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TEST PLANNING TABLE FOR CHAPTER 7
Moderate:
Easy: Understands Con-
Knows Basic cepts and Princi- Challenging:
Learning Objective Terms and Facts ples Applies Principles
7-1: Explain the key 5, 6, 8, 9, 11, 96, 1, 7, 10, 12, 99, 100 2, 3, 4, 13, 14, 94,
reasons to launch 97, 98 95, 101, 187, 188
a small business
7-2: Describe the typi- 15, 16, 17, 18, 19, 20, 21, 22, 26, 103, 23, 24, 27, 28, 104,
cal entrepreneuri- 25, 102, 105, 106 107, 108, 113, 114, 109, 110, 111, 112,
al mindset and 115, 116 117, 118, 119, 189
characteristics
7-3: Discuss funding 29, 31, 32, 33, 35, 30, 40, 43, 44, 46, 34, 38, 41, 45, 49,
options for small 36, 37, 39, 42, 47, 48, 123, 124, 125, 126, 130, 131, 132,
business 120, 121, 122, 133, 136 137, 138, 190, 191,
127, 128, 129, 192, 193
134, 135
7-4: Analyze the op- 50, 51, 54, 56, 57, 53, 55, 61, 141, 52, 62, 140, 142,
portunities and 58, 59, 60, 139 144, 145 143, 146, 147, 148,
threats that small 149, 194
businesses face
7-5: Discuss ways to 63, 65, 74, 152, 64, 66, 67, 68, 69, 73, 150, 153, 157,
become a new 163, 165, 166 70, 71, 72, 75, 76, 159, 161, 164, 172,
business owner 151, 154, 155, 156, 195, 196, 197, 198
and tools to facili- 158, 160, 162, 167,
tate success
168, 169, 170, 171
7-6: Explain the size, 77, 78, 79, 80, 81, 82, 83, 84, 85, 86, 92, 93, 173, 177,
scope, and eco- 174, 175, 176 87, 88, 89, 90, 91, 179, 180, 184, 185,
nomic contribu- 178, 181, 182, 183 186, 199, 200
tions of small
business
True/False questions are in plain text.

Multiple choice questions are in bold text.
Essay questions are in bold underlined text
The answers are displayed:

ANS: B DIF: Easy REF: Page 7 OBJ: 7-1 NAT: BUSPROG: Communication
TOP: The Economic Environment KEY: Bloom’s Comprehension
ANS: Answer is B
DIF: Difficulty Level - Easy
REF: Page number of the book where the answer can be found
OBJ: Learning Objective 1 in chapter 7
NAT: Tier 1 Standards (Interdisciplinary Learning Outcomes)
TOP: Topic – A Head/B Head of where the answer can be found
KEY: Bloom’s Taxonomy Tags
273
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 7: Small Business and Entrepreneurship: Economic Rocket Fuel
TRUE/FALSE
1. In 2010, U.S. entrepreneurship rates reached their highest level in 15 years. This is seen as a
hopeful sign, because job seekers become potential job creators.
ANS: T DIF: Moderate REF: Page 101 OBJ: 7-1

NAT: BUSPROG: Analytic
TOP: Launching a New Venture: What’s in It for Me?
KEY: Bloom’s Analysis
2. David is a high school senior interested in starting his own computer repair business. David’s
interest in starting his own business will have no effect on the long-term recovery of our economy.
ANS: F DIF: Challenging REF: Page 101 OBJ: 7-1

NAT: BUSPROG: Reflective Thinking
KEY: Bloom’s Synthesis
3. The Great Recession had no affect on teenagers’ desire to launch their own business.
ANS: T DIF: Challenging REF: Page 101 OBJ: 7-1

KEY: Bloom’s Evaluation
4. As a result of the Great Recession, the overall 2010 U.S. entrepreneurship rates have reached their
highest level in 15 years.

5. The Forbes magazine list of the 400 richest individuals in the United States is dominated by
entrepreneurs.
ANS: T DIF: Easy REF: Page 101 OBJ: 7-1

NAT: BUSPROG: Communication TOP: Greater Financial Success
KEY: Bloom’s Knowledge
6. An entrepreneur is an individual willing to take the risk of owning and operating a business.

KEY: Bloom’s Comprehension
274
Chapter 7: Small Business and Entrepreneurship: Economic Rocket Fuel 275
7. The vast majority of the richest individuals in the United States earned their wealth by obtaining
employment in major corporations and then working their way into positions of senior
management within these organizations.
ANS: F DIF: Moderate REF: Page 101 OBJ: 7-1

8. Entrepreneurs often mention that the primary motivator for launching a new business is the
opportunity to make more money.

9. Although entrepreneurs enjoy independence from working for a boss, they still find that they must
still meet the needs of their customers.

NAT: BUSPROG: Communication TOP: Independence
10. For entrepreneurs, there is usually a correlation between dollars earned and hours worked.

NAT: BUSPROG: Communication TOP: Flexibility
11. The desire for a higher level of challenge can motivate someone to become an entrepreneur.

NAT: BUSPROG: Communication TOP: Challenge
12. People who face discrimination that limits their economic opportunities in corporate America are
likely to find that entrepreneurship offers even less attractive opportunities.
ANS: F DIF: Moderate REF: Pages 101-102

OBJ: 7-1 NAT: BUSPROG: Diversity
TOP: Survival
13. Juan was recently laid off from Breeze Motors and has stopped looking for a job after numerous
rejections. He has now focused on starting a new business. Juan is an example of a “necessity
entrepreneur.”
ANS: T DIF: Challenging REF: Pages 101-102

OBJ: 7-1 NAT: BUSPROG: Reflective Thinking
TOP: Survival
276 Chapter 7: Small Business and Entrepreneurship: Economic Rocket Fuel
14. Roman Sivkov migrated to the United States from Russia soon after the collapse of the Soviet
Union. He is very bright and is willing to work hard, but he has had a hard time keeping a full-time
job because of his limited command of English and heavy accent. Roman may well find that
entrepreneurship is his best option for economic success.

NAT: BUSPROG: Reflective Thinking TOP: Survival
15. Most small business owners start their businesses with the intention of changing the world through
transformative growth.
ANS: F DIF: Easy REF: Page 102 OBJ: 7-2

NAT: BUSPROG: Communication
TOP: The Entrepreneurial Mindset: A Matter of Attitude
16. Many entrepreneurs strive to meet the needs of the marketplace in hopes of dramatically changing
the economic and social landscape worldwide.

TOP: The Entrepreneurial Mindset: A Matter of Attitude
17. Individuals with an internal locus of control tend to be very self-reliant.

NAT: BUSPROG: Communication TOP: Entrepreneurial Characteristics
18. Internal locus of control refers to a firm belief that the individual is personally responsible for what
happens in his or her life.

19. Entrepreneurs are often overconfident in their own abilities, which can lead them to start
businesses even though they lack the skills they need to succeed.

20. Successful entrepreneurs often have high energy levels that enable them to work extremely long
hours.

21. Successful entrepreneurs are seldom visionaries. Instead, their strength is the ability to take the
abstract ideas of others and turn them into successful businesses.

NAT: BUSPROG: Analytic TOP: Entrepreneurial Characteristics
22. Most entrepreneurs have a very realistic appreciation of their own strengths and weaknesses.

23. Dr. George Petrie, educator and Auburn University football team’s first coach, explained his
outlook: “I believe that this is a practical world and that I can only count on what I earn.
Therefore, I believe in work—hard work.” Dr. Petrie’s view suggests that he had an internal locus
of control.

NAT: BUSPROG: Reflective Thinking TOP: Entrepreneurial Characteristics
24. Dominic feels like the world must be against him. He feels his boss is making unreasonable
demands and treating him very unfairly at work, and tells anyone who will listen about the
incredible string of bad luck that has dogged his personal life. He hopes that he can hang on long
enough for his luck to turn around. Dominic’s perceptions suggest that he has an external locus of
control.

25. Entrepreneurs usually view the world in terms of black and white. They seldom consider the many
shades of gray that other people see when they look at the same issues.

26. Successful entrepreneurs typically view their failures as opportunities to learn, so that they can do
better next time.

27. Renee has worked very hard for the past six months to start up a new business. Although she was
very confident that it would be a great success, she now realizes that it is failing. If Renee is a true
entrepreneur, this failure is likely to be a devastating blow to her ego and self-confidence.

28. Steve Jobs would not be considered entrepreneurial because he developed his products while
working for Apple, Inc.

29. The majority of new firms are funded with the personal resources of the founder.

TOP: Finding the Money: Funding Options for Small Businesses
30. Most entrepreneurs have little trouble finding adequate financing during their start-up year,
because the small size of their new firms means that financial needs are minimal.

31. When borrowing money from family and friends to start a business, it is a good idea to keep the
loan arrangements on a professional basis.

NAT: BUSPROG: Communication TOP: Personal Resources
32. About half of all start-ups use credit cards as a source of financing.

33. According to Consumer Reports, 68% of total start-up financing comes from friends and family.

34. The benefit of financing your company’s start-up cost with a personal credit card is the interest
rate charged is typically less than the interest rate charged at a commercial bank.

NAT: BUSPROG: Reflective Thinking TOP: Personal Resources
35. Over 50 percent of entrepreneurs finance their new businesses with loans provided by commercial
lending institutions.

NAT: BUSPROG: Communication TOP: Loans
36. The Small Business Administration microloan program lends on average less than $13,000 to
start-up businesses through community nonprofit organizations.

