CHAPTER 9: ASSESSMENT OF ENTREPRENEURIAL OPPORTUNITIES

TRUE/FALSE

1. During the last few years, the number of new start-up ventures is approximately 1500 per day.

ANS: T PTS: 1 NAT: AACSB Analytic | Environmental Influence

KEY: pg 258

2. The entrepreneurial motivations of individuals relate to the entrepreneur, the environment, and the
venture.

ANS: T PTS: 1 NAT: AACSB Analytic | Environmental Influence

KEY: pg 258

3. There is a great abundance of reliable data concerning the start-up, performance, and failure of new
ventures.

ANS: F PTS: 1 NAT: AACSB Analytic | Environmental Influence

KEY: pg 259

4. Many entrepreneurs do not understand the marketing life cycle of a new product.

ANS: T PTS: 1 NAT: AACSB Analytic | Environmental Influence

KEY: pg 259

5. Most entrepreneurs are objective when they evaluate their new idea.

ANS: F PTS: 1 NAT: AACSB Analytic | Environmental Influence

KEY: pg 259

6. Most entrepreneurs are well schooled in the technology associated with their ventures.

ANS: F PTS: 1 NAT: AACSB Analytic | Environmental Influence

KEY: pg 259

7. Pricing becomes less of a concern when customers become aware of a products unique characteristics
that are superior to the competition.

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KEY: pg 259

8. Most entrepreneurs hire lawyers to brief them on the legal issues surrounding a new venture.

ANS: F PTS: 1 NAT: AACSB Analytic | Environmental Influence

KEY: pg 261

9. There are five specific phases a new venture goes through.

ANS: F PTS: 1 NAT: AACSB Analytic | Environmental Influence

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copied, or distributed without the prior consent of the publisher.
 KEY: pg 263

10. With a non-routine venture, the initial innovation will maintain the companys competitive advantage
without new technology.

ANS: F PTS: 1 NAT: AACSB Analytic | Environmental Influence

KEY: pg 264

11. In the life-style venture, independence, autonomy, and control are the primary driving forces.

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KEY: pg 264

12. The decision of an entrepreneur to ignore the market is a safe one if he or she is sure that the idea will
be a success.

ANS: F PTS: 1 NAT: AACSB Analytic | Environmental Influence

KEY: pg 265

13. The growth pattern of sales is critical for an entrepreneur to make correct forecasts.

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KEY: pg 264

14. Only a small percentage of new ventures succeed.

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KEY: pg 265

15. Timing has little to do with the success or failure of a new venture.

ANS: F PTS: 1 NAT: AACSB Analytic | Environmental Influence

KEY: pg 265

16. Obtaining external financing is considered one of the major types of problems for a new venture
during its first year.

ANS: T PTS: 1 NAT: AACSB Analytic | Environmental Influence

KEY: pg 266

17. Two important factors classified by Bruno as managerial that could be a cause for failure include
resource problems and team approach.

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KEY: pg 265

18. Proper understanding of the market will help an entrepreneur avoid failure with a new venture.

ANS: T PTS: 1 NAT: AACSB Analytic | Environmental Influence

KEY: pg 271

19. Intensity of competition changes the dominance of problem areas.

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copied, or distributed without the prior consent of the publisher.
 ANS: T PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 267

20. Solid analysis and evaluation of the feasibility of the product/service idea are critical tasks in starting a
new business.

