Chapter 01 Entrepreneurship and the Entrepreneurial Mind-Set Answer Key

True / False Questions

1. Ewing Kauffman took a risk when he started his company Marion Labs in 1950.

TRUE

Difficulty: Medium

p. 4

2. How Ewing Kauffman ran his business illustrates corporate entrepreneurship.

TRUE

Difficulty: Medium

p.5

3. Entrepreneurial opportunities are those situations in which new goods, services, raw materials and
organizing methods can be sold at greater than their production cost.

TRUE

Difficulty: Medium

p.6

4. Entrepreneurial action can be defined as those situations in which new goods, services, raw materials
and organizing methods can be sold at greater than their production cost.

FALSE
Difficulty: Medium

p.6

5. The McMullen-Shepherd Model helps identify the common traits of successful entreprenuers.

FALSE

Difficulty: Easy

p.6

6. The McMullen-Shepherd Model explains how knowledge and motivation influence two stages of
entrepreneurial action.

TRUE

Difficulty: Medium

p.6

7. Superficial similarities exist when the underlying mechanisms of the technology resemble, or match,
the underlying mechanisms of the market.

FALSE

Difficulty: Medium

p.7

8. Structural similarities exist when the underlying mechanisms of the technology resemble, or match,
the underlying mechanisms of the market.

TRUE

Difficulty: Medium
p.7

9. Bricolage is entreprenuers making do by applying combinations of the resources at hand to new

problems and opportunities.

TRUE

Difficulty: Medium

p.8

10. The effectuation process starts with what one has and selects among possible outcomes.

TRUE

Difficulty: Medium

p.9

11. The casual process of thinking starts with what one has and selects among possible outcomes.

FALSE

Difficulty: Medium

p.9

12. Demographics, ethnic origin, and marital status are examples of segmentation variables.

TRUE

Difficulty: Easy

p.10

13. Principles of effectuation help entrepreneurs develop their cognitive adaptability.

FALSE
Difficulty: Easy

p.11

14. The question "What is this technology all about?" is a comprehension question.

TRUE

Difficulty: Easy

p.16

15. Comprehension questions are designed to stimulate entrepreneurs to think about their own
understanding.

FALSE

Difficulty: Med

p.16

16. Asking "How is this problem similar to problems I've already solved" is an example of a connection
task.

TRUE

Difficulty: Med

p.16

17. A reflection task would involve thinking about what strategies should be used to solve a problem.

FALSE

Difficulty: Med

p.16

18. Entrepreneurs have stronger intentions to act when taking action is perceived to be impossible and
risky.

FALSE
Difficulty: Easy

p.17

19. Perceived desirability refers to the degree to which an individual has a favorable or unfavorable
evaluation of the potential entrepreneurial outcomes.

TRUE

Difficulty: Easy

p.17

20. An entrepreneur is rarely able to start a new business without some form of formal education.

FALSE

Difficulty: Medium

p.18

21. Research indicates that male entrepreneurs tend to start their first significant venture in their middle
30s, while women entrepreneurs tend to do so in their early 30s.

FALSE

Difficulty: Medium

p.18

22. Previous start-up experience is a good predictor of starting subsequent businesses.

TRUE

Difficulty: Medium

p.19

23. Dissatisfaction with various aspects of one's job often motivates the launching of a new venture.

TRUE
Difficulty: Easy

p.19

24. Most entrepreneurs indicate that their most significant venture was not their first one.

TRUE

Difficulty: Easy

p.19

25. Role models are individuals who give psychological support to the entrepreneur especially during
the start-up phase.

FALSE

Difficulty: Hard

p.19

26. Role models can include family members as well as industry professionals.

TRUE

Difficulty: Easy

p.19-20

27. In a social network there are two major properties, density and centrality.

TRUE

Difficulty: Medium

p.19

Multiple Choice Questions

28. Entrepreneurial Opportunities are defined as:

A. situations in which new goods, services, raw materials and organizing methods can be sold at greater
than their production cost.

B. new market entry through entrepreneur action.

C. the entrepreneur's mental processes in deciding whether or not to act on a potential opportunity.

D.a feasibility assessment.

Difficulty: Medium

p.6

29. In Stage One of the McMullen-Shepherd Model:

A. the entrepreneur decides whether or not there is an opportunity.

B. the entrepreneur consults experts in the market area of interest.

C. the entrepreneur decides whether the opportunity that exists is a match with their own knowledge
and motivation.

D. the entrepreneur engages in bricolage.

Difficulty: Medium

p.6-7

30. In Stage Two of the McMullen-Shepherd Model:

A. the entrepreneur deals with the business failure through counseling.

B. the entrepreneur decides whether or not there is an opportunity.

C. the entrepreneur goes through the causal process of thinking structurally.

D. the entrepreneur consults colleagues from previous jobs.

Difficulty: Medium

p.6-7

31. In regards to thinking structurally, superficial similarities:

A. exist when the underlying mechanisms of the technology resemble (or match) the underlying
mechanisms of the market.

B. exist when supply is less than demand.

C. exist when entreprenuers engage in bricolage.

D. exist when the basic (relatively easy to observe) elements of the technology resemble the basic
elements of the market.

Difficulty: Hard

p.7

32. In the causal process of thinking:

A. starts with a desired outcome and focuses on a means to generate that outcome.

B. starts with what one has and selects among possible outcomes.

C. involves bricolage.

D. starts with brainstorming by meeting with industry professionals.

Difficulty: Medium

p.9

33. Which of the following is NOT a stage in Kolter's procedure in bringing a product/service to market?

A. Select target market segments

B. Analyze long run opportunities in the market

C. Design market strategies

D. File for patent protection

Difficulty: Medium

p.9

34. Questions designed to increase an entrepreneurs' understanding of the nature of the environment
are known as:
A. Strategic questions

B. Connection tasks

C. Reflection tasks

D. Comprehension questions

Difficulty: Easy

p.16

35. An entrepreneur considering if what they are doing makes sense is an example of:

A. A strategic question

B. A connection task

C. A reflection task

D. A comprehension question

Difficulty: Medium

p.16

36. __________ are designed to stimulate thought about entrepreneurs' understanding and feelings as
they progress through the entrepreneurial process.

