Kuratko 8e Chapter 09.pdf

CHAPTER 9: ASSESSMENT OF ENTREPRENEURIAL OPPORTUNITIES

TRUE/FALSE

1. During the last few years, the number of new start-up ventures is approximately 1500 per day. ANS: T KEY: pg 258

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NAT: AACSB Analytic | Environmental Environmen tal Influence

2. The entrepreneurial motivations of individuals individu als relate to the entrepreneur, the environment, and the venture. ANS: T KEY: pg 258

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3. There is a great abundance of reliable data concerning the start-up, performance, and failure of new ventures. ANS: F KEY: pg 259

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4. Many entrepreneurs do not understand understan d the the marketing marketing life cycle of a new product. ANS: T KEY: pg 259

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5. Most entrepreneurs are are objective when they evaluate their new idea. ANS: F KEY: pg 259

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6. Most entrepreneurs are well schooled in the technology associated with their ventures. ANS: F KEY: pg 259

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7. Pricing becomes less of a concern when customers become aware of a product’s unique characteristics that are superior to the competition. ANS: T KEY: pg 259

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8. Most entrepreneurs hire lawyers to brief them on the legal issues surrounding a new venture. ANS: F KEY: pg 261

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NAT: AACSB Analytic | Environmental Environmenta l Influence

9. There are five specific phases a new venture venture goes through. ANS: F

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This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.

KEY: pg 263 10. With a non-routine venture, the initial innovation will maintain the company’s competitive advantage without new technology. ANS: F KEY: pg 264

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NAT: AACSB Analytic | Environmental Influence

11. In the life-style venture, independence, autonomy, and control are the primary driving forces. ANS: T KEY: pg 264

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12. The decision of an entrepreneur to ignore the market is a safe one if he or she is sure that the idea will be a success. ANS: F KEY: pg 265

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13. The growth pattern of sales is critical for an entrepreneur to make correct forecasts. ANS: T KEY: pg 264

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14. Only a small percentage of new ventures succeed. ANS: T KEY: pg 265

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15. Timing has little to do with the success or failure of a new venture. ANS: F KEY: pg 265

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16. Obtaining external financing is considered one of the major types of problems for a new venture during its first year. ANS: T KEY: pg 266

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17. Two important factors classified by Bruno as managerial that could be a cause for failure include resource problems and team approach. ANS: T KEY: pg 265

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18. Proper understanding of the market will help an entrepreneur avoid failure with a new venture. ANS: T KEY: pg 271

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19. “Intensity of competition” changes the dominance of problem areas.


ANS: T KEY: pg 267

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20. Solid analysis and evaluation of the feasibility of the product/service idea are critical tasks in starting a new business. ANS: T KEY: pg 269

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21. A product does not have to be patented in order to be introduced into the marketplace. ANS: T KEY: pg 270

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22. The evaluation process must be done by a research firm. ANS: F KEY: pg 269

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23. Overall market understanding rather than time consuming focus on market niches is sufficient for an evaluation. ANS: F KEY: pg 269

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24. A feasibility criteria approach focuses strictly on the financial feasibility of a new venture. ANS: F KEY: pg 270

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25. Feasibility analyses include the technical, market, financial, organizational, and competitive analyses. ANS: T KEY: pg 271

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MULTIPLE CHOICE

1. It is reported that 1990’s. a. 600,000 b. 100,000 ANS: A KEY: pg 258

new firms have emerged in the United States every year since the early c. 22,000 d. 230,000 PTS: 1


2. The entrepreneurial motivations of individuals usually relate to which of the following factors? a. the environment c. the venture b. the entrepreneur d. all of the above ANS: D KEY: pg 258

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3. Researchers have described a “fully developed new firm” with a number of characteristics including: a. requires the full time commitment c. has not hired any individuals b. has formal financial support d. a and b both apply ANS: D KEY: pg 259

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4. Many entrepreneurs lack a. innovation b. intelligence ANS: C KEY: pg 259


for their new venture. c. objectivity d. both a and b

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5. Which of the following is critical to a product’s success? a. timing c. objectivity b. marketing approach d. all of the above ANS: D KEY: pg 259

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6. When a customer sees a product that is superior to its competitors, ______ becomes less important. a. size c. quantity b. color d. price ANS: D KEY: pg 261

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7. A new venture should be a. cheap. b. unique. ANS: B KEY: pg 261

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c. easy to copy. d. inferior to its competitors. NAT: AACSB Analytic | Environmental Influence

8. A common pitfall in selecting a new venture is a. poor financial understanding. c. real insight into the market. b. proper objective evaluation. d. none of the above. ANS: A KEY: pg 259

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9. Timing is especially critical in which area? a. the new venture profitability method b. marketing ANS: B KEY: pg 259

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10. Many entrepreneurs lack a. knowledge of their product. b. venture uniqueness.


c. accounting d. the economy NAT: AACSB Analytic | Environmental Influence

c. drive. d. the willingness to put in long hours.


