Chapter 7—Building the Founding Team
TRUE/FALSE
1. Choosing a good attorney is a time-consuming but vital task that should be accomplished immediately
after startup.
2. An accountant is your advocate, but your lawyer is bound by rules and ethics that do not permit
advocacy.
3. When choosing a banker, the entrepreneur planning a new venture should seek out an officer with the
rank of assistant vice president or higher.
4. If a new venture is a corporation, a board of directors is required.
5. A board of directors can be made up of inside or outside members or a combination of the two.
6. Working boards are crucial in the startup phase.
7. The board is headed by the chairperson, who, in a new, private venture, is typically the lead
entrepreneur.
8. In a wholly owned or closely held corporation, there really is little distinction between the functions of
a board of directors and those of a board of advisers.
9. Most entrepreneurs try to avoid hiring employees as long as possible, because employees are the single
biggest expense in the business.
10. Because consultants tend to be fairly expensive, they are best used for critical, one-time advising or
problem-solving assignments.
MULTIPLE CHOICE
1. ____ staff is a way for a new business to enjoy the advantages of having the kind of skilled work force
available to major corporations without incurring so many of the expenses.
a.
Hiring
b.
Leasing
c.
Outsourcing
d.
Borrowing
e.
None of these choices
2. All of the following are part of an entrepreneur’s extended network except ____.
a.
government agencies
b.
personal advisors
c.
manufacturing support
d.
sales support
e.
customers
3. Which of the following is not a professional advisor to an entrepreneur?
a.
Attorney
b.
Board of directors
c.
Accountant
d.
Banker
e.
Insurance agent
4. ____ status or legitimacy is derived principally from the entrepreneur’s education and experience.
a.
Achieved
b.
Affiliation
c.
Ascribed
d.
Aptitude
e.
None of these choices
5. The chances of success are greater when the lead entrepreneur and the team share the same ____ for
the new venture.
a.
advisors
b.
skills
c.
vision
d.
network
e.
status expectations
6. ____ are more likely to make the mistake of putting structure on the organization before its time.
a.
Personal advisors
b.
Founding teams
c.
Startup teams
d.
High-tech teams
e.
Virtual teams
7. Increasingly, we are seeing more firms founded by ____ going international from startup.
a.
startup teams
b.
angel investors
c.
technology partners
d.
entrepreneurial networks
e.
None of these choices
8. Which of the following is not an independent contractor you would expect to find on an entrepreneur’s
extended team?
a.
Consultants
b.
PEOs
c.
Manufacturing support
d.
Sales support
e.
Board of advisors
9. The intense effort required of a startup can be shared when the entrepreneur uses a ____.
a.
creditor
b.
business agent
c.
stockholder
d.
founding team
e.
board of directors
10. When an entrepreneur decides to use a team effort to create the new venture, he or she generally looks
for people who have ____ skills.
a.
independent
b.
competing
c.
complementary
d.
differentiated
e.
homogeneous
11. A high-tech venture with significant up-front funding and the potential for exponential growth requires
a management team of ____.
a.
creative founders
b.
young entrepreneurs
c.
experienced professionals
d.
scientists and technical experts
e.
venture capitalists
12. Attorneys can provide the new venture with a wealth of support, which includes all the following
except ____.
a.
assisting in complying with federal, state, and local laws
b.
preparing financial statements
c.
advising and preparing documents for intellectual-property rights acquisition
d.
negotiating and preparing contracts
e.
apprising the entrepreneur of the latest tax reform legislation and helping minimize the
venture’s tax burden
13. An accountant can help a growing business in all of the following except ____.
a.
auditing
b.
bookkeeping
c.
preparing documents for acquisition of intellectual-property rights
d.
setting up control systems for operations and payroll
e.
preparing taxes
14. A/an ____ is an advocate, but a/an ____ is bound by rules and ethics that do not permit advocacy.
a.
insurance agent / banker
b.
banker / insurance agent
c.
consultant / government agency
d.
lawyer / accountant
e.
accountant / lawyer
15. To determine whether the accounting and control procedures are adequate once the new venture is
beyond the startup phase and is growing consistently, ____.
a.
an annual audit is needed
b.
financial statements are not required
c.
a business agent is not required
d.
a labor union is essential
e.
the entrepreneur should file with the SEC
16. The firm’s ____ should be thought of as a business partner who can be a source of information and
networking; help make decisions regarding capital needs; and assist in preparing pro forma operations
and cash-flow analyses.
a.
accountant
b.
auditor
c.
banker
d.
board
e.
