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42) For a business to be successful in the early growth stage of the organizational life cycle, the
two important things that must happen are ________.
A) the founder or owner of the business must start transitioning from his or her role as the hands-
on supervisor to a more managerial role, and increased formalization must take place
B) a decision must be made whether the owner-manager and the current management team is
capable of taking the business further, and the organization must start laying the groundwork for
future growth
C) increased formalization must take place, and the business must achieve price stability
D) a decision must be made whether the owner-manager or the current management team is
capable of taking the business further, and business partnerships must be established
E) the founder or owner of the business must start transitioning from his or her role as the hands-
on supervisor to a more managerial role, and the business must be cash flow positive
43) According to the textbook, the toughest decisions regarding business growth are made in the
________ stage of the organizational life cycle.
A) introduction
B) early growth
C) continuous growth
D) maturity
E) decline
44) According to the textbook, a well-managed business that finds its products and services are
mature often ________.
A) replaces its board of directors to breathe new life into the firm
B) looks for licensing opportunities
C) looks for partnering or acquisition opportunities to breathe new life into the firm
D) looks for new managerial talent to breathe new life into the firm
E) looks for international business opportunities
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45) According to the textbook, it is ________.
A) not inevitable that a business enter the decline stage of the organizational life cycle
B) inevitable that a business enter the decline stage of the organizational life cycle
C) not inevitable that service firms enter the decline stage of the organizational life cycle but is
inevitable for manufacturing firms
D) not inevitable that manufacturing firms enter the decline stage of the organizational life cycle
but is inevitable for service firms
E) not inevitable that international firms enter the decline stage of the organizational life cycle
but is inevitable for strictly domestic firms
46) The Savvy Entrepreneurial Firm feature in Chapter 13 focuses on Salesforce.com, a
company that pioneered the idea of software as a service (SaaS). The main point of the case is
that rather than remaining a niche product, Salesforce.com’s product, which is an online software
platform for salespeople, has ________ and appeals to mainstream customers.
A) crossed the divide
B) jumped the divide
C) leaped the technology curve
D) crossed the chasm
E) crossed the valley
47) The majority of businesses go through a discernable set of stages referred to as the
business/industry life cycle.
48) The main challenges for a business in the introduction stage are to make sure the initial
product or service is right and to start laying the groundwork for building a larger organization.
49) A business’s early growth stage is generally characterized by increasing sales and heightened
complexity.
50) As a business moves beyond its early growth stage and its pace of growth accelerates, the
need for structure and formalization decreases.
51) What is the organizational life cycle and why is it important?
52) The author of the book titled The Theory of the Growth of the Firm, which is referred to in
Chapter 13, is ________.
A) Jim Collins
B) Joseph Schumpeter
C) Edith Penrose
D) Michael Gerber
E) Seth Godin
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53) Trevor Kimble owns a firm that sells products to the publishing industry. Trevor is currently
evaluating a set of opportunities that he feels his firm is capable of pursuing. According to the
textbook, Trevor is evaluating his firm’s ________.
A) prolific potential
B) dynamic opportunity options
C) productive opportunity set
D) passionate opportunity set
E) creative field of potential
54) According to Penrose, ________ services generate new market, product and service ideas,
while ________ services administer the routine functions of the firm and facilitate the profitable
execution of new opportunities.
A) managerial; entrepreneurial
B) administrative; business
C) entrepreneurial; managerial
D) business; commercial
E) commercial; administrative
55) When a firm’s managerial resources are insufficient to take advantage of its new product and
service opportunities, the subsequent bottleneck is referred to as the ________ problem.
A) commercial capacity
B) entrepreneurial aptitude
C) managerial capacity
D) business capacity
E) business aptitude
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56) Jack Wills owns a commercial nursery. Jack has more business than he wants, in fact, he is
presently turning away exciting new business opportunities because it is expensive to hire new
employees, and he knows that if he did hire new employees it would take time for the new
employees to be trained and to be socialized into the culture of his firm. Jack’s inability to take
advantage of the new business opportunities that are coming his way is due largely to the
________ problem.
A) business aptitude
B) entrepreneurial aptitude
C) commercial opportunity
D) business capacity
E) managerial capacity
57) ________ means that as the number of employees a firm needs increases, it becomes
increasingly difficult for it to find the right employees, place them in appropriate positions, and
provide adequate supervision.
A) Difficult hazard
B) Adverse hazard
C) Adverse selection
D) Moral selection
E) Moral hazard
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58) Kendell Adams owns a software development company. When he first launched his firm, he
was careful to hire employees who had the experience he was looking for, were good matches
for the positions he had available, and could be properly supervised. As Kendell’s firm has
grown, and his need for employees has increased, he is finding that it is increasingly difficult to
find employees who have the qualifications he is looking for, are good matches for the positions
he has available, and fit within the supervisory framework he has developed. Kendell is dealing
with an issue referred to as ________.