ANS: B KEY: pg 261

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11. Name the pitfall described by the statement, “Engineers and technically trained people are particularly prone to falling in love with an idea for a product or service.” a. inadequate understanding of technical requirements b. lack of venture uniqueness c. no real insight into the market d. lack of objective evaluation ANS: D KEY: pg 259

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12. Poor financial understanding for an entrepreneur would be characterized by which of the following? a. failure to anticipate technical difficulties b. inadequate understanding of costs and funding requirements c. failure to realize the life cycle of a product d. lack of product differentiation ANS: B KEY: pg 259

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13. A new venture must go through a. five b. two ANS: C KEY: pg 263

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phases. c. three d. seven NAT: AACSB Analytic | Environmental Influence

14. During the pre-start-up phase of a new venture, which of the following are among the crucial five factors for success? a. uniqueness of venture. c. a & b. b. expected growth. d. price. ANS: C KEY: pg 263

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15. Sales growth is a critical factor in the a. pre-start-up phase. b. post-start-up phase. ANS: C KEY: pg 264

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c. start-up phase. d. evaluations phase. NAT: AACSB Analytic | Environmental Influence

16. Many ventures fit into which of the following classifications? a. hobby ventures c. high-growth ventures b. smaller copycat ventures d. survival ventures ANS: C KEY: pg 264

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17. Three specific phases that a new venture goes through are a. pre-start-up, start-up, post-start-up. b. start-up, post-start-up, evaluation.


c. beginning start-up, start-up, ending start-up. d. pre-start-up, start-up, evaluation. ANS: A KEY: pg 263

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18. Lack of finished product availability can affect a. the company’s image. c. both a and b. b. the success of any venture. d. costs. ANS: C KEY: pg 264

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19. Ronstadt notes that the decision to ignore the market is a. a smart one. c. an extremely risky one. b. a fairly risky one. d. a critical one. ANS: C KEY: pg 265

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20. Financial considerations play a major role in a. lifestyle ventures. b. smaller profitable ventures. ANS: B KEY: pg 264

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c. high-growth ventures. d. corporate debentures. NAT: AACSB Analytic | Environmental Influence

21. The amount of capital required to start a new venture a. can vary considerably depending upon the industry b. is generally the same for all start-ups c. is never available d. will always be a small number ANS: A KEY: pg 264

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.


22. Independence and autonomy are the major driving forces behind which of the following types of ventures? a. small unprofitable ventures c. life-style ventures b. corporate ventures d. high-growth ventures ANS: C KEY: pg 264

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23. The type of venture that is expected to attract venture capital would most likely be a a. corporate venture. c. life-style venture. b. high-growth venture. d. smaller venture. ANS: B KEY: pg 264

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24. What is a critical consideration when assessing customer availability? a. amount of products sold b. length of time needed to determine who the customers are and what their buying habits are


c. the exact profitability of the venture d. all of the above ANS: B KEY: pg 265

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25. Bruno identifies which of the following as a factor contributing to new venture failure? a. product/market problems. c. personality clashes. b. family issues. d. good management/poor product. ANS: A KEY: pg 265

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26. One of the external problems new ventures face is a. vandalism c. government regulations b. poor labor force d. market knowledge ANS: D KEY: pg 267

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27. In recent studies of new venture problems, the most dominant problems at start-up were: a. regulatory environment c. production/operations b. sales/marketing d. none of the above ANS: B KEY: pg 266

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28. In recent studies of new venture problems, the most dominant problems during the growth stage were: a. sales/marketing c. regulatory environment b. organization design d. none of the above ANS: A KEY: pg 266

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29. Using the “Failure Prediction Model” illustrated in the chapter, the risk of failure can be reduced by: a. using less debt as initial financing and generating revenue in the initial stages. b. using more debt as initial financing and generating less revenue in the initial stages. c. using more revenue to enhance more debt in the initial stage. d. all of the above. ANS: A KEY: pg 268

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30. Which of the following are major reasons for the failure of a new venture? a. inadequate market knowledge c. opening in the wrong location b. good product performance d. good product/poor marketing ANS: A KEY: pg 267

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31. Product/market problems include which of the following? a. venture capital relationship problems c. concept of a team approach b. unclear business definition d. assuming debt too early


ANS: B KEY: pg 265

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32. Hiring and promotions on the bases of nepotism rather than qualification fall under the managerial problem of a. human resource problem. c. unclear business definition. b. the concept of a team approach. d. poor management. ANS: B KEY: pg 265

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33. A common human resource problem is a. poor relationships with parent companies and venture capitalists. b. incompetent support professionals. c. inflated owner ego. d. incompetent work force. ANS: C KEY: pg 266

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34. Rapid technological advances in many industries cause a concern for development. a. faulty product performance b. rapid product obsolescence c. inadequate awareness of competitive pressures d. undercapitalization ANS: B KEY: pg 271

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in new venture


35. When premature entry into the marketplace causes the failure of a new venture, it can be termed a. poor timing. c. a design problem. b. good timing. d. a distribution problem. ANS: A KEY: pg 265

