CHAPTER 6 ENTREPRENEURSHIP AND STARTING A SMALL BUSINESS

CHAPTER 6 ENTREPRENEURSHIP AND STARTING A SMALL BUSINESS CHAPTER 6 ENTREPRENEURSHIP AND STARTING A SMALL BUSINESS TRUE/FALSE Learning Goal 1 Explain why people are willing to take the risks of entrepreneurship, list the attributes of successful entrepreneurs, describe the benefits of entrepreneurial teams and intrapreneurs, and explain the growth of home-based and Web-based businesses. Level of Learning 1 (Knows basic terms and facts) i. Entrepreneurship involves accepting the risk of starting and running a business. Answer: True LG: 1/LL: 1 Page: 150 ii. Entrepreneurship is another name for management. Answer: False LG: 1/LL: 1 Page: 150 iii. Entrepreneurs are less important now than in the past to the U.S. economy. Answer: False LG: 1/LL: 1 Page: 150 iv. People who are 16 to 34 years old are not attracted to starting their own business. Answer: False LG: 1/LL: 1 Page: 150 v. While entrepreneurs frequently earn significant profits for themselves, their impact on society is quite small. Answer: False LG: 1/LL: 1 Page: 150 vi. Many business started by entrepreneurs have grown into major corporations employing thousands of workers. Answer: True LG: 1/LL: 1 Page: 150 vii. Entrepreneurs are motivated by the desire to earn a profit. Answer: True LG: 1/LL: 1 Page: 151 viii. Entrepreneurs, like gamblers, enjoy taking risks. Answer: False LG: 1/LL: 1 Page: 151 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition 1 ix. 2 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition x. Most entrepreneurs prefer working for someone else. Answer: False LG: 1/LL: 1 Page: 151 xi. Most entrepreneurs are more interested in personal achievement than in power. Answer: True LG: 1/LL: 1 Page: 151 xii. If you have managerial skills and leadership ability, you also posses the personality to be an entrepreneur. Answer: False LG: 1/LL: 1 Page: 151 xiii. 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 LG: 1/LL: 1 Page: 151 xiv. Successful entrepreneurs rely on others for direction and support. Answer: False LG: 1/LL: 1 Page: 151 xv. Successful entrepreneurs accept the risk of failure. Answer: True LG: 1/LL: 1 Page: 152 xvi. Entrepreneurs avoid risk and place a high priority on security. Answer: False LG: 1/LL: 1 Page: 152 xvii. It is important for an entrepreneur to be highly energetic. Answer: True LG: 1/LL: 1 Page: 151 xviii. Most entrepreneurs get the ideas for their products and services from a flash of inspiration. Answer: False LG: 1/LL: 1 Page: 152 xix.Potential entrepreneurs would be well advised to surround themselves with people who are smarter than they are. Answer: True LG: 1/LL: 1 Page: 154; figure 6.1 xx. Potential entrepreneurs should consider working for other people first and learning on the other person’s money. Answer: True LG: 1/LL: 1 Page: 154; figure 6.1 xxi. Nickels, McHugh & McHugh, Understanding Business, Eighth Edition 3 xxii. A team may be better than an individual entrepreneur because team members can combine creative skills with production and marketing skills from the beginning. Answer: True LG: 1/LL: 1 Page: 154 xxiii. An entrepreneurial team is a group of experienced managers who share the same skills and abilities. Answer: False LG: 1/LL: 1 Page: 154 xxiv. Successful entrepreneurs will look for what customers don't need as well as what customers do need. Answer: True LG: 1/LL: 1 Page: 152 xxv. Entrepreneurial teams combine the creative marketing and production ideas of a group of experienced people. Answer: True LG: 1/LL: 1 Page: 154 xxvi. Entrepreneurial teams struggle to blend creative business skills with production and marketing skills. Answer: False LG: 1/LL: 1 Page: 154 xxvii. Successful entrepreneurs often make use of professional managers to introduce new ideas. Answer: True LG: 1/LL: 1 Page: 154 xxviii. Micropreneurs is a term used to describe entrepreneurs who focus on the continued growth of their businesses. Answer: False LG: 1/LL: 1 Page: 154 xxix. The most important difference between entrepreneurs and micropreneurs is the focus placed by micropreneurs on balancing the demands of work and family. Answer: True LG: 1/LL: 1 Page: 154 xxx. 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 LG: 1/LL: 1 Page: 154 xxxi. Many micropreneurs are home-based business owners. Answer: True LG: 1/LL: 1 Page: 154 xxxii. 4 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition xxxiii. Micropreneurs are motivated by a desire to have both a satisfying family life and rewarding work. Answer: True LG: 1/LL: 1 Page: 154 xxxiv. Advancements in computer technology put home-based businesses at a disadvantage. Answer: False LG: 1/LL: 1 Page: 155 xxxv. Many micropreneurs operate home-based businesses in the service industry. Answer: True LG: 1/LL: 1 Page: 154 xxxvi. Corporate downsizing reduces the opportunities for home-based businesses. Answer: False LG: 1/LL: 1 Page: 155 xxxvii. Society is much more accepting of home-based entrepreneurs than in the past. Answer: True LG: 1/LL: 1 Page: 155 xxxviii. Opponents of home-based businesses successfully lobbied Congress to reduce the tax deductions available for home offices. Answer: False LG: 1/LL: 1 Page: 155 xxxix. Successful micropreneurs require self-discipline to separate work from family responsibilities. Answer: True LG: 1/LL: 1 Page: 155 - 156 xl. Micropreneurs are exempt from the local ordinances that restrict home-based businesses from operating in residential areas. Answer: False LG: 1/LL: 1 Page: 156 xli. One advantage enjoyed by home-based businesses is the relative ease in attracting new customers. Answer: False LG: 1/LL: 1 Page: 155 xlii. Home-based entrepreneurs may lose their homeowner’s insurance if they run a business from their home. Answer: True LG: 1/LL: 1 Page: 155 xliii. Small businesses have not significantly participated in web-based online sales. Answer: False LG: 1/LL: 1 Page: 156 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition 5 xliv. 6 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition xlv. The Internet provides a resource for entrepreneurs for information regarding the steps needed to take their business online. Answer: True LG: 1/LL: 1 Page: 158 xlvi. Web-based businesses avoid the risk of failure faced by traditional startup businesses. Answer: False LG: 1/LL: 1 Page: 158 xlvii. An intrapreneur is the creative person who starts and manages a nonprofit organization. Answer: False LG: 1/LL: 1 Page: 158 xlviii. Creative people working as entrepreneurs within a large organization are called intrapreneurs. Answer: True LG: 1/LL: 1 Page: 158 xlix. Entrepreneurial spirit is unique to a small business environment. Answer: False LG: 1/LL: 1 Page: 158 l. Large organizations encourage intrapreneurship as a strategy to improve their profitability through new products. Answer: True LG: 1/LL: 1 Page: 158 li. By passing the Immigration Act of 1990, the U.S. government acted to encourage entrepreneurs to immigrate to the United States. Answer: True LG: 1/LL: 1 Page: 159 lii. The U.S. government offers "investor visas" to attract more entrepreneurs. Answer: True LG: 1/LL: 1 Page: 159 liii. The position of our government is to restrict foreign entrepreneurs from operating within the U.S. Answer: False LG: 1/LL: 1 Page: 159 liv. Business incubators provide assistance to established companies attempting to generate foreign sales. Answer: False LG: 1/LL: 1 Page: 159 lv. Nickels, McHugh & McHugh, Understanding Business, Eighth Edition 7 lvi. Enterprise zones offer lower tax rates and government assistance to attract private business investment. Answer: True LG: 1/LL: 1 Page: 159 Level of Learning 2 (Understands concepts and principles) lvii. While many immigrants possess the skills to work in large organizations, they lack the motivation to succeed as entrepreneurs. Answer: False LG: 1/LL: 2 Page: 151 Rationale: Immigrants often possess the initiative and drive to work long hours and the willingness to accept risk and accept the opportunities inherent in entrepreneurial efforts. In fact, the opportunity to start their own business is what motivates many immigrants to enter the United States. lviii. Independence, challenge, and opportunity are among the key reasons given by those who assume the risks of entrepreneurship. Answer: True LG: 1/LL: 2 Page: 151 Rationale: 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. lix. Successful entrepreneurs are exclusively motivated by the desire to become rich. Answer: False LG: 1/LL: 2 Page: 151 Rationale: 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. lx. 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 LG: 1/LL: 2 Page: 151 Rationale: Many corporate managers have left their jobs to become entrepreneurs. lxi. 8 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition lxii. Juanita has a strong desire to operate her own business. Although she admits it would be nice to earn a healthy profit, her primary motivation is the excitement and challenge of starting and running a business. Juanita's attitude is unusual for entrepreneurs, who usually focus solely on the monetary aspects of their entrepreneurship, as well as the opportunity to acquire power and prestige. Answer: False LG: 1/LL: 2 Page: 151 Rationale: 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. lxiii. Ramsey is a dreamer rather than a doer. This is an important attribute for an entrepreneur since their job is to be creative and develop new ideas that are then implemented by others. Answer: False LG: 1/LL: 2 Page: 151 Rationale: Entrepreneurs must be self-directed, self-nurturing, and action-oriented. They do not depend on others to follow through on their ideas. lxiv. Jaquanda has eliminated the risk of entrepreneurship by preparing a detailed business plan. Answer: False LG: 1/LL: 2 Page: 152 Rationale: Entrepreneurs must be able to take some 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. lxv. To be successful, entrepreneurs are dependent on the support of others for advice and encouragement. Answer: False LG: 1/LL: 2 Page: 151 Rationale: Entrepreneurs must be self-nurturing. They must believe in their ideas when others do not. lxvi. Jason, Robin, and Ian currently work in the marketing department of a large corporation. They have similar backgrounds and training, and are thinking about leaving their company to start their own business. Successful entrepreneurial teams are comprised by these types of people because their similarities ensure harmony and consistency in their new business. Answer: False LG: 1/LL: 2 Page: 154 Rationale: 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. Nickels, McHugh & McHugh, Understanding Business, Eighth Edition 9 lxvii. 10 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition lxviii. Entrepreneurial teams increase the cooperation between marketing, production and other functional areas of a business venture Answer: True LG: 1/LL: 2 Page: 154 Rationale: In entrepreneurial teams, all members work together to conceive, make, and market a new product. 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. lxix. Anthony is an employee of a textbook publisher. However, his desire is to establish a home-based business providing his services to a variety of publishers. Anthony's primary motivation is to escape the 9 to 5 world of corporate publishing and to enjoy the opportunity of working for himself. Anthony is an example of a micropreneur. Answer: True LG: 1/LL: 2 Page: 154 Rationale: Business writer Michael LeBoeuf coined the term "micropreneur" to refer to business owners who are interested in simply enjoying a better lifestyle and want the opportunity to make a living doing the kind of work they want to do. lxx. Kylie is employed by Street Wheels, a large corporation that produces accessories for scooters, bicycles, and other children's vehicles. She is a creative force within the company and has helped launch several new successful products. Kylie is an example of an intrapreneur. Answer: True LG: 1/LL: 2 Page: 158 Rationale: Intrapreneurs are creative people who work within corporations to launch new products and generate new profits. lxxi. Jon received a letter in the mail explaining that HE COULD EARN THOUSANDS!!!! by working just a few hours from home. Most likely Jon’s letter was a work-at-home scam. Answer: True LG: 1/LL: 2 Page: 157; figure 6.3 Rationale: One of the clues that a home business opportunity is a scam is that there are loads of CAPITAL LETTERS and promises that only a few hours a week are needed to succeed in a home business. lxxii. The United States government views entrepreneurship as a result of an individual's self-motivation. The government, therefore, can do very little to encourage an individual to become an entrepreneur. Answer: False LG: 1/LL: 2 Page: 159 Rationale: The U. S. federal government passed the Immigration Act of 1990, which created a category of "investors visas" intended to lure entrepreneurs to our Nickels, McHugh & McHugh, Understanding Business, Eighth Edition 11 country. Enterprise zones and investment tax credits have also been used to encourage entrepreneurs. lxxiii. When Kelsey began the Cookie Kitchen recently she was able to go to a small business center to get help with accounting, legal advice, and secretarial help for a very low cost. Using this center helped her company to survive because it provided assistance just as her company was beginning. This type of center is called an incubator. Answer: True LG: 1/LL: 2 Page: 159 Rationale: Incubators are centers that offer new businesses low-cost offices with basic business services such as accounting, legal advice and secretarial help. They provide assistance in the critical stage of early development. lxxiv. Within a government-established enterprise zone, the government creates new startup business organizations that are later sold to private investors. Answer: False LG: 1/LL: 2 Page: 159 Rationale: Enterprise zones feature low taxes and government support of new businesses, but not government ownership. Learning Goal 2 Discuss the importance of small business to the American economy and summarize the major causes of small-business failure. Level of Learning 1 (Knows basic terms and facts) lxxv. The management of a nonprofit organization is much the same as the management of small and large businesses. Answer: True LG: 2/LL: 1 Page: 160 lxxvi. To be classified as a small business, a firm must have no more than 100 employees. Answer: False LG: 2/LL: 1 Page: 160 lxxvii. According to the Small Business Administration’s definition, small businesses must be independently owned and operated. Answer: True LG: 2/LL: 1 Page: 160 lxxviii. A business is considered small by comparing its size to others in the same industry. Answer: True LG: 2/LL: 1 Page: 160 lxxix. Small businesses create 75% of the new jobs in the United States. 12 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition Answer: True LG: 2/LL: 1 Page: 160 lxxx. Nickels, McHugh & McHugh, Understanding Business, Eighth Edition 13 lxxxi. Small businesses account for over 50% of the gross domestic product (GDP) in the United States. Answer: True LG: 2/LL: 1 Page: 160 lxxxii. As a result of unfair treatment in the past, the growth of minority-owned business is slower than the rest of the population. Answer: False LG: 2/LL: 1 Page: 160 lxxxiii. Women now own more than 6 million small businesses. Answer: True LG: 2/LL: 1 Page: 160 lxxxiv. Of all nonfarm businesses in the United States, almost 97 percent are considered small by the Small Business Administration (SBA) standards. Answer: True LG: 2/LL: 1 Page: 160 lxxxv. Large firms have a greater ability to provide personalized customer service than do small business organizations. Answer: False LG: 2/LL: 1 Page: 161 lxxxvi. Big businesses don't serve all the needs of the market. Answer: True LG: 2/LL: 1 Page: 161 lxxxvii. Entrepreneurial success can be achieved in the inner city. Answer: True LG: 2/LL: 1 Page: 161; Spotlight on Small Business box lxxxviii. Latinos make up the largest percentage of inner-city entrepreneurs when compared to African-Americans, Asians, and American Indians. Answer: True LG: 2/LL: 1 Page: 161; Spotlight on Small Business box lxxxix. Conventional wisdom reports that a third of all small businesses fail in their first four years of operation. Answer: True LG: 2/LL: 1 Page: 162 xc. The good news for entrepreneurs is that business failures are much lower than has traditionally been reported. Answer: True LG: 2/LL: 1 Page: 162 xci. The principles of managing vary according to the size of the business. Answer: False LG: 2/LL: 1 Page: 160 14 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition xcii. The most common small business failures occur in businesses that are the easiest to start. Answer: True LG: 2/LL: 1 Page: 162 xciii. Only about 10% of all businesses qualify as small businesses using the definition of the Small Business Administration. Answer: False LG: 2/LL: 1 Page: 160 xciv. About 80 % of Americans find their first jobs in small businesses. Answer: True LG: 2/LL: 1 Page: 160 xcv. The number of women owning small businesses has grown slowly. Answer: False LG: 2/LL: 1 Page: 160 xcvi. The small business sector that has the best chance of significant growth is legal services. Answer: False LG: 2/LL: 1 Page: 162 xcvii. Small businesses often can provide more personalized customer service than bigger rivals. Answer: True LG: 2/LL: 1 Page: 161 xcviii. Recent evidence suggests that the small business failure rate is significantly much higher than previously reported. Answer: False LG: 2/LL: 1 Page: 162 xcix. Bad luck is the most often reported cause for small business failure. Answer: False LG: 2/LL: 1 Page: 162; figure 6.4 c. The business opportunities with the greatest growth potential tend to be in the high technology industries. Answer: True LG: 2/LL: 1 Page: 162 ci. The easiest businesses to start are those that offer the greatest profit potential. Answer: False LG: 2/LL: 1 Page: 162 cii. Most business opportunities offer entrepreneurs high levels of security and profits. Answer: False LG: 2/LL: 1 Page: 162 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition 15 ciii. 16 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition civ. The easiest businesses to start also have the least growth potential and the greatest failure rates. Answer: True LG: 2/LL: 1 Page: 162 Level of Learning 2 (Understands concepts and principles) cv. While the first job for many people is working for a small business, most of the permanent new jobs are created by larger corporations. Answer: False LG: 2/LL: 2 Page: 160 Rationale: Small businesses create 75 percent of the new jobs in the United States. cvi. Marina has just completed her business degree. Her best job search strategy would be to concentrate on looking for work with a major corporation. Answer: False LG: 2/LL: 2 Page: 160 Rationale: Since small businesses create 75 percent of the new jobs in the U.S. if Maria focuses on job opportunities with big firms, she is likely to limit her chances of finding employment. cvii. Renee, a manager at a small manufacturing firm, has offered to help manage a local branch of the YMCA. Unfortunately, Renee will find that the skills acquired managing a small business will not be useful in managing a nonprofit organization. Answer: False LG: 2/LL: 2 Page: 160 Rationale: The skills needed to manage small businesses, big businesses, charities, churches, and government agencies are very similar. cviii. A close look at the statistics indicates that the lack of qualified workers is a major obstacle to the growth of successful small businesses. Answer: True LG: 2/LL: 2 Page: 161 Rationale: One quarter of the small businesses surveyed list the lack of qualified workers as one of their biggest obstacles to growth. cix. Traditionally small business statistics classified the retirement of an owner of a sole proprietorship as a business failure. Answer: True LG: 2/LL: 2 Page: 162 Rationale: Retirement and change of the legal form of business (i.e. partnership to a corporation) have traditionally been classified as a business failure. Economist Bruce Kirchhoff contends that these misinterpretations of the statistics have greatly overstated the business failure rate. Nickels, McHugh & McHugh, Understanding Business, Eighth Edition 17 cx. 18 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition cxi. Small businesses lack the resources to compete directly with big businesses. Answer: False LG: 2/LL: 2 Page: 161 Rationale: 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. cxii. Your brother, a family dentist, has opened a new office in your home town. As a business student you know that this type of business experiences both low failure and growth rates. Answer: True LG: 2/LL: 2 Page: 162 Rationale: 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. cxiii. Wei wants to start a small business. If her primary goal is fast growth and high profits, her best chances would be in the manufacturing sector. Answer: True LG: 2/LL: 2 Page: 162 - 163 Rationale: Although manufacturing firms are difficult to start and keep going, they do have the greatest potential for the high rates of growth that Juanita needs to achieve her primary goal. cxiv. While Jing wants to start a small business, she has not yet uncovered an opportunity that would offer her security and the likelihood of high profits. Jing will likely find that these two goals can seldom be achieved by the same business. Answer: True LG: 2/LL: 2 Page: 163 Rationale: 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. cxv. Because of their superior financial resources and specialized staffs, big corporations can almost always outperform small businesses. Answer: False LG: 2/LL: 2 Page: 161 Rationale: Small businesses have some advantages over big firms. They are often more flexible, and able to offer their customers more personalized service. Nickels, McHugh & McHugh, Understanding Business, Eighth Edition 19 Learning Goal 3 Summarize ways to learn about how small businesses operate. Level of Learning 1 (Knows basic terms and facts) cxvi. The best way to learn about small business is to start your own. Answer: False LG: 3/LL: 1 Page: 163 cxvii. Individuals desiring to learn about small business operations would be well advised to learn from other entrepreneurs. Answer: True LG: 3/LL: 1 Page: 163 cxviii. Many entrepreneurs got the idea for their own business from their experience of working for others. Answer: True LG: 3/LL: 1 Page: 163 cxix. Since entrepreneurs are starting new businesses, experience gained from working for an established business isn't particularly helpful. Answer: False LG: 3/LL: 1 Page: 163 cxx. Corporate management has been the training ground for many new entrepreneurs. Answer: True LG: 3/LL: 1 Page: 164 cxxi. 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 LG: 3/LL: 1 Page: 164 cxxii. There is no better way to learn about small business operations than to work for a small business owner. Answer: True LG: 3/LL: 1 Page: 163 cxxiii. Entrepreneurs are well advised to avoid starting businesses in the same market in which they were previously employed. Answer: False LG: 3/LL: 1 Page: 163 20 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition Level of Learning 2 (Understands concepts and principles) cxxiv. Carlos hopes to start his own business. He needs to avoid talking to other small business owners about his plans because they might steal his ideas. Answer: False LG: 3/LL: 2 Page: 163 Rationale: Talking to small business owners is one of the best ways to learn how to start and run a small business. cxxv. Sharaf decided to work for a floral design studio before opening her own shop. She will find that this was a waste of time as her work is used to make someone else successful. Answer: False LG: 3/LL: 2 Page: 163 Rationale: Sharaf 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. cxxvi. As an employee of a small business, DeMonte has observed the owner’s desire to retire. Since DeMonte 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, DeMonte should add up the market value of all of the firm's physical assets such as buildings, machinery, equipment, and inventory. Answer: False LG: 3/LL: 2 Page: 165 Rationale: 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. Learning Goal 4 Analyze what it takes to start and run a small business. Level of Learning 1 (Knows basic terms and facts) cxxvii. The primary concerns of an entrepreneur starting a new business would be planning and record keeping. Answer: False LG: 4/LL: 1 Page: 165 cxxviii. According to the Small Business Administration, poor management is the cause of the majority of small business failures. Answer: True LG: 4/LL: 1 Page: 165 cxxix. Nickels, McHugh & McHugh, Understanding Business, Eighth Edition 21 cxxx. A business plan is necessarily a bit vague since it is prepared prior to the beginning of business operations. Answer: False LG: 4/LL: 1 Page: 165 cxxxi. 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 LG: 4/LL: 1 Page: 165 cxxxii. Bankers and investors require entrepreneurs to present a well-conceived business plan. Answer: True LG: 4/LL: 1 Page: 166 cxxxiii. In discussions with bankers, entrepreneurs should be prepared to personally guarantee the loan for their business. Answer: True LG: 4/LL: 1 Page: 166 cxxxiv. An entrepreneur's personal financial position will have a minor impact on negotiations with bankers for a small business loan. Answer: False LG: 4/LL: 1 Page: 166 cxxxv. 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 LG: 4/LL: 1 Page: 166 cxxxvi. The personal character of an entrepreneur is irrelevant to bankers when determining the credit worthiness of a business loan. Answer: False LG: 4/LL: 1 Page: 166 cxxxvii. Software designed to help create business plans has proven to be of little value because of the great variety in the types of businesses. Answer: False LG: 4/LL: 1 Page: 166 cxxxviii. Since creating a "perfect business plan" is impossible, entrepreneurs should focus on the other tasks needed to get their firm started. Answer: False LG: 4/LL: 1 Page: 166 cxxxix. Identifying "poor management" as the cause of a small business failure likely includes poor capitalization. Answer: True LG: 4/LL: 1 Page: 165 22 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition cxl. Nickels, McHugh & McHugh, Understanding Business, Eighth Edition 23 cxli. Poor management, as a cause of small business failure, may include problems in obtaining, managing, and using money. Answer: True LG: 4/LL: 1 Page: 165 cxlii. Identifying “poor management” as the cause of a small business failure likely covers a variety of problems. Answer: True LG: 4/LL: 1 Page: 165 cxliii. Aside from personal savings, the only other viable source of financing for an entrepreneur would be funds available from friends and family. Answer: False LG: 4/LL: 1 Page: 166 cxliv. 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 LG: 4/LL: 1 Page: 168 cxlv. Angel investors are the government agencies that invest money in new companies before they go public. Answer: False LG: 4/LL: 1 Page: 168 cxlvi. Venture capitalists provide funds for startup businesses in exchange for part ownership in the new firm. Answer: True LG: 4/LL: 1 Page: 168 cxlvii. State and local governments often act as venture capitalists. Answer: False LG: 4/LL: 1 Page: 168 - 169 cxlviii. While the Small Business Administration provides management advice to new business owners, it is not empowered to provide financial assistance. Answer: False LG: 4/LL: 1 Page: 168 - 169 cxlix. Venture capitalists provide funds for small businesses as part of their philanthropy programs. Answer: False LG: 4/LL: 1 Page: 168 cl. Venture capitalists prefer investing in smaller start up businesses in order to reduce their overall risk. Answer: False LG: 4/LL: 1 Page: 168 cli. 24 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition clii. The burst of the bubble caused venture capitalists to limit their funding of new businesses. Answer: True LG: 4/LL: 1 Page: 168 cliii. The Small Business Administration’s microloan program offers small businesses very small loans. Answer: True LG: 4/LL: 1 Page: 169 cliv. Small Business Administration microloans are based on the borrowers' integrity rather than collateral and credit history. Answer: True LG: 4/LL: 1 Page: 169 clv. 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 LG: 4/LL: 1 Page: 169 clvi. Anti-discrimination laws prohibit the Small Business Administration from offering loans specifically aimed towards women and/or minorities. Answer: False LG: 4/LL: 1 Page: 169; figure 6.6 clvii. Small Business Investment Companies (SBICs) are privately owned companies licensed by the Small Business Administration to lend money to small businesses. Answer: True LG: 4/LL: 1 Page: 169 clviii. The SBA may guarantee loans made by a financial institution and repay them if the borrowers stop making payments. Answer: True LG: 4/LL: 1 Page: 169; figure 6.6 clix. Success in running a business depends on knowing your customers, managing your employees, and keeping efficient records. Answer: True LG: 4/LL: 1 Page: 170 clx. In the business world, a market consists of those people who have a willingness to buy a particular product. Answer: False LG: 4/LL: 1 Page: 170 clxi. Adequate funding for a small business venture insures its success. Answer: False LG: 4/LL: 1 Page: 170 clxii. Nickels, McHugh & McHugh, Understanding Business, Eighth Edition 25 clxiii. 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 LG: 4/LL: 1 Page: 170 clxiv. 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 LG: 4/LL: 1 Page: 170 clxv. As their firms grow and prosper, busy entrepreneurs take pleasure in delegating authority to others. Answer: False LG: 4/LL: 1 Page: 170 clxvi. Studies show that seniority is the most important criteria when selecting employees for promotion to management positions. Answer: False LG: 4/LL: 1 Page: 170 - 171 clxvii. 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 LG: 4/LL: 1 Page: 170 clxviii. Hiring family members offers the best answer to the problem of attracting qualified employees. Answer: False LG: 4/LL: 1 Page: 171 clxix. Questions about how much authority to delegate, and to whom, are easier issues for a family-run businesses since they “can’t fire family.” Answer: False LG: 4/LL: 1 Page: 171 clxx. With fewer employees and less revenue, small businesses have less need for detailed records than do larger business organizations. Answer: False LG: 4/LL: 1 Page: 171 clxxi. Many small business owners report that the most important assistance they needed in starting and managing their business involved accounting. Answer: True LG: 4/LL: 1 Page: 171 clxxii. Commercial loan officers and insurance agents offer expert assistance that can be valuable to small business owners. Answer: True LG: 4/LL: 1 Page: 172 26 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition clxxiii. One way to control the legal costs associated with operating a small business is to purchase a prepaid legal plan. Answer: True LG: 4/LL: 1 Page: 172 clxxiv. Commercial loan officers serve as a resource for small business owners for information regarding risk management. Answer: False LG: 4/LL: 1 Page: 172 clxxv. A presence on the Internet can benefit a business even if their product can’t be sold to customers from the Web. Answer: True LG: 4/LL: 1 Page: 172 clxxvi. The SCORE (Service Corps of Retired Executives) program, sponsored by the SBA, is designed to provide financial assistance to minorities and women. Answer: False LG: 4/LL: 1 Page: 172 Level of Learning 2 (Understands concepts and principles) clxxvii. Prior to creating a business plan, discussions with bankers and investors can help entrepreneurs determine the amount of financing available. Answer: False LG: 4/LL: 2 Page: 166 Rationale: 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. clxxviii. An effective business plan analyzes the competition and identifies the resources required to profitably serve a target market. Answer: True LG: 4/LL: 2 Page: 165 Rationale: An effective business plan must consider all the aspects of operating a new business in detail. clxxix. 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 LG: 4/LL: 2 Page: 165 Rationale: A business plan should include information about the resources and qualifications of the owner. Nickels, McHugh & McHugh, Understanding Business, Eighth Edition 27 clxxx. 28 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition clxxxi. 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 LG: 4/LL: 2 Page: 165 - 166 Rationale: Developing a business plan forces an entrepreneur to think carefully about all aspects of the business he or she intends to start. clxxxii. Bankers and venture capitalists prefer to meet face-to-face with prospective entrepreneurs rather than review a formal business plan. Answer: False LG: 4/LL: 2 Page: 165 Rationale: A business plan is mandatory when talking to bankers and investors. clxxxiii. As a prospective entrepreneur, Ebony considered a variety of financing sources. Her discussions with a venture capitalist revealed that this type of investor expects to receive a significant ownership interest in her firm. Answer: True LG: 4/LL: 2 Page: 168 Rationale: Venture capitalists sometimes ask for as much as a 60% stake in a business. clxxxiv. As opposed to venture capitalists, angel investors prefer to target their investments in new firms requiring large sums of money. Answer: False LG: 4/LL: 2 Page: 168 Rationale: 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. clxxxv. 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 LG: 4/LL: 2 Page: 168 - 169 Rationale: 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. clxxxvi. Nickels, McHugh & McHugh, Understanding Business, Eighth Edition 29 clxxxvii. Hoping to qualify for a microloan from the Small Business Administration, Madonna’s business plan clearly identifies her strategy to profitably serve a target market. Unfortunately, her lack of business experience and limited collateral greatly reduce her chances of obtaining the microloan. Answer: False LG: 4/LL: 2 Page: 168 - 169 Rationale: Microloans are awarded on the basis of the integrity of the borrowers and the soundness of their business ideas. clxxxviii. Song’s interest in computers helped fuel her design of a new hard drive that is far superior to anything on the market. Her desire is to start her own business and she is frustrated because she lacks the needed financial resources. Even after the crash of the bubble, Song’s product and business plan will likely attract several sources of financing if she is willing to give up part ownership in her company. Answer: True LG: 4/LL: 2 Page: 168 Rationale: 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 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. clxxxix. Because college students realize the importance of nursing homes for our aging population, the students comprise an attractive market for nursing home insurance policies. Answer: False LG: 4/LL: 2 Page: 170 Rationale: 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. cxc. In order to better serve their customers, small business owners should avoid delegating authority to their employees. Answer: False LG: 4/LL: 2 Page: 170 - 171 Rationale: 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. cxci. In managing employees, small business owners would be well advised to implement a policy of promoting the employees with the greatest seniority. Answer: False LG: 4/LL: 2 Page: 171 30 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition Rationale: Not all long-term employees have the interest or the ability to accept positions of greater authority and responsibility. cxcii. Justin feels that his family-run business will be more likely to avoid the problems many growing businesses have with managing employees. His attitude will likely hinder the growth of his company. Answer: True LG: 4/LL: 2 Page: 171 Rationale: Attitudes such as "You can't fire family" or you must promote someone because "they're family" can be detrimental to family businesses. cxciii. Whitney wants to start her own business, but she is concerned about her limited financial resources. She would be well advised to save money by delaying her meeting with lawyers and accountants until the business has been operating for a few years. Answer: False LG: 4/LL: 2 Page: 171 - 172 Rationale: Consulting with lawyers, accountants, and loan officers may be expensive, but their advice may be invaluable. If Whitney 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. Learning Goal 5 Outline the advantages and disadvantages small businesses have in entering global markets. Level of Learning 1 (Knows basic terms and facts) cxciv. While only a small percentage of small businesses export, the number has increased dramatically in the last decade. Answer: True LG: 5/LL: 1 Page: 173 cxcv. Large multinational firms dominate the international market, leaving few opportunities for small businesses. Answer: False LG: 5/LL: 1 Page: 173 cxcvi. One advantage enjoyed by small businesses in international markets is that overseas buyers like dealing with individuals rather than large corporate bureaucracies. Answer: True LG: 5/LL: 1 Page: 173 cxcvii. Due in part to government support, the majority of U.S. small businesses are involved in exporting. Nickels, McHugh & McHugh, Understanding Business, Eighth Edition 31 Answer: False LG: 5/LL: 1 Page: 173 cxcviii. 32 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition cxcix. While there are only about 290 million people in the U.S., there are over 6 billion people in the world. Answer: True LG: 5/LL: 1 Page: 173 cc. Exporting offers small businesses opportunities to reduce their dependence on domestic sales and extend product lives. Answer: True LG: 5/LL: 1 Page: 173 cci. 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 LG: 5/LL: 1 Page: 174 ccii. Small businesses can provide more personalized service than a large corporation to overseas customers. Answer: True LG: 5/LL: 1 Page: 173 cciii. The Internet has slowed small businesses participation in international markets. Answer: False LG: 5/LL: 1 Page: 173 Level of Learning 2 (Understands concepts and principles) cciv. As the owner of a small manufacturing business, Myles 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 Myles. Answer: True LG: 5/LL: 2 Page: 174 Rationale: The Commerce Department's Bureau of Industry and Security and the Small Business Administration provide export information on the Internet. ccv. From a competitive standpoint, small businesses cannot expect to successfully compete with large corporations in international markets. Answer: False LG: 5/LL: 2 Page: 173 Rationale: 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. ccvi. Nickels, McHugh & McHugh, Understanding Business, Eighth Edition 33 ccvii. The only real barrier preventing small businesses from exporting is insufficient knowledge of the opportunities available. Answer: False LG: 5/LL: 2 Page: 173 Rationale: 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. MULTIPLE CHOICE Learning Goal 1 Explain why people are willing to take the risks of entrepreneurship, list the attributes of successful entrepreneurs, describe the benefits of entrepreneurial teams and intrapreneurs, and explain the growth of home-based and Web-based businesses. Level of Learning 1 (Knows basic terms and facts) ccviii.An entrepreneur: A) manages businesses for others. B) has a controlling interest in the ownership of a corporation. C) manages businesses that operate in multiple countries. D) accepts the risk of starting and running a business. Answer: D LG: 1/LL: 1 Page: 150 ccix.The importance of entrepreneurs to our economy is found in their: A) impact on the political process. B) ability to create jobs for others. C) contributions of money to organizations that help people in need. D) ability to influence national macroeconomics polices. Answer: B LG: 1/LL: 1 Page: 150 ccx.Which of the following would be helpful in explaining 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 LG: 1/LL: 1 Page: 151 34 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition ccxi. Nickels, McHugh & McHugh, Understanding Business, Eighth Edition 35 ccxii.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 LG: 1/LL: 1 Page: 151 ccxiii.A group of experienced people from different areas of a business joined together to develop, produce, and market a new product is known as a(n): A) entrepreneurial team. B) joint venture. C) self-directed functional team. D) managerial task force. Answer: A LG: 1/LL: 1 Page: 154 ccxiv.Entrepreneurs don’t always focus on what customers need. They also look for: A) how the weather will affect the business. B) what customers don't need. C) how many employees are required to meet SBA standards. D) what government agency will provide financial assistance with income taxes. Answer: B LG: 1/LL: 1 Page: 152 ccxv.An entrepreneurial team consists of: A) managers with similar skills, abilities, and interests. B) experienced managers 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 LG: 1/LL: 1 Page: 154 ccxvi.Individuals motivated to start a home-based business allowing them to balance the demands of business and family are called: A) entremanures. B) intrapreneurs. C) micropreneurs. D) home workers. Answer: C LG: 1/LL: 1 Page: 154 - 155 ccxvii.Nearly half of home-based businesses are in: A) Idaho. B) the service industries. C) bankruptcy court. D) manufacturing. 36 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition Answer: B LG: 1/LL: 1 Page: 154 ccxviii.Sound advice for potential entrepreneurs includes: A) save lots of money as you will need it to learn your new business. B) research your market thoroughly even if it takes quite a while to start your business. C) surround yourself with people who are smarter than you. D) set specific objectives including high revenue goals. Answer: C LG: 1/LL: 1 Page: 154; figure 6.1 ccxix.Which of the following is a reason given for the growth of home-based businesses? A) desire of micropreneurs to balance work and family. B) new tax laws that allow for fewer deductions for home offices. C) improvement in job security for employees of large corporations. D) favorable shift in social attitudes toward working for a large corporation. Answer: A LG: 1/LL: 1 Page: 155 ccxx.One challenge of working at home is: A) keeping up with the demand from new customers. B) managing time. C) paying for the home office space. D) using a computer to give the feel of a large business to a small one. Answer: B LG: 1/LL: 1 Page: 155 – 156 ccxxi.Web-based businesses have: A) experienced the pain of failure. B) reduced the opportunities available for small business owners. C) avoided the business failures of more traditional small businesses. D) usually started as divisions of large corporations. Answer: A LG: 1/LL: 1 Page: 158 ccxxii.In 2005 online sales in the U.S. reached: A) $500 million B) $774 million C) $49 billion D) $165 billion Answer: D LG: 1/LL: 1 Page: 156 ccxxiii.A creative person working within a corporation to launch new products and generate new profits is known as a(n): A) arbitrator. B) micropreneur. Nickels, McHugh & McHugh, Understanding Business, Eighth Edition 37 C) macropreneur. D) intrapreneur. Answer: D LG: 1/LL: 1 Page: 158 ccxxiv. 38 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition ccxxv.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) break up an inefficient big firm into a group of smaller, more efficient business organizations. Answer: B LG: 1/LL: 1 Page: 158 ccxxvi.One feature of the Immigration Act of 1990 was the: A) creation of "investor visas" to attract more immigrants with entrepreneurial ability. B) establishment of a government program to teach American workers displaced by immigration how to start their own businesses. C) establishment of guidelines to help entrepreneurs recruit legal aliens as a source of low cost labor. D) exchange program that allows American entrepreneurs to live in Europe temporarily in order to open up foreign branches for their businesses. Answer: A LG: 1/LL: 1 Page: 159 ccxxvii.Enterprise zones are areas which: A) the government has set aside for major corporations that promise to spend at least $10 million to create new jobs. B) feature low taxes and government support in an effort to encourage entrepreneurship. 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 LG: 1/LL: 1 Page: 159 ccxxviii.Business incubators are government-funded facilities intended to: A) provide health care benefits for small business owners and their families. B) offer startup 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 LG: 1/LL: 1 Page: 159 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition 39 Level of Learning 2 (Understands concepts and principles) ccxxix.Historically entrepreneurs in the U.S. have: A) often 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) been successful 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 LG: 1/LL: 2 Page: 150 Rationale: 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, George Eastman (who started Kodak) and William Procter and James Gamble (who founded Procter & Gamble). More recent examples include Steve Jobs (Apple Computer), Bill Gates (Microsoft), Ted Turner (CNN), and Jeff Bezo (A). ccxxx.An examination of the reasons given by people willing to accept the risks of entrepreneurship indicates that: A) the desire to earn a profit is the only reason most people have for becoming entrepreneurs. B) many people become entrepreneurs because they do not enjoy working for someone else. C) the strongest motivator is the desire to be famous and powerful. D) contrary to popular opinion, most entrepreneurs are not interested in personal achievement. Answer: B LG: 1/LL: 2 Page: 151 Rationale: 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. ccxxxi.Successful entrepreneurs are self-nurturing. This means they: A) look to others for strength and encouragement. B) are self-financed with no assistance from others. C) perform all business operations by themselves. D) are able to replenish their own enthusiasm. Answer: D LG: 1/LL: 2 Page: 151 Rationale: Self-nurturing individuals have the ability to believe in an idea when no one else does, and to replenish their enthusiasm. 40 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition ccxxxii. Nickels, McHugh & McHugh, Understanding Business, Eighth Edition 41 ccxxxiii.Effective entrepreneurial teams require a blend of: A) creative, marketing, and production skills. 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 LG: 1/LL: 2 Page: 154 Rationale: The purpose of an entrepreneurial team is to bring together the skills needed to create, produce, and market a new product. ccxxxiv.In an entrepreneurial team, who is responsible for the conception, development, and marketing of products? A) These matters are handled by the chief executive officer. B) These issues are the responsibility of the new product development department. C) These issues are the responsibility of all the members of the entrepreneurial team. D) These matters are primarily handled by outside business consultants. Answer: C LG: 1/LL: 2 Page: 154 Rationale: As its name implies, members of an entrepreneurial team operate as a team. Everyone works together to conceive, develop, and market the product. ccxxxv.Which of the following helps explain the growth of home-based businesses? A) Many cities regulate the type of businesses permitted in residential neighborhoods. B) It is often difficult to separate work and family tasks. C) Corporate downsizing helped workers see that there is no such thing as job security. D) Many people enjoy the security of a regular paycheck. Answer: C LG: 1/LL: 2 Page: 155 Rationale: As large firms use outsourcing to perform some activities, some employees will be laid off. These former employees may find the opportunities of a home-based business very attractive. ccxxxvi. 