A. Strategic questions

B. Connection tasks

C. Reflection tasks

D. Comprehension questions

Difficulty: Medium

p.16

37. An entrepreneur asks if there is a better way to implement a strategy. Identify the category of this
question.

A. Reflection tasks

B. Connection tasks

C. Strategic questions
D. Comprehension questions

Difficulty: Med

p.16

38. Individuals have stronger intentions to act when taking action is perceived to be _____ and desirable.

A. elusive

B. feasible

C. flexible

D. risky

Difficulty: Easy

p.17

39.Which among the following aspects affects an entrepreneur's perception of feasibility?

A. Locus of control

B. Learning style

C. Perceived desirability

D. Self-efficacy

Difficulty: Medium

p.17

40. On the education background, entrepreneurs:

A. are less educated than the general population.

B. cite an educational need in the areas of finance, strategic planning, marketing, and management.

C. who lack a formal education, fail to create new businesses and exploit discovered opportunities.

D. cite formal education to be indispensible in starting a new business.

Difficulty: Medium

p.18
41. Motivation to launch a new venture can arise from all of the following except:

A. lack of prior experience.

B. boredom.

C. a lack of challenge.

D. frustration.

Difficulty: Easy

p.19

42. As the venture becomes established and starts growing, which of the following types of experience
becomes increasingly important?

A. Technical

B. Financing

C. Managerial

D. Marketing

Difficulty: Easy

p.19

43. Density, in regards to a social network, refers to:

A. the extensiveness of ties between two individuals.

B. the total number of individuals in the network.

C. the distance of connection between the entrepreneur and contact.

D. the fact that most networks are informal and not well organized.

Difficulty: Hard

p.19
44. The moral support network is different from the professional support network in that:

A. a professional support network includes finding a mentor.

B. moral support is less important than professional support.

C. only the "cheering squad" provides moral support.

D. a moral support network comprises only of personal contacts.

Difficulty: Hard

p.20

45. Within the moral-support network, most entrepreneurs indicate that their _____ are their biggest
supporters.

A. mentors

B. friends

C. parents

D. spouses

Difficulty: Medium

p.20

46. Which group in a professional network helps keep a new venture competitive?

A. Clients or buyers

B. Mentors

C. Trade associations

D. Suppliers

Difficulty: Hard

p.20

Short Answer/Essay Questions

47. Explain the McMullen-Shepherd Model.

1. Model explains how knowledge and motivation influence two stages of entrepreneurial action.

2. Stage One is when the potential entrepreneur realizes an opportunity exists for someone.

3. Stage Two is when the potential entrepreneur decides whether or not the opportunity is right for
them personally in terms of their skill, knowledge and motivation.

Difficulty: Medium

p. 6-7

48. Define superficial similarities and structural similarities. Which was noted as the more challenging for
entreprenuers?

1. Superficial similarities exist when the basic (relatively easy to observe) elements of the technology
resemble (match) the basic (relatively easy to observe) elements of the market.

2. Structural similarities exist when the underlying mechanisms of the technology resemble (or match)
the underlying mechanisms of the market.

Structural was identified as the most challenging.

Difficulty: Medium

p.7

49. Describe the difference between the causal process and the effectuation process.

Effectuation is process that starts with what one has (who they are, what they know, and whom they
know) and selects among possible outcomes. Basically identifying resources and THEN finding an
opportunity to fit whereas the casual process starts with a desired outcome and focuses on the means
(what resources are needed) to generate that outcome.

Difficulty: Medium

p.9

50. Identify and define the 4 types of questions/tasks related to increasing cognitive ability.
1. Comprehension questions are designed to increase entrepreneurs’ understanding of the

nature of the environment

2. Connection tasks are designed to stimulate entrepreneurs to think about the current situation in
terms of similarities to and differences from situations previously faced and solved

3. Strategic Tasks are designed to stimulate entrepreneurs to think about which strategies are
appropriate for solving the problem (and why) or pursuing the opportunity (and how)

4. Reflection tasks are designed to stimulate entreprenuers to think about their understanding and
feelings as they progress through the entrepreneurial process.

Difficulty: Hard

p.16

51. Describe the difference between a moral and professional support network and give examples of
who might fit into each network. Who do entreprenuers typically cite as their biggest supporters?

A moral support network is for emotional support and usually includes family and friends.

A professionals support network is a source of information and help for an entrepreneur's business
activities and can be professionals from trade associations, former business associates, suppliers,
accountants, lawyers.

Spouses were cited by the text as the biggest supporters.

Chapter 03 Entrepreneurial Strategy: Generating and Exploiting New Entries

Answer Key

True / False Questions

1. A new entry can be either offering a new product to a new market or creating a new organization.
FALSE

Difficulty: Medium

p.58
2. Newness of a new entry is always an advantage.
FALSE

Difficulty: Medium

p.58

3. The long-run performance of a firm is dependent upon the ability to generate and exploit numerous
new entries.
TRUE

Difficulty: Medium

p.59

4. In order to be the basis for a firm's superior performance, a bundle of resources must be valuable,
rare, and imitable.
FALSE

Difficulty: Medium

p.60
5. A franchise is the instrument used to protect the owner of the technology from people imitating the
technology.
FALSE

Difficulty: Hard

p.60

6. Knowledge is the basis of the entrepreneurial resource.

TRUE

Difficulty: Medium

p.60

7. Experience is idiosyncratic—unique to the life of the individual.

TRUE

Difficulty: Easy

p.61

8.The knowledge needed to generate innovation cannot be easily learned from a textbook.
TRUE

Difficulty: Medium

p.61
9. The entrepreneur's market knowledge is deeper than the knowledge that could be gained through
market research.
TRUE

Difficulty: Medium

p.61
10. Technological knowledge refers to the entrepreneur's possession of information, technology, know-
how, and skills that provide insight into a market and its customers.
FALSE

Difficulty: Medium

p.61

11. Market research, such as surveys, has limited effectiveness because it is often difficult for customers
to articulate the underlying problems they have with a product or service.
TRUE

Difficulty: Hard

p.61

12. The period of time when the environment is favorable for entrepreneurs to exploit a particular new
entry is called the window of opportunity.
TRUE

Difficulty: Easy

p.63

13. The longer the entrepreneur takes to research a new entry, the less accurate customer demand
estimates are.
FALSE

Difficulty: Medium

p.63
14. When the window of opportunity is open, the environment is unfavorable for entrepreneurs to
exploit a new product or enter a new market with an existing product.
FALSE

