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Chapter 08
Entrepreneurial Strategy and Competitive Dynamics
True / False Questions
1. Small businesses create the majority of new jobs in the U. S. economy.
True False
2. Entrepreneurship refers to new value creation and can include activities in major corporations.
True False
3. Opportunity recognition is the process of identifying, selecting, and developing entrepreneurial

opportunities.
True False
4. Opportunity recognition involves two phases of activity: discovery and execution.
True False
5. The evaluation phase of opportunity recognition occurs when an entrepreneur has an insight about a
new business venture, often based on prior knowledge.
True False
6. The majority of entrepreneurial start-ups are financed with personal savings and the contributions of
family and friends.
True False
7. The majority of entrepreneurial firms are started with financing from venture capitalists and banks.
True False
8-1
Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
8. Angel investors are private individuals who provide equity investments for seed capital during the later
stages of a new venture.
True False
9. As investors, venture capitalists rarely provide any help or services to entrepreneurial firms other than
financing.
True False
10. Venture capital funding for entrepreneurial ventures is usually available only after the start-up has
become a going concern and established a track record.
True False
11. The term, angel investors, refers to private individuals who provide seed capital to young ventures.
True False
12. Venture capital is a form of public equity financing used to help young firms grow rapidly.
True False
13. To obtain venture capital financing, business founders often have to give up some ownership and
control of their business.
True False
14. Venture capitalists and angel investors regard the management team as the most important asset of an
entrepreneurial venture.
True False
15. Because of the Small Business Administration and government regulations, small businesses are rarely
allowed to bid on government contracts.
True False
16. An entry wedge, according to the text, is a type of entrepreneurial strategy firms can use to enter into
business.
True False
8-2
17. Founders using a pioneering new entry strategy look for opportunities to capitalize on proven market
successes.
True False
18. Adaptive new entry involves offering a radical new product or highly innovative service.
True False
19. Choosing which new entry strategy is best depends on competitive financial and marketplace
considerations with the greatest opportunities most likely to be in existing markets, rather than in new
markets.
True False
20. Spandex, founded in 2000, created footless pantyhose and other undergarments for women. This is an
example of an imitative new entry strategy.
True False
21. Smell-O-Vision created an invention that would pump odors into movie theatres. It did not make it to
market. This was an attempt to be an adaptive entry strategy.
True False
22. Pandora, launched in 2000, radically changes the radio business with its Music Genome Project system
that analyzes music for its underlying traits. This is an example of a pioneering new entry strategy.
True False
23. The success of an adaptive new entrant can be limited, if the value proposition is perceived as being
unique.
True False
24. Once an adaptive entrant has achieved initial success, the company is safe from copycat competition.
True False
25. Because new ventures typically are small, they usually do not have high economies of scale relative to
competitors.
True False
8-3
26. Entrepreneurial firms are often in a strong position to use combination strategies, because they have
the flexibility to approach situations uniquely.
True False
27. Entrepreneurial competitive dynamics refers to a cycle of actions and responses between firms
competing for the same customers.
True False
28. Warby Parker makes eyeglasses. It keeps costs low through several means and has a social mission.
This is an example of a firm that uses a combination strategy.
True False
29. A focus strategy must not include elements of differentiation and overall cost leadership in order to be
successful.
True False
30. Running Press created a line of palm-sized mini books that were sold as point-of-sale impulse items.
The company grew rapidly, even though it had a small fraction of the sales in the publishing industry.
They used a pure overall cost leadership strategy to capture market share.
True False
31. Entrepreneurial new entry is often perceived as a competitive threat because most market needs are
being met, either directly or indirectly, by an existing firm.
True False
32. Market commonality is the extent to which rivals draw from the same types of resources.
True False
33. Market commonality refers to the extent to which competitors are vying for the same customers in the
same markets.
True False
8-4
34. When attacked, older and larger firms tend to respond more quickly, but their responses are often more
predictable.
True False
35. Cutting prices or increasing marketing efforts are examples of tactical competitive actions.
True False
36. In the context of competitive dynamics, tactical actions involve major commitments of distinctive and
specific resources to strategic initiatives.
True False
37. Refinements or extensions of existing strategies are often referred to as tactical actions.
True False
38. Forbearance is a particularly aggressive type of competitive attack.
True False
39. Co-opetition, where competitors work together behind the scenes, is a form of illegal tacit collusion.
True False
Multiple Choice Questions
40. According to the text, for an entrepreneurial start-up to be successful, three ingredients are critical.
What are they?
A. good ideas, a team of investors, and a business plan

B. a viable opportunity, available resources, and a qualified and motivated founding team
C. an opportunity, a marketing plan, and office space
D. management, marketing, and money
8-5
41. Which of the following is not a common source of new business opportunities?
A. current or past work experiences

B. suggestions by family or friends
C. chance event
D. future work
42. The process of identifying, selecting, and developing new venture opportunities is known as _____________.
A. innovativeness
B. bootstrapping
C. opportunity recognition
D. brainstorming
43. Generally speaking, the opportunity recognition process consists of two phases of activity. They are
______________ and _____________.
A. global search; recycling profits

B. value creation; affordability
C. discovery; evaluation
D. global search; valuation
44. Which of the following is NOT one of the characteristics of an entrepreneurial opportunity?
A. attractive
B. affordable
C. achievable
D. value creating
45. When an opportunity is attractive long enough for it to be successfully developed and deployed, it is
said to be _____________.
A. value creating
B. affordable
C. achievable
D. durable
8-6
46. Which of the following terms is used to refer to opportunities that are practical and physically possible?
A. durable
B. valuable
C. achievable
D. sustainable
47. Which of the following is not a primary source of financing for entrepreneurial start-ups?
A. investments by family and friends

B. personal savings
C. private investors
D. public equity
48. According to a study by the Kaufmann Foundation, which of the following is the largest source of
funding for businesses that have been operating at least five years?
A. loans
B. venture capital
C. public financing
D. angel financing
49. The majority of entrepreneurial start-ups are financed through monies from _____________.
A. bank financing
B. SBA loans
C. venture-capital financing
D. personal savings and the contributions of family and friends
50. Private individuals who provide seed capital to young ventures are known as _____________.
A. angels
B. gazelles
C. cash cows
D. rising stars
8-7
51. Which of the following statements about venture capital is not true?
A. Entrepreneurs raise venture capital by selling shares of ownership in their business.

B. Venture capital is a form of public equity financing.
C. Venture capital is used to finance rapid growth or large capital expenditures.
D. Venture capital groups can often provide helpful management advice.
52. Based on statistics reported in the text, which of the following statements is not true?
A. Firms that obtain venture-capital funding receive an average of over $1 million each.
B. Total investment in start-up firms averages about $80,000 in the first year of the activity of the firm.
C. Among the 100 fastest-growing new businesses identified by Entrepreneur magazine, 61 percent
obtained start-up funding from personal savings.
D. Ninety percent of the companies financed with venture capital funds fail.
53. According to the text, new ventures launched by entrepreneurial teams are more likely to be successful
than ventures launched by _____________.
A. established corporations
B. bootstrappers
C. lone wolf entrepreneurs
D. individual investors
54. Which of the following is the most important resource for a start-up activity?
A. social recognition
B. land
C. personnel
D. money
8-8
55. ______________ provide(s) a key avenue for growth for many young and small firms through partnering to
obtain resources and/or expand into new markets.
A. Strategic alliances
B. Bootstrappers
C. Lone wolf entrepreneurs
D. Research & development
56. The U.S. Small Business Administration supports small business through all of the following EXCEPT
A. government contracting.
B. underwriting loans.
C. investing venture capital.
D. training and counseling.
57. Which of the following is NOT one of the three characteristics of entrepreneurial leadership mentioned
by the text?
A. vision
B. dedication and drive
C. commitment to excellence
D. clarifying job responsibilities
58. Vision is an important element of entrepreneurial leadership because _____________.
A. the entrepreneur has to envision realities that do not yet exist

B. a vision statement must be part of the documentation used to obtain venture financing
C. organizations cannot function without a detailed and operational vision
D. banking institutions require it
59. Which of the following is NOT a common new entry strategy according to the text?
A. imitative new entry

B. adaptive new entry
C. proactive new entry
D. pioneering new entry
8-9
60. Seeking products or services that have been successful in one market and introducing the same basic
product or service in another segment of the market is referred to as _____________.