A) adverse hazard
B) adverse selection
C) complicated hazard
D) ethical hazard
E) moral selection
59) ________ means that as the number of employees a firm needs increases, it becomes
increasingly difficult for it to find the right employees, place them in appropriate positions, and
provide adequate supervision.
A) Moral hazard
B) Adverse selection
C) Adverse hazard
D) Complex hazard
E) Complex selection
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60) ________ means that as a firm grows and adds personnel, the new hires typically do not have
the same ownership incentives as the original founders, so the new hires may not be as motivated
as the founders to put in long hours or may even try to avoid hard work.
A) Difficult selection
B) Adverse hazard
C) Ethical selection
D) Productivity hazard
E) Moral hazard
61) According to the basic model of firm growth articulated in Chapter 13, the ability to increase
managerial services to facilitate growth is not friction free but is constrained and limited. Which
of the following selections is not one of the factors that constrains or limits a firm’s ability to
increase its managerial services?
A) The time required to socialize new managers
B) How motivated entrepreneurs and/or managers are to grow the firm
C) Adverse selection
D) Moral hazard
E) Benchmarking
62) Which of the following was NOT identified in the textbook as one of the day-to-day
challenges involved with growing a firm?
A) Cash flow management
B) Channel conflict
C) Capital constraints
D) Quality control
E) Price stability
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63) Which of the following statements is NOT true regarding the day-to-day challenges of
growing a firm?
A) As a firm grows, it requires a decreasing amount of cash to service its customers.
B) If firm growth comes at the expense of a competitor’s market share, price competition can set
in.
C) Most businesses, regardless of their industry, need capital from time to time to invest in
growth-enabling projects.
D) Although most businesses are started fairly inexpensively, the need for capital is typically the
most prevalent in the early growth and continuous stages of the organizational life cycle.
E) One of the most difficult challenges that businesses encounter as they grow is maintaining
high levels of quality and customer service.
64) Terry Wells owns a growing company that makes innovative kitchen appliances. One thing
that Terry has to continually work at is to keep enough cash on hand to make sure she has
sufficient liquidity to meet her payroll and cover her other short-term obligations. The day-to-day
challenge of firm growth this example is referring to is ________.
A) quality control
B) capital constraints
C) price stability
D) cash flow management
E) personnel issues
65) The What Went Wrong feature in Chapter 13 focuses on Dishero, that operates in the
restaurant space. Its primary service was ________ food.
A) selling
B) buying
C) distributing
D) composting
E) photographing
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66) Megan Johnson owns a kitchen and bathroom cabinet company. Her market research is
telling her that she is taking business away from the large home improvement stores in her trade
area. One thing that Megan is worried about is that the large stores might fight back by lowering
their prices, which hurts everyone except the consumer. The day-to-day challenge of firm growth
that this example is referring to is ________.
A) quality control
B) price stability
C) capital constraints
D) cash flow management
E) benchmarking
67) Kelly Andrews owns a company that makes office furniture. Recently, a favorable article
was written about Kelly’s company in a business magazine, and as a result, Kelly has seen a
spike in his orders. Although Kelly is grateful for the additional orders, he is worried about one
thing. An increase in activity means that his firm must handle more service requests and
paperwork and contend with more customers, stakeholders, and vendors. Kelly knows that if he
doesn’t handle this increased activity properly, the workmanship of his products could decline.
The day-to-day challenge of firm growth that this example illustrates is ________.
A) quality control
B) price stability
C) capital constraints
D) benchmarking
E) cash flow management
68) According to Penrose, managerial services generate new market, product, and service ideas,
while entrepreneurial services administer the routine functions of the firm and facilitate the
proper execution of new opportunities.
69) According to Penrose, entrepreneurial services generate new market, product, and service
70) Moral hazard means that as the number of employees a firm needs increases, it becomes
increasingly difficult for it to find the right employees, place them in appropriate positions, and
provide adequate supervision.
71) Adverse selection means that as a firm grows and adds personnel, the new hires typically do
not have the same ownership incentives as the original founders, so the new hires may not be as
motivated as the founders to put in long hours or may even try to avoid hard work.
72) Growth usually increases rather than decreases the challenges involved with cash flow
management.
73) One of the most difficult challenges that businesses encounter as they grow is maintaining
high levels of quality and customer service.
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74) Few businesses need access to capital to fuel their growth.
75) What are the primary day-to-day challenges involved with growing a firm? Briefly describe
each challenge.