Entrepreneurship Exam 2 Chapter 6-9 Review

As a new entrepreneur, Anthony's magic number for 2013 is $42,000. If the current tax rate for his business is 30 percent, calculate the amount that Anthony's firm would need to sell for him to get his magic number.

$60,000 The formula to calculate the pretax income is as follows: Pretax income = (The desired post-tax income)/(1 − Tax percentage rate) Page: 188

A niche market is a narrowly defined segment of the population that is likely to share interests or concerns.

True. Page: 192

In the decline stage, sales and profits of the firms in an industry begin a falling trend.

True. Page: 198

Second sourcing provides customers with greater certainty of supplies or services.

True. Page: 204

Zoruski Inc., a manufacturer of leather furniture, is facing problems with pricing its products in the Asian market. Due to the presence of several middlemen in its distribution channel, the prices of furniture rise up to three times from what they are sold at in the home market. This problem faced by Zoruski Inc. is typically referred to as _____.

price escalation. If a business is using a traditional retailer, its product may go through several middlemen before getting on the shelf. The end price to the customer might be four times from what the business got. This is called price escalation. Page: 290

A(n) _____ is the business term for the population of customers for a business owner's products or services.

market. A market is the business term for the population of customers for a product or service. If entrepreneurs know their market inside and out, they are likely to know much of the key information for how to be successful in their line of business. Page: 192

"WaterVision Cams: Atlanta's Only Underwater Cameras" is an example of a(n) _____.

tagline. Page: 218

In a _____, the buyer seizes control of the business without the permission of all owners.

takeover. A takeover comprises purchasing enough of the target business's stock to gain control of the board of directors of the business Page: 172

The total product is the most general description of a business, and the one which captures the smallest amount of what is special about a business.

False. The core product is the most general description of a business, and the one which captures the smallest amount of what is special about a business. Page: 277

The manufacturing costs incurred by Fred's Prints, a firm selling custom-designed T-shirts, are $10 per T-shirt, and the selling and distribution costs incurred are 6$ per T-shirt. To this total cost of $16, Fred adds a profit of $4 on each T-shirt and sells the T-shirt at $20. The markup here would be _____.

$4. Markup refers to the amount an entrepreneur adds to costs to provide a profit. Page: 286

Differentiation strategies

A type of generic strategy aimed at clarifying how one product is unlike another in a mass market. Page: 201

A McDonald's franchise includes the right to use McDonald's many trade names, specifications of the product to be sold, operating methods, marketing plan, and national advertising. Franchisees pay to the franchiser both an up-front fee to obtain the franchise rights and a percentage of gross sales. what type of franchising does this situation illustrate?

Business format franchising. Page: 173

Which of the following is most likely to increase the odds of successes for a start-up?

Choosing a business that produces high margins. High margins, the amount by which sales prices exceed product costs, provide a buffer for lots of mistakes. The single greatest hurdle to a successful start-up is obtaining and maintaining sufficient cash to support both operations and growth. Page: 161

what are the cost benifits

Cost benefits include: lower costs, scale savings, scope savings, learning, and organizational practices. Page: 196

Small businesses typically use the strategy of innovativeness rather than imitativeness.

False Page: 186

A start-up always immediately provides positive cash flows.

False. A start-up will require significant time to become established and provide positive cash flows. An established business or franchise has built-in customers to provide immediate cash inflows. Page: 158

The absolute lowest price that a buyer would be willing to pay is called the 'point of indifference' in the negotiation process.

False. Along the way you, as the buyer, should have decided on the absolute highest price that you would be willing to pay. That highest price is called your point of indifference in the negotiation process. Page: 170

Generally, benefits do not influence a firm's strategy process.

False. Benefits drive a firm's offering to its customers and influence every part of the strategy process. Page: 195

The elevator pitch is much shorter than a vision statement or tagline.

False. Elevator pitch is a 30-second, 100 words or less, action-oriented description of a business designed to sell the idea of the business to another. It is longer than a vision statement or tagline. Page: 219

For small businesses, professional management is an issue of education, titles, and credentials.

False. In the terms of small business, professional management is not an issue of education, titles, or credentials. Page: 179

Selling your product or service in a limited area, for a limited time is known as parallel marketing.

False. Selling your product or service in a limited area, for a limited time is known as test marketing. Page: 234

Competitors of a company are not a source of business ideas.

False. Sources of business ideas include end users, customers, salespeople, market research, and competitors. Page: 279

Which of the following is the best example for price discrimination?

Half price for children below five years in adventure parks. Price discrimination refers to charging different prices to different groups, usually to attract a different demographic, such as senior citizens' discounts. Page: 295

Which of the following is most likely to be achieved as the result of starting a business with established customers?

Immediate cash flows. When you start with established customers, you know that you will immediately have cash inflows. Page: 162

key information that joint venture partners seek in a business plan?