61. When launching a new venture, finding a way to begin doing business must ______________ generate cash
flow, build credibility, attract good employees, and overcome the liability of newness.
A. slowly
B. quickly
C. steadily
D. painlessly
62. Pandora entered the radio business in 2000 using the Music Genome Project system that analyzes
music for its underlying traits as a means to distinguish itself. It was using ______________ entry strategy.
A. a pioneering
B. an imitative
C. an adaptive
D. a creative
63. The new entry strategy that a firm choses is dependent upon the ______________ and the ______________ of the
new business concept.
A. riskiness; cost
B. riskiness; potential sales
C. idea; innovativeness
D. riskiness; innovativeness
8-10
64. Smell-O-Vision designed an invention to pump odors into movie theatres. It flopped, in spite of its
innovativeness. What kind of new entry strategy was the company using to penetrate the market?
A. imitative
B. pioneering
C. adaptive
D. differentiated
65. Square provides a means for small businesses to process credit and debit card sales without signing up
for a traditional credit card arrangement of monthly fees and minimum charges. It used which new entry
strategy to enter the market initially?
A. imitative
B. pioneering
C. adaptive
D. differentiated
66. Tom Monahan, a business creativity coach, says that every new idea is merely a spin of an old idea. A
company that enters the market by offering a product or service that is somewhat new and sufficiently
different in order to create value for customers by capitalizing on current trends is using which new
entry strategy?
A. imitative
B. pioneering
C. adaptive
D. differentiated
67. In 2005, Plum Organics entered the market with organic baby food and snack foods for children. It now
has over 20 products and is listed at number 63 on the Inc 500 list of fastest growing private
companies. It used which new entry strategy in 2005?
A. imitative
B. pioneering
C. adaptive
D. differentiated
8-11
68. Which of the following is not a factor that makes it more difficult for new ventures to be successful as
differentiators?
A. The strategy is thought to be expensive to put into action.

B. Establishing a brand, important to a differentiation strategy, is thought to be expensive.
C. Superior innovation is often very costly.
D. Customer service is often costly, but it does not affect a differentiation strategy.
69. Amazon is an example of a company that used the differentiation strategy to enter the market. The
differentiation features included _____________.
A. minimal customer service

B. traditional back office logistics
C. exceptional customer service
D. traditional delivery logistics
70. One of the ways entrepreneurs achieve success is by using resources more efficiently. This is an
example of how entrepreneurs use ______________ strategy.
A. an imitative
B. a low-cost leader
C. a differentiation
D. a combination
71. Entrepreneurial firms that pursue a low-cost leadership strategy use all of the following to achieve
lower costs except _____________.
A. cost-saving technology such as the Internet

B. simple organizational structures
C. rapid decision making
D. extensive investment in order to achieve economies of scale
8-12
72. When an industry is mature, a ______________ strategy is considered to be one of the most effective
approaches for a new entrant.
A. focus
B. differentiation
C. overall low-cost
D. small business
73. According to the text, which of the following might does not make it difficult for entrepreneurial firms to
effectively pursue a strategy of differentiation?
A. Incumbent firms are constantly seeking opportunities to specialize in market niches.

B. Differentiation strategies are often expensive to enact.
C. It may be difficult for a young firm to establish a strong brand identity.
D. Implementing superior new technologies may be challenging for entrepreneurial firms.
74. Intense rivalry involving actions and responses among similar competitors vying for the same customers
in a marketplace is known as _____________.
A. competitive dynamics
B. resource similarity
C. threat of substitutes
75. Which of the following is not one of the reasons a company might launch new competitive actions?
A. to obtain first mover advantages

B. to improve market position
C. to capitalize on growing demand
D. to find new sources of raw materials
8-13
76. BCG authors Stalk and Lachenauer published a book in which they listed competitive strategy for
winning against incumbent rivals. Which of the following is not one of their suggested strategies?
A. devastate profit sanctuaries of rivals

B. plagiarize with pride and deceive the competition
C. unleash massive and overwhelming force
D. lower competitor costs
77. Aircraft makers Boeing and Airbus have a high degree of ______________ because they make very similar
products and have many buyers in common.
A. dynamic capabilities
B. market commonality
C. first mover advantages
D. equity funding
78. The Wall Street Journal and the New York Times have seen the intensity of their rivalry increase. One
factor driving this is that the Wall Street Journal has moved from financial news reporting to general
national and global news reporting and finally, to adding local New York news. The rivalry of these two
news providers has increased due to _____________.
A. increased dynamic capabilities

B. increased market commonality
C. erosion of first mover advantages
D. the choice of tactical over strategic actions
79. When any two firms have both a high degree of market commonality and highly similar resources, a
______________ threat is present.
A. weaker competitive
B. stronger competitive
C. successful marketing
D. stronger marketing
8-14
80. Which of the below best describes the competitive tendencies of small firms?
A. Small firms tend to signal their competitive actions long before they launch those actions, because
they lack legitimacy in the marketplace
B. Small firms typically have more resources available as they undertake competitive attacks than do
large firms.
C. Small firms are more nimble and can respond quickly to competitive attacks.
D. Small firms are more nimble and cannot respond quickly to competitive attacks.
81. Southwest Airlines began its no frills, no meals strategy in the late 1960s as a direct assault on the
major carriers of the day. What type of competitive action does this represent?
A. A tactical action because it is a refinement of an existing strategy.

B. A strategic action because is includes a refinement of an existing strategy.
C. A strategic action because it was a breakthrough innovative offer.
D. A guerilla offensive because it is fast and will surprise its rivals.
82. All of the following are examples of strategic actions a firm might take EXCEPT _____________.
A. partner with competitors to reduce competition

B. expand into neglected markets
C. change product packaging
D. tie up raw materials sources
83. The best example of a tactical action that a company might use in response to a competitive attack is
to _____________.
A. acquire the competitor

B. target the markets of the rival
C. expand into new geographical areas
D. offer price discounts and rebates
8-15
84. Which of the following is not a factor that affects how a competitor will respond to a competitive
attack?
A. how dependent the competitor is on that industry or particular market segment

B. the degree of market power and reputation of the company that initiated the attack
C. the resources which are available for a firm to respond
D. the stock market reaction to the initial competitive attack
85. Which of the following refers to a situation where a company has a high concentration of its business in
a particular industry market?
A. competitor resources
B. market dependence
C. resource similarity
D. actor's reputation
86. A firm is considering a large price cut on its leading product as a way to gain market share. One
executive strongly disagrees with the price cut. He observes that they are in the same marketplace as
their rivals and do not have any competitive advantages in their cost structure. If they cut prices, their
competitors will likely do the same. The end result is that everyone will make less money. These
arguments are an example of ________________.
A. a strategy of forbearance
B. a strategy of co-opetition
C. a hardball strategy whereby competitive actions are not undertaken without a clear advantage
D. a weakness strategy that leads a company into constant decline
Essay Questions
8-16
87. What is the role of opportunity recognition in the new venture development process?
88. Discuss the four characteristics of an entrepreneurial opportunity. Explain why each is important for the
opportunity to be viable.
89. Discuss the role of informal investments versus venture-capital financing as it is used by
entrepreneurial ventures. What are the advantages and disadvantages of each type?
8-17
90. What are the advantages and disadvantages of using venture capital to finance new ventures?
91. In what ways are human capital and social capital valuable to an entrepreneurial start-up? Provide
examples of each.
92. Compare and contrast the three most common new venture entry strategies: pioneering, imitative, and
adaptive.
8-18
93. Explain the pitfalls that are associated with a pioneering new entry and the implications these have for
new entrants with high technology offers.
94. Explain how the overall cost leadership strategy is used by new ventures to achieve competitive
advantage. Provide an example.
95. Explain how differentiation strategy is used by new ventures to achieve competitive advantage. Provide
an example.
8-19
96. Define the term competitive dynamics. Then, describe the cycle of actions and responses that are
characteristic of a competitive dynamics process.
97. Compare and contrast market commonality and resource similarity.
98. According to competitive dynamics, competitors are more likely to respond when attacked in a market
where the competitor relies on that market for a large portion of its sales. Why is this so? That is, what
dynamic is at work in this situation that would cause that response?
8-20
99. What are the differences between strategic actions and tactical actions? What are the implications of
each approach to the competitive dynamics process?
100. In the context of competitive dynamics, what factors determine the likelihood of a competitive
response?
8-21
Chapter 08 Entrepreneurial Strategy and Competitive Dynamics Answer Key
True / False Questions
1. Small businesses create the majority of new jobs in the U. S. economy.
TRUE
Small businesses, those defined as having 500 employees or fewer, create about 65 percent of all
new jobs in the United States and also generate 13 times as many new patents per employee as
larger firms.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-01 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
2. Entrepreneurship refers to new value creation and can include activities in major corporations.
TRUE
Even though entrepreneurial activity is usually associated with start-up companies, new value can
be created in many different contexts including: start-up ventures, major corporations, family-owned
businesses, non-profit organizations, and established institutions.
AACSB: Analytic
Blooms: Understand
8-22
3. Opportunity recognition is the process of identifying, selecting, and developing entrepreneurial
opportunities.
TRUE
To determine which ideas are strong enough to become new ventures, entrepreneurs must go
through a process of identifying, selecting, and developing potential opportunities. This is the process
of opportunity recognition.
AACSB: Analytic
Blooms: Remember
Level of Difficulty: 1 Easy
4. Opportunity recognition involves two phases of activity: discovery and execution.
TRUE
Opportunity recognition refers to more than just the Eureka feeling that people sometimes
experience at the moment they identify a new idea. Although such insights are often very important,
the opportunity recognition process involves two phases of activity (discovery and evaluation) that
lead to viable new venture opportunities.
AACSB: Analytic
Blooms: Understand
5. The evaluation phase of opportunity recognition occurs when an entrepreneur has an insight about a
new business venture, often based on prior knowledge.
FALSE
The discovery phase refers to the process of becoming aware of a new business concept. Many
entrepreneurs report that their idea for a new venture occurred to them in an instant in which they
had some insight or epiphany, often based on their prior knowledge, and that gave them an idea for a
new business.
AACSB: Analytic
Blooms: Understand
8-23
6. The majority of entrepreneurial start-ups are financed with personal savings and the contributions of
family and friends.
TRUE
The funding available to young and small firms tends to be quite limited. In fact, the majority of new
firms are low-budget start-ups launched with personal savings and the contributions of family and
friends.
AACSB: Analytic
Blooms: Understand
7. The majority of entrepreneurial firms are started with financing from venture capitalists and banks.
FALSE
The funding available to young and small firms tends to be quite limited. In fact, the majority of new
firms are low-budget start-ups launched with personal savings and the contributions of family and
friends.
AACSB: Analytic
Blooms: Understand
8. Angel investors are private individuals who provide equity investments for seed capital during the
later stages of a new venture.
FALSE
Although bank financing, public financing, and venture capital are important sources of small business
finance, these types of financial support are typically available only after a company has started to
conduct business and generate sales. Even angel investors, private individuals who provide equity
investments for seed capital during the early stages of a new venture, favor companies that already
have a winning business model and dominance in a market niche.
AACSB: Analytic
Blooms: Analyze
8-24
Level of Difficulty: 3 Hard
9. As investors, venture capitalists rarely provide any help or services to entrepreneurial firms other
than financing.
FALSE
Venture capitalists nearly always have high performance expectations from the companies they
invest in, but they also provide important managerial advice and links to key contacts in an industry.
AACSB: Analytic
Blooms: Understand
10. Venture capital funding for entrepreneurial ventures is usually available only after the start-up has
become a going concern and established a track record.
TRUE
Although bank financing, public financing, and venture capital are important sources of small business
finance, these types of financial support are typically available only after a company has started to
conduct business and generate sales. Once a venture has established itself as a going concern,
other sources of financing become readily available. Banks, for example, are more likely to provide
later-stage financing to companies with a track record of sales or other cash-generating activity.
Start-ups that involve large capital investments or extensive development costs or those on the
brink of rapid growth often seek venture capital.
AACSB: Analytic
Blooms: Understand
8-25
11. The term, angel investors, refers to private individuals who provide seed capital to young ventures.
TRUE
Angel investors are private individuals who provide equity investments for seed capital during the
early stages of a new venture. They favor companies that already have a winning business model and
dominance in a market niche.
AACSB: Analytic
Blooms: Remember
12. Venture capital is a form of public equity financing used to help young firms grow rapidly.
FALSE
Venture capital is a form of private equity financing through which entrepreneurs raise money by
selling shares in the new venture.
AACSB: Analytic
Blooms: Remember
13. To obtain venture capital financing, business founders often have to give up some ownership and
control of their business.
TRUE
Venture capital is a form of private equity financing through which entrepreneurs raise money by
selling shares in the new venture.
AACSB: Analytic
Blooms: Understand
8-26
14. Venture capitalists and angel investors regard the management team as the most important asset of
an entrepreneurial venture.
TRUE
Bankers, venture capitalists, and angel investors agree that the most important asset an
entrepreneurial firm can have is strong and skilled management.
AACSB: Analytic
Blooms: Understand
15. Because of the Small Business Administration and government regulations, small businesses are
rarely allowed to bid on government contracts.
FALSE
A key area of support for small business is in government contracting. Programs sponsored by the
SBA and other government agencies ensure that small businesses have the opportunity to bid on
contracts to provide goods and services to the government.
AACSB: Analytic
Blooms: Understand
16. An entry wedge, according to the text, is a type of entrepreneurial strategy firms can use to enter
into business.
TRUE
One of the most challenging aspects of launching a new venture is finding a way to begin doing
business that quickly generates cash flow, builds credibility, attracts good employees, and overcomes
the liability of newness. The idea of an entry strategy or entry wedge describes several approaches
that firms may take to get a foothold in a market.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-02 Three types of entry strategies-pioneering; imitative; and adaptive-commonly used to launch a new venture.
Topic: Entrepreneurial Strategy
8-27
17. Founders using a pioneering new entry strategy look for opportunities to capitalize on proven market
successes.
FALSE
An imitative new entry strategy is used by entrepreneurs when they look for opportunities to
capitalize on proven market successes. New entrants with a radical new product or highly innovative
service may change the way business is conducted in an industry. This kind of breakthrough,
creating new ways to solve old problems or meeting customer needs in a unique new way, is referred
to as a pioneering new entry.
AACSB: Analytic
Blooms: Remember
18. Adaptive new entry involves offering a radical new product or highly innovative service.
FALSE
New entrants with a radical new product or highly innovative service may change the way business is
