Small Business Management Launching and Growing Entrepreneurial Ventures 16th Edition By Longenecker – Test Bank  

$20.00

Description

INSTANT DOWNLOAD COMPLETE TEST BANK WITH ANSWERS

 

Small Business Management Launching and Growing Entrepreneurial Ventures 16th Edition By Longenecker – Test Bank

 

Sample  Questions

 

 

Chapter 3—Starting a Small Business

 

TRUE/FALSE

 

  1. “Me, too” strategies are used by very few new ventures.

 

ANS:  F

In reality, most new ventures (especially in service industries) are founded on “me, too” strategies.

 

PTS:   1                    REF:   p. 72              OBJ:   3-1 TYPE: C

NAT:  Analytic | Value Creation

 

  1. Many new businesses are formed from an entrepreneur seeing ways to improve or modify a product as a result of previous work experience.

 

ANS:  T                    PTS:   1                    REF:   p. 72              OBJ:   3-1 TYPE: C

NAT:  Analytic | Value Creation

 

  1. Based on knowledge gleaned from a present or recent job, entrepreneurs may see new startup ideas from modifying an existing product, improving a service, or duplicating a business concept in a different location.

 

ANS:  T                    PTS:   1                    REF:   p. 73              OBJ:   3-1 TYPE: C

NAT:  Analytic | Value Creation

 

  1. Hobbies or personal interests can provide startup ideas.

 

ANS:  T                    PTS:   1                    REF:   p. 74              OBJ:   3-1 TYPE: C

NAT:  Analytic | Value Creation

 

  1. Serendipity describes a new product idea resulting from deliberate search activities.

 

ANS:  F

Serendipity refers to making desirable accidental discoveries, not engaging in deliberate search efforts.

 

PTS:   1                    REF:   p. 74              OBJ:   3-1 TYPE: D

NAT:  Analytic | Value Creation

 

  1. Serendipity is the facility for making desirable discoveries by accident.

 

ANS:  T                    PTS:   1                    REF:   p. 74              OBJ:   3-1 TYPE: D

NAT:  Analytic | Value Creation

 

  1. Magazines and other periodicals are excellent sources of startup ideas.

 

ANS:  T                    PTS:   1                    REF:   p. 75              OBJ:   3-1 TYPE: C

NAT:  Analytic | Value Creation

 

  1. Startups are more likely to be successful when the entrepreneur first evaluates his or her own capabilities and then looks for a new product or service idea, as opposed to beginning with a need in the marketplace and then relating those to personal capabilities.

 

ANS:  F

Startups that are launched by first identifying market needs are more likely to be successful, especially when the business is related to consumer goods and services.

 

PTS:   1                    REF:   p. 80              OBJ:   3-3 TYPE: C

NAT:  Analytic | Value Creation

 

  1. Cabana Life, the company started by Melissa Marks Papock, is an example of a startup based on serendipity.

 

ANS:  F

Cabana Life is an example of a startup based on personal experience.

 

PTS:   1                    REF:   p. 73              OBJ:   3-1 TYPE: A

NAT:  Reflective Thinking | Value Creation

 

  1. Business guru Peter Drucker believes entrepreneurs should consider no more than two or three sources of opportunity to avoid being sidetracked as they prepare to launch or grow their enterprises.

 

ANS:  F

Business guru Peter Drucker believes entrepreneurs should consider seven sources of opportunity as they prepare to launch or grow their enterprises: the unexpected, the incongruous, process needs, structural change, demographics, changes in perception, and new knowledge.

 

PTS:   1                    REF:   p. 74              OBJ:   3-1 TYPE: C

NAT:  Analytic | Economic Environments

 

  1. Given their limited market scope and size, only three of Porter’s five forces are relevant to small businesses.

 

ANS:  F

All five forces are relevant for small businesses.

 

PTS:   1                    REF:   p. 83              OBJ:   3-3 TYPE: C

NAT:  Analytic | Economic Environments

 

  1. The industry environment is made up of very broad factors that influence all—or at least most—businesses in a society.

 

ANS:  F

The general environment encompasses broad factors; industry environment includes factors that directly impact a given firm and its competitors.

 

PTS:   1                    REF:   p. 81              OBJ:   3-3 TYPE: C

NAT:  Analytic | Economic Environments

 

  1. According to business guru Peter Drucker, “Innovation is the specific instrument of entrepreneurship.”

 

ANS:  T                    PTS:   1                    REF:   p. 74              OBJ:   3-1 TYPE: C

NAT:  Analytic | Economic Environments

 

  1. Starting or buying more than one business without merging their operations closely is a strategy known as differentiation.

 

ANS:  F

Diversification involves starting or buying more than one business without merging the operations.

 

PTS:   1                    REF:   p. 77              OBJ:   3-2 TYPE: D

NAT:  Analytic | Value Creation

 

  1. The general environment is very narrow and includes the forces that directly impact a firm and its competitors.

 

ANS:  F

It is the industry environment that impacts only a firm and its competitors. The general environment is broad in its impact, since it influences all or most businesses in a society.

 

PTS:   1                    REF:   p. 81              OBJ:   3-3 TYPE: D

NAT:  Analytic | Economic Environments

 

  1. The industry environment is defined as the combined forces that directly impact a given firm and its competitors.

 

ANS:  T                    PTS:   1                    REF:   p. 81              OBJ:   3-4 TYPE: D

NAT:  Analytic | Economic Environments

 

  1. The general environment is more narrowly defined than the industry environment because it focuses on specific segments, such as those relating to the economy, sociocultural trends, and geopolitical developments.

 

ANS:  F

The general environment (comprised of economic, sociocultural, political/legal, technological, ecological, and global segments) is more broadly defined than the industry environment and therefore all (or at least most) businesses in a society.  The industry environment affects only a given firm and its relevant competitors.

 

PTS:   1                    REF:   p. 81              OBJ:   3-3 TYPE: C

NAT:  Analytic | Economic Environments

 

  1. General environment analysis is only appropriate for large firms.

 

ANS:  F

Small businesses can benefit from such an analysis in that new opportunities can be identified as well as threats that might hurt operations.

 

PTS:   1                    REF:   p. 82              OBJ:   3-3 TYPE: C

NAT:  Analytic | Economic Environments

 

  1. Developments in the technological segment of the general environment have created significant opportunities for many new and creative small businesses.

 

ANS:  T                    PTS:   1                    REF:   p. 81-82         OBJ:   3-3 TYPE: C

NAT:  Analytic | Economic Environments

 

  1. New competitors, substitute products/services, rivalry, suppliers and buyers all represent competitive forces within an industry.

 

ANS:  T                    PTS:   1                    REF:   p. 83              OBJ:   3-3 TYPE: C

NAT:  Analytic | Economic Environments

 

  1. The bargaining power of suppliers is encouraging for small businesses attempting to enter an industry.

 

ANS:  F

Bargaining power depends on the strength of the supplier (Will the supplier demand a high price for a limited item?) and the strength of the small business (Does the business have enough need to demand volume discounts?)

 

PTS:   1                    REF:   p. 83              OBJ:   3-3 TYPE: D

NAT:  Analytic | Economic Environments

 

  1. Change may be the most important source of opportunities for entrepreneurial firms.

 

ANS:  T                    PTS:   1                    REF:   p. 74              OBJ:   3-1 TYPE: C

NAT:  Analytic | Economic Environments

 

  1. Economic trends include the rate of inflation, interest rates and even currency exchange rates, all of which promote or discourage business growth.

 

ANS:  T                    PTS:   1                    REF:   p. 81              OBJ:   3-3 TYPE: C

NAT:  Analytic | Economic Environments

 

  1. Research has shown that most entrepreneurs generate their business ideas by searching external sources of ideas.

 

ANS:  F

Research has shown that these are more often generated from personal expertise, not from external sources.

 

PTS:   1                    REF:   p. 72              OBJ:   3-1 TYPE: C

NAT:  Analytic | Value Creation

 

  1. Resources can be either tangible or intangible in nature.

 

ANS:  T                    PTS:   1                    REF:   p. 85              OBJ:   3-3 TYPE: D

NAT:  Analytic | Economic Environments

 

  1. Evaluation of the general environment is appropriate only for large firms that have a corporate staff to manage the process.

 

ANS:  F

Small businesses benefit from general environmental scanning.

 

PTS:   1                    REF:   p. 82              OBJ:   3-3 TYPE: C

NAT:  Analytic | Economic Environments

 

  1. A competitive advantage is a resource or capability that makes a firm stronger than its rivals.

 

ANS:  F

Core competencies are the capabilities that provide a competitive advantage.

 

PTS:   1                    REF:   p. 86              OBJ:   3-3 TYPE: D

NAT:  Analytic | Economic Environments

 

  1. A SWOT analysis provides a concise overview of a firm’s strategic situation.

 

ANS:  T                    PTS:   1                    REF:   p. 86              OBJ:   3-3 TYPE: D

NAT:  Analytic | Value Creation

 

  1. In practice, a SWOT analysis is usually based on a dynamic view of the firm and its situation.

 

ANS:  F

SWOT analysis is often based as a static view of the firm and its situation, which is unfortunate since the firm’s strategy will always be dynamic (changing).

 

PTS:   1                    REF:   p. 86              OBJ:   3-3 TYPE: C

NAT:  Analytic | Value Creation

 

  1. Following a cost-based strategy can give a small firm a competitive advantage.

 

ANS:  T                    PTS:   1                    REF:   p. 89              OBJ:   3-4 TYPE: D

NAT:  Analytic | Value Creation

 

  1. A cost-based strategy requires a firm to create and sustain differentiation in the marketplace.

 

ANS:  F

It is a differentiation-based strategy that requires a firm to create and sustain a firm’s product or service uniqueness.

 

PTS:   1                    REF:   p. 89              OBJ:   3-4 TYPE: C

NAT:  Analytic | Value Creation

 

  1. A differentiation-based strategy usually does not lead to a competitive advantage in business.

 

ANS:  F

A differentiation-based strategy is one of two general options that can lead to a competitive advantage.

