ch8

Question 1

Small businesses create the majority of new jobs in the U. S. economy.

Answer 1

TRUESmall businesses, those defined as having 500 employees or fewer, create about 65 percent of all new jobs in the United States and also generate 13 times as many new patents per employee as larger firms.

Question 2

Entrepreneurship refers to new value creation and can include activities in major corporations.

Answer 2

TRUEEven though entrepreneurial activity is usually associated with start-up companies, new value can be created in many different contexts including: start-up ventures, major corporations, family-owned businesses, non-profit organizations, and established institutions.

Question 3

Opportunity recognition is the process of identifying, selecting, and developing entrepreneurial opportunities.

Answer 3

TRUETo determine which ideas are strong enough to become new ventures, entrepreneurs must go through a process of identifying, selecting, and developing potential opportunities. This is the process of opportunity recognition.

Question 4

Opportunity recognition involves two phases of activity: discovery and execution

Answer 4

TRUEOpportunity recognition refers to more than just the Eureka feeling that people sometimes experience at the moment they identify a new idea. Although such insights are often very important, the opportunity recognition process involves two phases of activity (discovery and evaluation) that lead to viable new venture opportunities.

Question 5

The evaluation phase of opportunity recognition occurs when an entrepreneur has an insight about a new business venture, often based on prior knowledge.

Answer 5

FALSEThe discovery phase refers to the process of becoming aware of a new business concept. Many entrepreneurs report that their idea for a new venture occurred to them in an instant in which they had some insight or epiphany, often based on their prior knowledge, and that gave them an idea for a new business.

Question 6

The majority of entrepreneurial start-ups are financed with personal savings and the contributions of family and friends.

Answer 6

TRUEThe funding available to young and small firms tends to be quite limited. In fact, the majority of new firms are low-budget start-ups launched with personal savings and the contributions of family and friends.

Question 7

The majority of entrepreneurial firms are started with financing from venture capitalists and banks.

Answer 7

FALSEThe funding available to young and small firms tends to be quite limited. In fact, the majority of new firms are low-budget start-ups launched with personal savings and the contributions of family and friends.

Question 8

., Angel investors are private individuals who provide equity investments for seed capital during the later stages of a new venture.

Answer 8

FALSEAlthough bank financing, public financing, and venture capital are important sources of small business finance, these types of financial support are typically available only after a company has started to conduct business and generate sales. Even angel investors, private individuals who provide equity investments for seed capital during the early stages of a new venture, favor companies that already have a winning business model and dominance in a market niche.

Question 9

As investors, venture capitalists rarely provide any help or services to entrepreneurial firms other than financing.

Answer 9

FALSEVenture capitalists nearly always have high performance expectations from the companies they invest in, but they also provide important managerial advice and links to key contacts in an industry.

Question 10

Venture capital funding for entrepreneurial ventures is usually available only after the start-up has become a going concern and established a track record.

Answer 10

TRUEAlthough bank financing, public financing, and venture capital are important sources of small business finance, these types of financial support are typically available only after a company has started to conduct business and generate sales. Once a venture has established itself as a going concern, other sources of financing become readily available. Banks, for example, are more likely to provide later-stage financing to companies with a track record of sales or other cash-generating activity. Start-ups that involve large capital investments or extensive development costs or those on the brink of rapid growth often seek venture capital.

Question 11

The term, angel investors, refers to private individuals who provide seed capital to young ventures.

Answer 11

TRUEAngel investors are private individuals who provide equity investments for seed capital during the early stages of a new venture. They favor companies that already have a winning business model and dominance in a market niche.

Question 12

Venture capital is a form of public equity financing used to help young firms grow rapidly.

Answer 12

FALSEVenture capital is a form of private equity financing through which entrepreneurs raise money by selling shares in the new venture.

Question 13

., To obtain venture capital financing, business founders often have to give up some ownership and control of their business.

Answer 13

TRUEVenture capital is a form of private equity financing through which entrepreneurs raise money by selling shares in the new venture.

Question 14

Venture capitalists and angel investors regard the management team as the most important asset of an entrepreneurial venture.

Answer 14

TRUEBankers, venture capitalists, and angel investors agree that the most important asset an entrepreneurial firm can have is strong and skilled management.

Question 15

Because of the Small Business Administration and government regulations, small businesses are rarely allowed to bid on government contracts.

Answer 15

FALSEA key area of support for small business is in government contracting. Programs sponsored by the SBA and other government agencies ensure that small businesses have the opportunity to bid on contracts to provide goods and services to the government.