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KEY: pg 269

21. A product does not have to be patented in order to be introduced into the marketplace.

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KEY: pg 270

22. The evaluation process must be done by a research firm.

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KEY: pg 269

23. Overall market understanding rather than time consuming focus on market niches is sufficient for an
evaluation.

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KEY: pg 269

24. A feasibility criteria approach focuses strictly on the financial feasibility of a new venture.

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KEY: pg 270

25. Feasibility analyses include the technical, market, financial, organizational, and competitive analyses.

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KEY: pg 271

MULTIPLE CHOICE

1. It is reported that new firms have emerged in the United States every year since the early
1990s.
a. 600,000 c. 22,000
b. 100,000 d. 230,000
ANS: A PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 258

2. The entrepreneurial motivations of individuals usually relate to which of the following factors?
a. the environment c. the venture
b. the entrepreneur d. all of the above
ANS: D PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 258

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copied, or distributed without the prior consent of the publisher.
 3. Researchers have described a fully developed new firm with a number of characteristics including:
a. requires the full time commitment c. has not hired any individuals
b. has formal financial support d. a and b both apply
ANS: D PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 259

4. Many entrepreneurs lack for their new venture.

a. innovation c. objectivity
b. intelligence d. both a and b
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KEY: pg 259

5. Which of the following is critical to a products success?

a. timing c. objectivity
b. marketing approach d. all of the above
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KEY: pg 259

6. When a customer sees a product that is superior to its competitors, ______ becomes less important.
a. size c. quantity
b. color d. price
ANS: D PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 261

7. A new venture should be

a. cheap. c. easy to copy.
b. unique. d. inferior to its competitors.
ANS: B PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 261

8. A common pitfall in selecting a new venture is

a. poor financial understanding. c. real insight into the market.
b. proper objective evaluation. d. none of the above.
ANS: A PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 259

9. Timing is especially critical in which area?

a. the new venture profitability method c. accounting
b. marketing d. the economy
ANS: B PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 259

10. Many entrepreneurs lack

a. knowledge of their product. c. drive.
b. venture uniqueness. d. the willingness to put in long hours.

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 ANS: B PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 261

11. Name the pitfall described by the statement, Engineers and technically trained people are particularly
prone to falling in love with an idea for a product or service.
a. inadequate understanding of technical requirements
b. lack of venture uniqueness
c. no real insight into the market
d. lack of objective evaluation
ANS: D PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 259

12. Poor financial understanding for an entrepreneur would be characterized by which of the following?
a. failure to anticipate technical difficulties
b. inadequate understanding of costs and funding requirements
c. failure to realize the life cycle of a product
d. lack of product differentiation
ANS: B PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 259

13. A new venture must go through phases.

a. five c. three
b. two d. seven
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KEY: pg 263

14. During the pre-start-up phase of a new venture, which of the following are among the crucial five
factors for success?
a. uniqueness of venture. c. a & b.
b. expected growth. d. price.
ANS: C PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 263

15. Sales growth is a critical factor in the

a. pre-start-up phase. c. start-up phase.
b. post-start-up phase. d. evaluations phase.
ANS: C PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 264

16. Many ventures fit into which of the following classifications?

a. hobby ventures c. high-growth ventures
b. smaller copycat ventures d. survival ventures
ANS: C PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 264

17. Three specific phases that a new venture goes through are
a. pre-start-up, start-up, post-start-up.
b. start-up, post-start-up, evaluation.

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 c. beginning start-up, start-up, ending start-up.
d. pre-start-up, start-up, evaluation.
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KEY: pg 263

18. Lack of finished product availability can affect

a. the companys image. c. both a and b.
b. the success of any venture. d. costs.
ANS: C PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 264

19. Ronstadt notes that the decision to ignore the market is

a. a smart one. c. an extremely risky one.
b. a fairly risky one. d. a critical one.
ANS: C PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 265

20. Financial considerations play a major role in

a. lifestyle ventures. c. high-growth ventures.
b. smaller profitable ventures. d. corporate debentures.
ANS: B PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 264

21. The amount of capital required to start a new venture .

a. can vary considerably depending upon the industry
b. is generally the same for all start-ups
c. is never available
d. will always be a small number
ANS: A PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 264

22. Independence and autonomy are the major driving forces behind which of the following types of
ventures?
a. small unprofitable ventures c. life-style ventures
b. corporate ventures d. high-growth ventures
ANS: C PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 264

