Chapter 3—Starting a Small Business
MATCHING
Match the term with its definition.
a.
capabilities
f.
differentiation strategy
b.
competitive advantage
g.
entrepreneurial alertness
c.
competitive environment
h.
fatal flaw
d.
core competencies
i.
feasibility analysis
e.
cost-based strategy
1. A benefit that exists when a firm has a product or service that is seen by its target market as better than
those of competitors
2. Readiness to act on existing but unnoticed business opportunities
3. Those capabilities that provide a firm with a competitive edge and reflect its personality
4. A preliminary assessment of a business idea that gauges whether the venture envisioned is likely to
succeed
5. A company’s routines and processes that can coordinate the combined use of its productive assets in
order to achieve desired outcomes
6. A circumstance or development that alone could render a new business unsuccessful
7. A plan of action designed to provide a product or service with unique attributes that are valued by
consumers
8. The environment that focuses on the strength, position, and likely moves and countermoves of
competitors in an industry
Match the term with its definition.
a.
cost-based strategy
f.
intangible resources
b.
focus strategy
g.
new benefit ideas
c.
general environment
h.
new market ideas
d.
industry environment
i.
new technology ideas
e.
inside-out analysis
9. An assessment that catalogs the startup’s sources of potential strengths
10. A plan of action that isolates an enterprise from competitors and other market forces by targeting a
restricted market segment
11. Startup ideas centered around providing customers with new or improved products or services
12. A plan of action that requires a firm to hold down its costs so that it can compete by charging lower
prices and still make a profit
13. The environment that includes factors that directly impact a given firm and all of its competitors
14. Startup ideas involving new or relatively new technology, centered around providing customers with a
new product
15. The broad environment, encompassing factors that influence most businesses in a society
16. Those organizational resources that are invisible and difficult to assess
Match the term with its definition.
a.
opportunity recognition
f.
startups
b.
outside-in analysis
g.
strategy
c.
pivot
h.
SWOT analysis
d.
resources
i.
tangible resources
e.
serendipity
17. To refocus or recreate a startup if the initial concept turns out to be flawed
18. A plan of action that coordinates the resources and commitments of an organization to achieve
superior performance
19. Identification of potential new products or services that may lead to promising businesses
20. The basic inputs that a firm uses to conduct its business
21. Those organizational resources that are visible and easy to measure
22. The study of the general and industry environments of a business context to identify potential startup
opportunities
23. An assessment that provides a concise overview of a firm’s strategic situation
24. A facility for making desirable discoveries by accident
MULTIPLE CHOICE
1. _____ refers to the way entrepreneurs identify new products or services that may lead to promising
businesses.
a.
Focus-based decisions
b.
Elasticity
c.
Opportunity recognition
d.
Cost-benefit analysis
2. 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.
3. Israel Kirzner believes entrepreneurs have a unique capability, which he calls _________ ________, to
spot existing opportunities for businesses.
a.
innovative thinking
b.
market awareness
c.
entrepreneurial alertness
d.
opportunity recognition
4. A computer technician recognizing a need for more atheistically pleasing computers would be said to
have entrepreneurial _____.
a.
technology
b.
alertness
c.
strategy
d.
rivalry
5. 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.
6. 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.
7. 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
8. 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
9. According to a study by the National Federation of Independent Business Foundation, 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.
10. 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.
11. 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
12. 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
13. 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.
14. Carol enjoyed yarn crafts but there were no yarn shops in her small town. She reasoned that there
were many others nearby who might appreciate being able to purchase yarns and supplies without a
long drive. Within a year her shop was profitable and expanding into larger space.Which of these
statements best describes this situation?
a.
Carol grew a business out of her personal experience.
b.
Carol turned her hobby into a thriving business.
c.
Carol accidentally stumbled upon a gold mine.
d.
Carol used her work experience as a source of startup ideas.
15. 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.
16. An example of an idea for a new startup from an accidental discovery 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.
17. 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
18. 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.
19. 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 heavily 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.
20. Julie, owner of a bed and breakfast inn, had been asked repeatedly to cater events. Once she realized
her kitchen was not being used during the later part of the day, she started the company. This change
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.
considering ways to adapt a product or service to meet customer needs in a different way.
21. 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.
22. 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.
23. 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.
24. When conducting an outside-in analysis, one should consider the _____ environment followed by the
_____ environment.
a.
general; industry
b.
general; natural
c.
industry; natural
d.
industry; political
25. 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.
26. 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
27. 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.
28. 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.
29. 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
30. 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
d.
sociocultural
31. 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.
32. 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.
33. Have you noticed women’s footwear recently? Women who still wear high heels favor six-inch
spiked or wegdged platform shoes. Which type of trend does this represent?
a.
Economic
b.
Sociocultural
c.
Technological
d.
Demographic
34. 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
35. 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
36. 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
37. 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
38. 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
c.
Threat of substitute products or services
d.
The macroeconomic level of the industry
39. 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.
40. 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.
41. An increase in the bargaining power of suppliers
a.
increases both the attractiveness and the profitability of the target market.
b.
decreases both the attractiveness and the profitability of the target market.
c.
decreases the attractiveness and increases the profitability of the target market.
d.
increases the attractiveness and decreases the profitability of the target market.
42. 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.
43. 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.
44. 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.
45. 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.