Module 2

Which of the following is NOT a characteristic of a family business? a. A business that passes from one generation to the next b. A large publicly traded company c. Interdependence of management and family relationships d. Ownership and involvement is by a majority of non-members of the family

d. Ownership and involvement is by a majority of non-members of the family

Franchising offers both a proven line of business and reduced risk

True

New technology ideas involve unique technology that is better than others currently available, it is feasible to implement, and is focused on a market need that is deep enough to generate sufficient sales. a. True b. False

True

Choosing a focus strategy has its advantages, but it can also lead to: a. Competition from other companies that decide to imitate the same strategy. b. Market confusion when a business pursues both low-cost and differentiation alternatives at the same time. c. Market diffusion that results from unrelated product extentions. d. Loss of sales from new market segment combinations.

a. Competition from other companies that decide to imitate the same strategy.

A popular tool for studying the industry environment is Porter's five factors. Which of the following is NOT considered part of the five factors? a. Federal government b. Substitute products and services c. New competitors d. Suppliers

a. Federal government

Which of the following is NOT a characteristic of a family council? a. sharing of achievements b. discussion of future direction c. small, select group of employees d. sharing of family history

c. small, select group of employees

As a franchisee, costs involved in renting or building an outlet and stocking it with inventory and equipment are called a. franchise fees. b. investment costs. c. royalty payments. d. advertising costs.

b. investment costs.

SWOT stands for a. strengths, weaknesses, options, and trade. b. strategies, weaknesses, options, and threats. c. strengths, weaknesses, opportunities, and threats. d. strategies, weaknesses, opportunities, and trade.

c. strengths, weaknesses, opportunities, and threats.

Problems with nepotism include: a. Difficulty in disciplining wayward employee/family members. b. The perception by non-family members that family members are treated differently. c. The fact that it is illegal in most states. d. A and B.

d. A and B.

Which of the following are advantages of buying a franchise as opposed to starting one's own business from scratch? a. Brand recognition b. Use of a recognized trademark c. The operations manual d. All of the above

d. All of the above

The demise of Blockbuster Video stemmed from which of the following vulnerabilities? a. New entrants changed the industry's way of doing things. b. They stuck to an old, established way of doing business instead of innovating. c. Management failed to take into account the increasing feasibility of delivering video online. d. All of the above played a part in their demise.

d. All of the above played a part in their demise.

Which of these involves bringing two franchise brands together under one owner? a. Piggyback franchising b. Master licensee c. Elite entrepreneur d. Co-branding

d. Co-branding

One of the disadvantages of franchising is the inability on part of franchisees to use franchisor's trade name and trademark. a. True b. False

False - this is an advantage

One of the advantages of buying a franchise is that the purchaser has access to a proven business system.

True

___________bring together buyers and sellers of businesses.

Business Brokers

A ______________________ is a business model that involves a business owner who license trademarks and methods to an independent entrepreneur.

Franchise

The ____________commitment of family members refers to ties that extend beyond the financial rewards of being in the business. They include things like solidarity, identification with the family, and a sense of history. Monetary Philosophical Socioemotional Time

Socioemotional

n a family business, the founder's core values may become part of both the business culture and the family code. a. True b. False

True

The purchase price of a business is determined by the negotiation between

Buyer and Seller

Tom took great care in investigating his purchase of an existing business. He was engaging in: a. Growth trend analysis. b. Investigative entrepreneurship. c. Market research. d. Due diligence.

Due Diligence

An inside-out analysis identifies a company's strengths and the competition's weaknesses.

FALSE

A family business's primary function relates to the care and nurture of family members. a. True b. False

False

According to Entrepreneur magazine's "Top Franchises for 2017," McDonald's is not ranked in the top five franchises. a. True b. False

False

Research finds that due to lack of control, franchising is more risky than starting a business from scratch. a. True b. False

False

Core competencies are the same thing as competitive advantage. a. True b. False

False: A competitive advantage gives a startup or small business the upper hand by helping it to provide products or services that customers will choose over available alternatives.

A _________is a meeting of family members held (usually off-premises) to discuss family business matters. Family retreat Family vacation Family feud Family dinner

Family retreat

A ______________________is a preliminary look at how well a business might do if it were opened.