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36. A solid analysis is a. a critical task in starting a new business. b. of no importance. c. no way to discover flaws in the new venture idea. d. both a and c. ANS: A KEY: pg 269

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37. Which of the following are key questions to ask when screening an idea? a. Is it proprietary? c. What are its points of discussion? b. Can it easily make money? d. All of the above are correct. ANS: A KEY: pg 270

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38. The results of a profile analysis enable the entrepreneur to judge


a. himself or herself. b. the competition. ANS: C KEY: pg 269

c. the potential of the business. d. venture capital opportunities. PTS: 1


39. A checklist approach allows the entrepreneur to identify major strengths and weaknesses in factors of a new venture. a. the financial c. the organizational b. the marketing d. all of the above ANS: D KEY: pg 270

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40. Failure of a new venture can be avoided a. by being a high risk taker. b. through a careful profile analysis. ANS: B KEY: pg 270

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c. through both a and c. d. through none of the above. NAT: AACSB Analytic | Environmental Influence

41. In determining the potential market, one must look into the future. a. one year c. ten years b. three to five years d. three months ANS: B KEY: pg 270

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42. Which of the following are questions an entrepreneur can ask to gain insight into the viability of a venture? a. Is it proprietary? c. Is the potential market large? b. Are the initial production costs realistic? d. All of the above are correct. ANS: D KEY: pg 270

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43. Functional design of the product and attractiveness in appearance are an aspect of a. technical feasibility. c. marketability. b. financial feasibility. d. organizational competence. ANS: A KEY: pg 271

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44. The comprehensive feasibility approach is closely related to a. the preparation of a thorough financial plan b. initial customers c. calendar times d. good product design ANS: A KEY: pg 272

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45. Market feasibility analysis relies on a. organizational competence


b. the entrepreneur’s vision c. venture capital d. general economic trends and competitor data ANS: D KEY: pg 271

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46. General sources for a market feasibility analysis include a. reliability studies. c. pricing data. b. statistical analyses. d. supplier data. ANS: C KEY: pg 272

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47. In shaping the ultimate success or failure of a new venture, which of the following statements applies the best? a. A single strategic variable is usually responsible. b. A single strategic variable is seldom responsible. c. A single strategic variable will change. d. A single strategic variable influences the entire outcome. ANS: B KEY: pg 269

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48. Product design, reliability, and safety are all examples of a. technical feasibility c. assessment of the entrepreneurial profile b. market feasibility d. a good product ANS: A KEY: pg 271

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49. Which evaluation method enables an entrepreneur to judge the potential of the business? a. the entrepreneurial analysis method c. the profile analysis b. the venture analysis method d. the net out-of-pocket cost method ANS: C KEY: pg 269

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50. An approach developed as a criteria selection list from which entrepreneurs can gain insights into the viability of their venture is the a. feasibility criteria approach. c. marketability feasibility approach. b. time-essence of a venture approach. d. comprehensive feasibility approach. ANS: A KEY: pg 270

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SHORT ANSWER

1. Explain three major reasons why new ventures fail. ANS:


The first reason new ventures often fail is poor timing for the start of a new venture. A new product might be put on the market before a real need for the item exists or it may be introduced too late, when there is little demand for the product. The second reason is rapid product obsolescence. The life of a product needs to be assessed as important discoveries are always being made in updating the product’s usefulness. The third reason is faulty product performance. Tests have not been conducted appropriately for the product or quality has not been adequately controlled. PTS: 1


2. List and describe three pitfalls in selecting a new venture. ANS: The first pitfall in selecting a new venture is lack of objective evaluation. Ideas for products or services lack the careful planning measures to bring them up to their proper potential. The second pitfall is the lack of real insight into the market; a failure on the part of managerial staff to realize the full potential and life cycle of the product from the beginning. The third pitfall concerns the lack of venture uniqueness. There is no specific characteristic to set the business apart from competitors in the same field. PTS: 1


3. What are three critical factors in a new venture assessment? ANS: One of the critical factors in a new venture assessment is the basic feasibility of the venture. A venture has to operate within the realm of reality and it must also be a legitimate business venture. A second critical factor is the buyer decisions in the venture. Decisions as to customer identification in terms of location and specific classification of customers will be served by this venture. The third critical factor is the competitive advantages of the venture. Basically, this is comparing a venture with the competitors. The venture must have advantages that are not available to the competition’s realm of business. PTS: 1


4. What are the five specific feasibility phases that a new venture will go through? ANS: The first phase is finding out technical feasibility. The feasibility measured is whether the product or service will meet all technical criteria and tests for serviceability that are measurable. The second phase concerns marketability. Different tests are used to assure the success of the product or service rendered. This product must be salable and marketable to the public with a plan for promoting, pricing, and distributing the product to consumers or customers. The third phase is financial feasibility. Required finances are compared to available financial resources. The fourth phase deals with organizational capabilities as far as the personnel needs and requirements. The final phase is the competitive analysis of existing, as well as potential, competitors. PTS: 1



Kuratko 8e Chapter 09.pdf

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