Chapter 6—Managing Small Business Start-Ups
TRUE/FALSE
1. Approximately 600,000 new businesses are launched in the U.S. each year by entrepreneurs.
2. The process of initiating a business venture, gathering and organizing the appropriate resources, and
assuming the associated risks and rewards refers to entrepreneurship.
3. Sole proprietorships are one of the fastest growing segment of small business.
4. Entrepreneurs in the sustainer category are rewarded by the personal satisfaction of being business
owners.
5. Entrepreneurs in the sustainer category alike the chance to balance work and personal life and often
don’t want the business to grow too large.
6. Entrepreneurs in the optimizer category are rewarded by the personal satisfaction of being business
owners.
7. Optimizers are rewarded by chance to work on something new and creative.
8. China is the most entrepreneurial country, with 24 percent of individuals age 18 to 64 starting a new
business.
9. Small businesses, according to the Small Business Administration, employ more than 90 percent of the
private workforce in the United States.
10. Entrepreneurship and small business in the United States is an engine for job creation and innovation.
11. Immigrants are more likely to start small businesses than native-born Americans.
12. Particularly in a turbulent environment, the three most important traits of successful entrepreneurs are
realism, flexibility, and passion.
13. The psychological characteristic that allows a person to be untroubled by disorder and uncertainty is
called tolerance for ambiguity.
14. A need to achieve is a psychological characteristic that means people are motivated to excell and pick
situations in which success is likely.
15. Social entrepreneurs have a primary goal of improving society rather than maximizing profits.
16. Social entrepreneurs are leaders who are committed to both good business and ensuring high
profitability.
17. Social entrepreneurship combines the creativity, business smarts, passion, and hard work of the
traditional entrepreneur with a mission to change the world for the better.
18. The first step in pursuing an entrepreneurial dream is to come up with a viable idea.
19. The most common source of new business ideas comes from in-depth understanding of an industry or
profession.
20. A document specifying the business details prepared by an entrepreneur prior to opening a new
business is known as a business plan.
21. A business plan for a small business should be detailed, encompassing at least 100 pages.
22. Since a corporation is a legal structure reserved for large firms, small businesses have two basic
choices for legal structure of their company: proprietorship and partnership.
23. A sole proprietorship an unincorporated business owned by two or more people.
24. The drawbacks of proprietorship include unlimited liability and difficulty in obtaining financing.
25. Two principle advantages of forming a corporation are continuity and limits on the owners’ liability.
26. The failure rate for high-tech business is lower than the failure rate for conventional businesses.
27. Borrowing from family and friends is a common source of debt financing for a start-up business.
28. The Small Business Administration (SBA) can provide loan financing for small business start–up.
29. Equity financing is when funds are invested in exchange for ownership in the company.
30. A venture capital firm is a group of companies or individuals that invests money in new or expanding
businesses for ownership and potential profits.
31. The advantage of buying an existing business is the ability to develop and design the business in the
entrepreneur’s own way.
32. An attractive innovation for entrepreneurs who want to start a business from scratch is to join a
business incubator.
33. To succeed in the competitive online market, aspiring entrepreneurs need to identify a market niche
that isn’t being served by other companies.
34. Entrepreneurs see themselves as being less in control of their environment, generally speaking, and
can be expected to have an external locus of control.
35. The first stage of growth for an entrepreneurial company is the investment stage.
36. At the success stage of growth, a company’s substantial financial gains may come at the cost of losing
its advantages of small size, including flexibility and the entrepreneurial spirit.
37. At Stage 3 of growth for an entrepreneurial firm, managers often are hired to take over duties
performed by the owner.
38. The takeoff stage is the last of the five stages of growth for an entrepreneurial company.
39. In the start-up stage of an entrepreneurial business, formal planning tends to be nonexistent except for
the business plan.
40. The owner should start implementing more structured control systems by Stage 3 of growth for an
entrepreneurial firm.
41. A domain name gives a company an address on the Web and a unique identity.
MULTIPLE CHOICE
1. Which of the following is the process of starting a business venture, organizing the resources, and
taking the risks?
a.
Intrapreneurship
b.
Entrepreneurship
c.
Small business administration
d.
Venture capital
e.