Difficulty: Medium

p.63-64
15. An error of omission occurs from the decision not to act of a new entry opportunity when in
hindsight they should have.
TRUE

Difficulty: Medium

p.64

16. An error of commission occurs from the decision not to act on a new entry opportunity.
FALSE

Difficulty: Hard

p.64

17.The assessment of a new entry attractiveness is less about whether this opportunity "really" exists or
not and more about whether the entrepreneur believes he or she can make it work.
TRUE

Difficulty: Medium

p.65

18. First movers suffer a cost disadvantage as they are not able to move down the experience curve.
FALSE

Difficulty: Medium

p.65
19. First movers can monitor changes in the market that might be difficult or impossible to detect for
those firms not participating in the market.
TRUE

Difficulty: Easy

p.65
20. If there is a poor fit between its resources and the external environment, then the firm will not enjoy
superior performance.
TRUE

Difficulty: Medium

p.66

21. Key success factors are the requirements that any firm must meet to successfully compete in a
particular industry.
TRUE

Difficulty: Medium

p.66

22. Emerging industries are industries that have been around for years but are just starting to experience
explosive growth.
FALSE

Difficulty: Medium

p.67

23. Environmental changes are highly unlikely in emerging industries.

FALSE

Difficulty: Easy

p.67
24. By overestimating demand, the entrepreneur will suffer the costs of under capacity.
FALSE

Difficulty: Hard

p.67
25. Entrepreneurs that delay entry have the advantage of more information about market demand.
TRUE

Difficulty: Medium

p.67

26. Technological uncertainty is eliminated by a superior technology.

FALSE

Difficulty: Medium

p.68

27. Adaptations necessary to meet changes in market demand are difficult because an organization
resists change.
TRUE

Difficulty: Medium

p.68

28. Customers always embrace change in products and services.

FALSE

Difficulty: Easy

p.69
29. To overcome customer uncertainty, the venture should educate customer through demonstration
and documentation on how to use the product.
TRUE

Difficulty: Medium

p.69
30. The late mover is able to operate in the industry for a grace period under conditions of limited
competition.
FALSE

Difficulty: Medium

p.70

31. Building customers' switching costs decreases barriers to entry for other firms.
FALSE

Difficulty: Easy

p.71

32. Competition within an industry always has a negative effect on industry growth.
FALSE

Difficulty: Medium

p.71

33. A narrow scope strategy offers a small product range to a small number of customer groups.
TRUE

Difficulty: Medium

p.73

34. Using a broad scope strategy helps to reduce the risk of market uncertainty.
TRUE

Difficulty: Medium
p.74

35. If a company has a superior product, customers will always be willing to pay a higher price for higher
value.
FALSE

Difficulty: Medium

p.73

36. A narrow scope strategy reduces the risks associated with competition.
TRUE

Difficulty: Medium

p.73

37. Imitation of other products increases the downside loss associated with new entry.
FALSE

Difficulty: Medium

p.74

38. Franchising is an example of a new entry strategy that increases the risk of downside loss for the
franchises.
FALSE

Difficulty: Medium

p.75
39. A "me-too" strategy consists of copying products that already exist and attempting to build an
advantage through minor variations.
TRUE

Difficulty: Easy

p.75

40. The three major risk reduction strategies discussed in the text are narrow scope, broad scope and
imitation.
FALSE

Difficulty: Medium

p. 73-75

41. Lack of informal communication systems is one of the assets of newness.

FALSE

Difficulty: Medium

p.76

Multiple Choice Questions

42. A new entry includes all of the following except:

A. Offering a new product to a new market
B. Offering an established product to an new market
C. Creating a new product development process for your company
D. Creating a new organization

Difficulty: Easy

p.58
43. The set of decisions, actions, and reactions that first generate, and then exploit over time, a new
entry is:
A. entrepreneurial financing.
B. entrepreneurial strategy.
C. bootstrapping.
D. informal organization.

Difficulty: Medium

p.59

44. Which among the following is not a key stage of the entrepreneurial strategy?
A. Market research to identify a new entry opportunity.
B. Generation of a new entry opportunity.
C. Exploitation of a new entry opportunity.
D. A feedback loop from the culmination of a new entry generation and exploitation back to generation
of a new opportunity.

Difficulty: Medium

p.59

45. Which item is not part of the new entry generation stage in the entrepreneurial strategy process?
A. Technical knowledge
B. Risk reduction strategies
C. Rare resources
D. Market Knowledge

Difficulty: Easy

p.59
46. The basic building blocks to a firm, or the inputs into the production process, are:
A. competition.
B. strategy.
C. liabilities.
D. resources.

Difficulty: Medium

p.60

47. To be the basis of a firm's superior performance over competitors for an extended period of time,
resources need to be:
A. valuable.
B. fully utilized.
C. patented.
D. shared.

Difficulty: Medium

p.60

48. _________ are used to protect the owner of the technology from people imitating the technology.
A. Franchises
B. Switching costs
C. Patents
D. Distributors

Difficulty: Medium

p.60
49. Which of the following statements is(are) true?
A. Knowledge is a valuable entrepreneurial resource that is gained through formal education.
B. Knowledge can be gained through highly experienced managers and/or firms.
C. Knowledge based on experience is unlikely to be learned in a classroom.
D. Research, more than knowledge, leads to the generation of new entries in markets and technologies.

Difficulty: Medium

p.61

50. ______________ knowledge refers to the entrepreneur's possession of information, technology,

know-how, and skills that provide insight into the industry and customers.
A. Technological
B. Resource
C. Opportunity
D. Market

Difficulty: Medium

p.61

51. Which is the best way to gain knowledge about a potential new entry?
A. Marketing research
B. Internet research
C. Entrepreneur's market experience and knowledge.
D. Surveys

Difficulty: Hard

p.61
52. Technological knowledge:
A. is gained through market research.
B. can lead to a technology that is the basis for a new entry.
C. does not help unless the market applicability is obvious.
D. does not help if the market is limited.

Difficulty: Hard

p.62

53. When conducting research on a new entry:

A. the more information the entrepreneur has, the more difficult it is to focus on the consumer.
B. the entrepreneur must rely upon surveys more that market knowledge.
C. extensive research is expensive in terms of time and money.
D. lesser prior knowledge is advantageous since it minimizes the risk of entrepreneurial bias.

