Chapter 10—Managing New Venture Formation and
Entrepreneurship Key
1. Entrepreneurship is the process of planning, organizing, leading, and controlling.
2. A small business can only have one owner.
3. Professional managers, whose job is running someone else’s business, are entrepreneurs.
4. Most U.S. workers are employed by large firms.
5. The strong presence of small businesses in the United States is typical of the rest of the mature economies.
6. According to the Small Business Administration, small businesses account for a small percentage of all U.S.
exports.
7. Small business¾especially in certain industries¾is an important source of new (and often well-paid) jobs in
the United States.
8. History has shown that major innovations are as likely to come from small businesses (or individuals) as
from big businesses.
9. The more resources an industry requires, the harder it is to start a business and the less likely that the industry
is dominated by small firms.
10. More than any other industry, manufacturing lends itself to small business.
11. A first-mover enters a segment of a market that offers a new opportunity because it is not currently being
satisfied.
12. The business plan should describe the match between the entrepreneur’s abilities and the requirements for
producing and marketing a particular product or service.
13. The business plan is made up of a cash budget, an income statement, balance sheets, and a breakeven chart.
14. Market research is a key step in building a business plan.
15. The Internet has virtually rewritten all of the rules for starting and operating a small business.
16. Entrepreneurs who decide to start from scratch rather than buy an existing business have better odds of
success.
17. If someone is technically challenged, they should avoid starting a business because e-commerce is where
small businesses are finding success.
18. The purpose of the SBA’s SCORE program is to evaluate the managerial performance of small businesses
and then to assign scores that are used to determine the amount of loans that individual businesses can obtain.
19. The purpose of the SBA’s SBDC program is to consolidate information from various disciplines and
institutions, including technical and professional schools.
20. A franchise usually involves less uncertainty and less risk than starting a business from scratch.
21. Less and less often businesses are being started by people who have opted to leave big corporations and put
their experience and know-how to work for themselves.
22. Women tend to start their own businesses because they really like being their own bosses.
23. More people are discouraged to test their skills as entrepreneurs because the failure rate among small
businesses has been increasing in recent years.
24. Starting a new business requires an overwhelming time commitment.
25. New businesses need six to twelve months of capital before they launch.
26. Few successful entrepreneurs succeed alone or straight out of college.
27. Luck plays a role in the success of some firms.
28. An entrepreneur does all of the following EXCEPT
29. Teresa Walsh and Bonnie Kelly started Silpada Designs, jewelry sold through home parties. They are best
classified as
30. Which of the following describes an entrepreneur?
31. Sara Blakely developed the idea to make Spanx undergarments. She filed a patent and researched
production. She now sells Spanx through department stores. She is an example of a(n)
32. Which of the following is NOT an example of an entrepreneur?
33. Kristen owns and operates a photography studio. She has no employees. She is a(n)
34. A small business
35. Which of the following statements comparing small businesses to large businesses is FALSE?
36. Which of the following is NOT generally considered to be a role performed by small businesses?
37. In terms of the number of new jobs formed each year, how does small business compare to big business?
38. Which of these statements comparing large and small businesses is TRUE?
39. While watching her Dad cook bacon in the microwave, 10-year-old Abby Fleck asked, “Wouldn’t it be less
messy if you hung the bacon to cook?” After breakfast, she and her Dad went to the basement and created the
Makin Bacon, a gadget for making bacon cooking less messy. Abby, her parents, and her grandparents own and
operate a company that makes and sells Makin Bacon trays. Her first big customer was Armour Bacon, which
purchased the gadget to sell as a premium on its packages of bacon. This is a small business that has contributed
by its
40. If an entrepreneur were considering a new business, which of the following would be a DESIRABLE
characteristic of the industry being considered?
41. In which of the following industries are you most likely to find small business success?
42. Service businesses are the fastest growing segment of small-business enterprises primarily because of
43. Which of the following statements about service businesses that are classified as small businesses is
TRUE?
44. In which of the following ventures would a small business operator be most effective?
45. In which of the following areas of retailing are small businesses most likely to create jobs through success?
46. Which of the following statements explains why small businesses are generally more effective than large
companies in specialty retailing?
47. Which of the following statements is TRUE about the industries that small business owners may consider
entering?
48. Why are some small business owners successful in the wholesaling industry?
49. In which of the following industries are you LEAST likely to find a small business owner performing well
due to a lack of economies of scale?
50. In which of the following industries are small businesses typically poorer performers than large businesses?
51. Research has shown that manufacturing costs often fall as the number of units produced by an organization
increases. This relationship between cost and production is called
52. Large businesses are more likely to succeed in the manufacturing industry than small businesses due to
53. Which of the following is NOT considered to be a distinctive competency for small business?
54. Which of the following is an example of identifying a new niche in an established market?
55. An entrepreneur looking to enter the manufacturing industry is more likely to fail due to
56. Whole Foods has succeeded in bringing natural foods to mainstream retail. A small business entering the
natural food retail market would have a(n)
57. Which of the following is an example of a first-mover advantage?
58. Webkinz was the first toy company to sell stuffed animals with codes for play on an Internet game site. It
was a
59. Sara Blakely started Spanx after unsuccessfully searching for control undergarments that would not ride up
while being worn. This is an example of
60. The overall purpose of a business plan is to
61. Which activity in developing a business plan is the most important?
62. Jane’s Candy Shack was a quaint shop, in a small town, with high end items that never attracted many
customers. Its failure was probably attributable to failure to
63. The text lists several questions that the business plan should answer for the entrepreneur who is planning to
open a business. Which of the following is one of the questions?