37. To increase rates of entrepreneurship, the Small Business Administration (SBA) has created its
own bank to provide low interest loans directly to entrepreneurs.

38. Phillie Truper wants to start a new business but lacks sufficient personal financial resources. She
has asked banks and other lenders for loans, but they have turned her down, telling her that her
proposal is too risky. Phillie might find that the Small Business Administration could help her get
a loan from one of these lenders by providing a partial loan guarantee.

NAT: BUSPROG: Reflective Thinking TOP: Loans
39. Peer-to-peer lending is NOT considered a good source of funds for business start-ups because of
their unfavorable terms.

40. An advantage of getting a loan from the Small Business Administration (SBA) rather than from a
commercial lender is that the SBA is usually willing to lend more money and doesn’t charge any
interest as long as the loan is repaid on time.

41. Peer-to-peer lending is a funding option for entrepreneurs that is easier and has better borrowing
terms than more established sources such as commercial loans.

42. Angel investors are wealthy individuals who provide financing to promising new start-up
companies.

NAT: BUSPROG: Communication TOP: Angel Investors
43. Unlike other lenders who invest for financial gain, the main reason angel investors provide
financing to start-up companies is that they have a sincere desire to give back to the community
that made them wealthy.

NAT: BUSPROG: Analytic TOP: Angel Investors
44. Compared to 2009, angel funding in the first half of 2010 increased by 3% and went on to reach a
total yearly increase of 6.5%.

NAT: BUSPROG: Analytic TOP: Angel Investors
45. Ted Price’s new company is already experiencing steady growth of about 10 percent per year. Ted
believes this rate of growth is sustainable for the next several years. He enjoys the business and
wants to maintain personal ownership and control over the firm for as long as possible, but he
needs to find some external financing. Ted is likely to find angel investors who are very interested
in helping him meet his financial needs.

NAT: BUSPROG: Reflective Thinking TOP: Angel Investors
46. The economic crisis resulted in a 19% increase in the flow of deals for venture capitalists.

NAT: BUSPROG: Analytic TOP: Venture Capital
47. More than half of all start-up companies obtain at least part of their initial financing from venture
capital firms.

NAT: BUSPROG: Communication TOP: Venture Capital
48. The clean tech sector accounted for half of the top ten venture capitalist deals in last quarter of
2010.

49. In light of the economic crisis, Phillip would find it advantageous to request venture capital
funding for his business in the clean tech sector.

NAT: BUSPROG: Reflective Thinking TOP: Venture Capital
50. One advantage small businesses often enjoy is the ability to keep overhead costs to a minimum
due to the fact that the owner wears several hats.

TOP: Opportunities and Threats for Small Businesses: A Two-Sided Coin
51. A market niche that is too small to attract the attention of major corporations can prove to be quite
profitable for a small business.
ANS: T DIF: Easy REF: Pages 106-107

OBJ: 7-4 NAT: BUSPROG: Communication
52. Jorge Martinez wants to start his own small business, but he is concerned about competing against
larger firms. Given his concerns, Jorge should focus on starting a business that serves a well-
defined market niche.

53. One drawback of small businesses is that they are frequently limited to serving highly competitive
market niches that offer little hope of being profitable.

54. The Internet has opened a wide range of new opportunities for small businesses.

55. Small businesses can often create a competitive edge by providing more personalized customer
service.

56. Small businesses often have an advantage in foreign markets where customers want to deal
directly with a company’s top management.

57. A recent study sponsored by the federal government shows the overall burden of complying with
federal regulations is 45 percent greater for small businesses than for their larger counterparts.

58. More than 50 percent of small businesses don’t survive beyond their first year.

59. Many small businesses that don’t survive more than six years, go out of business for reasons other
than the actual failure of the business.

60. Small businesses tend to be at a serious disadvantage when it comes to providing employees with
healthcare coverage.

61. Small business owners typically find that the small size of their companies makes it simple for
them to handle all of the management functions by themselves.

62. Rob Baron owns a small sheet metal fabrication business that employs 23 workers. As a small
business owner, one of the major advantages Rob will enjoy when competing against larger firms
is a lower cost of government regulations.

63. One advantage of opening a franchise rather than starting a business from scratch is that start-up
costs tend to be lower.

TOP: Launch Options: Reviewing the Pros and Cons
64. Individuals who want to become small business owners are almost always better off starting their
own business than they are buying an existing business.

65. A key benefit of buying an existing business is that relationships with customers, suppliers, and
vendors are already established.

66. Starting a business from scratch rather than buying an existing company means that the owner has
more control over all aspects of the company’s organization, structure, and strategy. This can be
both a major advantage and a major disadvantage.

67. Three downsides to buying a franchise include high initial costs, the ongoing percent-of-sales
royalty fees, and the franchise requirements that, in effect, reduce the owner’s independence.

68. One advantage of buying a franchise is that the franchiser usually offers training, financial
assistance, and a recognizable brand.

69. The failure rate of a franchise is significantly higher than the rate for starting a business from
scratch.

70. While the Small Business Administration provides significant financial assistance to small
businesses, many critics point out that it fails to provide other types of advice, information, and
assistance desperately needed by small business owners.

OBJ: 7-5 NAT: BUSPROG: Analytic
TOP: Making It Happen: Tools for Business Success
71. Small business owners who need help in planning and financing their businesses can often receive
valuable advice from Small Business Development Centers (SBDCs).
ANS: T DIF: Moderate REF: Pages 109-110

72. One of the biggest problems facing people who want to start a small business is the lack of
educational resources available to help them learn the ins and outs of starting and managing their
new company.

73. Joan recently retired from an executive position in a midsize company. She is enthusiastic about
filling some of her time by helping out new business owners. Joan might find volunteering with
the Small Business Administration’s Service Corps for Retired Executives (SCORE) program a
meaningful way to achieve her goals.

74. Small businesses cannot succeed without a business plan.

75. A typical business plan should be approximately five to seven pages long and should provide only
a broad overview of the purpose, strategy, and organization of the firm. One common mistake
small business owners make is to develop long, detailed business plans that bankers and investors
simply won’t take the time to read.

76. A key reason for developing a formal business plan is that having such a plan is absolutely critical
when seeking external financing.

77. Small businesses generate half of the U.S. gross domestic product.

TOP: Small Business and the Economy: An Outsized Impact
78. Small businesses make up more than 99 percent of inner city businesses and generates 80 percent
of total employment in those cities.

79. According to the Small Business Administration, a small company is any independent firm that
has fewer than 1,000 employees.

80. Small businesses are the major source of new jobs created by the U.S. economy.

81. Workers employed by small businesses are much less likely to be laid off during an economic
downturn than workers in major corporations.

82. Because they lack the financial resources to fund research and product development efforts, small
businesses are seldom able to introduce new innovations into the marketplace.

83. While clearly important to their owners, employees, and local communities, small businesses
actually account for only a very small percentage of output and employment in the U.S. economy.

84. If the United States is to experience job growth, it will be because of the economic power of small
businesses.

85. Small businesses rarely have the creative means to develop new and innovative products. They
often wait for larger organizations to develop the product and then simply copy the larger
organization’s idea.

86. The Global Entrepreneurship Monitor (GEM) shows that people living in high-income countries
tend to be much more willing to start their own businesses than people who live in low-income
countries.

NAT: BUSPROG: Diversity TOP: Entrepreneurship Around the World
87. Rates of entrepreneurship in countries like Uganda and Ecuador are high, because many of the
citizens in those nations become entrepreneurs out of economic necessity.

KEY: Bloom’s Application
88. Cultural and political factors help explain why the United States has a much higher
entrepreneurship rate than Japan and many European nations.

89. A country with generous unemployment insurance is likely to experience high rates of
entrepreneurship.

NAT: BUSPROG: Analytic TOP: Entrepreneurship Around the World
90. The sense of urgency with respect to entrepreneurship tends to increase in European countries and
other places where unemployment benefits and other social services are well established and pay
high rates.

KEY: Bloom’s Application
91. Entrepreneurship rates vary according to their location. Low income countries such as Vanuatu
tend to have higher entrepreneurship rates than in high income countries such as Japan.

92. Greg is looking forward to trying his hand at entrepreneurship due to the fact that he lives in a
highly-regulated nation.

NAT: BUSPROG: Reflective Thinking TOP: Entrepreneurship Around the World
93. Fatima has decided to go to work for an entrepreneur in Italy because the country has a high
entrepreneurship rate. The high entrepreneurship rate provides her a level of employment
protection and strong unemployment insurance.