None of these choices
17. The entrepreneurial team owns all or the majority of the stock in a ____.
a.
publicly held company
b.
privately owned corporation
c.
governmental operation
d.
sole proprietorship
e.
strategic partnership
18. A board member who is a founder, employee, or retired manager of the firm is a/an ____.
a.
inside board member
b.
outside board member
c.
personal advisor
d.
officer
e.
chair of the board
19. A board member with no direct connection to the business is a/an ____.
a.
inside board member
b.
personal advisor
c.
partner
d.
outside board member
e.
insurance agent
20. When choosing people to serve on the board of directors, consider those who have all of the following
characteristics except ____.
a.
important contacts in the industry
b.
a personality compatible with the rest of the board
c.
exploitive behavior
d.
good problem-solving skills
e.
honesty and integrity to engender a sense of mutual trust
21. The board is headed by the chairperson, who, in a new, private venture, is typically the ____.
a.
lead entrepreneur
b.
founder
c.
CEO
d.
CFO
e.
advisor
22. An informal panel of experts and other people who are interested in seeing the new venture succeed is
a/an ____.
a.
mentor board
b.
startup team
c.
virtual team
d.
advisory board
e.
consulting firm
23. A/An ____ consists of individuals whom the entrepreneur respects and trusts. They serve as a
sounding board for ideas and act as coaches.
a.
advisory board
b.
board of directors
c.
founding team
d.
personal mentor board
e.
independent contractor
24. Parties who run their own businesses and are hired by the entrepreneur to do a specific job are ____.
a.
labor unions
b.
independent contractors
c.
co-operatives
d.
secret partnerships
e.
silent partnerships
25. One of the biggest incentives for taking on the risk of a startup venture is the opportunity to acquire
a/an ____ stake and participate in the potential upside if the startup is a success.
a.
buy-sell
b.
equity
c.
investor
d.
advisor
e.
None of these choices
26. There are two types of ____ agreements: a cross-purchase agreement and a stock redemption
agreement.
a.
buy-sell
b.
equity
c.
investor
d.
advisor
e.
None of these choices
27. Which of the following is a service that consultants do not provide?
a.
Training sales staff and/or management
b.
Conducting market research
c.
Acting as temporary key management
d.
Bringing the activity in-house
e.
Conducting research and development
28. Because they tend to be fairly expensive, consultants are best used for ____.
a.
technology startups
b.
human resources
c.
critical one-time advice or problem solving
d.
employee leasing
e.
repetitive tasks
29. The Law of Agency defines the terms employee and independent contractor ____.
a.
on issues of taxation
b.
on issues of education
c.
in securing a loan
d.
in securing private consultants
e.
in securing grants
30. The functions assumed by a professional employer organization include ____ functions.
a.
payroll and human resource
b.
marketing research
c.
manufacturing
d.
All of these choices
e.
None of these choices
SHORT ANSWER
1. Briefly discuss how attorneys can supply a wealth of support for the new venture.
2. How can consultants provide services for the new venture?
3. What services can a founder with banking experience offer the team?
4. What are the functions of the board of directors?
5. Briefly discuss the elements of the entrepreneur’s extended networks.
6. Briefly discuss the important factors in composing the founding team.
7. Briefly discuss the special issues that may arise with founding teams in the high-tech industry.
8. Discuss the advantages and disadvantages associated with virtual teams.
9. What are the primary considerations to take into account before asking a family member or close
friend to be a partner?
10. Why is a founding team more likely to be successful versus a solo, independent entrepreneur?
ANS:
