provides immediate protection. Answer: False Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

28. The board of directors are elected by the shareholders Answer: True Learning Objective 13.5 Outline the legal and tax issues to be considered when hiring employees. Section Reference: Hiring Employees

29. Founders normally are issued shares (or equity) based on the size of their financial investment Answer: False Learning Objective 13.5 Outline the legal and tax issues to be considered when hiring employees. Section Reference: Hiring Employees

Test bank for Entrepreneurship, Canadian Edition 30. The owners’ respective investments in a company will normally be memorialized in a nondisclosure agreement. Answer: False Learning Objective 13.4 Explain why shareholders’ agreements are important and outline the information that should be contained in such an agreement. Legal and Tax Issues in Section Reference: Shareholders’ Agreements

31. Redemption provisions provide minority investors the ability to demand a buy out so that they are not locked into a minority investment in a closely held company forever Answer: True Learning Objective 13.6 Explain the legal implications for entrepreneurs in raising money for their venture. Section Reference: Raising Money 32. If the employer is ending the relationship, absent ‘just cause’ for the termination, the employer must give the employee reasonable notice of the termination Answer: True Learning Objective 13.5 Outline the legal and tax issues to be considered when hiring employees. Section Reference: Hiring Employees

33. The name of a business is likely to be the repository of much of its goodwill Answer: True Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

34. The choice of a name is a matter of personal and artistic taste, without many legal ramifications Answer: False Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

35. An entrepreneur is free to name a company whatever he/she wishes Answer: False Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

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Multiple Choice 36. What concept requires that an employee does not knowingly take action designed to harm the employer's business? a) Reasonable protection b) Employee’s obligation c) Duty of loyalty d) Corporate tact e) Generally accepted protection principle Answer: c Learning Objective 13.1 Outline the requirements for leaving a current position. Section Reference: Leaving Your Present Position

37. If you decided to leave your current employer and establish your own venture, what actions will decrease the likelihood of being sued for convincing other employees from the company to leave with you? a) Working in the Human Resources department of the employer b) Talking to them after the business hours c) Talking to them over e-mail or/phone d) Offering them better working conditions in the new company e) None of the above Answer: b Learning Objective 13.1 Outline the requirements for leaving a current position. Section Reference: Leaving Your Present Position

38. What, if possible, must the employer do to make its employees not compete with the company for a year after they quit the job? a) Issue an internal order b) Does not have to do anything – the obligation is imposed on any employee by statutes c) Obtain a court order d) Have the employees sign a non-competition agreement e) It cannot be done Answer: d Learning Objective 13.1 Outline the requirements for leaving a current position. Section Reference: Leaving Your Present Position

39. What is one advantage of hiring a lawyer that concentrates in working with startups? a) Usually good at suing multinationals

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b) Will gladly accept equity as the fee c) May agree upon installment payments d) Good at handling intellectual property issues e) Good at representing your national interests Answer: c Learning Objective 13.1 Outline the requirements for leaving a current position. Section Reference: Leaving Your Present Position

40. The minimum number of owners in a partnership is equal to: a) 1 b) 2 c) 4 d) 5 e) 6 Answer: b Learning Objective 13.3 Compare and contrast the diﬀerent types of legal forms of a business based on the factors of control, personal liability, and taxation Section Reference: Choice of Legal Form

41. Which of the following cannot be considered non-profit entities? a) Social welfare organizations b) Educational institutions c) Churches d) Partnership e) Industry associations Answer: d Learning Objective 13.3 Compare and contrast the diﬀerent types of legal forms of a business based on the factors of control, personal liability, and taxation Section Reference: Choice of Legal Form

42. Which form of legal entity is the easiest to understand from the viewpoint of tax issues? a) Limited liability company b) Sole proprietorship c) Partnership d) Company e) Not-for-profit Answer: b Learning Objective 13.3 Compare and contrast the diﬀerent types of legal forms of a business based on the factors of control, personal liability, and taxation

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Section Reference: Choice of Legal Form

43. The business is not recognized as a legal entity separate from its owners under which legal form? a) Professional corporation b) Company c) Partnership d) Startup e) Non-profit Answer: c Learning Objective 13.3 Compare and contrast the diﬀerent types of legal forms of a business based on the factors of control, personal liability, and taxation Section Reference: Choice of Legal Form

44. The following legal form is more likely to have to file an annual report with the government in addition to their tax return: a) Partnership b) Sole-proprietorship c) Limited partnership d) Company e) Limited liability partnership Answer: d Learning Objective 13.3 Compare and contrast the diﬀerent types of legal forms of a business based on the factors of control, personal liability, and taxation Section Reference: Choice of Legal Form

45. The doctrine of vicarious liability states that: a) The employer’s liability for the employee’s actions is limited to a specific amount of money (the amount differs from state to state) b) The employer is responsible for any contract signed by the employee. c) The employer is responsible for actions of the employee occurring within the scope of his/her employment d) The employee always answers for the consequences of his/her criminal actions without transferring the responsibility to the employer e) Employees can be held criminally liable if they contribute to the unlawful actions of an employer and should have reasonably understood the consequences. Answer: c Learning Objective 13.5 Outline the legal and tax issues to be considered when hiring employees. Section Reference: Hiring Employees

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46. An employer may not discriminate against anyone for any of the following characteristics, except for: a) Religion b) Age c) National origin d) Sexual orientation e) Disability Answer: d Learning Objective 13.5 Outline the legal and tax issues to be considered when hiring employees. Section Reference: Hiring Employees

47. A redemption agreement means that a) The business owns insurance policies on the owners and is obligated to use the proceeds to purchase each stockholder’s equity upon his or her death. b) Each owner is required to take out insurance on the others and to buy a proportional amount of the deceased's equity. c) Business assets, such as inventory or marketable securities, equal to the value of owner’s share of the equity in the company will be transferred to relatives upon his or her death. d) Internal Revenue Service allows installment tax payments to be received within 2 years after an owner’s death. e) None of the above. Answer: a Learning Objective 13.3 Compare and contrast the diﬀerent types of legal forms of a business based on the factors of control, personal liability, and taxation Section Reference: Choice of Legal Form 48. Securities refer to all of the following except: a) Equity shares b) Options or Warrants c) Short-term loans d) Investments relying on the efforts of others for the investment’s success Answer: c Learning Objective 13.6 Explain the legal implications for entrepreneurs in raising money for their venture. Section Reference: Raising Money

49. Discrimination is prohibited in a) Hiring b) Promotion c) Firing

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d) All of the Above Answer: d Learning Objective 13.5 Outline the legal and tax issues to be considered when hiring employees. Section Reference: Hiring Employees

50. Non-competition agreements vary in terms of each of the following dimensions except: a) Scope of the obligation b) Duration of time from employment termination c) Duration of competition allowed d) Geographic scope Answer: c Learning Objective 13.1 Outline the requirements for leaving a current position. Section Reference: Leaving Your Present Position

51. The following are examples of intellectual property except: a) Accounts Receivable b) Inventions c) Dramatic Works d) Symbols used in commerce Answer: a Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

52. The following are legal ways in which intellectual property can be protected in Canada except: a) Confidential information b) Patents c) Industrial Designs d) Injunction Answer: d Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

53. Confidential information protects what about a product? a) Its assembly and marketing strategy. b) Symbols affixed to it c) Instructions for its use d) Its packaging and advertising materials

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Answer: a Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

54. Which form of intellectual property does not rely on government statues or certification, but rather the decision of courts: a) Confidential information b) Patents c) Trademarks d) Industrial Designs Answer: a

55. Which form of intellectual property does not have a time limit? a) Patents b) Copyright c) Industrial Designs d) Confidential Information Answer: d Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

56. Which of the following provinces is a civil law jurisdiction and includes the explicit protection of trade secrets in its civil code? a) Ontario b) Quebec c) British Columbia d) Newfoundland Answer: b Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

57. The Coca-Cola formula is one of the most famous examples of a: a) Patent b) Trade Secret c) Trademark d) Confidentiality Agreement Answer: b Learning Objective 13.2 Describe the diﬀerent types of intellectual property.

