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Ch06: Entrepreneurship and New Ventures
True/False
1. Classic entrepreneurs are risk-taking individuals who take action to pursue opportunities
others fail to recognize, or even view as problems or threats.
Answer: True
Learning Objective: 6.1
Difficulty: Easy
AACSB: Analytical thinking
Bloom’s Taxonomy: Knowledge
2. A first-mover advantage comes from being first to exploit a niche or enter a market.
Copyright © 2015 John Wiley & Sons, Inc. 6-1

Answer: True
Difficulty: Easy
3. Entrepreneurs are born, not made.
Answer: False
Difficulty: Easy
Bloom’s Taxonomy: Comprehension
4. Entrepreneurs’ belief that they are in control of their own destiny shows that they have an
internal locus of control.
Answer: True
Difficulty: Easy
5. Entrepreneurs have a tolerance for ambiguity.
Answer: True
Difficulty: Easy

6. Money is the key to entrepreneurial success.
Answer: False
Difficulty: Easy
7. Serial entrepreneurship is one way for people, including women and minorities who have
hit the “glass ceiling” in their careers or are otherwise cut off from other employment
choices, to strike out on their own and gain economic independence.
Answer: False
Difficulty: Moderate
8. Classic entrepreneurship is a form of ethical entrepreneurship that seeks novel ways to

solve pressing social problems.
Answer: False
Difficulty: Easy
9. Social enterprises have a social mission to help make lives better for underserved
populations.
Answer: True
Difficulty: Easy

10. The vast majority of small businesses employ between 100 and 150 persons.
Answer: False
Difficulty: Easy
11. One of the most common ways to get involved in a small business is to buy and run a
franchise.
Answer: True
Difficulty: Easy
12. In a franchise, the franchise parent receives a share of income or a flat fee from the
franchisee.
Answer: True
Difficulty: Easy
13. A startup is a new venture that the entrepreneur is hoping will take shape and prove
successful as things move forward.
Answer: True


Difficulty: Easy
14. Lean startups are permanent, cost-intensive organizations.
Answer: False
Difficulty: Easy
15. Growing too fast is one of the reasons small businesses fail.
Answer: True
Difficulty: Easy
16. A family business feud is the issue of who will run the business when the current head
leaves.
Answer: False
Difficulty: Easy
17. Business incubators are also called business accelerators.

Answer: True
Difficulty: Easy
18. Having a succession plan helps avoid a succession problem.
Answer: True
Difficulty: Easy
19. Small businesses have a high success rate.
Answer: False
Difficulty: Easy
20. Business incubators aid in the development of startups.
Answer: True
Difficulty: Easy
21. The life cycle of an entrepreneurial firm begins with the breakthrough stage.

Answer: False
Difficulty: Easy
22. The breakthrough stage involves establishing the firm and fighting for its existence.
Answer: False
Difficulty: Easy
23. Self-management is an ability to use objective understanding of personal strengths and

weaknesses to keep growing—individually and career-wise.
Answer: True
Difficulty: Easy
24. A succession plan describes the direction for a new business and the financing needed to
operate it.
Answer: False
Difficulty: Easy

25. In a business plan, the executive summary contains the mission of the company, the details
of the owners, and the legal form of the organization.
Answer: False
Difficulty: Easy
26. A sole proprietorship is simple to start, run, and terminate.
Answer: True
Difficulty: Easy
27. A sole proprietorship is the most common form of small business ownership in the United
States.
Answer: True
Difficulty: Easy
28. When establishing a corporation, a partnership agreement must be made.
Answer: False
Difficulty: Easy

29. A limited liability corporation combines the advantages of sole proprietorship, partnership,
and corporation.
Answer: True
Difficulty: Easy
30. Debt financing requires collateral that pledges business assets or personal assets, such as a
home, to secure the loan in case of default.
Answer: True
Difficulty: Easy
Multiple Choice
31. The term _____ describes strategic thinking and risk-taking behavior that results in the
creation of new opportunities.
A. business planning
B. partnership
C. entrepreneurship
D. proxemics
E. franchising
Answer: C
Difficulty: Easy

32. A _____ entrepreneur is a risk-taking individual who takes action to pursue opportunities
others fail to recognize, or even view as problems or threats.
A. serial
B. classic
C. follow-through
D. sustainer
E. social
Answer: B
Difficulty: Easy
33. The main characteristic of _____ entrepreneurs is that they start and run new ventures over
and over again, moving from one interest and opportunity to the next.
A. sustainer
B. classic
C. serial
D. first-mover
E. necessity-based
Answer: C
Difficulty: Easy
34. A first-mover advantage comes from:

A. making improvements to existing product lines.
B. being the first to exploit a niche or enter a market.
C. being the first to take a free-ride on the opportunity created by a pioneer.

