Q&A Hero

Q: Which of the following statements is incorrect regarding equity funding? A) Equity investors expect to get their money back, along with a substantial capital gain, through the sale of their stock. B) Angel investors are a common source of equity funding. C) Equity funding is not a loan. D) Equity investors are very demanding. E) Equity investors fund the majority of the plans they consider.

Q: Equity investors typically have a ________ investment horizon. A) 1 to 3 year B) 2 to 4 year C) 3 to 5 year D) 4 to 6 year E) 5 to 7 year

Q: Which of the following is not a source of equity funding? A) initial public offering B) angel investors C) private placement D) venture capital E) government grants

Q: Equity financing (or funding) means: A) exchanging partial ownership in a firm, usually in the form of stock, for funding B) getting a grant or outright gift C) getting a loan D) getting a lease E) getting a loan guarantee

Q: Which of the following was not identified in the textbook as a common (and sound) bootstrapping strategy? A) coordinate purchases with other businesses B) hire interns C) minimize personal expenses D) buy rather than lease equipment E) obtain payments in advance from customers

Q: Amy Clark just opened a soup and salad restaurant near Golden Gate Park in San Francisco. Rather than borrow money or raise funds from investors, Amy used her creativity and ingenuity and figured out how to get her business up and running without the need for external funding. Amy is utilizing a technique referred to as: A) networking B) reaching C) scrounging D) prospecting E) bootstrapping

Q: Bill and Megan Tempelton are planning to open a smoothie restaurant near a large soccer complex in Greeley, Colorado, and need $75,000 to get started. They have $15,000 of their own money, which leaves $60,000. After getting turned down by a couple of banks, they decided to turn to their relatives and acquaintances for help. Fortunately, they were able to raise the money through a gift from Bill's grandfather, a loan from Megan's parents, and a small investment by Bill's best friend in college, Kevin. The money that an entrepreneur raises in this manner is referred to as: A) friends and family B) bootstrapping C) networking money D) compassion money E) legacy money

Q: According to the textbook, beyond their own funds, the second source of funds for many new ventures is: A) government grants B) business angels C) friends and family D) banks E) venture capital

Q: Jason Graham's startup, which is in the electronics industry, was launched on January 1, 2009. However, prior to its formal launch, Jason spent many hours working on his business, particularly during the feasibility analysis stage. The time and effort that entrepreneurs put into their venture, that can't be easily measured from a financial point of view, is referred to as: A) effort equity B) intangible equity C) sweat equity D) worry equity E) fret equity

Q: According to our textbook, the seed money that gets a company off the ground typically comes from: A) angel investors B) venture capitalists C) commercial banks D) governmental agencies E) the founders of the firm

Q: For startup firms, some products are under development for years before they generate earnings. The upfront costs often exceed a firm's ability to fund these activities on its own. Which of the following reasons that motivate firms to seek funding or financing is illustrated in this example? A) cash flow challenges B) marketing costs C) capital investments D) personnel costs E) lengthy product development cycles

Q: Peter Simmons owns an electronic games company. Although Peter's game designers and programmers are very good, it takes 2-3 years to develop a good electronic game. This example illustrates the need for funding or financing referred to as: A) personnel costs B) marketing costs C) costs associated with building a brand D) lengthy product development cycles E) cash flow challenges

Q: For startup firms, the cost of buying real estate, building facilities, and purchasing equipment often exceeds the firm's ability to provide funds for those needs on its own. Which of the following reasons that motivate firms to seek funding or financing is illustrated in this example? A) lengthy product development cycles B) costs associated with building a brand C) cash flow challenges D) capital investments E) personnel costs

Q: In startup firms, inventory must be purchased, employees must be trained and paid, and advertising must be paid for before cash is generated from sales. Which of the following reasons that motivate firms to seek funding or financing is illustrated in this example? A) cash flow challenges B) marketing costs C) personnel costs D) capital investments E) lengthy product development cycles

Q: The three reasons startups need funding are: A) cash flow challenges, capital investments, and lengthy product development cycles B) business research, cash flow challenges, and costs associated with building a brand C) bonuses for members of the new venture team, attorney fees, and lengthy product development cycles D) attorney fees, capital investments, and marketing research E) bonuses for members of the new venture team, marketing research, and personnel costs

Q: Kimberly Jones is the founder of a company in the medical equipment industry. Kimberly's firm is still in the feasibility analysis stage and doesn't have a product that is ready to sell. The company is spending about $25,000 per month and expects to maintain that level of spending until it reaches profitability. The $25,000 a month is Kimberly's: A) consumption rate B) utilization rate C) burn rate D) usage rate E) liquidity rate