Test bank for Entrepreneurship, Canadian Edition

Section Reference: Intellectual Property

58. Patents in Canada are governed by: a) The court system b) Provincial governments c) The federal government d) Civil Code Answer: c Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

59. In order to gain patent protection for its invention across the world, a company must: a) File for an international patent b) File for a patent only in its home country c) Coordinate patent applications across countries d) It is not possible to get patent protection outside of your home country Answer: c Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

60. Under Canadian law, the legal status for the time between a patent application and its granting is referred to as: a) Patent Pending b) Provisional Patent c) Probationary Patent d) There is no legal status during this time period Answer: d Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

61. Which of the following cannot be patented under Canadian law? a) Methods of Medical Treatment b) Pharmaceuticals c) Medical Instruments d) Ways to diagnose injuries Answer: a Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

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62. Trademarks can be created based on all of the following except: a) A word b) A symbol c) Shape of the goods d) A functional feature of a product Answer: d Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

63. How many years is monopoly protection for an industrial design good for (without renewal)? a) 1 year b) 5 years c) 15 years d) Forever Answer: b Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

64. Which of the following forms of IP protection have a filing fee? a) Confidential Information b) Passing off Trademark c) Patent d) None of the above Answer: c Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

65. Which of the following forms of IP protection is the most expensive? a) Patent b) Passing off trademark c) Registered trademark d) Copyright Answer: a Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

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66. Passing off is a type of: a) Trademark b) Patent c) Partnership d) Industrial Design Answer: a Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

67. Each of the following requires a government review except: a) Patent b) Industrial Design c) Registered Trademark d) Passing off Trademark Answer: d Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

68. A company is controlled by the following levels of authority except: a) Shareholders b) Directors c) Officers d) Employees Answer: d Learning Objective 13.5 Outline the legal and tax issues to be considered when hiring employees. Section Reference: Hiring Employees

Open ended 69. Briefly explain the ideas behind the “corporate opportunity” and the “duty of loyalty” doctrines. • •

If you work in a company and identify an opportunity the company may use, you must first notify the company. If the company turned down the opportunity, you may use it yourself, either individually or in your own venture.

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The duty of loyalty limits this obligation – low-position employees must only inform the company about opportunities directly related to the scope of their job. In contrast to the more strict obligations of executives.

Learning Objective 13.1 Outline the requirements for leaving a current position. Section Reference: Leaving Your Present Position

70. What are the pros and cons of patenting a product? • Pros: you get legal protection against the use of your idea by competitors; you get exclusive rights (monopoly) for distributing your product; can be strong protection if • well drafted; investor’s don’t like to invest in unprotected IP • Cons: after you have patented the product, your idea becomes commonly known, and your competitors can build around it to create a new product; filing for a patent is expensive; high level of government scrutiny, strict time requirements; value dependant on strength of the claims. Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

71. How can a company protect itself from its employees competing against the company after they leave? What problems may the company face when preventing this kind of competition? • • • •

Require employees to sign a non-disclosure contract Require a non-compete agreement. Sometimes the contract will not be enforceable due to local legislation Non-compete agreements may be limited by geography, time periods or scope of obligation

Learning Objective 13.1 Outline the requirements for leaving a current position. Section Reference: Leaving Your Present Position

72. List the three most common legal forms of business entities and describe them. • Sole Proprietorship - owned and operated by one owner who is in total control • Partnership - two or more persons go into business for profit, as co-owners, sharing profits and losses • Company - separate legal entity, with legal existence apart from its owners, the shareholders Learning Objective 13.5 Outline the legal and tax issues to be considered when hiring employees. Section Reference: Hiring Employees

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73. Name the forms of IP protection under Canadian Law and describe what subject matter is able to protect? • • • • •

Confidential Information – any information that can be kept secret Patents : Inventions i.e., new products & improvements, (functionality) Trademarks: Symbols associated or proposed with products or services; company names Copyrights protect authors’ and creators’ original creations, including literary, musical, artistic, software, and other intellectual works. Industrial design registration will protect exclusive aesthetic use of artistic works in connection with mass produced useful articles.

Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

74. What are four steps that a company can take to help protect confidential information, including trade secrets: •

•

• •

Negotiate confidential nondisclosure agreements with all employees, agents, consultants, suppliers, and anyone else who will be exposed to the secret information. The agreement should bind them not to use or disclose the information without permission. Take security precautions to keep third parties from entering the premises where the confidential information is being used. Sturdy locks, perimeter fences, guards, badges, visitor sign-in books, escorts, and designated off-limits areas are just some of the ways that a business can exercise control over the area containing the secrets. Stamp specific documents containing the secrets with a confidentiality legend and keep them in a secure place with limited access, such as a safe, locked drawer, or cabinet. Make sure all employees, consultants, and others who are concerned with, have access to, or have knowledge about the secrets understand that they are secrets, and make sure they recognize the value to the company of this information and the requirement for secrecy.

Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property 75. Describe how a certification mark is different from a trademark and how it may be helpful to an entrepreneur. o Unlike a trademark, a certification mark cannot be owned by the entrepreneur o Certification marks are held by organizations or industry associations that does not actively trade in the goods or services to which it relates

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o A certification mark is used to distinguish wares or services that meet a defined standard in terms of: ▪ the character or quality of the wares or services, ▪ the working conditions under which the wares have been produced or the services performed ▪ the class of persons by whom the wares have been produced or the services performed, or ▪ the area within which the ware have been produced or the services performed o If an organization or industry association gives an entrepreneurial business the right to display such a mark on it goods, it will give the goods a cache and potential credibility which many other similar goods will lack Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

76. Compare the cost and length of protection between confidential information, patent, trademark and copyright. • Confidential information: No filing fee, but costs depend on the volume of secrets and number of employees. It is not free, but will depend on the cost of creating contracts and other mechanisms to keep the information secret. It grants immediate and indefinite protection – as long a the secret is kept secret. • Patent: There is a $200-400 filing fee and between $12k-18k in overall costs per patent per country. It takes 3-5 years to be granted and protection lasts for 20 years from application, usually about 17 years. • Trademark: Filing fees include an application fee of $250-300 and a $200 registration fee and overall costs are about $2.5-5k. It takes about a year to be registered and may extend forever as long as mark is used, renewed every 15 years and recognized by the public. • Copyright: Filing is not necessary, but possible to apply and pay a $50-65 fee. Overall costs are very low at less than $500. Protection is provided immediately upon creation of expression and generally guaranteed for the life of the author + 50 years Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

77. Discuss the pros and cons of protecting intellectual property through confidential information: • Pros: No government review; protects ideas and information not protectable by patents as well as that which could become patented (and thus become publicly known) • Cons: Cannot be relied upon if “secret” really isn’t kept secret; others have right to discover the secret on their own and then use it

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Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property

78. Discuss the pros and cons of copyright protection: • •

Pros: Free and immediate; non-mandatory registration confers additional enforcement benefits Cons: No protection for function; often subject to moral rights of authors where economic rights held by others; often subject to users’ rights

Learning Objective 13.2 Describe the diﬀerent types of intellectual property. Section Reference: Intellectual Property 79. Describe situations in which it may be possible to “pierce the corporate veil” o If firm capital was unnecessarily depleted by dividends or other distributions to owners causing insolvency o Failure of the owners to treat the company as an entity separate from themselves by: ▪ Failing to use Inc. or Ltd. or a similar legal indicator when dealing with third parties, or ▪ Commingling business and personal assets in a personal bank account or allowing unreimbursed personal use of corporate assets, or ▪ Failing to keep business and legal records and hold regular directors’ or shareholders’ meetings. Learning Objective 13.5 Outline the legal and tax issues to be considered when hiring employees. Section Reference: Hiring Employees

80. Describe the ideal business entity from the perspective of taxation: • • •

Minimize or eliminate any personal income tax that might result from receipt of an ownership interest (such as share ownership); Maximize the tax shelter for the investors should the business have an annual loss; Minimize taxes paid by the business, founders, and investors should the business have an annual profit;

o Minimize capital gains taxes payable by the founders and investors if they sell all or some of their ownership interest (such as shares).