D. the ability to poach trained personnel from an established business.

E. taking risks while strategizing to improve an existing market.
Answer: B
Difficulty: Easy
35. Which of the following is true about serial entrepreneurs?

A. They are born, not made.
B. They pursue innovations within the company that can change the organization in
significant ways.
C. They make large investments in new ventures in return for an equity stake in the business.
D. They start and run businesses and nonprofits over and over again, moving from one interest
and opportunity to the next.
E. They are primarily responsible for selling of shares of stock to the public at large.
Answer: D
Difficulty: Easy
36. Nadia is unemployment and is unable to pay her bills. She realizes she loves baking and
soon opens up her own bakeshop with the help of a friend. Which of the following is true
about Nadia?
A. She is a necessity-based entrepreneur.
B. She is a social entrepreneur.
C. She is a venture capitalist.
D. She is an intrapreneur.
E. She is a serial entrepreneur.
Answer: A
AACSB: Application of knowledge

Bloom’s Taxonomy: Application
37. Which of the following is true of entrepreneurs?

A. They believe that their destiny is beyond their control.
B. They like to avoid risk.
C. They have a high need for achievement.
D. They are averse to autonomy.
E. They have a low tolerance for ambiguity.
Answer: C
Difficulty: Easy
38. Entrepreneurs:
A. do not like situations with high degree of uncertainty.
B. thrive on performance feedback.
C. have an external locus of control.
D. are unwilling to admit problems and errors.
E. do not like autonomy.
Answer: B
Difficulty: Easy
39. Which of the following scenarios demonstrates an entrepreneur who has a tolerance for
ambiguity?
A. Jean’s decision to modify a pre-existing problem-tackling strategy in his private firm
B. Roger’s decision to hire an experienced manager to head his new branch in another state
C. Karl’s decision to expand his private firm overseas despite the risk of facing cultural
differences

D. Sasha’s decision to quit her job to enter into a partnership with a well-recognized firm
E. Giselle’s decision to join her family’s well-established business
Answer: C
40. _____ takes place because other employment options don’t exist.
A. Classic entrepreneurship
B. Serial entrepreneurship
C. Intrapreneurship
D. An initial public offering
E. Necessity-based entrepreneurship
Answer: E
Difficulty: Easy
41. Yvette has recently lost her job and has not been able to find employment elsewhere. She
has to support her children, and take care of her mortgage. She realizes a niche for
chemical-free house cleaning services. Eventually she opens her own house cleaning
service. This is an example of _____.
A. classic entrepreneurship
B. serial entrepreneurship
C. intrapreneurship
D. necessity-based entrepreneurship
E. social entrepreneurship
Answer: D

42. _____ entrepreneurship is one way for people, including women and minorities who have
hit the “glass ceiling” in their careers or are otherwise cut off from other employment
choices, to strike out on their own and gain economic independence.
A. Classic
B. Necessity-based
C. Follow-through
D. Serial
E. Sustainable
Answer: B
Difficulty: Easy
43. Social entrepreneurs:

A. take risks and create enterprises whose missions is to help make lives better for
underserved populations.
B. bring buyers and sellers together for online business transactions and take a percentage
from the sales.
C. are wealthy individuals willing to invest in a new venture in return for an equity stake.
D. pursue innovations that can change the organization in significant ways.
E. start new ventures because they have few or no other employment and career options.
Answer: A
Difficulty: Easy
44. Barbara, a florist, realized the need for easily accessible organic compost in her
neighborhood. Her neighborhood consists mainly of senior citizens who are unable to

procure their own gardening supplies. She quickly established “We Compost,” a non-profit
organization that delivers compost to each household in her neighborhood. This is an
example of _____.
A. serial entrepreneurship
B. classic entrepreneurship
C. intrapreneurship
D. necessity-based entrepreneurship
E. social entrepreneurship
Answer: E
45. A(n) _____ necessarily has 500 or fewer employees, is independently owned and operated,
and does not dominate its industry.
A. small business
B. social organization
C. non-profit organization
D. classic entrepreneurship
E. Internet entrepreneurship
Answer: A
Difficulty: Easy
46. A _____ is a business in which the owner of a business sells to another the right to operate
the same business in another location.
A. non-profit organization
B. franchise
C. joint venture
D. family business
E. wholly-owned subsidiary

Answer: B
Difficulty: Easy
47. Which of the following is true about a franchise?