23. The type of venture that is expected to attract venture capital would most likely be a
a. corporate venture. c. life-style venture.
b. high-growth venture. d. smaller venture.
ANS: B PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 264

24. What is a critical consideration when assessing customer availability?

a. amount of products sold
b. length of time needed to determine who the customers are and what their buying habits are

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 c. the exact profitability of the venture
d. all of the above
ANS: B PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 265

25. Bruno identifies which of the following as a factor contributing to new venture failure?
a. product/market problems. c. personality clashes.
b. family issues. d. good management/poor product.
ANS: A PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 265

26. One of the external problems new ventures face is

a. vandalism c. government regulations
b. poor labor force d. market knowledge
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KEY: pg 267

27. In recent studies of new venture problems, the most dominant problems at start-up were:
a. regulatory environment c. production/operations
b. sales/marketing d. none of the above
ANS: B PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 266

28. In recent studies of new venture problems, the most dominant problems during the growth stage were:
a. sales/marketing c. regulatory environment
b. organization design d. none of the above
ANS: A PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 266

29. Using the Failure Prediction Model illustrated in the chapter, the risk of failure can be reduced by:
a. using less debt as initial financing and generating revenue in the initial stages.
b. using more debt as initial financing and generating less revenue in the initial stages.
c. using more revenue to enhance more debt in the initial stage.
d. all of the above.
ANS: A PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 268

30. Which of the following are major reasons for the failure of a new venture?
a. inadequate market knowledge c. opening in the wrong location
b. good product performance d. good product/poor marketing
ANS: A PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 267

31. Product/market problems include which of the following?

a. venture capital relationship problems c. concept of a team approach
b. unclear business definition d. assuming debt too early

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copied, or distributed without the prior consent of the publisher.
 ANS: B PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 265

32. Hiring and promotions on the bases of nepotism rather than qualification fall under the managerial
problem of
a. human resource problem. c. unclear business definition.
b. the concept of a team approach. d. poor management.
ANS: B PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 265

33. A common human resource problem is

a. poor relationships with parent companies and venture capitalists.
b. incompetent support professionals.
c. inflated owner ego.
d. incompetent work force.
ANS: C PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 266

34. Rapid technological advances in many industries cause a concern for in new venture
development.
a. faulty product performance
b. rapid product obsolescence
c. inadequate awareness of competitive pressures
d. undercapitalization
ANS: B PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 271

35. When premature entry into the marketplace causes the failure of a new venture, it can be termed
a. poor timing. c. a design problem.
b. good timing. d. a distribution problem.
ANS: A PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 265

36. A solid analysis is

a. a critical task in starting a new business.
b. of no importance.
c. no way to discover flaws in the new venture idea.
d. both a and c.
ANS: A PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 269

37. Which of the following are key questions to ask when screening an idea?
a. Is it proprietary? c. What are its points of discussion?
b. Can it easily make money? d. All of the above are correct.
ANS: A PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 270

38. The results of a profile analysis enable the entrepreneur to judge

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 a. himself or herself. c. the potential of the business.
b. the competition. d. venture capital opportunities.
ANS: C PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 269

39. A checklist approach allows the entrepreneur to identify major strengths and weaknesses in
factors of a new venture.
a. the financial c. the organizational
b. the marketing d. all of the above
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KEY: pg 270

40. Failure of a new venture can be avoided

a. by being a high risk taker. c. through both a and c.
b. through a careful profile analysis. d. through none of the above.
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KEY: pg 270

41. In determining the potential market, one must look into the future.
a. one year c. ten years
b. three to five years d. three months
ANS: B PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 270

42. Which of the following are questions an entrepreneur can ask to gain insight into the viability of a
venture?
a. Is it proprietary? c. Is the potential market large?
b. Are the initial production costs realistic? d. All of the above are correct.
ANS: D PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 270

43. Functional design of the product and attractiveness in appearance are an aspect of
a. technical feasibility. c. marketability.
b. financial feasibility. d. organizational competence.
ANS: A PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 271