conducted in an industry. This kind of breakthrough, creating new ways to solve old problems or
meeting customer needs in a unique new way, is referred to as a pioneering new entry. An adaptive
new entry approach does not involve reinventing the wheel nor is it merely imitative either. It
involves taking an existing idea and adapting it to a particular situation.
AACSB: Analytic
Blooms: Remember
8-28
19. Choosing which new entry strategy is best depends on competitive financial and marketplace
considerations with the greatest opportunities most likely to be in existing markets, rather than in
new markets.
FALSE
Considering these choices, an entrepreneur or entrepreneurial team might wonder which new entry
strategy is best. The choice depends on many competitive, financial, and marketplace considerations
and may stem from being willing to enter new markets rather than seeking growth only in existing
markets.
AACSB: Analytic
Blooms: Understand
20. Spandex, founded in 2000, created footless pantyhose and other undergarments for women. This is
an example of an imitative new entry strategy.
FALSE
An adaptive new entry approach does not involve reinventing the wheel nor is it merely imitative
either. It involves taking an existing idea and adapting it to a particular situation. Spandex is an
example of a young company that successfully modified or adapted existing products to create new
value.
AACSB: Analytic
Blooms: Understand
8-29
21. Smell-O-Vision created an invention that would pump odors into movie theatres. It did not make it
to market. This was an attempt to be an adaptive entry strategy.
FALSE
An adaptive new entry approach does not involve reinventing the wheel nor is it merely imitative
either. It involves taking an existing idea and adapting it to a particular situation. Smell-O-Vision
created a new invention to meet customer needs and therefore was an attempted pioneering new
entry strategy.
AACSB: Analytic
Blooms: Understand
22. Pandora, launched in 2000, radically changes the radio business with its Music Genome Project
system that analyzes music for its underlying traits. This is an example of a pioneering new entry
strategy.
TRUE
conducted in an industry. This kind of breakthrough of creating new ways to solve old problems or
meeting customer needs in a unique new way is referred to as a pioneering new entry. If the product
or service is unique enough, a pioneering new entrant may actually have little direct competition.
AACSB: Analytic
Blooms: Understand
23. The success of an adaptive new entrant can be limited, if the value proposition is perceived as being
unique.
FALSE
There are several pitfalls that might limit the success of an adaptive new entrant. First, the value
proposition must be perceived as unique. Unless potential customers believe a new product or
service does a superior job of meeting their needs, they will have little motivation to try it.
AACSB: Analytic
8-30
Blooms: Understand
24. Once an adaptive entrant has achieved initial success, the company is safe from copycat
competition.
FALSE
Once an adaptive entrant achieves initial success, the challenge is to keep the idea fresh. If the
attractive features of the new business are copied, the entrepreneurial firm must find ways to adapt
and improve the product or service offering.
AACSB: Analytic
Blooms: Understand
25. Because new ventures typically are small, they usually do not have high economies of scale relative
to competitors.
TRUE
Because new ventures typically are small, they usually do not have high economies of scale relative
to competitors. This means that new firms must seek a different approach, if they wish to pursue a
cost-leadership strategy.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-03 How the generic strategies of overall cost leadership; differentiation; and focus are used by new ventures
and small businesses.
8-31
26. Entrepreneurial firms are often in a strong position to use combination strategies, because they have
the flexibility to approach situations uniquely.
TRUE
Entrepreneurial firms are often in a strong position to offer a combination strategy, because they
have the flexibility to approach situations uniquely. For example, holding down expenses can be
difficult for big firms, because each layer of bureaucracy adds to the cost of doing business across
the boundaries of a large organization.
AACSB: Analytic
Blooms: Understand
27. Entrepreneurial competitive dynamics refers to a cycle of actions and responses between firms
competing for the same customers.
TRUE
Competitive dynamics is intense rivalry, involving actions and responses, among similar competitors
vying for the same customers in a marketplace.
AACSB: Analytic
Blooms: Remember
28. Warby Parker makes eyeglasses. It keeps costs low through several means and has a social mission.
This is an example of a firm that uses a combination strategy.
TRUE
Entrepreneurial firms, by contrast, can often create high-value products and services through their
unique differentiating efforts. In the case of Warby Parker, two entrepreneurs found a recipe to sell
fashionable eyeglasses to demanding customers while also cutting costs and serving a social mission.
AACSB: Analytic
Blooms: Understand
8-32
29. A focus strategy must not include elements of differentiation and overall cost leadership in order to
be successful.
FALSE
Focus strategies are often associated with small businesses because there is a natural fit between
the narrow scope of the strategy and the small size of the firm. A focus strategy may include
elements of differentiation and overall cost leadership, as well as combinations of these approaches.
To be successful within a market niche, the key strategic requirement is to stay focused.
AACSB: Analytic
Blooms: Understand
30. Running Press created a line of palm-sized mini books that were sold as point-of-sale impulse items.
The company grew rapidly, even though it had a small fraction of the sales in the publishing industry.
They used a pure overall cost leadership strategy to capture market share.
FALSE
Focus strategies are often associated with small businesses because there is a natural fit between
the narrow scope of the strategy and the small size of the firm. A focus strategy may include
elements of differentiation and overall cost leadership, as well as combinations of these approaches.
To be successful within a market niche, the key strategic requirement is to stay focused. Even
though these books represent just a tiny fraction of total sales in the $23 billion publishing industry,
they have been a mainstay for Running Press. As the Running Press example indicates, many new
ventures are successful even though their share of the market is quite small.
AACSB: Analytic
Blooms: Understand
8-33
31. Entrepreneurial new entry is often perceived as a competitive threat because most market needs
are being met, either directly or indirectly, by an existing firm.
TRUE
New entry into markets, whether by start-ups or by incumbent firms, nearly always threatens
existing competitors. This is true in part because nearly every market need is already being met,
either directly or indirectly, by existing firms. As a result, the competitive actions of a new entrant
are very likely to provoke a competitive response from companies that feel threatened. This, in turn,
is likely to evoke a reaction to the response.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-04 How competitive actions; such as the entry of new competitors into a marketplace; may launch a cycle of
actions and reactions among close competitors.
Topic: Competitive Dynamics
32. Market commonality is the extent to which rivals draw from the same types of resources.
FALSE
Market commonality is whether or not competitors are vying for the same customers and how many
markets they share in common. Resource similarity is the degree to which rivals draw on the same
types of resources to compete.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-05 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
33. Market commonality refers to the extent to which competitors are vying for the same customers in
the same markets.
TRUE
markets they share in common. For example, aircraft manufacturers Boeing and Airbus have a high
degree of market commonality because they make very similar products and have many buyers in
common.
AACSB: Analytic
8-34
Blooms: Remember
34. When attacked, older and larger firms tend to respond more quickly, but their responses are often
more predictable.
FALSE
Older and larger firms may have more resources and a repertoire of competitive techniques they can
use in a counterattack. Large firms, however, tend to be slower to respond. Older firms tend to be
predictable in their responses because they often lose touch with the competitive environment and
rely on strategies and actions that have worked in the past.
AACSB: Analytic
Blooms: Understand
35. Cutting prices or increasing marketing efforts are examples of tactical competitive actions.
TRUE
Two broadly defined types of competitive action include strategic actions and tactical actions.
Tactical actions include refinements or extensions of strategies. Examples of tactical actions include
cutting prices, improving gaps in service, or strengthening marketing efforts. Such actions typically
draw on general resources and can be implemented quickly.
AACSB: Analytic
Blooms: Understand
8-35
36. In the context of competitive dynamics, tactical actions involve major commitments of distinctive
and specific resources to strategic initiatives.
FALSE
Strategic actions represent major commitments of distinctive and specific resources. Such actions
require significant planning and resources and, once initiated, are difficult to reverse.
AACSB: Analytic
Blooms: Understand
37. Refinements or extensions of existing strategies are often referred to as tactical actions.
TRUE
AACSB: Analytic
Blooms: Remember
38. Forbearance is a particularly aggressive type of competitive attack.
FALSE
There may be many circumstances in which the best reaction is no reaction at all. This is known as
forbearance, refraining from reacting at all as well as holding back from initiating an attack.
AACSB: Analytic
Blooms: Remember
8-36
39. Co-opetition, where competitors work together behind the scenes, is a form of illegal tacit collusion.
FALSE
Co-opetition is a term that was coined by Novell network software company founder and former
CEO, Raymond Noorda, to suggest that companies often benefit most from a combination of
competing and cooperating. Close competitors that differentiate themselves in the eyes of
consumers may work together behind the scenes to achieve industrywide efficiencies.
AACSB: Analytic
Blooms: Remember
Multiple Choice Questions
40. According to the text, for an entrepreneurial start-up to be successful, three ingredients are critical.
What are they?
A. good ideas, a team of investors, and a business plan