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Chapter 14: Entrepreneurial Growth True/False Statements 1. As the organization grows, managerial skills emerge out of entrepreneurial skills. Answer: False Learning Objective 14.1 Explain how entrepreneurships make the transition from startup to growth. Section Reference: Making the Transition from Startup to Growth

2. Essentially customer needs do not change, therefore you need to identify them and maintain focus. Answer: False Learning Objective 14.3 Identify the challenges and key imperatives for managing entrepreneurial growth. Section Reference: The Growth Process 3. Managers should constantly develop the firm’s entrepreneurial capability. Answer: True Learning Objective 14.4 Explain the process of execution as a component of entrepreneurial growth. Section Reference: Execution

4. The opportunity domain is one of the four driving forces in the growth stages of any firm. Answer: True Learning Objective 14.5 Describe how growing entrepreneurships can identify and pursue opportunities. Section Reference: Opportunity Domain 5. A typical acquisition gives the owner 50% in cash and 50% in the acquiring company’s stock. Answer: False Learning Objective 14.6 Explain how organizational resources and capabilities are managed for entrepreneurial growth. Section Reference: Organizational Resources and Capabilities

6. It is always best to appoint a CEO from the employees who were with the company from the very beginning.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

Answer: False Learning Objective 14.3 Identify the challenges and key imperatives for managing entrepreneurial growth. Section Reference: The Growth Process

7. Businesses with less risk and less complexity are the most wanted candidates for acquisitions. = Answer: False Learning Objective 14.4 Explain the process of execution as a component of entrepreneurial growth. Section Reference: Execution

8. At the core of the growth model lays execution. Answer: True Learning Objective 14.4 Explain the process of execution as a component of entrepreneurial growth. Section Reference: Execution 9. Stockholders have the largest impact on a firm’s growth potential. Answer: False Learning Objective 14.2 Identify the driving forces of growth for entrepreneurships. Section Reference: A Model of Driving Forces of Growth 10. During the early growth, the entrepreneur needs to focus on the company’s strategy. Answer: True Learning Objective 14.2 Identify the driving forces of growth for entrepreneurships. Section Reference: A Model of Driving Forces of Growth

11. Execution has the most direct link to profits. Answer: True Learning Objective 14.4 Explain the process of execution as a component of entrepreneurial growth. Section Reference: Execution

12. The most critical first task in transitioning a business beyond the startup stage is to sustain an entrepreneurial organization. Answer: False Learning Objective 14.1 Explain how entrepreneurships make the transition from startup to growth. Section Reference: Making the Transition from Startup to Growth

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

13. Managing cash is one of the key objectives of a control system. Answer: True Learning Objective 14.3 Identify the challenges and key imperatives for managing entrepreneurial growth. Section Reference: The Growth Process

14. You should try to implement a complex system of control from the early stages of growth. Answer: False Learning Objective 14.4 Explain the process of execution as a component of entrepreneurial growth. Section Reference: Execution

15. Rapidly growing administrative and selling expenditures are often appropriate. Answer: True Learning Objective 14.3 Identify the challenges and key imperatives for managing entrepreneurial growth. Section Reference: The Growth Process

16. Performance measures in an early-stage company are designed more for helping in entrepreneurial decision-making than for evaluating current performance. Answer: True Learning Objective 14.4 Explain the process of execution as a component of entrepreneurial growth. Section Reference: Execution

17. Performance measures for a growing firm should be simple and inexpensive to track. Answer: True Learning Objective 14.4 Explain the process of execution as a component of entrepreneurial growth. Section Reference: Execution

18. The Cash Cycle shows the relationship between three key metrics: days in payables, assets turnover, and days sales are outstanding. Answer: False Learning Objective 14.4 Explain the process of execution as a component of entrepreneurial growth. Section Reference: Execution

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise

19. It is possible to have a negative cash conversion period. Answer: True Learning Objective 14.4 Explain the process of execution as a component of entrepreneurial growth. Section Reference: Execution

20. Diversifying opportunities in early stages of the company generates better results than crafting only one. Answer: False Learning Objective 14.5 Describe how growing entrepreneurships can identify and pursue opportunities. Section Reference: Opportunity Domain

21. The company should be driven only by opportunities that leverage current capabilities. Answer: False Learning Objective 14.5 Describe how growing entrepreneurships can identify and pursue opportunities. Section Reference: Opportunity Domain

22. Bootstrapping policy should not be discontinued once the company is successful. Answer: True Learning Objective 14.1 Explain how entrepreneurships make the transition from startup to growth. Section Reference: Making the Transition from Startup to Growth

23. Key people in the organization are hired professional managers. Answer: False Learning Objective 14.7 Explain the role of the varying types of leadership in the growth process of an entrepreneurship. Section Reference: Leadership

24. The best management team consists of both internally promoted and externally hired people. Answer: True Learning Objective 14.7 Explain the role of the varying types of leadership in the growth process of an entrepreneurship. Section Reference: Leadership

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25. As the company grows, bureaucracy has to be increasingly instilled to help coordinate different departments. Answer: False Learning Objective 14.3 Identify the challenges and key imperatives for managing entrepreneurial growth. Section Reference: The Growth Process

26. Well run companies that manage cash well are likely to be offered more favorable types and terms of funding. Answer: True Learning Objective 14.2 Identify the driving forces of growth for entrepreneurships. Section Reference: A Model of Driving Forces of Growth

27. Tracking performance is necessary to support quality decision-making. Answer: True Learning Objective 14.4 Explain the process of execution as a component of entrepreneurial growth. Section Reference: Execution

28. It will often be acceptable for an entrepreneur to find him/herself routinely doing portions of other people’s jobs during growth. Answer: False Learning Objective 14.7 Explain the role of the varying types of leadership in the growth process of an entrepreneurship. Section Reference: Leadership

29. The majority of your performance tracking efforts should be focused on your competition during your initial growth stages. Answer: False Learning Objective 14.4 Explain the process of execution as a component of entrepreneurial growth. Section Reference: Execution

30. Tracked items and metrics should be focused on supporting specifically anticipated decisions to the greatest extent possible.

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Answer: True Learning Objective 14.3 Identify the challenges and key imperatives for managing entrepreneurial growth. Section Reference: The Growth Process

31. Premature Scaling refers to growth in anticipation of demand, instead of demand-driven growth. Answer: True Learning Objective 14.1 Explain how entrepreneurships make the transition from startup to growth. Section Reference: Making the Transition from Startup to Growth

32. According to the Startup-Genome Report, premature scaling does not effect many failed startups. Answer: False Learning Objective 14.1 Explain how entrepreneurships make the transition from startup to growth. Section Reference: Making the Transition from Startup to Growth

33. New ventures should attempt to scale as soon as possible so that they do not lose out on any potential opportunities. Answer: False Learning Objective 14.5 Describe how growing entrepreneurships can identify and pursue opportunities. Section Reference: Opportunity Domain

34. Webvan is a clear example of the entrepreneurship parable that timing is everything and everything old is new. Answer: True

Multiple Choice 35. What does entrepreneurship begin with? a) Leadership. b) A loan. c) Venture capital. d) Opportunity. e) A management team.

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Answer: d Learning Objective 14.5 Describe how growing entrepreneurships can identify and pursue opportunities. Section Reference: Opportunity Domain

36. What is the least likely to lead to a failure in growth management? a) Having limited time and resources to spend on organization building b) Spending too much time on day-to-day operations c) Chasing many opportunities d) Spending time on planning e) Not having a strong management team Answer: d Learning Objective 14.3 Identify the challenges and key imperatives for managing entrepreneurial growth. Section Reference: The Growth Process

37. What skills become increasingly important at later stages of development for a company? a) Marketing b) Managerial c) Technical d) Entrepreneurial e) Opportunity identification Answer: b Learning Objective 14.7 Explain the role of the varying types of leadership in the growth process of an entrepreneurship. Section Reference: Leadership

38. Which of the following is not a part of the driving forces in the growth stages? a) Leadership b) The opportunity domain c) Resources and capabilities d) Execution e) The entrepreneur Answer: e Learning Objective 14.2 Identify the driving forces of growth for entrepreneurships. Section Reference: A Model of Driving Forces of Growth

39. What is NOT an option a venture must consider beyond startup? a) Launching the venture

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b) Selling the venture c) Maintaining the venture d) Growing the venture e) All of them are options Answer: a Learning Objective 14.4 Explain the process of execution as a component of entrepreneurial growth. Section Reference: Execution

