Business Foundations A Changing World 11th Edition Ferrel - Test Bank

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Entrepreneurship is the process of creating and managing a business to achieve desired objectives. Some entrepreneurs who start small businesses have the ability to see emerging trends; in response, they create a company to provide a product that serves customer needs.

FALSE

One of the most significant strengths of small businesses is their ability to innovate and to bring significant benefits to customers. Small firms produce more than half of all innovations.

TRUE

Retailing attracts entrepreneurs because gaining experience and exposure in retailing is relatively easy. Additionally, an entrepreneur opening a new retail store does not have to spend the large sums of money for the equipment and distribution systems that a manufacturing business requires.

FALSE

Retailing, wholesaling, services, manufacturing, and high technology are attractive to entrepreneurs because these fields tend to be easy to enter, require low initial financing, and suffer less from heavy competition, at least in the early stages.

TRUE

In franchising, a shortcoming experienced by franchisees include strict adherence to standardized operations. Entrepreneurs who want to be their own bosses are often frustrated with the restrictions of a franchise.

Some entrepreneurs have the ability to see emerging trends and respond by creating a company to provide a product that serves customer needs. Rather than inventing a major new technology, an innovative company may take advantage of technology to create new markets. Additionally, a company may improve a familiar product or place it in a unique retail environment. Further, a company may innovate by focusing on a particular market segment and delivering a combination of features that consumers in that segment could not find anywhere else.

Megha can be regarded as an entrepreneur. Entrepreneurs are people involved in entrepreneurship, which is the process of creating and managing a business to achieve desired objectives.

This is an example of the sharing economy, or gig economy, which uses technology to connect consumers with the service providers they need. In this scenario, Carol and Evan develop software to connect parents with licensed, fairly priced child care providers.

Cameron is a social entrepreneur because he uses entrepreneurship to address a social problem. These entrepreneurs operate nonprofit or for-profit organizations committed to creating social change.

A small business is defined as any independently owned and operated business that is not dominant in its competitive area and does not employ more than 500 people. A local Mexican restaurant may be the most patronized Mexican restaurant in your community, but because it does not dominate the restaurant industry as a whole, the restaurant can be considered a small business.

Michael is a microentrepreneur because he employs five or fewer employees. Sometimes called micropreneurs, this type of business is growing rapidly.

Vernon’s company can be categorized as a small business. A small business is independently owned and operated, is not dominant in its competitive area, and does not employ more than 500 employees.

The Small Business Administration is an independent agency of the federal government that offers managerial and financial assistance to small businesses. On its website, the SBA outlines the first steps in starting a small business and offers a wealth of information to current and potential small-business owners.

Salma’s restaurant can be classified as a small business. A small business is independently owned and operated, is not dominant in its competitive area, and does not employ more than 500 employees.

Small businesses provide opportunities for minorities and women to succeed in business. Women own more than 9 million businesses nationwide, with great success in the professional services, retail, communication, and administrative services areas.

Miguel’s business is a minority-owned small business. This type of business has been growing faster than other classifiable firms, representing 28.6 percent of all small businesses.

More than 99 percent of all U.S. firms are classified as small businesses, and they employ about half of private workers. About 63 percent of net new jobs annually were created by small businesses.

Strings and Keys is a retailer. Retailers acquire goods from producers or wholesalers and sell them to consumers. Main streets, shopping centers, and malls are generally lined with independent music stores, sporting-goods stores, dry cleaners, boutiques, drugstores, restaurants, caterers, service stations, and hardware stores that sell directly to consumers.

Retailing attracts entrepreneurs, like Megan and Chris, because gaining experience and exposure in retailing is relatively easy. Additionally, an entrepreneur opening a new retail store does not have to spend large sums of money for the equipment and distribution systems that a manufacturing business requires. However, it is important for entrepreneurs to anticipate the costs of opening a retail business beforehand.

Many opportunities exist for nonstore retailing, which involves selling products outside of a retail facility. There are two types of nonstore retailing: direct marketing and direct selling.

This is an example of direct marketing, which gives consumers the opportunity to place orders by mail, telephone, or the Internet. This is a type of nonstore retailing, which provides a great opportunity for entrepreneurs because of the lower cost of entry. Smaller business can engage in direct marketing by featuring their products on eBay, Amazon, and Etsy.

A direct marketing activity Clothing Horse can use to encourage customers to order its clothing by mail, telephone, or the Internet is sending catalogs to its customers. Market research findings suggest that catalog users are more inspired to purchase items online.

