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Indicate whether the statement is true or false.
1. When screening new business ideas, the entrepreneur need not focus on the size of the targeted market.
a. True
b. False
2. The general environment includes rival companies and products.
a. True
b. False
3. During a feasibility analysis, an entrepreneur may discover a fatal flaw in the idea.
a. True
b. False
4. An inside-out analysis identifies a company’s strengths and the competition’s weaknesses.
a. True
b. False
5. Serendipity describes a new product idea resulting from deliberate search activities.
a. True
b. False
6. Many businesses are formed because an entrepreneur saw ways to improve or modify a product as a result of previous
work experience.
a. True
b. False
7. By observing trends in the use of leisure time, technology, or other areas, an entrepreneur can discover potential
business ideas.
a. True
b. False
8. It is nearly impossible to make a business out of a hobby.
a. True
b. False
9. Using a cost-based strategy, a company would take steps to increase efficiency and hold down costs.
a. True
b. False
10. Using a focus strategy, a company would focus its attention on producing one product that satisfied the greatest
number of customers.
a. True
b. False
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Indicate the answer choice that best completes the statement or answers the question.
11. An example of an idea for a new startup from a hobby is
a. a coin collector, who bought and sold coins for years to build a personal collection, deciding to become a coin
dealer.
b. a furniture salesperson seeing the possibility of opening a new furniture store in a different area of the city.
c. a sharpshooter, who shot holes in a pair of her boyfriend’s jeans during an argument, hearing him get
complimented on the way they look.
d. all of the above are examples.
12. Morris built a thriving business by selling tailor-made clothing at off-the-rack prices. All other custom-clothing stores
charge much higher prices. We can say that Morris has a(n)
a. core competency. b. competitive advantage.
c. serendipity. d. opportunity alertness.
13. Which statement is an example of a technological trend?
a. The Federal Reserve announces that it will decrease the interest rate it charges banks.
b. Congress passes legislation that increases the tax rates on corporations.
c. A new computer chip is announced which will allow for miniaturization of many electronic devices.
d. The E.U. announces an increase in tariffs on all agricultural goods.
14. As the success of the athletic teams at O-MY-U skyrocketed, so did attendance at the games. Out-of-town visitors
found all the hotels fully booked. So Bob and Shirley opened their home to guests on weekends, operating as a bed-and-
breakfast. Soon many of their neighbors did the same and Bob and Shirley found they could no longer fill all their rooms
every game weekend. How would Michael Porter explain this?
a. The focus strategy was imitated. b. Demand disappeared.
c. The target segment lost its uniqueness. d. The industry became further segmented.
15. Janis wants to open a restaurant. She is not interested in a franchise; she wants to build her business literally from the
ground up. When she does, her business will be classified as a:
a. entrepreneurial opportunity. b. startup.
c. new market idea. d. serendipity.
16. When Sally realized her vintage clothing pieces were being bought by the local college students and not just their
parents, she started adding more vintage pieces to her inventory. Sally is
a. recognizing a hot trend and riding the wave.
b. combining two businesses into one to create a market opening.
c. beginning with a problem in mind.
d. considering ways to adapt a product or service to meet customer needs in a different way.
17. The increased trade between the United States and Mexico since the enactment of the North American Free Trade
Agreement is related to the ____ element of the general environment.
a. technological
b. global
c. ecological
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18. A(n) _____ exists when multiple resources are integrated and then deployed to the firm’s advantage.
a. networked resource
b. common intangible
c. capability
d. industry edge
19. Marketplace Farms is a regional cooperative of apple and orange growers. In order to compete against larger regional
growers, the company relies on inexpensive packaging processes and lower cost labor instead of machines. Marketplace
Farms is relying on what type of strategy?
a. price-based
b. marketing-based
c. efficiency-based
d. cost-based
20. Kitty-Kat Korner fabric shop caters to the quilters in the region. Other fabric shops carry fabrics for all types of
clothing along with floral, yarn, and other craft supplies. Kitty-Kat carries only items related to quilting. Which of the
following best describes Kitty–Kat’s strategy?
a. focus b. cost-based
c. quality d. innovation
21. Richard could see the demand for towable recreational vehicles declining so beginning in the early 1970s he used his
equipment, employees, and professional network to design and build utility trucks, a more recession-resistant
industry. This is an example of:
a. serendipity. b. diversification.
c. innovative thinking d. market ideas.