 

PTS:   1                    REF:   p. 89              OBJ:   3-4 TYPE: C

NAT:  Analytic | Value Creation

 

  1. A firm that is able to create and sustain product and/or service differentiation will most likely be a successful performer in the marketplace.

 

ANS:  T                    PTS:   1                    REF:   p. 89              OBJ:   3-4 TYPE: C

NAT:  Analytic | Value Creation

 

  1. Small firms are pursuing a focus strategy if they adapt their efforts to concentrating on a specific niche within the market.

 

ANS:  T                    PTS:   1                    REF:   p. 91              OBJ:   3-4 TYPE: D

NAT:  Analytic | Value Creation

 

  1. In marketing terms, a focus strategy depends upon market segmentation.

 

ANS:  T                    PTS:   1                    REF:   p. 91              OBJ:   3-4 TYPE: C

NAT:  Analytic | Value Creation

 

  1. A SWOT analysis encompasses both the inside-out and outside-in approaches in determining an overview of a venture’s strategic situation.

 

ANS:  T                    PTS:   1                    REF:   p. 86-87         OBJ:   3-3 TYPE: D

NAT:  Analytic | Value Creation

 

  1. Personalized Bottle Water has been successful due to a strategy of keeping costs low.

 

ANS:  F

The company uses a differentiation-based focus strategy with the customization of its products.

 

PTS:   1                    REF:   p. 91              OBJ:   3-4 TYPE: A

NAT:  Reflective Thinking | Finance

 

  1. A fatal flaw is a circumstance or development that, in and of itself, could render a new business unsuccessful.

 

ANS:  T                    PTS:   1                    REF:   p. 95              OBJ:   3-5 TYPE: D

NAT:  Analytic | Value Creation

 

  1. A feasibility analysis should be conducted only after completion of a business plan.

 

ANS:  F

The feasibility analysis is an intermediate step before writing the business plan.

 

PTS:   1                    REF:   p. 94              OBJ:   3-5 TYPE: A

NAT:  Analytic | Economic Environments

 

  1. An entrepreneur who aspires to be a “mogul” with the company would be satisfied with an attractive niche if the macro-market had short-term growth and potential so as to get in the market before other competitors.

 

ANS:  F

The future mogul would want a macro-market that had fast growth and ample long-term potential.

 

PTS:   1                    REF:   p. 95              OBJ:   3-2 TYPE: C

NAT:  Analytic | Economic Environments

 

MULTIPLE CHOICE

 

  1. Peter Drucker identified _____ change-based sources of opportunity that entrepreneurs should consider as they prepare to launch or grow their enterprise.
a. 3
b. 5
c. 7
d. 9

 

 

ANS:  C                    PTS:   1                    REF:   p. 74              OBJ:   3-1 TYPE: C

NAT:  Analytic | Value Creation

 

  1. Which change factor was not identified by Peter Drucker as a business opportunity source?
a. the unexpected
b. the innocuous
c. the incongruous
d. demographics

 

 

ANS:  B                    PTS:   1                    REF:   p. 75              OBJ:   3-1 TYPE: D

NAT:  Analytic | Economic Environments

 

  1. Carter Pilcher’s idea for Shorts International was based on which type of idea?
a. TYPE A
b. TYPE B
c. TYPE C
d. TYPE D

 

 

ANS:  C                    PTS:   1                    REF:   p. 72              OBJ:   3-1 TYPE: A

NAT:  Reflective Thinking | Value Creation

 

  1. Peter Drucker’s change-based sources of entrepreneurial opportunities is made up of the external factors of changes in perception, new knowledge and ______.
a. structural change
b. process needs
c. incongruous
d. demographics

 

 

ANS:  D                    PTS:   1                    REF:   p. 75              OBJ:   3-1 TYPE: D

NAT:  Analytic | Economic Environments

 

  1. The quote “Good artists borrow; great artists steal” is the principle that launched which company?
a. Aimie’s Dinner and Movie
b. Apple
c. C and D Landscape Company
d. Xerox

 

 

ANS:  B                    PTS:   1                    REF:   p. 77              OBJ:   3-2 TYPE: A

NAT:  Reflective Thinking | Value Creation

 

  1. Sherwood Forlee and Mihoko Ouchi, owners of the, sell a line of non-traditional, entertaining products that are an example of
a. recognizing a hot trend and riding the wave.
b. combining two businesses into one to create a market opening.
c. beginning with a problem in mind.
d. considering ways to adapt a product or service to meet customer needs in a different way.

 

 

ANS:  C                    PTS:   1                    REF:   p. 78              OBJ:   3-2 TYPE: A

NAT:  Analytic | Value Creation

 

  1. Which statement is an example of an economic trend?
a. The Federal Reserve announces that it will decrease the interest rate charged to banks.
b. Congress passes legislation that increases the tax rate on corporations.
c. A new computer chip is announced which will allow for miniaturization of many electronic devices.
d. The E.U. declares an increase in tariffs on all agricultural goods.

 

 

ANS:  A                    PTS:   1                    REF:   p. 81              OBJ:   3-3 TYPE: A

NAT:  Global Dynamics | Economic Environments

 

  1. Which statement is an example of a political/legal trend?
a. The Federal Reserve announces that it will decrease the interest rate it charges banks.
b. Congress passes legislation that increases the tax rates on corporations.
c. A new computer chip is announced which will allow for miniaturization of many electronic devices.
d. The E.U. declares an increase in tariffs on all agricultural goods.

 

 

ANS:  B                    PTS:   1                    REF:   p. 81              OBJ:   3-3 TYPE: A

NAT:  Global Dynamics | Ethical and Legal

 

  1. Which statement is an example of a technological trend?
a. The Federal Reserve announces that it will decrease the interest rate it charges banks.
b. Congress passes legislation that increases the tax rates on corporations.
c. A new computer chip is announced which will allow for miniaturization of many electronic devices.
d. The E.U. announces an increase in tariffs on all agricultural goods.

 

 

ANS:  C                    PTS:   1                    REF:   p. 81              OBJ:   3-3 TYPE: C

NAT:  Global Dynamics | Technology

 

  1. An example of a Type B startup idea is
a. a new microsponge technology allowing oils to be contained inside billions of microscopic sponges.
b. a baby stroller that pushes more easily and is more difficult to overturn than previous designs.
c. opening a new hamburger stand on the corner with no unique product differentiation.
d. a new mail-order business selling a foreign-produced item never sold domestically before.

 

 

ANS:  A                    PTS:   1                    REF:   p. 72              OBJ:   3-1 TYPE: A

NAT:  Reflective Thinking | Value Creation

 

  1. A Type A idea involves
a. a technically new process.
b. performing an old function in a new and improved way.
c. using prior work experience as a basis for starting a new business.
d. providing customers with a product or service absent in their market but available elsewhere.

 

 

ANS:  D                    PTS:   1                    REF:   p. 71              OBJ:   3-1 TYPE: D

NAT:  Analytic | Value Creation

 

  1. A Type B idea involves
a. a technically new process.
b. performing an old function in a new and improved way.
c. using prior work experience as a basis for starting a new business.
d. providing customers with a product or service absent in their market but available elsewhere.

 

 

ANS:  A                    PTS:   1                    REF:   p. 72              OBJ:   3-1 TYPE: D

NAT:  Analytic | Value Creation

 

  1. A Type C idea involves
a. a technically new process.
b. performing an old function in a new and improved way.
c. using prior work experience as a basis for starting a new business.
d. providing customers with a product or service absent in their market but available elsewhere.

 

 

ANS:  B                    PTS:   1                    REF:   p. 72              OBJ:   3-1 TYPE: D

NAT:  Analytic | Value Creation

 

  1. What idea accounts for the largest number of startups?
a. A technically new process
b. Performing an old function in a new and improved way
c. Using prior work experience as a basis for starting a new business
d. A product or service absent in a market but available elsewhere

 

 

ANS:  B                    PTS:   1                    REF:   p. 72              OBJ:   3-1 TYPE: C

NAT:  Analytic | Value Creation

 

  1. An example of a Type C startup idea is
a. a new microsponge technology allowing oils to be contained inside billions of microscopic sponges.
b. a baby stroller that pushes more easily and is more difficult to overturn than previous designs.
c. opening a new hamburger stand on the corner with no unique product differentiation.
d. using satellite dish technology to form a mobile satellite transmitter and receiver business.

 

 

ANS:  B                    PTS:   1                    REF:   p. 72              OBJ:   3-1 TYPE: A

NAT:  Reflective Thinking | Value Creation

 

  1. According to a study by the National Federation of Independent Business Foundation, new product ideas for small business startups originate from all of the following except
a. prior work experience.
b. personal interests and hobbies.
c. a chance happening.
d. existing records of a business.

 

 

ANS:  D                    PTS:   1                    REF:   p. 72              OBJ:   3-1 TYPE: C

NAT:  Analytic | Economic Environments

 

  1. According to a study by the National Federation of Independent Business Foundation, the most common source of new product ideas for small business startups is
a. prior work experience.
b. personal interests and hobbies.
c. a chance happening.
d. existing records of a business.

 

 

ANS:  A                    PTS:   1                    REF:   p. 72              OBJ:   3-1 TYPE: C

NAT:  Analytic | Economic Environments

 

  1. An example of an idea for a new startup from a hobby is
a. a coin collector, who bought and sold coins for years to build a personal collection, deciding to become a coin dealer.
b. a furniture salesperson seeing the possibility of opening a new furniture store in a different area of the city.
c. a sharpshooter, who shot holes in a pair of her boyfriend’s jeans during an argument, hearing him get complimented on the way they look.
d. all of the above are examples.

 

 

ANS:  A                    PTS:   1                    REF:   p. 74              OBJ:   3-1 TYPE: A

NAT:  Reflective Thinking | Value Creation

 

  1. An example of an idea for a new startup from an accidental discovery is
a. a coin collector, who bought and sold coins for years to build a personal collection, deciding to become a coin dealer.
b. a furniture salesperson seeing the possibility of opening a new furniture store in a different area of the city.
c. a sharpshooter, who shot holes in a pair of her boyfriend’s jeans during an argument, hearing him get complimented on the way they look.
d. all of the above are examples.

