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Entrepreneurship Theory Process And Practice 10th Edition by Donald F. Kuratko – Test Bank
CHAPTER 6: ASSESSMENT OF ENTREPRENEURIAL OPPORTUNITIES True/False:
- The entrepreneurial motivations of individuals relate to the entrepreneur, the environment, and the venture.
- There is a great abundance of reliable data concerning the start-up, performance, and failure of new ventures.
- Most entrepreneurs are objective when they evaluate their new idea.
- Most entrepreneurs are well schooled in the technology associated with their ventures.
- Surprisingly, growth of sales is generally not considered a critical factor in assessing new ventures.
- The decision of an entrepreneur to ignore the market is a safe one if he or she is sure that the idea will be a success.
- Obtaining external financing is considered one of the major types of problems for a new venture during its first year.
- Solid analysis and evaluation of the feasibility of the product/service idea are critical tasks in starting a new business.
- Overall market understanding rather than a time-consuming focus on market niches is sufficient for an evaluation.
- Feasibility analyses include technical, market, financial, organizational, and competitive analyses.
ANS: TMultiple Choice:
- The entrepreneurial motivations of individuals usually relate to which of the following factors?
|d.||all of the above|
- Many entrepreneurs lack _____ for their new venture.
|d.||both a and b|
- Which of the following is critical to a product’s success?
|d.||all of the above|
- A common pitfall in selecting a new venture is
|a.||poor financial understanding.|
|b.||proper objective evaluation.|
|c.||real insight into the market.|
|d.||none of the above.|
- Name the pitfall described by the statement, “Engineers and technically trained people are particularly prone to falling in love with an idea for a product or service.”
|a.||inadequate understanding of technical requirements|
|b.||lack of venture uniqueness|
|c.||no real insight into the market|
|d.||lack of objective evaluation|
- Poor financial understanding is characterized by which of the following?
|a.||failure to anticipate technical difficulties|
|b.||inadequate understanding of costs and funding requirements|
|c.||failure to realize the life cycle of a product|
|d.||lack of product differentiation|
- Venture classifications include which of the following types of venture?
|b.||smaller copycat ventures|
- Three specific phases that a new venture goes through are
|a.||prestart-up, start-up, poststart-up.|
|b.||start-up, poststart-up, evaluation.|
|c.||beginning start-up, start-up, ending start-up.|
|d.||prestart-up, start-up, evaluation.|
- The type of venture that is expected to attract venture capital would most likely be a
- Which of the following as a factor contributing to new-venture failure?
|d.||good management/poor product.|
- Using the failure prediction model discussed in the chapter, the risk of failure can be reduced by:
|a.||using less debt as initial financing and generating revenue in the initial stages.|
|b.||using more debt as initial financing and generating less revenue in the initial stages.|
|c.||using more revenue to enhance more debt in the initial stage.|
|d.||all of the above.|
- Which of the following is a major reason for the failure of a new venture?
|a.||inadequate market knowledge|
|b.||good product performance|
|c.||opening in the wrong location|
|d.||good product/poor marketing|
- Rapid technological advances in many industries cause a concern for in new venture development.
|a.||faulty product performance|
|b.||rapid product obsolescence|
|c.||inadequate awareness of competitive pressures|
- Market feasibility analysis relies on
|b.||the entrepreneur’s vision|
|d.||general economic trends and competitor data|
- An approach developed as a criteria selection list from which entrepreneurs can gain insights into the viability of their venture is the
|a.||feasibility criteria approach.|
|b.||time-essence of a venture approach.|
|c.||marketability feasibility approach.|
|d.||comprehensive feasibility approach.|
ANS: A Short Answer:
- Explain three major reasons why new ventures fail.
ANS:The first reason new ventures often fail is poor timing for the start of a new venture. A new product might be put on the market before a real need for the item exists or it may be introduced too late, when there is little demand for the product. The second reason is rapid product obsolescence. The life of a product needs to be assessed as important discoveries are always being made in updating the product’s usefulness. The third reason is faulty product performance. Tests have not been conducted appropriately for the product or quality has not been adequately controlled.
- List and describe three pitfalls in selecting a new venture.
ANS:The first pitfall in selecting a new venture is lack of objective evaluation. Ideas for products or services lack the careful planning measures to bring them up to their proper potential. The second pitfall is the lack of real insight into the market; a failure on the part of managerial staff to realize the full potential and life cycle of the product from the beginning. The third pitfall concerns the lack of venture uniqueness. There is no specific characteristic to set the business apart from competitors in the same field.
- What are three critical factors in a new venture assessment?
ANS:One of the critical factors in a new venture assessment is the basic feasibility of the venture. A venture has to operate within the realm of reality and it must also be a legitimate business venture. A second critical factor is the buyer decisions in the venture. Decisions as to customer identification in terms of location and specific classification of customers will be served by this venture. The third critical factor is the competitive advantages of the venture. Basically, this is comparing a venture with the competitors. The venture must have advantages that are not available to the competition’s realm of business.
- What are the five specific feasibility phases that a new venture will go through?