22. Isabella listens whenever someone says “Someone ought to make a …” She expects one of these ideas to develop into
a profitable business. Isabella possesses:
a. market awareness. b. entrepreneurial alertness.
c. opportunity recognition. d. innovative thinking.
23. For the past several years the borrowing interest rates has been very low in the United States. This is an example of
a(n) ______________ trend.
a. economic b. sociocultural
c. political/legal d. demographic
24. Mark is the owner of Delectable Delights, a specialty store offering chocolates, candies, and fruit baskets. After a
recent analysis of the competitive environment, Mark concluded that three distinct consumer segments exist for his
products – A, B, and C consumers. In an effort to maximize the effectiveness of its strategy, Mark has decided to limit his
efforts to fulfilling the needs of A consumers. He is employing a _____ strategy.
a. multisegmentation
b. selective
c. focus
d. concentration
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25. The quote “Good artists borrow; great artists steal” is the principle that launched which company?
a. Aimie’s Dinner and Movie
b. Apple
c. C and D Landscape Company
d. Xerox
26. Katarina has founded three different businesses in the past eight years, all of which have become so successful she has
sold them at large profits. We can say Katarina is good at:
a. innovative ideas. b. entrepreneurial alertness.
c. new market ideas. d. opportunity recognition.
27. Based on William A. Sahlman’s suggestions, which question about competitors should be answered by the business
plan?
a. Are there ways to co–opt potential or actual competitors by forming alliances?
b. How easily can new competitors enter the industry?
c. Do small businesses have special advantages when competing in the industry?
d. What is the average size of competitors?
28. Drs. James and Janet Baker saw that many people experienced difficulty and frustration when typing, some because of
physical disabilities. So they invented a voice recognition software to allow users to talk to the computer. Their ideas
have become Dragon Naturally Speaking, a popular talk-to-type software application. Which of these statements
describes their startup?
a. Borrow heavility from existing products or services. b.
Combine two businesses to create a market opening.
c. Begin with a problem in mind or a pain you can relieve. d.
Recognize a hot trend and ride the wave.
29. Peggy would like to open a dog grooming business in her home. Which of the following, if true, would indicate this is
a good idea?
a. More households now own dogs but the owners don’t want to give
them regular baths. b. Fewer households now own dogs but the owners don’t want to
give them regular baths.
c. Fewer households now own dogs but the owners give them regular
baths. d. More households own dogs but the owners give them regular baths.
30. Containers Etc. manufactures household containers. In contrast to traditional market designs, all of the products are
microwaveable, child-proof and come in an assortment of 35 colors. Accordingly, Containers Etc. is pursuing a _____
strategy.
a. product-based
b. differentiation-based
c. concept-based
d. efficiency-based
31. Which factor determines the nature and degree of competition in an industry, as identified by Michael Porter in his
book Competitive Advantage?
a. The interest of small businesses
b. Bargaining power of competitors
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c. Threat of substitute products or services
d. The macroeconomic level of the industry
32. An inside-out analysis is one that:
a. considers the general environment and industry setting. b.
catalogs the startup’s sources of potential strengths.
c. considers the strengths of buyers and suppliers. d.
catalogs the possible responses of rivals in the industry.
33. Angela noticed an interest among her friends and colleagues in wearing high-end watches and other jewelry for
special occasions, so she started a company where customers could rent high-end jewelry. Angela is
a. considering ways to adapt a product or service to meet customer needs in a different way.
b. offering products through a subscription service.
c. cashing in on the sharing economy.
d. imagining how a market for a product could be creatively expanded.
34. According to a study by the National Federation of Independent Business, the most common source of new product
ideas for small business startups is
a. prior work experience.
b. personal interests and hobbies.
c. a chance happening.
d. existing records of a business.
35. Which statement is an example of a global trend?
a. The Federal Reserve announces that it will decrease the interest rate it charges banks.
b. Congress passes legislation that increases the tax rates on corporations.
c. A new computer chip is announced that will allow for miniaturization of many electronic devices.
d. The E.U. declares an increase in tariffs on all agricultural goods.
36. A differentiation-based strategy requires that a firm
a. be the lowest-cost provider in an industry.
b. emphasize the uniqueness of its product or services.
c. achieve the highest resource efficiency in an industry.
d. be the lowest-priced competitor in an industry.
37. O-MY-U once had a winning team in every college sport. But athletes graduate and fortunes change. Attendance at
the games dropped when the team had a losing season. Bob and Shirley found it difficult to attract enough guests to their
bed-and-breakfast to cover their costs. How would Michael Porter explain this?
a. The focus strategy was imitated. b. Demand disappeared.
c. The target segment lost its uniqueness. d. New firms subsegmented the industry.
38. Miles’ startup company began well but within a couple months he found he was unable to pay invoices from
suppliers. He didn’t understand how he could have this problem. He hired experts; his business idea was sound; and he
had many new customers. What went wrong?
a. Miles lacked critical technologies. b. Miles lacked patents or copyrights.
c. Miles lacked raw materials. d. Miles lacked cash resources.
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39. Considering Michael Porter’s five factors, we can say that the fast food hamburger industry is characterized by:
a. intense rivalry. b. strong suppliers.
c. strong buyers. d. ease of entry into the industry.
40. Noland has identified an underserved market for his product. Competitors are not likely to notice his efforts to attract
his target market, and his product fills a need for these customers. Noland has found:
a. an opportunity sweet spot. b. a core competency.
c. a competitive advantage. d. a capability.
41. Which action is a cause for erosion of a small firm’s focus strategy?
a. Consumer demand grows.
b. New firms reconstruct the industry.
c. Differences between segments grow larger.
d. The focus strategy is imitated.
42. Verlin worked in a cabinet shop until he became frustrated that his ideas for improving efficiency were falling on deaf
ears. So he left and started his own cabinet shop where he could implement those ideas. From which source did his ideas
for his startup come?
a. From hobbies b. From personal interests
c. From accidental discovery d. From work experience
43. Substitute products
a. reduce the attractiveness and profitability of an industry.
b. represent those items manufactured by direct rivals within an industry.
c. are usually cheaper than the products they can replace.
d. are always a serious threat to rivals in an industry.
44. Considering Michael Porter’s five factors, the chicken meat processing industry is characterized by:
a. low barriers to entry. b. intense rivalry among competitors.
c. availability of many substitutes. d. strong buyers.
45. Which of the following could be considered a core competency?
a. Zappos’ 365 day return policy b. NutriSystem’s claim that users
lose weight by eating
c. McDonald’s ability to fry hamburgers quickly d. Southwest
Airlines’ ability to make flying fun
46. The two broad strategies for building a competitive advantage are the _____ strategies.
a. cost-based and differentiation-based
b. price-advantage and cost-advantage
c. marketing-advantage and price-advantage
d. focus-advantage and marketing-advantage
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47. Milton’s Auto Service is a small auto maintenance and repair shop located in a small town in a garage behind Milton’s
house. Milton doesn’t charge as much as auto dealerships so he has a steady stream of local customers. Which of the
following best describes Milton’s strategy?
a. innovation b. strategic alliances
c. cost-based d. differentiation
48. Resources are best described as
a. those basic inputs that a firm uses to conduct its business.
b. only those features that are visible and easy to quantify.
c. the firm’s lending capacity.
d. capabilities that can be exploited.
49. Miriam opened a yarn craft store in her small town based on her personal interests and hobbies. There were no
competitors locally; the merchandise was readily available; and she had the initial capital to open the store. Yet her
business failed. Too few customers visited her store. What was Miriam’s fatal flaw?
a. The merchandise was patent-protected. b. Miriam could not raise enough capital.
c. Miriam lacked industry knowledge. d. Miriam ignored the market limitations.
50. According to Michael Porter, a focus strategy can erode when
a. the strategy is protected.
b. the target segment’s differences from other segments narrow.
c. new firms reconstruct the industry.
d. demand for the product grows and thus attracts new competitors.
51. Jesse would like to start a landscaping company that concentrates on using native plants. The feasibility study showed
a need for $100,000 to start the company (she has $10,000), competition of three other companies (one concentrated on
using native plants), and buyers who were predominantly 60 years or older (who loved yard work). Which statement is
true?
a. This plan shows fatal flaws with financing, competition, and market as none of these flaws could be fixed.
b. The plan has a fatal flaw with financing and competition as the market might have an interest in her speciality.
c. The plan has a fatal flaw with financing but competition might not be as much of an issue if the native plant
landscaping is growing with the buyers.
d. The plan could be fixed if an investor went into business with her.
