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Understanding Business, 12e (Nickels)
Chapter 06 Entrepreneurship and Starting a Small Business
1) Entrepreneurship involves accepting the risk of starting and running a business.
Answer: TRUE
Difficulty: 1 Easy
Topic: Define Entrepreneurship
Learning Objective: 06-01 Explain why people take the risks of entrepreneurship; list the
attributes of successful entrepreneurs; and describe entrepreneurial teams, intrapreneurs, and
home- and web-based businesses.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
2) Entrepreneurship is another name for management.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
3) Entrepreneurs are less important now than in the past to the U.S. economy.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
1
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
4) While entrepreneurs frequently earn significant profits for themselves, their impact on society
is quite small.
Answer: FALSE
Difficulty: 1 Easy
Topic: The Importance of Small Business Ownership to the U.S. Economy
Bloom's: Remember
5) Many businesses started by entrepreneurs have grown into major corporations employing
thousands of workers.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
6) Entrepreneurs are motivated by the desire to earn a profit.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
2
7) Entrepreneurs take calculated risks.
Answer: TRUE
Difficulty: 1 Easy
Topic: Attributes of Successful Entrepreneurs
Bloom's: Remember
8) Most entrepreneurs prefer working for someone else.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
9) Most entrepreneurs are more interested in personal achievement than in power.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
3
10) If you have managerial skills and leadership ability, you also possess the personality to be an
entrepreneur.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
11) Because of the stress of being in business for yourself, it's important that entrepreneurs have
people around them to help replenish their enthusiasm.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
12) Successful entrepreneurs rely on others for direction and support.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
4
13) Successful entrepreneurs accept the risk of failure.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
14) Entrepreneurs avoid risk and place a high priority on security.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
15) It is important for an entrepreneur to be highly energetic.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
5
16) Most entrepreneurs get the ideas for their products and services from a flash of inspiration.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
17) Potential entrepreneurs would be well advised to surround themselves with people who are
smarter than they are.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
18) An entrepreneurial team is a group of experienced managers who share the same skills and
abilities.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
6
19) Entrepreneurial teams combine the creative marketing and production ideas of a group of
experienced people.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
20) Micropreneurs is a term used to describe entrepreneurs who focus on the continued growth
of their businesses.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
21) The most important difference between entrepreneurs and micropreneurs is the focus placed
by micropreneurs on balancing the demands of work and family.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
7
22) The primary concern of micropreneurs is to balance the risk of starting your own business
with the desire to build a powerful organization earning significant profits.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
23) Many micropreneurs are home-based business owners.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
24) Micropreneurs are motivated by a desire to have both a satisfying family life and rewarding
work.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
8
25) Advancements in computer technology put home-based businesses at a disadvantage.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
26) Many micropreneurs operate home-based businesses in the service industry.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
27) Corporate downsizing reduces the opportunities for home-based businesses.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
9
28) Successful micropreneurs require self-discipline to separate work from family
responsibilities.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
29) Micropreneurs are exempt from the local ordinances that restrict home-based businesses
from operating in residential areas.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
30) One advantage enjoyed by home-based businesses is the relative ease in attracting new
customers.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
10
31) Small businesses have not significantly participated in online sales.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
32) Online businesses avoid the risk of failure faced by traditional start-up businesses.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
33) An intrapreneur is the creative person who starts and manages a nonprofit organization.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
11
34) Creative people working as entrepreneurs within a large organization are called
intrapreneurs.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
35) Entrepreneurial spirit is unique to a small business environment.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
36) Large organizations encourage intrapreneurship as a strategy to improve their profitability