40. According to the chapter, 50% of businesses started today will not exist in how many years? a) 2 b) 3 c) 5 d) 6 e) 8 Answer: e Learning Objective 14.3 Identify the challenges and key imperatives for managing entrepreneurial growth. Section Reference: The Growth Process

41. What fraction of firms started today, according to the chapter, will still be growing and profitable in eight years? a) 1/5 b) 1/6 c) 1/7 d) 1/8 e) 1/9 Answer: c Learning Objective 14.3 Identify the challenges and key imperatives for managing entrepreneurial growth. Section Reference: The Growth Process

42. In a typical acquisition deal, what portion of the selling price does the entrepreneur receive in cash? a) 1/2 of the price. b) 1/3 of the price. c) 1/4 of the price. d) 1/5 of the price. e) 1/6 of the price. Answer: b

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Learning Objective 14.6 Explain how organizational resources and capabilities are managed for entrepreneurial growth. Section Reference: Organizational Resources and Capabilities

43. What is the primary option of the entrepreneur if he or she decides to maintain a business? a) Spin off a new venture b) Sell the venture c) Become a manager d) Seek other employment e) None of the above Answer: c Learning Objective 14.7 Explain the role of the varying types of leadership in the growth process of an entrepreneurship. Section Reference: Leadership

44. What is the core of the growth model? a) Leadership b) Resources and capabilities c) The opportunity domain d) The entrepreneur e) Execution Answer: e 45. Who or what has the largest impact on a firm’s growth potential? a) Stakeholders b) Uncertainty c) Environmental conditions d) Technology changes e) Competitors Answer: a Learning Objective 14.2 Identify the driving forces of growth for entrepreneurships. Section Reference: A Model of Driving Forces of Growth

46. What should an entrepreneur focus on during early growth? a) Expansion b) Strategy c) Operations d) Accounting

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e) Networking Answer: b Learning Objective 14.3 Identify the challenges and key imperatives for managing entrepreneurial growth. Section Reference: The Growth Process

47. Which of the following can lead to poor coordination between different activities within the company? a) Overdue collections b) Inventory outages c) Uncontrolled growth d) Diminishing cash flows e) None of the above Answer: c Learning Objective 14.3 Identify the challenges and key imperatives for managing entrepreneurial growth. Section Reference: The Growth Process

48. Which of the following is not mentioned in the chapter as a key objective for a control system? a) To create culture b) To institute control c) To manage cash d) To track performance e) All of the above are mentioned Answer: a Learning Objective 14.1 Explain how entrepreneurships make the transition from startup to growth. Section Reference: Making the Transition from Startup to Growth

49. An effective control system includes all of following except: a) Account payables policies b) Accounts receivables and collections policies c) Assessment of performance and expenditures d) An inventory management system e) A risk-assessment ratios tracking Answer: e Learning Objective 14.1 Explain how entrepreneurships make the transition from startup to growth. Section Reference: Making the Transition from Startup to Growth

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise 50. After tracking key metrics in your company’s performance, what should alert you that it may be time to consider making adjustments in your policies? a) If your metrics are below your expectations. b) If the changes in your company are not the result of changes in your policies. c) If the marketing expenditures are hard to predict. d) If your metrics require in-depth analysis. e) If receivables collection period is more than 30 days. Answer: b Learning Objective 14.3 Identify the challenges and key imperatives for managing entrepreneurial growth. Section Reference: The Growth Process

51. What does cash cycle ratio show? a) Number of dollars available to pay your short-term liabilities. b) How quickly you get your receivables paid. c) Time between purchase of supplies and collection of accounts receivable generated in the sale of a product. d) How quickly you sell and replace your inventory over a period. e) Degree to which a company is using borrowed money. Answer: c Learning Objective 14.4 Explain the process of execution as a component of entrepreneurial growth. Section Reference: Execution

52. A positive cash conversion period means that: a) You have an inefficient receivables control system b) You are getting cash in before you deliver products/services c) You have a very efficient receivables control system d) You are receiving cash after you deliver products/services e) Customers pay you before you provide them products/services Answer: d Learning Objective 14.4 Explain the process of execution as a component of entrepreneurial growth. Section Reference: Execution

53. A series of steps showing the activities and entities that we need to coordinate in order for the company to execute its product or service is called: a) Customer value delivery b) Value chain c) STEP d) Customer value proposition e) Attributes model

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Answer: b Learning Objective 14.4 Explain the process of execution as a component of entrepreneurial growth. Section Reference: Execution

54. What do customers usually want the company to do with its products? a) To improve the products they know best. b) To introduce new products. c) To change brand names of existing products. d) To produce products inside the country. e) None of the above. Answer: a Learning Objective 14.2 Identify the driving forces of growth for entrepreneurships. Section Reference: A Model of Driving Forces of Growth

55. Which of the following is not a source of financing for early growth? a) Angel investors b) Founder loans c) Investment from key management d) Equipment leases e) All of them are sources Answer: e Learning Objective 14.2 Identify the driving forces of growth for entrepreneurships. Section Reference: A Model of Driving Forces of Growth 56. What could identification of your firm’s range of value chain activities help you to detect? a) New markets. b) Legal liabilities. c) Ways to shift your core business. d) Resource draining side projects. e) All of the above. Answer: d Learning Objective 14.6 Explain how organizational resources and capabilities are managed for entrepreneurial growth. Section Reference: Organizational Resources and Capabilities

57. What best characterizes an entrepreneur? a) Resource driven b) Maintains consistency and predictability c) Implements the business d) Opportunity driven

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e) Enhances efficiency of organization Answer: d Learning Objective 14.7 Explain the role of the varying types of leadership in the growth process of an entrepreneurship. Section Reference: Leadership

58. What purpose should the board of directors serve as a company professionalizes? a) Mentorship b) Strategic c) Operating. d) Credit lending e) To represent suppliers Answer: b Learning Objective 14.6 Explain how organizational resources and capabilities are managed for entrepreneurial growth. Section Reference: Organizational Resources and Capabilities

59. According to the Driving Forces of Growth Model, opportunity domain interacts with which of the following? a) Stakeholders b) Environmental conditions c) Profitability d) Coordination e) Organizational capabilities Answer: e Learning Objective 14.2 Identify the driving forces of growth for entrepreneurships. Section Reference: A Model of Driving Forces of Growth

60. Which of the following is NOT characteristic of an effective performance tracking system? a) Determines where, when, and how to measure a key item, and who is responsible for measuring it. b) Metrics tied to a decision (should be nearly all metrics) are assigned the latest time before which the measure will be relevant to making the decision. c) The system includes all of the above d) All of the above. Answer: c Learning Objective 14.4 Explain the process of execution as a component of entrepreneurial growth. Section Reference: Execution

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61. Which of the following are signs that your venture may be growing too fast? a) The percentage of your cash flows from operations is declining against your cash flows from financing. b) Profit margins are shrinking as sales are rising. c) Customer complaints are declining while sales are rising. d) A & B only e) B & C only Answer: d Learning Objective 14.3 Identify the challenges and key imperatives for managing entrepreneurial growth. Section Reference: The Growth Process

62. Which of the following may be a common error when an entrepreneur tries to transition to an entrepreneurial leader (pick one). a) Leads the venture through changes in both the organization and the competitive environment. b) Sets a vision and empowers others to carry it out. c) Avoids hiring managers whose domain experience exceeds their own. d) Leverages the core business to grow in-line with critical capabilities. e) All of the above Answer: c Learning Objective 14.7 Explain the role of the varying types of leadership in the growth process of an entrepreneurship. Section Reference: Leadership

63. Which of the following is NOT an important factor is recruiting a board of directors? a) Mitigating the risk of personal biases in decision making. b) Whether or not the board member is a stakeholder with the ability to exert control over the firm. c) A board members experience as an entrepreneur d) The board members likely willingness to join the company as a senior manager in the future. Answer: d Learning Objective 14.6 Explain how organizational resources and capabilities are managed for entrepreneurial growth. Section Reference: Organizational Resources and Capabilities

64. Which of the following is a sign that an entrepreneur is delegating well. A) You are making more decisions, but accomplishing less B) People are working hard, but critical mistakes are increasing C) Action isn’t taken without the entrepreneurs’ involvement D) Cross talk commonly solves problems before they are brought to the attention of the entrepreneur.

