Exam 2

Question 1

The six characteristics of entrepreneurs

Answer 1

• Internal locus of control
• High energy level
• Need to achieve
• Tolerance for ambiguity
• Awareness of passing time
• Self-confidence

Question 2

The four ways entrepreneurs can become business owners.

Answer 2

• Start from scratch
• Buy an existing business
• Start a franchise
• Participate in a business incubator

Question 3

Name the five different categories of small business owners

Answer 3

• Idealists
• Optimizers
• Sustainers
• Hard Workers
• Jugglers

Question 4

Describe the five different categories of small business owners

Answer 4

• Idealists like the idea of working on something that is new, creative, or personally meaningful.
• Optimizers are rewarded by the personal satisfaction of being a business owner
• Sustainers balance hard work and personal life, and often keep the business from expansion
• Hard workers enjoy putting in long hours and dedication to build larger businesses with more profits
• Jugglers are high-energy people who thrive on the pressure of paying bills, meeting deadlines, and making payroll.

Question 5

Briefly define and compare internal and external locus of control

Answer 5

• Internal locus of control is the belief by individuals that their future is within their control and that external influences will have little influence.
• External locus of control is the belief by individuals that their future is not within their control but instead is influenced by external factors.
• Internal locus of control leads to greater willingness to put forth effort and succeed.

Question 6

What is tolerance for ambiguity?

Answer 6

Tolerance for ambiguity is the psychological characteristic that allows a person to be untroubled by disorder and uncertainty.

Question 7

Why is tolerance for ambiguity an important trait?

Answer 7

• It is important for a small business owner because few situations present more uncertainty than starting a new business.
• Also, many decisions that new business starters have to make are made without clear understanding of options or certainty about which option will succeed

Question 8

Name five or the ten characteristics of a successful business plan.

Answer 8

• Demonstrate a clear, compelling vision that creates an air of excitement
• Provide clear and realistic financial projections
• Give detailed information about the target market
• Include detailed information about the industry and competitors
• Provide evidence of an effective entrepreneurial management team
• Pay attention to good formatting and clear writing
• Keep the plan short-no more than 50 pages
• Highlight critical risks that may threaten business success
• Spell out the sources and uses of start-up funds and operating funds
• Capture the reader’s interest with a killer summary

Question 9

Define a corporation and briefly discuss the primary advantages and disadvantages of forming a corporation

Answer 9

-A corporation is a business form that is an artificial entity created by the state and existing apart form its owners
-Advantages:
-The continuity of the business because it has legal life of its own
-The limits on the owners’ liability
Disadvantages:
-The cost and complexity of the paperwork required to incorporate the business
-The cost and complexity of the records required by the law

Question 10

What is the fundamental difference between the suppliers of debt and equity financing?

Answer 10

• Suppliers of debt financing will have their money repaid to them, with interest added for the use of the money.
• Suppliers of equity financing provide funds that are invested into the company in exchange for ownership in the company.
• Debt financing creates a loan while equity financing creates ownership.

Question 11

What is a business incubator? How can it help a business?

Answer 11

• A business incubator is an innovation that provides shared office space, management support services, and management advice to entrepreneurs.
• It can help a business by sharing office space with other entrepreneurs, managers share information about local business, financial aid, and market opportunities.

Question 12

List and briefly describe the stages of growth for an entrepreneurial company.

Answer 12

• 1st stage: Start-up stage, the main problems are producing the product or service and obtaining customers
• 2nd stage: Survival stage, the organization is producing the product/service and has customers. The key issue is financing the operation and its growth.
• 3rd stage: Success stage, the company is solid and profitable. The entrepreneur can decide to decrease his or her involvement.
• 4th stage: Takeoff stage, a pivotal period for the organization. The key issue is how to grow rapidly and finance that growth, and the entrepreneur must learn to delegate.
• 5th stage: Resource maturity stage, the company has made significant financial gains, but is in the process of transitioning to a large organization.