through new products.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
12
37) By passing the Immigration Act of 1990, the U.S. government acted to encourage
entrepreneurs to immigrate to the United States.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
38) The U.S. government offers investor visas to attract more entrepreneurs.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
39) The position of our government is to restrict foreign entrepreneurs from operating within the
U.S.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
13
40) Business incubators provide assistance to established companies attempting to generate
foreign sales.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
41) A National Business Incubator Association study indicates that over 85 percent of incubator
graduates remain in business.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
42) Enterprise zones offer lower tax rates and government assistance to attract private business
investment.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
14
43) Independence, challenge, and opportunity are among the key reasons given by those who
assume the risks of entrepreneurship.
Answer: TRUE
Explanation: Many factors encourage people to accept the risks associated with
entrepreneurship, including the opportunities, independence, and challenges associated with
starting and operating a business. Clearly the potential of profits is also a great motivator for
entrepreneurs.
Difficulty: 2 Medium
Bloom's: Understand
44) Successful entrepreneurs are exclusively motivated by the desire to become rich.
Answer: FALSE
Explanation: Entrepreneurs are often motivated by the challenges and opportunities of starting
and operating a business, and by the chance to be independent. Thus, earning a profit is only one
of the goals that motivate entrepreneurs.
Bloom's: Understand
45) Although corporate managers often exhibit the skills required of successful entrepreneurs,
they seldom have the desire to give up the perks and fringe benefits of corporate life and start
their own business.
Answer: FALSE
Explanation: Many corporate managers have left their jobs to become entrepreneurs.
Bloom's: Understand
15
46) To be successful, entrepreneurs are dependent on the support of others for encouragement.
Answer: FALSE
Explanation: Entrepreneurs must be self-nurturing. They must believe in their ideas when
others do not.
Bloom's: Understand
47) Entrepreneurial teams increase the cooperation between marketing, production, and other
functional areas of a business venture.
Answer: TRUE
Explanation: In entrepreneurial teams, all members work together to conceive, make, and
market a new product or service. A team may be better than an individual entrepreneur because
team members can combine creative skills with production and marketing skills right from the
start.
Bloom's: Understand
48) State governments create new start-up business organizations called enterprise zones that are
later sold to private investors.
Answer: FALSE
Explanation: Also known as empowerment zones or enterprise communities, enterprise zones
are specific geographic areas where state governments try to attract private investment by
offering lower taxes for locating your business there.
Bloom's: Understand
16
49) The United States government views entrepreneurship as a result of an individual's self-
motivation. The government can do very little to encourage an individual to become an
entrepreneur.
Answer: FALSE
Explanation: The U.S. federal government passed the Immigration Act of 1990, which created a
category of investors' visas intended to attract entrepreneurs to our country. Enterprise zones are
specific geographic areas to which governments attract private business investment by offering
lower taxes and other government support.
Difficulty: 3 Hard
Bloom's: Apply
AACSB: Knowledge Application
50) The Spotlight on Small Business box is testimonial to the fact that entrepreneurs are problem
solvers.
Answer: TRUE
Explanation: Ideas for businesses are often conceived by young people. They act upon those
ideas and develop successful businesses.
Bloom's: Understand
17
51) According to the Spotlight on Small Business box, people in college are not ready to start
their own business.
Answer: FALSE
Explanation: Most students finish their education first, but the text cites examples of some
entrepreneurs who found success during college.
Bloom's: Understand
52) Ariel wants to start and run her own business. Although she acknowledges it would be
helpful to earn a healthy profit, her main motivation is the exhilaration and challenge of starting
and running a business. Ariel's attitude is different from most small business owners, who
usually focus solely on the earnings potential of their ventures, as well as the opportunity to
acquire power and prestige.
Answer: FALSE
Explanation: Many factors motivate entrepreneurs, including the challenges and opportunities
of starting and operating their own business. Additionally, most entrepreneurs seek a sense of
achievement rather than power.
Difficulty: 3 Hard
Bloom's: Apply
18
53) Victor is a dreamer rather than a doer. This will make him an ideal entrepreneur since their
job is to be creative and develop new ideas that are then implemented by others.
Answer: FALSE
Explanation: Entrepreneurs must be self-directed, self-nurturing, and action-oriented. They do
not depend on others to follow through on their ideas.
Difficulty: 3 Hard
Bloom's: Apply
54) Luca has eliminated the risk of entrepreneurship by preparing a detailed business plan.
Answer: FALSE
Explanation: Entrepreneurs must be able to take calculated risk because there are no guarantees
of success. Successful entrepreneurs must be willing to accept uncertainty. However, they should
take only calculated risks if they can help it.
Difficulty: 3 Hard
Bloom's: Apply
19
55) Timothy, Jude, and Eric are working in the marketing department of a multinational
corporation. They each have similar backgrounds and experience and are thinking about leaving
their current company to start their own business. Successful entrepreneurial teams are
comprised of these types of people because similarities in knowledge and skill ensure harmony
and consistency in their new business.
Answer: FALSE
Explanation: Entrepreneurial teams should include people with different skills and
backgrounds. The idea behind an entrepreneurial team is to bring together the creative,
production, and marketing skills necessary to ensure success.
Difficulty: 3 Hard
Bloom's: Apply
56) Antonio works for a textbook publisher. However, his dream is to establish a home-based
business providing his services to a variety of publishers. Antonio's primary goal is to escape the
9 to 5 world of corporate publishing and to enjoy the opportunity of working for himself.
Antonio is an example of a micropreneur.
Answer: TRUE
Explanation: Micropreneur refers to a business owner who is interested in simply enjoying a
better lifestyle and who wants the opportunity to make a living doing the kind of work he or she
enjoys.
Difficulty: 3 Hard
Bloom's: Apply
20
57) Alex works for Wheelie's, a large corporation that designs and manufactures accessories for
scooters, bicycles, and other children's motorized toys. She is a creative force within the
company and has helped create and launch several new successful products. Alex is an example
of an intrapreneur.
Answer: TRUE
Explanation: Intrapreneurs are creative people who work within corporations to launch new
products and generate new profits.
Difficulty: 3 Hard
Bloom's: Apply
58) Grant received an e-mail stating that HE COULD EARN THOUSANDS!!!! just working a
few hours from home. Most likely Grant's e-mail was a work-at-home scam.
Answer: TRUE
Explanation: Persons interested in working from home must be cautious of scam opportunities,
which will often take your money upfront, or never pay you for work provided.
Difficulty: 3 Hard
Bloom's: Apply
21
59) When Marley created the Mar's Cookie Bars Company, she took advantage of a state-
supported incubator that offered her new business low-cost office space and basic services such
as accounting, legal advice, and secretarial help. Joining the incubator helped her company to
survive because it provided assistance in the critical stage of its early development.
Answer: TRUE
Explanation: According to a recent study conducted by the National Business Incubator
Association (NBIA), 87 percent of incubator graduates remain in business. Approximately 32
percent of all business incubators have ties to a university.
Difficulty: 3 Hard
Bloom's: Apply
60) The principles of management of a large business are similar to the principles of
management of a small business.
Answer: TRUE
Difficulty: 1 Easy
Learning Objective: 06-02 Discuss the importance of small business to the American economy
and summarize the major causes of small-business failure.
Bloom's: Remember
61) To be classified as a small business, a firm must have no more than 100 employees.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
22
62) According to the Small Business Administration's definition, small businesses are
independently owned and operated.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
63) A business is considered small by comparing its size to others in the same industry.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
64) Small businesses create 65% of the new jobs in the United States each year.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
65) Small businesses account for over 50% of the U.S.'s gross domestic product (GDP).
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
23
66) About 80% of U.S. workers find their first job in small business.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
67) Of all nonfarm businesses in the United States, almost 97% are considered small by the
Small Business Administration (SBA) standards.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
68) Compared to small businesses, large firms have a greater ability to provide personalized
customer service.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
69) Big businesses do not serve all the needs of a market.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
24
70) The most common small business failures occur in businesses that are the easiest to start.
Answer: TRUE
Difficulty: 1 Easy
Topic: The Advantages and Disadvantages of Small Business Ownership
Bloom's: Remember
71) Only about 10% of all businesses qualify as small businesses using the definition of the
Small Business Administration.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
72) The small business sector that has the best chance of significant growth is legal services.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
73) Small businesses can often provide more personalized customer service than bigger rivals.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
25
74) Recent evidence suggests that the small business failure rate is significantly higher than
previously reported.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
75) Bad luck is the most often reported cause for small business failure.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
76) The business opportunities with the greatest growth potential tend to be in the high
technology industries.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
77) The easiest businesses to start are those that offer the greatest profit potential.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
26
78) Most business opportunities offer entrepreneurs high levels of security and profits.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
79) The easiest businesses to start also have the least growth potential and the greatest failure
rates.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
80) While the first job for many people is working for a small business, larger corporations
create most of the permanent new jobs.
Answer: FALSE
Explanation: Small businesses create 65% of the new jobs in the United States.
Bloom's: Understand
27
81) If you are trying to prevent failure, it is a good idea to go into the business with good record-
keeping techniques.
Answer: TRUE
Explanation: Lack of good record-keeping is one of the causes of small business failure. Other
common causes are listed in Figure 6.3.
Bloom's: Understand
82) If you go through the exercise of preparing a business plan, only to determine that you need
twice the amount of money to start the business than you have, the SBA and other expert
organizations encourage you to go ahead with your plans because if you understand the market,
you can use the revenues you accrue to make up the shortfall.
Answer: FALSE
Explanation: One of the causes of small business failure is lacking the necessary capital to start
the business. Creating a business plan is a good exercise for determining capital needs.
Bloom's: Understand
83) Small businesses lack the resources to compete directly with big businesses.
Answer: FALSE
Explanation: Small businesses can often compete successfully against big businesses because
they are more able to quickly respond to business opportunities and able to offer more
personalized customer service.
Bloom's: Understand
28
84) Because of their greater financial resources and expert staffs, big corporations can almost
always outperform small businesses.
Answer: FALSE
Explanation: Small businesses have some advantages over big firms. They are often more
flexible, and able to offer their customers more personalized service.
Bloom's: Understand
85) Tessa has just graduated with a business degree. Her job hunt should only focus on large
corporations.
Answer: FALSE
Explanation: Since small businesses create 65% of the new jobs in the U.S., if Tessa focuses on
job opportunities with big firms, she is likely to limit her chances of finding employment.
Difficulty: 3 Hard
Bloom's: Apply
86) Kate, a manager at a small manufacturing firm, has offered to help manage a local branch of
the YMCA. Unfortunately, Kate will find that the skills acquired managing a small business will
not be useful in managing a nonprofit organization.
Answer: FALSE
Explanation: The skills needed to manage small businesses, big businesses, charities, churches,
and government agencies are very similar.
Difficulty: 3 Hard
Bloom's: Apply
29
87) Your brother is a dentist and has opened a new practice in your hometown. As a business
student you know that this type of business experiences low failure rates.
Answer: TRUE
Explanation: Many of the businesses with the lowest failure rates require advanced degrees to
start. This would include veterinary services and dentists' offices. However, while training and
degrees may buy security, they do not tend to produce high growth rates.
Difficulty: 3 Hard
Bloom's: Apply
88) Valerie wants to start her own small business. If her primary goal is to grow quickly and earn
high profits, her best chances would be in the manufacturing sector.
Answer: TRUE
Explanation: Although manufacturing firms are difficult to start and keep going, they do have
the greatest potential for the high rates of growth that Valerie needs to achieve her primary goal.
Difficulty: 3 Hard
Bloom's: Apply
89) Jin Yang wants to start a small business. But he has not yet uncovered an opportunity that
would offer him security and the possibility of high profits. Jin Yang will likely find that one
must risk more in order to attain high profits.
Answer: TRUE
Explanation: Firms that offer security seldom offer the potential for rapid growth and high
profits, while firms that offer high profits tend to be associated with high levels of risk.
Difficulty: 3 Hard
Bloom's: Apply
30
90) The best way to learn about small business is to "bite the bullet" and start your own.
Answer: FALSE
Difficulty: 1 Easy
Learning Objective: 06-03 Summarize ways to learn about how small businesses operate.
Bloom's: Remember
91) Individuals wanting to learn about small business operations are advised to learn from other
entrepreneurs.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
92) Many entrepreneurs got the idea for their own business from their experience of working for
others.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
93) Since entrepreneurs are starting new businesses, experience gained from working for an
established business isn't particularly helpful.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
31
94) Offering to manage an established business for a percentage of the profits plus a salary offers
experience to the would-be entrepreneur and free time to the business owner.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
95) Entrepreneurs are well advised to avoid starting businesses in the same market in which they
were previously employed.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
96) You can negotiate a win-win situation by offering to manage an established small business.
You win from the experience; the owner wins with free time.
Answer: TRUE
Explanation: Often it is difficult to start your own business when you lack the capital. One way
to become an owner is to offer to manage a business that is already established. You gain
experience and the owner gets free time.
Bloom's: Understand
32
97) If you were to begin gathering information on a particular type of business, it is doubtful that
a community college class would benefit your search because the information you would gain is
too generic in nature.
Answer: FALSE
Explanation: Many community colleges bring together would-be entrepreneurs from diverse
backgrounds. These resources will often connect students with a network of other entrepreneurs
and small business owners. However, many tips for prospective small business owners are
universal in nature, such as keeping accurate financial records and finding out where to go to
learn how to do these things.
Bloom's: Understand
98) There are several ethical considerations when starting a business, but competing against
current and former work relationships is always fair game.
Answer: FALSE
Explanation: Similar to managers who work for large organizations, small business
owners/managers must consider ethics when making decisions. The Making Ethical Decisions
box depicts a situation where two employees plan to quit their jobs and create a business that
directly competes against their current employer. Although they have a right to create a business
and compete, how they ethically compete for the same customers that their former employer
serves is the question.
Bloom's: Understand
AACSB: Ethics
99) Amir hopes to start his own business someday. He should not talk to other small business
owners about his plans because they might steal his ideas.
Answer: FALSE
Explanation: Talking to small business owners is one of the best ways to learn how to start and
run a small business.
Difficulty: 3 Hard
Bloom's: Apply
33
100) Riley worked as a floral designer at a floral shop in town before opening her own shop.
This approach to the business is okay, but her time would be put to better use starting her own
business.
Answer: FALSE
Explanation: Riley will gain valuable training and insights into the floral design business by
working for someone else. Her experience should reduce her risks and help her operate more
efficiently when she starts her own business.
Difficulty: 3 Hard
Bloom's: Analyze
AACSB: Analytical Thinking
101) As an employee of a small business, Dante has heard the owner is getting ready to retire.
Since Dante would like to buy the business, he needs to determine how much the business is
worth. In order to determine a fair price for the business, Dante should add up the market value
of all of the firm's physical assets such as buildings, machinery, equipment, and inventory, and
willingly pay this amount for the business.
Answer: FALSE
Explanation: A fair value for a business depends not only on what the firm owns, but also on
what it earns and what makes it unique.
Difficulty: 3 Hard
Bloom's: Apply
102) The two primary concerns of an entrepreneur starting a new business are planning and
record keeping.
Answer: FALSE
Difficulty: 1 Easy
Topic: Methods of Business Financing
Learning Objective: 06-04 Analyze what it takes to start and run a small business.
Bloom's: Remember
34
103) According to the Small Business Administration, poor management is the cause of the
majority of small business failures.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
104) Business plans are necessarily a bit vague since these are prepared prior to the beginning of
business operations.
Answer: FALSE
Difficulty: 1 Easy
Topic: The Business Plan
Bloom's: Remember
105) A good business plan describes the nature of the proposed business, the target market, the
competitive advantages, and the qualifications of the owners.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
106) Bankers and investors require entrepreneurs to present a well-conceived business plan.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
35
107) Getting a business plan into the hands of the right people is nearly as important as getting
the right information in the plan.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
108) The entrepreneur's integrity is not relevant to bankers when determining the
creditworthiness of a business loan.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
109) Software designed to help create business plans has proven to be of little value because it is
difficult to apply it to every business situation.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
110) Since creating a detailed business plan is almost impossible, entrepreneurs should focus on
the other tasks needed to get their firm started.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
36
111) Management includes attention toward financing the business, hiring employees,
marketing, and record keeping.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
112) Identifying poor management as the cause of a small business failure likely covers a variety
of problems.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
113) Aside from personal savings, the only other viable source of financing for an entrepreneur
would be funds available from friends and family.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
114) Potential suppliers can be an excellent source of financing for a new business since lending
money to a new customer may be very much in their own interest.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
37
115) Angel investors are the government agencies that invest money in new companies before
they go public.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
116) Venture capitalists provide funds for start-up businesses in exchange for part ownership in
the new firm.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
117) State and local governments often act as venture capitalists.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
118) While the Small Business Administration provides management advice to new business
owners, it is not empowered to provide financial assistance.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
38
119) Venture capitalists provide funds for small businesses as part of their philanthropy
programs.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
120) Venture capitalists prefer investing in smaller start-up businesses in order to reduce their
overall risk.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
121) The Small Business Administration's microloan program offers small businesses very small
loans.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
122) Small Business Administration microloans are based on the borrowers' integrity rather than
collateral and credit history.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
39
123) In order to qualify for a microloan from the SBA, an entrepreneur must have adequate
collateral and a proven track record of success.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
124) Small Business Investment Companies (SBICs) are privately owned companies licensed by
the Small Business Administration to lend money to small businesses.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
125) The SBA may guarantee loans made by a financial institution and repay them if the
borrowers stop making payments.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
126) Success in running a business depends on knowing your customers, managing your
employees, and keeping efficient records.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
40
127) In the business world, a market consists of those people who have a willingness to buy a
particular product.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
128) One of the greatest advantages that small businesses have over larger ones is the ability to
know their customers better and to adapt quickly to the customers' needs.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
129) Attracting qualified workers presents a problem for small businesses since they usually
offer less money, fewer benefits, and less room for advancement than larger firms offer.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
130) As their firms grow and prosper, busy entrepreneurs take pleasure in delegating authority to
others.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
41
131) Studies show that seniority is the most important criterion when selecting employees for
promotion to management positions.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
132) Compared to employees of large businesses, small business employees are less satisfied
with their work because they see their jobs as less challenging.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
133) Hiring family members offers the best answer to the problem of attracting qualified
employees.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
134) Questions about how much authority to delegate and to whom, are easier issues for family-
run businesses since they can't fire family.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
42
135) With fewer employees and less revenue, small businesses have less need for detailed
records than do larger business organizations.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
136) Many small business owners report that they needed assistance with accounting when they
first started businesses.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
137) Commercial loan officers and insurance agents offer expert assistance that can be valuable
to small business owners.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
138) One way to control the legal costs associated with operating a small business is to purchase
a prepaid legal plan.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
43
139) Commercial loan officers serve as a resource for small business owners for information
regarding risk management.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
140) Many more new entrepreneurs are turning to crowdfunding sites, like Kickstarter, to raise
funds for their endeavors.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
141) Management includes attention toward financing the business, hiring employees,
marketing, and record keeping.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
44
142) Prior to creating a business plan, discussions with bankers and investors can help
entrepreneurs determine the amount of financing available.
Answer: FALSE
Explanation: Bankers and investors will want to look at an entrepreneur's business plan in order
to determine whether they are interested in providing funds. Entrepreneurs who are unable to
provide bankers and potential investors with a well-developed plan will appear disorganized and
unprepared.
Bloom's: Understand
143) An effective business plan analyzes the competition and identifies the resources required to
profitably serve a target market.
Answer: TRUE
Explanation: An effective business plan must consider all the aspects of operating a new
business in detail.
Bloom's: Understand
144) When writing a business plan, prospective entrepreneurs should remember to omit details
regarding their experience and education since investors are only interested in the proposed
business.
Answer: FALSE
Explanation: A business plan should include information about the resources and qualifications
of the owner.
Bloom's: Understand
45
145) As opposed to venture capitalists, angel investors prefer to target their investments in new
firms requiring large sums of money.
Answer: FALSE
Explanation: Venture capitalists often invest in businesses in need of large sums of money.
Angel investors are private individuals investing their own money. The amount of money
invested by angel investors tends to be less than amounts invested by venture capital firms.
Bloom's: Understand
146) A major advantage of preparing a formal business plan is that prospective entrepreneurs
must identify the resources and activities required to successfully operate their proposed venture.
Answer: TRUE
Explanation: Developing a business plan forces an entrepreneur to think carefully about all
aspects of the business he or she intends to start.
Bloom's: Understand
147) Prospective entrepreneurs turned down by private lenders have little hope of getting
financial help from the Small Business Administration, since the SBA's standards are even
tougher than those of private lenders.
Answer: FALSE
Explanation: The SBA offers a number of programs to help finance small businesses that have
difficulty obtaining loans from private sources. Sometimes the SBA will offer direct loans,
sometimes it will guarantee private loans, and other times it will combine both of these
approaches.
Bloom's: Understand
46
148) If you plan to meet face-to-face with a banker or venture capitalist, it is not necessary to
submit a business plan.
Answer: FALSE
Explanation: A business plan is mandatory when talking to bankers and investors.
Bloom's: Understand
149) In order to better serve their customers, small business owners should avoid delegating
authority to their employees.
Answer: FALSE
Explanation: Successful small businesses often grow beyond the ability of the entrepreneur.
Empowering employees produces highly motivated workers with higher job satisfaction. This
helps to improve customer service and reduces the wear and tear on the owner-manager.
Bloom's: Understand
150) As a future entrepreneur, Brooke considered a variety of financing sources. Her discussions
with a venture capitalist revealed that this type of investor expects to receive a large ownership
interest in her firm.
Answer: TRUE
Explanation: Venture capitalists sometimes ask for as much as a 60% stake in a business.
Difficulty: 3 Hard
Bloom's: Apply
47
151) Hoping to qualify for a Small Business Administration microloan, Aliana's business plan
clearly pinpoints her strategy to gainfully serve her target market. Unfortunately, her lack of
business experience and limited collateral greatly reduce her chances of obtaining the microloan.
Answer: FALSE
Explanation: Microloans are awarded on the basis of the integrity of the borrowers and the
soundness of their business ideas.
Difficulty: 3 Hard
Bloom's: Apply
152) Elliot's long-time interest in and knowledge of computers enabled him to design a new hard
drive that is better than anything else on the market. Elliot's product and business plan will likely
attract several sources of financing if he is willing to give up part ownership in his company.
Answer: TRUE
Explanation: Venture capitalists are individuals or companies that invest in new businesses in
exchange for partial ownership of those businesses. However, as a result of the bursting dot-com
bubble, many venture capitalists have reduced how much they are willing to invest in a high-tech
venture and have increased their required rate of return.
Difficulty: 3 Hard
Bloom's: Apply
153) Because college students realize the importance of nursing homes for our aging population,
students comprise an attractive market for nursing home insurance policies.
Answer: FALSE
Explanation: A market consists of people who have both a willingness to buy and the financial
resources needed to make the purchase. College students may lack both of these attributes.
Difficulty: 3 Hard
Bloom's: Apply
48
154) Preston believes his family-run business is more likely to avoid many of the problems
growing businesses have with managing employees. His attitude will likely hinder the growth of
his company.
Answer: TRUE
Explanation: Attitudes such as "You can't fire family" or you must promote someone because
"they're family" can be detrimental to family businesses.
Difficulty: 3 Hard
Bloom's: Apply
155) Rachel hopes to start her own business soon, but is concerned about her limited financial
resources. She should save money by waiting to meet with lawyers and accountants until the
business has grown and has been operating successfully for a few years.
Answer: FALSE
Explanation: Consulting with lawyers, accountants, and loan officers may be expensive, but
their advice may be invaluable. If Rachel waits for a few years before asking for legal and
financial advice, the money she saves on consulting fees is likely to be more than offset by losses
due to poor decisions and avoidable mistakes.
Difficulty: 3 Hard
Bloom's: Apply
156) The number of small businesses that export has increased dramatically recently.
Answer: TRUE
Difficulty: 1 Easy
Learning Objective: 06-05 Outline the advantages and disadvantages small businesses have in
entering global markets.
Bloom's: Remember
49
157) Large multinational firms dominate the international market, leaving few opportunities for
small businesses.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
158) One advantage enjoyed by small businesses in international markets is that overseas buyers
like dealing with individuals rather than large corporate bureaucracies.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
159) Due in part to government support, the majority of U.S. small businesses are involved in
exporting.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
50
160) Exporting offers small businesses opportunities to reduce their dependence on domestic
sales and extend product lives.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
161) Small Business Administration loans help firms finance their domestic operations. These
funds, however, cannot be used to finance exports since the money is provided by U.S.
taxpayers.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
162) Small businesses can provide more personalized service than a large corporation to
overseas customers.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
51
163) The Internet has slowed small businesses' participation in international markets.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
164) From a competitive standpoint, small businesses cannot expect to successfully compete
with large corporations in international markets.
Answer: FALSE
Explanation: Small businesses have certain advantages over larger rivals in international
markets. Overseas buyers often prefer to deal with individuals rather than corporate
bureaucracies. Moreover, small businesses can often begin shipping faster and offer more
personal service.
Bloom's: Understand
165) The only real barrier preventing small businesses from exporting is insufficient knowledge
of the opportunities available.
Answer: FALSE
Explanation: Although many small businesses could profit from going international, there are
some serious barriers to small business exporting. Financing is often hard to obtain, dealing with
the bureaucratic paperwork involved in international transactions can be daunting, and the need
to adjust to cultural differences can complicate marketing efforts.
Bloom's: Understand
52
166) As the owner of a small manufacturing business, Finn has an interest in exporting.
However, he doesn't know how to get started. Fortunately, the government provides an
abundance of information to encourage entrepreneurs like Finn.
Answer: TRUE
Explanation: The Department of Commerce's Bureau of Industry and Security and the Small
Business Administration provide export information on the Internet.
Difficulty: 3 Hard
Bloom's: Apply
167) Kyle is a recent college graduate with a business degree. While still in school, he learned
that as a potential small business owner, he should focus his sights on domestic business only.
Answer: FALSE
Explanation: The world market is much larger and more lucrative than just the U.S. market.
Small and medium-sized business accounted for 99% of the growth in exporting firms in recent
years.
Bloom's: Apply
168) Entrepreneurship is
A) managing businesses for others.
B) a controlling interest in the ownership of a corporation.
C) managing businesses that operate in multiple countries.
D) accepting the risk of starting and running a business.
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
53
169) Which of the following U.S. issues does entrepreneurship most directly affect?
A) The political process
B) The ability to create jobs for others
C) Contributions of money to organizations that help people in need
D) The ability to influence national macroeconomics polices
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
170) Which of the following explains why individuals accept the risks of business ownership?
A) The potential for learning how to be self-disciplined
B) The sense of self-satisfaction and independence
C) The challenge of seeking power
D) The desire to work fewer hours
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
54
171) Which of the following is a characteristic of successful entrepreneurs?
A) Power-seeking
B) Relies heavily on others who believe in the business
C) Willingness and desire to follow others
D) Action-oriented
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
172) Which of the following best describes entrepreneurial personality traits?