B. a viable opportunity, available resources, and a qualified and motivated founding team
C. an opportunity, a marketing plan, and office space
D. management, marketing, and money
Beyond merely identifying a venture concept, the opportunity recognition process also involves
organizing the key people and resources that are needed to go forward. The three factors that are
needed, therefore, to successfully proceed are opportunity, resources, and entrepreneur(s).
AACSB: Analytic
Blooms: Understand
8-37
41. Which of the following is not a common source of new business opportunities?
A. current or past work experiences

B. suggestions by family or friends
C. chance event
D. future work
For new business start-ups, opportunities come from many sources including current or past work
experiences, hobbies that grow into businesses or lead to inventions, suggestions by friends or
family, or a chance event that makes an entrepreneur aware of an unmet need.
AACSB: Analytic
Blooms: Understand
42. The process of identifying, selecting, and developing new venture opportunities is known as
_____________.
A. innovativeness
B. bootstrapping
C. opportunity recognition
D. brainstorming
To determine which ideas are strong enough to become new ventures, entrepreneurs must go
through a process of identifying, selecting, and developing potential opportunities. This is the process
of opportunity recognition.
AACSB: Analytic
Blooms: Understand
8-38
43. Generally speaking, the opportunity recognition process consists of two phases of activity. They are
______________ and _____________.
A. global search; recycling profits

B. value creation; affordability
C. discovery; evaluation
D. global search; valuation
Opportunity recognition refers to more than just the Eureka feeling that people sometimes
experience at the moment they identify a new idea. Although such insights are often very important,
the opportunity recognition process involves two phases of activity (discovery and evaluation), which
lead to viable new venture opportunities.
AACSB: Analytic
Blooms: Understand
44. Which of the following is NOT one of the characteristics of an entrepreneurial opportunity?
A. attractive
B. affordable
C. achievable
D. value creating
For an opportunity to be viable, it needs to have four qualities: attractive, achievable, durable, and
value creating.
AACSB: Analytic
Blooms: Understand
8-39
45. When an opportunity is attractive long enough for it to be successfully developed and deployed, it is
said to be _____________.
A. value creating
B. affordable
C. achievable
D. durable
For an opportunity to be viable, it needs to have four qualities, one of which is durable. This means
the opportunity must be attractive long enough for the development and deployment to be
successful; that is, the window of opportunity must be open long enough for it to be worthwhile.
AACSB: Analytic
Blooms: Understand
46. Which of the following terms is used to refer to opportunities that are practical and physically
possible?
A. durable
B. valuable
C. achievable
D. sustainable
For an opportunity to be viable, it needs to have four qualities, one of which is achievable. This
means the opportunity must be practical and physically possible.
AACSB: Analytic
Blooms: Understand
8-40
47. Which of the following is not a primary source of financing for entrepreneurial start-ups?
A. investments by family and friends

B. personal savings
C. private investors
D. public equity
The majority of new firms are low-budget start-ups launched with personal savings and the
contributions of family and friends. Angel investors, private individuals who provide equity
investments for seed capital during the early stages of a new venture, favor companies that already
have a winning business model and dominance in a market niche.
AACSB: Analytic
Blooms: Understand
48. According to a study by the Kaufmann Foundation, which of the following is the largest source of
funding for businesses that have been operating at least five years?
A. loans
B. venture capital
C. public financing
D. angel financing
According to the Kauffman Foundation study, after five years of operation, the largest source of
funding is from loans taken out by the business.
AACSB: Analytic
Blooms: Understand
8-41
49. The majority of entrepreneurial start-ups are financed through monies from _____________.
A. bank financing
B. SBA loans
C. venture-capital financing
D. personal savings and the contributions of family and friends
The majority of new firms are low-budget start-ups launched with personal savings and the
contributions of family and friends.
AACSB: Analytic
Blooms: Understand
50. Private individuals who provide seed capital to young ventures are known as _____________.
A. angels
B. gazelles
C. cash cows
D. rising stars
Angel investors, private individuals who provide equity investments for seed capital during the early
stages of a new venture, favor companies that already have a winning business model and dominance
in a market niche.
AACSB: Analytic
Blooms: Remember
8-42
51. Which of the following statements about venture capital is not true?
A. Entrepreneurs raise venture capital by selling shares of ownership in their business.

B. Venture capital is a form of public equity financing.
C. Venture capital is used to finance rapid growth or large capital expenditures.
D. Venture capital groups can often provide helpful management advice.
Start-ups that involve large capital investments or extensive development costs may seek venture
capital, a form of private equity financing through which entrepreneurs raise money by selling shares
in the new venture. Venture capitalists nearly always have high performance expectations from the
companies they invest in, but they also provide important managerial advice and links to key
contacts in an industry.
AACSB: Analytic
Blooms: Understand
52. Based on statistics reported in the text, which of the following statements is not true?
A. Firms that obtain venture-capital funding receive an average of over $1 million each.
B. Total investment in start-up firms averages about $80,000 in the first year of the activity of the
firm.
C. Among the 100 fastest-growing new businesses identified by Entrepreneur magazine, 61 percent
obtained start-up funding from personal savings.
D. Ninety percent of the companies financed with venture capital funds fail.
Among firms included in the Entrepreneur Magazine list of the 100 fastest-growing new businesses
in a recent year, 61 percent reported that their start-up funds came from personal savings. When
firms receive venture-capital investments, they receive a substantial level of investment, over $1
million on average in the Kaufmann Foundation survey.
AACSB: Analytic
Blooms: Understand
8-43
53. According to the text, new ventures launched by entrepreneurial teams are more likely to be
successful than ventures launched by _____________.
A. established corporations
B. bootstrappers
C. lone wolf entrepreneurs
D. individual investors
Managers need to have a strong base of experience, extensive domain knowledge, and an ability to
make rapid decisions and change direction as needed. In the case of start-ups, more is better. New
ventures that are started by teams of three, four, or five entrepreneurs are more likely to succeed in
the long run than are ventures launched by lone wolf entrepreneurs.
AACSB: Analytic
Blooms: Understand
54. Which of the following is the most important resource for a start-up activity?
A. social recognition
B. land
C. personnel
D. money
Resources are an essential component of a successful entrepreneurial launch. For start-ups, the
most important resource is usually money because a new firm typically has to expend substantial
sums just to start the business. However, financial resources are not the only kind of resource a
new venture needs. Human capital and social capital are also important.
AACSB: Analytic
Blooms: Understand
8-44
55. ______________ provide(s) a key avenue for growth for many young and small firms through partnering to
obtain resources and/or expand into new markets.
A. Strategic alliances
B. Bootstrappers
C. Lone wolf entrepreneurs
D. Research & development
Strategic alliances provide a key avenue for growth by entrepreneurial firms. By partnering with
other companies, young or small firms can expand or give the appearance of entering numerous
markets and/or handling a range of operations.
AACSB: Analytic
Blooms: Understand
56. The U.S. Small Business Administration supports small business through all of the following EXCEPT
A. government contracting.
B. underwriting loans.
C. investing venture capital.
D. training and counseling.
In the U.S., the federal government provides support for entrepreneurial firms in two key arenas,
financing and government contracting. The Small Business Administration (SBA) has several loan
guarantee programs designed to support the growth and development of entrepreneurial firms. The
government itself does not typically lend money but underwrites loans made by banks to small
businesses. The SBA also offers training, counseling, and support services through its local offices
and Small Business Development Centers.
AACSB: Analytic
Blooms: Understand
8-45
57. Which of the following is NOT one of the three characteristics of entrepreneurial leadership
mentioned by the text?
A. vision
B. dedication and drive
C. commitment to excellence
D. clarifying job responsibilities
Entrepreneurs put themselves to the test and get their satisfaction from acting independently,
overcoming obstacles, and thriving financially. To do so, they must embody three characteristics of
leadership: vision, dedication and drive, and commitment to excellence.
AACSB: Analytic
Blooms: Understand
58. Vision is an important element of entrepreneurial leadership because _____________.
A. the entrepreneur has to envision realities that do not yet exist

B. a vision statement must be part of the documentation used to obtain venture financing
C. organizations cannot function without a detailed and operational vision
D. banking institutions require it
Vision may be the most important asset of an entrepreneur. Entrepreneurs envision realities that do
not yet exist. Without a vision, most entrepreneurs would never even get their venture off the
ground.
AACSB: Analytic
Blooms: Understand
8-46
59. Which of the following is NOT a common new entry strategy according to the text?

For a new venture, the entry strategy will vary depending on how risky and innovative the new
business concept is. New entry strategies typically fall into one of three categories: pioneering new
entry, imitative new entry, or adaptive new entry.
AACSB: Analytic
Blooms: Understand
60. Seeking products or services that have been successful in one market and introducing the same
basic product or service in another segment of the market is referred to as _____________.

Imitators look for opportunities to capitalize on proven market successes. An imitative new entry
strategy is used by entrepreneurs who see products or business concepts that have been
successful in one market niche or physical locale and introduce the same basic product or service in
another segment of the market.
AACSB: Analytic
Blooms: Understand
8-47
61. When launching a new venture, finding a way to begin doing business must ______________ generate cash
flow, build credibility, attract good employees, and overcome the liability of newness.
A. slowly
B. quickly
C. steadily
D. painlessly
One of the most challenging aspects of launching a new venture is finding a way to begin doing
business that quickly generates cash flow, builds credibility, attracts good employees, and overcomes
the liability of newness. The idea of an entry strategy or entry wedge describes several approaches
that firms may take to get a foothold in a market.
AACSB: Analytic
Blooms: Understand
62. Pandora entered the radio business in 2000 using the Music Genome Project system that analyzes
music for its underlying traits as a means to distinguish itself. It was using ______________ entry strategy.
A. a pioneering
B. an imitative
C. an adaptive
D. a creative
Pandora pioneered a new way to broadcast music. This kind of breakthrough of creating new ways to
solve old problems or meeting customer needs in a unique new way is referred to as a pioneering
new entry.
AACSB: Analytic
Blooms: Understand
8-48
63. The new entry strategy that a firm choses is dependent upon the ______________ and the ______________ of
the new business concept.
A. riskiness; cost
B. riskiness; potential sales
C. idea; innovativeness
D. riskiness; innovativeness
In some respects, any type of entry into a market for the first time may be considered
entrepreneurial. But the entry strategy will vary depending on how risky and innovative the new
business concept is.
AACSB: Analytic
Blooms: Understand
64. Smell-O-Vision designed an invention to pump odors into movie theatres. It flopped, in spite of its
innovativeness. What kind of new entry strategy was the company using to penetrate the market?
A. imitative
B. pioneering
C. adaptive
D. differentiated
Smell-O-Vision, an invention designed to pump odors into movie theatres from the projection room
at pre-established moments in a film. It was tried only once (for the film Scent of a Mystery) before
it was declared a major flop. It definitely was innovation, but it was hardly a good idea at the time.
conducted in an industry. This kind of breakthrough of creating new ways to solve old problems or
meeting customer needs in a unique new way is referred to as a pioneering new entry.
AACSB: Analytic
Blooms: Understand
8-49
65. Square provides a means for small businesses to process credit and debit card sales without signing
up for a traditional credit card arrangement of monthly fees and minimum charges. It used which new
entry strategy to enter the market initially?
A. imitative
B. pioneering
C. adaptive
D. differentiated
Whereas pioneers are often inventors or tinkerers with new technology, imitators usually have a
strong marketing orientation. They look for opportunities to capitalize on proven market successes.
An imitative new entry strategy is used by entrepreneurs who see products or business concepts
that have been successful in one market niche or physical locale and introduce the same basic
product or service in another segment of the market. While Square has quickly established itself in
the market, it now faces strong competition from major competitors, including Intuit and PayPal.
AACSB: Analytic
Blooms: Understand
66. Tom Monahan, a business creativity coach, says that every new idea is merely a spin of an old idea.
A company that enters the market by offering a product or service that is somewhat new and
sufficiently different in order to create value for customers by capitalizing on current trends is using
which new entry strategy?
A. imitative
B. pioneering
C. adaptive
D. differentiated
Most new entrants use a strategy somewhere between pure imitation and pure pioneering. That is,
they offer a product or service that is somewhat new and sufficiently different to create new value
for customers and capture market share. Such firms are adaptive in the sense that they are aware
of marketplace conditions and conceive entry strategies to capitalize on current trends.
AACSB: Analytic
Blooms: Understand
8-50
67. In 2005, Plum Organics entered the market with organic baby food and snack foods for children. It
now has over 20 products and is listed at number 63 on the Inc 500 list of fastest growing private
companies. It used which new entry strategy in 2005?
A. imitative
B. pioneering
C. adaptive
D. differentiated
Most new entrants use a strategy somewhere between pure imitation and pure pioneering. That is,
they offer a product or service that is somewhat new and sufficiently different to create new value
for customers and capture market share. Such firms are adaptive in the sense that they are aware
of marketplace conditions and conceive entry strategies to capitalize on current trends.
AACSB: Analytic
Blooms: Understand
68. Which of the following is not a factor that makes it more difficult for new ventures to be successful
as differentiators?
A. The strategy is thought to be expensive to put into action.