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Answer: d Learning Objective 14.1 Explain how entrepreneurships make the transition from startup to growth. Section Reference: Making the Transition from Startup to Growth

65. A start-up should only scale after it has gone through all of the following except: a) The customer development stage b) Enough pivots to warrant product/market fit c) A management succession d) The customer validation stage Answer: c Learning Objective 14.4 Explain the process of execution as a component of entrepreneurial growth. Section Reference: Execution 66. According to the Roger’s Adoption Curve, a product should not scale until a startup knows all of the following except: a) Cost per customer acquisition (COcA) b) Its average revenue per user (ARPU) c) Its product market fit d). That its external financing is sustainable Answer: d Learning Objective 14.4 Explain the process of execution as a component of entrepreneurial growth. Section Reference: Execution 67. According to Jim Collins’ Hedgehog concept a company should ask all of the following questions to determine what it does extremely well except: a) Who is the company’s target customer? b) What is the company passionate about? c) What drives the company’s economic engine? d). What can the company do better than anyone else? Answer: a Learning Objective 14.3 Identify the challenges and key imperatives for managing entrepreneurial growth. Section Reference: The Growth Process 68. A visual interface to track a company’s key performance metrics (KPIs) using real time data is referred to as a: a) Reviewmirror b).Dashboard c) Speedometer

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d).Steering wheel Answer: b Learning Objective 14.4 Explain the process of execution as a component of entrepreneurial growth. Section Reference: Execution

69. Each of the following is a theory regarding how leaders become leaders except: a) Great Events Theory b) Traits Theory c) Transformational Leadership Theory d) Social Exchange Theory Answer: d Learning Objective 14.7 Explain the role of the varying types of leadership in the growth process of an entrepreneurship. Section Reference: Leadership

Open ended 70. Describe some of the reasons that entrepreneurs fail to manage their companies’ growth. • • • •

They have limited time and resources to spend on organization building They’re constantly fighting fires in the business’s day-to-day operations They’re chasing too many opportunities, leaving little time for planning They neglect the planning and preparation required for long-term success

Learning Objective 14.3 Identify the challenges and key imperatives for managing entrepreneurial growth. Section Reference: The Growth Process

71. Once a company has moved beyond the startup stage, what are the three main paths that the founder can choose? What are some of the subordinate options within each of those three paths? • Sell the company: ▪ stay with company; ▪ start another venture; ▪ seek other employment • Maintain the company: ▪ become a manager; ▪ exit day-to-day management • Grow the company: ▪ become an entrepreneurial leader; ▪ take alternative position in the company;

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exit day-to-day management

Learning Objective 14.1 Explain how entrepreneurships make the transition from startup to growth. Section Reference: Making the Transition from Startup to Growth

72. What are the driving forces of growth? What is the core of the growth model? • • • •

Leadership The opportunity domain Organizational resources and capabilities Execution is the core and fourth driving force

Learning Objective 14.2 Identify the driving forces of growth for entrepreneurships. Section Reference: A Model of Driving Forces of Growth

73. Why is a control system so important for a growing organization? What are the features of a well-functioning control system? • •

Without an adequate system of controls, the company can’t optimize its decision making or prevent the waste of resources An effective control system includes the following: ▪ ▪ ▪ ▪ ▪

Accounts receivables and collections policies An inventory management system Account payables policies Assessment of performance and expenditures Metrics to track trends in cash, receivables, inventory, payables, expenditures and performance

Learning Objective 14.4 Explain the process of execution as a component of entrepreneurial growth. Section Reference: Execution

74. What are the components of the cash cycle? How can the company improve its cash conversion period? • • • • •

The three components are: days in payables, days in inventory, and days sales are outstanding. You can negotiate better period terms with suppliers. You can optimize your inventory management and reduce your inventory holdings. You can try to reduce your receivables period, thereby reducing the amount of time that your customers take to pay their invoices. Keep everything else level and increase your sales.

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Learning Objective 14.6 Explain how organizational resources and capabilities are managed for entrepreneurial growth. Section Reference: Organizational Resources and Capabilities

75. What is the danger of chasing too many opportunities? Explain the significance of the opportunity domain. • •

By chasing too many opportunities the company cannot identify its own strength and differentiate itself as a provider of a specific product Opportunity domain helps a company realize how to turn its seemingly slow growth into greater potential. It also identifies expansion opportunities which stretch your current capabilities

Learning Objective 14.5 Describe how growing entrepreneurships can identify and pursue opportunities. Section Reference: Opportunity Domain

76. Name some of the sources of financing. What features do creditors look for in growing organizations? • •

Sources of financing for early growth include: investment from key management, founder loans, family and friends, angel investors, loans on assets, equipment leases, trade credit, and credit cards Investors typically want: a viable growth model, a strong management team, clear opportunity

Learning Objective 14.6 Explain how organizational resources and capabilities are managed for entrepreneurial growth. Section Reference: Organizational Resources and Capabilities

77. How should entrepreneurs form their management team? What common problems might they face? • • •

In early growth, the first set of supervisors can come from within. Later, as your company grows, it may be necessary to hire outside managers. The main problem here is that your original team members may not have the necessary abilities and potential, and newcomers may not be accepted by other workers.

Learning Objective 14.3 Identify the challenges and key imperatives for managing entrepreneurial growth. Section Reference: The Growth Process

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78. Describe the process of transition from entrepreneur to entrepreneurial leader. • • • • •

Creates and implements vision for a new organization. Provides specific direction to employees. Relies on specialized expertise of others to implement details. Grants authority and responsibility to managers for achieving objectives. Sets vision and allows others to participate in setting objectives; empowers and guides, but oversees execution.

Learning Objective 14.7 Explain the role of the varying types of leadership in the growth process of an entrepreneurship. Section Reference: Leadership

79. What are the ways of nurturing entrepreneurs in an organization? • • • • •

Identify those exhibiting passion for entrepreneurship and develop their ability to work under conditions of high ambiguity. Ensure that they have the inclination and credibility to convince others in the organization to contribute and commit to their projects. Facilitate, support and guide their efforts while also providing them with sufficient freedom and empowerment. Recognize their contribution to the company’s innovation and growth ambitions. View failure as a risk associated with entrepreneurship, and an opportunity for learning, therefore ensuring that well-intentioned failures are not punished.

Learning Objective 14.7 Explain the role of the varying types of leadership in the growth process of an entrepreneurship. Section Reference: Leadership

80. Describe why performance measure must be linked to anticipated decisions. • • • • • •

There should be fewer top level decisions if delegation is combined with a clearly communicated strategy and operating plan. Those decisions that remain for the entrepreneur are the most significant and affect the entire organization. Uncertainty at the organizational level of decision making is drawn from assumptions about the market, the competition, and about the venture itself. An entrepreneur’s limited resources must be focused on answering key questions about their own assumptions in time to improve decision making. Resource limitations will restrict performance tracking to those items that are most important which, by its very nature, are those decisions which affect the entire organization. Performance tracking that results in no decision to act, or act differently, is a waste of resources.

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Learning Objective 14.4 Explain the process of execution as a component of entrepreneurial growth. Section Reference: Execution

81. Discuss some ways that cash management in a down cycle is critical to the long term development of an organization’s intangible capabilities. • • • •

•

Often in tough times, people are the first to go in order to cut costs. Managing cash well reduces the pressures to let people go in bad times. Cutting people means that you’re cutting an asset, not an expense (in most cases) When good times return you might find that you haven’t invested enough in the development of your people to support growth, or you have cut so many positions that growth will be delayed as you rebuild organizational capabilities from the ground up, consuming cash on hiring and training, that could have been applied directly to growing revenue. Managing cash with discipline in good times will lessen the need for such painful cuts.

Learning Objective 14.6 Explain how organizational resources and capabilities are managed for entrepreneurial growth. Section Reference: Organizational Resources and Capabilities

82. Discuss some options to support either the integration of outside managers into a venture, or to prepare existing employees for management roles. •

•

Consider having new managers spend time learning or performing some of the roles of existing employees if those roles are unique to your organization or central to its culture (e.g., Toyota executives work on the assembly line with front line factory workers) Identify employees with management potential, and invest in there development early enough that they are ready to assume more responsibility before more management is desperately needed. This could include formal schooling, or simply shadowing or apprentice programs, where employees are gradually handed additional responsibility as their capabilities grow.

