Entrepreneurial small business 5th edition katz test bank

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Chapter 07 Small Business Strategies: Imitation with a Twist

True / False Questions

1.

Strategy is the idea and actions that explain how a firm will make its profits.

True

2.

Small businesses typically use the strategy of innovativeness rather than imitativeness.

True

3.

False

False

The first step of the strategic planning process for small businesses is considering your customers and the benefits you want to offer them.

True

4.

There are two major classification systems that code industries: NAICS and SIC. True

5.

False

False

Your magic number is the number of customers you can comfortably provide with your product or service.

True

6.

False

The new NAICS covers more industries than the SIC. True

False

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7.

Imitation minus one degree of similarity is the business equivalent of an innovative strategy.

True

8.

Incremental innovation is also called a blue ocean strategy.

True

9.

False

False

Market scale refers to the geography of the target market.

True

False

10. A niche market is a narrowly defined segment of the population that is likely to share interests or concerns.

True

False

11. Cost benefits include scale and scope savings.

True

False

12. Generally, benefits do not influence a firm's strategy process.

True

False

13. Shake-out is a type of life cycle growth stage marked by a very rapid increase in sales in a relatively short time.

True

False

14. Eventually, mature industries begin a decline stage. Some industries face death, while others find new life in a process called retrenchment.

True

False

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15. Funds left over after deducting the cost of goods sold are referred to as the net profit.

True

False

16. Differentiation strategies target a niche segment of the market.

True

False

17. The supra-strategies are designed to work when there are very few small business in an industry, along with many larger firms.

True

False

18. Second sourcing provides customers with greater certainty of supplies or services.

True

False

19. Tactical actions are competitive responses with low resource requirements.

True

False

20. The major ways you cope with competitive pressures is by undertaking some combination of strategic actions and tactical actions.

True

False

Multiple Choice Questions

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21. _____ is the idea and actions that explain how a firm will make its profits.

A. Strategy B. Objective C. Mission D. Goal 22. Most small businesses are more _____ than _____.

A. cost-directed; profit-directed B. imitative; innovative C. profit-directed; cost-directed D. innovative; imitative 23. The first step of the strategic planning process for a small business is:

A. performing a SWOT analysis.

B. reviewing and confirming the goals that define the firm.

C. mapping the prospective customers.

D. studying the dynamics and trends of the industry.

24. Which of the following is the second step of a small business' strategic planning process?

A. Reviewing and confirming the goals that define the firm B. Knowing the magic number C. Studying the dynamics and trends of the industry D. Considering the customers and the benefits to offer them

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25. Industry analysis is defined as the technique used to:

A. determine the magic number in a particular industry.

B. determine the extent to which a product is similar to another product.

C. study the dynamics and trends of an industry.

D. study the effects of low cost on an industry.

26. The fourth step of a small business' strategic planning process involves:

A. considering the customers and the benefits to offer them.

B. refining the firm's capabilities in order to maintain a competitive advantage.

C. determining the best strategic direction and strategy for the firm.

D. studying the dynamics and trends of the industry.

27. For a small business that is just starting out, all strategy starts with _________.

A. the product or service B. the owner C. the competition D. the customers 28. Which of the following is the advantage of knowing the magic number?

A. It helps in evaluating if the proposed business can deliver the desired return.

B. It helps in retaining customers.

C. It seeks out customers who are already being serviced by another firm.

D. It helps in making incremental product improvements.

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29. As a new entrepreneur, Anthony's magic number for 2013 is $42,000. If the current tax rate for his business is 30 percent, calculate the amount that Anthony's firm would need to sell for him to get his magic number.

A. $50,000 B. $50,495 C. $60,000 D. $60,854 30. _____ is the general name for the line of product or service being sold, or the firms in that line of business.

A. Industry B. Market C. Scope D. Niche group 31. Which of the following are the two major classification systems that code industries?

A. NAICS and SIC B. SCALE and SCOPE C. SWOT and VRIO D. OLC and SWOT 32. Standard industrial classification system (SIC) codes have _____ digits.

A. four B. six C. seven D. nine

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33. Which of the following statements concerning choosing an industry is not correct?

A. Picking the right industry is key to the success of your small business.

B. Insurance firms and health-related firms do well in bad times and good historically.

C. Industry is vitally important to your core strategy decisions.

D. There are industries that are more profitable than others.

34. In an imitative strategy, an entrepreneur:

A. creates a new product or service which has no competitors.

B. considers prospective customers before creating a product or service.

C. seeks to do something that is very different from what others are doing.

D. does more or less what others are already doing.

35. Which of the following is an advantage of using an imitative strategy?

A. It allows entrepreneurs to do something that is very different from what others are doing.

B. It allows business owners to buy existing technologies.

C. It allows entrepreneurs to fit their businesses to their own ideas and preferences.

D. It allows business owners to create unique settings.

36. Imitation minus one degree of similarity:

A. would be the business equivalent of cloning.

B. is equivalent to the blue ocean strategy.

C. leads to pure innovation.

D. helps in the creation of a unique setting.

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37. Which of the following statements is not true of degree of similarity?

A. Most firms use imitation plus or minus one degree of similarity.

B. Imitation minus one degree of similarity is called incremental innovation.

C. Imitation minus one degree of similarity is the business equivalent of cloning.

D. Imitation plus one degree of similarity is called incremental innovation.

38. An imitative business that competes locally with others in the same industry is referred to as _____.

A. incremental competition B. niche business C. linear competition D. parallel competition 39. Imitation plus one degree of similarity results in:

A. patterning a business on existing firms.

B. creating previously unseen products or services.

C. creating products or services that have no competitors.

D. characterizing a business based on the returns it offers.

40. An overall strategic approach in which a firm patterns itself on other firms, with the exception of one or two key areas is referred to as _____.