Include intellectual property protection, fit between the firms, competitive advantage, benefits and R&D. Page: 217

Which of the following statements is true of a mission statement?

It describes the major competitive advantages of a firm. The mission statement is a paragraph that describes the firm's goals and competitive advantages. The best mission statements are simple, short, and direct and it rarely discusses profits. Page: 219

The 5 M's of the 5-M model are?

Mantra, mission, measures, method, and mechanics. Page: 223

Saffron Spas Inc. has two membership schemes meant to attract different customer segments. The executive membership program priced at $1000 allows for unlimited usage of the services available in the spa chain up to a year. The premium membership program priced at $700 allows for limited usage of the spa services up to a year. According to this information, which of the following pricing strategies is adopted by Saffron Spas Inc.?

Price lining. Price lining is an attempt to appeal to several different markets. In this situation, one might have three models of a product or service price to appeal to the high-, mid-, and low-end market. Page: 295

_____ is an estimate of what an identical asset would cost to be acquired and readied for service.

Replacement value. Replacement value is an estimate of what an identical asset would cost to be acquired and readied for service. Net realizable value is usually significantly less than the replacement value of any specific asset. Page: 169

Which of the following is a way to start business with established customers?

Spin-off. You can start your new business as a spin-off from your current employer's business. Page: 162

Which of the following is a value benefit?

Technology. Technology is a value benefit. Firms can offer state-of-the-art or leading-edge technology, technology that others do not have, or technology that automates or simplifies tasks or that meets industry standards. Page: 196

Which of the following statements is true about me-too products?

The vast majority of new ideas for small businesses will be me-too products. Most businesses are imitative in nature, so the vast majority of new ideas for small businesses will be me-too products. Page: 279

Franchising a new business is one of the ways to business ownership.

True. Page: 156

A start-up can be kept small deliberately to limit the magnitude of possible losses.

True. Page: 157

Properly performing due diligence minimizes the risk of failure and maximizes the probability of success by identifying the strengths and weaknesses of the business.

True. Page: 167

Legal business organizations are artificial entities that exist separately from the owners.

True. Page: 171

The new NAICS covers more industries than the SIC.

True. Page: 189

Business plans are essential for external legitimacy and internal understanding.

True. Page: 216

In the context of a business plan, product quality, its benefits, service quality, and the competitive advantage are the primary concerns of potential customers.

True. Page: 217

Executive summaries are written in a formal style, suitable for investors, bankers, and lawyers to read.

True. Page: 221

If a product or service has protection through a proprietary technology, it is mentioned in the product/service subsection of the company section of a business plan.

True. Page: 228

The financial statements in a business plan include income statements, cash flow, balance sheet, and their respective assumptions.

True. Page: 231

When a product or service is truly new to everyone, it is considered a pioneering business.

True. Page: 233

Operational plans and private placement memos are the only two types of plans that add material to a full business plan.

True. Page: 235

A product can include goods, services, and ideas.

True. Page: 274

The concept of total product includes how customers describe one's good or service.

True. Page: 277

Random discounts shouldn't be too frequent because consumers begin to realize if they stock up in this sales period, they can probably wait until the next sales period.

True. Page: 296

Even if a competitor matches a sale or offers some other promotion to match one's offering, it's not as aggressive an action as a price war.

True. Page: 300

"Buy one large pizza and get a 25 percent off on the next purchase," is an example of _____.

a loyalty program. Loyalty programs are intended to tie customers to one's business. Most often, these take the form of a card on which each purchase is stamped, and when a certain number of purchases or visits have occurred, the customer gets a free service, a discount, or a gift. Page: 297

Chain Shop.com runs on a membership business model, in which an existing member gets a 20 percent rebate if he or she introduces or invites a potential customer to the site. This rebate gets activated once the new member makes a purchase on the site. This is an example of _____.

a referral discount Page: 298

In the context of entry wedges, market relinquishment occurs when:

business firms leave a market. Page: 204

The purchase of substantially less than 100 percent of a business is called a(n):

buy-in. One basic way that a business may be bought is you may buy in, by acquiring some, but not all of the ownership. Page: 170

The _____ section of a classic business plan contains the vision statement, mission statement, objectives, and background of a firm.

company. The company section of a business plan contains the vision statement, mission statement, objectives, and company background with product, service, and industry description. Page: 225

Typically, for a start-up business the financials:

give the monthly income and cash flow for the first year. For an existing business, the financials report the last two years of actual data, and then offer three-year projections for the income, cash flow, and balance sheet. For a start-up business, the tradition is to offer three years of data projections. In either case, income and cash flow are given monthly for the first year, quarterly for the second year, and annually for the third and any later years. Page: 231

The _____ is marked by a stabilization of demand, with firms in the industry moving to stabilize or improve profits through cost strategies.

maturity stage Page: 198

The _____ phase is usually the most difficult time a person will have in business.

start-up. The start-up phase is usually the most difficult time you will have in business. You are required to make myriad decisions concerning location, product, target market, promotion, sales, and all the facets of starting and operating a business. Page: 160

Industry analysis is defined as the technique used to:

study the dynamics and trends of an industry. Page: 186

A(n) _____ is a memorable catchphrase that captures the key idea of a business, its service, product, or customer.

tagline.

what are business plan concerns for silent partners/angel investors?

Growth rate, market, business team, and amounts and schedules.

_____ is the amount of money left after deducting the operating expenses of the business.

Net profit. Page: 199

Buy-ins can be made in any form of business.

True. Page: 171

A _____ displays characteristics related to the nature of a product or service itself.

value benefit. A value benefit displays characteristics related to the nature of the product or service itself. Things like quality, fashion, and reputation are elements that give a product or service value in the eyes of the customer. Page: 195

Imitation minus one degree of similarity:

would be the business equivalent of cloning. Page: 191

A buyout refers to starting a business from scratch.

False. The purchase of substantially all of an existing business is called a buyout. Page: 157

A(n) _____ plan provides information on the company, product/service, market, and critical risks to prospective business or marketing partners or to prospective key employees.

concept. A key employee/partner plan provides information on the company, product/service, market, and critical risks to prospective business or marketing partners or to prospective key employees. It is also called a summary plan, concept plan, or idea plan. Page: 235

Sam intends to present a business plan to his potential key employees. The employees would most likely expect to know about the _____ during the presentation.

long-term prospects. Stability of firm, growth, and long-term prospects are the major concerns expected by key employees in a business plan. Page: 217

Smart Home, a retailer for consumer electronics, sells a reputed brand's desktops at near cost price. These desktops are located at the end of the store so that the customers notice the other products in the store before they pick the desktop. As a result the sales of printers, USB devices, web cameras, and other electronic products in the store have increased. This is an example for _____ pricing technique.

loss leaders. The pricing technique of loss leaders involves selling a name brand at or near cost in order to attract traffic to a retailer. Page: 295

A screening plan provides information on the company, product/service, market, and critical risks to prospective business.

False. A screening plan, also called a mini-plan, gives the basic overview of the firm and a detailed look at the financials. It is the key employee/partner plan which provides information on the company, product/service, market, and critical risks to prospective business. Page: 234

The supra-strategy of a classic imitator small business start-up is single-mindedness.

False. The supra-strategy of a classic imitator small business start-up includes craftsmanship and formula facilities. Page: 203

Patents and trademarks are popular strategic actions for protecting a firm from competition.

True. Page: 206

If a rapid prototyping model can be developed, the molds for manufacturing can be made inexpensively by most modern manufacturers.

True. Page: 283

A start-up usually can easily gain revolving credit from suppliers and financial institutions.

False. A start-up usually cannot easily gain revolving credit from suppliers and financial institutions. Page: 159

It's almost always a good idea for a small firm to try to compete on price.

False. It's almost always a bad idea for a small firm to try to compete on price. Competing on price may lead to a price war in which a small firm just doesn't have the staying power of a big firm. Lower prices are "throwing away" profit that small businesses really need. They can signal the customers that the product isn't as high quality as that of the competitors'. Page: 293

What would happen when a small business that is growing becomes too great to be handled alone by an individual owner?

Professional managers are hired to share the management load. As small businesses grow, the requirements of managing them increase proportionately. If a business grows large enough, no matter how experienced or talented a business owner is, eventually the demands of managing will become too great to be handled alone. At this point, one of two things happens: (1) the business starts to decline, or (2) professional managers are hired to share the management load. Page: 179

Which of the following should be avoided while coming up with a company or brand name considering the possibility of future expansion?

Selecting a company or brand name that's too narrow. Selecting a company or brand name that's too narrow might not work when a firm plans to grow or expand. Page: 278

Tactical actions are competitive responses with low resource requirements.

True. Page: 205

Marketing and new product experts believe that most of the small business failures could have been avoided by following the new product development (NPD) process.

True. Page: 279

Setting prices higher than the competition without providing customers with the perception of receiving greater value will lead to lower overall volume.

True. Page: 288

If a business is trying to grow, the right price for its products is one that is:

necessary to capture a desired market share given an anticipated level of sales volume. If a person is trying to make his or her business grow, or if the person is at the point that he or she is preparing to exit the business, the right price is the one necessary to capture a desired market share or to meet a specific profit target, given an anticipated level of sales volume. Page: 288

A start-up cannot:

provide positive cash flows immediately. A start-up will require significant time to become established and provide positive cash flows. An established business or franchise has built-in customers to provide immediate cash inflows. Page: 158