396 Ch. 3

Substitute products

reduce the attractiveness and profitability of an industry.

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.

global

Which statement is an example of a technological trend?

A new computer chip is announced which will allow for miniaturization of many electronic devices.

The quote "Good artists borrow; great artists steal" is the principle that launched which company?

Apple

Based on William A. Sahlman's suggestions, which question about competitors should be answered by the business plan?

Are there ways to co-opt potential or actual competitors by forming alliances?

Carol enjoyed yarn crafts but there were no yarn shops in her small town. She reasoned that there were many others nearby who might appreciate being able to purchase yarns and supplies without a long drive. Within a year her shop was profitable and expanding into larger space.Which of these statements best describes this situation?

Carol turned her hobby into a thriving business.

Drs. James and Janet Baker saw that many people experienced difficulty and frustration when typing, some because of physical disabilities. So they invented a voice recognition software to allow users to talk to the computer. Their ideas have become Dragon Naturally Speaking, a popular talk-to-type software application. Which of these statements describes their startup?

Begin with a problem in mind or a pain you can relieve

Which statement is an example of a political/legal trend?

Congress passes legislation that increases the tax rates on corporations.

A company that is the lowest-cost producer within the market will have what type of strategy?

Cost-based

O-MY-U once had a winning team in every college sport. But athletes graduate and fortunes change. Attendance at the games dropped when the team had a losing season. Bob and Shirley found it difficult to attract enough guests to their bed-and-breakfast to cover their costs. How would Michael Porter explain this?

Demand disappeared.

TV commercials promote reverse mortgages. Other ads promote medications for high blood pressure, ED, immune system disorders, and high cholesterol. Which type of trend do these represent?

Demographic

Verlin worked in a cabinet shop until he became frustrated that his ideas for improving efficiency were falling on deaf ears. So he left and started his own cabinet shop where he could implement those ideas. From which source did his ideas for his startup come?

From work experience

As China's production of exportable goods increases, Chinese workers have more money to spend on consumer items. Other developing countries are experiencing the same growth. Which type of trend does this represent?

Global

Mike and Jane opened a franchise sporting goods store. Neither was athletic; neither had ever managed a retail store; and the business failed within one year. Which statement best explains these results?

They lacked factors critical to the success of the enterprise.

Katarina has founded three different businesses in the past eight years, all of which have become so successful she has sold them at large profits. We can say Katarina is good at:

Opportunity recognition

_____ refers to the way entrepreneurs identify new products or services that may lead to promising businesses.

Opportunity recognition

Miles' startup company began well but within a couple months he found he was unable to pay invoices from suppliers. He didn't understand how he could have this problem. He hired experts; his business idea was sound; and he had many new customers. What went wrong?

Miles lacked cash resources.

Miriam opened a yarn craft store in her small town based on her personal interests and hobbies. There were no competitors locally; the merchandise was readily available; and she had the initial capital to open the store. Yet her business failed. Too few customers visited her store. What was Miriam's fatal flaw?

Miriam ignored the market limitations.

Peggy would like to open a dog grooming business in her home. Which of the following, if true, would indicate this is a good idea?

More households now own dogs but the owners don't want to give them regular baths

Laura discovered to her amazement that the skin oil she sold seemed to repel mosquitos. She relabeled the product and began selling it as alternative to brands such as Cutter and Off!. Laura's startup is which kind?

New benefit idea

Consuela noticed significant growth in the Hispanic population in her mid-size town. The local grocery carried mostly traditional American products. She knew her neighbors would want familiar foods so she decided to open a food market catering to their preferences. Which kind of startup will her store be?

New market idea

When Jeff Bezos launched Amazon.com, his idea of selling items he did not own from a website was unique. Which type of startup is this?

New technology idea

The State of Maryland has recently imposed a "rain tax" based on the amount of non-water absorbing surfaces on real estate. Which type of trend does this represent?

Political/legal

Have you noticed women's footwear recently? Women who still wear high heels favor six-inch spiked or wegdged platform shoes. Which type of trend does this represent?

Sociocultural

Which of the following could be considered a core competency?

Southwest Airlines' ability to make flying fun

Many commuters grab a cup of coffee and drink it during their ride to work. So someone invented specially shaped cups that don't tip and lids with sip openings that close and don't spill. Which of these innovative ways of thinking best fits this situation?

Study an existing product and explore ways to improve its function.

Today's smartphones bear little resemblance to the original analog cell phones of the early 1990s. Their capabilities exceed those of the early desktop computers. It seems nearly every adult carries at least one cell phone. Which of the trends does this represent?

Technological

Which statement is an example of a global trend?

The E.U. declares an increase in tariffs on all agricultural goods.

Which statement is an example of an economic trend?

The Federal Reserve announces that it will decrease the interest rate charged to banks.

Which factor determines the nature and degree of competition in an industry, as identified by Michael Porter in his book Competitive Advantage?

Threat of substitute products or services

Many direct sales organizations suggest that the new "member" begin selling the product part-time while continuing to work at his/her regular job. Which explanation best fits this recommendation?

The business can be tested cheaply and expanded incrementally.

Which action is a cause for erosion of a small firm's focus strategy?

The focus strategy is imitated.

As the success of the athletic teams at O-MY-U skyrocketed, so did attendance at the games. Out-of-town visitors found all the hotels fully booked. So Bob and Shirley opened their home to guests on weekends, operating as a bed-and-breakfast. Soon many of their neighbors did the same and Bob and Shirley found they could no longer fill all their rooms every game weekend. How would Michael Porter explain this?

The focus strategy was imitated.

Which segment is part of the general environment?

The global segment

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?

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.

Observations about the external environment and organizational potentials can be brought together by means of

a SWOT analysis.

An example of an idea for a new startup from a hobby is

a coin collector, who bought and sold coins for years to build a personal collection, deciding to become a coin dealer.

A SWOT analysis can be described best as

a concise overview of the firm's strategic situation.

Arlene runs Technographics, a company that designs greeting cards for computer users. What type of strategy would be expected?

a focus strategy

Intangible resources include:

a good reputation, a respected brand name, and an extensive personal network.

Jeff Bezos' original business plan involved taking orders for books and having the items shipped directly from the publisher to the customer. He modified the plan to include other products such as toys and decided to buy the toys from the producers and ship them from his own warehouse. This modification of the original plan is called:

a pivot.

An example of an idea for a new startup from an accidental discovery is

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.

A focus strategy is best described as

a strategy that isolates the firm from market forces.

Wilma needed wine glasses but all she had were candlestick holders and 8-ounce canning jars. Gluing the two together, she created what she called "mountain crystal" which became a big hit. The local crafters' association asked her to make enough for them to sell, and her business took off. This is an example of building a business from:

accidental discovery.

A computer technician recognizing a need for more atheistically pleasing computers would be said to have entrepreneurial _____.

alertness

Generally speaking, a strategy is

an action plan that guides resource investments.

Noland has identified an underserved market for his product. Competitors are not likely to notice his efforts to attract his target market, and his product fills a need for these customers. Noland has found:

an opportunity sweet spot.

Considering Michael Porter's five factors, the chicken meat processing industry is characterized by:

availability of many substitutes.

Rumpelstiltskin, an imp in a Grimm Brothers fairy tale, could spin straw into gold. We would call this a(n)

capability.

Tangible resources include:

cash, technology, and raw materials.

According to the feasibility analysis framework, an entrepreneur who has a vision of a multi-unit company will

be satisfied with an attractive niche if it would serve as a point of entry for long-term potential.

An inside-out analysis is one that:

catalogs the startup's sources of potential strengths.

A(n) _____ exists when multiple resources are integrated and then deployed to the firm's advantage.

capability

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

combining two businesses into one to create a market opening.

Morris built a thriving business by selling tailor-made clothing at off-the-rack prices. All other custom-clothing stores charge much higher prices. We can say that Morris has a(n)

competitive advantage.

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

cost-based

Milton's Auto Service is a small auto maintenance and repair shop located in a small town in a garage behind Milton's house. Milton doesn't charge as much as auto dealerships so he has a steady stream of local customers. Which of the following best describes Milton's strategy?

cost-based

The two broad strategies for building a competitive advantage are the _____ strategies.

cost-based and differentiation-based

An increase in the bargaining power of suppliers

decreases both the attractiveness and the profitability of the target market.

Kitty-Kat Korner fabric shop caters to the quilters in the region. Nowhere else can a quilter find everything she needs: fabrics, notions, pattern books, even quilting machines and quilting classes. This is not your typical fabric store by any means. Which of the following best describes Kitty-Kat's strategy?

differentiation

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

differentiation-based

Richard could see the demand for towable recreational vehicles declining so beginning in the early 1970s he used his equipment, employees, and professional network to design and build utility trucks, a more recession-resistant industry. This is an example of:

diversification.

For the past several years the borrowing interest rates has been very low in the United States. This is an example of a(n) ______________ trend.

economic

A differentiation-based strategy requires that a firm

emphasize the uniqueness of its product or services.

Isabella listens whenever someone says "Someone ought to make a ..." She expects one of these ideas to develop into a profitable business. Isabella possesses:

entrepreneurial alertness

Israel Kirzner believes entrepreneurs have a unique capability, which he calls _________ ________, to spot existing opportunities for businesses.

entrepreneurial alertness

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

finding a way to adapt a product or service to meet customer needs in a different way.

Kitty-Kat Korner fabric shop caters to the quilters in the region. Other fabric shops carry fabrics for all types of clothing along with floral, yarn, and other craft supplies. Kitty-Kat carries only items related to quilting. Which of the following best describes Kitty-Kat's strategy?

focus

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 limit his efforts to fulfilling the needs of A consumers. He is employing a _____ strategy.

focus

When conducting an outside-in analysis, one should consider the _____ environment followed by the _____ environment.

general; industry

Careful analysis of the competitive environment can result in:

greater financial success of the startup.

An evaluation of the general environment

helps identify a trend that could be used for a possible startup idea.

Considering Michael Porter's five factors, the automotive industry in the United States is characterized by:

high barriers to entry.

Considering Michael Porter's five factors, we can say that the fast food hamburger industry is characterized by:

intense rivalry.

One of the drawbacks of SWOT analysis is:

its focus on present conditions

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

recognizing a hot trend and riding the wave.

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

prior work experience.

Janis wants to open a restaurant. She is not interested in a franchise; she wants to build her business literally from the ground up. When she does, her business will be classified as a:

startup.

Farmers wishing to sell grain cannot negotiate a price; they either accept the price offered or decline to sell their crop. This is an example of:

strong buyers.

The diamond market is monopolized by the DeBeers organization, from mining to cutting and polishing to wholesaling. Jewelers can do little to negotiate prices. This situation typifies:

strong suppliers.

According to Michael Porter, a focus strategy can erode when

the target segment's differences from other segments narrow.

Resources are best described as

those basic inputs that a firm uses to conduct its business.