44. The comprehensive feasibility approach is closely related to

a. the preparation of a thorough financial plan
b. initial customers
c. calendar times
d. good product design
ANS: A PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 272

45. Market feasibility analysis relies on

a. organizational competence

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 b. the entrepreneurs vision
c. venture capital
d. general economic trends and competitor data
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KEY: pg 271

46. General sources for a market feasibility analysis include

a. reliability studies. c. pricing data.
b. statistical analyses. d. supplier data.
ANS: C PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 272

47. In shaping the ultimate success or failure of a new venture, which of the following statements applies
the best?
a. A single strategic variable is usually responsible.
b. A single strategic variable is seldom responsible.
c. A single strategic variable will change.
d. A single strategic variable influences the entire outcome.
ANS: B PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 269

48. Product design, reliability, and safety are all examples of

a. technical feasibility c. assessment of the entrepreneurial profile
b. market feasibility d. a good product
ANS: A PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 271

49. Which evaluation method enables an entrepreneur to judge the potential of the business?
a. the entrepreneurial analysis method c. the profile analysis
b. the venture analysis method d. the net out-of-pocket cost method
ANS: C PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 269

50. An approach developed as a criteria selection list from which entrepreneurs can gain insights into the
viability of their venture is the
a. feasibility criteria approach. c. marketability feasibility approach.
b. time-essence of a venture approach. d. comprehensive feasibility approach.
ANS: A PTS: 1 NAT: AACSB Analytic | Environmental Influence
KEY: pg 270

SHORT ANSWER

1. Explain three major reasons why new ventures fail.

ANS:

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copied, or distributed without the prior consent of the publisher.
 The first reason new ventures often fail is poor timing for the start of a new venture. A new product
might be put on the market before a real need for the item exists or it may be introduced too late, when
there is little demand for the product. The second reason is rapid product obsolescence. The life of a
product needs to be assessed as important discoveries are always being made in updating the products
usefulness. The third reason is faulty product performance. Tests have not been conducted
appropriately for the product or quality has not been adequately controlled.

PTS: 1 NAT: AACSB Analytic | Environmental Influence

2. List and describe three pitfalls in selecting a new venture.

ANS:
The first pitfall in selecting a new venture is lack of objective evaluation. Ideas for products or
services lack the careful planning measures to bring them up to their proper potential. The second
pitfall is the lack of real insight into the market; a failure on the part of managerial staff to realize the
full potential and life cycle of the product from the beginning. The third pitfall concerns the lack of
venture uniqueness. There is no specific characteristic to set the business apart from competitors in the
same field.

PTS: 1 NAT: AACSB Analytic | Environmental Influence

3. What are three critical factors in a new venture assessment?

ANS:
One of the critical factors in a new venture assessment is the basic feasibility of the venture. A venture
has to operate within the realm of reality and it must also be a legitimate business venture. A second
critical factor is the buyer decisions in the venture. Decisions as to customer identification in terms of
location and specific classification of customers will be served by this venture. The third critical factor
is the competitive advantages of the venture. Basically, this is comparing a venture with the
competitors. The venture must have advantages that are not available to the competitions realm of
business.

PTS: 1 NAT: AACSB Analytic | Environmental Influence

4. What are the five specific feasibility phases that a new venture will go through?

ANS:
The first phase is finding out technical feasibility. The feasibility measured is whether the product or
service will meet all technical criteria and tests for serviceability that are measurable. The second
phase concerns marketability. Different tests are used to assure the success of the product or service
rendered. This product must be salable and marketable to the public with a plan for promoting,
pricing, and distributing the product to consumers or customers. The third phase is financial
feasibility. Required finances are compared to available financial resources. The fourth phase deals
with organizational capabilities as far as the personnel needs and requirements. The final phase is the
competitive analysis of existing, as well as potential, competitors.

PTS: 1 NAT: AACSB Analytic | Environmental Influence

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copied, or distributed without the prior consent of the publisher.