978-1119563228 Test Bank Chapter 7

Questions for Chapter 7

True/False

1.

Ventures founded by teams tend to generate more revenue, be more profitable, create more jobs within

growth industries than those founded by single individuals

. (pg. 185)

2. The size of your organization is inversely correlated to the amount of revenue your business can

derive. (pg. 185)

3. Hiring a salesperson is more attractive than increasing support staff in regards to revenue

generated. (pgs. 185-186)

4. In the early years, it is critical for firms to focus on revenue-generating employees, instead of

support staff. (pg. 186)

5. Your team members can help you to evaluate feedback from outside sources. (pg. 186)

6. Over 95% of entrepreneurs in the US report that their co-founders are the main source of seed

financing. (pg. 186)

7. A business superstar is unlikely to possess all the business skills needed for long term success.

(pg. 187)

8. If the business is your idea, it is best if you are the CEO. (pg. 187)

9. Analysis of your resume will help you decide what other team members your firm needs. (pg.

187)

10. Entrepreneurs who are overly conscious of their own weaknesses are more likely to fail. (pg.

188)

11. You can’t build a successful team unless you understand your own strengths and weaknesses

and the best place for you at the company. (pg. 188)

12. The Myers-Briggs personality type indicator can accurately predict an individual’s likelihood for

success in an entrepreneurial endeavor. (pg. 189)

13. Certain personalities are better suited for entrepreneurship than others. (pg. 189)

14. Fast, dramatic growth can be a mistake for a business. (pg. 189)

15. Early stage companies tend to be hierarchal. (pg. 189)

16. Entrepreneurship is hard work but most entrepreneurs become millionaires in five years. (pg.

189)

17. Co-founders of a start-up should work on every task and decision together. (pg. 190)

18. It is more common for teams to self-destruct because of personal conflicts than for lack of

funding. (pg. 192)

19. If you decide to start a venture, you should notify your current employer as soon as possible.

(pg. 193)

20. After you have started a business, it is a bad idea to combine your new job with working fulltime

elsewhere. (pg. 193)

21. It often takes four months or more to identify and hire key employees. (pg. 194)

22. If employees own equity in the company, their interests are aligned with those of the company.

23. In general, founder shares should be granted to at least 10 people. (pg. 195)

24. Founder shares should be distributed equally between all founders. (pg. 195)

25. It is a mistake to distribute the entire supply of options to existing employees. (pg. 196)

26. Restricted stock is the option to buy shares that are vested over time. (pg. 197)

27. One of the main reasons to award options or founder stock is to keep key employees with the

firm. (pg. 197)

28. Phantom stock basically means that people earn their shares or options over time, usually over

four or more years. (pg. 197)

29. Startups should negotiate employee salaries below market levels. (pg. 199)

30. You may find an angel investor who will guide you at the early stages of your venture. (pg. 200)

31. Free resources are poor substitutes for a qualified lawyer. (pg. 201)

32. Board members should be encouraged to act in the best interest of the principal owner

exclusively. (pg. 202)

33. Company culture is incredibly difficult to change after it has been established. (pg. 203)

Multiple Choice

1. If a restaurant expects $100,000 or more in net profits, what is the minimum sales revenue per

year they would need? (pg. 185)

2. It is important for growth-oriented companies to prioritize hiring; who should be prioritized first:

(pg. 186)

4. Which of the following should the founder of the venture do first when deciding whether or not to

be the CEO of his company? (pg. 187)

5. Individuals that possess which of the following traits are most likely to launch their own

businesses? (pg. 188)

6. Which of the following personality traits best predicts entrepreneurial success? (pg. 189)

7. A study by Inc. 500 found that many CEOs had what quality in common? (pg. 189)

8. According to Inc. 500, what percent of entrepreneurs start businesses with their friends or family

members? (pg. 190)

9. What does the movie, Startup.com, demonstrate? (pg. 192)

E) All of the above

11. Which of the following should an entrepreneur do when creating a venture? (pg. 193)

12. According to the chapter, which of the following is not an acceptable means of maintaining an

entrepreneurs’ personal cash flow? (pgs. 193-194)

13. Which of the following is not a reason for distributing equity among employees? (pg. 194)

14. None of the following tools are usually considered a reward for “sweat equity,” except: (pg. 195)

E) Phantom stock

15. What are the disadvantages of distributing founder shares equally among all co-founders? (pg.

195)

16. Options give the holder the right to: (pg. 196)

17. How much equity is commonly set aside for employee options, particularly technology firms?

(pg. 196)

D) 35-40%

E) 45-50%

18. What is the most commonly used form of equity compensation? (pg. 197)

19. Which of these is actual shares, rather than the option to buy shares, that are vested over time?

(pg. 197)

E) None of the above

20. What attribute characterizes “restricted stock”? (pg. 197)

21. Which of these isn’t really issued equity but a cash bonus paid to employees if the stock price

appreciates over a set period of time? (pg. 197)

22. Stock appreciation rights of employees accrue only if: (pg. 197)

24. Which of these basically means that people earn their shares or options over time,

usually over four or more years? (pg. 197)

25. Which factor should you consider when choosing a lawyer: (pgs. 200-201)

26. Inappropriate sources of members for Board of Advisors include: (pg. 202)

E) Venture capitalists

27. Why should you have one or two members of your Board of Directors who can be considered

independent? (pg. 202)

29. Which of the following are not mentioned in the chapter as external team members? (pgs. 200-

203)

30. By making your team members work long hours, you put them at risk of: (pg. 204-205)

A) Burnout

B) Family pressure

31. You are least likely to resolve an interpersonal conflict in your team by: (pg. 205)

32. What is the minimum expected level of lawyers’ fees? (pg. 213)

1. Explain why solo entrepreneurs are generally less successful than team players. (pgs.

185-187)

2. What are some of the methods used to identify an entrepreneur’s strengths and

weaknesses? (pgs. 188-189)

3. Explain how entrepreneurs should use psychological or personality tests as one way to

develop self-awareness. (pg. 189)

4. What valuable contributions can your team members bring to your company?

(pgs.185-187)

5. What are some indicators of the right co-founders and team members for your start-

up? (pg. 189)

6. Describe what a sample staffing plan might look like. (pg. 190)

7. Describe the pros and cons of a dual job strategy at the early stages of the venture. (pgs.

193-194)

8. Give examples of compensations used to make your start-up attractive for valuable

team members. (pgs. 194-197)

9. Explain the benefits, to the firm, of a vesting schedule for employee options and shares.

(pg. 197)

10. How can entrepreneurs ensure that options improve organizational performance? (pg.

196)

11. Who should you invite to join the Board of Advisors of your firm and why? (pgs. 201-

12. Describe the balance between too much and too little communication with a board of

advisors. (pg. 202)

13. Why are lawyers and accountants considered to be external members of your team?

(pgs. 200-201)

14. Explain why company culture is important. (pgs. 203-204)

15. Three major problems your team may face are burnout, interpersonal conflicts and

family pressure. Describe how you can prevent and overcome them. (pgs. 204-205)