42 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition ccxxxvii.One characteristic of micropreneurs is a: A) personal focus on security. B) long-term vision instead of a short-term payoff. C) preference for establishing routines. D) desire for receiving a paycheck rather than earning a profit. Answer: B LG: 1/LL: 2 Page: 156 Rationale: Micropreneurs are small business owners interested in enjoying a balanced lifestyle while doing the kind of work they want to do. They focus on finding opportunity instead of accepting security, getting results instead of following routines, earning a profit instead of earning a paycheck, trying new ideas instead of avoiding mistakes, and creating a long-term vision instead of seeking a short-term payoff. ccxxxviii.Which of the following best describes the difference between an intrapreneur and an entrepreneur? A) Intrapreneurs start nonprofit organizations while entrepreneurs start profitseeking businesses. B) Intrapreneurs 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 LG: 1/LL: 2 Page: 158 Rationale: Intrapreneurs are creative people who work within a corporation to develop new products and generate new profits for the firm. ccxxxix.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 LG: 1/LL: 2 Page: 158 Rationale: The idea behind intrapreneurship is to use a company's existing financial, human, and physical resources to launch new products and generate new profits. Nickels, McHugh & McHugh, Understanding Business, Eighth Edition 43 Level of Learning 3 (Applies principles) ccxl.Kenya recently quit a job with a large corporation to start her own business. While she realizes that her decision comes with risk, she is excited by the chance to be independent and by the challenges of running her own firm. Kenya is an example of a(n): A) intrapreneur. B) entrepreneur. C) venture capitalist. D) raconteur. Answer: B LG: 1/LL: 3 Page: 150 Rationale: An entrepreneur is someone who accepts the risks of starting and running a business. ccxli.Erin developed a new type of exercise equipment she calls the Tush N' Tone. After unsuccessfully searching for potential investors, she arranged a personal loan and borrowed additional money from her parents. Her willingness to continue believing in her idea and remain enthusiastic shows that Erin is: A) 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 LG: 1/LL: 3 Page: 151 Rationale: 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. ccxlii.Apple Computer’s “smart team” is an example of a firm that succeeded by: A) encouraging each manager to specialize in a well defined area such as production or finance. B) building a group of experienced managers and emphasizing teamwork and cooperation to conceive, develop, and market products. C) emphasizing a low price and low cost strategy right from the beginning. D) assembling a group of clever employees in order to retain their competitive advantage in the marketplace. Answer: B LG: 1/LL: 3 Page: 154 Rationale: 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. ccxliii. 44 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition ccxliv.Lucinda recently left a large insurance firm and opened 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) that affordable computer technology will allow her to compete with larger firms. C) the government will discourage her attempts to create a new business. D) to find security, routine and a paycheck from her new enterprise. Answer: B LG: 1/LL: 3 Page: 155 Rationale: Computer technology has leveled the competitive playing field enabling home-based businesses to look and act as big as their corporate competitors. Webbased business activities allow small firms to reach new markets. ccxlv.Enterprise zones and investor visas are examples of: A) government policies that favor large corporations rather than small businesses. B) policies used by the government to encourage entrepreneurship. C) government policies designed to encourage micropreneurs. D) examples of private initiatives to reduce the government’s role in the economy. Answer: B LG: 1/LL: 3 Page: 159 Rationale: Investment 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 policies, the purpose of both is to encourage entrepreneurial behavior. ccxlvi.Ellie is a creative person who works for the Bigdome Corporation, a large producer of consumer products. One of her primary duties is to initiate and develop new products to complement the firm's current product line. Evidently Ellie is a(n): A) intrapreneur. B) entrepreneur. C) outside consultant. D) owner’s daughter. Answer: A LG: 1/LL: 3 Page: 158 Rationale: Intrapreneurs are creative people who work as entrepreneurs within corporations to create new products and help generate new profits. ccxlvii. Nickels, McHugh & McHugh, Understanding Business, Eighth Edition 45 ccxlviii.Southwest College has received a government grant to establish a business incubator. This facility will offer: A) local government agencies assistance in obtaining funds for urban renewal. B) area businesses advice on health care benefits for their employees. C) venture capitalists an opportunity to identify new entrepreneurs. D) new businesses low-cost office space with basic business services. Answer: D LG: 1/LL: 3 Page: 159 Rationale: 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. ccxlix.Ketan is an intrapreneur for a multinational electronics company. As an intrapreneur Ketan: A) is expected to recruit new managerial talent for his firm. B) will use the firm's existing resources to develop new products. C) is concerned mainly with improving the firm's public image. D) will concentrate on creating new ventures that can be spun off to become independent firms. Answer: B LG: 1/LL: 3 Page: 158 Rationale: An intrapreneur uses a firm's existing financial, human, and physical resources to create new products and generate new profits. Learning Goal 2 Discuss the importance of small business to the American economy and summarize the major causes of small-business failure. Level of Learning 1 (Knows basic terms and facts) ccl.The management of charities, government agencies, and schools is ________ the management of a business. A) much different than B) much the same as C) less well defined than D) better organized than Answer: B LG: 2/LL: 1 Page: 160 ccli.The Small Business Administration defines a small business as a firm that: A) has fewer than 100 stockholders. B) is independently owned. C) is dominant in its field. D) has annual receipts of more than a specified amount depending upon the industry. 46 Nickels, McHugh & McHugh, Understanding Business, Eighth Edition Answer: B LG: 2/LL: 1 Page: 160 cclii.Small businesses create about __________ percent of the new jobs in the United States. A) 10 B) 25 C) 75 D) 100 Answer: C LG: 2/LL: 1 Page: 160 ccliii.About 80% of all Americans find their first jobs in: A) government agencies. B) large corporations. C) the manufacturing sector. D) small businesses. Answer: D LG: 2/LL: 1 Page: 160 ccliv.Which of the following is one of the fastest-growing segments of the U.S. economy in the last decade? A) large scale manufacturing B) minority-owned businesses C) transportation industry D) farming sector Answer: B LG: 2/LL: 1