Feasibility analysis

In what way is a franchise's control over the business greatly reduced?

The franchisee is bound by the terms the franchise contract.

A Franchise Disclosure Document (FDD) is a detailed statement of such information as the franchisor's finances, experience, size, and involvement in litigation. a. True b. False

True

A potential advantage of the husband-wife team known as co-preneurs is the opportunity to share more of their lives. a. True b. False

True

An example of a non-quantitative factor in buying a business is future community development. a. True b. False

True

By observing trends in the use of leisure time, technology, or other areas, an entrepreneur can discover potential business ideas.

True

During a feasibility analysis, an entrepreneur may discover a fatal flaw in the idea.

True

The general environment includes rival companies and products.

True

The processing of a loan application can be completed more quickly if the franchising organization is registered with the U.S. Small Business Administration.

True

Using a cost-based strategy, a company would take steps to increase efficiency and hold down costs.

True

The startup cost for a McDonald's franchise is: a. $1-2 million b. $200,000 c. $50,000 d. $20 million

a. $1-2 million

____ refers to startup ideas centered on providing customers with an existing product or service not available in their market. a. New market ideas b. Old market ideas c. New technology ideas d. New benefit ideas

a. New market ideas

Ideas based on selling existing products or services in a new context are called: a. New market ideas. b. Startup ideas. c. New benefit ideas. d. New technology ideas.

a. New market ideas.

Entrepreneurs who receive an entire marketing and management system are participating in a. business format franchising. b. multiple-unit ownership. c. piggyback franchising. d. product and trade name advertising.

a. business format franchising.

Which of the following is NOT a cost normally associated with franchise ownership? a. Initial franchise fee b. A personal vehicle c. Investment costs d. None of the above are costs normally associated with franchise ownership

b. A personal vehicle

Research finds that, generally, the process of succession is usually very fast in a family business. a. True b. False

b. False

Michael opened a franchise restaurant within an existing business. He did what is known as: a. Down drilling b. Hot site locating c. Piggyback franchising d. Nested business launching

c. Piggyback franchising

____ refers to fundamentally refocusing the startup as it unfolds or completely recreating it if the initial concept turns out to be seriously flawed, but already exists elsewhere. a. Serendipity b. Core competencies c. Pivot d. SWOT

c. Pivot

Which of the following is NOT an element of SWOT analysis? a. Weaknesses b. Threats c. Strengths d. Obligations

d. Obligations

The franchising strategy whereby an individual or firm is granted the legal right to own more than one unit of a franchised business is known as

multiple-unit ownership

A Starbucks franchise located inside a Target store is called ___________ franchising.

piggyback

New businesses often find it necessary to _____________ when the original idea is found to have flaws.

pivot

Research finds that the general environment affects large businesses and not the small ones, regardless of the industry. a. True b. False

False

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

False

The overlap of family concerns and business interest in the family firm simplifies management of the business. a. True b. False

False

The practice of putting one franchise right next to another is referred to as piggyback franchising.

False

Unfortunately, a cost-based strategy usually doesn't work for small companies because they don't have the capacity to produce high volumes. a. True b. False

False

Using a focus strategy, a company would focus its attention on producing one product that satisfied the greatest number of customers.

False

When screening new business ideas, the entrepreneur need not focus on the size of the targeted market.

False

The basic features of the relationship between the franchisor and the franchisee are embodied in the broker contract. a. True b. False

False - The franchise contract is the legal agreement between franchisor and franchisee.

The general environment is defined more narrowly as the context for factors that directly impact a given firm and all of its competitors. a. True b. False

False - The industry environment is the environment that includes factors that directly impact a given firm and all of its competitors.

Outside-in analysis should consider the general environment, or big picture, and the industry setting in which the venture might do business. a. True b. False

a. True

In _____ franchising, a franchisor owns the right to a name or trademark and sells that right to a franchisee and often provides a full range of services, including site selection, training, product supply, marketing plans, and even assistance in obtaining financing. a. business format b. multiple-unit ownership c. piggyback d. product and trade name

a. business format

When the franchisor sells another franchise location within the market area of an existing franchisee, it is called a. encroachment. b. churning. c. pivot. d. co-branding.

a. encroachment.