A. It is one of the least common ways to get involved in a business.
B. It runs under the franchisee’s name and guidance.
C. The franchise parent receives a flat fee from the franchisee.
D. It makes use of things like opensource software, while containing costs, staying small, and
keeping operations as simple as possible.
E. It refers to a business in which material or goods are given to another person, but
ownership is retained until the goods are sold.
Answer: C
Difficulty: Easy
48. A business model is a:

A. plan that describes the organizational structure of the company.
B. plan for making a profit by generating revenues that are greater than costs.
C. plan to determine the strengths and viability of a company’s organizational structure.
D. model that depicts the detail of an organization’s workflow.
E. model that lists the details of all the employees of an organization.
Answer: B
Difficulty: Easy

49. A(n) _____ is a new and temporary venture that is trying to discover a profitable business
model for future success.
A. family business
B. intrapreneurship
C. startup
D. business incubator
E. acquisition
Answer: C
Difficulty: Easy
50. Lean startups:

A. aim to create a sophisticated product with a big budget.
B. focus on increasing their acquisitions.
C. establish a complex and detailed work structure.
D. aim to keep operations as simple as possible.
E. focus on making lives better for underserved populations.
Answer: D
Difficulty: Easy
51. New small business startups often fail because of:

A. lack of business expertise.
B. strict financial controls.
C. high ethical standards.
D. slow growth.
E. strategic leadership.
Answer: A


Difficulty: Easy
52. Nailah had to quit her job to run her mother’s bookstore when her mother passed away. The
store was earning good profits and so she decided to open a new branch in another state.
What kind of a business does Nailah own?
A. Limited liability corporation
B. Social enterprise
C. Family business
D. Corporation
E. Necessity-based enterprise
Answer: C
Difficulty: Easy
53. In family businesses, _____ refers to the problem that arises when members of the family
have major disagreements over how the business should be run.
A. budget deficit
B. debt financing
C. an ethical dilemma
D. a reverse culture shock
E. a family business feud
Answer: E
Difficulty: Easy

54. A(n) _____ refers to the issue of who will run the business when the current head leaves.
A. family business integration
B. family business feud
C. family disagreement
D. succession problem
E. role confusion
Answer: D
Difficulty: Easy
55. Toby and William are both general managers at Alton & Sons, their father’s business. After
a heart attack, their father decides to retire. He is faced with the challenge of choosing
between one of his two equally capable sons to replace him in the business. Which type of
problem related to family businesses is the father facing?
A. Family business integration
B. Succession problem
C. Family disagreement
D. Role confusion
E. Family business feud
Answer: B
56. A(n) _____ plan describes how the leadership transition and related financial matters will
be handled when the time for changeover arrives.
A. partnership
B. startup
C. succession
D. liability
E. equity

Answer: C
Difficulty: Easy
57. Insufficient financing implies:

A. not taking the time to consolidate a position, fine-tune the organization, and systematically
meet the challenges of growth.
B. not having enough money available to maintain operations while still building the business
and gaining access to customers and markets.
C. not having expertise in the essentials of business operations, including finance.
D. not keeping track of the numbers, and failure to keep business finances to best advantage.
E. not making the best use of existing monies.
Answer: B
58. Stating that the failure of a small business was due to “lack of experience” implies:
A. not having expertise in the essentials of business operations, including finance, purchasing,
selling, and production.
B. not taking the time to craft a vision and mission, nor to formulate and properly implement a
strategy.
C. not keeping track of the numbers, and failure to control business finances and use existing
monies to best advantage.
D. not taking the time to consolidate a position, fine-tune the organization, and systematically
meet the challenges of growth.
E. not having sufficient know-how to run a business in the chosen market or geographical
area.
Answer: E