A) Tolerant of uncertainty and highly energetic
B) Risk averse and self-nurturing
C) Appreciative of direction from others and risk averse
D) Preference for working fewer hours and letting others do the footwork
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
55
173) A(n) ________ is a group of experienced professionals from different areas of business who
join together to develop, make, and market a new product.
A) entrepreneurial team
B) joint venture
C) self-directed functional team
D) managerial task force
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
174) An entrepreneurial team consists of

A) managers with similar skills, abilities, and interests.
B) experienced professionals from different areas of business.
C) a group of wealthy investors who share a vision for a product.
D) representatives from management, labor, and the government who work together to solve a
company's problems in a creative way.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
56
175) Business owners who prefer to maintain their businesses at a manageable size are called
A) macropreneurs.
B) intrapreneurs.
C) micropreneurs.
D) home workers.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
176) One of the challenges of running a home-based business is

A) an increase in business risk.
B) managing the extra time on your hands.
C) keeping work and family tasks separate.
D) burdensome tax laws.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
57
177) A creative person working within a corporation to launch new products and generate new
profits is known as a(n)
A) arbitrator.
B) micropreneur.
C) macropreneur.
D) intrapreneur.
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
178) The goal of an intrapreneur is to

A) improve quality control in a corporation's production process.
B) develop new products and generate new profits for the corporation.
C) implement cost control policies for existing products.
D) create smaller companies within larger companies.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
58
179) The U.S. government's Immigration Act of 1990
A) encouraged entrepreneurs to come to the U.S. through "investor visas."
B) established a government program to teach American workers displaced by immigration how
to start their own businesses.
C) established guidelines to help entrepreneurs recruit legal aliens as a source of low-cost labor.
D) proposed an exchange program for American and European entrepreneurs to temporarily live
internationally in order to open up foreign branches for their businesses.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
180) Enterprise zones are specific geographic areas that

A) the government has set aside for major corporations that promise to spend at least $10 million
to create new jobs.
B) attract business investment by offering lower taxes and government support for development.
C) the government has recognized as having the fastest growth rates in the country.
D) are characterized by government ownership of small businesses.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
59
181) Business incubators are usually government-funded facilities intended to
A) provide health care benefits for small business owners and their families.
B) offer start-up firms low-cost office space and basic business services.
C) help rebuild the nation's infrastructure.
D) assist foreign investors in identifying business opportunities in the U.S.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
182) Historically entrepreneurs in the U.S.

A) created wealth for themselves, but have had a minor impact on the economy as a whole.
B) started many small firms that later became major corporations employing thousands of
workers.
C) experienced success only when they worked in partnership with the federal government.
D) played an important role, but are less important now in creating jobs and wealth.
Answer: B
Explanation: The history of the U.S. economy is full of examples of entrepreneurs that started
small businesses that later became major corporations. Examples from the past include Henry
Ford (Ford Motor Company), George Eastman (Kodak), and William Procter and James Gamble
(Procter & Gamble). More recent examples include Steve Jobs (Apple Computer), Bill Gates
(Microsoft), Chad Hurley and Steven Chen (YouTube), Ted Turner (CNN), and Jack Dorsey
(Twitter).
Bloom's: Understand
60
183) Which of the following statements explains one of the reasons that people in the U.S. take
the entrepreneurial challenge?
A) It's all about profits, and the chance to make a lot of money.
B) It's about independence and the opportunity to share in the American dream.
C) It's about power and fame.
D) It's about a lot of things, but it does not include personal achievement.
Answer: B
Explanation: Although the opportunity to earn big profits is certainly attractive to most
entrepreneurs, it is certainly not the only reason. Many entrepreneurs do not enjoy working for
others and become entrepreneurs because of the opportunity for independence. Others want the
opportunity to share in the American dream.
Bloom's: Understand
184) Successful entrepreneurs are self-nurturing. This means they

A) look to others for strength and encouragement.
B) self-finance their business with no assistance from others.
C) perform all business operations by themselves.
D) believe in themselves and their ideas.
Answer: D
Explanation: Self-nurturing individuals have the ability to believe in an idea when no one else
does, and to replenish their enthusiasm.
Bloom's: Understand
61
185) Which of the following statements is characteristic of entrepreneurs?
A) They like certainty.
B) They have the ability to visualize a clear path.
C) They look at problems and see opportunities.
D) They prefer to be inventive rather than worry about whether the invention solves a customer
need.
Answer: C
Explanation: A common characteristic of entrepreneurs is that they like to solve problems.
They view a problem or a need as an opportunity.
Bloom's: Understand
186) Although successful entrepreneurs are more tolerant of uncertainty,

A) they seldom start another business after a failure.
B) they develop mental games to see themselves through the risk game, especially.
C) they always protect themselves from failure by taking out lots of insurance.
D) they strive to take calculated risks.
Answer: D
Explanation: Although tolerant of uncertainty, successful entrepreneurs prefer to take
calculated risks. This means that they will explore environmental trends, and do their best to
quantify opportunities before taking chances.
Bloom's: Understand
62
187) Effective entrepreneurial teams combine
A) creativity with marketing and production experience.
B) venture financing, tax benefits, and production economies.
C) scientific abilities, capital investment, and marketing skills.
D) risk tolerance, debt financing, and international experience.
Answer: A
Explanation: The purpose of an entrepreneurial team is to bring together the skills needed to
create, produce, and market a new product.
Bloom's: Understand
188) Successful entrepreneurial teams