B. Establishing a brand, important to a differentiation strategy, is thought to be expensive.
C. Superior innovation is often very costly.
D. Customer service is often costly, but it does not affect a differentiation strategy.
There are several factors that make it more difficult for new ventures to be successful as
differentiators. For one thing, the strategy is generally thought to be expensive to enact.
Differentiation is often associated with strong brand identity, and establishing a brand is usually
considered to be expensive because of the cost of advertising and promotion, paid endorsements,
exceptional customer service, etc. Differentiation successes are sometimes built on superior
innovation or use of technology. These are also factors where it may be challenging for young firms
to excel relative to established competitors.
AACSB: Analytic
Blooms: Understand
8-51
69. Amazon is an example of a company that used the differentiation strategy to enter the market. The
differentiation features included _____________.
A. minimal customer service

B. traditional back office logistics
C. exceptional customer service
D. traditional delivery logistics
Amazon set out to use Internet technology to revolutionize the way books are sold. As a bookseller,
Amazon founder Jeff Bezos set out to use Internet technology to revolutionize the way books are
sold. Bezos was not doing anything that had not been done before. But the two key differentiating
features of doing it on the Internet and offering extraordinary customer service have made Amazon a
differentiated success.
AACSB: Analytic
Blooms: Understand
70. One of the ways entrepreneurs achieve success is by using resources more efficiently. This is an
example of how entrepreneurs use ______________ strategy.
A. an imitative
B. a low-cost leader
C. a differentiation
D. a combination
One of the ways entrepreneurial firms achieve success is by doing more with less. By holding down
costs or making more efficient use of resources than larger competitors, new ventures are often
able to offer lower prices and still be profitable. Thus, under the right circumstances, a low-cost
leader strategy is a viable alternative for some new ventures.
AACSB: Analytic
Blooms: Understand
8-52
71. Entrepreneurial firms that pursue a low-cost leadership strategy use all of the following to achieve
lower costs except _____________.
A. cost-saving technology such as the Internet

B. simple organizational structures
C. rapid decision making
D. extensive investment in order to achieve economies of scale
Compared to large firms, new ventures often have simple organizational structures that make
decision making both easier and faster. The smaller size also helps young firms change more quickly
when upgrades in technology or feedback from the marketplace indicate that improvements are
needed.
AACSB: Analytic
Blooms: Understand
72. When an industry is mature, a ______________ strategy is considered to be one of the most effective
approaches for a new entrant.
A. focus
B. differentiation
C. overall low-cost
D. small business
Most start-ups enter industries that are mature, where growth in demand tends to be slow and there
are often many competitors. If a start-up wants to get a piece of the action, it often has to take
business away from an existing competitor. If a start-up enters a market with a broad or aggressive
strategy, it is likely to evoke retaliation from a more powerful competitor. Young firms can often
succeed best by finding a market niche where they can get a foothold.
AACSB: Analytic
Blooms: Understand
8-53
73. According to the text, which of the following might does not make it difficult for entrepreneurial firms
to effectively pursue a strategy of differentiation?
A. Incumbent firms are constantly seeking opportunities to specialize in market niches.

B. Differentiation strategies are often expensive to enact.
C. It may be difficult for a young firm to establish a strong brand identity.
D. Implementing superior new technologies may be challenging for entrepreneurial firms.
There are several factors that make it more difficult for new ventures to be successful as
differentiators. For one thing, the strategy is generally thought to be expensive to enact.
Differentiation is often associated with strong brand identity, and establishing a brand is usually
considered to be expensive because of the cost of advertising and promotion, paid endorsements,
exceptional customer service, etc. Differentiation successes are sometimes built on superior
innovation or use of technology.
AACSB: Analytic
Blooms: Understand
74. Intense rivalry involving actions and responses among similar competitors vying for the same
customers in a marketplace is known as _____________.
A. competitive dynamics
B. resource similarity
C. threat of substitutes
Competitive dynamics is the term for an intense rivalry, involving actions and responses, among
similar competitors vying for the same customers in a marketplace.
AACSB: Analytic
Blooms: Remember
8-54
75. Which of the following is not one of the reasons a company might launch new competitive actions?
A. to obtain first mover advantages

B. to improve market position
C. to capitalize on growing demand
D. to find new sources of raw materials
There are several reasons why companies launch new competitive actions, including to improve
market position, capitalize on growing demand, expand production capacity, provide an innovative
new solution, or obtain first mover advantages.
AACSB: Analytic
Blooms: Understand
76. BCG authors Stalk and Lachenauer published a book in which they listed competitive strategy for
winning against incumbent rivals. Which of the following is not one of their suggested strategies?
A. devastate profit sanctuaries of rivals

B. plagiarize with pride and deceive the competition
C. unleash massive and overwhelming force
D. lower competitor costs
But competitive attacks come from many sources besides new entrants. Some of the most intense
competition is among incumbent rivals intent on gaining strategic advantages. Winners in business
play rough and don't apologize for it, according to Boston Consulting Group authors George Stalk, Jr.
and Rob Lachenauer in their book Hardball: Are You Playing to Play or Playing to Win? Their five
strategies are: devastate profit sanctuaries of rivals, plagiarize with pride, deceive the competition,
unleash massive and overwhelming force, and raise costs of competitors.
AACSB: Analytic
Blooms: Understand
8-55
77. Aircraft makers Boeing and Airbus have a high degree of ______________ because they make very similar
products and have many buyers in common.
A. dynamic capabilities
B. market commonality
C. first mover advantages
D. equity funding
markets they share in common. For example, aircraft manufacturers Boeing and Airbus have a high
degree of market commonality because they make very similar products and have many buyers in
common.
AACSB: Analytic
Blooms: Understand
78. The Wall Street Journal and the New York Times have seen the intensity of their rivalry increase.
One factor driving this is that the Wall Street Journal has moved from financial news reporting to
general national and global news reporting and finally, to adding local New York news. The rivalry of
these two news providers has increased due to _____________.
A. increased dynamic capabilities

B. increased market commonality
C. erosion of first mover advantages
D. the choice of tactical over strategic actions
markets they share in common. Here, the changes to Wall Street Journal reporting means the two
newspapers are now competing for the same customers.
AACSB: Analytic
Blooms: Understand
8-56
79. When any two firms have both a high degree of market commonality and highly similar resources, a
______________ threat is present.
A. weaker competitive
B. stronger competitive
C. successful marketing
D. stronger marketing
When any two firms have both a high degree of market commonality and highly similar resource
bases, a stronger competitive threat is present. Such a threat, however, may not lead to competitive
action. On the one hand, a market rival may be hesitant to attack a company that it shares a high
degree of market commonality with because it could lead to an intense battle. On the other hand,
once attacked, rivals with high market commonality will be much more motivated to launch a
competitive response.
AACSB: Analytic
Blooms: Understand
80. Which of the below best describes the competitive tendencies of small firms?
A. Small firms tend to signal their competitive actions long before they launch those actions,
because they lack legitimacy in the marketplace
B. Small firms typically have more resources available as they undertake competitive attacks than
do large firms.
C. Small firms are more nimble and can respond quickly to competitive attacks.
D. Small firms are more nimble and cannot respond quickly to competitive attacks.
Consider the role of firm age and size in calculating a company's ability to respond. Most
entrepreneurial new ventures start out small. The smaller size makes them more nimble compared to
large firms so they can respond quickly to competitive attacks.
AACSB: Analytic
Blooms: Understand
8-57
81. Southwest Airlines began its no frills, no meals strategy in the late 1960s as a direct assault on the
major carriers of the day. What type of competitive action does this represent?
A. A tactical action because it is a refinement of an existing strategy.