Question 16

An entry wedge, according to the text, is a type of entrepreneurial strategy firms can use to enter into business.

Answer 16

TRUEOne of the most challenging aspects of launching a new venture is finding a way to begin doing business that quickly generates cash flow, builds credibility, attracts good employees, and overcomes the liability of newness. The idea of an entry strategy or entry wedge describes several approaches that firms may take to get a foothold in a market.

Question 17

Founders using a pioneering new entry strategy look for opportunities to capitalize on proven market successes.

Answer 17

FALSEAn imitative new entry strategy is used by entrepreneurs when they look for opportunities to capitalize on proven market successes. New entrants with a radical new product or highly innovative service may change the way business is conducted in an industry. This kind of breakthrough, creating new ways to solve old problems or meeting customer needs in a unique new way, is referred to as a pioneering new entry.

Question 18

Adaptive new entry involves offering a radical new product or highly innovative service.

Answer 18

FALSENew entrants with a radical new product or highly innovative service may change the way business is conducted in an industry. This kind of breakthrough, creating new ways to solve old problems or meeting customer needs in a unique new way, is referred to as a pioneering new entry. An adaptive new entry approach does not involve reinventing the wheel nor is it merely imitative either. It involves taking an existing idea and adapting it to a particular situation.

Question 19

Choosing which new entry strategy is best depends on competitive financial and marketplace considerations with the greatest opportunities most likely to be in existing markets, rather than in new markets.

Answer 19

FALSEConsidering these choices, an entrepreneur or entrepreneurial team might wonder which new entry strategy is best. The choice depends on many competitive, financial, and marketplace considerations and may stem from being willing to enter new markets rather than seeking growth only in existing markets.

Question 20

Spandex, founded in 2000, created footless pantyhose and other undergarments for women. This is an example of an imitative new entry strategy.

Answer 20

FALSEAn adaptive new entry approach does not involve reinventing the wheel nor is it merely imitative either. It involves taking an existing idea and adapting it to a particular situation. Spandex is an example of a young company that successfully modified or adapted existing products to create new value.

Question 21

Smell-O-Vision created an invention that would pump odors into movie theatres. It did not make it to market. This was an attempt to be an adaptive entry strategy.

Answer 21

FALSEAn adaptive new entry approach does not involve reinventing the wheel nor is it merely imitative either. It involves taking an existing idea and adapting it to a particular situation. Smell-O-Vision created a new invention to meet customer needs and therefore was an attempted pioneering new entry strategy.

Question 22

Pandora, launched in 2000, radically changes the radio business with its Music Genome Project system that analyzes music for its underlying traits. This is an example of a pioneering new entry strategy.

Answer 22

TRUENew entrants with a radical new product or highly innovative service may change the way business is conducted in an industry. This kind of breakthrough of creating new ways to solve old problems or meeting customer needs in a unique new way is referred to as a pioneering new entry. If the product or service is unique enough, a pioneering new entrant may actually have little direct competition.

Question 23

The success of an adaptive new entrant can be limited, if the value proposition is perceived as being unique.

Answer 23

FALSEThere are several pitfalls that might limit the success of an adaptive new entrant. First, the value proposition must be perceived as unique. Unless potential customers believe a new product or service does a superior job of meeting their needs, they will have little motivation to try it.

Question 24

Once an adaptive entrant has achieved initial success, the company is safe from copycat competition.

Answer 24

FALSEOnce an adaptive entrant achieves initial success, the challenge is to keep the idea fresh. If the attractive features of the new business are copied, the entrepreneurial firm must find ways to adapt and improve the product or service offering.

Question 25

Because new ventures typically are small, they usually do not have high economies of scale relative to competitors.

Answer 25

TRUEBecause new ventures typically are small, they usually do not have high economies of scale relative to competitors. This means that new firms must seek a different approach, if they wish to pursue a cost-leadership strategy.

Question 26

Entrepreneurial firms are often in a strong position to use combination strategies, because they have the flexibility to approach situations uniquely.

Answer 26

TRUEEntrepreneurial firms are often in a strong position to offer a combination strategy, because they have the flexibility to approach situations uniquely. For example, holding down expenses can be difficult for big firms, because each layer of bureaucracy adds to the cost of doing business across the boundaries of a large organization.

Question 27

Entrepreneurial competitive dynamics refers to a cycle of actions and responses between firms competing for the same customers.

Answer 27

TRUECompetitive dynamics is intense rivalry, involving actions and responses, among similar competitors vying for the same customers in a marketplace.

Question 28

Warby Parker makes eyeglasses. It keeps costs low through several means and has a social mission. This is an example of a firm that uses a combination strategy.