A) quickly organize themselves like large corporations.
B) assign only one person to new product innovation.
C) bring a variety of talent to the business venture.
D) outsource most of the details of innovation.
Answer: C
Explanation: As its name implies, members of an entrepreneurial team operate as a team.
Everyone works together to conceive, develop, and market the product. Team members can
combine their talents and creative skills, and bring a variety of expertise to the team.
Bloom's: Understand
63
189) One reason we have seen continued growth in home-based businesses is
A) the location offers a more secure operational environment.
B) affordable technology makes it easier to compete.
C) people need something to do while they wait to return to work for a large corporation.
D) it is less risky to start a home-based business than other types of entrepreneurial ventures.
Answer: B
Explanation: Technology has helped level the playing field between large and small businesses.
Entrepreneurs can now use affordable technology right at home.
Bloom's: Understand
190) Which of the following best describes the difference between an intrapreneur and an
entrepreneur?
A) Intrapreneurs start nonprofit organizations while entrepreneurs start profit-seeking businesses.
B) Intraprenuers are practical while entrepreneurs are creative.
C) Intrapreneurs work within existing corporations while entrepreneurs assume the risks of
starting their own business.
D) Intrapreneurs limit their efforts to financial investments, while entrepreneurs are involved in
the management of all areas of a business.
Answer: C
Explanation: Intrapreneurs are creative people who work within a corporation to develop new
products and generate new profits for the firm. Entrepreneurs start their own businesses, without
any financial tie to a larger company.
Bloom's: Understand
64
191) Intrapreneurs make use of ________ to develop and launch new products and generate new
profits.
A) their employer's existing human, financial, and physical resources
B) their own personal financial resources
C) government-supplied physical and financial resources
D) old ideas abandoned by entrepreneurs
Answer: A
Explanation: The idea behind intrapreneurship is to use a company's existing financial, human,
and physical resources to launch new products and generate new profits.
Bloom's: Understand
192) Enterprise zones are

A) government-owned properties that are available for entrepreneurial ventures at a reduced cost.
B) similar to incubator facilities but strictly run by city and state governments.
C) blighted areas that contain toxic materials making them unsuitable for business operations.
D) specific locations across the U.S. where entrepreneurs can set up shop and receive tax breaks
for operating in these areas.
Answer: D
Explanation: Enterprise zones are geographic areas where the government would like to
encourage business development. City and state governments will provide business owners tax
concessions for developing businesses in these areas.
Bloom's: Understand
65
193) Enterprise zones and investor visas are examples of
A) government policies that favor large corporations rather than small businesses.
B) government programs that encourage economic growth through entrepreneurship.
C) government policies designed to encourage intrapreneurs.
D) examples of private initiatives to reduce the government's role in the economy.
Answer: B
Explanation: Investor visas are designed to attract entrepreneurial immigrants, while enterprise
zones are low tax areas where the government offers support services to help new businesses.
While these are very different strategies, the purpose of both is to encourage entrepreneurial
behavior.
Bloom's: Understand
194) State and city governments have promoted facilities where new businesses can open up
shop and share common services such as secretarial, accounting, and legal services. Due to their
remarkable success rate, ________ continue to grow in popularity.
A) enterprise zones
B) incubators
C) intrapreneurial development centers
D) venture farms
Answer: B
Explanation: Incubator facilities offer new businesses low-cost office space with shared
receptionist/secretarial, legal, and accounting services.
Bloom's: Understand
66
195) The Spotlight on Small Business box "Student Startups" features students who
A) directed inheritance money they received into profitable business ventures.
B) turned a passion into a business opportunity.
C) realized the American dream at a very young age, and now run multimillion-dollar
companies.
D) convinced banks to fund their business ideas.
Answer: B
Explanation: The Spotlight on Small Business box features several young persons who turned a
passion or a problem into a business opportunity.
Bloom's: Understand
196) Angelina recently left her job at a large corporation to start her own business. She knows
that her decision comes with risk, but she is excited to be her own boss and to tackle the
challenges that running her own company will bring. Angelina is an example of a(n)
A) intrapreneur.
B) entrepreneur.
C) venture capitalist.
D) raconteur.
Answer: B
Explanation: An entrepreneur is someone who accepts the risks of starting and running a
business.
Difficulty: 3 Hard
Bloom's: Apply
67
197) Laila created a new piece of workout gear. She's calling it the Toned Tushie. Although she
couldn't initially find potential investors, she secured a personal loan and borrowed additional
money from her parents. Her drive to continue believing in her idea and to remain enthusiastic
shows that Laila is
A) characteristically self-nurturing.
B) better suited to managing a nonprofit organization.
C) unaware of the risks she was taking.
D) not a true entrepreneur.
Answer: A
Explanation: Self-nurturing individuals are able to continue believing in an idea and are able to
replenish their enthusiasm even when others do not offer support.
Difficulty: 3 Hard
Bloom's: Apply
198) Apple's legendary smart team is an example of a company that succeeded by

A) encouraging each manager to focus on a well-defined area of the business and build his own
specialized department.
B) bringing together a group of talented and experienced managers to conceive, develop, and
market products.
C) emphasizing a low price and low-cost strategy right from the beginning.
D) assembling a group of employees whose inexperience was a plus, because they did not come
with the baggage and institutional ideas of larger companies.
Answer: B
Explanation: Apple's smart team is an example of an entrepreneurial team—a group of
experienced managers who worked together to conceive, develop, and market products.
Difficulty: 3 Hard
Bloom's: Apply
68
199) Elise recently quit her job at a well-known insurance company and started a home-based
business preparing medical transcriptions for doctors. Based on recent statistics, she can expect
A) a negative reaction from friends and family who wonder when she will get a real job.
B) the emergence of affordable technology will make it less challenging for her to compete with
larger firms offering the same service.
C) the government will discourage her attempts to create a home-based business in the hopes that
she will opt for locating in an enterprise zone.
D) to find security, routine, and a paycheck from her new enterprise.
Answer: B
Explanation: Technology has leveled the competitive playing field enabling home-based
businesses to look and act as big as their corporate competitors. E-based business activities allow
small firms to reach new markets.
Difficulty: 3 Hard
Bloom's: Apply
200) Eddie is an inventive engineering new graduate who just started working for a large
company that makes medical products for both hospital and patient use. One of his primary
responsibilities is to initiate and develop new products to complement the firm's current product
line. Eddie's position is ________.
A) intrapreneurial
B) entrepreneurial
C) an outside consultant for other firms
D) micropreneurial
Answer: A
Explanation: Intrapreneurs are creative people who work as entrepreneurs within corporations
to create new products that will provide returns on investment.
Difficulty: 3 Hard
Bloom's: Apply
69
201) Northeast City College received a government grant to create a business incubator. Once
completed, Northeast City College's facility will offer
A) local government agencies assistance in obtaining funds for urban renewal.
B) area businesses advice on employee benefits and ways to reduce taxes.
C) venture capitalists an opportunity to identify new entrepreneurs.
D) new businesses low-cost office space with basic business services.
Answer: D
Explanation: Incubators are created to reduce the start-up capital needed by new firms.
Incubators offer assistance in the critical stage of early development with services such as
accounting, legal advice, and secretarial help.
Difficulty: 3 Hard
Bloom's: Apply
202) Tucker is an intrapreneur for a multinational wearable electronics company. Which

statement best describes Tucker's duty?
A) He is expected to recruit new managerial talent for his firm.
B) He will use the firm's existing resources to develop new products.
C) He is concerned mainly with improving the firm's public image.
D) He will concentrate on creating new ventures that can be spun off to become independent
firms.
Answer: B
Explanation: An intrapreneur uses a firm's existing financial, human, and physical resources to
create new products and generate new profits.
Difficulty: 3 Hard
Bloom's: Apply
70
203) Matteo just left the Army after 20 years of service. During his service, he managed to save a
little money and is now entitled to a government pension. His wants to go back to his home state
of Arizona and start manufacturing small, solar-powered panels for residential use. Although he
knows he needs a storefront and an industrial site, he is not 100 percent convinced about where
to locate. However, he does know for certain that one of his top priorities is to limit his tax
liability associated with this new business. What would you suggest for Matteo?
A) He should make certain he is deeply passionate about the product he is developing, before he
explores the need.
B) He should keep it small, especially in the beginning.
C) He should take out a lot of insurance in case he finds out that he has not paid enough taxes.
D) He should check out the enterprise zones in Arizona.
Answer: D
Explanation: Enterprise zones are geographic areas usually set up by state governments. In
order to attract small business to these areas, the government provides tax breaks if a business
decides to locate its operation in one of these zones.
Difficulty: 3 Hard
Bloom's: Apply
71
204) Caleb inherited a successful dry cleaning business from his parents. Just as his parents did,
he offered high-quality service to all the customers he served. As the surrounding towns grew,
several customers recommended that Caleb expand the business to offer service in new locations.
He chose to maintain only one operation, so as not to lose control and to keep his work life and
home life balanced. Caleb is a good example of a(n) ________.
A) small business affiliate
B) intrapreneur
C) micropreneur
D) enterprise zone participant
Answer: C
Explanation: Micropreneurs are interested in a balanced lifestyle. They generally like what they
are doing and do not aspire to grow the business. They know they can be content remaining
small and producing quality products and services to their limited market.
Difficulty: 3 Hard
Bloom's: Apply
205) Located at Monsanto's world headquarters, the Nidus Center is a unique ________ facility.
The tenants are biotechnology companies who are at various stages of product development. The
agricultural giant, Monsanto, the Danforth Foundation, Washington University-St. Louis, Saint
Louis University, and several venture capital firms contribute seed money for these small start-
up ventures that receive approval to further develop their ideas at the Nidus Center.
A) incubator
B) intrapreneurial
C) enterprise zone
D) micropreneurial
Answer: A
Explanation: Incubator facilities offer new businesses in the critical stages of early development
low-cost offices, and in this case, laboratory space and shared business services.
Difficulty: 3 Hard
Bloom's: Apply
72
206) Small businesses
A) deal with similar management issues that large companies face.
B) deal with very different management issues due to the very different management challenges
experienced by small businesses.
C) do not seek government funding due to the fact that the federal government has made it very
clear that it must support large operations before small operations.
D) concern themselves with state-of-the-art information and accounting technology but not
employee relations due to their challenge to financially support employee benefits programs.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
207) The Small Business Administration defines a small business as a firm that:
A) has fewer than 100 partners.
B) is independently owned but not dominant in its industry.
C) is dominant in its industry, but small in the number of workers it employs.
D) has annual receipts of more than a specified amount depending upon the industry.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
73
208) Small businesses create about ________ percent of the new jobs in the United States.
A) 25
B) 45
C) 65
D) 85
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
209) A business's size is measured

A) in relation to the number of competitors in its industry.
B) in relation to other firms in its industry.
C) in relation to the number of dominant competitors in its sector.
D) as small, if it participates in the services sector.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
210) Some people argue that small business failures are

A) lower than traditionally reported.
B) understated to keep small business creation enthusiasm.
C) accurate and alarming.
D) inconclusive.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
74
211) When comparing small businesses to their larger competitors, it is clear that
A) bigger is always better.
B) small firms can always outperform big firms on a level playing field.
C) small firms often can offer more personalized customer services than big firms.
D) small firms are slower to respond to opportunities than are large firms.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
212) Small businesses are important to the U.S. economy because

A) they fill in the gaps when large businesses want to let workers go on vacation or when large
businesses want to temporarily cease production.
B) banks and other financial services companies would not have borrowing customers, because
small businesses borrow more than large businesses.
C) they pay most of the tax revenue collected by the U.S. government.
D) they create about 65% of new jobs each year and generate over 50% of the U.S. GDP.
Answer: D
Explanation: According to the textbook, small businesses contribute to a significant amount of
yearly job creation and account for more than 50% of the U.S. gross domestic product.
Bloom's: Understand
75
213) Using the analogy of boulders vs. sand for filling a hole, the textbook points out that
A) small businesses are employing a record number of employees because they have to work
twice as hard at producing the same amount of output as a large competitor.
B) small businesses can serve niche markets that larger firms do not serve well.
C) the sand represents the small businesses that start and fail each year, while the boulders
represent the large companies whose resources permit them to stay the course.
D) large companies serve market niches so much better than small companies.
Answer: B
Explanation: There are lots of opportunities and plenty of room for small companies to serve
small underserved markets. The boulders represent large firms, who leave a lot of space in the
hole which smaller firms represented by grains of sand can fill.
Bloom's: Understand
214) Which of the following employment statistics about small businesses is true?
A) Small businesses create about 15% of all new jobs in the U.S.
B) The number of women owning small businesses has remained constant.
C) A great majority of American workers find their first jobs with a small business.
D) Growth of minority-owned businesses in the U.S. is declining.
Answer: C
Explanation: Small businesses create about 65% of all new jobs in the U.S. The number of
women and minorities owning small businesses has increased rapidly. About 80 percent of
Americans find their first jobs in small businesses.
Bloom's: Understand
76
215) According to SBA guidelines, a manufacturing firm with 1,000 employees
A) would be classified as a large firm in the industrial sector.
B) may be classified as a small business depending upon the size of others in the same industry.
C) is too small to achieve the efficiencies of large-scale production.
D) is classified as an S corporation.
Answer: B
Explanation: The criteria used by the SBA differ according to the type of firm. In
manufacturing, a firm can have up to 1,500 workers and still be classified as a small business.
However, the SBA classifies a firm as small only in relation to other businesses in its industry.
Bloom's: Understand
216) Which of the following statements accurately depicts an advantage that small business has
over big business?
A) If the small business owner can project his business as being big, if not very similar to big
businesses that sell in the same industry, then he will realize a significant advantage.
B) The size of the business (small being better in this case) is an important consideration in the
management of legal, payroll, and tax concerns.
C) A small business can maneuver and change quicker than most large businesses can. It can
react to market conditions and customer concerns much faster.
D) The slower pace of small businesses translates into better quality for its customers.
Answer: C
Explanation: Typically, small businesses can react to customer needs and embrace change at a
faster pace. An advantage is the ability to know their customers better and to adapt to customer
needs.
Bloom's: Understand
77
217) Entrepreneurs looking for a business that gives them the best opportunity to get rich should
consider starting a business in
A) the manufacturing sector.
B) the food service industry.
C) a low-risk industry.
D) the agriculture sector.
Answer: A
Explanation: Businesses with the greatest potential to make the owner rich are those that are
both hard to start and hard to keep going (manufacturing).
Bloom's: Understand
218) A review of small business successes and failures indicates that the
A) businesses that are easiest to start offer the greatest potential for long-term growth and profits.
B) restaurant industry offers the least risk for entrepreneurs.
C) businesses with the potential for high profit levels tend to be difficult to start and hard to keep
going.
D) reason the service sector is rapidly growing is that these firms are easy to start and keep
going, and offer high levels of security and growth potential.
Answer: C
Explanation: Firms that offer growth, and the potential for high profits, are often the same
businesses that are hard to start and hard to keep going.
Bloom's: Understand
78
219) Manuel is focusing his attention on finding full-time employment now that he has
graduated. He has decided to narrow his job search to jobs with a major corporation and ignore
the possibility of working for a small business. His job search strategy
A) makes sense because managerial skills are best developed by working for big firms.
B) is smart because major corporations represent the most important source of employment
growth in the United States.
C) indicates that Manuel's passion is to fulfill his dream of owning his own business.
D) will likely limit his job prospects since most new jobs are with small businesses.
Answer: D
Explanation: In recent years many major corporations have downsized. The text identifies
statistics that small businesses create 65% of new jobs, and 80% of Americans find their first
jobs in small businesses.
Difficulty: 3 Hard
Bloom's: Apply
220) Quinn has landed a management position with a pioneering new small business after many
years of working as a regional manager for a nationally known nonprofit. As Quinn starts her
new job, she is likely to find that
A) due to the significant differences in large and small firms, her previous experience will be of
little value in her new position.
B) the principles of management are much the same at large and small firms.
C) nonprofit organizations are motivated by their desire to help people and so financial
management is of little concern.
D) planning is more important to a nonprofit organization and less important to a small business
so she will need to adjust the time she spends on the planning function.
Answer: B
Explanation: The principles of managing a small business are very similar to those needed to
manage a large corporation or a nonprofit organization such as a charity.
Difficulty: 3 Hard
Bloom's: Apply
79
221) As a result of recent downsizing at his firm, Dominic lost his job as an IT manager for a
large telecommunications company. A true, self-confirmed computer nerd, Dominic knew that
several of his past contacts often outsourced their computer problems. He decided it was a good
time to test the waters and see if he could secure enough computer clients to be in business for
himself. His success demonstrated that
A) starting your own business can quickly provide security and profits.
B) people always tend to hire people they know from past associations.
C) the service sector is not an area of significant growth.
D) successful big businesses often create profitable opportunities for small businesses.
Answer: D
Explanation: As big businesses downsize, they often find that they do not always have the staff
they need and are increasingly contracting with small companies to temporarily fill their needs
through outsourcing. Big businesses don't serve all the needs of the market. There is plenty of
room for small companies to make a profit filling those niches.
Difficulty: 3 Hard
Bloom's: Apply
80
222) Ariana, a talented photography student, started her own photography business. She planned
to solicit jobs from large corporations, which would need headshots and other pictures for their
annual reports and websites. Although filling a unique niche, Ariana needed the security that the
business would thrive and that she would earn enough to support herself and her family. She also
hoped she would spend less time each day calling on potential clients and more time doing the
actual shoots. As her small business consultant, which of the following suggestions would you
have for Ariana?
A) Ariana should either take the risk necessary to develop a small business, or go to work for
someone else.
B) In the beginning, it's doubtful that Ariana will realize ease of entry, security, and good profits.
She needs to make plans in the event that one or more of these does not materialize quickly.
C) Photographers can take pictures of a multitude of things. It's probably not good strategy to
limit her business to only photographing the needs of large corporations.
D) Ariana should definitely make time for herself each day so that she does not experience
burnout. If she plans well, leaping into her own business will provide her with several hours of
unstructured time each day where she can perfect her craft even more.
Answer: B
Explanation: Prospective small business owners should be aware that it is unlikely that ease of
entry into a market, security, and reward will come all at once. At least in the beginning, if you
need security, you may have to pursue the business idea on the side. However, the trade-off is
that you will probably have to forego rapid rewards since you are spending only part of your
time in developing the business.
Difficulty: 3 Hard
Bloom's: Apply
81
223) Dr. Pearl White just graduated from dental school. She is hoping to acquire the necessary
funding to start her own dental practice. One advantage of this type of business is
A) above-average opportunity to borrow funds at a high interest rate.
B) nearly unlimited growth potential.
C) the service is individualized and not easily mass-produced.
D) very low start-up costs.
Answer: C
Explanation: Healthcare businesses that require advanced technical degrees to get licensed
generally have a good chance of success due to the individualized attention necessary to perform
the service.
Difficulty: 3 Hard
Bloom's: Apply
224) Maya opened a bakery in a seaside resort town. She was positive she had the perfect
location as plenty of hotels and inns were within walking distance of her storefront. She planned
to use her grandmother's recipes and only the finest ingredients for her upscale resort customers.
During her first week of business, she was disappointed with lackluster sales. When she drove
past the regular breakfast-style restaurants and even the nearby Starbucks, she noticed they were
rather bustling. Maya most likely
A) did not publicize in the appropriate places.
B) underestimated the competition.
C) should have considered weather conditions before assuming that her business would be
vibrant.
D) did not consider that small businesses never get the name recognition in resort towns that
larger businesses and franchises realize.
Answer: B
Explanation: Underestimating the amount of competition in your service area is a reason some
small businesses falter or fail.
Difficulty: 3 Hard
Bloom's: Apply
82
225) Austin, Aiden, and Zara wanted to open A2Z Sports Bar that serves a unique offering of
beer, weekend entertainment, and a limited menu of appetizers. In one of the preliminary
meetings, Zara presented a list of reasons that small businesses fail. Although many of the ideas
on this list were applicable to many types of business, one challenge pertained specifically to the
restaurant and bar business. The challenge he referred to was
A) underestimating how much time it will take to build a market.
B) borrowing money without planning just how and when to pay it back.
C) carrying habits of personal extravagance into the business.
D) some of the easiest businesses to start have the least growth prospects and greatest failure
rates.
Answer: D
Explanation: The easiest businesses to start have the least growth prospects and greatest failure
rates. An example of a business that is easy to start is the restaurant or bar business.
Difficulty: 3 Hard
Bloom's: Apply
83
226) Scarlett is graduating from culinary school soon and she often imagines opening her own
comfort food restaurant. Her other passion is skiing in Colorado, where she travels to four or five
times every year. As her small business advisor, you believe it necessary to provide her with
information that will help her make good business decisions. Which of the following would be
helpful for Scarlett to know?
A) Restaurants are relatively easy businesses to start, but are labor intensive and also have the
greatest failure rate.
B) Restaurants are not the easiest type of business to start, but once you get it going, you will
have plenty of time for skiing.
C) Most restaurant owners get rich if they open their own, independent restaurant as opposed to
starting a franchised operation.
D) Franchised operations will take less time on the part of the owner than a regular
independently owned operation. If she opens a franchise, she will have more time for creativity
in the business, and more time for skiing too.
Answer: A
Explanation: Restaurants fall into the category of a relatively easy business to start, but with not
much growth rate, and a high risk of failure. Businesses with the highest profit potential are also
those that are more difficult to start. Usually the start-up funds are prohibitive for many
entrepreneurs.
Difficulty: 3 Hard
Bloom's: Apply
227) A small business management course at a community college may offer entrepreneurs an
opportunity to
A) meet with experienced entrepreneurs and learn from their advice.
B) try out ideas on a computer simulation before risking real time and money.
C) listen to a qualified instructor solve all of the problems of small business owners.
D) be part of a group that will include angel investors.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
84
228) One way to get into business is to buy an existing company. The value of the business used
to determine a fair purchase price is based on
A) the prospects for business competition.
B) the current owner's retirement plan.
C) the amount of government contracts the company has.
D) the value of what the business owns, what it earns, and what makes it unique.
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
229) Conversations with people who start their own business often reveal that
A) many small business owners got their entrepreneurial idea from a previous job.
B) it is unusual for experienced corporate managers to start their own businesses.
C) the most successful entrepreneurs often start their business ventures right after high school.
D) most small business owners begin with significant personal wealth.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
230) For prospective entrepreneurs, enrolling in an introduction to business or small business

management course offered through their community college
A) is likely to be wasted time since college courses tend to be too theoretical.
B) can be helpful by offering them an opportunity to meet experienced small business owners.
C) serves as supplementary information, only after starting their business venture.
D) seldom provides you with information to help make small business decisions.
Answer: B
Explanation: One of the best things about small business courses offered by community
colleges is that they can bring together entrepreneurs. The advice experienced entrepreneurs can
share with those just getting started can be invaluable.
Bloom's: Understand
85
231) Which of the following suggestions would an experienced business owner offer to help
someone who is thinking about starting a business venture?
A) Avoid the temptation of buying an existing firm. Build your own reputation and make your
own mistakes.
B) Gain experience by working for a successful businessperson.
C) Postpone consulting with an accountant or lawyer until you can afford their services.
D) Jump in quickly, before the market conditions change and opportunities are lost.
Answer: B
Explanation: Experienced entrepreneurs regularly state that there is no better way to learn small
business management than by working for a successful businessperson.
Bloom's: Understand
232) Successful small business owners are

A) not good sources for information on starting your own business because they generally do not
understand failure.
B) valuable sources for information since you can learn from their experiences.
C) good sources of information but risky since their keen sense of sniffing out something with
potential will tempt them to steal your ideas.
D) valuable sources of information, but you should proceed with caution because talking with
someone who could eventually be your competitor may cross the line due to federal trade
commission laws.
Answer: B
Explanation: An excellent way to learn how to run a small business is to talk to others who
have already done it.
Bloom's: Understand
86
233) When starting a small business, it's important to remember
A) an affinity for taking large amounts of risk is the critical factor in achieving small business
success.
B) doing things differently from previous entrepreneurs is the real key to success.
C) learning from others and gaining relevant business experience improves the odds for success.
D) to avoid burnout, limit the number of hours you work each week as you adapt to the rigors of
self-employment.
Answer: C
Explanation: Learning from others and getting some experience are two keys to achieving
success in small business.
Bloom's: Understand
234) The Making Ethical Decisions box "Should You Stay or Should You Go?" addresses a
dilemma worthy of consideration. It describes
A) an unethical situation where the business owner's need for capital causes him/her to delay all
payments to suppliers for 120 days, forcing several of his close business relationships out of
business.
B) the slow death of a business and how important it is to delay payments, sell off assets, and do
everything possible to save a failing business except dismissing employees who need their jobs
for survival.
C) ethical decisions that need to be considered when employees leave a faltering business to start
their own, eventually competing against their previous employer.
D) the unethical and disloyal decision to leave your family business and start your own, taking
with you all the family business's trade secrets.
Answer: C
Explanation: The box describes a situation where employees have ideas of how to make a
failing business model successful. They choose to leave the faltering company and go out on
their own. As competitors, do they seek to communicate directly with their previous employer's
loyal customers, or is this strategy unethical? The box asks the student to explore the alternatives
and the consequences.
Bloom's: Understand
87
235) Long-motivated by his wish to operate his own business, Andrew is considering purchasing
an existing business. As he carefully weighs this option, he is likely to find that
A) very few owners of small businesses have any interest in selling.
B) his potential for success would greatly improve if he started his own new firm.
C) the value of an existing business is determined by what the business owns, what it earns, and
what makes it unique.
D) any entrepreneur willing to sell his/her business is experiencing serious financial problems.
Answer: C
Explanation: The value of a firm is based on three things: what it owns, what it earns, and what
makes it unique.
Difficulty: 3 Hard
Bloom's: Apply
236) Lily, an upperclassman at Riverside College, hopes to start her own business after
graduation. In an effort to learn as much as she can about small business management, she talked
to four friends who each offered their advice. Which of these suggestions is likely to help her the
most?
A) The best way to learn about running a business is by getting hands-on experience. You should
quit school and put your dream into action.
B) Take courses related to small business management and then look for a job with a successful
businessperson, preferably in your field of interest.
C) Since every business is unique, don't worry about advice from others. Go to a bank, get a
business loan, and live your dream.
D) Starting and managing a small business requires little more than common sense. If your idea
is unique, hard work will guarantee your success.
Answer: B
Explanation: College courses will allow Lily to interact with others interested in small
businesses, including experienced entrepreneurs, whose advice can be invaluable. Perhaps the
best way to learn about running a small business is to get some experience by serving as an
apprentice for a successful business.
Difficulty: 3 Hard
Bloom's: Apply
88
237) Isaac benefited from his experience working for an established private company that
provided state-of-the-art lighting for music venues around town. Although confident that he
could start his own lighting business, he had limited capital to buy the necessary equipment
needed to successfully compete with established companies. Which of the following strategies
would best help Isaac achieve his goal of business ownership?
A) Begin by offering to take over management of his employer's business, allowing the owner to
enjoy some leisure time.
B) Consider working for a major corporation, live modestly, and save until he has sufficient
funds to start his business.
C) Enroll in the closest university and apply for student loans.
D) Open his business and trust that his work experience will bring him success even with
insufficient capital.
Answer: A
Explanation: Small business owners work long hours and rarely take vacations. After many
years, they may want to enjoy some leisure time, but feel trapped by the need to always be there.
This offers an opportunity for aspiring entrepreneurs to learn all about a particular business and
perhaps share in the profits while at the same time help the owner realize a better work-life
balance.
Difficulty: 3 Hard
Bloom's: Apply
89
238) Mike remembers his grandfather telling him, "If you can find something you like to do, and
somebody is willing to pay you to do it, that's the secret to a great life." The way Mike saw it,
this was his chance. For the past five years, he's been splitting his time between school and
working at a local tree farm. The owner recently announced he was ready to retire. As Mike
began creating a business plan, he contemplated what the business might be worth. How much
will he need to buy this business? For starters, Mike
A) needs to find a government database that outlines what nursery businesses are worth, on
average, across the country.
B) should speak with the current owner and determine the total value of assets (what the business
owns), its earning potential, and its unique advantage.
C) will want to determine the assessed value of the acreage that the business owns, and then bid
competitively.
D) needs to understand that it's difficult to buy an existing business, rather than start your own.
The key will be to meet with the company's accountant, and explain your interest. The
accountant will have all the answers.
Answer: B
Explanation: When preparing to buy an existing business, a good start is to determine the total
value of what the business owns; what the business earns and future potential earnings; and what
makes the business unique in its industry.
Difficulty: 3 Hard
Bloom's: Apply
239) Two key management functions that need particular attention when starting a business are
A) human relations and accounting.
B) planning and financing.
C) marketing and public relations.
D) staffing and controlling.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
90
240) A ________ is a written document that details the business idea, the target market and the
business's competitive advantage, financial resources available for the business, and the
qualification of the management.
A) feasibility product
B) marketing plan
C) business plan
D) statement of intent
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
241) The business plan will include ________.

A) an analysis of the competition
B) names of banks the owner plans to visit
C) import/export information
D) names of employees
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
242) A detailed written statement that describes the nature of the business, the target market, the
firm's competitive advantages, as well as the owner's resources and qualifications is a
A) business plan.
B) entrepreneurial mission statement.
C) profit and loss statement.
D) professional action plan.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
91
243) Entrepreneurs seeking financial support from bankers and potential investors should
A) be vague regarding their creative business plan to avoid having their idea stolen.
B) seek the bankers' and investors' assistance in developing their business plan.
C) create a detailed business plan to help the bankers and investors understand why this business
will succeed.
D) ask for a relatively small amount of capital initially, postponing a full funding request until
the investors better understand the business concept.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
244) Bankers and potential investors are likely to read ________ first.
A) the executive summary
B) the marketing plan
C) the qualifications of the management team
D) the analysis of the competition
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
245) After personal savings, the next largest source of capital for entrepreneurs is from
A) large multinational banks.
B) the Small Business Administration.
C) state and local governments.
D) friends and family.
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
92
246) ________ are private individuals who invest their own money in potentially hot new
companies before these firms become larger, publicly traded companies.
A) Leveraged buyout specialists
B) Angel investors
C) Venture investors
D) Corporate raider investors
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
247) Due to the credit crunch that developed during the Great Recession, many small businesses
found that ________ were more willing to lend money to smaller operations.
A) large corporations
B) credit card companies
C) international banks
D) smaller, community banks
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
248) A firm or individual providing financial capital to small businesses in exchange for an
ownership stake in the company is called a
A) corporate raider.
B) takeover specialist.
C) financial capitalist.
D) venture capitalist.
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
93
249) Which of the following government agencies is responsible for encouraging the
development of small business?
A) Small Business Administration
B) Federal Trade Commission
C) Entrepreneur Assistance Center
D) Federal Microloan Authority
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
250) Which of the following sources of investment is the LEAST likely type available to
entrepreneurs?
A) Angel investors
B) Small Business Administration loans
C) Venture capitalists
D) Family and friends
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
251) The Small Business Administration's microloan program awards loans to entrepreneurs
based primarily on their
A) collateral.
B) credit history.
C) previous business success.
D) integrity and sound business idea.
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
94
252) A Small Business Investment Company (SBIC) is a(n)
A) agency of the federal government that loans money to high-tech firms.
B) private investment company that is licensed by the SBA to make loans to small businesses.
C) private firm that offers loans to small businesses in return for a share of ownership in the firm.
D) agency set up by state governments to provide managerial advice and support to small
businesses.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
253) One of the best places for young entrepreneurs to start shopping for an SBA loan is a
A) Small Business Development Center.
B) financial institution specializing in business loans.
C) college or university financial aid office.
D) website for the Venture Capitalists Association.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
254) A ________ refers to people with unsatisfied wants and needs who are willing and able to
buy a product or service.
A) market
B) consumer cooperative
C) consumer collective
D) buyer's cooperative
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
95
255) To be considered part of a market, an individual must
A) be a registered buyer.
B) have made a purchase within the past 30 days.
C) know the names and addresses of two or more sellers.
D) have both a willingness to buy and the financial resources needed to buy.
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
256) Small business owners often struggle in attracting qualified workers. Which of the
following contributes to this problem?
A) Managers in small firms tend to be disrespectful to the workers.
B) Owners will not often listen to ideas suggested by the workers.
C) Employee relations are especially poor in small firms.
D) Many jobs in small firms have low pay and few benefits.
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
257) Employees of small businesses often have greater job satisfaction than do employees of
larger firms. One reason for this difference in job satisfaction is that employees of small
businesses often
A) earn higher wages.
B) receive more vacation time.
C) get more respect from their bosses.
D) have more job security and better fringe benefits.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
96
258) A new business that sets up a(n) ________ from the start is saving itself time and grief
later.
A) angel investment network
B) good accounting system
C) detailed supplier network
D) vertical marketing system
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
259) Small businesses must seek advice from outside experts. In order to put together official
documents such as leases, contracts, and partnership agreements, it is important to seek the
advice of ________.
A) a friend who has already started a business.
B) a competitor in a similar business.
C) an attorney.
D) a marketing expert.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
260) A(n) ________ is a valuable source of information regarding techniques to reduce a firm's
exposure to risk.
A) insurance agent
B) accountant
C) liability assessor
D) union business agent
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
97
261) Similar to how large businesses proceed, small businesses make marketing decisions
________.
A) after the product or service is developed.
B) before the business is funded.
C) at the same time that they hire employees, research for an accountant, and prepare the
business plan.
D) before a product is developed or store is opened.
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
262) The Small Business Administration sponsors volunteers from industry, trade associations,
and education who offer advice to small business owners. These volunteers are called:
A) the Small Business Council of Volunteers (SBCV).
B) Partners in Service and Economic Progress (PSEP).
C) Small Business Counselors Incorporated (SBCI).
D) the Service Corps of Retired Executives (SCORE).
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
263) Entrepreneurs applying for a bank loan should realize that bankers will
A) expect to receive a share of ownership in the business in exchange for their loan.
B) expect the entrepreneur to provide a business plan.
C) generally make loans only to small businesses in dot-com related industries.
D) offer only short-term financing.
Answer: B
Explanation: A well-prepared business plan is mandatory when seeking financial assistance
from a bank or other investors.
Bloom's: Understand
98
264) A good business plan will
A) focus on the big picture and omit the small details of operating the business.
B) describe all aspects of the business, including product, the target market, the nature of the
competition, any financial resources, and the owner's qualifications.
C) be purposefully vague, since specifics can restrict creativity and flexibility.
D) focus on the nature of the business and the target market, omitting personal information about
the owner in order to avoid personality issues.
Answer: B
Explanation: A business plan is a detailed written statement that describes the nature of the
business, the target market, the advantages the business will have relative to competitors, and the
resources and qualifications of the owner.
Bloom's: Understand
265) The executive summary section of the business plan contains