Equity financing
2. A(n) _____ is someone who recognizes a viable idea for a business product or service and carries it
out.
a.
intrapreneur
b.
entrepreneur
c.
manager
d.
leader
e.
introvert
3. Being interested in computers, Jose Cohata came up with an idea of personalizing the screen saver
programs with family pictures. After trying a couple of programs, Jose started marketing this service to
neighbors and area businesses. Jose’s activities can be described as a(n) _____.
a.
entrepreneurship
b.
intrapreneurship
c.
useless idea
d.
large business
e.
partnership
4. An entrepreneur:
a.
assumes the risks of the business.
b.
reaps the rewards of the business.
c.
assumes the financial and legal risks of ownership.
d.
recognizes a viable idea for a business product or service and carries it out.
e.
all of these.
5. Tracy’s Trikes believes that each employee should enjoy the idea of working on something that is new,
creative, or personally meaningful. Tracy’s Trikes exemplifies which of the categories of small
business owners?
a.
Optimizers
b.
Idealists
c.
Hard workers
d.
Sustainers
e.
Jugglers
6. Connie, a single mother and home-business entrepreneur, enjoys running her own business.
However, because she is busy balancing work and family, she does not foresee her home business
growing significantly in the near future. Connie can best be described as what type of entrepreneur?
a.
Idealist
b.
Sustainer
c.
Optimizer
d.
Juggler
e.
Hard worker
7. If a small business owner enjoys the chance to balance work and personal life, he would be considered
a(n) _____.
a.
idealist
b.
optimizer
c.
hard worker
d.
juggler
e.
sustainer
8. Which of the following are high-energy people who enjoy handling every detail of their own
businesses?
a.
Jugglers
b.
Idealists
c.
Sustainers
d.
Optimizers
e.
Hard workers
9. Today, inspired by the growth of companies such as Amazon.com, entrepreneurs are flocking to the
_____ to start new businesses.
a.
Small Business Administration
b.
Internet
c.
bookstore
d.
mall
e.
Internal Revenue Service
10. In 2011, which country had the largest percentage of individuals age 18 to 64 that were active in
starting or managing a business?
a.
China
b.
Peru
c.
Columbia
d.
Angola
e.
Dominican Republic
11. Which of the following demographic factors distinguish entrepreneurs from others?
a.
They are likely the youngest child in their family.
b.
Most entrepreneurs launch their businesses between the ages of 35 and 55.
c.
Their parents likely worked for large companies.
d.
They are likely the children of immigrants.
e.
All of these.
12. Celine has an unwavering belief in her new start-up company. She possesses intense focus and takes
unconventional risks to make her new company successful. These examples most closely relate to
which personality trait of entrepreneurs?
a.
Need to achieve
b.
Patience
c.
Tolerance for ambiguity
d.
High energy level
e.
Self-confidence
13. Andrew, a young entrepreneur, feels sure about his ability to win customers through his people skills.
He is comfortable with his ability to handle technical details and feels that he is able to keep his
business moving. This most closely relates to which personality trait of entrepreneurs?
a.
Need to achieve
b.
Impatience
c.
Tolerance for ambiguity
d.
High energy level
e.
Self-confidence
14. Which of these means that people are motivated to excel and pick situations in which success is likely?
a.
External locus of control
b.
Tolerance for Ambiguity
c.
Awareness of passing time
d.
Internal locus of control
e.
Need to achieve
15. Ginger likes to set her own goals, which have an intermediate level of difficulty. Which of the
entrepreneurial characteristics does she probably possess?
a.
A high need for achievement
b.
A high need for power
c.
An external locus of control
d.
An inability to deal with uncertainty
e.
Intolerance for ambiguity
16. Melissa is a very good middle manager. However, she has long wanted to open her own business.
Which of Melissa’s characteristics is not consistent with entrepreneurship?
a.
Melissa has high self-confidence.
b.
Melissa tends to put things off till later.
c.
She is untroubled by uncertainty.
d.
She has a high energy level.
e.
She has high need to achieve.
17. Which of the following is the psychological characteristic that allows a person to be untroubled by
disorder and uncertainty?
a.
Tolerance for ambiguity
b.
External locus of control
c.
Need to achieve
d.
Awareness of passing time
e.
Internal locus of control
18. Social entrepreneurs are committed to both good business and:
a.
swaying political opinion of consumers.
b.
improving the natural environment.
c.
positive social change.
d.
non-profit goals.
e.
big profits.
