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Modern Management, 11e (Certo / Certo)

Chapter 6 Management and Entrepreneurship

1) Entrepreneurship refers to the identification, evaluation and exploitation of opportunities.

2) Opportunity evaluation is the first stage of the entrepreneurial process.

3) On average, 460,000 people start new businesses in the United States each month.

4) Research suggests that approximately 75% of new organizations are started by entrepreneurial
teams rather than individuals.

5) Approximately 85% of new restaurants fail within the first three years.

6) Approximately 60% of new businesses fail within the first six years.

7) Opportunities may sometimes arise from the discovery of new geographical markets in which
new customers will value a new product or service.

8) Individuals with extended social networks are more likely to identify potential entrepreneurial
opportunities than those with more narrow social networks.

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9) Information asymmetry refers to an individual's ability to notice and be sensitive to new

information about objects, incidents, and patterns of behavior.

10) Entrepreneurial alertness refers to an individual's ability to notice and be sensitive to new
information about objects, incidents, and patterns of behavior in the environment.

11) Feasibility analysis helps entrepreneurs understand whether an idea is practical.

12) An entrepreneur's belief in the law of small numbers decreases the risk he or she perceived
with an opportunity.

13) Downside loss refers to the resources that an entrepreneur could lose if an opportunity does
not succeed.

14) When analyzing entrepreneurial opportunities, the opportunity identification step is, "Where
the rubber meets the road," and often presents a difficult challenge.

15) The law of large numbers occurs when individuals rely on a small sample of information to
inform their decisions.

16) Exploitation exists when entrepreneurs overestimate the extent to which they can control the
outcome of an opportunity.

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17) Illusion of control refers to the activities and investments committed to gain returns from the
new product or service arising from an opportunity.

18) Entrepreneurs are more likely to exploit opportunities when they perceive that their
surrounding management team is capable.

19) Venture capitalists are wealthy individuals who provide capital to new companies.

20) The use of venture capital in the United States peaked at about $100 billion during the dot-
com frenzy of 1998-2000.

21) Venture capitalists generally make more investments than angel investors.

22) Venture capitalists generally make larger investments than angel investors.

23) Most entrepreneurs completely fund operations with their own money or credit cards.

24) Bank financing occurs when an entrepreneur obtains financing from a financial institution in
the form of a loan.

25) Angel investors number about 800,000 today.

26) Angel investors help approximately 50,000 companies get off the ground each year.

27) Arm & Hammer used sustained regeneration when it expanded the uses for baking soda by
developing and introducing baking soda-related products, such as toothpaste and deodorizing
products.

28) With respect to corporate entrepreneurship, sustained regeneration occurs when firms
develop new culture, processes, or structures to support new product innovations.

29) Strategic renewal involves improving the firm's ability to execute strategies and focuses on
new processes instead of new products.

30) Organizational rejuvenation occurs when a firm attempts to alter its own competitive
strategy.

31) Domain definition occurs when a firm proactively seeks to create a new product market
position that competitors have not recognizes.

32) Social value refers to the basic long-standing needs of society and has little to do with
profits.

33) The most fundamental difference between commercial and social entrepreneurship involves
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the entrepreneur's mission and statement.

34) Commercial and social entrepreneurship differ in terms of performance measure.

35) Social entrepreneurship is a fairly new topic from a research perspective.

36) On average, ________ people start businesses in the United States each month.
A) 46,000
B) 64,000
C) 460,000
D) 640,000

37) ________ of new organizations are started by entrepreneurial teams.

A) 30%
B) 45%
C) 60%
D) 75%

38) Which of the following is the correct process in the stages of entrepreneurship?
A) Opportunity identification, opportunity evaluation, opportunity exploitation
B) Opportunity identification, opportunity exploitation, opportunity evaluation
C) Opportunity evaluation, opportunity identification, opportunity exploitation
D) Opportunity evaluation, opportunity exploitation, opportunity identification

39) ________ of new restaurants fail within the first three years.
A) 30%
B) 40%
C) 50%
D) 60%

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40) Approximately ________ of new chemical plants fail within the first ten years.
A) 35%
B) 50%
C) 65%
D) 80%

41) ________ of new businesses fail within the first five years.
A) 30%
B) 40%
C) 50%
D) 60%

42) Which of the following is NOT a type of opportunity identified by Schumpeter?

A) New products or services
B) New geographical markets
C) New methods of planning
D) New raw materials

43) Citibank providing services in China is an example of which type of opportunity?

A) New products or services
B) New geographical markets
C) New raw materials
D) New methods of production

44) ________ refers to an individual's ability to notice and be sensitive to new information about
objects, incidents, and patterns of behavior in the environment.
A) Entrepreneurial alertness
B) Information asymmetry
C) Social networking
D) Feasibility analysis

45) The fact that individuals vary in terms of information to which they have access is known as:
A) Entrepreneurial alertness
B) Information asymmetry
C) Social networking
D) Feasibility analysis

46) Which of the following is NOT a determinant of opportunity identification?