Answer 28

TRUEEntrepreneurial firms, by contrast, can often create high-value products and services through their unique differentiating efforts. In the case of Warby Parker, two entrepreneurs found a recipe to sell fashionable eyeglasses to demanding customers while also cutting costs and serving a social mission

Question 29

A focus strategy must not include elements of differentiation and overall cost leadership in order to be successful.

Answer 29

FALSEFocus strategies are often associated with small businesses because there is a natural fit between the narrow scope of the strategy and the small size of the firm. A focus strategy may include elements of differentiation and overall cost leadership, as well as combinations of these approaches. To be successful within a market niche, the key strategic requirement is to stay focused.

Question 30

Running Press created a line of palm-sized mini books that were sold as point-of-sale impulse items. The company grew rapidly, even though it had a small fraction of the sales in the publishing industry. They used a pure overall cost leadership strategy to capture market share.

Answer 30

FALSEFocus strategies are often associated with small businesses because there is a natural fit between the narrow scope of the strategy and the small size of the firm. A focus strategy may include elements of differentiation and overall cost leadership, as well as combinations of these approaches. To be successful within a market niche, the key strategic requirement is to stay focused. Even though these books represent just a tiny fraction of total sales in the $23 billion publishing industry, they have been a mainstay for Running Press. As the Running Press example indicates, many new ventures are successful even though their share of the market is quite small.

Question 31

Entrepreneurial new entry is often perceived as a competitive threat because most market needs are being met, either directly or indirectly, by an existing firm.

Answer 31

TRUENew entry into markets, whether by start-ups or by incumbent firms, nearly always threatens existing competitors. This is true in part because nearly every market need is already being met, either directly or indirectly, by existing firms. As a result, the competitive actions of a new entrant are very likely to provoke a competitive response from companies that feel threatened. This, in turn, is likely to evoke a reaction to the response.

Question 32

Market commonality is the extent to which rivals draw from the same types of resources.

Answer 32

FALSEMarket commonality is whether or not competitors are vying for the same customers and how many markets they share in common. Resource similarity is the degree to which rivals draw on the same types of resources to compete.

Question 33

Market commonality refers to the extent to which competitors are vying for the same customers in the same markets.

Answer 33

TRUEMarket commonality is whether or not competitors are vying for the same customers and how many markets they share in common. For example, aircraft manufacturers Boeing and Airbus have a high degree of market commonality because they make very similar products and have many buyers in common.

Question 34

When attacked, older and larger firms tend to respond more quickly, but their responses are often more predictable.

Answer 34

FALSEOlder and larger firms may have more resources and a repertoire of competitive techniques they can use in a counterattack. Large firms, however, tend to be slower to respond. Older firms tend to be predictable in their responses because they often lose touch with the competitive environment and rely on strategies and actions that have worked in the past.

Question 35

Cutting prices or increasing marketing efforts are examples of tactical competitive actions.

Answer 35

TRUETwo broadly defined types of competitive action include strategic actions and tactical actions. Tactical actions include refinements or extensions of strategies. Examples of tactical actions include cutting prices, improving gaps in service, or strengthening marketing efforts. Such actions typically draw on general resources and can be implemented quickly.

Question 36

In the context of competitive dynamics, tactical actions involve major commitments of distinctive and specific resources to strategic initiatives.

Answer 36

FALSETwo broadly defined types of competitive action include strategic actions and tactical actions. Strategic actions represent major commitments of distinctive and specific resources. Such actions require significant planning and resources and, once initiated, are difficult to reverse.

Question 37

Refinements or extensions of existing strategies are often referred to as tactical actions.

Answer 37

TRUETwo broadly defined types of competitive action include strategic actions and tactical actions. Tactical actions include refinements or extensions of strategies. Examples of tactical actions include cutting prices, improving gaps in service, or strengthening marketing efforts. Such actions typically draw on general resources and can be implemented quickly.

Question 38

Forbearance is a particularly aggressive type of competitive attack.

Answer 38

FALSEThere may be many circumstances in which the best reaction is no reaction at all. This is known as forbearance, refraining from reacting at all as well as holding back from initiating an attack.

Question 39

Co-opetition, where competitors work together behind the scenes, is a form of illegal tacit collusion.

Answer 39

FALSECo-opetition is a term that was coined by Novell network software company founder and former CEO, Raymond Noorda, to suggest that companies often benefit most from a combination of competing and cooperating. Close competitors that differentiate themselves in the eyes of consumers may work together behind the scenes to achieve industrywide efficiencies.