A) computerized information that readers can access interactively.
B) information that will capture the attention of bankers and other investors who receive many
business plans every day.
C) qualifications, experience, and education of the entrepreneur and prospective employees.
D) a financial summary prepared by the business's accountant.
Answer: B
Explanation: The executive summary must grab the reader's attention. In some cases, it is the
only part that some decision makers will read.
Bloom's: Understand
99
266) When seeking financial backing from a venture capitalist, a small business owner should
realize that the venture capitalist will
A) charge an interest rate that is much higher than any other lender.
B) not be interested in the management of the business.
C) expect an ownership stake in the company in exchange for financial backing.
D) demand that the money be repaid within 90 days or less.
Answer: C
Explanation: Venture capitalists often ask for a hefty ownership stake in a business in exchange
for the cash needed to get that business started.
Bloom's: Understand
267) A market consists of potential buyers of a good or service. However, for a market to exist
A) the business requires wholesalers and retailers.
B) one firm must dominate in sales and product development.
C) people must have unsatisfied wants and needs as well as a willingness and ability to buy.
D) the product must be laboratory tested and approved by the Food and Drug Administration
(FDA).
Answer: C
Explanation: A market consists of people who have unsatisfied wants and both the willingness
and the resources necessary to buy the good or service.
Bloom's: Understand
100
268) Small business employees
A) usually dislike their jobs and look forward to finding employment with major corporations.
B) find their jobs less challenging than a similar job in a large corporation.
C) usually get paid higher wages than workers in large corporations.
D) often find more job satisfaction than their counterparts in big business.
Answer: D
Explanation: Employees in small businesses are often more satisfied with their jobs than their
counterparts in big business because their jobs are more challenging, their ideas are more
accepted, and their bosses are more respectful.
Bloom's: Understand
269) Entrepreneurs learn that there are many legal and financial issues involved in starting their
business. The best way for the small business owner to resolve these issues and protect the firm's
resources is
A) for the owner(s) to trust his/her common sense.
B) hire a full-time lawyer and accountant who work exclusively for the small business.
C) defer making decisions regarding these issues until the company is bigger.
D) seek and pay for expert guidance and assistance.
Answer: D
Explanation: Legal and accounting issues are often too complex to trust to instinct and too
important and immediate to defer to a later date. Unfortunately, most small businesses cannot
afford to hire lawyers and accountants as employees. Thus, the best approach is to consult with
professional accountants, lawyers, loan officers, and insurance agents outside the business.
Bloom's: Understand
101
270) In order to secure financing for Bitty Bytes, a mobile bakery business that services several
large Silicon Valley firms, Betty demonstrated her unwavering aspiration to get her business
started by visiting several bankers with ________.
A) her insurance agent.
B) her business plan.
C) her venture capitalist.
D) her idea.
Answer: B
Explanation: A business plan provides a detailed written statement of the nature of a firm, its
target market, its competitive advantages, and the resources and qualifications of its owner.
Difficulty: 3 Hard
Bloom's: Apply
271) In order to improve his chances of small business success, DeMarcus worked hard to
prepare his business plan. Most often, a positive outcome of this exercise is
A) the plan will meet federal reporting requirements of the Internal Revenue Service.
B) the plan ensures financing will be available from the Small Business Administration.
C) the plan enables DeMarcus to think carefully about all aspects of his business idea.
D) the plan will protect DeMarcus from failure.
Answer: C
Explanation: A business plan is a detailed written statement that describes the nature of a
business. Writing a plan forces the entrepreneur to look closely at all areas of the proposed
business.
Difficulty: 3 Hard
Bloom's: Apply
102
272) For several years, Addison has volunteered to play the piano and sing at a local nursing
home. Now, Addison has decided the time was right to get into the growing eldercare market.
She created Music and Memories, a nonprofit corporation that would hire local talent to perform
her own music productions directed toward this market. In order to write and produce several
productions each year, Addison needed start-up funds. An instructor at the local community
college suggested that she begin by ________, because this effort would help introduce her idea
to interested investors as well as suggest government grant applications that Addison might
pursue.
A) preparing her business plan
B) finding talented performers
C) writing themed performances such as a Thanksgiving concert and a Valentine's Day concert
D) developing a list of start-up costs
Answer: A
Explanation: The business plan is a comprehensive document that addresses every aspect of the
business. It incorporates a marketing plan and a financial plan, and introduces the management
and operations of the firm to the reader. An executive summary at the beginning of the document
should catch the reader's attention and interest and position the business by stating its
competitive advantage.
Difficulty: 3 Hard
Bloom's: Apply
273) As a high net worth individual, Aria searches for developing companies in need of
additional funding to achieve their goals. In return for this ________, she expects to give up
some percentage of ownership in the business.
A) analysis
B) venture capital
C) corporate loan
D) securities investment
Answer: B
Explanation: A venture capitalist is an individual or firm that provides start-up capital in
exchange for a stake in the ownership of the business.
Difficulty: 3 Hard
Bloom's: Apply
103
274) Skylar is an angel investor. This means that he
A) invests his money in new businesses with potential for growth, hoping for a good return on
his investment if they go public.
B) creates business incubators for start-up web-based firms.
C) invests in nonprofits that plan to change their status when they double in size.
D) comes to the rescue of firms who default on their bank loans.
Answer: A
Explanation: Angel investors are private individuals who invest their own money in potentially
hot new companies before they go public.
Difficulty: 3 Hard
Bloom's: Apply
275) Sofia recently applied for a microloan from the Small Business Administration. Although
several conditions are important, the SBA's decision to grant or deny the loan will largely depend
upon
A) her credit history and the collateral she can offer.
B) her age, since microloans are only available to senior citizens.
C) her previous record of business success.
D) the soundness of her business plan, and her integrity.
Answer: D
Explanation: Microloans are awarded on the basis of the borrower's integrity and the soundness
of their business ideas.
Difficulty: 3 Hard
Bloom's: Apply
104
276) Francisco came to the U.S. on a swimming scholarship. After a few months of frustration
with trying to find the swim goggles he prefers from home, he created a website that selling
specialty goggles for swimming, skiing, and snowboarding. Before launching the website and
filling orders, Francisco spent a few months going to swim meets and gathering preferences
about goggles from other international swimmers. Francisco's actions
A) showed that he had a ready market for this product.
B) demonstrated that he had little experience with this product.
C) showed that he was promoting the website before it launched.
D) demonstrated his need to better understand the market.
Answer: D
Explanation: Francisco understands that identifying the market and its needs must occur before
you begin to sell the product. To be part of a market, consumers must have both the willingness
and the resources needed to make a purchase.
Difficulty: 3 Hard
Bloom's: Apply
277) Ryan was called by one of his regular customers asking if he had time to repair some
broken sprinkler heads on that customer's underground sprinkling system. Although it was
already 6:00 p.m. and he already put in a full day of work, he turned his car around and headed
for the customer's house. As a small business owner, Ryan demonstrates
A) his need for additional cash flow.
B) his ability to easily adapt and respond to his customer's needs.
C) the fact that it is difficult to find employees willing to go the extra mile for a small business
because benefits are nonexistent.
D) that considering the fact that sprinkler heads are constantly breaking and need repair, his
service is overpriced.
Answer: B
Explanation: Small businesses have the ability to know their customers better and adapt quickly
to their ever-changing needs. Customers will appreciate the prompt service that a small business
can provide.
Difficulty: 3 Hard
Bloom's: Apply
105
278) Mohamed's four employees have been with him since he opened Employment Experts, Inc.,
nearly a decade ago. As he anticipates staffing his new branch office, he decides none of these
four long-time employees are ready to manage the office. Faced with this difficult situation, what
should Mohamed do?
A) He should appoint one of the three anyway to show that he appreciates their loyalty and
commitment.
B) He should run the new branch himself and appoint one of the three to take over the original
office.
C) He should hire a new qualified employee to manage the office since utilizing his unready
employees could be detrimental to the business.
D) He should appoint all three to the new branch and let them run it using a team approach.
Answer: C
Explanation: Appointing unqualified people to management positions can be a serious business
mistake. As difficult as it may be, entrepreneurs best serve themselves and their business if they
gradually recruit and groom employees for management positions.
Difficulty: 3 Hard
Bloom's: Apply
279) After Abby graduated from college last year, her uncle created an accounting position for
her in his business. Her older brother is in charge of purchasing inventory for the store, yet often
the store runs out of popular items or is overstocked with products that must be marked down to
be sold. Abby is confident that her brother is more suited for handling accounting and finance,
while she has a sense of what sells and how much sells. Although she has spoken with her uncle
about it a couple of times, he seems reluctant to change. As the founder of the business, he may
A) find it difficult to remove family members from positions, even if it is not good for the
business.
B) find it difficult to retrain Abby for the job, and even though his business is losing
opportunities, he will stay the course.
C) know that profit margins have declined, but he doesn't care.
D) have a bigger picture of things, and not feel the need to respond to a family member's request.
Answer: A
Explanation: Attitudes such as "You can't fire family" or "You must hire them because they're
family" can frustrate all employees, family and nonfamily. A business is best served if the best
workers are recruited and groomed for management positions.
Difficulty: 3 Hard
Bloom's: Apply
106
280) As a small business owner, Jasmine can't afford to provide her employees with the high
wages and benefits offered by big corporations. One way to keep her employees and create a
high level of motivation would be to
A) constantly communicate with them that "at least they have a job."
B) adopt a policy of promoting workers who have been employed the longest.
C) empower her employees to develop their own ideas.
D) hire only family members, since they are more loyal.
Answer: C
Explanation: Many small firms motivate workers by creating challenging jobs and treating
them respectfully.
Difficulty: 3 Hard
Bloom's: Apply
281) After retiring as a telecommunications executive, Bruce joined SCORE. As a SCORE

counselor Bruce will
A) provide venture capital funds for aspiring small businesspeople.
B) visit high schools to advise students who are thinking about starting their own business.
C) help in the research and development of new products for entrepreneurs to market.
D) provide consulting services to small businesses for free.
Answer: D
Explanation: An important source of information for small businesses is the Service Corps of
Retired Executives (SCORE). This SBA office has volunteers from industry, trade associations,
and education who counsel small businesses at no cost (except for expenses).
Difficulty: 3 Hard
Bloom's: Apply
107
282) The size of the world market is about
A) 500 million
B) 7 billion
C) 7 million
D) 10 trillion
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
283) Increased participation in small business exporting owes credit to ________.

A) political constituents who have made inroads abroad.
B) large events such as the Olympics that have brought attention to the potential in world
markets.
C) technological advances such as the Internet and PayPal for safely fulfilling orders.
D) partnerships that small businesses have formed with large businesses.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
284) One of the hurdles small businesses face when deciding to export is
A) financing is often difficult to find.
B) overseas buyers prefer dealing with large corporations.
C) smaller companies must wait in line after large companies to qualify for tariffs.
D) American products are perceived as inferior.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
108
285) One reason why many U.S. small businesses are not involved in exporting is
A) there is a limited market for their products.
B) the government's new homeland security programs limit opportunities for small businesses.
C) many of these firms do not know how to get started.
D) U.S. products are perceived as inferior.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
286) The SBA's ________ program provides export-financing opportunities for small businesses.
A) Global Trade funding
B) Homeland Security funding
C) Export Express loan
D) International Monetary loan
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
109
287) Which of the following best describes the outlook for small businesses in international
markets?
A) The world is a larger, and potentially a more lucrative market than the U.S. domestic market.
B) The threat of terrorist activities prevents small businesses from competing internationally.
C) Most foreign buyers prefer to deal with large, well-known corporations rather than small
businesses.
D) Higher business costs eliminate the profit opportunities in global markets.
Answer: A
Explanation: The U.S. has less than 5% of the world's population, and there is a growing
demand for American goods and services.
Bloom's: Understand
288) Small businesses often have advantages in international markets. Which best describes one
those advantages?
A) They have greater expertise in managing the paperwork required to sell goods in international
markets.
B) They have a better understanding of the cultural differences involved.
C) They can provide individualized customer service as opposed to impersonal corporate
bureaucracies.
D) They have the ability to obtain financing through the International Monetary Fund.
Answer: C
Explanation: Small companies can give more personal service and more undivided attention,
because each overseas account is a major source of business to them.
Bloom's: Understand
110
289) Luxe Labels, LLC, exports specialty printing equipment for the custom labeling, flexible
packaging, and carton industry. Thanks to increased support from ________, this company's
sales to Brazilian companies and other global opportunities have significantly increased.
A) its newly revised website
B) Department of Commerce's Bureau of Industry and Security
C) the FDA
D) local politicians
Answer: B
Explanation: The Department of Commerce's Bureau of Industry and Security contains a wealth
of information for small businesses interested in going global.
Difficulty: 3 Hard
Bloom's: Apply
290) Arturo is a partner in a firm that specializes in producing vitamins and health food products.
While the business is considered small by U.S. standards, he is attempting to persuade his partner
to expand internationally. Arturo would list which of the following as an advantage of going
global?
A) Exporting can help sell excess inventory.
B) Marketing programs benefit from the cultural similarities in prospective markets.
C) Financing can easily be obtained to expand internationally.
D) Selling your products in other markets reduces their life cycle, making them more attractive.
Answer: A
Explanation: Small businesses that make the effort to export have the advantage of selling
excess inventory abroad.
Difficulty: 3 Hard
Bloom's: Apply
111
291) Antoine is considering marketing his bicycles in Brazil. If he enters the Brazilian market, he
is likely to learn that
A) some cultures like dealing with individuals from smaller companies rather than large
companies.
B) he will not be able to keep up with demand.
C) most foreign cultures prefer large company relationships to small company relationships.
D) there is strong resistance of Brazilian firms with respect to American products.
Answer: A
Explanation: Although some foreign buyers may prefer doing business with major corporations,
many actually enjoy dealing with individuals rather than with big corporate bureaucracies.
Moreover, foreign buyers may appreciate the fact that the smaller firms often provide
personalized service and may be able to begin shipping more quickly. The main problem he will
face is adapting to the cultural differences between the U.S. and Brazil.
Difficulty: 3 Hard
Bloom's: Apply
112
292) Not everyone dreams of owning their own business. Identify and describe at least three
attributes of successful entrepreneurs.
Answer: While students will likely identify managerial skills and leadership abilities, these are
not unique to entrepreneurs. Entrepreneurs also need to be:
• Self-directed. They should be self-disciplined and comfortable with taking responsibility for
success and failure.
• Self-nurturing. Entrepreneurs must be able to believe in their own ideas even when others don't.
• Action-oriented. Entrepreneurs aren't just satisfied with a dream; they want to make the dream
a reality.
• Highly energetic. They are willing to work hard to sustain their efforts over long hours.
• Tolerant of uncertainty. Entrepreneurs can accept the risks and uncertainties inherent in running
a business.
Difficulty: 3 Hard
Bloom's: Analyze
AACSB: Analytic Thinking
113
293) What is an entrepreneurial team? What benefits does a team offer compared to an
individual entrepreneur?
Answer:
a. Entrepreneurial teams bring experienced people from different areas of business that join
together to form a managerial team with the skills needed to develop, make, and market a new
product. A team may be better than an individual entrepreneur because it provides a combination
of creative skills with production and marketing skills right from the start.
b. Another benefit is the concept of shared planning and decision making. Everyone works
together to conceive, develop, and market products. This results in better coordination and
cooperation among functions.
Difficulty: 3 Hard
Bloom's: Analyze
114
294) List and discuss at least three causes of small business failure.
Answer: (Answers will vary; however, the student should include the information found in
Figure 6.3, "Causes of Small-Business Failure.")
• Plunging in without first testing the waters on a small scale.
• Underpricing or overpricing goods or services.
• Underestimating how much time it will take to build a market.
• Starting with too little capital.
• Starting with too much capital and being careless in its use.
• Going into business with little or no experience and without first learning something about the
industry or market.
• Borrowing money without planning just how and when to pay it back.
• Attempting to do too much business with too little capital.
• Not allowing for setbacks and unexpected expenses.
• Buying too much on credit.
• Extending credit too freely.
• Expanding credit too rapidly.
• Failing to keep complete, accurate records, so that the owners drift into trouble without
realizing it.
• Carrying habits of personal extravagance into the business.
• Not understanding business cycles.
• Forgetting about taxes, insurance, and other costs of doing business.
• Mistaking the freedom of being in business for oneself for the liberty to work or not, according
to whim.
115
Difficulty: 3 Hard
Bloom's: Analyze
295) Discuss the benefits exporting offers to small businesses. Given these benefits, why don't
more small firms sell in international markets?
Answer:
a. The world market is potentially a much larger and more lucrative market for businesses than
the United States. Moreover, selling in the world market can absorb excess inventories, soften
downturns in the U.S. market, and extend product lives. It can also add variety and make
managing the business more interesting (and perhaps more challenging).
b. There are many barriers that discourage small businesses from exporting their products. These
barriers include:
• difficulties in arranging financing.

• uncertainties about how to get started in foreign markets.
• ignorance of cultural differences.
• extensive bureaucratic paperwork that can practically bury a small business.
Difficulty: 3 Hard
Bloom's: Analyze
116
296) Discuss several ways the Small Business Administration assists entrepreneurs.
Answer:
a. The SBA is a valuable source of information and technical advice for small businesspeople.
b. The SBA also provides financial assistance to small businesses through a variety of programs.
The SBA will sometimes provide direct loans to firms that have difficulty securing conventional
loans from private sources. The SBA also provides programs to help minorities and women
obtain funds.
c. The SBA licenses SBICs, which are private investment companies that loan money to
small businesses.
d. The SBA operates SCORE, the Service Corps of Retired Executives. This group provides
counseling and advice to small business owners.
Difficulty: 3 Hard
Bloom's: Analyze
117
Mini-Case
Pepe Pieman believes that pizza is a much more versatile meal than most people realize. As the
national marketing manager for Pizza Pals, he has watched how consumers ate up barbecue
pizza, Hawaiian pizza, Mexican pizza, and other new and unique combinations. His superiors,
however, met his suggestions for other unusual pizzas with a negative response. Even some of
his teammates laughed at his ideas. Pepe's confidence in his ability to understand the market has
led him to focus on planning a business of his own. Pepe realizes that he will take a risk when he
leaves his job with Pizza Pals and sets off on a new endeavor: Pepe's Pizzazzeria. Pepe is excited
about the potential of profitably catering to the unmet desires of pizza consumers.
297) Given Pepe's willingness to accept the risks of opening and running Pepe's Pizzazzeria, he
is clearly an example of a(n)
A) arbitrageur.
B) intrapreneur.
C) gambler.
D) entrepreneur.
Answer: D
Explanation: An entrepreneur is someone who accepts the risks of starting and managing a
business.
Difficulty: 3 Hard
Bloom's: Analyze
118
298) Pepe remains confident and enthusiastic even though his colleagues have poked fun at his
ideas. This shows that Pepe is
A) self-disciplined.
B) self-nurturing.
C) self-generating.
D) auto-inspirational.
Answer: B
Explanation: People who are self-nurturing are able to believe in their own ideas, even when
others do not, and to refuel the fires of their own enthusiasm.
Difficulty: 3 Hard
Bloom's: Analyze
299) Pepe is confident that Pepe's Pizzazzeria will be a success, but only if he has enough money
to do things right. Since Pepe has very little personal wealth, he knows he must find financial
assistance. In order prepare for meetings with bankers and potential investors, Pepe should
A) hire a public relations firm to develop promotional materials.
B) develop a business plan.
C) read a book on entrepreneurship.
D) create a partnership contract.
Answer: B
Explanation: A business plan, which provides a detailed description of the new business, is
mandatory when meeting with bankers and investors.
Difficulty: 3 Hard
Bloom's: Analyze
119
300) Pepe has asked about the possibility of obtaining a microloan from the SBA. This type of
loan is awarded primarily on the basis of the
A) borrower's integrity and the soundness of the business idea.
B) amount of collateral the borrower can pledge.
C) borrower's credit history and record of previous business success.
D) age of the borrower, since only senior citizens qualify.
Answer: A
Explanation: A microloan from the SBA is awarded on the basis of the borrower's integrity and
the soundness of the borrower's business idea.
Difficulty: 3 Hard
Bloom's: Analyze
301) Pepe is positive he knows a lot about marketing. But he is not as confident in his skills
within the legal or financial aspects of starting a new business. He wants to consult with a lawyer
and accountant, but his budget is tight with all of the expenses involved in getting Pepe's
Pizzazzeria up and running. Pepe should
A) delay talking with a lawyer and accountant until the business has established a positive cash
flow for at least one year.
B) trust his basic instincts and try to put it together without the advice of lawyers and
accountants.
C) consult with a lawyer and accountant even though the budget is tight.
D) immediately hire full-time lawyers and accountants for his staff.
Answer: C
Explanation: Entrepreneurs starting new businesses seldom can afford to have full-time lawyers
and accountants as employees, but it is critical that they obtain professional legal and accounting
advice.
Difficulty: 3 Hard
Bloom's: Analyze
120
302) Since Pepe has worked in marketing for a large corporation before getting into the pizza
business
A) there is no need to consider an entrepreneurial team for start-up due to the fact that all other
management functions are served by marketing.
B) he can skip any marketing research steps that the SBA recommends.
C) he knows that the type of business he wants to start may be difficult to develop, but it has a
tremendous amount of security due to its promise of long-term survival.
D) he plans to put together an entrepreneurial team of experts that will complement his expertise.
Answer: D
Explanation: An entrepreneurial team is a group of experienced professionals from various
business disciplines. Team members bring different skills to the entrepreneurial venture. Their
skills usually complement each other.
Difficulty: 3 Hard
Bloom's: Analyze
303) As a former classmate of Pepe's at the nearby university, you remind him what you both
learned in your small business management class several years ago. What would you remind
him?
A) Restaurants are easy to start up, but difficult to keep going.
B) Restaurants are probably the most difficult type of business to start up, due to the labor-
intensive aspects of the business.
C) Experts believe that restaurants have a high profit potential, due the fact that there is not much
direct competition.
D) Restaurants are easy to start up and have great profit potential.
Answer: A
Explanation: The easiest businesses to start (like restaurants) have the greatest potential for
failure. The easiest to keep alive are difficult to get started (like manufacturing).
Difficulty: 3 Hard
Bloom's: Analyze
121

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1) Entrepreneurship involves accepting the risk of starting and running a business.

2) Entrepreneurship is another name for management.

6) Entrepreneurs are motivated by the desire to earn a profit.

8) Most entrepreneurs prefer working for someone else.

9) Most entrepreneurs are more interested in personal achievement than in power.

12) Successful entrepreneurs rely on others for direction and support.

14) Entrepreneurs avoid risk and place a high priority on security.

15) It is important for an entrepreneur to be highly energetic.

23) Many micropreneurs are home-based business owners.

26) Many micropreneurs operate home-based businesses in the service industry.

27) Corporate downsizing reduces the opportunities for home-based businesses.

35) Entrepreneurial spirit is unique to a small business environment.

36) Large organizations encourage intrapreneurship as a strategy to improve their profitability

69) Big businesses do not serve all the needs of a market.

117) State and local governments often act as venture capitalists.

172) Which of the following best describes entrepreneurial personality traits?

174) An entrepreneurial team consists of

176) One of the challenges of running a home-based business is

178) The goal of an intrapreneur is to

180) Enterprise zones are specific geographic areas that

182) Historically entrepreneurs in the U.S.

184) Successful entrepreneurs are self-nurturing. This means they

186) Although successful entrepreneurs are more tolerant of uncertainty,

188) Successful entrepreneurial teams

192) Enterprise zones are

198) Apple's legendary smart team is an example of a company that succeeded by

202) Tucker is an intrapreneur for a multinational wearable electronics company. Which

209) A business's size is measured

210) Some people argue that small business failures are

212) Small businesses are important to the U.S. economy because

230) For prospective entrepreneurs, enrolling in an introduction to business or small business

232) Successful small business owners are

241) The business plan will include ________.

265) The executive summary section of the business plan contains

281) After retiring as a telecommunications executive, Bruce joined SCORE. As a SCORE

283) Increased participation in small business exporting owes credit to ________.

• Plunging in without first testing the waters on a small scale.

• Underpricing or overpricing goods or services.

• Underestimating how much time it will take to build a market.

• Starting with too little capital.

• Attempting to do too much business with too little capital.

• Not allowing for setbacks and unexpected expenses.

• Buying too much on credit.

• Extending credit too freely.

• Expanding credit too rapidly.

• Carrying habits of personal extravagance into the business.

• Not understanding business cycles.

• Forgetting about taxes, insurance, and other costs of doing business.

• difficulties in arranging financing.

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