Difficulty: Easy
59. Daphne decided to open her first store in Dallas. Being new to the business, she was unable
to cope with the demands of running her store, and after several bad decisions, she finally
had to shut it down. What was most likely the main reason for the failure of Daphne’s
business?
A. Lack of experience
B. Insufficient financing
C. Lack of commitment
D. Ethical failure
E. Growing too fast
Answer: A
60. _____ implies that a business owner does not have the skill-sets required in the essentials
of business operations, including finance, purchasing, selling, or production.
A. Lack of experience.
B. Insufficient financing
C. Lack of expertise
D. Ethical failure
E. Growing too fast
Answer: C

61. Which of the following best describes lack of commitment?

A. Not having enough funding to maintain operations while still building the business and
gaining access to customers and markets
B. Not having sufficient know-how to run a business in the chosen market or geographical
area
C. Not having expertise in the essentials of business operations, including finance, purchasing,
selling, and production
D. Falling prey to the temptations of fraud, deception, and embezzlement
E. Not devoting enough time to the requirements of running a competitive business
Answer: E
62. Which of the following best describes lack of strategy and strategic leadership?
A. Not taking the time to craft a vision and mission, nor to formulate and properly implement
a plan
B. Not having enough funding to maintain operations while still building the business and
gaining access to customers and markets
C. Not having sufficient know-how to run a business in the chosen market or geographical
area
D. Falling prey to the temptations of fraud, deception, and embezzlement
E. Not having expertise in the essentials of business operations, including finance, purchasing,
selling, and production
Answer: A
63. Aisha has been successfully running a salon for over a year. She decided to use her profits
and expand her business by selling her homemade organic hair care products. This

involved miscellaneous costs that exhausted her funds, and she had to file for bankruptcy.
Which of the following is most likely the main reason for Aisha’s failure?
A. Lack of commitment
B. Poor financial control
C. Ethical failure
D. Late entry into the business
E. Lack of motivation
Answer: B
64. Habib, who owns a popular restaurant, plans to expand his business. After reading
favorable reviews, he decides to invest in an acquisition unaware that it is a dummy
corporation. This fraud leads to significant financial losses for him, and he is forced to shut
down his business. Which of the following is most likely to be the main reason for the
failure of Habib’s business?
A. Lack of motivation
B. Lack of strategy
C. Lack of commitment
D. Ethical failure
E. Late entry into the business
Answer: D
65. _____ offer space, shared services, and advice to help get small businesses started.
A. Business councilors
B. Business incubators
C. Succession plans
D. Social advisors

E. Internet entrepreneurships
Answer: B
Difficulty: Easy
66. The goal of business incubators is to:

A. ensure that established businesses retain their competitive advantage.
B. aid third generation family businesses resolve family business feuds.
C. formulate a succession plan for established family businesses.
D. increase the survival rates for new startups.
E. establish social enterprises.
Answer: D
Difficulty: Easy
67. Which of the following is true of small business development centers?

A. They concentrate on establishing social enterprises.
B. They exclusively support all non-profit organizations in the U.S.
C. They are supported by the U.S. Small Business Administration.
D. They offer guidance to entrepreneurs trying to invest in acquisitions.
E. They aid in the development of public sectors.
Answer: C
Difficulty: Easy

68. According to the life cycle of entrepreneurial firms, the birth stage signifies the stage in
which the:
A. entrepreneur recognizes a niche in the market and formulates an idea to take advantage of
it.
B. entrepreneur experiences the advantages of market success and financial stability.
C. entrepreneur faces the continuing management challenge of remaining competitive in a
changing environment.
D. business model begins to work well, growth is experienced, and the complexity of
managing the business operation expands significantly.
E. entrepreneur struggles to get the new venture established and survive long enough to test
the viability of the underlying business model in the marketplace.
Answer: E
Difficulty: Easy
69. According to the life cycle of entrepreneurial firms, the breakthrough stage signifies the
stage in which the:
A. entrepreneur recognizes a niche in the market and formulates an idea to take advantage of
it.
B. entrepreneur experiences the advantages of market success and financial stability.
C. entrepreneur faces the continuing management challenge of remaining competitive in a
changing environment.
D. business model begins to work well, growth is experienced, and the complexity of
E. entrepreneur struggles to get the new venture established and survive long enough to test
Answer: D
Difficulty: Easy

70. According to the life cycle of entrepreneurial firms, the maturity stage signifies the stage in
which the:
A. entrepreneur struggles to get the new venture established and survive long enough to test
B. business model begins to work well, growth is experienced, and the complexity of
C. entrepreneur recognizes a niche in the market and formulates an idea to take advantage of
it.
D. entrepreneur experiences the advantages of market success and financial stability while
facing the continuing management challenge of remaining competitive in a changing
environment.
E. entrepreneur formulates a plan for making a profit by generating revenues that are greater
than the costs of doing business.
Answer: D
Difficulty: Easy
71. _____ leadership brings the venture into being and sees it through the early stages of an
enterprise.
A. Transactional
B. Entrepreneurial
C. Bureaucratic
D. Transformational
E. Democratic
Answer: B
Difficulty: Easy
72. _____ leadership manages and leads the venture into maturity as an ever-evolving and still-
growing enterprise.

A. Strategic
B. Entrepreneurial
C. Bureaucratic
D. Transformational
E. Democratic
Answer: A
Difficulty: Easy
73. A(n) _____ plan describes the direction for a new business and the financing needed to
operate it.
A. succession
B. business
C. structural
D. operational
E. feasibility
Answer: B
Difficulty: Easy
74. In a business plan, the overview of the business purpose and the business model for making
money is contained in the _____.
A. market strategy
B. market description
C. company description
D. industry analysis
E. executive summary
Answer: E

Difficulty: Easy
75. In a standard business plan, an organization’s mission, ownership details, and, legal forms
are listed under _____.
A. market strategy
B. executive summary
C. company description
D. industry analysis
E. staffing description
Answer: C
Difficulty: Easy
76. In a business plan outline, the marketing strategy contains the:

A. description of the size of market, competitor strengths and weaknesses, and five-year sales
goals.
B. overview of the business purpose and the business model for making money.
C. description of the management and staffing skills needed and available, compensation, and
human resource systems.
D. details of the product characteristics, distribution, promotion, pricing, and market research.
E. description of cash flow projections for one to five years, breakeven points, and phased
investment capital.
Answer: D
Difficulty: Easy

77. In a business plan outline, the operations description contains the:

A. description of cash flow projections for one to five years, breakeven points, and phased
investment capital.
B. details of the product characteristics, distribution, promotion, pricing, and market research.
C. manufacturing or service methods, supplies and suppliers, and control procedures used.
D. description of the management and staffing skills needed and available, compensation, and
E. overview of the business purpose and the business model for making money.
Answer: C
Difficulty: Easy
78. In a business plan outline, _____ detail the amount of funds needed to run the business,
amount available, and amount requested from new sources.
A. capital needs
B. milestones
C. performance needs
D. liability needs
E. capability needs
Answer: A
Difficulty: Easy
79. In a business plan outline, the _____ provides details of cash flow estimate for one to five
years, break-even points, and phased investment capital.
A. staffing description
B. financial projection
C. capital need
D. milestones
E. operations description

Answer: B
Difficulty: Easy
80. Which of the following forms of ownership holds the business owner personally liable for
business debts and claims?
A. Sole proprietorship
B. Corporation
C. Limited liability partnership
D. General partnership
E. Limited liability corporation
Answer: A
Difficulty: Easy
81. Arianne has a passion for designing clothes and decides to open her own clothing store.
She starts it by taking personal loans from family and friends, and hires a few people to run
the store She maintains a tight control over costs as she does not want to incur further
debts. Arianne’s store is an example of a _____.
A. sole proprietorship
B. corporation
C. limited liability partnership
D. general partnership
E. limited liability corporation
Answer: A

82. In the context of business ownerships, a _____ is established when two or more people
agree to contribute resources to start and operate a business together.
A. corporation
B. limited liability corporation
C. partnership
D. social enterprise
E. business incubator
Answer: C
Difficulty: Easy
83. Erik and Elsa own a pet grooming business. Erik manages the financial responsibilities
while Elsa manages the customers. This is an example of a _____.
B. general partnership
C. corporation
D. limited liability partnership
E. limited liability corporation
Answer: B
84. “Sheng’s Designs” is an architectural firm owned by four investors but Sheng is the only
one who handles the day-to-day business management of the firm. They share their profits,
but their losses are restricted to the amount invested by each. This is an example of a
_____.
A. limited partnership

B. general partnership
C. corporation
D. limited liability corporation
E. sole proprietorship
Answer: A
85. A _____, common among professionals such as accountants and attorneys, limits the
liability of one partner for the negligence of another.
A. general partnership
B. sole proprietorship
C. limited partnership
D. limited liability corporation
E. limited liability partnership
Answer: E
Difficulty: Easy
86. Which of the following is true about a corporation?

A. It combines the advantages of the other forms—sole proprietorship, partnership, and
limited liability corporation.
B. Only a for-profit business can be registered as a corporation.
C. It exists separately from its owners.
D. For tax purposes, it functions as a partnership.
E. For liability purposes, it functions as a partnership.
Answer: C
Difficulty: Easy


87. Which of the following characteristics of a corporation gives it a life of its own that can
extend beyond that of its owners?
A. It grants the organization certain legal rights.
B. It is a legal entity that is chartered by the state.
C. The cost for incorporating a corporation is very high.
D. The corporation becomes responsible for its own liabilities.
E. Incorporated businesses require complex documentation.
Answer: D
Difficulty: Easy
88. Which of the following is true of a limited liability corporation?

A. It is commonly identified by the “Inc.” designation in a name.
B. It consists of a general partner and one or more “limited” partners who do not participate in
day-to-day business management.
C. The business owner is personally liable for business debts and claims.
D. For tax purposes, it functions as a sole proprietorship in the case of a single owner.
E. It involves the owners going into debt by borrowing money from another person, bank, or
financial institution.
Answer: D
Difficulty: Easy
89. For liability purposes, a limited liability corporation functions like a _____ and protects the
assets of owners against claims made against the company.

A. sole proprietor
B. corporation
C. general partnership
D. limited partnership
E. limited liability partnership
Answer: B
Difficulty: Easy
90. _____ involves going into debt by borrowing money from another person, bank, or
financial institution.
A. Debt financing
B. Risk management
C. Securitization
D. Debt consolidation
E. Equity financing
Answer: A
Difficulty: Easy
91. _____ involves giving ownership shares in the business to outside investors in return for
their cash investments.
A. Debt consolidation
B. Equity financing
C. Debt financing
D. Securitization
E. Risk management
Answer: B

Difficulty: Easy
92. _____ facilitates making large investments in new ventures in return for an equity stake in
the business.
A. State-directed financing
B. Entrepreneurial capitalism
C. Venture capitalism
D. Debt financing
E. Oligarchic capitalism
Answer: C
Difficulty: Easy
93. When shares of stock are first sold to the public and begin trading on a stock exchange, it is
referred to as _____.
A. venture capitalism
B. equity financing
C. angel investing
D. an initial public offering
E. an Internet entrepreneurship
Answer: D
Difficulty: Easy
94. _____ are wealthy individuals willing to invest in a new venture in return for an equity
stake.

A. Limited liability partners

B. Sole proprietors
C. General partners
D. Debt financers
E. Angel investors
Answer: E
Difficulty: Easy
95. Arthur, a young college graduate, started a store for traditional musical instruments. He
liked working independently and without being directed by others. He believed that his
destiny is under his own control. Which of the following personality traits of an
entrepreneur is exhibited by Arthur?
A. Internal locus of control
B. High energy level
C. High need for achievement
D. Tolerance for ambiguity
E. Flexibility
Answer: A
AACSB: Application of Knowledge
96. Wendy, a single parent of two boys, has started a small bakery in her house. She cannot
work away from home because her children are very young. Which of the following kinds
of entrepreneurship is this an example of?
A. Serial entrepreneurship
B. Necessity-based entrepreneurship
C. Intrapreneurship
D. Internet entrepreneurship
E. Social entrepreneurship

Answer: B
Difficulty: Hard
97. Colin and Becky started a garbage disposal and recycling program called “No More Trash”
in their city, which has seen enormous growth in the last few years. The public waste
management system has proved to be a failure as the authorities are overwhelmed by the
influx of people from all parts of the country. Which of the following kinds of
entrepreneurship is “No More Trash” an example of?
A. Serial entrepreneurship
B. Necessity-based entrepreneurship
C. Intrapreneurship
D. Internet entrepreneurship
E. Social entrepreneurship
Answer: E
Difficulty: Hard
98. Before starting on his new venture, Mike writes down the specifics of his ideas, the amount
of money needed, and future business operations. Mike is involved in preparing a _____.
A. succession plan
B. business portfolio
C. business plan
D. competitive analysis
E. mission statement
Answer: C

99. Ali, a small business owner, is concerned about passing the business to his heirs after his
retirement or death. He should prepare a formal _____ plan.
A. retirement contingency
B. business
C. succession
D. liquidation
E. franchising
Answer: C
100. Julia is an entrepreneur. At the current stage in which her company is stated, her main
concerns are if she will have enough customers and money. Julia’s company is in the:
A. birth stage.
B. breakthrough stage.
C. maturity stage.
D. stagnant stage.
E. failure stage.
Answer: A
Difficulty: Hard
101. Karl takes a loan from a reputed bank to set up a recording studio. Which of the following
best represents Karl’s source of finance?
A. Initial public offering
B. Revolving credit

C. Debt financing
D. Angel investment
E. Venture capital financing
Answer: C
102. Igor needed financing for his budding business, but was rejected by many financing
companies. Finally, one of his uncle’s friends, a wealthy man, got interested in the business
and gave Igor a substantial amount for a share in the venture. Which of the following best
represents Igor’s source of finance?
A. Initial public offering
B. Revolving credit
C. Debt financing
D. Angel investor
E. Loan shark
Answer: D
Difficulty: Hard
103. Joe has started his one-man audio consulting business under the name Sound Wiz. The
legal structure for the company can best be described as a _____.
B. partnership
C. trade alliance
D. corporation
E. benefit corporation
Answer: A

Difficulty: Hard
104. Emma, Heidi, and Hilda have opened a new cafe. Each of them have contributed $1,500
toward start-up costs and have agreed on dividing costs and profits equally. The legal
structure for the company can best be described as a:
A. proprietorship.
B. partnership.
C. trade alliance.
D. corporation.
E. benefit corporation.
Answer: B
Difficulty: Hard
Essay
105. Write a short note on the attitudes and personal interests of entrepreneurs.
Answer: The typical personality traits and characteristics of entrepreneurs are:

• Internal locus of control: Entrepreneurs believe that they are in control of their own destiny;
they are self-directing and like autonomy.
• High energy level: Entrepreneurs are persistent, hardworking, and willing to exert
extraordinary efforts to succeed.
• High need for achievement: Entrepreneurs are motivated to accomplish challenging goals; they
thrive on performance feedback.
• Tolerance for ambiguity: Entrepreneurs are risk takers; they tolerate situations with high
degrees of uncertainty.
• Self-confidence: Entrepreneurs feel competent, believe in themselves, and are willing to make
decisions.

• Passion and action orientation: Entrepreneurs try to act ahead of problems; they want to get
things done and not waste valuable time.
• Self-reliance and desire for independence: Entrepreneurs want independence; they are self-
reliant; they want to be their own bosses, not work for others.
• Flexibility: Entrepreneurs are willing to admit problems and errors, and are willing to change a
course of action when plans aren’t working.
Difficulty: Easy
106. Give the outline of a sample business plan.
Answer: A business plan describes the direction for a new business and the financing needed to
operate it. Although there is no single template, it is generally agreed that a good business
plan includes an executive summary, covers certain business fundamentals, is well
organized with headings and easy to read, and runs no more than about 20 pages in length.
Here is a sample business plan outline.
• Executive summary—overview of the business purpose and the business model for making
money.
• Industry analysis—nature of the industry, including economic trends, important legal or
regulatory issues, and potential risks.
• Company description—mission, owners, and legal form.
• Products and services description—major goods or services, with competitive uniqueness.
• Market description—size of market, competitor strengths and weaknesses, five-year sales
goals.
• Marketing strategy—product characteristics, distribution, promotion, pricing, and market
research.
• Operations description—manufacturing or service methods, supplies and suppliers, and control
procedures.
• Staffing description—management and staffing skills needed and available, compensation, and
• Financial projection—cash flow projections for one to five years, breakeven points, and phased
investment capital.
• Capital needs—amount of funds needed to run the business, amount available, and amount
requested from new sources.
• Milestones—a timetable of dates showing when key stages of the new venture will be
completed.