MULTIPLE CHOICE
94. Which choice best describes some key reasons for starting up your own business?
a) Some people just need a good challenge. As an entrepreneur they will find it; along with
the independence to meet it however they see fit.
b) Being your own boss provides security and is statistically proven in a recent study
conducted at Harvard.
c) While starting up your own business may actually crowd the schedule a little bit more, this
lack of flexibility up front is worth it in the end, for some.
d) Most small businesses are taken public in the first five years, netting their entrepreneurial
founders huge profits. Just look at Google, Apple, Microsoft, and others.
ANS: A DIF: Challenging REF: Page 101 OBJ: 7-1
95. Jacob currently works as a manager at a major corporation but has been thinking about quitting to
start his own business. Which of the following reasons would most likely explain Jacob’s interest
in making this major career change?
a) He wants a job with fewer responsibilities.
b) He wants more benefits and a steadier income.
c) He doesn’t like the risk associated with working in the corporate environment.
d) He wants to have more independence and flexibility than his corporate position allows.
ANS: D DIF: Challenging REF: Page 101 OBJ: 7-1
96. In 2010, the overall U.S. entrepreneurship rates reached their highest level in 15 years. The rate
increase is partially driven by
a) lower interest rates for loans associated with new businesses.
b) unemployed workers looking to stay afloat as they seek new jobs.
c) teenagers interested in launching their own business one day.
d) the unethical behavior by large corporations.
ANS: B DIF: Easy REF: Page 101 OBJ: 7-1
97. _____ are people willing to take the risk of starting, owning, and operating a business.
a) Stockholders
b) Entrepreneurs
c) Stakeholders
d) Intrapreneurs
98. The primary reason many people become entrepreneurs is to

a) achieve a more stable income.
b) avoid risk.
c) make more money.
d) obtain benefits (such as healthcare) at a more affordable price.
ANS: C DIF: Easy REF: Page 101 OBJ: 7-1
99. Technological developments over the past two decades, such as the rise of the Internet and email,
have
a) reduced the role of entrepreneurship in the U.S. economy.
b) given small business owners more flexibility in how they manage their businesses.
c) made it harder for small businesses to compete successfully against large corporations.
d) given small business owners a greater ability to compete with big companies but have
reduced the flexibility they have in managing their businesses.
ANS: B DIF: Moderate REF: Page 101 OBJ: 7-1
NAT: BUSPROG: Analytic TOP: Flexibility
100. When a large company like Ford Motor Company or Citigroup downsizes, some of the middle-
aged and older workers who are laid off find it tough to find another job in corporate America.
Such workers often decide to start their own businesses. They are best described as
a) welfare recipients.
b) necessity entrepreneurs.
c) intrapreneurs.
d) micropreneurs.
ANS: B DIF: Moderate REF: Pages 101-102
OBJ: 7-1 NAT: BUSPROG: Analytic TOP: Survival
101. Michael Peters is a middle-aged professional who lost his job five months ago when his former
employer downsized. He’s been actively looking for work at all of the nearby companies, but he
hasn’t been able to find a job that truly uses his talents or abilities—or that offers an income
anywhere close to what he earned in his previous position. He is beginning to feel that the only
way to survive in his current situation is to start his own business. Michael might well become
a(n)
a) venture capitalist.
b) intrapreneur.
c) necessity entrepreneur.
d) frictional worker.
ANS: C DIF: Challenging REF: Pages 101-102
TOP: Survival
102. All of the following are entrepreneurial characteristics, EXCEPT

a) self-reliance.
b) aversion to risk.
c) vision.
d) tolerance of uncertainty.
103. One characteristic many successful entrepreneurs share includes

a) economic survival.
b) external locus of control.
c) vision.
d) risk aversion.
ANS: C DIF: Moderate REF: Page 102 OBJ: 7-2
104. Identify the entrepreneur.

a) Mason is a banker who has been working at the same branch for thirty years. He enjoys
swing jazz and WW II documentaries, as well as the security he is afforded by his
position.
b) Tommy works for the BLM but paints house exteriors on the side for extra money. He
regularly tells his boss to take a hike because he hates his job.
c) Jill holds a BS in business and another in landscape architecture. While she works at a
coffee shop to make ends meet, she cannot stop herself from staying up late into the night
researching the landscape architecture industry and making a strategy.
d) Harry lives on the beach in an old VW bus. He spends his days surfing, and whenever he
needs money, he simply opens his case and jams on his guitar beside the boardwalk.
TOP: Entrepreneurial Characteristics
105. Entrepreneurs who find new solutions to old problems and develop new products that people
didn’t even realize they needed are said to have
a) an internal locus.
b) an external locus.
c) corporate savvy.
d) vision.
ANS: D DIF: Easy REF: Page 103 OBJ: 7-2
106. People with a(n) _____ have a strong sense of personal responsibility for what happens in their
lives.
a) situational view of ethics
b) external locus of control
c) intrapreneurial focus
d) internal locus of control
107. Entrepreneurs with a strong internal locus of control tend to

a) be unwilling to accept personal responsibility for their actions.
b) have trouble learning from past mistakes.
c) put too much faith in the ability of others within their business.
d) feel that the success or failure of their companies are largely the result of their own actions
and decisions.
ANS: D DIF: Moderate REF: Page 103 OBJ: 7-2
108. The primary reasons people become entrepreneurs include all of the following EXCEPT the desire to
a) achieve an external locus of control.
b) earn more money.
c) create one’s own schedule.
d) meet the challenge of owning a business.
ANS: A DIF: Moderate REF: Page 103 OBJ: 7-2
109. Emily is a successful entrepreneur. As such, she is likely to

a) be very laid back in her approach to running a business.
b) believe that most of her success is due to luck and the hard work of others.
c) have very little tolerance for uncertainty.
d) have a great deal of faith in her business ideas, even when others express doubts.
110. Kerry Higgins believes his efforts will not have much impact, feels buffeted by forces such as
luck, and feels no control over his own destiny. Harry has a
a) low external locus of control.
b) strong internal locus of control.
c) low internal locus of control.
d) strong external locus of control.
111. Mary Kate wants to start a business. She takes a personality test at school and discovers she
possesses a trait that may reduce the likelihood she will succeed. Which of the following traits
does Mary Kate likely possess that will increase her risk of being successful at her own business?
a) vision.
b) internal locus of control.
c) external locus of control.
d) tolerance of failure.
ANS: C DIF: Challenging REF: Page 103 OBJ: 7-2
112. Greg has developed an automobile engine that runs efficiently for up to three hours on a single
russet potato. His friends have pointed out how difficult it will be to get car manufacturers to
adopt his new technology and that it could take years to get enough service stations to stock
potatoes to make it practical for people to rely on the new energy source for long trips. However,
Greg is convinced he can make the U.S. economy energy independent, thus changing the world.
He plans to create a new business called Spuds-to-Go to promote his new engine. Greg has
a) vision.
b) an external locus of control.
c) opportunity sense.
d) strong strategic planning skills.
113. Entrepreneurs tend to have an internal locus of control. This means they
a) have a sense that they are personally responsible for what happens in their lives.
b) rely less on their own efforts, feeling luck will ultimately determine their fate.
c) believe strongly in the mission of the Small Business Administration.
d) have the ability to stay focused on the needs of the business.
114. Which of the following individuals is least likely to become an entrepreneur?

a) A person with vision and a high-energy level.
b) A person who sees the world in shades of gray and seeks to find ways to use uncertainty to
his or her advantage.
c) A confident person with an internal locus of control.
d) A person who values a stable, predictable income.
ANS: D DIF: Moderate REF: Pages 103-104
OBJ: 7-2 NAT: BUSPROG: Analytic TOP: Entrepreneurial Characteristics
115. When entrepreneurs fail, they tend to

a) view the failure as an outcome that was caused by forces beyond their control.
b) quickly dismiss the failure and soon convince themselves that it didn’t really occur.
c) view it as an opportunity to learn from their mistakes.
d) take it very personally, so it has a devastating effect on their self-confidence and self-
esteem.
116. Entrepreneurs tend to be tolerant of

a) poverty; they are usually more interested in changing the world than in making money.
b) incompetence in others; they tend to believe that the only way to get things done is to do it
themselves.
c) uncertainty; they view business uncertainty as something they can turn to their advantage.
d) delays in their ability to get their companies up and running; they have enormous patience
and unlimited faith that they will ultimately prevail.
117. Robin is an entrepreneur. As such, she is likely to

a) be very superstitious.
b) view uncertainty as something that can be turned to her advantage.
c) have a hard time coping with failure.
d) look objectively at her own abilities and shortcomings.
ANS: B DIF: Challenging REF: Page 104 OBJ: 7-2
118. Which of the following questions would an entrepreneur most likely ask in the aftermath of a
business failure?
a) Why did I ever think I’d be good at running a business on my own?
b) When will other people start recognizing my talents and abilities?
c) What can I learn from this experience that will help me be more successful in the future?
d) When will this string of bad luck end?
119. Identify the entrepreneur.

a) Jackson launched his business in the residential construction industry in 2006, but lost
everything in 2007 when the market popped. As he regroups, he formulates a philosophy
that failure is a beginning for him, and not an end. As he clears away the rubble of his
disaster, he begins to build a new enterprise.
b) Jewel launched into the film business by crafting a successful independent film.
Unfortunately for her, revenues were not sufficient for her to pay off her hefty equipment
and travel debts. As she files for bankruptcy, she reads the classifieds and vows, “never
again.”
c) Mike’s Metronome Manufacturing, LLC has specialized in timekeeping devices for
musicians for several decades. Mike passed away and left the operation to his sons. They
in turn run it competently, but it gradually loses market share because its product line is no
longer innovative since Mike died.
d) Basil’s great grandfather left him a considerable inheritance, which is managed by several
hundred different men at different agencies, including a philanthropic institution that
provides venture capital to startup companies. Basil lives quite comfortably and can be
heard to say, “Thanks very much, Grandfather.”
120. Consumer Reports found 68% of an entrepreneur’s start-up financing comes from
a) the SBA.
b) bank loans.
c) personal resources.
d) peer-to-peer lending.
NAT: BUSPROG: Analytic TOP: Personal Resources
121. A recent survey claims that half of all start-ups are funded _____, even though this source can
result in very high financing costs.
a) with credit cards
b) with Small Business Administration microloans
c) through revolving credit agreements with commercial banks
d) by venture capital firms
ANS: A DIF: Easy REF: Page 105 OBJ: 7-3
122. The majority of new small business owners rely heavily on _____ to finance their start-ups.
a) personal sources, including family, friends, and credit cards
b) loans from commercial banks
c) angel investors
d) investments by venture capital firms
123. Research suggests that many entrepreneurs fund their new business with
a) personal resources of the founder.
b) a Small Business Administration loan.
c) angel investors.
d) a venture capital firm.
NAT: BUSPROG: Analytic TOP: Personal Resources
124. Entrepreneurs must understand that no conventional lender, whether private or public, will
a) loan 100 percent of the start-up funding.
b) give money to any business.
c) work with venture capitalists.
d) know angel investors.
125. Small business start-ups are likely to find that getting commercial loans is
a) hard to do, because commercial lenders are reluctant to make loans to firms that don’t
have an established record of successful performance.
b) one of the easiest and most flexible sources of financing, because local bankers are usually
eager to establish relationships with new companies.
c) is fairly easy, but usually entails much higher financing costs than other sources.
d) the best way to obtain 100 percent of the financing they need, but only if they give the
lender an ownership stake in the company.
NAT: BUSPROG: Analytic TOP: Loans
126. Which of the following is true about the SBA?

a) They offer microloans through community nonprofits.
b) They underwrite government grants.
c) The SBA oversees all small businesses in the U.S., much like the SEC oversees public
companies.
d) The SBA uses federal funds to provide up to 100% of the capital for small businesses.
127. The Small Business Administration offers a(n) _____ program, which lends small amounts of
money to start-up businesses through community nonprofit organizations.
a) intrapreneurship
b) public stock option
c) microloan
d) new business incubator
128. A funding source that makes it easier for entrepreneurs to get money with favorable terms is
referred to as
a) the SBA.
b) bank loans.
c) venture capitalist
d) peer-to-peer lending.
129. _____ are wealthy individuals who invest in new and growing firms.
a) Angel investors
b) Commercial lenders
c) Venture capitalists
d) Personal resources
NAT: BUSPROG: Communication TOP: Angel Investors
130. Cynthia is a successful business woman who has amassed a large amount of money by investing in
companies with the potential for rapid growth. Later, these companies are either bought by other
investors or they go public and offer stock to the public. While she is excited about the possibility
of helping these businesses grow, her primary motivation is to make money for herself. Cynthia
matches the profile of a(n):
a) angel investor.
b) venture capitalist.
c) institutional investor.
d) limited partner.
131. Qondile has a game-changer of an idea for electric power generation that will make solar, wind,
nuclear, and petroleum totally obsolete as soon as it hits the market. The problem is, he needs
money. He wants to retain control of the operation, given its potential. What should he do?
a) work with a venture capitalist
b) find an angel investor
c) leverage his personal assets by getting a second mortgage on his house
d) license the technology
132. Miguel Santos became very wealthy when his ten-year-old company made it big, and he sold it for
several million. Now, he is a(n) _____ who invests in other promising start-up companies. His
goal is to make a sizeable return on his investments when these new companies grow to the point
where they, too, are sold to a larger firm, or when they go public.
a) venture capital firm.
b) angel investor.
c) investment banker.
d) institutional investor.
133. A venture capitalist firm is most likely to be interested in investing in a

a) big, well-established corporation that has fallen on hard times.
b) large, successful corporation that has several divisions that can be spun off to earn a quick
profit.
c) small new company with the potential for rapid growth.
d) small new company in a mature sector of the economy with the potential for slow but
steady long-term growth.
134. _____ are companies that invest in start-up businesses with high growth potential in exchange for
an ownership stake.
a) Angel investors
b) Venture capital firms
c) Management Student Advocates
d) Small Business Development Centers
135. _____ provide funds to small businesses with high growth potential in exchange for a share of
ownership in the company.
a) Small Business Development Centers
b) Venture capitalists
c) Factors
d) Investment bankers
136. The top five venture capitalist deals of 2010 were in the _____ sector.
a) technology
b) oil and gas
c) clean tech
d) wind energy
137. Barry and Inga recently founded a hot new company that is growing rapidly. In need of a large
amount of capital to finance their company’s growth, they are in talks with a venture capital firm.
Barry and Inga should realize that the venture capital firm will only provide financing
a) if they agree to avoid any risky investments.
b) after they have paid off all of the personal debt they incurred to start their company.
c) in exchange for a significant stake in their firm’s ownership.
d) if they agree to pledge specific company assets as collateral to back the loan.
138. Red Oak Partners recently funded Feast, a rapidly growing chain of restaurants in exchange for a
43 percent share of ownership. Red Oak Capital is an example of a(n):
a) commercial bank.
b) angel investor.
c) credit union.
d) venture capital firm.
139. _____are small segments within a market that can offer profit potential to entrepreneurs who know
how to serve them.
a) Demographic segments
b) Focus groups
c) Market nodes
d) Market niches
140. Kia Perry is an entrepreneur who left a job with a larger company to start a gourmet pet food store
called Bark Three Times Healthy Treats. As a small business owner, she is responsible for all
aspects of the business including customer service and stocking the store shelves. She understands
it will be difficult to compete with larger businesses but feels confident she can succeed due to the
business’s
a) ability to borrow money cheaply from a local commercial bank.
b) lower overhead costs and personal service.
c) ability to attract talented employees.
d) location on a busy street.
141. Overhead costs for small businesses

a) tend to be much higher than they are for large businesses when expressed as a percentage
of total expenses, which is one of the reasons for the high failure rate of small businesses.
b) are about the same as they are for big companies when measured as a percentage of total
expenses.
c) are often lower than they are for big companies, giving small businesses a competitive
opportunity.
d) primarily arise because small businesses must hire so many outside consultants.
142. Aubrey is thinking about starting a small business and is trying to assess the potential
opportunities and threats associated with a new start-up. She’s talked with friends and associates
about her plans, and several have offered her opinions and advice. The comments of four friends
are summarized below. Which of these statements would probably be the most helpful to Aubrey?
a) Since your company will be small and new, it’s important to impress your customers.
Spend a lot of money on upscale offices and state-of-the-art equipment to create a
“WOW” factor.
b) Don’t worry about your lack of business experience and limited business skills.
Entrepreneurs can make up for a lack of skills with enthusiasm and hard work.
c) Hang in there. If a business is going to fail, it almost always happens in the first year. If
you can stick it out for more than a year, you’ll be on your way to success.
d) Find a market segment that you can profitably serve but which is too small to attract larger
companies.
ANS: D DIF: Challenging REF: Pages 106-107
143. Pop Goes the Weasel is a small toy store that competes effectively with much larger companies,
since it focuses exclusively on selling nonelectronic toys made of wood. The company has been
successful since it has
a) exploited a market niche.
b) worked to undercut larger competitors’ prices.
c) developed a human resource systems that has attracted excellent employees.
d) received grants from the Small Business Administration.
ANS: A DIF: Challenging REF: Pages 106-107
144. Which of the following is an actual competitive disadvantage for many small businesses?
a) high overhead costs
b) lack of business knowledge and expertise by the owners
c) inability to take advantage of advances in technology
d) inability to compete effectively in global markets
145. One reason many small businesses fail is the founder’s inability to
a) develop a system to manage customer complaints.
b) manage money wisely.
c) successfully operate a web-based version of the company.
d) expand into more luxurious office space.
146. Cal is thinking about starting a small business and is trying to assess the potential opportunities
and threats associated with a new start-up. He’s talked with friends and associates about his plans,
and several have offered him opinions and advice. The comments of four friends are summarized
below. Which of these statements would probably be the most helpful to Cal?
a) You are likely to face some lean months at first, so manage your money carefully. Avoid
the temptation to make splashy purchases.
b) One advantage of operating a small business is the fact that you don’t have to worry very
much about government regulation.
c) Focus on the domestic market. There is no practical way for you to compete effectively
against big businesses in foreign markets.
d) Aim your efforts at the broadest possible market segments. Those are the ones that offer
you the greatest potential to make profits quickly.
147. A look at survival rates for small businesses over their first 10 years shows that
a) the majority of small businesses fail before they have been in business for three years.
b) survival rates tend to drop more rapidly during the first five years, but then they fall more
slowly.
c) they fall at a slow but steady rate over the first five years, but failures occur more
frequently after year five.
d) over 72 percent of all small firms remain in business for at least seven years, and almost
65 percent are still in business after 10 years, suggesting that small businesses aren’t as
risky as most people think.
148. Which of the following places small businesses at a disadvantage compared to larger competitors?
a) business location
b) insurance costs
c) finding market niches
d) lower regulatory expectations
149. What are some of the threats which face the average small business?
a) personal customer service and venture capitalists
b) a tolerance of uncertainty
c) high overhead coupled with under capitalization
d) lack of experience
150. Raphael bought an established business a couple of years ago. As time marched on, he realized he
inherited some mistakes from the deceased previous owner’s estate, and now must make some
tough decisions. What would an entrepreneur do?
a) He would realize that inheriting old mistakes is one of the key drawbacks of buying an
existing business, so he would make the necessary changes and move ahead.
b) He would realize that failure is not an option—sometimes it’s a requirement.
c) He would sit down with his loan officer to figure out how to eke out more operating
capital from the bank—he’ll need it to be able to fix the problem.
d) He would call the former owner and discuss ways to implement change.
151. Burger King, McDonald’s, Wendy’s, and Hardee’s are examples of