Learning Objective 14.4 Explain the process of execution as a component of entrepreneurial growth. Section Reference: Execution

83. Discuss some potential pitfalls of decentralization common to new leaders. •

Under a more centralized structure, a leader may tell people why they are doing something, what to do, and even how to do it.

Test bank for Entrepreneurship, Canadian Edition by Bygrave, Zacharakis, and Wise • • •

•

As delegation increases leaders must still communicate why, and often what, must occur. As organizations decentralize in order to be more responsive to changes in the environment, the leader may not be able to supply even what must be done, but must always communicate WHY. Trust is the critical glue that makes a decentralized organization work. Without trust, leaders will tell people what and why to do things, and once conditions change and the ‘what’ no longer accomplishes the ‘why,’ the organization will not be able to function in a decentralized manner. Learning to increase communication of purpose when reducing the communication of ‘what’ to do, is a common error for leader of newly decentralized organizations.

Learning Objective 14.4 Explain the process of execution as a component of entrepreneurial growth. Section Reference: Execution

84. Discuss some ways to help an organization remain entrepreneurial as it implements control systems. • • • • •

The inability or an organization to remain entrepreneurial while implementing controls is a false dichotomy. Leaders, however, can be challenged to manage control systems while leading innovation. The key lies in maximizing the communication of your vision, while minimizing the quantity of controls to the minimum needed to guide execution Any control beyond the minimum required WILL reduce the entrepreneurial nature of your firm. A few, smart controls, will increase the entrepreneurial culture of a company by focusing attentions, speeding adaption to change, and reducing resources wasted on activities not aligned in terms of purpose, even if they were aligned in effort.

85. According to Steven Covey, what are the 7 habits of highly effective people? • • • • • • •

Be proactive Begin with the end in mind Put first things first (time management) Think win-win (interpersonal leadership Seek first to understand, then be understood Synergize (creative cooperation) Preserve and enhance yourself (balanced self-renewal)

Learning Objective 14.7 Explain the role of the varying types of leadership in the growth process of an entrepreneurship. Section Reference: Leadership

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Chapter 15: Social Entrepreneurship True/False Statements 1. Social entrepreneurship is primarily concerned with profits. Answer: False Learning Objective 15.2 Discuss the different definitions of social entrepreneurship. Section Reference: Social Entrepreneurship Defined

2. Many social ventures are nonprofit organizations. Answer: True Learning Objective 15.2 Discuss the different definitions of social entrepreneurship. Section Reference: Social Entrepreneurship Defined

3. Social entrepreneurship creates social value and/or social change. Answer: True Learning Objective 15.2 Discuss the different definitions of social entrepreneurship. Section Reference: Social Entrepreneurship Defined

4. Corporate social responsibility is an example of social entrepreneurship. Answer: False Learning Objective 15.3 Diﬀerentiate among the various types of social entrepreneurial ventures. Section Reference: A Social Entrepreneurship Typology

5. The Global Entrepreneurship Monitor offers a way to classify social ventures. Answer: True Learning Objective 15.3 Diﬀerentiate among the various types of social entrepreneurial ventures. Section Reference: A Social Entrepreneurship Typology

6. Some social ventures simply imitate other such ventures. Answer: True 1

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Learning Objective 15.3 Diﬀerentiate among the various types of social entrepreneurial ventures. Section Reference: A Social Entrepreneurship Typology

7. Social entrepreneurship ventures always create systemic change. Answer: False Learning Objective 15.4 Explain how social entrepreneurs measure their impact or outcomes. Section Reference: Measuring Impact

8. Hybrid social ventures have a revenue-generating component. Answer: True Learning Objective 15.2 Discuss the different definitions of social entrepreneurship. Section Reference: Social Entrepreneurship Defined

9. Identifying an opportunity for a social venture always results from a deliberate process. Answer: False Learning Objective 15.1 Explain the rise in social entrepreneurship. Section Reference: The Rise in Social Entrepreneurship

10. Simply imitating a social venture is not social entrepreneurship. Answer: False Learning Objective 15.3 Diﬀerentiate among the various types of social entrepreneurial ventures. Section Reference: A Social Entrepreneurship Typology

11. A logic model provides the financial details of a social venture. Answer: False Learning Objective 15.4 Explain how social entrepreneurs measure their impact or outcomes. Section Reference: Measuring Impact

12. A theory of change describes how one intends to use available resources to make a societal improvement.

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Answer: True Learning Objective 15.4 Explain how social entrepreneurs measure their impact or outcomes. Section Reference: Measuring Impact

13. Nonprofit organizations cannot be financially evaluated, because they do not produce financial profits. Answer: False Learning Objective 15.4 Explain how social entrepreneurs measure their impact or outcomes. Section Reference: Measuring Impact

14. Because social entrepreneurial ventures serve social ends they do not need to be financially viable. Answer: False Learning Objective 15.2 Discuss the different definitions of social entrepreneurship. Section Reference: Social Entrepreneurship Defined 15. The ability to articulate a venture’s social values is helpful for evaluating its performance. Answer: True Learning Objective 15.4 Explain how social entrepreneurs measure their impact or outcomes. Section Reference: Measuring Impact

16. A formative evaluation is conducted prior to forming a social entrepreneurship venture. Answer: False Learning Objective 15.1 Explain the rise in social entrepreneurship. Section Reference: The Rise in Social Entrepreneurship

17. A summative evaluation is conducted following completion of a social entrepreneurship program. Answer: True

Test bank for Entrepreneurship, Canadian Edition Learning Objective 15.4 Explain how social entrepreneurs measure their impact or outcomes. Section Reference: Measuring Impact

18. Social entrepreneurship ventures require a longitudinal evaluation as part of the logic model. Answer: False Learning Objective 15.2 Discuss the different definitions of social entrepreneurship. Section Reference: Social Entrepreneurship Defined

19. All worthy social ventures should go to scale. Answer: False Learning Objective 15.3 Diﬀerentiate among the various types of social entrepreneurial ventures. Section Reference: A Social Entrepreneurship Typology

20. Because so many people want to be social entrepreneurs it is easy to expand a highly successful social venture. Answer: False Learning Objective 15.1 Explain the rise in social entrepreneurship. Section Reference: The Rise in Social Entrepreneurship

21. Many social entrepreneurs have created systemic change. Answer: True Learning Objective 15.4 Explain how social entrepreneurs measure their impact or outcomes. Section Reference: Measuring Impact

22. Only successful and innovative social entrepreneurs enjoy real psychological rewards. Answer: False Learning Objective 15.1 Explain the rise in social entrepreneurship. Section Reference: The Rise in Social Entrepreneurship

23. The Timmons Model will be affected by the choice of Social venture type.

Test bank for Entrepreneurship, Canadian Edition Answer: True Learning Objective 15.3 Diﬀerentiate among the various types of social entrepreneurial ventures. Section Reference: A Social Entrepreneurship Typology 24. Impact measures are an internal and external signal of a venture’s values. Answer: True Learning Objective 15.4 Explain how social entrepreneurs measure their impact or outcomes. Section Reference: Measuring Impact 25. Impact measures drive a venture’s strategy. Answer: False Learning Objective 15.4 Explain how social entrepreneurs measure their impact or outcomes. Section Reference: Measuring Impact

26. Gaining certification as a C Corporations is considered a strong demonstration of social commitment for an enterprising nonprofit. Answer: False Learning Objective 15.3 Diﬀerentiate among the various types of social entrepreneurial ventures. Section Reference: A Social Entrepreneurship Typology

27. Enterprising nonprofits distribute dividends to shareholders as long as social outcomes are being met. Answer: False Learning Objective 15.2 Discuss the different definitions of social entrepreneurship. Section Reference: Social Entrepreneurship Defined

28. Corporate social responsibility is a proactive process while social entrepreneurship is a reactive process. Answer: False Learning Objective 15.2 Discuss the different definitions of social entrepreneurship. Section Reference: Social Entrepreneurship Defined

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29. 7 Virtues Beauty is a social consequence venture that focuses on using Canadian buying power (primarily through purchasing essential oils) to help countries rebuild their communities. Answer: True

Multiple Choice 30. What is the most social impact focused type of social venture? a) Enterprising nonprofit b) Traditional venture c) Hybrid d) Social purpose e) Social consequence Answer: a Learning Objective 15.3 Diﬀerentiate among the various types of social entrepreneurial ventures. Section Reference: A Social Entrepreneurship Typology

31. Why is a Hybrid a form of social entrepreneurship? a) It creates both social and economic value. b) It is able to make a profit. c) It competes with for-profit companies. d) Schumpeter created the first model. e) It can be organized anywhere worldwide. Answer: a Learning Objective 15.3 Diﬀerentiate among the various types of social entrepreneurial ventures. Section Reference: A Social Entrepreneurship Typology

32. Which of the following is essential in order to undertake a social venture? a) An existing organizational model. b) Receiving funding from a foundation. c) Recognizing an opportunity. d) Identifying a paying customer. e) All of the above. Answer: c Learning Objective 15.2 Discuss the diﬀerent deﬁnitions of social entrepreneurship.