Difficulty: Easy
107. Write a short note on business partnerships.
Answer: A partnership is formed when two or more people agree to contribute resources to start
and operate a business together. It is usually backed by a legal and written partnership
agreement. Business partners agree on the contribution of resources and skills to the new
venture, and on the sharing of profits and losses. The simplest and most common form is a
general partnership where the partners share management responsibilities. A limited
partnership consists of a general partner and one or more “limited” partners who do not
participate in day-to-day business management. They share in the profits, but their losses
are limited to the amount of their investment. A limited liability partnership, common
among professionals such as accountants and attorneys, limits the liability of one partner
for the negligence of another.
Difficulty: Easy
108. What is a corporation? What advantages does a corporate form offer?
Answer: A corporation, commonly identified by the “Inc.” designation in a name, is a legal

entity that is chartered by the state and exists separately from its owners. The corporation
can be for-profit, such as Microsoft, Inc., or nonprofit, such as Count-Me-In, Inc.—a firm
featured early in the chapter for helping women entrepreneurs get started with small loans.
The corporate form offers two major advantages: (1) It grants the organization certain legal
rights (e.g., to engage in contracts), and (2) the corporation becomes responsible for its own
liabilities. This separates the owners from personal liability and gives the firm a life of its
own that can extend beyond that of its owners.
Difficulty: Easy

109. Describe equity financing.
Answer: Equity financing is an alternative to debt financing. It involves giving ownership shares
in the business to outside investors in return for their cash investments. This money does
not need to be paid back. It is an investment, and the investor assumes the risk for potential
gains and losses. The equity investor gains some proportionate ownership control in return
for taking that risk.
Difficulty: Easy

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Ch06: Entrepreneurship and New Ventures

Copyright © 2015 John Wiley & Sons, Inc. 6-1

3. Entrepreneurs are born, not made.

5. Entrepreneurs have a tolerance for ambiguity.

Copyright © 2015 John Wiley & Sons, Inc. 6-2

6. Money is the key to entrepreneurial success.

8. Classic entrepreneurship is a form of ethical entrepreneurship that seeks novel ways to

Copyright © 2015 John Wiley & Sons, Inc. 6-3

Bloom’s Taxonomy: Knowledge

Copyright © 2015 John Wiley & Sons, Inc. 6-4

Learning Objective: 6.2

14. Lean startups are permanent, cost-intensive organizations.

17. Business incubators are also called business accelerators.

Copyright © 2015 John Wiley & Sons, Inc. 6-5

18. Having a succession plan helps avoid a succession problem.

19. Small businesses have a high success rate.

20. Business incubators aid in the development of startups.

Copyright © 2015 John Wiley & Sons, Inc. 6-6

23. Self-management is an ability to use objective understanding of personal strengths and

Copyright © 2015 John Wiley & Sons, Inc. 6-7

26. A sole proprietorship is simple to start, run, and terminate.

28. When establishing a corporation, a partnership agreement must be made.

Copyright © 2015 John Wiley & Sons, Inc. 6-8

Copyright © 2015 John Wiley & Sons, Inc. 6-9

Bloom’s Taxonomy: Knowledge

34. A first-mover advantage comes from:

Copyright © 2015 John Wiley & Sons, Inc. 6-10

D. the ability to poach trained personnel from an established business.

35. Which of the following is true about serial entrepreneurs?

Copyright © 2015 John Wiley & Sons, Inc. 6-11

Bloom’s Taxonomy: Application

37. Which of the following is true of entrepreneurs?

Copyright © 2015 John Wiley & Sons, Inc. 6-12

Copyright © 2015 John Wiley & Sons, Inc. 6-13

Bloom’s Taxonomy: Application

43. Social entrepreneurs:

Copyright © 2015 John Wiley & Sons, Inc. 6-14

Copyright © 2015 John Wiley & Sons, Inc. 6-15

47. Which of the following is true about a franchise?

48. A business model is a:

Copyright © 2015 John Wiley & Sons, Inc. 6-16

50. Lean startups:

51. New small business startups often fail because of:

Copyright © 2015 John Wiley & Sons, Inc. 6-17

Learning Objective: 6.2

Copyright © 2015 John Wiley & Sons, Inc. 6-18

Copyright © 2015 John Wiley & Sons, Inc. 6-19

57. Insufficient financing implies:

Copyright © 2015 John Wiley & Sons, Inc. 6-20

Copyright © 2015 John Wiley & Sons, Inc. 6-21

61. Which of the following best describes lack of commitment?

Copyright © 2015 John Wiley & Sons, Inc. 6-22

Copyright © 2015 John Wiley & Sons, Inc. 6-23

66. The goal of business incubators is to: