Entrepreneurship, 3e (Bamford)
Chapter 4 External Analysis
1) In an external environment analysis, the first step is to research your customers.
2) A small business owner must understand when an opportunity for a new business is truly an
opportunity.
3) The key to recognizing an opportunity is completing a detailed analysis of the internal
environment.
4) In an external analysis, the first step is to determine where the business is expected to compete.
5) Basic industry information can be obtained only by participating in focus groups.
6) Defining the firm’s industry is something that can be taken lightly; the small business owner
really needs to learn only about the local market. Industry information can be learned later.
7) The North American Industry Classification System (NAICS) is a code generated by the U.S.
government to gather, track, and publish data on specific industries.
8) The easiest way to locate the NAICS (North American Industry Classification System) code is
to use the Internet.
9) One way to obtain the NAICS (North American Industry Classification System) code is to
locate a direct competitor and research it through Dunn and Bradstreet, Lexis Nexis, etc.
10) Most of the NAICS (North American Industry Classification System) data is based on the local
market area.
11) An owner, when researching a new business, needs to be aware of, and be able to describe, all
potential customers.
12) When starting a new business, an owner needs to take into account how far a customer will
travel for the product or service to be sold.
13) An industry is defined as a group of companies within a specified radius that will be in direct
competition for the same customers.
14) Starting an entrepreneurial business should be based on the observance of an opportunity.
15) Industry associations have extensive data on their industry and usually are quite willing to
share that with the public.
16) The greatest barrier to the spread of an application is the social media that promotes the
application.
17) In determining the industry within which a new business will compete, an entrepreneur should
seek to be as generalist in his or her approach as possible.
18) An NAICS (North American Industry Classification System) code is a code that is standard
15-digit in length.
19) In defining the industry, an application should be conceptualized not in its use but as a physical
item.
20) The greatest factor that spreads the use of an application is how customers and potential
customers communicate with each other on the application.
21) The egalitarian approach helps the small business owner clearly focus on their core customers.
22) New business owners do not need to identify customers because they have already been
identified by their competitors. All you have to do is copy your competitors.
23) The first step in defining your customer base is to draw a geographical radius around your
location; inside this radius is where you will find the majority of your potential customers.
24) James is opening up a gourmet hamburger shop. To define his customer base, the first step is to
draw a geographical radius around the proposed location.
25) Once an entrepreneur has established a reasonable radius from which he or she would draw his
or her primary customers, the next step is to examine each potential competitor.
26) In the context of external analysis of competitors, if new business owners are very clear
regarding their customers’ needs, then the ability to identify direct competitors becomes
significantly challenging.
27) Once entrepreneurs have defined the industry that interests them, determined who their
potential customers might be and why they might want to buy from the business, the next step is to
start understanding the competitive advantage of the business.
28) Fragmented markets are markets where no one competitor has a majority share of the market.
29) A small business can compete on a cost basis with a larger firm.
30) A competitive map is an analytical tool to organize information about direct competitors.
31) A competitive map does not require a visit to all potential customers.
32) One possible result of the development of a competitive map is the conclusion that the initial
concept was not feasible.
33) A trade-in is a product that performs a similar function or achieves the same result as the
original product.
34) A substitute exists if the service or product performs a similar function.
35) A new small business owner does not have to be aware of substitutes or the impact they could
have.
36) Elasticity of demand is the ease that exists when a customer can switch to a substitute.
37) A product/service for which customers are willing to pay any price has an elastic demand.
38) An exit barrier keeps an entrepreneur from leaving the business he or she has invested in.
39) James has invested a large amount of money in his business; he is reluctant to just give up this
investment, which he would have to do if he closed his business. This is an example of an exit
barrier.
40) If the expenses incurred in operating a business are such that an entrepreneur cannot easily
recoup the investment, then the level of competition will be more intense.
41) If a business owner cannot easily exit an industry, then that owner is more likely to use
predatory pricing in an effort to generate cash flow and survive.
42) The ability to exit a business relatively easily tends to increase the threat posed by a new entry.
43) A major cause for failure of a new business is lack of focus on the competitive advantage.
44) A normal or ordinary competitive factor is some kind of standard practice in the industry, and
it is necessary for the business to succeed.
45) Unusual or unique competitive factors are the means by which a business can differentiate
itself from competitors.
46) Orthodox and unusual or unique competitive factors do not vary by industry.
47) To have a competitive advantage, the unusual products or services of a business need to meet
these four criteria: rare, durable, valuable, and nonsubstitutable.
48) Resource-based analysis is ineffective because it fails to define a business’s competitive
advantages and differentiate these from their competitors.
49) The first part of an external analysis is to
A) research potential substitutes.
B) develop a competitive edge.
C) identify potential customers.
D) determine in which industry the new business will compete.
50) The information from the North American Industry Classification System (NAICS) can be
found from
A) the government.
B) the library.
C) the Internet.
D) all of these.
51) A(n) ________ is defined as those companies within a specified geographic radius that will be
in direct competition for the same customers and sales as that of the new business.
A) industry
B) competitor’s files
C) tracking system
D) U.S. Government Blue Book
52) Identify a true statement about the North American Industry Classification System (NAICS).
A) It is generally used by entrepreneurs to get detailed information about local competitive
environment.
B) It provides potential entrepreneurs with data related to industry categorization.
C) It provides an entrepreneur with a standard 15-digit industry code.
D) It is unable to provide any information about national trends of specific industries.
53) Gerald is planning on setting up a burger joint in his hometown. He finds out the NAICS
(North American Industry Classification System) code for his business. From this information, he
is able to understand that his immediate area contains virtually no competitors and has the potential
to do very well. In the context of the critical steps involved in conducting an external analysis,
Gerald is ________.
A) starting to develop an understanding of his competitive advantage
B) drawing a set of competitive maps
C) defining the industry in which he is competing
D) examining and developing insights about substitutes
54) Once a business is broadly defined, the next step is to
A) visit all competitors.
B) define the fragment markets.
C) define a narrow group of customers.
D) define a larger group of customers.
55) When defining potential customers, an owner must
A) visit all competitors.
B) use NAICS data.
C) define a specified radius around the business.
D) analyze normal or ordinary competitive factors.
56) What are the two things that a new business owner should keep in mind when defining a
customer base?
A) Efficiency and accuracy
B) Accuracy and diligence
C) Thoroughness and efficiency
D) Intelligence and diligence