Question 13

List 3 of the 6 moral rights that should be considered during decision making

Answer 13

• The right of free consent
• The right to privacy
• The right of freedom of conscience
• The right of free speech
• The right of due process
• The right of life and safety

Question 14

List 3 examples of primary stakeholders

Answer 14

• Investors
• Shareholders
• Employees
• Customers
• Suppliers

Question 15

Define ethics and explain how the domain of ethics relates to law and free choice.

Answer 15

• Ethics is the code of moral principles and values that govern the behaviors of a person or a group with respect to what is right or wrong.
• In codified law, the values and standards are written into the legal system and enforceable in the courts.
• In free choice, the law has no say and the individual or group has complete freedom.
• The domain of ethics is found between these two. While written laws do no bind ethics, still there are standards of conduct based upon shared principles and values.

Question 16

List the 4 approaches that are used to describe values for guiding ethics decision making. Briefly describe each.

Answer 16

• Utilitarian approach: The ethical concept that moral behaviors produce the greatest good for the greatest number.
• Individualism approach: The ethical concept that acts are moral when they promote the individual’s best long-term interests, which will eventually lead to the greater good.
• Moral-rights approach: The ethical concept that moral decisions are those that best maintain the rights of those people affected by them.
• Justice approach: The ethical concept that moral decisions must be based on standards of equity, fairness, and impartiality.

Question 17

Briefly explain the justice approach to ethics and then explain the three types of justice

Answer 17

• The justice approach is the ethical concept that moral decisions must be based on standards of equity, fairness, and impartiality.
• Distributive justice requires that different treatment of people be based only on substantive differences and not be based on arbitrary characteristics.
• Procedural justice requires that all rules be administered fairly. Rules should be clearly stated and consistently enforced.
• Compensatory justice requires that individuals should be compensated for the cost of their injuries by the party responsible and that individuals not be held responsible for matters over which they have no control.

Question 18

List and define the stages of moral development.

Answer 18

• Preconventional stage: Individuals are mostly concerned with external rewards and punishments. They obey authority in order to avoid punishment.
• Conventional stage: Individuals conforming to the expectations of others. Fulfilling social and interpersonal obligations is important.
• Postconventional stage: Individual’s behavior is directed by an internal set of values and beliefs. These values are more important than the expectations of others.

Question 19

What is social responsibility? Why is it considered a difficult concept to grasp?

Answer 19

• Social responsibility is management’s obligation to make choices and take actions that will contribute to the welfare and interests of society as well as the organization.
• It can be a difficult concept to grasp because different people have different beliefs as to what will improve society’s will being and it covers a range of ambiguous issues with respect to right or wrong.

Question 20

Explain the concept of a stakeholder and list five common stakeholders.

Answer 20

-A stakeholder is any individual or group of people, inside the organization or outside the organization, that has a stake or direct interest in that organization’s performance.
-Common Stakeholders:
Employees, managers, stockholders, customers, suppliers, regulatory agencies, and creditors

Question 21

List and define the criteria of corporate social responsibility (4)

Answer 21

• Economic responsibility: The organization’s basic responsibilities are to produce the goods and provide the services that society wants, while at the same time maximizing profits and wealth for owners and stockholders.
• Legal responsibilities: Through its laws, each society has defined what is considers to be appropriate corporate behavior. Businesses are expected to fulfill their economic goals within the law.
• Ethical responsibilities: Includes behaviors no necessarily codified into law, nor do they necessarily serve the organization’s direct economic interests.
• Discretionary responsibilities: Entirely voluntary and are guided by the organization’s desire to make a social contribution not mandated by economics, law, and/or ethics

Question 22

Explain the differences between principle-based statements and policy-based statements in an organization’s code of ethics.

Answer 22

• Principle-based statements are designed to affect corporate culture; they define fundamental values and general language about company responsibilities, quality of products, and treatment of employees.
• Policy-based statements generally outline the procedures to be used in specific ethical situations, which include marketing practices, conflicts of interest, observance of laws, proprietary information, political gifts, and equal opportunities.