 

 

ANS:  C                    PTS:   1                    REF:   p. 74              OBJ:   3-1 TYPE: A

NAT:  Reflective Thinking | Value Creation

 

  1. Which segment is part of the general environment?
a. The industry segment
b. The global segment
c. The information segment
d. The human resources segment

 

 

ANS:  B                    PTS:   1                    REF:   p. 81              OBJ:   3-3 TYPE: C

NAT:  Global Dynamics | Economic Environments

 

  1. The increased trade between the United States and Mexico since the enactment of the North American Free Trade Agreement is related to the ____ element of the general environment.
a. technological
b. global
c. ecological
d. sociocultural

 

 

ANS:  B                    PTS:   1                    REF:   p. 81              OBJ:   3-3 TYPE: A

NAT:  Global Dynamics | Economic Environments

 

  1. Which factor is not specified by Michael Porter as factors that determine the nature and degree of competition in an industry?
a. threat of new competitors.
b. rivalry among existing competitors.
c. industry cost/price structure.
d. bargaining power of buyers and/or suppliers.

 

 

ANS:  C                    PTS:   1                    REF:   p. 83              OBJ:   3-3 TYPE: C

NAT:  Analytic | Economic Environments

 

  1. Which factor determines the nature and degree of competition in an industry, as identified by Michael Porter in his book Competitive Advantage?
a. The interest of small businesses
b. Bargaining power of competitors
c. Threat of substitute products or services
d. The macroeconomic level of the industry

 

 

ANS:  C                    PTS:   1                    REF:   p. 83              OBJ:   3-3 TYPE: C

NAT:  Analytic | Economic Environments

 

  1. Which statement is an example of a global trend?
a. The Federal Reserve announces that it will decrease the interest rate it charges banks.
b. Congress passes legislation that increases the tax rates on corporations.
c. A new computer chip is announced that will allow for miniaturization of many electronic devices.
d. The E.U. declares an increase in tariffs on all agricultural goods.

 

 

ANS:  D                    PTS:   1                    REF:   p. 81              OBJ:   3-3 TYPE: A

NAT:  Global Dynamics | Economic Environments

 

  1. An increase in the bargaining power of suppliers
a. increases both the attractiveness and the profitability of the target market.
b. decreases both the attractiveness and the profitability of the target market.
c. decreases the attractiveness and increases the profitability of the target market.
d. increases the attractiveness and decreases the profitability of the target market.

 

 

ANS:  B                    PTS:   1                    REF:   p. 83              OBJ:   3-3 TYPE: C

NAT:  Analytic | Economic Environments

 

  1. In analyzing the industry environment of the particular field into which Charles was about to enter in business, he found that there existed a fierce rivalry between the competitors that were currently in the business.  This competition would offset the desirability of entering the industry in which way?
a. negatively
b. positively
c. no effect
d. cannot be determined

 

 

ANS:  A                    PTS:   1                    REF:   p. 84              OBJ:   3-3 TYPE: C

NAT:  Reflective Thinking | Value Creation

 

  1. Substitute products
a. reduce the attractiveness and profitability of an industry.
b. represent those items manufactured by direct rivals within an industry.
c. are usually cheaper than the products they can replace.
d. are always a serious threat to rivals in an industry.

 

 

ANS:  A                    PTS:   1                    REF:   p. 83              OBJ:   3-3 TYPE: C

NAT:  Analytic | Economic Environments

 

  1. Based on William A. Sahlman’s suggestions, which question about competitors should be answered by the business plan?
a. Are there ways to co-opt potential or actual competitors by forming alliances?
b. How easily can new competitors enter the industry?
c. Do small businesses have special advantages when competing in the industry?
d. What is the average size of competitors?

 

 

ANS:  A                    PTS:   1                    REF:   p. 84              OBJ:   3-3 TYPE: C

NAT:  Analytic | Economic Environments

 

  1. According to Peter Drucker, _____ is the means by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth.
a. creativity
b. innovation
c. capital spending
d. collaborating with competitors

 

 

ANS:  B                    PTS:   1                    REF:   p. 74              OBJ:   3-1 TYPE: C

NAT:  Analytic | Economic Environments

 

  1. Which term is one of the seven sources of opportunities in the environment recognized by Peter Drucker?
a. The unbelievable
b. The undeniable
c. The incongruous
d. The new

 

 

ANS:  C                    PTS:   1                    REF:   p. 75              OBJ:   3-1 TYPE: C

NAT:  Analytic | Value Creation

 

  1. An increase in the rivalry among existing competitors in a target market
a. increases both the attractiveness and the profitability of the target market.
b. decreases both the attractiveness and the profitability of the target market.
c. decreases the attractiveness and increases the profitability of the target market.
d. increases the attractiveness and decreases the profitability of the target market.

 

 

ANS:  B                    PTS:   1                    REF:   p. 83              OBJ:   3-3 TYPE: C

NAT:  Analytic | Economic Environments

 

  1. A(n) _____ exists when multiple resources are integrated and then deployed to the firm’s advantage.
a. networked resource
b. common intangible
c. capability
d. industry edge

 

 

ANS:  C                    PTS:   1                    REF:   p. 85              OBJ:   3-3 TYPE: D

NAT:  Analytic | Economic Environments

 

  1. Resources are best described as
a. those basic inputs that a firm uses to conduct its business.
b. only those features that are visible and easy to quantify.
c. the firm’s lending capacity.
d. capabilities that can be exploited.

 

 

ANS:  A                    PTS:   1                    REF:   p. 85              OBJ:   3-3 TYPE: D

NAT:  Analytic | Economic Environments

 

  1. A SWOT analysis can be described best as
a. a means of assessing the firm’s industry situation.
b. an assessment of the internal strengths and weakness of the firm.
c. a dynamic analysis of the firm’s current situation.
d. a concise overview of the firm’s strategic situation.

 

 

ANS:  D                    PTS:   1                    REF:   p. 86              OBJ:   3-3 TYPE: C

NAT:  Analytic | Value Creation

 

  1. Observations about the external environment and organizational potentials can be brought together by means of
a. an alignment strategy.
b. the in-and-out assessment.
c. a SWOT analysis.
d. common sense critique.

 

 

ANS:  C                    PTS:   1                    REF:   p. 86              OBJ:   3-3 TYPE: C

NAT:  Analytic | Economic Environments

 

  1. Generally speaking, a strategy is
a. an action plan that guides resource investments.
b. a formal statement of what the firm intends to do.
c. an expanded description of the firm’s mission statement.
d. most effective when it is designed to reflect the tactics that are common within an industry.

 

 

ANS:  A                    PTS:   1                    REF:   p. 88              OBJ:   3-4 TYPE: D

NAT:  Analytic | Economic Environments

 

  1. The two broad strategies for building a competitive advantage are the _____ strategies.
a. cost-based and differentiation-based
b. price-advantage and cost-advantage
c. marketing-advantage and price-advantage
d. focus-advantage and marketing-advantage

 

 

ANS:  A                    PTS:   1                    REF:   p. 89              OBJ:   3-4 TYPE: C

NAT:  Analytic | Value Creation

 

  1. A company that is the lowest-cost producer within the market will have what type of strategy?
a. Price-based
b. Marketing-based
c. Efficiency-based
d. Cost-based

 

 

ANS:  D                    PTS:   1                    REF:   p. 89              OBJ:   3-4 TYPE: D

NAT:  Analytic | Value Creation

 

  1. Marketplace Farms is a regional cooperative of apple and orange growers. In order to compete against larger regional growers, the company relies on lower cost labor instead of machines and inexpensive packaging processes. Marketplace Farms is relying on what type of strategy?
a. price-based
b. marketing-based
c. efficiency-based
d. cost-based

 

 

ANS:  D                    PTS:   1                    REF:   p. 89              OBJ:   3-4 TYPE: A

NAT:  Reflective Thinking | Value Creation

 

  1. A differentiation-based strategy requires that a firm
a. be the lowest-cost provider in an industry.
b. emphasize the uniqueness of its product or services.
c. achieve the highest resource efficiency in an industry.
d. be the lowest-priced competitor in an industry.

 

 

ANS:  B                    PTS:   1                    REF:   p. 89              OBJ:   3-4 TYPE: D

NAT:  Analytic | Value Creation

 

  1. Containers Etc. manufactures household containers. In contrast to traditional market designs, all of the products are microwaveable, child-proof and come in an assortment of 35 colors. Accordingly, Containers Etc. is pursuing a _____ strategy.
a. product-based
b. differentiation-based
c. concept-based
d. efficiency-based

 

 

ANS:  B                    PTS:   1                    REF:   p. 90              OBJ:   3-4 TYPE: A

NAT:  Reflective Thinking | Value Creation

 

  1. Mark is the owner of Delectable Delights, a specialty store offering chocolates, candies, and fruit baskets. After a recent analysis of the competitive environment, Mark concluded that three distinct consumer segments exist for his products – A, B, and C consumers. In an effort to maximize the effectiveness of its strategy, Mark has decided to focus on fulfilling the needs of A consumers. He is employing a _____ strategy.
a. multisegmentation
b. selective
c. focus
d. concentration

 

 

ANS:  C                    PTS:   1                    REF:   p. 91              OBJ:   3-4 TYPE: A

NAT:  Reflective Thinking | Value Creation

 

  1. A focus strategy is best described as
a. an attempt to compete directly with industry giants.
b. a domestic marketing strategy.
c. a strategy that isolates the firm from market forces.
d. targeting the high end of a market.

 

 

ANS:  C                    PTS:   1                    REF:   p. 91              OBJ:   3-4 TYPE: D

NAT:  Analytic | Value Creation

 

  1. Carol runs Technographics, a company that designs greeting cards for computer users.  What type of strategy would be expected?
a. a focus strategy.
b. an unsegmented strategy.
c. a multisegmentation strategy.
d. a marketing mix strategy.