Difficulty: Medium

p.63

54. The window of opportunity is part of:

A. assessing the attractiveness of a new entry opportunity.
B. creating a resource bundle.
C. choosing an entry strategy.
D. choosing a risk reduction strategy.

Difficulty: Medium

p.63-64
55. The period of time when the environment is favorable for entrepreneurs to exploit a particular new
entry is the:
A. market research phase.
B. window of opportunity.
C. technology window.
D. narrow-scope strategy.

Difficulty: Medium

p.63-64

56. When an entrepreneur pursues a new entry opportunity only to find out later that he or she had
overestimated his or her ability to create customer demand it is a(n):
A. technological error.
B. window of opportunity.
C. error of omission.
D. error of commission.

Difficulty: Medium

p.64

57. An error of omission occurs when an entrepreneur:

A. enters a market but overestimates the customer demand.
B. develops a product for a market that is too narrow.
C. decides not to enter a market that is, in fact, desirable.
D. fails to understand the limitations of a market.

Difficulty: Hard

p.64
58. Regarding entry into a new market, which of the following is(are) true?
A. First movers gain expertise through participation.
B. First movers are not able to detect changes in the market.
C. First movers suffer a cost disadvantage.
D. First movers face more competitive rivalry.

Difficulty: Easy

p.65

59. First movers:

A. are not able to gain from moving down the experience curve.
B. are better positioned to satisfy customers.
C. face more competition than late movers.
D. fail to secure important channels.

Difficulty: Medium

p.65

60. Which of the following is not a reason that first movers are better positioned to satisfy their
customers?
A. They have a chance to select and secure the most attractive segments of the market
B. They have the chance to position themselves at the center of the market
C. They have a chance to face less competitive rivalry
D. They have a chance to establish their product as the industry standard

Difficulty: Hard

p.65

61. A disadvantage of being a first mover is:

A. environmental instability.
B. cost disadvantages.
C. long lead time to gain knowledge.
D. a limited market.
Difficulty: Hard

p.66

62. If there is a good fit between the venture's bundle of resources and the external environment:
A. the firm will be rewarded with superior performance.
B. the entrepreneur will be unable to compete in the market segment.
C. environmental variables will be irrelevant.
D. demand uncertainty will be irrelevant.

Difficulty: Medium

p.66

63. In emerging industries:

A. environmental factors do not affect customer demand.
B. entrepreneurs confront demand certainty.
C. environmental changes are highly likely.
D. it is easier to respond effectively to sudden changes.

Difficulty: Medium

p.67

64. First movers face:

A. market rigidities.
B. high entry barriers.
C. cost disadvantages.
D. demand uncertainty.

Difficulty: Easy

p.67
65. By delaying entry, late movers:
A. can learn from the actions of first movers without incurring the same costs.
B. have less information about market demand.
C. secure the window of opportunity.
D. can avoid high entry barriers.

Difficulty: Medium

p.67

66.Technological uncertainty:
A. is a result of uncertainty about customer demand.
B. occurs because an alternative technology could be introduced by competitors.
C. only occurs in emerging markets.
D. can be avoided by early entrants with superior technology.

Difficulty: Hard

p.68

67. Changes needed to adapt to environmental changes:

A. are easier in established organizations because of inertia.
B. can be avoided by late entry.
C. are more difficult because of the entrepreneur's tendency to escalate commitment.
D. don't affect smaller organizations.

Difficulty: Medium

p.68
68. The entrepreneurial attributes of persistence and determination, which are so beneficial when the
new venture is on the "right course,":
A. can make the entrepreneur more suitable to work in volatile markets.
B. can hasten the process of adapting to sudden changes.
C. can aid the entrepreneur in recognizing, and implementing changes.
D. can inhibit the ability of the entrepreneur to detect, and implement, change.

Difficulty: Medium

p.68

69. By entering a market later,

A. customer uncertainties have already been substantially reduced.
B. the venture can build a reputation as a "founder."
C. the company can erect barriers to entry and imitation.
D. the player gets to operate only for a grace period.

Difficulty: Medium

p.69

70. Customer uncertainty can take all of the following forms except:
A. not understanding how to use the product
B. not knowing whether the product will perform as expected
C. not knowing where to buy the product
D. being uncertainty adverse in general and resistant to change

Difficulty: Medium

p.69
71. By being first to market a product, the venture:
A. can tends to lose customer loyalties to late entrants.
B. loses out to switching costs.
C. secures access to important sources of supply.
D. can sell its products and services at a higher price.

Difficulty: Easy

p.71

72. The costs that must be borne by customers if they are to stop purchasing from the current supplier
and begin purchasing from another is (are):
A. customer switching costs.
B. lead time.
C. resource costs.
D. resource bundle errors.

Difficulty: Medium

p.71

73. Lead time is:

A. the time from production to market delivery
B. the time in which the first mover operates in the market under conditions of limited competition
C. the time it takes for an entrepreneur to go from the concept stage to the delivery stage
D. the time between product introduction and customer acceptance

Difficulty: Medium

p.70-71
74. Barriers to entry include all of the following except:
A. patents
B. switching costs
C. environmental instability
D. building customer loyalties

Difficulty: Hard

p.71

75. Frequent flier miles would be an example of which barrier to entry?

A. Building customer loyalties
B. Securing access to supply of key resources
C. Creating product uniqueness
D. Building in switching costs

Difficulty: Hard

p.71

76. _____ refers to the probability, and magnitude, of downside loss.

A. Reward
B. Risk
C. Liability of newness
D. Technology error

Difficulty: Easy

p.73

77. Offering a small product range to a small number of customer groups is:
A. a narrow-scope strategy.
B. an imitation strategy.
C. a broad-scope strategy.
D. a way of reducing market uncertainties.

Difficulty: Medium
p.73

78. A narrow-scope market strategy:

A. does not provide the entrepreneur an opportunity to build up specialized knowledge and expertise.
B. provides substantial protection against competitors.
C. is like putting all your eggs in one basket.
D. can be thought of as taking a "portfolio" approach to dealing with uncertainties.

Difficulty: Medium

p.73

79. A broad-scope market strategy:

A. focuses on producing customized products.
B. provides substantial protection against competitors.
C. is used to reduce market uncertainty.
D. is based primarily on product quality.

