Questions for Chapter 2
True/False
1. A manager is someone who perceives an opportunity and creates an organization to pursue it.
(pg. 41)
2. The entrepreneurial process includes all the functions, activities, and actions that are part of
perceiving opportunities and creating organizations to pursue them. (pg. 41)
3. Locus of control is an organizational factor in the innovation stage of the entrepreneurial
model. (pg. 43)
4. Entrepreneurship is a process that can be learned. (pg. 42)
5. Entrepreneurs possess highly specialized behavioral attributes that are distinct from those of
non-entrepreneurs. (pg. 44)
6. Access to entrepreneurial role models can be a significant factor in determining whether or
not someone will become an entrepreneur. (pgs. 45 – 46)
7. A majority of the businesses started each year will eventually go bankrupt. (pg. 48)
8. To determine the amount of capital that your company needs, crucial resources must be
assessed first. (pg. 52)
9. It is usually more efficient to do everything in-house instead of subcontracting certain jobs to
other companies. (pg. 53)
10. Raising venture capital is a critical step for most successful ventures. (pg. 56)
11. Whether a company is successful is largely a matter of luck. (pg. 49)
13. Secrecy about one’s idea is more likely to hurt the development of the business than help it.
(pg. 49)
14. Only the most skilled entrepreneurs should attempt to build a business around social or
cultural fads. (pg. 50)
15. Entrepreneurial companies should consider outsourcing responsibilities and functions that are
not critical to the company’s success. (pg. 53)
16. Marginal cost is a term that refers to expenses that are difficult to justify in an entrepreneurial
environment. (pg. 53)
17. Entrepreneurs should always seek to own the resources that they utilize while building a
company. (pg. 54)
18. The two types of startup capital are debt and equity. (pg. 54)
19. The vast majority of entrepreneurs start their companies with their own personal savings.
(pg. 54)
20. A majority of companies require at least $100,000 to begin operations. (pg. 56)
21. Investors in small, growing startups typically expect to earn the same rate of return as they
would if they invested in a public company that is listed on the New York Stock Exchange.
(pg. 56)
22. It is possible for a company to have a negative cash flow and be profitable. (pg. 57)
23. Startups that tend to focus on multiple markets are the most successful. (pg. 58)
24. Having multiple layers of management is the best way to ensure that a startup is flexible and
quick to react to changes. (pg. 58)
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.
(pg. 59)
26. Generally speaking, entrepreneurs have a stronger need to be in control of their own fate.
(pg. 44)
27. The medium age for founding a company is 41.9 years old. (pg. 46)
28. For a company that goes public, the founding entrepreneur typically owns a majority of the
shares of the corporation. (pg. 57)
29. For a successful new business, having a grade-A management team is more important than
30. The most famous geographic region for high-tech entrepreneurship is in California and often
referred to as, “Silicon Valley.” (pg. 44)
31. Low-tech businesses, such as convenience stores, are not typically considered part of
entrepreneurship because of their lack of innovation and intellectual property. (pg.46)
32. The most costly expense that seed-stage biotechnology companies face in their early years is
the initial expenditure on manufacturing equipment. (pg. 57)
33. The majority of entrepreneurs’ business ideas come from area outside of their present line of
employment or experience. (pg. 44)
34. The Small Business Administration’s Service Core of Retired Executives provides paid
assistance to entrepreneurs. (pg. 47)
35. One difference between having an idea vs. an opportunity is the ability to list potential
customers by name. (pg. 50)
36. On average, US companies make about 11% net income. (pg. 56)
37. Two ingredients that determine an entrepreneur’s return on investment are (1) the amount
Multiple Choice
1. A(n) _______ is someone who perceives an opportunity and creates an organization to pursue
it. (pg. 41)
2. Which process includes all the functions, activities, and actions that are part of perceiving
opportunities and creating organizations to pursue them? (pg. 41)
3. Locus of control is part of which of the following category of factors in the innovation stage of
E) Regulatory
4. Which of the following typically represent the first stage in the entrepreneurial process ? (pg.
43)