ANS:The first phase is finding out technical feasibility. The feasibility measured is whether the product or service will meet all technical criteria and tests for serviceability that are measurable. The second phase concerns marketability. Different tests are used to assure the success of the product or service rendered. This product must be salable and marketable to the public with a plan for promoting, pricing, and distributing the product to consumers or customers. The third phase is financial feasibility. Required finances are compared to available financial resources. The fourth phase deals with organizational capabilities as far as the personnel needs and requirements. The final phase is the competitive analysis of existing, as well as potential, competitors.
- What sorts of legal issues can be overlooked when assessing an entrepreneurial opportunity?
ANS:Business is subject to many legal requirements: the need to make the workplace safe for employees; the need to provide reliable and safe products, and the need for patents, trademarks, and copyrights to protect inventions and products. Overlooking any of these legal issues could result in major problems. CHAPTER 7: PATHWAYS TO ENTREPRENEURIAL VENTURES True/False:
- Uniqueness in a product or service can be demonstrated through a new-new approach or a new-old approach.
- Perhaps the greatest advantage of buying a franchise, as compared to starting a new business or buying an existing one, is that the franchisor will usually provide both training and guidance to the franchisee.
- The prospective investor should get as much information as possible on the franchisor.
- Franchisees have the option of using the logo and symbols of the franchisor.
- The terms upside gain and downside loss refer to the profits the business can make and the losses it can suffer.
- The elimination of time and effort associated with starting a company is an advantage of acquiring an ongoing venture.
- When purchasing an existing business, the prospective owner should conduct an assessment of the business’s current group of employees.
- The Federal Trade Commission does not provide information on franchise success.
- In negotiating a deal to purchase an existing business, it is possible to request that the seller retain a minority interest in the firm.
- The Franchise Disclosure Document (FDD) is a legally required disclosure document that must be presented to potential franchisees during presale discussions.
ANS: TMultiple Choice:
- When one designs a unique good or service, the individual is said to have used a(n) ____approach to starting the business.
- Which of the following is not a key question a prospective buyer needs to ask in buying a business?
|a.||Why is the owner selling?|
|b.||What is the owner’s personal net worth?|
|c.||How many of the personnel will remain with the firm?|
|d.||What type of competition exists?|
- Which of the following is an intangible asset?
- An advantage to buying an on-going business is
|a.||reduced concern over future operations.|
|b.||time and effort are reduced|
|c.||it may be purchased at a bargain price.|
|d.||all of the above.|
- A key question to ask when buying an on-going small business is which of the following?
|a.||How old is the business?|
|b.||Where should you retire someday?|
|c.||Can you become a millionaire by buying this business?|
|d.||How many personnel are going to remain?|
- An agreement not to compete is also known as
|a.||a trade restriction clause.|
|b.||a legal restraint of trade.|
|c.||a waiver of competition clause.|
|d.||a deferential sale of business clause.|
- The inventory should be examined for which of the following?
|b.||correspondence between the physical count and the book count|
|d.||All of the above.|
- An additional consideration to keep in mind when negotiating to purchase an existing business includes requesting that the seller retain __________ in the firm.
|a.||a minority interest|
|b.||a majority interest|
|c.||either a minority or majority interest|
|d.||none of the above|
- A ____ is a system of distribution that enables a supplier to arrange for a dealer to handle a specific product or service under certain mutually agreed upon conditions.
- The individual who buys the franchise is the
- The advantages of franchising include:
|a.||training and guidance.|
|c.||proven track record.|
|d.||all of the above.|
- The person who sells the franchise is usually required to do all of the following except:
|a.||pay a fee.|
|b.||provide professional management training to the unit’s staff.|
|c.||help out with financial assistance.|
|d.||provide continuing aid and a guidance to the person buying the franchise.|
- When should a potential franchisee receive the FDD (Franchise Disclosure Document)?
|a.||two days before signing a contract or paying any money|
|b.||at least ten days before signing a contract or paying any money|
|c.||two days before signing a contract|
|d.||at least ten days before paying any money|
- Which is not a key question to ask when buying a business?
|a.||Why is the business being sold?|
|b.||Is the building heated with gas or electricity?|
|c.||What is the condition of the inventory?|
|d.||How many of the employees will remain?|
- Who must negotiate a final deal to purchase a business?
|c.||The potential buyer|
|d.||All of the above|
ANS: C Short Answer:
- Briefly explain the new-old approach to creating new ventures.
ANS:Most small ventures do not start with a totally unique idea. Instead, an entrepreneur piggybacks on someone else’s idea by either improving a product or offering a service in an area in which it is not currently available. Some common examples of business venturing based on the new-old approach are restaurants and clothing stores.
- What is the role of business brokers in acquiring an established entrepreneurial venture?
ANS:Business brokers are professionals who specialize in business opportunities. Often they can provide leads and assistance in finding a venture for sale. However, the buyer should evaluate the broker’s reputation, services, and contacts. The buyer should also recognize that the broker usually represents the seller and gets a commission on the sale of the business.
- Why did the Federal Trade Commission enact the Franchise Rule?
ANS:The Franchise Rule attempts to codify the disclosure requirements associated with the purchase of franchises. The rule requires franchisors to make full presale disclosure at least ten days before a contract is signed or payment made.