Difficulty: Medium

p.74

80. A broad-scope strategy:

A. is vulnerable to the risk that market demand does not materialize as expected and/or changes over
time.
B. opens the firm up to many different "fronts" of competition.
C. focuses the firm on producing customized products, localized business operations, and high levels of
craftsmanship.
D. offers a way of reducing some competition-related risks.

Difficulty: Medium

p.74
81. Imitation strategies:
A. require expensive and extensive research.
B. are rare and inimitable.
C. does not provide organizational legitimacy.
D. can enhance a firm's performance.

Difficulty: Medium

p.74

82. A ______ strategy that copies products that already exist and attempts to build an advantage through
minor variations.
A. technological
B. narrow scope
C. me-too
D. broad scope

Difficulty: Easy

p.75

83. Which of the following is a liability of newness?

A. Costs associated with learning new tasks are high.
B. Lack of established routines and processes give the venture a new slate.
C. Communication in informal systems is increased.
D. Market for potential consumers is limited.

Difficulty: Hard

p.76
84. Franchising:
A. is the only imitation strategy discussed in the text.
B. reduces risk of downside loss.
C. is the same as the me-too strategy.
D. reduces the amount of competition an entrepreneur will face.

Difficulty: Medium

p.75

Short Answer/Essay Questions

85. Identify and briefly describe the major stages of entrepreneurial strategy.

Three major stages:

Stage 1 New entry generation - The generation of a new entry is the result of a combination of
knowledge and other resources into a bundle that its creators hope will be valuable, rare, and difficult
for others to imitate. Depending on how in-depth the instructor wants the answer items like market and
technological knowledge, window of opportunity and error of omission/commission may be
required/discussed.
Stage 2 New entry exploitation - comprised of choosing an entry strategy, a risk reduction strategy.
Depending on how in-depth the instruction wants the answer items like first mover
advantages/disadvantages, demand and technological uncertainty, adaptation, lead time, and
narrow/broad scope strategies may be discussed.
Stage 3 Feedback loop of resources - a brief description is appropriate since not much time is spent on
this stage. Answer may include items from the following excerpt obtained from the textbook, " we
should not underestimate the importance of the feedback loop of stage 3 because an entrepreneur
cannot rely on the generation and exploitation of only one new entry; rather, long-run performance is
dependent upon the ability to generate and exploit numerous new entries. If the firm does rely on only
one new entry, then as the life cycle for the product enters maturity and declines, so goes the life cycle
of the organization."

Answer will vary.

Difficulty: Medium-Hard

p.58-59

86. Explain what constitutes a new entry.

New entry refers to (1) offering a new product to an established or new market, (2) offering an
established product to a new market, or (3) creating a new organization (regardless of whether the
product or the market is new to competitors or customers).

Difficulty: Easy

p. 58-59

87. Explain the difference between errors of omission and commission.

An error of commission occurs from the decision to

pursue this new entry opportunity, only to find out later that the entrepreneur had overestimated

his or her ability to create customer demand and/or to protect the technology from

imitation by competitors. The costs to the entrepreneur were derived from acting on the

perceived opportunity.

An error of omission occurs from the decision not to act on the new entry opportunity,

only to find out later that the entrepreneur had underestimated his or her ability to create

customer demand and/or to protect the technology from imitation by competitors. In this

case, the entrepreneur must live with the knowledge that he let an attractive opportunity

slip through his fingers.

Difficulty: Medium
p.64

88. List the 5 main first-mover advantages discussed in the text.

Cost advantages
Less competition
Secure important channels
Prime position for customers
Expertise from participation
Difficulty: Medium (to increase ask for more detailed explanation of advantages)
p.65-66

89. Identify the main disadvantages of being a first-mover.

Environmental instability
Customer Uncertainty
Short lead time
Difficulty: Easy (increase to medium by asking for explanation of each)
p.66

90. Identify and briefly explain the 4 ways that lead time can be extended by creating barriers to
entry. Give examples where appropriate.

Building customer loyalties by trying to get the customer to associate the industry with the "first-
movers" product. Establish and build customer loyalty to be brand of choice.

Build switching costs to try and lock in existing customers by making it "costly" for them to
switch through mechanisms like loyalty programs.

Protecting product uniqueness through patents, trademarks, trade secrets or other IP protections.

Securing access to important sources of supply and distribution by developing exclusive

relationships with key sources. This forces competitors to use lesser quality sources or can bar
them from entering if supply is limited.
Difficulty: Medium
p.71

91. Identify and describe the three major risk reduction strategies.

A. Narrow scope - A narrow-scope strategy offers a small product range to a small number of
customer groups to satisfy a particular need. The narrow scope can reduce the risk that the firm
will face competition with larger, more established firms in a number of ways. A narrow-scope
strategy focuses the firm on producing customized products, localized business operations, and
high levels of product quality. By focusing on a specific group of customers, the entrepreneur
can build up specialized expertise and knowledge that provide an advantage over companies that
are competing more broadly. The high end of the market typically represents a highly profitable
niche.
B. Broad scope - broad-scope strategy can be thought of as taking a "portfolio" approach to
dealing with uncertainties about the attractiveness of different market segments. By offering a
range of products across many different market segments, the entrepreneur can gain an
understanding of the whole market by determining which products are the most profitable.
Unsuccessful products (and market segments) can then be dropped and resources concentrated
on those product markets that show the greatest promise. In essence, the entrepreneur can cope
with market uncertainty by using a broad-scope strategy to learn about the market through a
process of trial and error.
C. Imitation strategies - Imitation is another strategy for minimizing the risk of downside loss
associated with new entry. Imitation involves copying the practices of other firms, whether those
other firms are in the industry being entered or from related industries. Entrepreneurs may
simply find it easier to imitate the practices of a successful firm than to go through the process of
a systematic and expensive search that still requires a decision based on imperfect information.
In essence, imitation represents a substitute for individual learning. Imitating some of the
practices of established successful firms can help the entrepreneur develop the skills necessary to
be successful in the industry, rather than attempting to work out which skills are required and
develop these skills from scratch. Imitation also provides organizational legitimacy. If the
entrepreneur acts like a well established firm, it is likely to be perceived by customers as well
established. Imitation is a means of gaining status and prestige. Customers feel more comfortable
doing business with firms that they perceive to be established and prestigious.