19. What is the primary goal of the social entrepreneur?
a.
Maximizing profits
b.
Improving society
c.
Reaching social circles
d.
Finding funding
e.
Writing grants
20. _____ combines creativity, business smarts, passion, and hard work of the traditional entrepreneur
with a mission to change the world for better.
a.
Contemporary entrepreneurship
b.
Traditional entrepreneurship
c.
Modern-day entrepreneurship
d.
Social entrepreneurship
e.
Conventional entrepreneurship
21. One of the first characteristics or points of a successful business plan is:
a.
a profile of potential customers and market needs.
b.
demonstrate a clear, compelling vision that creates an air of excitement.
c.
the key ingredient of the business that will attract million of customers.
d.
the entrepreneur’s background and role in the company.
e.
essential information about funding received so far.
22. Which of the following is the most cited source of new business ideas?
a.
Brainstorming
b.
In-depth understanding of industry/profession
c.
A hobby
d.
Copying someone else
e.
None of these
23. Before opening his own business, Kareem was writing a report that details the specifics of his ideas
and future business operations. This document is known as a:
a.
SWOT analysis.
b.
business portfolio.
c.
business plan.
d.
competitive analysis.
e.
mission statement.
24. The most common reason for becoming an entrepreneur is:
a.
joining the family business.
b.
to control one’s future.
c.
to be one’s own boss.
d.
to fulfill a dream.
e.
the result of being laid off.
25. Which of these refers to an unincorporated business owned by an individual for profit?
a.
Partnership
b.
Sole proprietorship
c.
Corporation
d.
Association
e.
Trade alliance
26. Which of the following is NOT an appropriate legal structure for an entrepreneurial company?
a.
Proprietorship
b.
Corporation
c.
Partnership
d.
Trade alliance
e.
All of these are appropriate legal structures for an entrepreneurial company.
27. Which of the following is a popular small business form because it is easy to start and has few legal
requirements?
a.
A partnership
b.
A proprietorship
c.
A corporation
d.
An association
e.
A trade alliance
28. Vaughn Hager started his one-man consulting business under the name Hager Associates. The legal
structure for the company can best be described as a(n):
a.
proprietorship.
b.
partnership.
c.
trade alliance.
d.
corporation.
e.
one man operation.
29. A(n) _____ has a legal life of its own.
a.
partnership
b.
proprietorship
c.
corporation
d.
association
e.
trade alliance
30. The drawback(s) of proprietorship include:
a.
the unlimited liability of the partners.
b.
conflicts with partners.
c.
existence regardless of whether the owners live or dies.
d.
difficulty in obtaining financing.
e.
complexity and cost.
31. Blake, Madison and Sean started selling computer software on college campuses under the name
Student Software Company. Each person contributed $1500 toward start-up costs and agreed on
dividing costs and profits equally. The legal structure for the company can best be described as:
a.
a proprietorship.
b.
a partnership.
c.
a trade alliance.
d.
a corporation.
e.
none of these.
32. Which of the following is an unincorporated business owned by two or more?
a.
A partnership
b.
A proprietorship
c.
A corporation
d.
An association
e.
A trade alliance
33. An artificial entity created by the state and existing apart from its owners is known as:
a.
a partnership.
b.
a proprietorship.
c.
a corporation.
d.
an association.
e.
a trade alliance.
34. What are the two principal advantages of forming a corporation?
a.
Unlimited liability and potential conflicts with partners
b.
Freedom from debt and relatively simple structure
c.
Continuity and limits on owner’s liability
d.
Unlimited liability and continuity
e.
Continuity and non-tax structure
35. What is the most common way that entrepreneurs finance the start-up of a new business?
a.
Self-financing from savings or credit cards
b.
Loans from friends, family, or business associates
c.
Bank loans
d.
Lines of credit
e.
Venture capital
36. _____ refers to borrowing money that has to be repaid in order to start a business.
a.
Venture capital
b.
Debt financing
c.
Equity financing
d.
Franchising
e.
Licensing
37. A group of companies or individuals that invests money in new or expanding businesses for ownership
and potential profits is known as:
a.
an equity financing firm.
b.
franchising.
c.
a venture capital firm.
d.
a corporation.
e.
a trade alliance.