 

 

ANS:  A                    PTS:   1                    REF:   p. 91              OBJ:   3-4 TYPE: A

NAT:  Reflective Thinking | Value Creation

 

  1. Which description does not indicate a focus strategy?
a. Strict concentration on a single subset of customers
b. Concentration on a single product
c. Concentration on multiple products for the total market
d. Restriction to a single geographical region

 

 

ANS:  C                    PTS:   1                    REF:   p. 91              OBJ:   3-4 TYPE: D

NAT:  Analytic | Value Creation

 

  1. An entrepreneur’s choice that affects the nature of a small firm and its basic direction is known as a
a. market-based decision.
b. tactical decision.
c. strategic decision.
d. focus-based decision.

 

 

ANS:  C                    PTS:   1                    REF:   p. 92              OBJ:   3-4 TYPE: D

NAT:  Analytic | Value Creation

 

  1. According to Michael Porter, a focus strategy can erode when
a. the strategy is protected.
b. the target segment’s differences from other segments narrow.
c. new firms reconstruct the industry.
d. demand for the product grows and thus attracts new competitors.

 

 

ANS:  B                    PTS:   1                    REF:   p. 94              OBJ:   3-4 TYPE: C

NAT:  Analytic | Value Creation

 

  1. Which action is a cause for erosion of a small firm’s focus strategy?
a. Consumer demand grows.
b. New firms reconstruct the industry.
c. Differences between segments grow larger.
d. The focus strategy is imitated.

 

 

ANS:  D                    PTS:   1                    REF:   p. 94              OBJ:   3-4 TYPE: C

NAT:  Analytic | Value Creation

 

  1. A computer technician recognizing a need for more atheistically pleasing computers would be said to have entrepreneurial _____.
a. technology
b. alertness
c. strategy
d. rivalry

 

 

ANS:  B                    PTS:   1                    REF:   p. 69              OBJ:   3-1 TYPE: A

NAT:  Reflective Thinking | Value Creation

 

  1. _____ refers to the way entrepreneurs identify new products or services that may lead to promising businesses.
a. Focus-based decisions
b. Elasticity
c. Opportunity recognition
d. Cost-benefit analysis

 

 

ANS:  C                    PTS:   1                    REF:   p. 69              OBJ:   3-1 TYPE: D

NAT:  Analytic | Value Creation

 

  1. Focus strategies can be implemented in any of the following ways except
a. emphasizing a single product or service.
b. limiting the market to a single geographic area.
c. restricting focus to a single subset of customers.
d. ensuring that the venture is the lowest-cost provider in the market.

 

 

ANS:  D                    PTS:   1                    REF:   p. 91              OBJ:   3-4 TYPE: C

NAT:  Analytic | Value Creation

 

  1. When conducting an outside-in analysis, one should consider the _____ environment followed by the  _____ environment.
a. general; industry
b. general; natural
c. industry; natural
d. industry; political

 

 

ANS:  A                    PTS:   1                    REF:   p. 81              OBJ:   3-3 TYPE: D

NAT:  Analytic | Economic Environments

 

  1. Analyzing the internal potentials of a business is conducting a(n) _____ analysis.
a. regulatory
b. political
c. inside-out
d. outside-in

 

 

ANS:  C                    PTS:   1                    REF:   p. 85              OBJ:   3-3 TYPE: D

NAT:  Analytic | Value Creation

 

  1. Alyson and Andrea, country artists, realized that their love of classic rock was also popular with their fans.  Their change to their show to incorporate more rock songs with a country flavor is an example of
a. recognizing a hot trend and riding the wave.
b. combining two businesses into one to create a market opening.
c. beginning with a problem in mind.
d. finding a way to adapt a product or service to meet customer needs in a different way.

 

 

ANS:  D                    PTS:   1                    REF:   p. 79              OBJ:   3-2 TYPE: A

NAT:  Reflective Thinking | Value Creation

 

  1. Julie, owner of a bed and breakfast inn, had been asked repeatedly to cater events.  Once she realized her kitchen was not being used during the later part of the day, she started the company.  This change is an example of
a. recognizing a hot trend and riding the wave.
b. combining two businesses into one to create a market opening.
c. beginning with a problem in mind.
d. considering ways to adapt a product or service to meet customer needs in a different way.

 

 

ANS:  B                    PTS:   1                    REF:   p. 77              OBJ:   3-2 TYPE: A

NAT:  Reflective Thinking | Value Creation

 

  1. When Sally realized her vintage clothing pieces were being bought by the local college students and not just their parents, she started adding more vintage pieces to her inventory.  Sally is
a. recognizing a hot trend and riding the wave.
b. combining two businesses into one to create a market opening.
c. beginning with a problem in mind.
d. considering ways to adapt a product or service to meet customer needs in a different way.

 

 

ANS:  A                    PTS:   1                    REF:   p. 78              OBJ:   3-2 TYPE: A

NAT:  Reflective Thinking | Value Creation

 

  1. A feasibility analysis is
a. a preliminary assessment of a business idea that gauges possible success.
b. used to correct a fatal flaw.
c. completed after the business plan.
d. for the identification of possible sellers.

 

 

ANS:  A                    PTS:   1                    REF:   p. 95              OBJ:   3-5 TYPE: C

NAT:  Analytic | Value Creation

 

  1. An evaluation of the general environment
a. is done before the feasibility analysis.
b. helps identify a trend that could be used for a possible startup idea.
c. will clarify the unique value of the startup idea.
d. will be the primary determinant for a possible startup idea.

 

 

ANS:  B                    PTS:   1                    REF:   p. 96              OBJ:   3-5 TYPE: C

NAT:  Analytic | Economic Environments

 

  1. Entrepreneurial success consists of all of the following elements except
a. a preliminary assessment of a business idea that gauges possible success, the capability of an individual or the suitability of a team.
b. a market with potential.
c. a business plan.
d. an attractive industry.

 

 

ANS:  C                    PTS:   1                    REF:   p. 95              OBJ:   3-5 TYPE: C

NAT:  Analytic | Value Creation

 

  1. According to the feasibility analysis framework, an entrepreneur who has a vision of a multi-unit company will
a. be satisfied with an attractive niche so the company can gain market share.
b. check to see if the health of the micro-market is strong enough for future macro-market growth.
c. desire a healthier micro-market potential growth over the health of the macro-market.
d. be satisfied with an attractive niche if it would serve as a point of entry for long-term potential.

 

 

ANS:  D                    PTS:   1                    REF:   p. 95              OBJ:   3-5 TYPE: C

NAT:  Analytic | Value Creation

 

  1. According to Mullins, which characteristic is not needed for strong new venture leadership?
a. The venture must fit the leader’s mission, aspirations, and level of comfort with the risk.
b. The venture must be in an attractive industry with market potential with which the leader is knowledgeable.
c. The leader must grasp factors that are critical to the success of the enterprise and his or her ability to execute on these factors.
d. The leader must have a strong connection to suppliers, customers, investors, and others who will be essential to making the venture work.

 

 

ANS:  B                    PTS:   1                    REF:   p. 97              OBJ:   3-5 TYPE: C

NAT:  Analytic | Dynamics

 

  1. A diversification strategy is illustrated by
a. an event planner deciding to purchase rental space.
b. a restaurant owner adding a gift shop inside the restaurant.
c. an upscale clothing store starting a boutique shoe store.
d. a car wash who adds a pick up service.

 

 

ANS:  C                    PTS:   1                    REF:   p. 77              OBJ:   3-2 TYPE: A

NAT:  Reflective Thinking | Value Creation

 

  1. Jesse would like to start a landscaping company that concentrates on using native plants.  The feasibility study showed a need for $100,000 to start the company (she has $10,000), competition of three other companies (one concentrated on using native plants), and buyers who were predominantly 60 years or older (who loved yard work).  Which statement is true?
a. This plan shows fatal flaws with financing, competition, and market as none of these flaws could be fixed.
b. The plan has a fatal flaw with financing and competition as the market might have an interest in her speciality.
c. The plan has a fatal flaw with financing but competition might not be as much of an issue if the native plant landscaping is growing with the buyers.
d. The plan could be fixed if an investor went into business with her.

 

 

ANS:  C                    PTS:   1                    REF:   p. 95              OBJ:   3-5 TYPE: A

NAT:  Reflective Thinking | Value Creation

 

ESSAY

 

  1. Of the three basic types of ideas from which most startups are launched, which one accounts for the most startup ventures? Why?

 

ANS:

Type C startup ideas probably account for the largest number of all new venture startups. These ideas result in modifications to existing products and services. Therefore, they may have less risk and a market with a customer base. The idea will fail if the market does not perceive that an old function is being performed in a new and improved manner.

 

PTS:   1                    REF:   p. 72              OBJ:   3-1 TYPE: C

NAT:  Communication | Value Creation

 

  1. Compare and contrast personal experience, hobbies and personal interests and accidental discovery as a source of startup ideas. Use examples to strengthen the discussion.

 

ANS:

Personal experiences is a one of the most prolific source of startup ideas. It produces ideas that are related to the individual’s skills and knowledge and may result from past work experience (Melissa Marks Papock and Cabana Life). Accidental discovery and serendipity, on the other hand, may happen at any time and be totally unrelated to the individual’s background (Ex. Simone Gonzales and Pleasure Doing Business).  Sometimes hobbies and personal interests grow beyond their leisure activities and become businesses. (Ex. Alex Shogren and Best Kiteboarding). For instance, people who love skiing might start a ski equipment rental operation as a way to make income from an activity they enjoy.

 

PTS:   1                    REF:   p. 72-74         OBJ:   3-1 TYPE: A

NAT:  Communication | Value Creation

 

  1. Briefly state the difference between a market and an industry. How are these two items related to small business success?

 

ANS:

A market consists of buyers, current or potential customers who are interested in purchasing a particular class of products or services to satisfy their wants or needs – and they must have the ability to pay for them.

An industry is made up of sellers who compete with one another by offering identical or similar products or services for sale to the same general group of buyers. Both markets and industries are considered part of the macro level of the business.

A market with potential, an attractive industry and a capable individual or team with skills and capabilities to pull together are critical for success.