a) business franchising.
b) limited liability companies.
c) small businesses.
d) health issues.
152. The _____ is the federal government agency dedicated to maintaining and strengthening the
national economy by aiding, counseling, assisting, and protecting the interests of small business.
a) Small Business Administration
b) Federal Trade Commission
c) National Center for Business Development
d) Federal Small Enterprise Resource Center
153. Which of the following strategies are recommended for small business owners to succeed over the
long term?
a) develop a business plan and gain experience
b) make a friend at the bank and develop a business plan
c) develop a business plan, gain experience, educate yourself, and learn from others
d) borrow money and develop a plan
154. A possible drawback when buying an existing business is that

a) it creates unrealistic expectations.
b) it’s significantly riskier than starting from scratch.
c) there are often significant legal hassles involved in transferring ownership.
d) you may inherit the mistakes made by the previous owner.
155. A drawback of buying a franchise is

a) there is more opportunity for creativity, resulting in the owner spending too much time in
this area.
b) if the national chain suffers, so does the franchisee.
c) lower start-up costs.
d) the SBA (Small Business Administration) frowns upon it.
156. Which of the following is NOT a significant drawback of getting into business by entering into a
franchise arrangement?
a) A franchisee has less independence and flexibility than the owner of a business that is
started from scratch.
b) Franchising is generally considered to be the riskiest option for starting a business.
c) The initial cost of most well-known franchises can be quite expensive.
d) The owner must pay an ongoing royalty to the franchiser.
157. Dana is thinking about starting her own graphics design business but is keenly aware of the fact
that she lacks much business experience. A friend suggested that she consider going to work for a
successful graphics design firm before going out on her own. This advice is
a) a bad idea. Working for someone else tends to stifle creativity.
b) a good idea, because it allows you to learn the ins and outs of running that type of business
with little personal risk. Keep in mind that if you work for someone else too long, you
might get too comfortable in your position to follow through with your plans.
c) almost always an excellent idea. Most studies suggest that the vast majority of successful
small business owners worked for at least 10 years for someone else before they launched
their own company.
d) sometimes a good idea, but more often it’s a waste of time. Most small businesses are so
simple to manage that prior experience isn’t really necessary.
158. When it comes to learning more about starting and running a small business,
a) reliable sources of information are disappointingly scarce.
b) it is a good idea to avoid advice from business owners who have recently failed.
c) the best approach is to get hands-on experience by working at least seven years for
someone else in the field before starting your own business.
d) the Small Business Administration, industry associations, blogs, and websites are only a
few of the many sources that are available.
159. Barney, a successful sales rep for a big corporation, has managed to save a large sum of money.
He’s tired of working for the big company and is contemplating sinking his savings into a new
business. Although willing to work hard and put in long hours, he hasn’t been able to develop a
good business concept from scratch. He also realizes that he doesn’t have strong financial skills
and might need some training and assistance in this area. Someone like Barney
a) is unlikely to find a small business opportunity that suits his needs.
b) is likely to find franchising an attractive option.
c) would find that starting a business from scratch is the best way to go.
d) obviously needs to develop a stronger external locus of control before leaving his
corporation.
160. _____ would be most likely to help you develop a business plan.
a) The Small Business Administration
b) Your local small business banker
c) The angel investor network
d) Venture capitalists in your area
ANS: A DIF: Moderate REF: Pages 109-110
161. Sheila loves taking care of animals and has thought about starting her own pet grooming business.
However, she doesn’t know much about the growth potential for this type of business or the
amount of competition she would face. She also wants to find out if there are any government
regulations she would need to follow. A good starting point to help her find answers to her
questions is to contact the
a) American Association of Entrepreneurs.
b) Federal Trade Commission.
c) Small Business Administration.
d) local chapter of the federal government’s Entrepreneurial Advisory Board.
162. Small Business Development Centers

a) help small businesses develop their business plan and apply for loans.
b) provide interest-free financing for small businesses.
c) provide the Small Business Administration with its major source of financing.
d) perform all of the functions on this list.
ANS: A DIF: Moderate REF: Pages 109-110
OBJ: 7-5 NAT: BUSPROG: Analytic
163. _____ are local offices affiliated with the Small Business Administration that provide
comprehensive management assistance to current and prospective small business owners.
a) SCORE facilities
b) Small Business Development Centers
c) Chambers of Commerce
d) Entrepreneurial Incubators
ANS: B DIF: Easy REF: Pages 109-110
164. Will Gates founded a small biotech company in Portland, Oregon, in the ‘80s. After many years in
business, he sold the company and decided to volunteer for the Service Corps of Retired
Executives (SCORE). As a SCORE volunteer he will
a) write businesses plans for would-be entrepreneurs.
b) underwrite the SBA loan program.
c) invest in promising start-up companies.
d) provide free, comprehensive counseling for small businesses.
ANS: D DIF: Challenging REF: Pages 109-110
165. A(n) _____ is a formal document that describes a business concept and outlines the core business
objectives while detailing the strategies and timelines for achieving those objectives.
a) enterprise mission statement
b) enterprise focus document
c) strategic business outline
d) business plan
166. The _____ is supported by the Small Business Administration and provides comprehensive
counseling for small businesses.
a) Securities and Exchange Commission
b) Entrepreneurial Services Council
c) Service Corps for Retired Executives
d) Federal Advice for Small Business Panel
167. A business plan should include all of the following topics EXCEPT
a) a description of the good or service and an explanation of the need it will fill.
b) a financial plan, including how the firm intends to raise the money needed to get the
business up and running.
c) a detailed description of the firm’s contingency plans.
d) an appendix which describes the research about the firm’s market and industry.
168. For individuals starting a small business, writing a business plan is

a) more work than it is worth.
b) not always necessary, but it is essential if the company needs to obtain external financing.
c) the first and most critical step toward getting the company up and running. Small
businesses that aren’t guided by a plan are almost never successful.
d) a simple process that usually takes no more than a week or two to complete.
169. The business plan has two main purposes

a) it guarantees success; can be used to secure financing easily.
b) provides a document customers can review; used as a production tool.
c) provides a document to keep employees focused; necessary to seek outside funding.
d) often requested by vendors; required by the federal government.
170. Which of the following is the best description of a typical business plan for a small business? A
business plan is a(n)
a) short document, usually no more than 10-15 pages in length, that provides a basic
overview of the company’s mission and products.
b) annual report that the company provides to partners or stockholders, discussing the
company’s objectives and assessing its challenges for the coming year.
c) formal document, often 25-50 pages in length, that describes the company, sets forth its
key objectives, and provides details as to how and when the organization plans to achieve
these objectives.
d) legally required document that the company must file with the Small Business
Administration on an annual basis. Each annual plan explains the company’s goals for the
next fiscal year and details how much external funding the company will need to achieve
these goals.
171. In a business plan, a commercial lender would expect to find

a) a description of the business, the appendix, and a list of references.
b) a description of the business, competitive analysis, operating procedures, and financial
data.
c) a description of products offered, description of relationship with suppliers, operating
procedures, and description of needs in the community.
d) a community market survey, description of the business, and operating procedures.
172. Paige founded Noodle, an Internet search provider. In order to secure the first round of financing
she wrote a business plan. When she prepared the business plan she made sure she included the
following information:
a) how many employees Noodle intends to hire.
b) she did not worry about the business plan since her financial advisor wrote the plan for
her.
c) what type of accounting system Noodle will use.
d) how Noodle will reach its potential customers.
173. Which of the following statistics from the Small Business Administration is true?
a) In 2008, 99% of the 29,600,000 businesses in the U.S. had fewer than 500 employees.
b) About 25% of small business owners ran their businesses without any employees.
c) Over the last 15 years, small businesses created 30% of the net new jobs in the U.S.
d) In total, the government provides jobs for two-thirds of the U.S. workforce.
ANS: A DIF: Challenging REF: Pages 110-111
174. Over the last decade, small business created _____ of net new jobs in the United States.
a) 15-20 percent
b) 60-80 percent
c) 30-50 percent
d) 5-10 percent
175. For research purposes, the Small Business Administration (SBA) defines small business as
companies with up to _____ employees.
a) 250
b) 400
c) 500
d) 750
176. Small businesses generate about _____ of the U.S. gross domestic product.
a) 10 percent
b) 30 percent
c) 50 percent
d) 70 percent
177. Senator Taxmoore wants to help revitalize inner cities and stimulate more innovation. He could
achieve both of these goals by supporting legislation that would
a) encourage the formation of small businesses.
b) make it illegal for firms to outsource jobs.
c) increase government benefits for those that are unemployed.
d) call for greater government ownership of factories located in inner cities.
178. All of the following statements about the impact of small businesses in the U.S. economy are true
EXCEPT:
a) small businesses account for half of the U.S. gross domestic product.
b) small businesses provide greater employment stability than large firms in times of
economic hardship.
c) small businesses have generated between 60 and 80 percent of the net new jobs in the
United States over the past 10 years.
d) small businesses tend to introduce new innovations at a much higher rate than large
businesses.
179. Given the statistical evidence for how small business impacts the U.S. economy, which of the
following is the most true?
a) Small business is just that—small—so it is really of no large concern to anyone.
b) Given that small businesses generate enough revenue to account for 75% of U.S. GDP, the
government should tax them heavily to generate more revenues for national entitlement
programs—history bears out that this will work.
c) Since small businesses account for about half of U.S. GDP, the federal government would
do well to find a way to incentivize small business activity through lower tax rates. This is
true of government not only in the U.S., but also abroad.
d) Since most small businesses don’t even have employees (over 20 million people run their
businesses without them), they don’t impact the economy by providing jobs. The federal
government should focus on the bigger companies when considering real economic
impacts.
180. Small businesses are much more likely to generate revolutionary new ideas. These small firms
produce 13 percent more patents per employee than their large counterparts. One reason for this
difference in the rate for patents per employee is that
a) small businesses maintain a lack of bureaucracy allowing new ideas to flourish.
b) large businesses are not concerned with new patents.
c) small businesses have more capital and people allowing them to focus on new patents due
to their size.
d) large businesses focus on existing products viewing innovative new products as too
expensive to bring to market.
181. In low-income countries, a higher percentage of entrepreneurs are considered