5. Which of the following typically represent the final stage in the entrepreneurial process ? (pg.
43)
A) Implementation
E) Self-doubt
6. Which of the following could be a “trigger” for the entrepreneurial process? (pgs. 42-44)
7. Where do most entrepreneurs get the idea for their businesses? (pg. 44)
8. Which of the following is not cited by the chapter as a primary reason that entrepreneurs
choose to go into business for themselves? (pgs. 43-44)
E) Self-realization
9. Which of the following would be the best explanation for the lack of minority owned
E) Satisfaction with one’s present job
10. Which of the following contacts can be critical to the startup phase of a new business?
(pg. 47)
11. The 8-year survival rate for new businesses is: (pg. 48)
12. What percentage of venture backed companies survive to the five year mark? (pg. 48)
13. Which of the following is not a critical component for a successful new business? (pgs. 42-
52)
14. A good example of entrepreneurial frugality is: (pg. 52)
15. When determining how to allocate scarce resources, an entrepreneur should: (pg. 52)
D) Focus exclusively on technology
E) None of the above
16. For an entrepreneurial company, leasing is better than buying because: (pg. 54)
17. Which of the following is not a common stage in the financing of new businesses? (pgs. 54-
55)
18. When a venture capital firm invests in a company, they typically expect which of the
following in return: (pg. 55)
19. What ratio best reflects the number of companies that begin with venture capital in hand?
(pg. 56)
20. What is the average net profit margin for companies in the US? (pg. 56)
21. Investors typically expect an annual rate of return of at least _______, from a growing
startup: (pg. 56)
22. The term ‘free cash flow’ generally refers to: (pg. 57)
23. Which of the following is not one of the Nine Fs of Entrepreneurial Success? (pg. 58)
24. Which of the following is not one of the 10 Ds of Successful Entrepreneurs? (pg. 45)
E) Dream
25. In entrepreneurship, luck is where ______________ and opportunity meet. (pg. 49)
D) They offer higher quality
E) They offer better service
E) Strong relationships with managers
28. Commonly outsourced responsibilities include all of the following except: (pg. 53)
29. 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: (pg. 56)
30. 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? (pg. 56)
A) 2%
E) 30%
31. Which of the following is not one of the global conditions increasing the rate of change in
business? (pg. 58)
E) All of the above
32. Approximately 50% of Inc. 500 companies make a net profit margin of … (pg. 56)
33. Often start-ups can reduce overhead by using outside firms for… (pg. 53)
34. To reduce the cost of office space you may be able to convince a landlord to… (pg. 54)
35. The factors that give birth to a new enterprise and influence its development can be
categorized as (pg. 43)
36. Sixty-one percent of companies on the 2013 list of companies founded by CEOs included in
Open Ended
2. 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? (pg. 43)
3. What are some of the sociological reasons that starting a company becomes more risky or
difficult as people grow older? (pgs. 46-47)
4. What contacts will you need as an entrepreneur? (pg. 47)
5. Explain the rationale behind the statement, “A first class team with a second class idea is
6. 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? (pg. 49)
7. Explain the benefits and drawbacks of debt and equity financing, respectively. (pgs. 54-56)
• Debt does not require an entrepreneur to give up any ownership stake in the business.
8. Describe the likely progression of financing for a startup that achieves an IPO. (pgs. 54-55)
• The entrepreneurs develop a prototype with personal savings, contributions from friends
9. What is ‘free cash flow’ and why is it such a critical factor for a growing business? (pg. 57)
10. 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. (pgs. 47-49)
11. How do salary and return on investment, for the founding entrepreneur, factor into the
regular operations of a startup? (pg. 56)
12. Discuss some issues around being secretive about your business idea (pg. 49)
• It complicates evaluating the idea for lack of others input
13. How can an entrepreneur’s location improve chances for success? (pgs. 44-45)
14. Discuss the impact that greater family responsibilities may have on the decision to become an
entrepreneur. (pg. 46)
15. Describe the importance of identifying how much start-up capital you will need to reach a
positive cash flow. (pgs. 54-56)
16. Discuss the importance of an entrepreneur calculating the sales revenue needed to ultimately
generate an equivalent income level to their current job. (pg. 47)