A) Information symmetry
B) Social networks
C) Identification of means-end relationship
D) Planned serendipity

47) ________ is the first step of the entrepreneurial process.

A) Opportunity identification
B) Opportunity evaluation
C) Opportunity exploitation
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D) Opportunity feedback

48) ________ refers to the resources that the entrepreneur could lose if the opportunity does not
succeed.
A) Downside loss
B) Entrepreneurial risk
C) Feasibility analysis
D) Information asymmetry

49) ________ is the second step of the entrepreneurial process.

A) Opportunity identification
B) Opportunity selection
C) Opportunity evaluation
D) Opportunity feedback

50) ________ is a type of evaluation that helps entrepreneurs to understand whether an idea is
practical.
A) Entrepreneurial alertness
B) Information asymmetry
C) Social networking
D) Feasibility analysis

51) ________ is the likelihood and magnitude of an opportunity's downside loss.

A) Information asymmetry
B) Entrepreneurial alertness
C) Feasibility analysis
D) Entrepreneurial risk

52) ________ occurs when individuals rely on a small sample of information to inform their
decisions.
A) Law of small numbers
B) Entrepreneurial risk
C) Information asymmetry
D) Feasibility analysis

53) ________ is the third step of the entrepreneurial process.

A) Opportunity identification
B) Opportunity evaluation
C) Opportunity exploitation
D) Opportunity selection

54) ________ exists when entrepreneurs overestimate the extent to which they can control the
outcome of an opportunity.
A) Feasibility analysis
B) Illusion of control
C) The law of small numbers
D) Information asymmetry

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55) ________ refers to the activities and investments committed to gain returns from the new
product or service arising from the opportunity.
A) Entrepreneurial risk
B) Information asymmetry
C) Exploitation
D) Illusion of control

56) ________ are wealthy individuals who provide capital to new companies.
A) Angel investors
B) Venture capitalists
C) Lending institutions
D) Entrepreneurs

57) ________ are firms that raise money from investors and then use money to make
investments in new firms.
A) Angel investors
B) Venture capitalists
C) Lending institutions
D) Entrepreneurs

58) Today, approximately ________ angel investors provide capital to companies each year.
A) 4,000
B) 14,000
C) 40,000
D) 400,000

59) The use of venture capital peaked at about ________ during the dot-com frenzy of 1998-
2000.
A) $100 million
B) $1 billion
C) $10 billion
D) $100 billion

60) Angel investors provide about ________ in capital to companies each year.
A) $50 million
B) $500 million
C) $5 billion
D) $50 billion

61) Angel investors provide capital to more than ________ companies each year.
A) 5,000
B) 25,000
C) 50,000
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D) 100,000

62) Which of the following is NOT a type of corporate entrepreneurship?

A) Sustained regeneration
B) Organized rejuvenation
C) Domain definition
D) Inverted retention

63) ________ occurs when firms develop new culture, processes, or structures to support new
product innovations in current markets as well as with existing products in new markets.
A) Sustained regeneration
B) Organized rejuvenation
C) Strategic renewal
D) Domain definition

64) ________ involves improving the firm's ability to execute strategies and focuses on new
processes instead of new products.
A) Sustained regeneration
B) Organized rejuvenation
C) Strategic renewal
D) Domain definition

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65) ________ occurs when a firm attempts to alter its own competitive strategy.
A) Sustained regeneration
B) Organized rejuvenation
C) Strategic renewal
D) Domain definition

66) ________ occurs when a firm proactively seeks to create a new product market position that
competitors have not recognized.
A) Sustained regeneration
B) Organized rejuvenation
C) Strategic renewal
D) Domain definition

67) ________ refers to the basic long-standing needs of society and has little to do with profits.
A) Commercial value
B) Social value
C) Economic value
D) Psychological value

68) List and briefly explain the three stages of the entrepreneurial process.
Answer: The three stages of entrepreneurship are opportunity identification, evaluation and
exploitation. See page 139.
Diff: 2 Page Ref: 147
Topic: Stages of the Entrepreneurial Process

69) Briefly discuss the five different types of entrepreneurial opportunities cited by Schumpeter.
Answer: Schumpeter lists new products and services, new geographical markets, new raw
materials, new methods of production and new methods of organizing. See page 141.
Diff: 2 Page Ref: 141
Topic: Types of Opportunities

70) List and describe the four factors that influence the ability of individuals to identify
opportunities.
Answer: The four factors are entrepreneurial alertness, information asymmetry, social networks
and the ability to assess means-end relationships. See page 142
Diff: 2 Page Ref: 142
Topic: Types of Opportunities