a) necessity entrepreneurs.
b) angel investors.
c) venture capitalists.
d) commercial lenders.
NAT: BUSPROG: Communication TOP: Entrepreneurship Around the World
182. Which of the following nations is likely to have the lowest percentage of “necessity
entrepreneurs”?
a) Uganda
b) Peru
c) United States
d) Jordan
183. Finland, Italy, Sweden, and several other members of the European Union have low
entrepreneurship rates. The most likely reason for this result is that these nations
a) do not have well-developed markets.
b) have restrictions that prohibit private ownership of businesses in most sectors of the
economy.
c) don’t have well developed property rights, making it much riskier to form new
businesses.
d) have liberal unemployment benefits and provide employees with a high level of
employment protection.
184. Senator Foghorne is running for re-election. One of his political proposals is the enactment of new
legislation that will provide American workers who are laid off with much higher unemployment
compensation and will guarantee those benefits for a full year. If enacted, Senator Foghorne’s
proposal is likely to
a) lower tax rates on small businesses.
b) have a negative impact on entrepreneurship rates.
c) encourage more people to start new businesses.
d) reduce the federal deficit.
185. A recent study reports that the country of Socialumberg has the lowest rates of entrepreneurship in
the world. As the Prime Minister of Socialumberg, you want to develop a society that supports
entrepreneurship. One way you can accomplish this is to
a) increase unemployment insurance available to employees.
b) eliminate complex regulations.
c) mandate all businesses must provide employee healthcare.
d) increase taxes on businesses to fund a better educational system.
186. The rate of entrepreneurship differs from country to country with countries like Bolivia and
Columbia having the highest rates in the world. Research conducted by the Global
Entrepreneurship Monitor (GEM) theorized rates are highest in countries in which the people
a) view failure as a badge of honor.
b) can easily access low interest loans from the government.
c) start their own business, simply because they have no other options.
d) maintain strong unemployment insurance.
ESSAY
187. Describe how the entrepreneurship rate has played a role in the U.S. Economy from 2007 to 2010.
ANS:
Over time, the entrepreneurship rate has played a powerful, positive role in the U.S. economy.
Despite the raging recession, new business creation increased steadily from 2007 to 2009. Among
teenagers, interest in someday launching their own business has remained at about 40% throughout
the Great Recession (from 2007 – 2010), a critically important element to long-term economic
recovery. In 2010, overall U.S. entrepreneurship rates reached their highest level in 15 years,
driven in part by unemployed workers looking to stay afloat as they seek new jobs, representing a
hopeful sign for the future of our economy, as job seekers become potential job creators.
DIF: Challenging REF: Page 101 OBJ: 7-1

NAT: BUSPROG: Reflective Thinking TOP: Launching a New Venture: What’s in It for Me?
188. Describe the basic reasons people decide to pursue entrepreneurship.
ANS:
The number of new businesses today is increasing faster than ever. Entrepreneurs start their
ventures for a variety of reasons. Some of the most common reasons are:
Greater Financial Success. Although you can make a pretty good living working for someone
else, your chances of getting really rich may be higher if you start your own business. The desire
to get ahead financially is probably the main reason most people become entrepreneurs.
Independence. Being your own boss is a huge benefit of starting your own business. You have to
answer to no one other than yourself and any investors you invite to participate in your business.
Bottom line: you are the only one who is ultimately responsible for your success or failure. This setup
is especially compelling for people who have trouble being a subordinate because of their personalities.
But while independence is nice, it’s important to keep in mind that every business depends on meeting
the needs of its customers, who can be even more demanding than the toughest boss.
Flexibility: For certain types of entrepreneurs—such as retirees looking for some extra income or
parents who want more time with their kids—the ability to set your own hours and control your
own schedule is an appealing benefit. Given current technological tools—from email to eBay—it’s
easy for small business owners to manage their firms on-the-go or after hours. People who start a
business for this reason aren’t likely to make as much money as those willing to work long hours.
But when more money isn’t the primary goal, the need for flexibility can be enough to motivate
many entrepreneurs to launch their own enterprise
Challenge. Running your own business provides a level of challenge unmatched by most other
endeavors. Starting a business also offers endless opportunities for learning that can provide more
profound satisfaction for many people than grinding out the hours as an employee.
Survival. Although most entrepreneurs launch their business in response to an opportunity and in
hopes of improving their lives, some entrepreneurs launch an enterprise because they believe that
starting their own business is their only economic option. This is very common in less-developed
nations, but even in the United States, some people are motivated to become entrepreneurs out of
necessity. Examples include immigrants with limited English, middle-aged workers who have
been laid off and don’t expect to be rehired, and people who face discrimination that limits their
employment opportunities.
DIF: Challenging REF: Pages 101-102 OBJ: 7-1

NAT: BUSPROG: Reflective Thinking TOP: Launching a New Venture: What’s in It for Me?
189. Experts describe several qualities that define successful entrepreneurs. Describe three of these basic
qualities. Give two specific examples of successful entrepreneurs who are currently making their mark.
ANS:
The student’s answer should include three of the following four qualities:
Vision. Most entrepreneurs are wildly excited about their own new ideas, which they seem to
draw from a bottomless well. Entrepreneurs find new solutions to old problems, and they develop
brand-new products that consumers didn’t even know they needed. Entrepreneurs stay excited
about their ideas, even in the face of skepticism on the part of their friends and relatives.
Self-Reliance. New business owners typically need to do everything themselves, from getting
permits, to motivating employees, to keeping the books—all in addition to producing the product
or service that made them start the business in the first place. Self-reliance seems to come with an
internal locus of control, or a deep-seated sense that the individual is personally responsible for
what happens in his or her life. When things go well, people with an internal locus of control feel
that their efforts have been validated. When things go poorly, those same people feel that they
need to do better next time. This sense of responsibility encourages positive action. In contrast,
people with an external locus of control rely less on their own efforts, feeling buffeted by forces
such as random luck and the actions of others, which they believe will ultimately control their fate.
Energy. Entrepreneurs simply can’t succeed without an enormous amount of energy. Working
12-hour days, 6 or 7 days a week, are not atypical in the start-up phase of running a business. A
recent survey found that today’s small business owner works an average of 52 hours per week,
with 57 percent working at least 6 days a week, and more than 20 percent working all 7.
Confidence. Successful entrepreneurs typically have confidence in their own ability to achieve,
and their confidence encourages them to act boldly. A recent study for the Small Business
Administration’s Office of Advocacy confirmed that entrepreneurs are typically overconfident
regarding their own abilities. As a result, they’re willing to plunge into a new business, but they
don’t always have the skills to succeed.
Tolerance of Uncertainty. More often than others, entrepreneurs see the world in shades of gray,
rather than simply black and white. They tend to embrace uncertainty in the business
environment, turning it to their advantage rather than shying away. Uncertainty also relates to
risk, and successful entrepreneurs tend to more willingly accept risk—financial risk, for instance,
such as mortgaging their home for the business, and professional risk, such as staking their
reputation on the success of an unproven product.
Tolerance of Failure. Even when they fail, entrepreneurs seldom label themselves losers. They
tend to view failure as a chance to learn, rather than as a sign that they just can’t do it (whatever
“it” may be for them at any given moment). Failure can actually be an effective springboard for
achievement.
Some examples of successful entrepreneurs might include:
Bill Gates, Microsoft

Phil Knight, Nike
Mary Kay Ash, Mary Kay
Fred Smith, FedEx
Michael Dell, Dell Computer
Martha Stewart, lifestyle innovator
Walt Disney, Disney
Sergey Brin and Larry Page, Google
Oprah Winfrey, Harpo Productions

190. What are the major funding options for small businesses? Which of these options is most likely to
be used by the majority of start-ups?
ANS:
Personal Resources. This is the most common source of new business financing.
The financial requirements of most new firms typically force entrepreneurs to tap personal
resources such as family, friends, and credit cards.
Loans. Getting commercial loans for a new venture can be tough. Banks and other lenders are
understandably hesitant to fund a business that doesn’t have a track record. They also require a lot
of paperwork and often a fairly long waiting period.
U.S. Small Business Administration. The Small Business Administration (SBA) doesn’t give
free money—neither grants nor interest-free loans—but they do partially guarantee loans from
local commercial lenders. This reduces risk for the lender, who is, in turn, more likely to lend
money to a new business owner. The SBA also has a microloan program that lends small amounts
of money—$10,000 on average—to start-up businesses through community nonprofit
organizations.
Peer-to-peer lending. Peer-to-peer lending is a new potential funding source for new business
start-ups that brings borrowers and lender together. It is an easier way for entrepreneurs to get
money with more favorable terms. Websites such as Prosper.com and LendingClub.com bring the
borrows and lenders together.
Angel Investors. Angel investors are wealthy individuals who invest in promising start-up
companies for one basic reason: to make money for themselves. They tend to look for
opportunities to invest in companies that are likely to grow very rapidly (30-40 percent per year)
and then be sold or go public.
Venture Capital. Venture capital firms fund high-potential new companies in exchange for a
share of ownership, which can sometimes be as high as 60 percent. Only about 2 percent of new
businesses receive funding from venture capital firms, but such transactions tend to be highly
visible and attract a lot of attention. In addition to funding, venture capital firms often provide
advice and guidance to the firm.