B. A strategic action because is includes a refinement of an existing strategy.
C. A strategic action because it was a breakthrough innovative offer.
D. A guerilla offensive because it is fast and will surprise its rivals.
This is a tactical action because it was a refinement of an existing strategy. Some competitive
actions take the form of frontal assaults, that is, actions aimed directly at taking business from
another company or capitalizing on industry weaknesses. This can be especially effective when firms
use a low-cost strategy. The airline industry provides a good example of this head-on approach.
When Southwest Airlines began its no-frills, no meals strategy in the late 1960s, it represented a
direct assault on the major carriers of the day.
AACSB: Analytic
Blooms: Apply
82. All of the following are examples of strategic actions a firm might take EXCEPT _____________.
A. partner with competitors to reduce competition

B. expand into neglected markets
C. change product packaging
D. tie up raw materials sources
Strategic actions represent major commitments of distinctive and specific resources. Examples
include launching a breakthrough innovation, building a new production facility, or merging with
another company. Such actions require significant planning and resources and, once initiated, are
difficult to reverse.
AACSB: Analytic
Blooms: Understand
8-58
83. The best example of a tactical action that a company might use in response to a competitive attack
is to _____________.
A. acquire the competitor

B. target the markets of the rival
C. expand into new geographical areas
D. offer price discounts and rebates
AACSB: Analytic
Blooms: Understand
84. Which of the following is not a factor that affects how a competitor will respond to a competitive
attack?
A. how dependent the competitor is on that industry or particular market segment

B. the degree of market power and reputation of the company that initiated the attack
C. the resources which are available for a firm to respond
D. the stock market reaction to the initial competitive attack
How a competitor is likely to respond will depend on three factors: market dependence, competitor
resources, and the reputation of the firm that initiates the action (actor reputation).
AACSB: Analytic
Blooms: Understand
8-59
85. Which of the following refers to a situation where a company has a high concentration of its business
in a particular industry market?
A. competitor resources
B. market dependence
C. resource similarity
D. actor's reputation
If a company has a high concentration of its business in a particular industry, it has more at stake
because it must depend on that industry market for its sales, which is known as market dependence.
Single-industry businesses or those where one industry dominates are more likely to mount a
competitive response.
AACSB: Analytic
Blooms: Understand
86. A firm is considering a large price cut on its leading product as a way to gain market share. One
executive strongly disagrees with the price cut. He observes that they are in the same marketplace
as their rivals and do not have any competitive advantages in their cost structure. If they cut prices,
their competitors will likely do the same. The end result is that everyone will make less money.
These arguments are an example of ________________.
A. a strategy of forbearance
B. a strategy of co-opetition
C. a hardball strategy whereby competitive actions are not undertaken without a clear advantage
D. a weakness strategy that leads a company into constant decline
There may be many circumstances (such as this potential price war) in which the best reaction is no
reaction at all. This is known as forbearance, refraining from reacting at all as well as holding back
from initiating an attack.
AACSB: Analytic
Blooms: Apply
8-60
Essay Questions
87. What is the role of opportunity recognition in the new venture development process?
Answers will vary.
AACSB: Analytic
Blooms: Understand
88. Discuss the four characteristics of an entrepreneurial opportunity. Explain why each is important for
the opportunity to be viable.
Answers will vary.
AACSB: Analytic
Blooms: Understand
89. Discuss the role of informal investments versus venture-capital financing as it is used by
entrepreneurial ventures. What are the advantages and disadvantages of each type?
Answers will vary.
AACSB: Analytic
Blooms: Understand
8-61
90. What are the advantages and disadvantages of using venture capital to finance new ventures?
Answers will vary.
AACSB: Analytic
Blooms: Understand
91. In what ways are human capital and social capital valuable to an entrepreneurial start-up? Provide
examples of each.
Answers will vary.
AACSB: Analytic
Blooms: Apply
92. Compare and contrast the three most common new venture entry strategies: pioneering, imitative,
and adaptive.
Answers will vary.
AACSB: Analytic
Blooms: Understand
8-62
93. Explain the pitfalls that are associated with a pioneering new entry and the implications these have
for new entrants with high technology offers.
Answers will vary.
AACSB: Analytic
Blooms: Understand
94. Explain how the overall cost leadership strategy is used by new ventures to achieve competitive
advantage. Provide an example.
Answers will vary.
AACSB: Analytic
Blooms: Understand
95. Explain how differentiation strategy is used by new ventures to achieve competitive advantage.
Provide an example.
Answers will vary.
AACSB: Analytic
Blooms: Understand
8-63
96. Define the term competitive dynamics. Then, describe the cycle of actions and responses that are
characteristic of a competitive dynamics process.
Answers will vary.
AACSB: Analytic
Blooms: Understand
97. Compare and contrast market commonality and resource similarity.
Answers will vary.
AACSB: Analytic
Blooms: Understand
98. According to competitive dynamics, competitors are more likely to respond when attacked in a
market where the competitor relies on that market for a large portion of its sales. Why is this so?
That is, what dynamic is at work in this situation that would cause that response?
Answers will vary.
AACSB: Analytic
Blooms: Understand
8-64
Strategic Management Creating Competitive Advantages 7th Edition Dess Test Bank
99. What are the differences between strategic actions and tactical actions? What are the implications
of each approach to the competitive dynamics process?
Answers will vary.
AACSB: Analytic
Blooms: Understand
100. In the context of competitive dynamics, what factors determine the likelihood of a competitive
response?
Answers will vary.
AACSB: Analytic
Blooms: Understand
8-65
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Entrepreneurial Strategy and Competitive Dynamics

True / False Questions

1. Small businesses create the majority of new jobs in the U. S. economy.

3. Opportunity recognition is the process of identifying, selecting, and developing entrepreneurial

4. Opportunity recognition involves two phases of activity: discovery and execution.

38. Forbearance is a particularly aggressive type of competitive attack.

Multiple Choice Questions

A. good ideas, a team of investors, and a business plan

A. current or past work experiences

A. global search; recycling profits

A. investments by family and friends

A. Entrepreneurs raise venture capital by selling shares of ownership in their business.

58. Vision is an important element of entrepreneurial leadership because _____________.

A. the entrepreneur has to envision realities that do not yet exist

A. imitative new entry

A. imitative new entry

A. The strategy is thought to be expensive to put into action.

A. minimal customer service

A. cost-saving technology such as the Internet

A. Incumbent firms are constantly seeking opportunities to specialize in market niches.

A. to obtain first mover advantages

A. devastate profit sanctuaries of rivals

A. increased dynamic capabilities

A. A tactical action because it is a refinement of an existing strategy.

A. partner with competitors to reduce competition

A. acquire the competitor

A. how dependent the competitor is on that industry or particular market segment

97. Compare and contrast market commonality and resource similarity.

True / False Questions

1. Small businesses create the majority of new jobs in the U. S. economy.

4. Opportunity recognition involves two phases of activity: discovery and execution.

38. Forbearance is a particularly aggressive type of competitive attack.

Multiple Choice Questions

A. good ideas, a team of investors, and a business plan

A. current or past work experiences

A. global search; recycling profits

A. investments by family and friends

A. Entrepreneurs raise venture capital by selling shares of ownership in their business.

58. Vision is an important element of entrepreneurial leadership because _____________.

A. the entrepreneur has to envision realities that do not yet exist

A. imitative new entry

A. imitative new entry

A. The strategy is thought to be expensive to put into action.

A. minimal customer service

A. cost-saving technology such as the Internet

A. Incumbent firms are constantly seeking opportunities to specialize in market niches.

A. to obtain first mover advantages

A. devastate profit sanctuaries of rivals

A. increased dynamic capabilities

A. A tactical action because it is a refinement of an existing strategy.

A. partner with competitors to reduce competition

A. acquire the competitor

A. how dependent the competitor is on that industry or particular market segment

Answers will vary.

Answers will vary.

Answers will vary.

Answers will vary.

Answers will vary.

Answers will vary.

Answers will vary.