Answer will vary.

Difficulty: Medium-Hard depending on detailed required by instructor

p.73-75

92. Explain why an entrepreneur might adopt an imitation strategy.

Reduces the risk by:

-reducing research and development costs

-reducing customer uncertainty about the firm/established reputation

-established market demand

-protected name and products (IP)

-access to help with financial, marketing and managerial issues

Difficulty: Medium

p. 75-76

93. Explain the three major causes of "liabilities of newness."

• New organizations face costs in learning new tasks. It may take some time and

training to customize employees’ skills to the new tasks they are asked to perform.

• As people are assigned to the roles of the new organization, there will be some overlap
or gaps in responsibilities. This will often cause conflict until the boundaries around

particular roles are more formally set (once management has gained sufficient

knowledge to do so) and/or until they have been informally negotiated by the parties

to the conflict.

• Communication within the organization occurs through both formal and informal

channels. A new organization has not yet had the opportunity to develop informal

structures, such as friendships and organizational culture. It takes time for a new firm

to establish these informal structures.

Difficulty: Medium

p. 76

Chapter 04 Creativity and the Business Idea Answer Key

True / False Questions

1. Pierre Omidyar came up with the idea for eBay.

TRUE
Difficulty: Easy
p.85

2. Trends often provide one of the greatest opportunities for starting a new venture.
TRUE

Difficulty: Medium
p.88

3. Clean energy and organic foods are current market trends.

TRUE
Difficulty: Medium
p.88
4. Members of the distribution channel are usually good sources of ideas for new products.
TRUE

Difficulty: Medium
p.90

5. The files of the U.S. Patent Office are kept confidential and entrepreneurs cannot study their contents.
FALSE

Difficulty: Medium
p.90-91

6. The largest source of new ideas is the U.S. Patent Office.

FALSE
Difficulty: Easy

p.92
7. Focus groups consist of 15 to 25 participants who are asked specific objective functions.
FALSE
Difficulty: Hard
p.92

8. The focus group is an excellent method for initially screening ideas and concepts.
TRUE

Difficulty: Medium
p.92

9. Focus groups have been used for a variety of purposes since the 1920's.
FALSE
Difficulty: Medium
p.92

10. The drawback with problem inventory analysis is that it cannot be used to test a new product
idea.
FALSE
Difficulty: Hard
p.93

11. Like the focus group, problem inventory analysis focuses on specific problems in a general product
category.
FALSE

Difficulty: Hard
p.93

12. Brainwriting is a written form of brainstorming.

TRUE

Difficulty: Easy

p.93

13. Creativity tends to decrease with age.

TRUE

Difficulty: Medium
p.94
14. Brainstorming is an unstructured process used for generating possible ideas about a problem within a
limited time frame through the spontaneous contributions of participants.
TRUE

Difficulty: Easy
p.94-95

15. In reverse brainstorming the focus is on all the things that are right about an idea.
FALSE

Difficulty: Medium
p.95

16. The Gordon method, like most other methods, begins with group members not knowing the exact
nature of the problem.
FALSE

Difficulty: Medium
p.95

17. In the checklist method, a new idea is developed through a list of related issues or
suggestions.
TRUE
Difficulty: Easy
p.95

18. Developing a new idea through a chain of word associations is known as the checklist method.

FALSE

Difficulty: Easy

p.97
19. Forced relationships is a method of forcing confrontations in focus groups.
FALSE

Difficulty: Medium
p.97

20. The collective notebook method involves members recording their ideas at least once a day for about
a week.
TRUE

Difficulty: Easy
p.97
21. Attribute listing is an idea-finding technique that requires the entrepreneur to list the attributes of an
item or problem and then look at each from a variety of viewpoints.
TRUE

Difficulty: Medium
p.98

22. In parameter analysis a new idea is developed through a list of related issues or suggestions.
FALSE

Difficulty: Medium
p.98

23. Using the big-dream approach, a new idea is developed through a list of related issues or
suggestions.
FALSE

Difficulty: Hard
p.98

24. The big-dream approach requires the entrepreneur to dream about the problem and its solution,
thinking big.
TRUE

Difficulty: Easy
p.98

25. Creative synthesis is closely connected to the technique of parameter analysis.

TRUE

Difficulty: Hard
p.98-99

26. Nanotechnology would be classified as a breakthrough technology.

TRUE

Difficulty: Easy
p.99

27. The product Spanx is an example of an ordinary innovation.

TRUE

Difficulty: Medium
p.100

28. New products may be classified from the viewpoint of either the consumer or the firm.
TRUE

Difficulty: Medium
p.101

29. Discontinuous innovations have the least disrupting influence on established consumption patterns.
FALSE

Difficulty: Medium
p.101-102

30. When a firm classifies a new product the two key factors used are market and technology newness.
TRUE

Difficulty: Medium
p.102
31. The entrepreneur's ability to recognize a business opportunity is a result of his or her knowledge and
experience.
TRUE

Difficulty: Medium

p.103

32. When evaluating new product development, the criteria should be exclusive and subjective.
FALSE

Difficulty: Medium
p.103

33. The product life cycle consists of five main stages.

FALSE

Difficulty: Medium
p.104

34. One evaluation method successfully used in the concept stage is the systematic market evaluation
checklist.
FALSE

Difficulty: Medium

p.106/109

35. In the concept stage, the refined idea is tested to determine consumer acceptance.
TRUE
Difficulty: Medium
p.106
36. In the test market stage of product planning, the refined product idea is tested to determine
customer acceptance.
FALSE

Difficulty: Medium

p.109

37. Only the test marketing phase of product planning provides actual sales results to judge the product's
customer appeal.
TRUE

Difficulty: Medium
p.109

38. In the product development stage, consumer reaction to the physical product/service is determined.
TRUE

Difficulty: Medium
p.109

39. Total U.S. e-commerce spending grew by 12% from 2010-2011.

TRUE

Difficulty: Medium
p.109

40. The entrepreneur should always design and build his own webpage to maintain strategic
control.
FALSE
Difficulty: Medium
p.110
41. An online company's front-end operations involve integration of customer orders with distribution
channels.
FALSE

Difficulty: Medium
p.110

42. Every website should have search capabilities.

TRUE

Difficulty: Easy
p.111

43. Using electronic databases to track customer information violates federal laws regarding individual
privacy.
FALSE

Difficulty: Hard

p.112

Multiple Choice Questions

44. Trends for the next decade include all of the following except:
A. Green products
B. New age music
C. Clean energy
D. Health Maintenance

Difficulty: Easy
p.88

45. Which of the following statements is true?

A. Customers form the largest source of new ideas for entrepreneurs.
B. While members of the distribution channel may be willing to provide new ideas for entrepreneurs,
they may not help market them.
C. The Federal Government is not a source of new ideas since the patent information they collect is
confidential.
D. Potential entreprenuers should establish a formal method for monitoring and evaluating competitive
products and services on the market.

