Prelims and Finals Flashcards
The process of identifying opportunities for which marketable needs exists and assuming the risk of creating an organization to satisfy them.
Entrepreneurship
T or F. A business can be risk-free.
F. A business will always involve ‘risk’.
What are reasons to be an entrepreneur?
1) Be your own boss, or work for your boss.
2) The range is very wide: (1) makers and or sellers of various products; (2) service providers.
What are possible reasons to start a business?
1) To fulfill a dream to have a business.
2) To make a difference or to solve a problem
3) Sudden employment
T or F. Every venture will be successful.
F. Not every venture will be successful.
T or F. Entrepreneurs invest money, time, and effort to start a business
T.
What concept states that it is difficult to compete with large firms?
Economies of Scale
The average cost of producing products will go down relative to the increase in production.
Economies of Scale
Give examples of how entrepreneurs address the challenge of economies of scale.
1) Respond more quickly to the complaint of customers
2) Immediately identify potential customers specific needs and take action accordingly
Anything that a particular business entity does better than anyone else in a specific industry
Competitive Advantage
T or F. Entrepreneurs may be non-profit oriented.
T
Flexibility in the form of excess resources of large firms is usually not available to entrepreneurs.
Organizational Slack
T or F. It is important to determine your (as an entrepreneur) risk tolerance.
T.
Individuals act to maximize their own individual benefits.
Agency Theory
T or F. Due to limited resources, an entrepreneur treats the expenses of the business similarly as that of a manager of a firm.
F. An entrepreneur treats the expenses of the business very differently than that of a manager of a firm.
A plan to take advantage of business growth and exit a business
Harvest Plan
Sell the entire business
Full exit
Going public
Initial public offering
Facilitates rapid growth of the business
Harvest Plan
Which of the following is NOT a characteristic of Venture Capital Backed Firms?
A) Well funded by venture capital or angel investment
B) Formed with a harvest plan
C) Has a developed organizational structure
D) Organized to grow slowly and steadily
D. VCBFs are organized to grow as quickly as possible
T or F. Venture Capital Backed Firms are engaged in inherently secure and safe operations.
F. They are engaged in inherently risky operation (e.g., introducing new invention to the market)
T or F. VCBFs are self-funded or closely funded
T.
Which of the following is a characteristic of VCBFs?
A) Development plan is oriented around positive cash flow
B) Usually designed to take advantage of the skills of the employees
C) The business is oriented toward the personal goals of the investor
D) With various employees to assist the day to day operations
A.
Correct Statements:
B) Usually designed to take advantage of the skills of the founder
C) The business is oriented toward the personal goals of the founder
D) With a few or no employee at all
It takes time to reach a level where the revenue can cover the expenses.
Break-even point
T or F. You should spend no more than your personal risk tolerance
T.
Rational decision making that is constrained by the background and history of the person making the decision
Bounded Rationality
T or F.
Extrovert: Internet-based business
Introvert: A business that focuses more on interpersonal interaction
F.
Extrovert: a business that focuses more on interpersonal interaction
Introvert: internet-based business
What are the three supports an entrepreneur can get?
Family, Networks, and Community
A usual source of constant support, guidance, and suggestions
Family
T or F. Family members, being unfamiliar with the expertise in a business, cannot be expected to provide key insights when an entrepreneur is taking the wrong approach to an issue.
F. Family members can easily and immediately provide key insights when an entrepreneur is taking the wrong approach to an issue.
May help introduce the products to potential customers and may provide the necessary feedback and advice.
Networks
A facility that houses new businesses and provides many critical services for new ventures
Incubator
In generating a business idea, what must be considered?
1) Skills of the potential founder
2) Identifying opportunities
3) Availability of initial funding
What are the 3 suggested approach in developing a business idea?
1st: Founders should list and evaluate their own personal skills. These may arise from hobbies, current/past work, family history.
2nd: Analyze the market and look for a gap or some need that is not being met effectively.
3rd: Potential founders need to compare their ability to fill the gaps with the available opportunity.
A process of systematically examining the difference, or gap, between what is expected and what occurs.
Gap Analysis
A creative process whereby a group of individuals are brought together and asked to generate ideas with little or no effort made to evaluate the potential for each idea rather than focus is to generate numerous ideas.
Brainstorming
What should be considered in choosing a business?
Finances
Time
Non-financial Resources
Risk
Competitors
In choosing a business, it requires a meticulous process such as:
Idea on new business that fits well with your skill.
Identify the opportunities.
Identify the risks.
Identify the competitors.
Amount of money required to start and operate a business and involves building a sufficient client base requires this
Finances
What are some expenses to be considered?
Rent, equipment, supplies, utilities, and others.
How much ___ you can dedicate to starting and managing your business? What will be the hours of operation?
Time
What are the non-financial resources?
Contacts with the supplier
Contacts with the customer
Competitive advantage
Physical location of business
What are the two level of risks?
Personal and Business Level Risk
What will you do if the business fails?
Personal Level Risk
What are the factors that could disrupt your supply chain?
Business Level Risk
What are the threats to business success?
Threat to Profit Margin
Threat to Sales Generation Schemes
Threat to Operational Financing
What is involved in threats to profit margin?
- Pricing constraints
- Who are the significant competitors
What is involved in threats to sales generation schemes?
Can your competitors:
- Exceed the quality of your products?
- Offer a lower price?
- Locate themselves in a better location?
- Lock you out of suppliers?
What is involved in threats to operational financing?
Selling products on credit but having to pay cash for the raw materials
Accurately defining your customer may help you with the following:
- Content of your product
- Pricing
________ have no clear and dominant competitor and are instead made up of a large number of similar-sized firms.
Fragmented Markets
T or F. Most entrepreneurial businesses compete in fragmented markets
T
A product that performs a similar function or achieves the same result but is not a precise imitation.
Substitute Product
It refers to customers switching to substitutes or not using a product as the price of the product rises.
Elasticity of Demand
A barrier, such as investment in capital assets, that keeps a firm from leaving the industry.
Exit Barrier
T or F. To stop operating a business is actually difficult, but to recover the initial investment is marginally easier.
F. To stop operating a business is very easy, but to recover the initial investment is difficult.
Working with and learning from a company outside of your industry that has a particular skill that is potentially critical to your operation.
Benchmarking
T or F. A Sales Forecast can be 100% accurate with the proper formula.
F. This is not 100% accurate.
What must be considered in a sales forecast?
When to sell?
How much will be the selling price?
The advantage of an established company in forecasting sales
Fixed Costs
Vary according to the quantity of production
Variable Costs
FORMULA (Contribution Margin or Break-even Point in Units)
Fixed Cost / (Selling price per unit - Variable Cost per unit)
FORMULA (Sales Revenue)
Break-even Point in units x Selling Price per unit
FORMULA (Variable Cost)
Break-even Point in units x Variable Cost per unit
What are the different sources of funds?
1) Equity Investment
2) Crowdfunding
3) Loan
4) Asset-Based Lending
5) Credit Card
6) Grants
7) Factoring
Funds received by a business in exchange for a percentage ownership of the business. This involves shares of stocks
and is considered when the company is a large business already.
Equity Investment