 

PTS:   1                    REF:   p. 95-96         OBJ:   3-5 TYPE: C

NAT:  Communication | Economic Environments

 

  1. List the five factors that determine the nature and degree of competition in an industry, as presented by Michael Porter in his book Competitive Advantage.  Why is the proper identification of these factors important for a new venture?

 

ANS:

· New competitors
· Substitute products/services
· Rivalry
· Suppliers
· Buyers

All five factors combine to make a target market attractive and profitable.  If these factors are strong, then profitability is weaker.  An entrepreneur should understand each factor to identify opportunities and threats for the new venture.

 

PTS:   1                    REF:   p. 83              OBJ:   3-3 TYPE: C

NAT:  Communication | Economic Environments

 

  1. Name and describe the two broad-based strategy options that a firm can select when pursuing a competitive advantage in the marketplace.

 

ANS:

Strategies can be condensed into either a cost-based strategy or a differentiation-based strategy. The cost-based strategy requires a firm to be the lowest-cost producer in its market, employing practices ranging from using low-cost labor to installing highly efficient manufacturing equipment. Using creative approaches, small firms can be very competitive using this type of strategy.

Differentiation-based strategies are based on product or service differentiation. That is, firms using this strategy must offer a product or service that is perceived to be unique in some way (e.g., convenient to operate, recognized as user-friendly) that the consumer desires.

 

PTS:   1                    REF:   p. 89-90         OBJ:   3-4 TYPE: C

NAT:  Communication | Economic Environments

 

  1. What marketing activities suggest that a small firm is following a focus strategy?

 

ANS:

· Strict concentration on a single or limited market segment
· Concentration on a single or specialized product
· Restriction to a single geographical region
· Emphasis on substantive superiority of the product or service

A firm could then pair this focus strategy with an overall cost-based strategy or a differentiation-based strategy.

 

PTS:   1                    REF:   p. 91-92         OBJ:   3-4 TYPE: C

NAT:  Communication | Economic Environments

 

  1. Which of Michael Porter’s four conditions for segmented market erosion occurred with Minnetonka, the small firm that is widely recognized as the first to introduce liquid hand soap?

 

ANS:

· The focus strategy is imitated.
· The target segment becomes structurally unattractive because the structure erodes or because demand simply disappears.
· The target segment’s differences from other segments narrow.
· New firms subsegment the industry.

Procter and Gamble quickly imitated the product and had the money to push their product. Minnetonka contributed to the segment narrowing as they didn’t focused on Softsoap’s unique advantage.  Now new firms have subsegmented the industry with the addition of antibacterial agents to the soaps.

 

PTS:   1                    REF:   p. 94              OBJ:   3-4 TYPE: A

NAT:  Communication | Economic Environments

 

  1. Describe the differences and relationships between resources, capabilities and core competencies. How do these items relate to inside-out analysis?

 

ANS:

Resources are basic inputs that a firm uses in its business, including cash for investment, useful technologies, access to equipment, and capable employees. Companies have both tangible and intangible resources.

 

Capabilities are best viewed as the integration of various resources in a way that boosts the firm’s competitive advantage.

 

Core competencies are those resources and capabilities that provide an enterprise with a competitive advantage over its rivals.

 

An inside-out analysis catalogues the resources and capabilities available to the startup leading to core competency identification.  By using resources and capabilities in unique ways, a firm can establish its core competencies and apply them to obtain a competitive advantage.

 

PTS:   1                    REF:   p. 85-86         OBJ:   3-3 TYPE: C

NAT:  Communication | Value Creation

 

  1. Discuss ways a small business owner can spot trends to increase their company’s performance.

 

ANS:

From the text:

  1. Listen to (and ask) customers.
  2. Stay in touch with industry changes by reading industry newsletters, e-scriptions, magazines or attending national conferences.
  3. Use marketing tools such as online or in-person focus groups, social media groups, or chat rooms.
  4. Use Internet sites such as trendhunter.com and jwtintelligence.com.

 

Others:

  1. If the budget allows, hire a consultant to research ideas.
  2. Analyze product sales to see if certain items are selling faster or slower than the last quarter.
  3. Look to other areas of the country that are early adopters to see what is selling and why.
  4. Watch other industries to see what could be adopted.

 

PTS:   1                    REF:   p. 78              OBJ:   3-2 TYPE: C

NAT:  Communication | Value Creation

Chapter 5—The Family Business

 

TRUE/FALSE

 

  1. When a parent retires completely and turns the firm over to a son or daughter, the firm ceases to be a family business.

 

ANS:  F

A firm remains a family business when it passes from one generation to the next.

 

PTS:   1                    REF:   p. 138            OBJ:   5-1 TYPE: C

NAT:  Analytic | Dynamics

 

  1. A company run by the great grandchildren of the founder would be considered to be managed by a cousin consortium.

 

ANS:  T                    PTS:   1                    REF:   p. 136            OBJ:   5-1 TYPE: D

NAT:  Analytic | Dynamics

 

  1. In a family business, the family’s primary function it to ensure the profitability and survival of the business.

 

ANS:  F

The family’s primary goals are the development of members as well as equality of reward opportunities for each member.

 

PTS:   1                    REF:   p. 137            OBJ:   5-1 TYPE: C

NAT:  Analytic | Dynamics

 

  1. One advantage of a family business is that there is no need to separate the business interests from the family interests.

 

ANS:  F

Competing interests can complicate the management process; therefore the separation of business interests from family interests would be best as each organization has separate purposes..

 

PTS:   1                    REF:   p. 138            OBJ:   5-1 TYPE: C

NAT:  Analytic | Dynamics

 

  1. An advantage of a family business is that family members may have company knowledge that leads to better decisions.

 

ANS:  T                    PTS:   1                    REF:   p. 139            OBJ:   5-1 TYPE: C

NAT:  Analytic | Dynamics

 

  1. Nepotism is not as large of a problem for small companies as for large ones.

 

ANS:  F

Nepotism can be a problem for both.

 

PTS:   1                    REF:   p. 140            OBJ:   5-1 TYPE: C

NAT:  Analytic | Dynamics

 

  1. One weakness of a family business is the tendency of family members to leave quickly when the business starts to falter.

 

ANS:  F

Members of the family are drawn to the business because of family ties, and they tend to stick with the business “through thick and thin.”

 

PTS:   1                    REF:   p. 138            OBJ:   5-1 TYPE: C

NAT:  Analytic | Dynamics

 

  1. A major weakness of a family business is that it has greater difficulty than a nonfamily business in focusing on long-run decision making.

 

ANS:  F

A family can take the long-run view more easily than corporate managers who are being evaluated on year-to-year business results.

 

PTS:   1                    REF:   p. 139            OBJ:   5-1 TYPE: C

NAT:  Analytic | Dynamics

 

  1. The distinctive values that motivate and guide an entrepreneur in the founding of a firm cannot serve as a foundation for competitive advantage in the firm.

 

ANS:  F

The values can serve as a foundation for competitive advantage in the firm. For example, emphasizing intensive customer service may attract business that would normally go to competing firms.

 

PTS:   1                    REF:   p. 138            OBJ:   5-1 TYPE: C

NAT:  Analytic | Value Creation

 

  1. A family firm’s special patterns and beliefs comprise the firm’s organizational culture.

 

ANS:  T                    PTS:   1                    REF:   p. 140            OBJ:   5-2 TYPE: C

NAT:  Analytic | Dynamics

 

  1. Research shows that next-generation family members motivated by a need-based commitment instead of a desire-based commitment are the most likely to pursue long-term careers with the family business.

 

ANS:  F

 

The family members motivated by a desire-based commitment are the most likely to work hard, because of their passion for the business.

 

PTS:   1                    REF:   p. 144            OBJ:   5-2 TYPE: C

NAT:  Analytic | Dynamics

 

  1. Family members with an obligation-based commitment may see their participation in the family business as a requirement for family unity.

 

ANS:  T                    PTS:   1                    REF:   p. 142            OBJ:   5-2 TYPE: C

NAT:  Analytic | Dynamics

 

  1. Family members with a desire-based commitment in the family firm are the least likely to work hard because of their lack of confidence in their abilities.

 

ANS:  F

 

Family members with a need-based commitment are often in doubt and may lack the capabilities and confidence to excel.  This problem is compounded if they are promoted only because of their last name.

 

PTS:   1                    REF:   p. 144            OBJ:   5-2 TYPE: C

NAT:  Analytic | Dynamics

 

  1. A 2007 survey of family business owners conducted by MassMutual Financial Group, Kennesaw State University and the Family Firm Institute concluded that the overlap between individual and organizational values may result in increased levels of employee loyalty, commitment and organizational citizenship behavior.

 

ANS:  T                    PTS:   1                    REF:   p. 144            OBJ:   5-2 TYPE: C

NAT:  Analytic | Dynamics

 

  1. Husband-wife teams that own a business are popularly referred to as co-preneurs.

 

ANS:  T                    PTS:   1                    REF:   p. 145            OBJ:   5-3 TYPE: C

NAT:  Analytic | Dynamics

 

  1. Two major factors involved in grooming a son or daughter to enter the family business are the child’s aptitude and the right to choose a career.

 

ANS:  T                    PTS:   1                    REF:   p. 146            OBJ:   5-3 TYPE: C

NAT:  Analytic | Dynamics

 

  1. Some family businesses benefit from effective collaboration among brothers and sisters.

 

ANS:  T                    PTS:   1                    REF:   p. 147            OBJ:   5-3 TYPE: C

NAT:  Analytic | Dynamics

 

  1. A family business involving two or more children may experience either sibling cooperation or sibling rivalry.

 

ANS:  T                    PTS:   1                    REF:   p. 147            OBJ:   5-3 TYPE: C

NAT:  Analytic | Dynamics

 

  1. One sibling dilemma in a family business has been labeled the predator/parasite conflict.

 

ANS:  T                    PTS:   1                    REF:   p. 148            OBJ:   5-3 TYPE: C

NAT:  Analytic | Dynamics

 

  1. In-laws not working in the family business may have a bad attitude about the company because of only hearing one side of an argument.