64. The first step for the entrepreneur in planning his or her business is to
65. The most important part of the small business financial plan is the
66. The ____ tells how much money is needed to operate a new business.
67. After watching the royal wedding, Susan wants to start her own hat making company in the United States.
To help her determine whether this is a good idea, she needs to find the answers to which of the following
questions?
68. What is the most common source of funds for entrepreneurs?
69. ____ are a group of small investors seeking to make profits on companies with rapid growth potential.
70. After watching the royal wedding, Susan wants to start her own hat making company in the United States.
Where should she look first for financing?
71. Which of the following is NOT a source of management advice for an entrepreneur?
72. Which of the following is NOT a source of management advice for an entrepreneur?
73. Jane’s Candy Shack is in danger of failing. She needs some major consulting help but she has limited
financial resources. She contacts the SBA. She will most likely get help from the
74. Under the guidance of the ____, veteran business professors and students seeking advanced degrees work
with small business owners to help solve specific problems like shoplifting and ineffectual advertising.
75. Jane’s Candy Shack has ineffective advertising. Where should she go for help with a promotion program?
76. Why should a new entrepreneur who has to be careful how she spends every penny join the National
Federation of Independent Businesses (NFIB)?
77. Jay wants to start a new business. With which of the following methods of starting a new business will he
pay a share of the income from the business in return for the use of such things as trademarks and business
formulas?
78. Which of the following statements about recent trends in franchising is TRUE?
79. The most significant disadvantage to franchising as a means of acquiring a business is
80. The most significant change in small business is
81. Four general factors contribute to the failure rate of small businesses. They include
82. Most experts say that anyone opening a new business should be financially strong enough to operate without
business income for
83. Four general factors contribute to the failure rate of small businesses. Which of the following is NOT one of
those factors?
84. Four general factors contribute to the success rate of small businesses. Which of the following is NOT one
of those factors?
85. ____________________ are people who engage in planning, organizing, operations, and assuming risk in a
business venture.
86. A(n) ____________________ is an enterprise with sales and assets that are not large enough to influence its
environment.
87. Entrepreneurial business ____________________, more than business size, accounts for most new job
creation.
88. ____________________ businesses supply over half of all “innovations” introduced into the U.S.
marketplace each year.
89. ____________________ businesses provide ____________________ businesses with many of the services,
supplies, and raw materials they need.
90. The three strategic challenges facing small firms are choosing an industry in which to compete, emphasizing
distinctive competencies, and ____________________.
91. Rachel wants to sell products designed for churches that meet in movie theaters. She has found a(n)
____________________ market.
92. Primarily because they require few resources, ____________________ businesses are the fastest-growing
segment of small-business enterprise.
93. A(n) ____________________ business sells directly to consumers products manufactured by other firms.
94. The distinctive competencies of small business usually fall into three areas: the ability to identify new
niches in established markets, the ability to identify new markets, and the ability to move
____________________.
95. According to the National Federation of Independent Businesses, ____________________ are the most
important sources of money for entrepreneurs.
96. The SBA program that is designed to help small businesses that cannot afford consultants is called
____________________.
97. In addition to helping small business operators obtain funding, the SBA also provides
____________________ assistance.
98. Minorities and women are starting ____________________ small businesses than in the past.
99. ____________________ systems are needed to keep a business on track and to help alert entrepreneurs to
potential trouble.
100. The most common causes of small business success are hard work, ____________________, managerial
competence, and luck.
101. Match the following. You may use a response once, more than once, or not at all.
1. Entrepreneurs who are overly optimistic about when
3. Characterized by entrepreneurs who assume common
Managerial
4. Characterized by entrepreneurs who try to launch
102. Special Exercises
Jennifer Laurash was a middle manager in corporate America. She switched to work as a full time mother when
her children were young. Then she started the Tiny Little T-shirt Company in her basement. Her clothing line is
now international.
Match the following. You may use a response once, more than once, or not at all.
Small Business
getting college business classes to design a plan for
2. She was having a problem deciding on what went
in her business plan and heard of other businesses
Service Corps of
3. If she wanted to ask advice later from someone
currently in business who would be unbiased and
able to give her an honest answer, which agency
The National
Association of Women
Business Owners
4. Where should she go for a loan if she is unable to
Small Business
5. Because she has a start-up business, she needs a
business mentor, preferably one who is familiar with
the retail distribution business and who is not caught
up in running his or her own business. Where can she
Active Corps of
103. What is the nature of entrepreneurship?
104. The media often portray big business as crushing small business. In fact, what is the relationship between
big and small business more likely to be like?
105. Describe the role of entrepreneurship in society.
106. Briefly describe industries in which small businesses seem to be most effective and why this seems to be
the case. In what area are small businesses least successful in comparison to large businesses?
107. The distinctive competencies of small business usually fall into three areas. Briefly discuss each of those
areas.
108. Describe the four major types of information presented in a business plan.
109. When the business plan is finished, the entrepreneur must choose a structure. What does that mean?
110. Imagine you are working for 3M, a company known for supporting innovation. In your private time you
create a new product. Will you start your own company? Why or why not?
111. A new business can be started either from scratch or by buying an existing business. Which method seems
best to you? Explain your answer.
112. You have a great idea for a new children’s toy. Describe your financing options.
113. List and briefly describe the four programs available from the SBA that are designed to help small business
operators gain access to management expertise. What is the SBA’s other primary function?
114. Insead is a business school in France. Half of its alumni go on to start their own business or purchase one.
Describe recent trends in small-business start-ups and how an Insead education could help an entrepreneur.
115. How has e-commerce affected entrepreneurship?
116. List and briefly describe the major causes of small business failure and success.
117. What is the current trend for minority and women-owned businesses? Why is it happening?