This is an example of direct selling, which involves the marketing of products to ultimate consumers through face-to-face sales presentations at home, in the workplace, and in party environments. Many people view direct selling as a part-time business opportunity.

The cost of getting involved in direct selling is low and often involves buying enough inventory to get started. Many people view direct selling as a part-time business opportunity. Often, those who become involved in direct selling are enthusiastic about the product and have the opportunity to recruit other distributors and receive commissions on their sales.

Neon Love Inc. illustrates a small business operating in a retail industry as opposed to wholesaling its products. Retailers acquire goods from producers or wholesalers and sell them to consumers. Wholesalers supply products to industrial, retail, and institutional users for resale or for use in making other products.

Wholesalers provide goods and services to producers and retailers. Their activities range from planning and negotiating for supplies, promoting, and distributing to providing management and merchandising assistance to clients. Wholesalers are extremely important for many products because of the marketing activities they perform. Wholesalers can be eliminated, but their functions must be passed on to some other organization or intermediary.

The service sector includes businesses that do not actually produce tangible goods. Many of these service providers are retailers who provide their services to ultimate consumers.

This is a service business because it does not produce tangible goods. Services attract individuals like beauticians whose skills are not usually required by large firms.

Small businesses sometimes have an advantage over large firms because they can customize products to meet specific customer needs and wants. Such products include custom artwork, jewelry, clothing, and furniture.

High technology businesses require greater capital and have higher initial startup costs than other small businesses. Nonetheless, many of the biggest started out in garages, basements, kitchens, and dorm rooms.

This is an example of the sharing economy, an economic model involving the sharing of underutilized resources. Under this model, entrepreneurs can earn income by renting out an underutilized resource such as lodging or vehicles.

In the sharing economy, companies can control variables such as rates, and they hire independent contractors who have the flexibility to take on work when it is convenient for them. Services offered through this model often cost less than more traditional services, and it is even taking market share away from established firms. Despite the opportunities in the sharing economy, firms have been experiencing pressure over whether workers are independent contractors or employees.

Entrepreneurs should be intuitive, persistent, productive, resourceful, charismatic, innovative, friendly, and risk-taking to succeed.

Independence is probably one of the leading reasons that entrepreneurs choose to go into business for themselves. Being a small-business owner means being one’s own boss.

With small size comes the flexibility to adapt to changing market demands. Small businesses usually have only one layer of management—the owners. Decisions therefore can be made and executed quickly.

Independence is the most prevalent advantage of a small business in this example. Often, small business owners want the freedom to choose whom they work with, the flexibility to pick where and when to work, and the option of working in a family setting. Many people choose to start their own business because they don’t fit in the “corporate mold.”

Small businesses require less money to start and maintain than larger ones. A firm with less employees and a smaller factory spends less money on wages and salaries, rent, utilities, and other expenses. Rather than maintaining the expense of keeping separate departments for accounting, advertising, and legal counseling, small businesses can hire other firms to supply these services as needed. Additionally, small business owners can sometimes rely on friends and family to help with difficult projects.

Red Carpet Inc. should focus on and target small market niches or product needs to avoid competition from larger firms. By targeting small niches or product needs, small businesses can sometimes avoid competition from larger firms, helping them to grow into stronger companies. Small firms, because of their capacity to focus on narrow niches, can develop enviable reputations for quality and service.

This scenario is most closely related to focus. Small firms can focus their efforts on a precisely defined market niche, that is, a specific group of customers. In this scenario, Kristen’s business focuses on vegetarians and animal lovers.

Since small firms have the capacity to focus on narrow niches, they can develop enviable reputations for quality and service.

Entrepreneurs experience a great deal of independence but also a great deal of stress. There are ongoing worries about competition, employee problems, new equipment, expanding inventory, rent increases, or changing market demand.

In this scenario, Matt has to multitask, which can result in long hours and a high stress level. Many creative persons fail, not because of their business concepts, but rather because of difficulties in managing their business.

Sometimes, the very factors that are advantages for a small business turn into serious disadvantages when the time comes to grow. Growth often requires the owner to give up a certain amount of direct authority, and it is frequently hard for someone who has called all the shots to give up control.

A poor business concept will produce disaster for a small business nearly every time. Other notable causes of small-business failure include the burdens imposed by government regulation, insufficient funds to withstand slow sales, vulnerability to competition from larger companies, undercapitalization, managerial inexperience or incompetence, and inability to cope with growth.

Colin wants to expand his scrapbooking hobby into a business, which may work if a genuine market niche exists. Before he starts his business, he must identify a real need for the service he will provide.