 

ANS:  T                    PTS:   1                    REF:   p. 148            OBJ:   5-3 TYPE: C

NAT:  Analytic | Dynamics

 

  1. The role of the entrepreneur’s spouse in family conflicts can sometimes be described as that of a mediator in business relationships between the entrepreneur and the children.

 

ANS:  T                    PTS:   1                    REF:   p. 149            OBJ:   5-3 TYPE: D

NAT:  Analytic | Dynamics

 

  1. In the family business, family considerations affect only members of the family.

 

ANS:  F

Those employees who are not family members are still affected by family considerations–e.g., being passed over for a deserved promotion that was set aside for a family member.

 

PTS:   1                    REF:   p. 150            OBJ:   5-4 TYPE: C

NAT:  Analytic | Dynamics

 

  1. Nonfamily employees in a family business may be caught in the crossfire between feuding family members.

 

ANS:  T                    PTS:   1                    REF:   p. 150            OBJ:   5-4 TYPE: C

NAT:  Analytic | Dynamics

 

  1. Family retreats are best handled by an outside facilitator, who can help develop an agenda and establish ground rules for discussion.

 

ANS:  T                    PTS:   1                    REF:   p. 152            OBJ:   5-4 TYPE: C

NAT:  Analytic | Dynamics

 

  1. Even if family members lack the capability to run the business, an entrepreneur should always select a successor from this pool of talent.

 

ANS:  F

When capable family members are not available, the entrepreneur may have to bring in outside leadership to avoid a decline in firm performance.

 

PTS:   1                    REF:   p. 154            OBJ:   5-5 TYPE: C

NAT:  Analytic | Dynamics

 

  1. The process of preparing a family member to take over a family business typically takes about one year.

 

ANS:  F

This process usually takes a number of years, and in some cases decades.

 

PTS:   1                    REF:   p. 155            OBJ:   5-5 TYPE: C

NAT:  Analytic | Dynamics

 

  1. The owners of Lackland Self Storage are an example of how founding parents should clarify their children the transfer of management responsibilities.

 

ANS:  T                    PTS:   1                    REF:   p. 155            OBJ:   5-5 TYPE: A

NAT:  Reflective Thinking | Dynamics

 

  1. A “best practices” for the family firm is to promote family members above other, more skilled employees, so that the workers will understand who is in charge.

 

ANS:  F

Family members should be promoted based on their skill levels not on their being a family member.

 

PTS:   1                    REF:   p. 150            OBJ:   5-4 TYPE: C

NAT:  Analytic | Dynamics

 

  1. When hiring non-family employees it is only fair to identify the positions, if any, that are reserved for family members.

 

ANS:  T                    PTS:   1                    REF:   p. 151            OBJ:   5-4 TYPE: C

NAT:  Analytic | Dynamics

 

  1. A responsibility of a junior generation member who desires advancement is to understand that change is needed more so than the history of the family business.

 

ANS:  F

Junior generation member should understand how the founding values of the company could be used to implement change if needed.

 

PTS:   1                    REF:   p. 155            OBJ:   5-5 TYPE: C

NAT:  Analytic | Dynamics

 

  1. When a senior generation member is planning for succession, planning should encompass family members, employees and the owners.

 

ANS:  T                    PTS:   1                    REF:   p. 155            OBJ:   5-5 TYPE: C

NAT:  Analytic | Dynamics

 

  1. A 2008 study found that a majority of business owners had prepared both a will and a succession plan.

 

ANS:  F

 

The survey by PNC Wealth Management reported 77 percent of business owners had a will but only 33 percent have a succession plan.

 

PTS:   1                    REF:   p. 153            OBJ:   5-5 TYPE: C

NAT:  Analytic | Ethical and Legal

 

  1. Bequeathing equal shares of ownership to children in a family business will probably create havoc in the future functioning of the business.

 

ANS:  T                    PTS:   1                    REF:   p. 156            OBJ:   5-5 TYPE: C

NAT:  Analytic | Dynamics

 

  1. A critical part of a family firm transfer from one generation to the next is to discuss decisions with potential heirs as well as family members working in the company.

 

ANS:  T                    PTS:   1                    REF:   p. 157            OBJ:   5-5 TYPE: C

NAT:  Analytic | Dynamics

 

  1. When considering the long term health of a company during the transfer of ownership, tax advantages should be the primary concern.

 

ANS:  F

Tax considerations are relevant; however they should not be the primary concern as possible adverse effects on management may hurt the long term health of the company.

 

PTS:   1                    REF:   p. 156            OBJ:   5-5 TYPE: C

NAT:  Analytic | Finance

 

  1. A family retreat can bring family members closer together as well as strengthen the family business.

 

ANS:  T                    PTS:   1                    REF:   p. 151            OBJ:   5-5 TYPE: C

NAT:  Analytic | Dynamics

 

  1. Family owned businesses represent less than five percent of the Fortune 500 firms in the United States.

 

ANS:  F

Over 35 percent of Fortune 500 firms have been identified as family businesses.

 

PTS:   1                    REF:   p. 137            OBJ:   5-1 TYPE: C

NAT:  Analytic | Economic Environments

 

MULTIPLE CHOICE

 

  1. In the U.S., family businesses generate what percent of the gross domestic product?
a. 35
b. 49
c. 75
d. 80

 

 

ANS:  B                    PTS:   1                    REF:   p. 137            OBJ:   5-1 TYPE: C

NAT:  Analytic | Economic Environments

 

  1. Which item is not an advantage of a family-owned business?
a. shared culture
b. focus on the long-run
c. reduced cost of control
d. commitment

 

 

ANS:  C                    PTS:   1                    REF:   p. 139            OBJ:   5-1 TYPE: C

NAT:  Analytic | Dynamics

 

  1. Which family characteristic may be in conflict with a business?
a. competition is valued
b. taking advantage of opportunities
c. perpetuate traditions
d. All of the above may be in conflict.

 

 

ANS:  C                    PTS:   1                    REF:   p. 140            OBJ:   5-1 TYPE: C

NAT:  Analytic | Dynamics

 

  1. In a family business, the interests of the family and the interests of the business are best described as
a. overlapping.
b. conflicting.
c. coinciding.
d. having no relationship with each other.

 

 

ANS:  A                    PTS:   1                    REF:   p. 137            OBJ:   5-1 TYPE: C

NAT:  Analytic | Dynamics

 

  1. People with higher levels of _____ and _____ commitment are more likely to support efforts to promote change to improve the company’s performance and survival.
a. need-, cost
b. desire-, obligation-
c. cost-, desire-
d. strategy-, cost-

 

 

ANS:  B                    PTS:   1                    REF:   p. 142            OBJ:   5-2 TYPE: C

NAT:  Analytic | Dynamics

 

  1. A(n) _____   commitment may motivate a person to go “beyond the call of duty” to protect or extend personal financial interests in the company.
a. Need-based
b. Obligation-based
c. Cost-based
d. Strategy-based

 

 

ANS:  C                    PTS:   1                    REF:   p. 144            OBJ:   5-2 TYPE: D

NAT:  Analytic | Dynamics

 

  1. The close relationship of business factors and family concerns in a family business has been described as
a. separation of domains.
b. a generational gap.
c. an example of blood being thicker than water.
d. overlapping.

 

 

ANS:  D                    PTS:   1                    REF:   p. 137            OBJ:   5-1 TYPE: C

NAT:  Analytic | Dynamics

 

  1. A benefit of a strong family relationships is the greater willingness of family members to
a. adopt new operating methods when needed.
b. act generously in compensating nonfamily employees.
c. sacrifice salaries and dividends when necessary.
d. emphasize short-run profits.

 

 

ANS:  C                    PTS:   1                    REF:   p. 138            OBJ:   5-1 TYPE: C

NAT:  Analytic | Dynamics

 

  1. Steve, Harry, and Chris, who own and operate a family auto parts store, are experiencing tough times during a downturn in the local economy. To help the store survive these conditions, the brothers agree to each take a 25 percent reduction in salary for a one-year period. This decision
a. demonstrates a weakness of financial management.
b. illustrates an important advantage of a family business.
c. reveals a lack of customer orientation in a family business.
d. reflects a lessening of entrepreneurial ambition in second-generation businesses.

 

 

ANS:  B                    PTS:   1                    REF:   p. 138            OBJ:   5-1 TYPE: A

NAT:  Reflective Thinking | Dynamics

 

  1. A founder’s core values may become part of the family business culture because
a. the founder typically knows what is best for the company’s culture.
b. others in the firm absorb traditions and values established by the founder.
c. the values coincide with modern management theory.
d. family members follow family traditions without excessive analysis.

 

 

ANS:  B                    PTS:   1                    REF:   p. 141            OBJ:   5-2 TYPE: C

NAT:  Analytic | Dynamics

 

  1. Those with a(n) _______ commitment are the most likely to work hard because of their passion for the business.
a. need-based
b. strategy-based
c. cost-based
d. desire-based

 

 

ANS:  D                    PTS:   1                    REF:   p. 142            OBJ:   5-2 TYPE: C

NAT:  Analytic | Dynamics

 

  1. Family members who join the business because of a concern that they may not be able to reach career success on their own display a(n)  _____ commitment.
a. desire-based
b. obligation-based
c. need-based
d. cost-based

 

 

ANS:  C                    PTS:   1                    REF:   p. 142            OBJ:   5-2 TYPE: D

NAT:  Analytic | Dynamics

 

  1. A family member who feels he/she ought to pursue a career in the family business is expressing a(n) ______  commitment.
a. desire-based
b. obligation-based
c. cost-based
d. need-based

 

 

ANS:  B                    PTS:   1                    REF:   p. 142            OBJ:   5-2 TYPE: D

NAT:  Analytic | Dynamics

 

  1. A family member who believes that joining the business may be the best way to benefit from what the family firm has to offer is revealing a (n)  _____ commitment.
a. desire-based
b. obligation-based
c. cost-based
d. need-based

 

 

ANS:  C                    PTS:   1                    REF:   p. 142            OBJ:   5-2 TYPE: D

NAT:  Analytic | Dynamics

 

  1. A common problem for a founder in passing the business on to a daughter or son is
a. introducing the child to outsiders such as bankers.
b. finding a suitable position for the son or daughter within the business.
c. arranging the transition from part-time to full-time employment.
d. deciding whether the child has the necessary temperament and ability.