Test bank for Entrepreneurship, Canadian Edition Section Reference: Social Entrepreneurship Deﬁned

33. What experience best qualified Jim Poss to start Big Belly Solar? a) Preparing a business plan b) His knowledge of the trash industry c) His studies in social entrepreneurship d) None of the above Answer: b Learning Objective 15.1 Explain the rise in social entrepreneurship. Section Reference: The Rise in Social Entrepreneurship

34. What is usually the easiest step in social entrepreneurship? a) Finding partners b) Deciding the best form of organization c) Closing down the enterprise d) Identifying the opportunity e) Getting funding Answer: d Learning Objective 15.1 Explain the rise in social entrepreneurship. Section Reference: The Rise in Social Entrepreneurship

35. Why did Tricia Compas-Markman first start the DayOne Response? a) To earn an economic profit. b) To make her invention commercially available. c) To provide free water. d) To complete a degree requirement. e) Because she was incentivized by a government grant to do so. Answer: b Learning Objective 15.1 Explain the rise in social entrepreneurship. Section Reference: The Rise in Social Entrepreneurship

36. According to a 2010 Global Entrepreneurship Monitor study, what percentages of entrepreneurs are pursuing primarily economic, AND how many are pursuing social & economic goals, respectively? a) 5% primarily economic; 46% social and economic b) 7.5% primarily economic; 46% social and economic c) 5% primarily economic; 42% social and economic d) 7.5% primarily economic; 42% social and economic

Test bank for Entrepreneurship, Canadian Edition Answer: b Learning Objective 15.1 Explain the rise in social entrepreneurship. Section Reference: The Rise in Social Entrepreneurship

37. Which of the following is NOT one of the assumptions about creating new ventures that has recently changed? a) Until the 1990s, energy was relatively expensive b) Labor was widely available and, in some countries, cheap. c) Access to credit to start businesses was relatively easy. d) The information needed to start a business was available with a computer, phone, and internet connection. Answer: a Learning Objective 15.1 Explain the rise in social entrepreneurship. Section Reference: The Rise in Social Entrepreneurship

38. In keeping with process-oriented definitions of social entrepreneurship; social wealth is defined broadly to include: a) economic, societal, health, and climatic aspects of human welfare b) economic, societal, health, and environmental aspects of human welfare c) diplomatic, societal, dental, and environmental aspects of human welfare d) economic, spiritual, health, and environmental aspects of human welfare Answer: b Learning Objective 15.2 Discuss the different definitions of social entrepreneurship. Section Reference: Social Entrepreneurship Defined

39. According to entrepreneur-centric definitions, social entrepreneurs are: a) The change agents for society, seizing overlooked opportunities by improving systems, inventing new approaches, and creating sustainable solutions to transform society for the better. b) Constantly searching for superior ways to solve the problems that plague society. c) Individuals with innovative solutions to society’s most pressing social problems. d) All of the above. Answer: d Learning Objective 15.2 Discuss the different definitions of social entrepreneurship. Section Reference: Social Entrepreneurship Defined

40. What would be the typology be of a venture that is focused on increasing the supply of affordable housing that uses a business model designed to reduce the cost of producing housing so that it can sell homes at a price that more lower income families can afford?

Test bank for Entrepreneurship, Canadian Edition a). Hybrid b) Social Purpose c) Social Consequence d) Traditional Venture e) Enterprising Non-Profit Answer: b Learning Objective 15.3 Diﬀerentiate among the various types of social entrepreneurial ventures. Section Reference: A Social Entrepreneurship Typology

41. One reason to become a Certified B Corporation is to; a) Create a material positive impact on society and the environment b) Expand fiduciary duties of directors that requires consideration of non-financial interests c) Signal its commitment to economic and social impacts d) A & C only e) All of the above Answer: e Learning Objective 15.3 Diﬀerentiate among the various types of social entrepreneurial ventures. Section Reference: A Social Entrepreneurship Typology

42. Which of the following changes will impact all three portions of the Timmons Model? a) A change in the venture mission b) A change in the venture’s impact c) A change in both the venture’s mission and impact d) Only the shift from a traditional venture to another quadrant e) Any of the above Answer: e Learning Objective 15.3 Diﬀerentiate among the various types of social entrepreneurial ventures. Section Reference: A Social Entrepreneurship Typology

43. Why is it difficult to measure the impact of social ventures. a) Social problems are complex b) Social problems often have multiple stakeholders c) Different groups usually agree on the best approach d) B & C only e) A & B only

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Answer: e Learning Objective 15.4 Explain how social entrepreneurs measure their impact or outcomes. Section Reference: Measuring Impact

44.What are the three components of a Triple Bottom Line (TBL) objective statement? a) Economic, Environmental, & Spiritual b) Political, Environmental, & Social c) Economic, Environmental, & Social d) Economic, Organizational, & Social Answer: c Learning Objective 15.4 Explain how social entrepreneurs measure their impact or outcomes. Section Reference: Measuring Impact

45. What aspect of many large companies social impact has garnered the largest amount of negative media attention in recent years? a) Corporate social responsibility initiatives b) Supply chain operations c) Employee incentive plans d) Advertising campaigns Answer: b Learning Objective 15.4 Explain how social entrepreneurs measure their impact or outcomes. Section Reference: Measuring Impact 46. Tom’s shoes give away one pair of shoes to someone in a developing country for every pair of shoes sold for a profit in a developed country. Which typology is this? a) Hybrid b) Social Purpose c) Social Consequence d) Traditional Venture e) Enterprising Non-Profit Answer: e Learning Objective 15.3 Diﬀerentiate among the various types of social entrepreneurial ventures. Section Reference: A Social Entrepreneurship Typology

Test bank for Entrepreneurship, Canadian Edition 47. Which of the following is NOT a principle of the UN Global Compact? a) Businesses should support and respect the protection of internationally proclaimed human rights. b) Undertake initiatives to promote greater environmental responsibility. c) Elimination of election financing practices that favor large donor contributions. d) Elimination of discrimination in respect of employment and occupation. Answer: c Learning Objective 15.1 Explain the rise in social entrepreneurship. Section Reference: The Rise in Social Entrepreneurship

48. Which of the following companies would be considered a traditional venture? a) Habitat for Humanity b) Save the Children c) Ben & Jerry’s d) Doctors without Borders Answer: c Learning Objective 15.3 Diﬀerentiate among the various types of social entrepreneurial ventures. Section Reference: A Social Entrepreneurship Typology

49. What is driving the increase in social entrepreneurship? a) Increased awareness of social issues b) Desire to avoid corporate taxes c) Stabilization of environmental issues d) Lack of opportunities for finding by traditional ventures e) None of the above Answer: a Learning Objective 15.1 Explain the rise in social entrepreneurship. Section Reference: The Rise in Social Entrepreneurship

50. Tim Hortons practices CSR by: a) Providing micro-loans to families in emerging markets b) Sourcing coffee beans from small-scale farmers in developing countries c) Using environmentally friendly trash compactors d) Creating innovative coffee-drinks that draw attention to pressing social issues Answer: b Learning Objective 15.2 Discuss the different definitions of social entrepreneurship. Section Reference: Social Entrepreneurship Defined

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51. Bruce Poon Tip’s G Adventures is a social purpose venture that promotes: a) High risk tourism b) Beach vacations c) Sustainable tourism d) High speed travel Answer: c Learning Objective 15.2 Discuss the different definitions of social entrepreneurship. Section Reference: Social Entrepreneurship Defined

52. All of the following are examples of CSR except a) Reducing pollutants produced b) Using energy saving products c) Purchasing fair trade products d) Starting a non-profit to improve water quality in developing economies Answer: d

Open Ended 53. What would be some ways to identify social entrepreneurship opportunities? • • • •

Witnessing extreme social deprivation. Examining the consequences of economic disparity. Imagining how to improve delivery of social services. Determining how to organize a venture as a cooperative.