191. Explain how the Great Recession effected Angel and Venture capitalist investments.
ANS:
Angel Investors: In the first half of 2010, the number of firms that receive angel funding
increased 3% versus 2009, despite the economic crisis. But unfortunately, total angel investments
in the first half of 2010 dropped by 6.5 percent compared to the same period in 2009, and a smaller
total number of angels are investing. Today’s angels are focusing on later-stage companies,
largely ignoring the need for seed and start-up capital, which could have long-term negative
implications for the economic recovery.
Venture Capitalists: Although the economic crisis drastically reduced venture capital spending,
2010 saw a 19% increase in deal flow versus 2009, and a 12% increase in the number of deals.
The environment continued to be a bright spot: Investments in clean technology firms grew 76%
in terms of total dollars and 37% in the number of deals compared with 2009. Five of the top 10
venture deals in the last quarter of 2010 were in the clean tech sector. The flow of money suggests
that the clean tech sector would be a ripe segment for new business start-ups.

TOP: Angel Investors
192. Patrick has decided to launch an organic coffee distributorship, but he isn’t sure how to obtain the
funding he needs to get started. Patrick has calculated he will need $50,000 in start-up funding.
What type of funding would be appropriate for Patrick’s organic coffee business? What are the
advantages and disadvantages of this type of funding?
ANS:
Students will provide a variety of answers and answers should be supported by information that
pertains to each funding options. The most appropriate forms of funding are:
Personal Resources - Most new firms typically tap into personal resources such as family,
friends, and credit cards. According to Consumer Reports, 68% of total start-up financing comes
from personal resources. If you do borrow from family or friends, virtually every small business
expert recommends that you keep the relationship as professional as possible. If the business fails,
a professional agreement can preserve personal ties. And if the business succeeds, you’ll need top-
quality documentation of financing from family and friends to get larger-scale backing from
outside sources.
Personal credit cards can be an especially handy—though highly risky—financing resource. In
fact, a recent survey found that nearly half of all start-ups are funded with plastic. Credit cards do
provide fast, flexible money, but if you don’t pay back your card company fast, you’ll find
yourself socked with financing fees that can take years to pay off.
Commercial Loans - Banks and other lenders are understandably hesitant to fund a business that
doesn’t have a track record. And when they do, they require a lot of paperwork and often a fairly
long waiting period. Only 20% of new business owners launch with commercial loans. And
virtually no conventional lending source—private or government—will lend 100% of the start-up
dollars for a new business. Most require that the entrepreneur provide a minimum of 25 to 30% of
total start-up costs from personal resources.
U.S. Small Business Administration (SBA) - The SBA doesn’t give free money to start-up
businesses—neither grants nor interest-free loans—but they do partially guarantee loans from
local commercial lenders. This reduces risk for the lender, who is more likely to lend money to a
new business owner. The SBA also has a microloan program that lends small amounts of money—
$13,000 on average—to start-up businesses through community nonprofit organizations.
Peer-to-Peer Lending - offers yet another potential funding source for new business start-ups.
Websites such as Prosper.com and LendingClub.com bring together borrowers and investors so
that both can benefit financially. Many entrepreneurs have found this is an easier way to get
money, at more favorable terms, than through more established sources.

193. Describe the resources the Small Business Administration provides to small business owners.
ANS:
The Small Business Administration (SBA) website provides a wealth of information—from

industry-specific statistics, to general trends, to updates on small business regulations. The SBA
also works hand-in-hand with individual states to fund local Small Business Development
Centers (SBDCs). SBDCs provide a range of free services for small businesses—from developing
a concept, to consulting on a business plan, to helping with loan applications. And finally, the
SBA supports SCORE, the Service Corps for Retired Executives. SCORE provides free,
comprehensive counseling for small businesses from qualified volunteers.
The SBA also helps small businesses obtain financing. Rather than loaning the money directly, the
SBA typically provides partial loan guarantees to local commercial lenders, who then make loans
to small businesses. This reduces the risk of such loans for the lenders, making them more willing
to extend credit to a new business owner. In addition, the SBA has a microloan program that loans
small amounts of money to start-up companies through community nonprofit organizations.
DIF: Challenging REF: Page 106|Pages 109-110OBJ: 7-3|7-5

TOP: Loans & Making It Happen: Tools for Business Success
194. Identify and describe two opportunities and two threats to small business success.
ANS:
Most small businesses enjoy a number of advantages as they compete for customers. But they also
must defuse a range of daunting potential threats in order to succeed long term.
Opportunities:
Students’ answers should include any two of the following:
Market Niches. Many small firms are uniquely positioned to exploit small but profitable market
niches. These sparsely occupied spaces in the market tend to have fewer competitors because they
simply aren’t big enough—or high enough profile—for large firms. They nonetheless offer more
than enough potential for small, specialized companies.
Personal Customer Service. With a smaller customer base, small firms can develop much more
personal relationships with individual customers. The personal touch can be especially beneficial
in some foreign markets, where clients prize the chance to deal directly with top management.
Lower Overhead Costs. With entrepreneurs wearing so many hats, from CEO to customer
service rep, many small firms have lower overhead costs. They can hire fewer managers and
fewer specialized employees. Perhaps more importantly, smaller firms—due to a lack of
resources—tend to work around costs with tactics such as establishing headquarters in the owner’s
garage or offering employees flexible schedules instead of costly healthcare benefits.
Technology. The Internet has played a powerful role in opening new opportunities for small
business. Using a wealth of online tools, from eBay to eMachineshop, companies-of-one can create,
sell, publish, and even manufacture goods and services more easily than ever before. The Web has
also created international opportunities, transforming small businesses into global marketers.
Threats:
Again, student answers should include any two of the following:
High Risk of Failure. Starting a new business involves risk—a lot of risk—but the odds improve
significantly if you make it past the five-year mark.
Lack of Knowledge and Experience. People typically launch businesses because they either have
expertise in a particular area—like designing websites, or cooking Vietnamese food—or because
they have a breakthrough idea—like a new way to develop computer chips or run an airline. But
in-depth knowledge in a specific area doesn’t necessarily mean expertise in running a business.
Successful business owners must know everything from finance to human resources to marketing.
Too Little Money. While the media is filled with stories of business owners who made it on a
shoestring, lack of start-up money is a major issue for most new firms. Ongoing profits don’t
usually begin for a while, which means that entrepreneurs must plan on some lean months—or
even years—as the business develops momentum.
Bigger Regulatory Burden. Complying with federal regulations can be challenging for any
business, but downright overwhelming for small firms.
Higher Health Insurance Costs. Administrative costs for small health plans are much higher than
for large businesses, making it even tougher for small firms to offer coverage to their employees.

195. Identify and describe the pros and cons of starting a business from scratch.
ANS:
Starting a Business from Scratch
Key Pros Key Cons
· It’s all YOU: Your concept, your decisions, · It’s all YOU. That’s a lot of pressure.
your structure, and so on.
· You don’t have to deal with the prior owner’s · It takes time, money, and sheer sweat equity
mistakes. to build a customer base.
· Without a track record, it’s harder to get
credit from both lenders and suppliers.
· From securing permits to hiring employees,

the logistics of starting a business can be
challenging.

196. Identify and describe the pros and cons of buying an established business.
ANS:
Buying an Established Business
Key Pros Key Cons
· The concept, organizational structure, and · Working with someone else’s idea can be a
operating practices are already in place. lot less fun for some entrepreneurs.
· Relationships with customers and suppliers · You may inherit old mistakes that can range
and other stakeholders are established. from poor employee relations to pending
lawsuits.
· Getting financing and credit is less

challenging.

197. Identify and describe the pros and cons of buying a franchise.
ANS:
Buying a Franchise
Key Pros Key Cons
· In most cases, you’re buying your own piece · You have less opportunity for creativity since
of a well-known brand and proven way of most agreements tie you to franchise
doing business. requirements.
· Typically, management expertise and · If something goes wrong with the national
consulting come with the franchise package. brand (e.g., E. coli at a burger joint), your
business will suffer, too.
· Franchisers occasionally offer not just advice · The initial purchase price can be steep, and
but also the financing that can make the that doesn’t include the ongoing percent-of-
purchase possible. sales royalty fee.
· These advantages add up to a very low 5%

first-year failure rate.