 

 

ANS:  D                    PTS:   1                    REF:   p. 145            OBJ:   5-3 TYPE: C

NAT:  Analytic | Dynamics

 

  1. An inherent problem for couples involved in a family business is that
a. conflicts in the business tend to carry over into family life.
b. hours of work may become longer for one person.
c. uneven division of labor i.e. one person is only responsible for the menial tasks.
d. some husbands find their masculinity threatened when their wives are better managers.

 

 

ANS:  A                    PTS:   1                    REF:   p. 145            OBJ:   5-3 TYPE: C

NAT:  Analytic | Dynamics

 

  1. Jane and Joe are experiencing a strain with their family relationship after running their family business for 5 years. Which issue might be the most likely underlying cause of the tension?
a. Jane is the CEO while her husband is the CPA.
b. Joe started the business but has stepped down from the CEO position.
c. Jane and Joe’s roles have not been carefully defined as the business has grown.
d. Their difference of opinions about a business matter is spilling over into their family time.

 

 

ANS:  D                    PTS:   1                    REF:   p. 145            OBJ:   5-3 TYPE: A

NAT:  Reflective Thinking | Dynamics

 

  1. In considering the role of younger family members, the best philosophy is to recognize that
a. a child should have a right to a job in the business if he or she desires.
b. no family member should be hired at any level.
c. children should have a right to prove themselves.
d. sibling rivalry will always be an issue with second-generation managers.

 

 

ANS:  C                    PTS:   1                    REF:   p. 146            OBJ:   5-3 TYPE: C

NAT:  Analytic | Dynamics

 

  1. From the children’s standpoint, one common reason that they may be reluctant to join the family firm is a desire to
a. make a difference in another industry.
b. prove their abilities without family assistance.
c. make a higher rate of pay.
d. help the parent avoid favoritism.

 

 

ANS:  B                    PTS:   1                    REF:   p. 146            OBJ:   5-3 TYPE: C

NAT:  Analytic | Dynamics

 

  1. Sibling rivalry in a family business
a. rarely affects nonfamily members in the firm.
b. may create disagreements about business policy.
c. is unusual if roles are determined before the siblings join the business.
d. is often good because it spurs business competition within the organization.

 

 

ANS:  B                    PTS:   1                    REF:   p. 147            OBJ:   5-3 TYPE: C

NAT:  Analytic | Dynamics

 

  1. As the spouse of the President of Two Men and a Truck, Neil Bergeron serves the family business in a typical but critical role of
a. making impartial decisions on controversial business matters when his wife, Melanie, asks.
b. filling the role of a company director so as to provide balance in family matters.
c. mediating family disputes.
d. supporting Melanie through the many hours the business requires.

 

 

ANS:  D                    PTS:   1                    REF:   p. 149            OBJ:   5-3 TYPE: A

NAT:  Reflective Thinking | Dynamics

 

  1. In a 2007 study on family unity, ___ percent of respondents said family members share the same values.
a. 87%
b. 65%
c. 50%
d. 38%

 

 

ANS:  A                    PTS:   1                    REF:   p. 144            OBJ:   5-2 TYPE: C

NAT:  Analytic | Dynamics

 

  1. Which statement is the most correct about in-laws and possible complications in a family business?
a. Rarely do in-laws impact the business since they are only indirectly involved and have limited decision making responsibilities if at all.
b. In-laws may impact the business if they are employed in the firm and are responsible for decision making.
c. There will be a complication only when in-laws are competing against another family member for a promotion.
d. In-laws will impact the business as they increase the number of persons who are either directly or indirectly involved in the family business.

 

 

ANS:  D                    PTS:   1                    REF:   p. 148            OBJ:   5-3 TYPE: C

NAT:  Analytic | Dynamics

 

  1. A document that states the principles intended to guide a family firm through times of crisis and change, including the succession process is called the
a. business plan
b. articles of incorporation
c. family business constitution
d. corporate by-laws

 

 

ANS:  C                    PTS:   1                    REF:   p. 152            OBJ:   5-4 TYPE: D

NAT:  Analytic | Ethical and Legal

 

  1. If the spouse is not actively involved in the family business, how can they best support the entrepreneur?
a. Serve as the mediator between any children wanting to enter the business and the entrepreneur.
b. Be a good listener.
c. Mandate they are given a copy of the books each month.
d. All of the above roles should be done.

 

 

ANS:  B                    PTS:   1                    REF:   p. 149            OBJ:   5-3 TYPE: C

NAT:  Analytic | Dynamics

 

  1. Concerning the need for good management in the family business, which “best practice” is best?
a. Resist preparing successors for leadership to avoid demoralizing those who are not selected.
b. Maintain rigid guidelines based on family traditions to guide the company into the future.
c. Emphasize the attraction and retention of family members.
d. Stimulate new thinking and fresh strategic insights by promoting learning.

 

 

ANS:  D                    PTS:   1                    REF:   p. 150            OBJ:   5-4 TYPE: C

NAT:  Analytic | Dynamics

 

  1. To avoid a stifling atmosphere for nonfamily employees in a family business, the owner should
a. promote only nonfamily members.
b. avoid all special consideration for family members.
c. make clear the extent of opportunity for nonfamily members.
d. minimize discussion about future management changes.

 

 

ANS:  C                    PTS:   1                    REF:   p. 151            OBJ:   5-4 TYPE: C

NAT:  Analytic | Dynamics

 

  1. To protect the interests of both the family and the business in a family business, the owner should
a. recognize a basic obligation to supply the family with employment of some type.
b. refuse to hire family members but, instead, reward them with generous dividends.
c. personally make all personnel decisions affecting family members.
d. identify the positions, if any, that are reserved for members of the family.

 

 

ANS:  D                    PTS:   1                    REF:   p. 151            OBJ:   5-4 TYPE: C

NAT:  Analytic | Dynamics

 

  1. A nonfamily employee of a family business complains that the recent promotion of a family member was unfair. The owner should
a. enter into a discussion of the roles and opportunities for both family members and outsiders.
b. clarify that family members always have the inside track, even though this fact is disappointing to the bypassed employee.
c. get the employee to think more positively by describing other attractive features of the employee’s job.
d. acknowledge that a tension always exists and that it can never be dealt with satisfactorily.

 

 

ANS:  A                    PTS:   1                    REF:   p. 151            OBJ:   5-4 TYPE: A

NAT:  Reflective Thinking | Dynamics

 

  1. A family retreat is designed to
a. bring family members together to openly discuss business matters.
b. focus on business matters while avoiding extensive communication.
c. control the lines of communication.
d. announce the latest policy decisions and other changes in the business.

 

 

ANS:  A                    PTS:   1                    REF:   p. 151            OBJ:   5-4 TYPE: C

NAT:  Analytic | Dynamics

 

  1. Patricia, a nonfamily employee of a family business, is concerned about competing with family members for future career opportunities. To protect her personal interests, she should
a. align herself with the CEO to hopefully know when new positions will become open.
b. ask that the owner/manager clarify the extent of opportunities considering her skill set.
c. seek assurances that she will receive first consideration for promotion, ahead of family members who are not as qualified.
d. be realistic enough to leave the firm and seek employment in a nonfamily business.

 

 

ANS:  B                    PTS:   1                    REF:   p. 151            OBJ:   5-4 TYPE: A

NAT:  Reflective Thinking | Dynamics

 

  1. Family retreats, which open lines of communication,
a. use the founding entrepreneur as a communication facilitator.
b. avoid discussing sensitive issues for best results.
c. involve family members but not in-laws.
d. may result in formation of a family council to continue discussion.

 

 

ANS:  D                    PTS:   1                    REF:   p. 152            OBJ:   5-4 TYPE: C

NAT:  Analytic | Dynamics

 

  1. Which statement is true concerning the process of preparing a family successor for leadership in the family business?
a. A specific date can be decided for a smoother transition between the successor and the current manager.
b. The process should be short for best result so as to not stall out any company momentum.
c. The process is best when the parties age as the next generation will be better prepared.
d. The process should be as long and drawn out as possible for the successor to be ready.

 

 

ANS:  D                    PTS:   1                    REF:   p. 155            OBJ:   5-5 TYPE: C

NAT:  Analytic | Ethical and Legal

 

  1. A family business constitution is sometimes labeled a _____.
a. business plan
b. by-law guide
c. family creed
d. succession plan

 

 

ANS:  C                    PTS:   1                    REF:   p. 153            OBJ:   5-4 TYPE: D

NAT:  Analytic | Ethical and Legal

 

  1. In preparing for succession, the senior generation should have accountability meaning that before a transfer of management occurs,
a. the estate of the senior generation should be settled and audited.
b. the senior generation should hold the next generation accountable for their actions.
c. the business should have a formal audit of the financial statements.
d. the next generation should develop long term plans for leadership and be held to these plans.

 

 

ANS:  B                    PTS:   1                    REF:   p. 155            OBJ:   5-5 TYPE: C

NAT:  Analytic | Ethical and Legal

 

  1. Senior management will be more receptive to the junior generation advancing if the junior generation
a. decides what time is best for their personal lives.
b. prepares for ownership by concentrating on learning “big” picture skills as opposed to basic management skills.
c. designs life plans for themselves and the business that involves what happens if the business fails,
d. proactively shares their preparation for advancement and ask for advice for implementation.

 

 

ANS:  D                    PTS:   1                    REF:   p. 156            OBJ:   5-5 TYPE: C

NAT:  Analytic | Ethical and Legal

 

  1. What step is best for parents to decrease succession conflict among children active in the firm and those who are not?
a. Letting those not involved in the company have a larger portion of an inheritance outside of the company and allow those involved in daily operations have more ownership of the business.
b. Letting the next generation reach a consensus about management of the company.
c. Changeing the ownership of the company so common (voting) stock is only given to those active in the company and others receive preferred (nonvoting) stock.
d. Making decisions based on tax considerations, not what is best for the next generation or the business.