Q: According to the textbook, many entrepreneurs go about the task of raising capital haphazardly because: A) they are uncomfortable talking about money and they haven't written a business plan B) they lack experience in this area and because they don't know much about their choices C) they are focused on the nuts and bolts of starting their business D) they haven't completed a feasibility analysis or business plan E) they are intimidated by the process and they are unsure of how much money they need

Q: inDinero, the company profiled in the opening feature for Chapter 10, is described by its cofounders as "the fastest way for small businesses to manage their finances." Which of the following is not true about inDinero's founding story?A) In 2009, inDineor's founders applied to TechStars, which is a Boulder, CO-based seed-stage fund/incubator, and were turned down.B) The idea for inDinero originated in mid-2009 while its cofounders were still in college.C) In April 2010, the founders of inDinero applied to Y Combinator, an organization that provides seed-stage funding, mentorship, and networking opportunities to participants, and were turned down.D) inDinero reportedly has over 15,000 users .E) In late 2009 and early 2010, the founders of inDinero tried to raise angel funding and were unsuccessful.

Q: What is SCORE? What is its role in helping a firm fill out its new venture team?

Q: What is a skills profile and what is it used for?

Q: What is the difference between a heterogeneous and a homogeneous founding team? Which type of team has the advantage?

Q: Are more firms started by individuals or founding teams? What are the advantages to founding a firm as a team rather than as an individual?

Q: Describe the term "liability of newness" and suggest several ways that a new venture can overcome this handicap.

Q: SCORE is a for-profit organization that provides consulting services to small businesses.

Q: Consultants fall into two categories: paid consultants and consultants who are made available for free or at a reduced rate through a nonprofit or government agency.

Q: More people are willing to serve on a company's board of directors than board of advisors.

Q: Most boards of advisers have between 3 and 5 members.

Q: The fact that a corporation has a board of directors precludes it from having a board of advisors.

Q: An advisory board can be established for general purposes or can be set up to address a specific need.

Q: Similar to a board of directors, an advisory board possesses legal responsibility for the firm.

Q: An advisory board is a panel of experts who are asked by a firm's managers to provide counsel and advice on an ongoing basis.

Q: Although a board of directors has formal governance responsibilities, its most useful role is to provide guidance and support to the firm's managers.

Q: An increasingly important approach for recruiting employees is via social media sites like LinkedIn, Facebook, and Twitter.

Q: A skills profile is a chart that depicts the most important skills that are needed and where skills gaps exist.

Q: Networking is building and maintaining relationships with people whose interests are similar or whose relationship could bring advantages to a firm.

Q: Relevant industry experience is a poor predictor of future entrepreneurial performance.

Q: Prior entrepreneurial experience, relevant industry experience, and networking are attributes that strengthen the chances of a founder's success.

Q: Homogeneous teams are diverse in terms of their abilities and experiences.

Q: Founding teams that have worked together before, as opposed to teams that are working together for the first time, have an edge.

Q: It is generally believed that new ventures started by an individual have an advantage over those started by a team.

Q: Studies show that more than one individual starts 80 to 90 percent of all new firms.

Q: The term "liability of newness" refers to the fact that companies often falter because the people who start the firms can't adjust quickly enough to their new roles and because the firms lack "track records" with outside buyers and suppliers.

Q: A new venture team is the group of founders, key employees, and advisers that move a new venture from an idea to a fully functioning firm.

Q: Which of the following is incorrect regarding the typical role of consultants in business startups? A) give professional advice B) international consulting firms, like Accenture and Bearing Point, are financially beyond the reach of most small firms C) consultants fall into two categories: paid consultants and consultants who are made available for free D) give expert advice E) help manage the day-to-day activities of the firm

Q: The Partnering for Success feature in Chapter 9 focuses on iConclude, a company that set up a customer advisory board. The main point of the feature is:A) the proper time to set up a customer advisory board is just after a business has been launchedB) the members of a firm's customer advisory board should be as diverse as possibleC) a customer advisory board can be a good source of new product or service ideasD) the main purpose of a customer advisory board is to assess customer satisfactionE) setting up a customer advisory board before a business is launched can be a useful way of getting feedback while a product is being developed

Q: According to the textbook, most boards of advisers have between: A) 5 and 15 members B) 2 and 4 members C) 10 and 18 members D) 2 and 3 members E) 4 and 7 members

Q: Which of the following statements about advisory boards is incorrect? A) If a firm has a board of directors it is not permitted to have an advisory board. B) Many people are more willing to serve on a company's board of advisors than its board of directors because it requires less time and there is no potential legal liability involved. C) Most boards of advisers have between 5 and 15 members. D) A growing number of startups are forming advisory boards. E) An advisory board can be established for general purposes or can be set up to address a specific issue or need.