Carol may find it difficult to deal with the stress of rent increase. Small-business owners tend to be the victims of physical and psychological stress. There are ongoing worries about competition, employee problems, new equipment, expanding inventory, rent increases, or changing market demand.

The shortest path to failure in business is undercapitalization, which is the lack of funds to operate a business normally.

Many small rural operations, like this one, cannot obtain financing within their own communities because small rural banks often lack the necessary financing expertise or assets sizable enough to counter the risks involved with small-business loans.

Although Jason has a brilliant vision for his small business, that does not mean he has the knowledge or experience to manage his growing business effectively. Often, a person who is good at creating great product ideas and marketing them may lack the skills and experience to make good management decisions in hiring, negotiating, finance, and control.

The scenario best illustrates undercapitalization. The shortest path to failure in business is undercapitalization, which is the lack of funds to operate a business normally. Too many entrepreneurs think that all they need is enough money to get started, that the business can survive on cash generated from sales soon thereafter. But almost all businesses suffer from seasonal variations in sales, which make cash tight, and few businesses make money from the start.

The shortest path to failure in business is undercapitalization, the lack of funds to operate a business normally and sustain it through slow initial sales and seasonal variations.

The scenario best illustrates Penelope’s managerial inexperience. Poor management is the cause of many business failures. Just because an entrepreneur has a brilliant vision for a small business does not mean he or she has the knowledge or experience to manage a growing business effectively. A person who is good at creating great product ideas and marketing them may lack the skills and experience to make good management decisions in hiring, negotiating, finance, and control.

The scenario best illustrates Catalina’s inability to cope with growth. Sometimes, the very factors that are advantages for a small business turn into serious disadvantages when the time comes to grow. Growth often requires the owner to give up a certain amount of direct authority, and it is frequently hard for someone who has called all the shots to give up control.

The principal immediate threats to small and mid-sized businesses include rising inflation, energy and other supply shortages or cost escalations, and excessive household and/or corporate debt.

The principal immediate threats to small and mid-sized businesses include rising inflation, energy and other supply shortages or cost escalations, and excessive household and/or corporate debt.

It has often been said that the greatest impediment to the success of a small business is the entrepreneur.

Growth often requires the owner to give up a certain amount of direct authority. Similarly, growth requires specialized management skills in areas such as credit analysis and promotion, which the founder may lack or not have time to apply. Often, the founders of small businesses have to bring in more experienced managers to help manage their companies through growing pains. Poorly managed growth probably affects a company’s reputation more than anything else. In this scenario, if the cleaning staff doesn’t arrive on time or if the quality of Neat and Tidy’s service declines, this can quickly reverse the company’s success.

To start any business, large or small, Meredith must have some kind of general idea. Next, she needs to devise a strategy to guide planning and development in the business. Finally, she must make decisions about the form of ownership; the financial resources needed; and whether to acquire an existing business, start a new one, or buy a franchise.

A key element of business success is a business plan—a precise statement of the rationale for a business and a step-by-step explanation of how it will achieve its goals.

A business plan should act as a guide and reference document, not a shackle to limit the business’s flexibility and decision-making ability. It should also establish a strategy for acquiring sufficient funds to keep the business going.

A business plan should act as a guide and reference document, not a shackle to limit the business’s flexibility and decision-making ability. The business plan should include an explanation of the business, an analysis of the competition, estimates of income and expenses, and other information. The business plan must be revised periodically to ensure that the firm’s goals and strategies adapt to changes in the environment.

The bank expects Arnold to present a business plan. A key element of business success is a business plan—a precise statement of the rationale for the business and a step-by-step explanation of how it will achieve its goals. Many financial institutions decide whether to loan a small business money based on its business plan.

After developing a business plan, the entrepreneur next must decide on an appropriate legal form of business ownership—whether it is best to operate as a sole proprietorship, partnership, or corporation—and to examine the many factors that affect that decision.

To make money from a small business, the owner must first provide or obtain money (capital) to get started and to keep it running smoothly. Often, the small-business owner has to put up a significant percentage of the necessary capital. Few new business owners have a large amount of their own capital and must look to other sources for additional financing.

To make money from a small business, the owner must first provide or obtain money to get started and keep it running smoothly. Even a small retail store, like Megan’s, will probably need at least $50,000 in initial financing to rent space, purchase or lease necessary equipment and furnishings, buy the initial inventory, and provide working capital.

The most important source of funds for any new business is the owner. Many owners include among their personal resources ownership of a home, the accumulated value in a life insurance policy, or a savings account. A new business owner may sell or borrow against the value of such assets to obtain funds to operate a business.