 

 

ANS:  C                    PTS:   1                    REF:   p. 156            OBJ:   5-5 TYPE: C

NAT:  Analytic | Ethical and Legal

 

  1. Which statement is true concerning using available family talent in the succession plan?
a. Younger family members working in the business should realize that mistakes early on in their careers should be considered in their future advancement.
b. If the available talent is not sufficient inside the company, the owner must bring in outside leadership even if it is not perceived as a favorable decision by the family at large.
c. If a younger family member would like to advance their career by working on a new direction for the company, a negative decision by their parent means they should not discuss their ideas with the board of directors.
d. It is rare a younger member will have the skill set to rescue a struggling company; therefore they should not be considered for a succession plan.

 

 

ANS:  B                    PTS:   1                    REF:   p. 154            OBJ:   5-5 TYPE: C

NAT:  Analytic | Ethical and Legal

 

  1. Jim, the founder of a family business specializing in real estate, is contemplating turning the business over to his five children. One possibility, the founder believes, is to divide ownership equally among the children. This action would
a. be next to impossible as gaining consensus from six persons is difficult.
b. be inherently unfair if any of the children work in the company.
c. potentially hinder the future functioning of the business.
d. require a possible change in corporate structure since the company deals in real estate.

 

 

ANS:  C                    PTS:   1                    REF:   p. 156            OBJ:   5-5 TYPE: A

NAT:  Reflective Thinking | Dynamics

 

  1. Fran and Bob (who are married) own and manage a cleaning service. A potential advantage of this arrangement is that
a. differences of opinion about the business won’t carry over into family lives since they will see each other more hours daily.
b. it affords the opportunity to share more of their lives and build something together.
c. the business isn’t likely to dissipate their energies as they can each work on separate sections.
d. they can count on working fewer hours in the business.

 

 

ANS:  B                    PTS:   1                    REF:   p. 145            OBJ:   5-3 TYPE: A

NAT:  Reflective Thinking | Dynamics

 

  1. As a college student, Billy works part time in his mother’s garden supply wholesaling business during the year and full time in the summer. He would like to enter into the business after he graduates.  Based on the text, should his mother agree to his plan?
a. No, as he needs to work externally to build his confidence in taking over from nonfamily members.
b. No, as he should see if he can succeed with the family safety net and possibly gain knowledge in another industry.
c. Yes, as he would simply continue the tasks he does in the summer when he works full time.
d. Yes, as his talents have already been fully developed and shouldn’t be wasted on another company.

 

 

ANS:  B                    PTS:   1                    REF:   p. 146            OBJ:   5-2 TYPE: A

NAT:  Reflective Thinking | Dynamics

 

  1. A parent might attempt to resolve a transfer of ownership by giving active children in the firm’s management _____ stock and giving nonactive children _____ stock.
a. preferred, common
b. growth, speculative
c. common, preferred
d. more, less

 

 

ANS:  C                    PTS:   1                    REF:   p. 156            OBJ:   5-5 TYPE: C

NAT:  Analytic | Finance

 

  1. Tom is taking over the family business because it is what his parents have wanted him to do. He is showing a(n) _____ commitment.
a. cost-based
b. obligation-based
c. desire-based
d. need-based

 

 

ANS:  B                    PTS:   1                    REF:   p. 142            OBJ:   5-2 TYPE: A

NAT:  Reflective Thinking | Dynamics

 

  1. John is more likely to pursue a long-term career in the family business if he is motivated by a(n) _____ commitment.
a. cost-based
b. obligation-based
c. desire-based
d. need-based

 

 

ANS:  C                    PTS:   1                    REF:   p. 142            OBJ:   5-2 TYPE: C

NAT:  Analytic | Dynamics

 

  1. John and his brother Jack started a produce farm 20 years ago and are thinking about retirement.  Over time, their children have worked at the farm and so the cousins have started talking about taking over management.  At present, this produce farm is an example of ____.
a. co-preneur managed business
b. cousin consortium
c. owner-managed business
d. sibling partnership

 

 

ANS:  C                    PTS:   1                    REF:   p. 136            OBJ:   5-1 TYPE: A

NAT:  Reflective Thinking | Dynamics

 

  1. Jan and Jill started a business 20 years.  Jill recently stepped down; her daughter Jenny has agreed to start managing the company with Jan’s help; and the eventual goal is for Jenny to run the entire company.  This process between Jan and Jenny is called ____.
a. sibling partnership
b. family consortium
c. mentoring
d. Two of the above are true.

 

 

ANS:  C                    PTS:   1                    REF:   p. 155            OBJ:   5-5 TYPE: A

NAT:  Reflective Thinking | Dynamics

 

ESSAY

 

  1. Explain the concept of family and business overlap in a family business.

 

ANS:

Although the family and the business are separate institutions (each with its own members, goals, and values), they overlap in the family firm.

 

Families and businesses exist for fundamentally different reasons.  The family’s primary function is the care and nurturing of family members, while the business is concerned with the production and distribution of goods and services.  Family goals include the personal development of each member and the creation of equal opportunities and rewards for each member; the main business goal is to create value for the customer and firm’s owners.

 

Since relationships among family members in a business are more sensitive than relationships among unrelated employees, competing interests can complicate the management process.  Tension that is created may sometimes lead to conflict requiring management to act as managers and not as someone’s parent or child.

 

PTS:   1                    REF:   p. 137-138     OBJ:   5-1 TYPE: C

NAT:  Communication | Dynamics

 

  1. Explain the role of the entrepreneur’s spouse as it affects a family business and show how it can be made most effective if they do not have an active part of daily operations.

 

ANS:

The spouse’s role is often described as mediator. The spouse occupies a unique position, with a strong concern for each member of the family. At the same time, the spouse sees the business with some detachment because he or she is not involved in its everyday operations. The task of creating harmony and minimizing misunderstanding is a major one.

The role can be made most effective if there is effective communication between the spouse and entrepreneur.  The spouse must be informed about what is going on in the business.

 

Students should recognize, of course, that individual differences in personality affect the manner in which spouses carry out this role.

 

PTS:   1                    REF:   p. 149            OBJ:   5-3 TYPE: C

NAT:  Communication | Dynamics

 

  1. Outline the “best practices” for the management of a family firm.

 

ANS:

The text identified the following list of “best practices”:

a. Stimulate new thinking and fresh strategic insights.
b. Solicit ample input from outsiders.
c. Establish channels for constructive communication and use them often.
d. Build a culture that accepts continuous change.
e. Promote family members only according to their skill levels.
f. Attract and retain excellent nonfamily managers.
  1. Ensure fair compensation for all employees, including those outside the family.
  2. Establish a solid leadership succession plan.
  3. Exploit unique advantages of family ownership.

 

PTS:   1                    REF:   p. 150            OBJ:   5-4 TYPE: C

NAT:  Communication | Dynamics

 

  1. Discuss guidelines for a successful family business retreat.

 

ANS:

 

Since a family retreat should have all family members including in-laws, having the meeting away from the company could encourage a more informal atmosphere.  A facilitator should be hired to guide discussion if discussion is expected to be difficult.

 

Lansky’s guidelines are to:

  1. Be clear about the purpose of the retreat. What should the meeting accomplish?
  2. Set small, attainable goals. Don’t look at the retreat as having to accomplish all possible goals.
  3. Use an agenda and stick to it. Schedule the meeting for a fixed period of time, and appoint someone to take notes.
  4. Give everyone a chance to participate. This action is critical to establish trust among the participants. People need to feel that they have been heard.
  5. Know the difference between consensus and agreement. Participants don’t have to see things the same way (agreement) in order to concur on a course of action (consensus).

 

PTS:   1                    REF:   p. 139-140     OBJ:   5-4 TYPE: C

NAT:  Communication | Dynamics

 

  1. What could a founder do to make a succession plan successful?  Using the Three-Circle Model of Family Firms, identify issues the founder should discuss with each group.

 

ANS:

 

A founder should have a well developed plan that is properly communicated to all parties.  While it may be hard for the entrepreneur to think about not being at the business, a discussion should be had with

1) a spouse especially about issues related to settling an estate;

2) family members in the business (who may or may not be an owner) so they understand who will be leading the company and why.  Family members with possible succession talent should be supported;

3) family members not in the business in relation to the impact the change would make on any inheritance; and

4) nonfamily employees and nonfamily owners in the business as to who will be leading the company and the impact of a change in leadership.

 

PTS:   1                    REF:   p. 137 | p. 153                                           OBJ:    5-1 TYPE: C | 5-5 TYPE: C

NAT:  Communication | Dynamics

 

  1. Describe seven strengths of family enterprises.  Based on the text, how does Two Men and a Truck (TNT) achieve these strengths?

 

ANS:

 

The seven principles are summarized from Leach’s Family Business: The Essentials and Exhibit 5-2.

 

  1. Family business culture and values – which provide guidance toward accomplishing shared goals

TNT has been in business for over 30 years and has involved a mother and three siblings in its daily operations for most of those years.  Even a grandmother was involved in the early years of operations. Husband of daughter is supportive even though he isn’t in daily operations.

 

  1. Commitment – the passion that grows out of a family’s sense of responsibility

Sibling partnership as the brothers and sister along with the mother still run the company now. TNT ‘s Gramma Rule of “Treat everyone with dignity, respect, and patience” illustrates this principle along with its core value of giving back to the community.

 

  1. Knowledge – applied as a competitive advantage by family members who have learned through intimate involvement

Again TNT’s 30 year history with the same family members speaks of knowledge.

 

  1. Long-range thinking – looking toward the next generation, not just the next quarter

Mother’s plan to franchise brought daughter into the company but also looked to future growth.

 

  1. A stable culture – typically found in durable, low-profile, profitable niche enterprises

3o years of operations

 

  1. Speedy decisions – a function of trust among family members

When daughter decided to step down, decision was made immediately for brother to step into position.

 

  1. Reliability and pride, recognized by customers, suppliers, creditors, and other outsiders

Again 3o years of operations has resulting in TNT being a national operation.

 

PTS:   1                    REF:   p. 139            OBJ:   5-2 TYPE: A

NAT:  Communication | Dynamics