Difficulty: Medium

p. 90-92
46. Patents filed with the U.S. Patent Office:
A. are not disclosed to the public.
B. are the property of the U.S. Government.
C. frequently suggest other new products.
D. are only accessible to public limited companies.

Difficulty: Medium
p.90-91

47. The Occupational Safety and Health Act (OSHA) mandated that first-aid kits be available in business
establishments employing more than three people. A newly formed company was successful in
developing first-aid kits that allowed companies to comply with the standards of the act. This is an
example of:
A. distribution channels as an excellent source for new ideas.
B. existing products and services as a source for new ideas.
C. potential consumers as a source for new ideas.
D. government regulations as a source for new product ideas.

Difficulty: Medium
p.92

48.The largest source of new product ideas is:

A. the U.S. Patent Office.
B. the entrepreneur's research and development.
C. customers.
D. the federal government.

Difficulty: Medium
p.92

49. Focus groups use which of the following methods?

A. A moderator leads the group in an open, in-depth discussion.
B. A moderator asks each individual in the group questions, interview style.
C. Each participant fills out a questionnaire, followed by individual exit interviews.
D. Each participant obtains new ideas and solutions by focusing on problems.

Difficulty: Hard
p.92

50. Brainstorming groups should:

A. contain an expert in the field to be discussed.
B. be serious and work-oriented.
C. try to generate as many ideas as possible.
D. encourage criticism of ideas from other participants in the group.
Difficulty: Medium
p.92-93

51. _____ is not desirable when brainstorming is in process.

A. "Freewheeling"
B. Idea combination and improvement
C. Generating a large quantity of ideas
D. Criticism

Difficulty: Medium
p.93

52. In this method, instead of generating new ideas themselves, consumers are provided with a list of
problems in a general product category. What method is the author referring to here?
A. Reverse brainstorming
B. Problem inventory analysis
C. Brainstorming
D. Focus groups

Difficulty: Medium
p.93

53. Creativity declines with

A. training and tradition.
B. education and work experience.
C. age, education and lack of use.
D. mental health and work experience.

Difficulty: Medium
p.94

54. Probably the most well known and widely used technique for creative problem solving is:
A. brainstorming.
B. focus groups.
C. forced relationships.
D. scientific method.

Difficulty: Medium
p.94

55. Reverse brainstorming is much like brainstorming except that:

A. criticism is not allowed.
B. the technique is based on finding solutions.
C. the group need not be careful to maintain good morale.
D. the process usually involves identification of everything wrong with an idea.
Difficulty: Medium
p.95
56. Which of the following problem-solving techniques begins with group members not knowing the
exact nature of the problem?
A. Parameter analysis
B. Matrix charting
C. The Gordon method
D. Free association
Difficulty: Hard
p.95

57. In the ________ method a new idea is developed through a list of related issues or suggestions.
A. Gordon
B. checklist
C. collective notebook
D. matrix charting

Difficulty: Hard
p.95

58. In the ________ method, a word is written down, then another, creating a chain of ideas.
A. reverse brainstorming
B. matrix charting
C. heuristic
D. free association

Difficulty: Medium
p.97

59. Which of the following creative methods involves having participants write down their ideas several
times a day?
A. Collective notebook method
B. Parameter analysis
C. Brainstorming
D. Forced relationship

Difficulty: Medium
p.97

60. This problem-solving method requires the entrepreneur to list the properties of an item or problem
and then look at each from a variety of viewpoints.
A. Value analysis
B. Attribute listing
C. Brainwriting
D. Big-dream approach

Difficulty: Medium
p.98
61. This problem-solving method involves developing new ideas by thinking without constraints.
A. Value analysis
B. Attribute listing
C. Big-dream approach
D. Brainwriting
Difficulty: Medium
p.98

62. Creative synthesis is an important aspect of the _________ method of creative problem solving.
A. brainwriting
B. forced association
C. attribute listing
D. parameter analysis

Difficulty: Hard
p.98-99

63. Parameter analysis consists of two main aspects which are:

A. creative synthesis and parameter identification.
B. breakthrough innovation and forced association.
C. attribute listing and parameter identification.
D. parameter variation and verification.

Difficulty: Medium
p.98

64. What type of innovation is illustrated by the ideas of the airplane and penicillin?

A. ordinary innovation

B. continuous innovation

C. technological innovation

D. breakthrough innovation

Difficulty: Medium

p.99

65. Which of the following was not discussed in the text as a breakthrough innovation?
A. The airplane
B. The Internet
C. Spanx
D. Penicillin
Difficulty: Medium
p.99
66. Which of the following is defined as having some disruptive influence on established consumption
patterns?
A. Continuous Innovations
B. Dynamically Continuous Innovations
C. Discontinuous Innovations
D. Breakthrough Innovations
Difficulty: Hard
p.102

67. Continuous innovations are described as:

A. having the least disrupting influence on established consumption patterns.
B. having some disruptive influence on established consumption patterns.
C. having no disruptive influence on established consumption patterns.
D. having to establish new consumption patterns due to the creation of a previously unknown product.

Difficulty: Hard
p.102

68. The opportunity recognition process contains all of the following except:
A. work experience
B. reformation
C. entrepreneurial alertness
D. networks

Difficulty: Hard
p.103

69. The _______ is defined as the stages each product goes through from introduction to decline.
A. entrepreneurial decision making process
B. test marketing process
C. product planning and development process
D. product life cycle

Difficulty: Medium
p.104

70. How many stages are in the product planning and development process?
A. Two
B. Three
C. Four
D. Five
Difficulty: Medium
p.104
71. In what stage would you use the systematic market evaluation checklist?
A. Idea stage
B. Concept stage
C. Product development stage
D. Commercialization stage
Difficulty: Hard
p.106

72. In the idea stage of the product planning and development process:
A. conversational interviewing is used.
B. product samples are given out.
C. systematic market evaluation is used.
D. multiple brand comparison is used.

