Small Business Management Exam 1

Justin is a sales executive at a manufacturing company. One of his clients who purchases products from him at a higher price than that quoted by competitors is facing financial problems. Since Justin's promotion depends on his achieving the sales target, he cannot decide whether he should inform his client about the lower prices its competitors are paying. Justin is facing a situation known as _____.

an ethical dilemma

Thomas has started a new business venture for which he has been using highly economical resources, such as the market research data available in public libraries, low-interest funds borrowed from national banks, and equipments hired on lease. This technique used by Thomas to overcome resource constraints in his start-up firm is best known as _____.

bootstrapping

Your friend Sarah tells you she is thinking about buying the dog grooming business you both take your dogs to, as owner just announced it was for sale. The groomer is always busy and it is best to have a standing monthly appointment, as the shop is often booked solid. The groomer is currently open limited hours as the owner is wishing to get out of the business, and Sarah thinks services (and profits) can be improved with longer hours. As Sarah's friend, what should your response be?

"It is very difficult to place a value on an existing company. How will you know if they are asking a fair price?"

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

Which scenario would avoid intra-family strife when the family business is passed down to the next generation?

Allowing each family member who does wish to enter the business to find out and do those functions and activities that he or she does best.

Which statement is true of an executive summary?

An executive summary is the single most widely distributed written description of a business

Which of these scenarios refers to income capitalization?

Dividing projected net income excluding depreciation, interest, and owner draws, by the best return that you could expect to obtain in other investments.

A business plan presentation remains the same for different audiences.

False

Cannibalizing occurs when people do work for their part-time business while they are at their full-time job blurring the boundary between them.

False

Crowdsourcing is funding a business online through the collective involvement of others who provide donations, loans, or investments.

False

Funds left over after deducting the cost of goods sold are referred to as the net profit.

False

In family-owned businesses, the board of directors can only be comprised of family members.

False

In order to make profits from a small business, the company needs to make an actual product.

False

Incremental innovation is also called a blue ocean strategy

False

Most businesses run by teams are not family related.

False

Small businesses are unable to scan the environment and competitor's as the process is too costly and too time-consuming.

False

Taking an idea and offering a way to do something slightly better than it is done presently is an imitative strategy.

False

When looking at the typical start-up strategy of a classic innovator, which of the following statements is not true?

Innovation only happens during the introduction phase of the life cycle.

Lisa runs a dog grooming business and is always looking for new trends, reading articles, keeping notes, and talking to customers and suppliers about what is needed in the industry. What important function is Lisa performing?

Lisa is scanning the environment

Which of these scenarios best describes cannibalizing?

Mandy uses her employer's client list from her full-time job as a house painter to get customers for her own part-time house painting business

Which of these scenarios is a reason why most new businesses start on a part-time basis?

The cost of entry and exit is low.

Which statement is true of an elevator pitch?

The goal of an elevator pitch is to sell the idea of a business to another.

A mission statement is typically longer than a vision statement.

True

A situation that occurs when a person's values are in conflict, making it unclear whether a particular decision is the right thing to do is considered an ethical dilemma.

True

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

True

High-growth ventures and big businesses generally do not succeed without small businesses offering supporting services.

True

There are four situations in which it makes good sense to first undertake a part-time business, one of which is when you are uncertain about the demands of going into a full-time business.

True

Which of these is a disadvantage of buying a franchise?

You give up creative control and have greater reliance on your parent company's financial status.

_______ refers to a preliminary run of a business, sales effort, program, or website with the goal of assessing how well the overall approach works and what problems it might have.

a pilot test

Which of these plans is most useful for demonstrating a new technology or service or to reach a market that is widely spread out?

a proof-of-concept website

Discounted cash flows have been reduced in value because they

are to be received in the future

According to the BRIE model, _______ sets up a business as a firm.

boundary

When a bookstore starts to sell videos, music, and coffee as well, it uses which of the following elements of the SCAMPER tool?

combine

The one or more benefits that are important to your customers that your competitors do not offer represents your:

competitive advantage

The best way of determining the financial situation of a business is through

crafting a business plan

Social entrepreneurship primarily involves a person or group

creating new charitable and civic organizations, which are financially self-sufficient

The market section of a business plan primarily focuses on:

customers

Which answer option is true as an advantage of small, family-owned businesses?

decision-making is easier and quicker

In many ways, bricolage resembles the strategy of __________ in that it means carefully considering the resources available, and then making something from them.

effectuation

When an entrepreneur starts with what they have-their skills, knowledge, and networks, and looks for needs they can meet by using what they have-the entrepreneur is using the

effectuation model of entrepreneurship

A question such as: What if people did not have to leave their houses to go grocery shopping? reflects which cue from the SCAMPER tool?

eliminate

One form of a(n) __________ business is a pop-up restaurant or a pop-up retailer.

episodic

Connie plans to open "Connie's Corner Cafe". Since the cafe is Connie's first business venture, which source of risk is most likely to cause her banker to evaluate her business plan negatively?

experience deficit

The extent to which a small business is taken for granted, accepted, or treated as viable by organizations or people outside the small business is referred to as:

external legitimacy

Joe is planning a new mobile restaurant business. He wants to convert an antique bus into a sit-down restaurant with a service window allowing him to serve people within the bus and walk-ups who want to get their food and take it home. Joe is performing some research into his project and is looking at the overall business idea, the product/service, the industry and market, financial projections (profitability), and the plan for the future action. Joe is performing a(n) ___________.

feasibility study

Which of these kinds of planners generally tend do very poorly in business, even if they do manage to get their firms started?

habit-based planners

Which answer option is not one of the five pitfalls that hinder innovation?

hiring the wrong people

Small businesses are usually

imitative in nature.

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

immediate cash flows

Raj is starting a flower shop. He knows his magic number and has mapped his distinctive competencies. What is the next step for Raj in the small business strategy process?

industry analysis

_________ means that a firm is worthy of consideration or doing business with because of the impressions or opinions of customers, suppliers, investors, or competitors.

legitimacy

Which answer option is considered an advantage of stand retailing?

minimum start-up investment

Born and raised in India, Rashmi has always enjoyed Indian cooking. As a matter of fact, cooking was her passion and she always enjoyed reading, learning, and experimenting with different ethnic cuisines. Ever since Rashmi's family moved to the United States, her cousins, friends, and other people at dinner gatherings have always commented that Rashmi should start a catering business. Realizing that her American friends may not be able to handle or like the Indian food because of its spiciness, Rashmi decided to make changes to the recipes to suit the local taste. Rashmi is seriously contemplating whether she should start a catering business—Tastes of India. Rashmi appears to be applying which element of the SCAMPER tool in her entrepreneurship ideas?

modify

Which of the following is not one of the seven key strategies of the entrepreneurial way?

scale up

The majority of businesses run by teams are comprised of:

two members

At the tip of the high-growth ventures are firms called _______, like Uber and AirBnB with valuations of $1 billion or more.

unicorns

Which ethical model typically advocates seeking the greatest good for the greatest number of people?

utilitarianism

Gross profit is defined as:

what is left after deducting the cost of goods sold.

All of the answer options are situations in which it might make better sense to undertake a part-time business except:

when there is too much competition

Delegation makes sense in two situations. The first is when other can do things better than you. Which answer option is the second situation in which delegation makes sense?

when you want your business to operate when you are not present

Martin runs a successful house painting business. He runs his business out of his garage, which he converted into office space. Martin, who had previously worked as a house painter in another company had good knowledge of how to run a house-painting business. After a storm destroyed public properties in his neighboring town, he contracted with the mayor of that town to fulfill any painting jobs required during the town's reconstruction. In order to meet this demand and expand business, he hired more house painters. According to the BRIE model, which of the following is an example of Martin's opportunity competency? A. Martin hiring more house painters to meet demand B. Martin contracting with the mayor to help paint during reconstruction C. Martin setting up the business's office in his garage D. Martin deciding to set up his own business after quitting his previous job

Martin having worked in a house-painting company before starting his own business

Mandarin In Town, a Chinese restaurant, opened recently in Burnsville, Minnesota. People from all over the town flocked to Mandarin to find out how good it was. This gave a big boost to the restaurant's initial business, but it caused the other restaurants in the area to lose business temporarily. The way in which Mandarin in Town hurt existing restaurants in Burnsville is an example of: A. creative destruction. B. service distortion. C. innovative disruption. D. crowdsourcing.

creative destruction

When a problem does not stat solved or an opportunity does not pan out as expected, it could be due to this pitfall.

identifying the wrong problem

Access problems for women and underrepresented-owned small businesses crop up most often as discrimination

in financing

An overall strategic approach in which a firm patterns itself on other firms, with the exception of one or two key areas is referred to as:

incremental innovation

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

maturity stage

Which scenario is best avoided in handling a business crisis?

mixing crisis management with the everyday management of a firm

Sylvia had helped Jonathan, one of her previous subordinates, in establishing his business by referring him to an important venture capitalist. As an appreciation of her help, Jonathan has now agreed to hire and personally mentor her son as a trainee in his company. Both Sylvia and Jonathan are typically exhibiting:

mutuality

Chris, Ajay, Hasan, and Martin all currently work at a fishing rod manufacturer, all in different areas of the company and all good friends and fishing buddies. Hasan has a new concept for rod construction and Martin has perfected a super-strong combination of epoxy resins and fiberglass which make the new rod superior to anything currently on the market. All four friends use one of the new rods and have perfected its construction over a few years. They believe they have a revolutionary product and want to start their business manufacturing the rods. They have everything they will need to begin, including enough money to start the business and get by until the business starts providing positive cash flows. Materials are relatively inexpensive and they have a large stockpile already. The friends already own all the equipment they will need and have a good location secured. They also have trained employees ready to join their business once it is up and running. Which of these disadvantages of start-ups may the friends run up against in trying to launch their new fishing rod company?

name recognition

Which of these is a disadvantage of a start-up?

no revolving credit from suppliers or banks

Contracting with people or companies outside one's business to get work done for the business is known as

outsourcing

Which answer option is a critical risk to success of your business plan?

overlooked competition

An entrepreneur's ________ is most likely to inspire key stakeholders like potential investors, employees, or subcontractors.

passion

Jake is a small business owner of Macho Doors, a manufacturer and installer of garage doors. His business has earned the reputation as a reliable, trustworthy business that makes high quality, long-lasting doors. However, with rising gasoline and wood prices, Jake is finding it hard to maintain the existing quality standards. If he continues with the existing quality standard, his profit margins will go down and he will not be able to hike his employees' salaries; if he inserts panels of lower quality wood the reputation of his business will be lost. These are typically ___________ legitimacy indicators.

product-based

This stage of the business life cycle is characterized by a stable level of sales and profits over several years. The functional areas, the market, and the products or services are all being dealt with consistently and efficiently.

resource maturity stage

__________refers to the size of the market, whereas___________refers to the geographic range covered by the market.

scale;scope

According to the SCAMPER tool, a feature that allows customers to order directly from a website rather than visiting a store is an example of:

substitution

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

tagline

Which of these stages of the business life cycle do most small business never go through?

takeoff stage

Small businesses differ from high-growth ventures in that in small businesses

the preferred source of funding is the owner's own money rather than other people's money