52. Considering Michael Porter’s five factors, the automotive industry in the United States is characterized by:
a. weak rivalry. b. high barriers to entry.
c. many substitute products. d. weak suppliers.
53. According to the feasibility analysis framework, an entrepreneur who has a vision of a multi-unit company will
a. be satisfied with an attractive niche so the company can gain market share.
b. check to see if the health of the micro-market is strong enough for future macro-market growth.
c. desire a healthier micro-market potential growth over the health of the macro-market.
d. be satisfied with an attractive niche if it would serve as a point of entry for long-term potential.
54. Israel Kirzner believes entrepreneurs have a unique capability, which he calls _________ ________, to spot existing
opportunities for businesses.
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a. innovative thinking b. market awareness
c. entrepreneurial alertness d. opportunity recognition
55. As China’s production of exportable goods increases, Chinese workers have more money to spend on consumer
items. Other developing countries are experiencing the same growth. Which type of trend does this represent?
a. Economic b. Sociocultural
c. Global d. Demographic
56. Rumpelstiltskin, an imp in a Grimm Brothers fairy tale, could spin straw into gold. We would call this a(n)
a. useful skill. b. tangible resource.
c. intangible resource d. capability.
57. Observations about the external environment and organizational potentials can be brought together by means of
a. an alignment strategy.
b. the in-and-out assessment.
c. a SWOT analysis.
d. common sense critique.
58. TV commercials promote reverse mortgages. Other ads promote medications for high blood pressure, ED, immune
system disorders, and high cholesterol. Which type of trend do these represent?
a. Sociocultural b. Global
c. Technological d. Demographic
59. Careful analysis of the competitive environment can result in:
a. failure of a new business. b. unexpected response from a rival.
c. loss of the startup’s supplier base. d. greater financial success of the startup.
60. Generally speaking, a strategy is
a. an action plan that guides resource investments.
b. a formal statement of what the firm intends to do.
c. an expanded description of the firm’s mission statement.
d. most effective when it is designed to reflect the tactics that are common within an industry.
61. Farmers wishing to sell grain cannot negotiate a price; they either accept the price offered or decline to sell their
crop. This is an example of:
a. low barriers to entry. b. availability of substitutes.
c. intense rivalry. d. strong buyers.
62. The State of Maryland has recently imposed a “rain tax” based on the amount of non-water-absorbing surfaces on real
estate. Which type of trend does this represent?
a. Economic b. Sociocultural
c. Political/legal d. Technological
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63. Kitty-Kat Korner fabric shop caters to the quilters in the region. Nowhere else can a quilter find everything she
needs: fabrics, notions, pattern books, even quilting machines and quilting classes. This is not your typical fabric store by
any means. Which of the following best describes Kitty-Kat’s strategy?
a. innovation b. differentiation
c. cost-based d. strategic alliances
64. Which statement is an example of an economic trend?
a. The Federal Reserve announces that it will decrease the interest rate charged to banks.
b. Congress passes legislation that increases the tax rate on corporations.
c. A new computer chip is announced which will allow for miniaturization of many electronic devices.
d. The E.U. declares an increase in tariffs on all agricultural goods.
65. When Jeff Bezos launched Amazon.com, his idea of selling items he did not own from a website was unique. Which
type of startup is this?
a. New market idea b. New technology idea
c. New benefit idea d. New product idea
66. Mike and Jane opened a franchise sporting goods store. Neither was athletic; neither had ever managed a retail store;
and the business failed within one year. Which statement best explains these results?
a. The venture did not fit with their mission or aspirations. b. They
had no connections with suppliers, customers, or investors.
c. They lacked factors critical to the success of the enterprise. d.
They failed to complete a feasibility study.
67. Which segment is part of the general environment?
a. The industry segment
b. The global segment
c. The information segment
d. The human resources segment
68. Jeff Bezos’ original business plan involved taking orders for books and having the items shipped directly from the
publisher to the customer. He modified the plan to include other products such as toys and decided to buy the toys from
the producers and ship them from his own warehouse. This modification of the original plan is called:
a. a change of plan b. a pivot.
c. a serendipity. d. a competitive move.