Q: Which of the following statements about advisory boards is incorrect? A) The fact that a corporation has a board of directors does not preclude it from establishing one or more advisory boards. B) An advisory board can be established for general purposes or can be set up to address a specific issue or need. C) Similar to a board of directors, an advisory board has legal responsibility for the firm in certain areas. D) An advisory board is a panel of experts who are asked by a firm's managers to provide counsel and advice on an ongoing basis. E) A growing number of startups are forming advisory boards.

Q: Amy Phillips founded a cosmetics firm several years ago. Her firm has grown rapidly and is financially successful. One thing that Amy attributes her success to is that early on she assembled a panel of experts who provided her ongoing direction and advice about her business. What Amy created is called a(n): A) consultation panel B) suggestion panel C) idea board D) accountability panel E) advisory board

Q: William Woods recently launched a printing company. One thing William is thinking about creating is a panel of experts who can provide him ongoing direction and advice regarding the future of his business. William is thinking about creating a(n): A) analysis panel B) discussion board C) advisory board D) suggestion panel E) accountability panel

Q: A(n) ________ is a panel of experts who are asked by a firm's managers to provide counsel and advice on an ongoing basis. A) consultation board B) idea panel C) counseling panel D) advisory board E) suggestion panel

Q: Which of the following was not identified in the textbook as an attribute of an effective board member? A) strong personal and professional networks B) unknown in their field C) investment and/or operating experience D) ability and willingness to mentor the CEO and the top managers of the firm E) pattern recognition skills

Q: Which of the following was not identified in the textbook as an attribute of an effective board of directors? A) homogeneous set of experiences and talents B) customer-focused point of view C) ability and willingness to stand up to the CEO and top managers of the firm D) strong communication with the CEO E) decisiveness

Q: Melissa Jones just launched a firm in the wireless communications industry. Shortly after the company was launched, Melissa announced that a prominent Silicon Valley venture capitalist had agreed to serve on her board of directors. Melissa knows that such a high quality appointment will send an important message to her potential business partners and clientele. This phenomenon is referred to as: A) trumping B) championing C) profiling D) signaling E) indicating

Q: Andy Zackery just launched a firm in the sporting goods industry. On the day the company was launched, Andy issued a press release, indicating that the vice president of Brunswick, a highly respected sporting goods company, had agreed to serve on his board of directors. Andy knows that such a high quality appointment will send an important message to his potential clientele. This phenomenon is referred to as: A) championing B) signaling C) profiling D) indicating E) trumping

Q: According to the textbook, although a board of directors has formal governance responsibilities, its most useful role is to: A) provide guidance and support to the firm's managers B) submit papers on behalf of the firm to the SEC C) represent the firm in public relations activities D) conduct the firm's annual meeting E) provide funding to the firm

Q: Which of the following statements is incorrect regarding boards of directors? A) If a new venture organizes as a corporation, it is not legally required to have a board of directors, but it is strongly recommended. B) A board is typically made up of both inside and outside directors. C) The board is responsible for declaring dividends. D) Most boards meet formally three or four times a year. E) The boards for publicly traded companies are required by law to have audit and compensation committees.

Q: A board of directors has three formal responsibilities: appoint the officers of the firm, declare dividends, and: A) write the firm's strategic plan B) conduct the annual meeting C) provide funding for the firm D) represent the firm in public relations activities E) oversee the affairs of the corporation

Q: A board of directors has three formal responsibilities: appoint the officers of the firm, oversee the affairs of the corporation, and: A) conduct the annual meeting B) provide funding for the firm C) submit the firm's annual report to the stockholders D) declare dividends E) write the firm's strategic plan

Q: A board of directors has three formal responsibilities: A) periodically update the firm's business plan, declare dividends, and write the firm's marketing plan B) appoint the officers of the firm, declare dividends, and oversee the affairs of the corporation C) write the firm's strategic plan, declare dividends, and conduct the annual meeting D) appoint the officers of the firm, conduct the annual meeting, and submit the firm's annual report to the Securities & Exchange Commission E) provide funding to the firm, write the firm's strategic plan, and submit the firm's annual report to the Securities & Exchange Commission

Q: Keith Barnes is a general partner in a venture capital firm that just funded South Florida Software, a software firm in Coral Gables, Florida. South Florida Software is incorporated, and Keith has taken a seat on the firm's board of directors. In board of directors terminology, Keith is a(n): A) subordinate director B) senior director C) distant director D) inside director E) outside director

Q: James Williams is the Chief Operating Officer of a startup in the health food industry. He is also a member of his firm's board of directors. In board of directors terminology, James is a(n): A) inside director B) outside director C) expert director D) junior director E) senior director

Q: In the context of boards of directors, a(n) ________ is someone who is not employed by the firm. A) outside director B) inside director C) external director D) impartial director E) peripheral director