Learning Objective 15.1 Explain the rise in social entrepreneurship. Section Reference: The Rise in Social Entrepreneurship 54. What are four types of social ventures? • • • •

Traditional Social Purpose Social Consequence Enterprising nonprofits.

Learning Objective 15.3 Diﬀerentiate among the various types of social entrepreneurial ventures. Section Reference: A Social Entrepreneurship Typology

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55. How might a social entrepreneur be different from a classical entrepreneur? • The social entrepreneur is dissatisfied with a social problem, not a business problem, and driven to change it. • The social entrepreneur is primarily motivated by a social, rather than an economic, mission. • The social entrepreneur typically meets the needs of those unable to pay for the certain goods or services. • The social entrepreneur can face a more difficult task in evaluating his or her success than the classical entrepreneur. Learning Objective 15.3 Diﬀerentiate among the various types of social entrepreneurial ventures. Section Reference: A Social Entrepreneurship Typology

56. Why might different countries have different needs for social entrepreneurship? Governments can have very different mandates to meet the needs of their citizens. • Governments in very poor or highly corrupt countries can neglect serving some social needs entirely. Poor countries can present entrepreneurial opportunities to meet the most basic needs, such as food and shelter. • Some governments prefer that social needs be served by the market, and will only provide support for those proven to be unable to meet their own needs. Countries such as the U.S. provide opportunities to help those not already being served by either the government or the market. • Each of these cases can result in different levels and types of social entrepreneurship. Learning Objective 15.1 Explain the rise in social entrepreneurship. Section Reference: The Rise in Social Entrepreneurship

57. How is the social entrepreneur rewarded, if not by financial reward? The social entrepreneur is not motivated to undertake a venture in order to seek a financial reward, and thus his or her reward is typically the satisfaction of achieving the social value or social change that initially inspired the venture. Learning Objective 15.4 Explain how social entrepreneurs measure their impact or outcomes. Section Reference: Measuring Impact

58. What are the differences between measures of success for social ventures, as compared to for-profit companies?

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• • •

Social ventures consider social and/or environmental impacts in addition to economic gains Success measures for social ventures may a broader set of stakeholders, across a greater number of sectors in many cases. Some measures of success are interconnected as trade-offs, such as social purpose ventures that will trade-off some economic profits in order to sustain its social impact.

Learning Objective 15.4 Explain how social entrepreneurs measure their impact or outcomes. Section Reference: Measuring Impact

59. How might a social venture be more economically profitable than a for-profit company? • • •

Customers may demand a heighted sense of social accountability and will not do business with a company that ignores this aspect in their operations. Creating environmental and social value may attract greater number of customers who are less sensitive to economic prices because of the sense of value they gain from doing business with a social venture (i.e., Tom’s shoes) Social ventures may incur costs to implement efficiencies that avoid negative environmental externalities that may become severe liabilities to other firms if legislative changes come suddenly designed to reverse such externalities.

Learning Objective 15.4 Explain how social entrepreneurs measure their impact or outcomes. Section Reference: Measuring Impact

60. Why would shifting from one type of venture to another be challenging? • • • •

Strategy and resources must be aligned according to the type of venture chosen. Changing a venture type should be in response to a change in strategy, perhaps as a result of a shift in resources. Shifting venture types has legal, tax, personnel, and other implications. Shifting venture types should be directly tied to moving to a superior way accomplishing your objectives.

Learning Objective 15.3 Diﬀerentiate among the various types of social entrepreneurial ventures. Section Reference: A Social Entrepreneurship Typology

61. How might Triple Bottom Line be reflected in your ventures objectives?

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• • • •

Social, economic, and environmental results do not encompass all possible objectives, but they come close Stating what you seek to accomplish in terms of these three categories can assist you in maintaining balance as time moves on. By measuring financial outcomes, you can better measure your financial capacity to achieve social outcomes. If your customers have high expectations as to your social outcomes, then setting and meeting appropriate goals here could mean that your customers continued (as customers and stakeholders) to support you financial (doing business with you).

Learning Objective 15.4 Explain how social entrepreneurs measure their impact or outcomes. Section Reference: Measuring Impact

62. Discuss some reasons why, given the choice, a social purpose venture may be able to have a larger impact than an enterprising non-profit. • • • •

Social purpose ventures can return profits to shareholders which may allow it to attract more capital than an enterprising non-profit. Additional capital may be needed to scale the business to the size needed to have a social impact. The ability to incentivize some workers with stock options and other types of performance incentives may matter more in certain instances, and would be difficult to do with solely salary and intrinsic motivations. You may be able to do more good by helping more people a little, than helping fewer people a lot. Scale might enable this, even at the expense of returning some portion of retained earnings to shareholders as capital gains or dividends.

Learning Objective 15.4 Explain how social entrepreneurs measure their impact or outcomes. Section Reference: Measuring Impact

63. Discuss how non-profits may have a competitive advantage in providing basic needs over a for profit company (use affordable housing as an example). • • • •

The housing industry is a complex and has multiple components in its value chain. Each of the parts of this value chain has profit margins that contribute to the market price for housing. By reducing or eliminating a portion of the profit margin along the value chain, the final price to the customer can be reduced One example of this is Habitat for Humanity which eliminates the margin for financing (no interest loans) and for construction labor (volunteers).

Test bank for Entrepreneurship, Canadian Edition •

Other social ventures have arranged to purchase and combine land into community land trusts over which affordable housing can be built. Homebuyers (landlords) do not need to purchase the land in order to build/operate rental housing units. Thus the rents offered to tenants can be reduced, while still preserving sufficient profits for the landlord to do business. Local governments reduce the taxes on community land trusts, thus enabling the social business model to function. Community gain more value from affordable housing than is giving up by forgoing revenues from property taxes.

Learning Objective 15.4 Explain how social entrepreneurs measure their impact or outcomes. Section Reference: Measuring Impact

64. Discuss the interplay between the typology of any given venture and the Timmons model. • • •

•

• •

The relationship between the ventures mission and its impact will be a powerful driver of the types of people your venture will attract. Different people are motivated by different things, and it may be a challenge to attract people to a social or for profit venture is they are not currently predisposed to do so. An often cited example is Steve Jobs recruitment of John Sculley to join apple, in which Jobs asked Sculley (CEO of Pepsi) "Do you want to sell sugared water for the rest of your life? Or do you want to come with me and change the world?" Jobs successfully recruited Scully, but after some time it became clear that bottom-line considerations still motivated Scully greatly. In keeping with the Jobs-Scully analogy, some objectives are simply not suited to certain types of ventures. Solving a problem that is too small for a government solution, but not profitable enough for a for-profit company to undertake, is obviously the role many social enterprises play. The Gates Foundation exists, in part, because Bill Gates would not have been able to achieve his social goals through Microsoft, a for profit company. Resources play a large role in the type of venture chosen where, for example, part of the reason Habitat for Humanity is a volunteer service organization is that it lacks the sources of funds to increase the supply of affordable home by solely economic means, but is able to mobilize free labor and negotiate favorable financing support in order to not charge homeowners interest.

Learning Objective 15.3 Diﬀerentiate among the various types of social entrepreneurial ventures. Section Reference: A Social Entrepreneurship Typology

65. Given what is understood about the objectives of different typologies, discuss some likely differences between boards of traditional ventures and enterprising non-profits.