69. Which statement is an example of a political/legal trend?
a. The Federal Reserve announces that it will decrease the interest rate it charges banks.
b. Congress passes legislation that increases the tax rates on corporations.
c. A new computer chip is announced which will allow for miniaturization of many electronic devices.
d. The E.U. declares an increase in tariffs on all agricultural goods.
70. One of the drawbacks of SWOT analysis is:
a. it is very time consuming. b. a professional consultant must perform it.
c. its focus on present conditions. d. it requires information about competitors not
readily available to outsiders.
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71. Today’s smartphones bear little resemblance to the original analog cell phones of the early 1990s. Their capabilities
exceed those of the early desktop computers. It seems nearly every adult carries at least one cell phone. Which of the
trends does this represent?
a. Sociocultural b. Demographic
c. Technological d. Global
72. Arlene runs Aquabuddies, a company that makes figurines for aquariums. What type of strategy would be expected?
a. a focus strategy.
b. an unsegmented strategy.
c. a multisegmentation strategy.
d. a marketing mix strategy.
73. Many direct sales organizations suggest that the new “member” begin selling the product part-time while continuing
to work at his/her regular job. Which explanation best fits this recommendation?
a. The business meets a definite market need. b. The target market is
sizable.
c. There are few competitors. d. The business can be tested cheaply and
expanded incrementally.
74. The trend toward more customized consumer goods is what kind of trend?
a. Economic b. Sociocultural
c. Technological d. Demographic
75. Alyson and Andrea, country artists, realized that their love of classic rock was also popular with their fans. Their
change to their show to incorporate more rock songs with a country flavor is an example of
a. recognizing a hot trend and riding the wave.
b. combining two businesses into one to create a market opening.
c. beginning with a problem in mind.
d. finding a way to adapt a product or service to meet customer needs in a different way.
76. Intangible resources include:
a. a good location, cash, and capable business partners. b. a good
reputation, a respected brand name, and an extensive personal network.
c. intellectual property rights, equipment, and technology. d. capable
business partners, intellectual property rights, and equipment.
77. A company that is the lowest-cost producer within the market will have what type of strategy?
a. price-based
b. marketing-based
c. efficiency-based
d. cost-based
78. A SWOT analysis can be described best as
a. a means of assessing the firm’s industry situation.
b. an assessment of the internal strengths and weaknesses of the firm.
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c. a dynamic analysis of the firm’s current situation.
d. a concise overview of the firm’s strategic situation.
79. Wilma needed wine glasses but all she had were candlestick holders and 8-ounce canning jars. Gluing the two
together, she created what she called “mountain crystal” which became a big hit. The local crafters’ association asked her
to make enough for them to sell, and her business took off. This is an example of building a business from:
a. work experience. b. hobbies.
c. personal interest. d. accidental discovery.
80. A focus strategy is best described as
a. an attempt to compete directly with industry giants.
b. a domestic marketing strategy.
c. a strategy that isolates the firm from market forces.
d. targeting the high end of a market.
81. Consuela noticed significant growth in the Hispanic population in her mid-size town. The local grocery carried
mostly traditional American products. She knew her neighbors would want familiar foods so she decided to open a food
market catering to their preferences. Which kind of startup will her store be?
a. New market idea b. New technology idea
c. New benefit idea d. New product idea
82. Laura discovered to her amazement that the skin oil she sold seemed to repel mosquitos. She relabeled the product
and began selling it as alternative to brands such as Cutter and Off!. Laura’s startup is which kind?
a. New market idea b. New technology idea
c. New benefit idea d. New product idea
83. An evaluation of the general environment
a. is done before the feasibility analysis.
b. helps identify a trend that could be used for a possible startup idea.
c. will clarify the unique value of the startup idea.
d. will be the primary determinant for a possible startup idea.
84. Many commuters grab a cup of coffee and drink it during their ride to work. So someone invented specially shaped
cups that don’t tip and lids with sip openings that close and don’t spill. Which of these innovative ways of thinking best
fits this situation?
a. Combine two businesses to create a market opening. b. Study a
product or service to see if you can make it “green.”
c. Recognize a hot trend and ride the wave. d. Study an existing
product and explore ways to improve its function.
85. The diamond market is monopolized by the DeBeers organization, from mining to cutting and polishing to
wholesaling. Jewelers can do little to negotiate prices. This situation typifies:
a. low barriers to entry. b. availability of substitutes.
c. intense rivalry. d. strong suppliers.
86. An increase in the bargaining power of suppliers