Difficulty: Hard
p.106

73. In what stage would it be most beneficial to use conversational interviews?

A. Idea stage
B. Concept stage
C. Product development stage
D. Commercialization stage

Difficulty: Medium
p.106-108

74. In which stage of the product planning and development process would it be appropriate to give
product samples to a panel of potential customers?
A. Idea stage
B. Concept stage
C. Product development stage
D. Commercialization stage

Difficulty: Hard
p.109

75. The stage in the product planning and development process in which actual sales results are available
is the:
A. idea stage.
B. concept stage.
C. product development stage.
D. test marketing stage.

Difficulty: Easy
p.109
76. Which area of e-commerce experienced the largest increase in sales from 2010-2011?
A. Digital content and subscriptions
B. Events tickets
C. Consumer Electronics
D. Jewelry and watches

Difficulty: Medium

p.109

77. Total internet spending was roughly _____ billion in 2011.

A. 150
B. 200
C. 250
D. 300

Difficulty: Hard

p.109

78. What area of e-commerce experienced the third largest increase in sales, 17%, from 2010-
2011?
A. Digital content and subscriptions
B. Events tickets
C. Consumer Electronics
D. Jewelry and watches
Difficulty: Hard
p.109

79. E-commerce in the U.S. grew by ____ between 2010 and 2011.
A. 10%
B. 11%
C. 12%
D. 13%
Difficulty: Hard
p.109
80. Orders and sensitive information should be transferred:
A. through credit card companies.
B. by banner ads.
C. over secure servers.
D. through open telephone lines.

Difficulty: Medium

p.111
81. What percentage of small businesses have a website?

A. 60%

B. 70%

C. 80%

D. 90%

Difficulty: Medium

p.110

82. Which of the companies below were not listed by the book as offering free web hosting?

A. Zymic

B. Amazon

C. 000Webhost

D. Webs

Difficulty: Hard

p.112

Short Answer/Essay Questions

83. Discuss both the Gordon method and Forced Relationship creative problem solving techniques.

A. Gordon method - unlike many other creative problem-solving techniques, begins with group members
not knowing the exact nature of the problem. This ensures that the solution is not clouded by
preconceived ideas and behavioral patterns. The entrepreneur starts by mentioning a general concept
associated with the problem. The group responds by expressing a number of ideas. Then a concept is
developed, followed by related concepts, through guidance by the entrepreneur. The actual problem is
then revealed later, enabling the group to make suggestions for implementation or refinement of the
final solution.
B. Forced relationships - is the process of forcing relationships among some product combinations. It
asks questions about objects or ideas in an effort to develop a new idea. The new combination and
concept is developed through a five-step process:
1. Isolate the elements of the problem.
2. Find the relationships between these elements.
3. Record the relationships in an orderly form.
4. Analyze the resulting relationships to find ideas or patterns.
5. Develop new ideas from these patterns.

Answer will vary.

Difficulty: Medium

p.95
84. Discuss brainstorming, its definitions and tips for having a successful brainstorming session.

Brainstorming can generate ideas about a problem in a limited time frame through the spontaneous
contributions of participations.

Tips:

Use problem statement that is not too broad or specific

No member should be an expert

Use 8-12 participants

All ideas should be recorded

No criticizing or evaluating during the session

Difficulty: Medium/Hard depending upon detail required by instructor

p.95

85. Give 5 examples of questions that could be asked using the checklist method.

Answer could include any of the following:

•Put to other uses? New ways to use as-is? Other uses if modified?
• Adapt? What else is like this? What other ideas does this suggest? Does past offer
parallel? What could I copy? Whom could I emulate?
•Modify? New twist? Change meaning, color, motion, odor, form, shape? Other
changes?
• Magnify? What to add? More time? Greater frequency? Stronger? Larger? Thicker?
Extra value? Plus ingredient? Duplicate? Multiply? Exaggerate?
• Minify? What substitute? Smaller? Condensed? Miniature? Lower? Shorter? Lighter?
Omit? Streamline? Split up? Understated?
• Substitute? Who else instead? What else instead? Other ingredient? Other material?
Other process? Other power? Other place? Other approach? Other tone of voice?
• Rearrange? Interchange components? Other pattern? Other layout? Other sequence?
Transpose cause and effect? Change track? Change schedule?
• Reverse? Transpose positive and negative? How about opposites? Turn it backward?
Turn it upside down? Reverse roles? Change shoes? Turn tables? Turn other cheek?
• Combine? How about a blend, an alloy, an assortment, an ensemble? Combine units?
Combine purposes? Combine appeals? Combine ideas?
Difficulty: Medium (instructor could make more difficulty by asking for more questions)
p.95
86. Identify and describe the three majors types of innovation.

A. Breakthrough - fewest in number, protection is important via patents, trademarks, copyrights,

examples given by the text include: penicillin, the steam engine, the computer, the airplane, the
automobile, the Internet, and nanotechnology.
B. Technological - occurs more frequently than breakthrough innovation and in general is not at the same
level of scientific discovery and advancement. These are very meaningful innovations, as they do offer
advancements in the product/market area. As such, they usually need to be protected. Such innovations
as the personal computer, the flip watch for containing pictures, voice and text messaging, and the jet
airplane are examples of technological innovations.
C. Ordinary - occurs most frequently, these more numerous innovations usually extend a technological
innovation into a better product or service or one that has a different—usually better—market appeal.
These innovations usually come from market analysis and pull, not technology push. In other words, the
market has a stronger effect on the innovation (market pull) than the technology (technology push). One
ordinary innovation (Spanx) was developed by Sara Blakely, who wanted to get rid of unsightly panty
lines. Examples used Spanx and gloves/slippers for yoga.

Answer will vary.

Difficulty: Medium

p.99-100

87. List, in order, the stages of the product planning and development process.

1. Idea

2. Concept

3. Product Development

4. Test marketing stage

5. Commercialization stage

Difficulty: Easy, to increase difficulty ask students to describe each stage

p.104