chapter 6 management

Small businesses have a high failure rate, with as many as

60% to 80% failing within five years; many failures result from poor management.

Somewhere around ________ % of American businesses meet the definition of "small business" used by the Small Business Administration.

99

What is the difference, if any, between a venture capitalist and an angel investor?

A venture capitalist, often a business, makes a living by investing in and taking large ownership interests in fledgling companies, with the goal of large financial gains eventually, when the company is sold. An angel investor is an individual who is willing to make a financial investment in return for some ownership in the new firm.

What is one of the most common reasons why new small business startups often fail?

The founders lack business expertise.

What are the advantages of a limited partnership form of small business ownership?

The limited partnership form of small business ownership consists of a general partner and one or more "limited partners." The general partner(s) play an active role in managing and operating the business; the limited partners do not. All contribute resources of some value to the partnership for the conduct of the business. The advantage of any partnership form is that the partners may share in profits, but their potential for losses is limited by the size of their original investments.

What are the major stages in the life cycle of an entrepreneurial firm, and what are the management challenges at each stage?

The three stages in the life cycle of an entrepreneurial firm are birth, breakthrough, and maturity. In the birth stage, the leader is challenged to get customers, establish a market, and find the money needed to keep the business going. In the breakthrough stage, the challenges shift to becoming and staying profitable, and managing growth. In the maturity stage, a leader is more focused on revising/maintaining a good business strategy and more generally managing the firm for continued success, and possibly for more future growth.

A new startup should be guided by

a good business plan that describes the intended nature of the business, how it will operate, and how financing will be obtained

The people who take ownership shares in new ventures in return for providing the entrepreneurs with critical start-up funds are called ________.

angel investors

At which stage in the life cycle of an entrepreneurial firm does the underlying business model begin to work well and growth starts to occur?

breakthrough

1. ________ is among the personality characteristics commonly found among entrepreneurs.

confidence

In ________ financing, a business owner borrows money as a loan that must eventually be repaid to the lender along with agreed-upon interest.

debt

Two basic ways of financing a new venture are through

debt financing—by taking loans, and equity financing—exchanging ownership shares in return for outside investment in the venture.

A venture capitalist who receives an ownership share in return for investing in a new business is providing ________ financing.

equity

The first component of a good business plan is usually a/an ________.

executive summary of mission and business model

When a new business is quick to act and captures a market niche before competitors, this is called ______

first-mover advantage

An important choice is the

form of business ownership for a new venture, with the proprietorship, corporate, and limited liability forms offering different advantages and disadvantages

When a business owner sells to another person the right to operate that business in another location, this is a business form known as a

franchise

When a small business is just starting up, the business owner is typically most focused on _

gaining acceptance in the marketplace

When an entrepreneur is comfortable with uncertainty and willing to take risks, these are indicators of someone with a(n) ______

high tolerance for ambiguity

an angel investor

is a wealthy individual who is willing to invest money in return for equity in a new venture.

Entrepreneurial firms tend to follow the

life-cycle stages of birth, breakthrough, and maturity, with each stage offering new and different management challenges.

The ________ form of small business ownership protects owners from any personal losses greater than their original investments; while the ________ form separates them completely from any personal liabilities.

limited partnership, corporation

Venture capitalists

pool capital and make investments in new ventures in return for an equity stake in the business

Entrepreneurship is

risk-taking behavior that results in the creation of new opportunities.

A serial entrepreneur is someone who .

starts and runs businesses and other organizations one after another

If a new venture has reached the point where it is pursuing an IPO, the firm is most likely ________

successful enough that the public at large will want to buy its shares

A small business owner who is concerned about passing the business on to heirs after retirement or death should prepare a formal ________ plan.

succession

A classic entrepreneur is someone who

takes risks to pursue opportunities in situations that others may view as problems or threats.