The price at which the property would change hands between a willing buyer and willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts refers to a. fair market value. b. nondisclosure agreement. c. churning price. d. encroachment value.

a. fair market value.

The party in a franchise contract that specifies the methods to be followed and the terms to be met by the other party is called a(n) a. franchisor. b. franchisee. c. local community. d. broker.

a. franchisor.

A pattern of behaviors and beliefs that characterize a particular firm refers to its a. organizational culture. b. family council. c. family-based commitment. d. nepotism.

a. organizational culture.

A(n) _____ business is a venture that is operated by a founding entrepreneur. a. owner-managed b. sibling partnership c. cousin consortium d. family council

a. owner-managed

The primary source of new ideas is a. personal experience. b. personal interest. c. chance happening. d. deliberate search.

a. personal experience.

A family _____ is a gathering of family members, usually at a remote location, to discuss family business matters. a. retreat b. council c. business d. picnic

a. retreat

Relative to Coca-Cola, Pepsi Cola would be considered a _____ to/for Coca Cola under Porter's Five Forces model. a. rivalry b. new competitor c. substitute d. niche

a. rivalry

Which of the following is a consideration in the transfer of ownership in the family firm? a. tax laws b. fair treatment of community members c. delay of transfer of ownership until the death of the founder d. planning and discussion of taking the firm public

a. tax laws

The greatest advantage of buying a franchise is a. the probability of success. b. multiple-unit option. c. piggyback cost sharing. d. Little or no work on part of the franchisee.

a. the probability of success.

____ refers to actions by franchisors to void the contracts of franchisees in order to sell the franchise to someone else and collect an additional fee. a. Multiple-unit ownership b. Churning c. Piggybacking d. Encroachment

b. Churning

The definition of a family used in the context of this chapter is: a. Any set of people who live together. b. People bound by a shared history who are committed to a future together. c. Biological relatives living in the same house. d. People who share the same bloodline.

b. People bound by a shared history who are committed to a future together.

Which of the following is the most frequent source of new ideas for a business? a. Personal hobbies b. Prior work experience c. Education/courses d. Chance

b. Prior work experience

Which of Michael Porter's five factors that determine the nature and degree of competition in an industry describes, "Can customers turn to other products or services to replace those that the industry offers?" a. Rivalry b. Substitute products and services c. New competitors d. Suppliers

b. Substitute products and services

When Subway operates a restaurant within a truck stop, it is an example of _____ franchising. a. business format b. multiple-unit ownership c. piggyback d. product and trade name

c. piggyback

Which of the following is most likely to result in increased self-confidence in grown children who are thinking about entering the family business? a. Looking in the mirror and saying, "You can do it!" b. Succeeding in another firm on one's own. c. Taking the advice of the previous generation in all business matters. d. Reading self-help books.

b. Succeeding in another firm on one's own.

Family businesses are best described as: a. Businesses that hire only family members. b. Those in which the strategic direction of the firm is influenced significantly by family members. c. Businesses that cater to families. d. Companies that sell products and services appropriate for all ages.

b. Those in which the strategic direction of the firm is influenced significantly by family members.

Under the restrictions of _____, the buyer promises the seller that he or she will not reveal confidential information or violate the trust that the seller has offered in providing the information. a. the Federal Trade Commission b. a nondisclosure agreement c. piggyback franchising d. a master licensee

b. a nondisclosure agreement

A small firm that provides low prices due to cost efficiencies is using a a. revenue-based strategy. b. cost-based strategy. c. differentiation-based strategy. d. focus strategy.

b. cost-based strategy.

A formal organization in which family members discuss strategic planning and other issues pertaining to the family business is called a family _____. a. retreat b. council c. consortium d. enclave

b. council

A _____ analysis is a preliminary assessment of a business idea that gauges whether or not the venture envisioned is likely to succeed. a. SWOT b. feasibility c. new technology d. pivot

b. feasibility

Which of the following is NOT information contained in a disclosure document? a. franchisor's financial statements b. franchisor's selling price c. franchisor's financial obligations d. franchisor's involvement in litigation

b. franchisor's selling price

The practice of employing relatives is referred to as a. a family council. b. nepotism. c. co-preneurs. d. a transfer of ownership.

b. nepotism.