198. What is the purpose of a business plan? Identify the core questions a business plan should address.
ANS:
A business plan is a formal document that describes the business concept, outlines the company’s
core business objectives, and details the strategies and timelines for achieving those objectives.
This type of plan isn’t absolutely necessary for a small business, but it does provide a way of
keeping everyone involved in the enterprise focused on the same objectives. And a business plan is
an absolute requirement if the company plans to seek external financing.
A typical business plan is about 25-50 pages long and takes about six months to write. The
completed plan will address all of the following issues:
What good and/or service will the firm provide, and what needs does this product fill?
Who are the potential customers for the product or service, and why will they purchase it from this
business?
How will this business reach its target market/potential customers?
Where will the owner get the financial resources to start this business?
When can the owner expect to achieve profitability?

199. How does small business impact the U.S. economy?
ANS:
Creating New Jobs. Small businesses with employees start up at a rate of more than 500,000 per
year, generating about 70 percent of the total new jobs in the economy. Four years after they
launch, almost half of those businesses—and many of the jobs they create—remain viable. But
while small businesses are quick to add new jobs, they’re often the first to contract when times are
tough; instability comes with the territory.
Fueling Innovation. Small businesses develop new innovations at twice the rate of their large
business counterparts. Not only that, small patenting firms are more likely to produce
“scientifically important” innovations and have produced 13 to 14 times more patents per
employee. Small firms tend to be effective innovators for a number of reasons. Perhaps most
importantly, their very reason for being often ties to a brand new idea. In the early years, they
need innovation in order to simply survive. And they often display a refreshing lack of
bureaucracy that allows new thinking to take hold.
Vitalizing Inner Cities. New research shows that small businesses are the backbone of urban
economies, finding opportunity in niches that may not be worthwhile for larger firms. Small
business comprises more than 99 percent of inner city business establishments. In addition to
creating new jobs, those small businesses generate 80 percent of total employment in American
inner cities, providing a springboard for economic development.

200. What three factors explain the wide differences in entrepreneurship rates among countries? How
do these factors help explain the relatively high rate of entrepreneurship in the United States?
ANS:
The three key factors are: What is the national per capita income? What will the entrepreneur need
to give up (i.e., the opportunity costs)? How strongly does the national culture and political
environment support business start-ups?
Per-Capita Income. In low-income countries such as Peru, Uganda, and Ecuador, a high
percentage of entrepreneurs start their own business because they simply have no other options.
This contributes heavily to the startlingly high overall level of entrepreneurship. The rate of such
“necessity entrepreneurship” declines in higher income countries such as the United States and
Japan, where entrepreneurs are more likely to strike out on their own in response to an opportunity
that they spot in the marketplace.
Opportunity Costs. Entrepreneurship rates are significantly lower in countries that provide a high
level of employment protection (it’s hard to get fired) and strong unemployment insurance
(financial support if you do get fired). With these benefits in place, the sense of urgency regarding
entrepreneurship tends to fall. The European Union, with a combined entrepreneurship rate of
only 5.4 percent provides a number of clear examples. The United States does provide some
protection against arbitrary dismissals and provides unemployment compensation, but the
protection isn’t as widespread and the unemployment benefits aren’t as attractive in the United
States as they are in many European countries. This helps explain why entrepreneurship rates are
higher in the United States.
Cultural/Political Environment. Extensive, complex regulations can hinder entrepreneurship by

raising daunting barriers. And a lack of cultural support only compounds the problem. These
factors certainly contribute to the low entrepreneurship rates in much of the European Union and
Japan. Entrepreneurs in more supportive nations, such as the United States and New Zealand, get
a boost from limited regulation and strong governmental support. A thriving “cowboy culture”
helps, too—standout individuals who break free of old ways attract attention and admiration in
many of the countries with higher entrepreneurship rates.

TOP: Entrepreneurship Around the World
Another random document with
no related content on Scribd:
even listened to. And all the while that old faded ribbon had
been lying carefully folded up in her drawer.
What, then, can have brought about this remarkable visit?

It is a diplomatic arrangement between the "heads of
houses." First of all, Alice made a friendly call on Bella,
taking with her a nosegay of spice pinks and sweet-
williams, and cursorily mentioning Miles' name some dozen
times, always in a highly favorable manner. This she
considered to be particularly skilful, and even very deep.
Then the eldest Hartley youth called to see Miles in return,

and carried home the news that "he was wasted to an
atomy, and looked as quiet like as schoolmaster himself."
This report produced an extraordinary sensation at Scarf
Beck Farm; and the impression was followed up by a
ceremonious visit from old Geordie Garthwaite, with the
present of a fat little black pig from the widow Lawson to
Mrs. Hartley, which was graciously accepted, the faithful
feudal emissary taking occasion to drop sundry laudatory
remarks about "young master's talk being now as good as
any sermon," and "if he went on much longer of that
fashion, he was frightened of seeing him soon a saint in
heaven; for he was right away too good for this evil world."
Bella ran off to her little chamber when she heard this, and
did not appear again that day.
Next came Old Ann, with an offering of a favorite guinea-

hen for Miss Bell, remarking "as how 'twas young master
that sent it, though he wasn't so bold as to show his face in
it." This was spoken in a very audible voice just under
Bella's window. But of course the guinea-hen walked and
flew home again as soon as the hour came for sounding
that strange muezzin cry from the top of the round
chimney, "Come back, come back."
Then, at last, Mrs. Hartley ordered the shandry, and drove
over to The Yews to report the loss of the sentimental fowl.
She was received with extraordinary alacrity, and was
engaged with Mrs. Lawson in the old oak parlor, with closed
doors, for a mysteriously long time. The result of this
interview was an announcement that the whole Hartley
family were coming over to tea and supper on the afternoon
which has been previously introduced.
Poor Miles evidently has not the strength or the courage to

encounter the excitements of this grand arrival. He is sitting
in the deep shadow of the pointed porch, almost justifying
by his emaciated appearance and changed expression of
countenance, the eulogium and the fear expressed by his
old retainer, Geordie Garthwaite. He waits until Bella Hartley
passes by, and then nervously calls her by name; she stops
and kindly holds out her hand, "Miles, how ill you look; how
changed you are!"
"God grant I may be changed indeed, Bella, for 'twas high

time; and the good of his long-suffering is, that it leads to
repentance."
The tears were in her eyes in a moment, but the smile that
shone through that summer shower was a very rainbow of
beauty.
"There are too many folks about for us to have a talk now,
Bella; but will you walk with me down to the alder shade by
the beck after tea, and give me your arm to help me on?
For I haven't got the strength in me to walk so far without
it."
"Yes; and I will give it to you now in face of them all," said
she, her face crimsoning like a sun-rise.
He took her arm, and she led his tottering steps over to the
group beneath the yew tree. They all rose to receive them
with silent respect and sympathy. Mrs. Hartley gave him her
seat on the rustic bench; but he said, "Bella must be
alongside o' me, if you please; for now that I have found
out the strength that there is in her arm, I shall want it to
lean upon for the rest of my life."
Old Geordie and Old Ann were anxiously watching the

family proceedings from the gate leading into the farm-
yard; and they ever after maintained that a great scene
hereupon ensued, "that all women-folk greeted, and all
men-folk laughed, and clapped their hands."
The wicket gate had opened just before this denouement,

and the schoolmaster had dropped into the festal group.
Perhaps a close observer might have perceived that some
other guest was expected, from the flutter in Alice's
manner, and her rather distracted attentions to her friends.
How ever that may be, now that Mark Wilson has taken the
empty seat, her eye never wanders towards the wicket gate
any more. Mark had come over by invitation from his
present place of tarrying, the hamlet in the neighboring
valley, in order to be present at what was fully expected to
be a family betrothal; that is, if things worked well. And
that they had answered expectations, he perceived at a
glance.
"Why, Miles, thou art looking a stronger and a heartier man

already, now that thy mind is at rest. God bless thee, Bella
Hartley, for being willing to trust one who has put his trust
in Christ."
Tea over, Mat conducted the young Hartley's round the

farm, as usual, to see the stock. Mr. and Mrs. Hartley sat in
the porch with the widow Lawson. Bella redeemed her
promise to lend her strong arm to Miles as they slowly
walked down to the alder shade, that made a bower beside
the brook, and there they communed of the painful past, of
the happy present, and of the promised future. Truly did
they take sweet counsel together, because their hope was in
the Lord their God; and this was the spirit of their prayerful
resolve, "As for me, and my house, we will serve the Lord."
What has become of the schoolmaster? And Alice, she is

missing too. Mark had said to her after tea, "You took my
arm, once before, Alice—will you take it again now?" She
did not refuse; and they have walked on beside the brook
altogether forgetting that it was a "babbler."
When they had all returned from their several walks, Mark
Wilson went up to the widow's rocking chair, and bending
down, said, in a low voice, "Mother, dost thou think thou
hast two blessings to bestow? Could'st thou bless a new son
as well as a new daughter?"
"Bless the good lads; and bless the dear maidens!" was the
ready reply. "But, Mark, I can tell thee I am giving thee
what I can ill afford."
"Your easy chair is never to move from where it now

stands; we have quite fixed that," whispered Bella.
"These are the children of my old age," said the widow,

laying her shaking hands on the head of Mark Wilson and
Bella Hartley. "As to Alice there, she has always been my
one pet lamb. Mat is a good lad, and I have faith to believe
he will be a staff to my failing strength. And as to thee,
Miles, my eldest born, what shall I say but that, 'It was
meet we should make merry, and be glad; for this my son
was dead, and is alive again; and was lost, and is found.'"
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LAWSON ***
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17. Individuals with an internal locus of control tend to be very self-reliant.

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