Q: In the context of boards of directors, a(n) ________ is a person who is also an officer of the firm. A) outside director B) junior director C) inside director D) expert director E) senior director

Q: A board of directors is typically made up of both inside and ________ directors. A) leading B) subordinate C) specialist D) outside E) impartial

Q: The panel of individuals who are elected by a corporation's shareholders to oversee the management of the firm is called the: A) board of advisors B) accountability panel C) advisory team D) panel of directors E) board of directors

Q: A board of directors is typically made up of both: A) junior and senior directors B) inside and outside directors C) experienced and inexperienced directors D) novice and expert directors E) paid and unpaid directors

Q: Kate Harrison is in the process of launching an educational services firm. She plans to incorporate the firm. Because the firm will be incorporated, Kate is legally required to have a: A) board of investors B) board of advisors C) customer advisory board D) board of directors E) panel of advisors and peers

Q: If a new venture organizes as a corporation, it is legally required to have a(n) ________, which is a panel of individuals who are elected by a corporation's shareholders to oversee the management of the firm. A) board of advisors B) review team C) team of advisors D) accountability panel E) board of directors

Q: A 2011 survey conducted by the University of Maryland's School of Business and Network Solutions asked small business owners how well they competed with other companies for good employees, and only ________ said they were successful. A) 16 percent B) 28 percent C) 30 percent D) 46 percent E) 66 percent

Q: The Savvy Entrepreneurial Firm feature in Chapter 9 focuses on how business founders overcome a lack of business experience. Which of the following was not mentioned as a practical way for a new business founder to overcome a lack of business experience?A) hiring consultants from a major consulting firm, like Bain & Company or McKinsey & CompanyB) taking on a partner that has business experienceC) getting help from a Small Business Development CenterD) joining a Meetup groupE) participating in online forums

Q: A skills profile is a chart that depicts the: A) preferable skills and abilities of the members of a firm's board of advisors B) preferable skills and abilities of the members of a firm's board of directors C) most important skills that are needed in a business startup and where skills gaps exist D) skills and abilities that will be needed for a firm to maintain an aggressive growth strategy E) the skills of a company's customers and how those skills impact the product and services a company provides

Q: Jason Andersen just finished writing a business plan for a new type of office supply store. One thing Jason included in the "Management Team & Company Structure" section of his business plan is a chart that depicts the most important skills that are needed for his business and where skills gaps exist. Jason included a(n)________ in his business plan. A) skills profile B) talent report C) abilities profile D) expertise report E) talent summary

Q: A(n) ________ is a chart that depicts the most important skills that are needed in a new venture and where skills gaps exist. A) expertise report B) talent profile C) abilities summary D) skills profile E) talent summary

Q: Ned Kite is a four time business owner. One thing that has served Ned well throughout his entrepreneurial career is his ability to build and maintain relationships with people whose interests are similar or whose relationships could bring advantages to his new ventures. According to the textbook, Ned is a good: A) networker B) socializer C) linker D) assembler E) connector

Q: The process of building and maintaining relationships with people whose interests are similar or whose relationship could bring advantages to the firm is called: A) linking B) socializing C) networking D) associating E) connecting

Q: Which of the following qualities was not identified in the textbook as a preferred attribute of the founder or founders of a firm? A) prior entrepreneurial experience B) firm started by a team C) relevant industry experience D) prior experience working in a government or university position E) higher education

Q: Which of the following statements is not true regarding the attributes of the founder or founders of a firm? A) Evidence suggests that important entrepreneurial skills are enhanced through higher education. B) Founders with prior entrepreneurial experience are more likely to avoid costly mistakes. C) Founders with experience in the same industry as their new ventures will typically have "blinders" on and are typically not as effective as founders new to the industry. D) Founders with broad social and professional networks have an advantage. E) New ventures that are started by a team rather than an individual have an advantage.

Q: According to the textbook, prior entrepreneurial experiences: A) is one of the poorest predictors of future entrepreneurial performance B) is one of the most consistent predictors of future entrepreneurial performance for entrepreneurs under 50 years of age but not for entrepreneurs over 50 years of age C) is one of the most consistent predictors of future entrepreneurial performance D) is one of the most consistent predictors of future entrepreneurial performance in service firms but not in manufacturing firms E) has no relationship to future entrepreneurial performance

Q: According to the textbook, which of the following statements is inaccurate regarding the size and composition of the founding team of a firm? A) There is no relationship between a founding team's size and its effectiveness. B) A founding team larger than four people is typically too large to be practical. C) The members of a homogeneous founding team are similar in terms of their abilities and experiences. D) The members of a heterogeneous founding team are diverse in terms of their abilities and experiences. E) A founding team can be too big, causing communication problems and increasing potential for conflict.