If the children of the founder become the owners and managers of the business, that second generation is referred to as a(n) a. owner-managed venture. b. sibling partnership. c. cousin consortium. d. family council.

b. sibling partnership.

An outside-in analysis involves assessing the firm's a. general environment and internal capabilities. b. the general environment and industry environment. c. SWOT. d. resources and core competencies.

b. the general environment and industry environment.

Which of the following is a reason for buying an existing business? a. to eliminate risk b. to acquire an ongoing business at a bargain price c. to start from scratch d. to develop a new product

b. to acquire an ongoing business at a bargain price

Which of the following is NOT considered an advantage of a family business? a. Family members are loyal to the business even in tough times. b. There is a greater level of trust between family members involved in the business. c. Questions of competency from non-family members of the business. d. Family businesses have a long-range plan for future generations.

c. Questions of competency from non-family members of the business.

The predator/parasite conflict can best be described as: a. Tension between family business owners and big companies that want to buy the smaller firm. b. The perception that nonfamily members have less say in business decisions. c. The perception by family members who work in the firm that family members who do not work in the firm are benefitting unfairly and the perception by family members who work outside the firm that inside members are benefiting unfairly. d. Marketing tactics to which some family members object.

c. The perception by family members who work in the firm that family members who do not work in the firm are benefitting unfairly and the perception by family members who work outside the firm that inside members are benefiting unfairly.

Which of the following is NOT a potential problem in the succession of a family business? a. Reluctant parents b. Ambitious children c. The type of business conducted by the firm d. Lack of understanding between parent and child

c. The type of business conducted by the firm

Spotting trends can come from all of the following EXCEPT: a. Using focus groups b. Joining social media groups c. Tinkering with products features alone d. Listening to customers

c. Tinkering with products features alone

A company markets an individual yogurt serving with a collapsible spoon attached to the cup. This firm is pursuing a _____ strategy. a. focus b. cost c. differentiation d. niche

c. differentiation

Garden Hoses, Inc. (GHI) focuses on offering a product that are unique and different from competitors' products. GHI is engaging in the _____ strategy. a. price-based b. cost-based c. differentiation-based d. focus

c. differentiation-based

A statement of principles intended to guide a family firm through times of crisis and change refers to a(n) a. organizational culture. b. cousin consortium. c. family business constitution. d. transfer of ownership.

c. family business constitution.

Sally has opened five successful candy shops and wishes to capitalize on the scalability of her business by franchising. Which of the following should she consider before going that route? a. She should determine whether her business systems are well-defined and replicable. b. She should see if she can get sufficient financing to deploy the franchise. c. She should research government regulations regarding her obligations to disclose certain information to potential franchisees. d. She should do all of the above.

d. She should do all of the above.

Entrepreneur's Top 5 Franchises for 2017 include all of these EXCEPT: a. Dunkin' Donuts. b. Jimmy John's. c. The UPS Store. d. Starbucks.

d. Starbucks.

Recent research findings suggest that companies that are successful in making the transition from one generation to the next are: a. Run by intricate operational guidelines that specify every detail of day-to-day work. b. Those in which the culture keeps "creative" members in line. c. Those that instill a sense in succeeding generations that the founders' way of doing business is sacrosanct. d. Those whose new leaders act on their own, take risks, and support innovation.

d. Those whose new leaders act on their own, take risks, and support innovation.

Members of the succeeding generation in family firms may have emotional resistance to joining the firm which includes all of the following EXCEPT: a. fear of failure. b. fear of Success. c. fear of Commitment. d. fear of Affluence.

d. fear of Affluence

A _____ assessment is focused less on whether industry conditions overall are suitable to launching a new business and more on the probability of a startup's success over the long run. a. new market b. general environment c. new technology ideas d. micro-level industry

d. micro-level industry

Of all the relationships in a family business, the _____ relationship is the most sensitive and troublesome. a. husband-wife b. in-law c. son-daughter d. parent-child

d. parent-child

Accidental discovery involves _____, the facility for making desirable discoveries by accident. a. search b. luck c. investigation d. serendipity

d. serendipity