A. pure innovation B. niche strategy C. incremental innovation D. blue ocean strategy

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41. Amy plans to open a laundromat with a gym. She got the idea from the laundromat with a bar and game rooms, which she visits regularly. She wants to test her idea by starting out in a small space with the focus on the laundromat and a small space allocated for gym equipments. Amy's idea is an example of _____.

A. a blue ocean strategy B. a pure innovation C. an altruistic approach D. an incremental innovation 42. Which of the following is true of a blue ocean strategy?

A. It results in a new product or service.

B. It is the business equivalent of cloning.

C. It involves patterning a business on existing firms.

D. It matches the precision of copying as seen in franchising.

43. A(n) _____ is the business term for the population of customers for a business owner's products or services.

A. market B. industry C. strategy D. SIC 44. _____ refers to the size of the market, whereas _____ refers to the geographic range covered by the market.

A. Scope; scale B. Mass; niche C. Scale; scope D. Niche; mass

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45. A customer group that involves large portions of the population is referred to as a _____.

A. niche market B. secondary market C. local market D. mass market 46. A _____ is a narrowly defined segment of the population that is likely to share interests or concerns.

A. niche market B. mass market C. primary market D. parallel market 47. Which of the following is true of niche markets?

A. They are broad markets.

B. They target all the customers in the entire market.

C. They are specific and narrow.

D. They involve large portions of the population.

48. Market scope is important because:

A. it helps business owners in determining the size of the target market.

B. it helps business owners to decide where to focus their sales and advertising efforts.

C. it helps business owners in designing a product.

D. it helps business owners in calculating their magic number.

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49. In the goal step of the strategic planning process, the key is to:

A. focus on the kind of customers the business wants to deal with.

B. bring together the decisions that underlie the business plan.

C. offer state-of-the-art or leading-edge technology.

D. build a brand reputation through the products or services.

50. Which of the following types of customers are likely to generate more potential customers than any other type?

A. Loyal customers B. Local customers C. Passionate customers D. Corporate customers 51. A _____ displays characteristics related to the nature of a product or service itself.

A. value benefit B. cost benefit C. scale saving D. cause and effect diagram 52. Value benefits are important because:

A. they lead to scope savings.

B. they lead to higher prices.

C. they result in scale savings.

D. they lead to reduced costs.

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53. Which of the following is an advantage of picking customer-desired benefits that a business owner's competitors do not offer?

A. They results in lower pricing.

B. They help business owners to set realistic goals.

C. They help a business owner in identifying the magic number.

D. They make the firm stand out from the competition.

54. A perceptual map is:

A. a chart that maps changes in competitors, sales and profits in an industry over time.

B. a graphic display which positions products according to their scores on important strategic dimensions.

C. a chart that indicates the changes in the magic number of a business owner.

D. a graphic display which indicates the various stages of the lifecycle of a product.

55. Which of the following is a value benefit?

A. Scale savings B. Cost savings C. Learning D. Technology 56. _____ is a value benefit that can come from the products or services that a business owner offers, or from his or her firm's reputation.

A. Brand B. Scale savings C. Learning D. Scope savings

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57. Which of the following types of value benefits is most likely to be offered by a product if it helps the community, a group, the environment, or the world?

A. Scope savings B. Personalization C. Altruism D. Scale savings 58. Which of the following is a cost benefit?

A. Brand B. Altruism C. Personalization D. Organizational practice 59. _______ are characteristics of a product or service that the target customer would consider worthwhile, such as low cost or high quality.

A. Cost benefits B. Value benefits C. Benefits D. Value propositions 60. As a firm gets more experience, it can often work with fewer mistakes and greater efficiencies, thereby lowering costs. This leads to the cost benefit of _____.

A. personalization B. scope savings C. learning D. altruism

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61. Changes in competitors, sales and profits in an industry over time are referred to as:

A. industry dynamics.

B. retrenchment.

C. shake-out.

D. transformational competency.

62. The life cycle stage in which a product or service is being invented is known as the _____.

A. growth stage B. boom C. introduction stage D. shake-out 63. Which of the following is true of the introduction stage of a product?

A. Sales are almost always high.

B. Most customers are unaware of the offerings.

C. Firms begin to compete on features and prices.

D. Some products turn out to be extremely popular.

64. Which of the following statements about industry, industry dynamics, and industry lifecycle is true?

A. Industry refers not only to your product or service, but also to all your competitors selling that product or service.

B. The fortunes of industries do not move in predictable ways.

C. Small firms avoid entering "hot" industries.

D. If the industry is not growing there is no way to be successful as a start-up.

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65. A type of life cycle growth stage marked by a very rapid increase in sales in a relatively short time is called the _____.

A. maturity stage B. retrenchment C. shake-out D. boom 66. Which of the following is characteristic of the boom stage in the life cycle of a product?

A. Most customers are unaware of the offerings.

B. Many firms close down.

C. Firms begin to compete on features and prices.

D. Established firms must find new approaches to improve the business.

67. In which of the following stages is there an explosion of choices in terms of products and services?

A. Introduction stage B. Growth stage C. Maturity stage D. Decline stage 68. _____ is a type of life cycle stage following a boom in which there is a rapid decrease in the number of firms in an industry.

A. Shake-out B. Growth stage C. Maturity stage D. Retrenchment

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69. In an industry life cycle, the shake-out phase ends when:

A. the firms introduce new products or services.

B. the competition between firms increases.

C. the rapid die-off of firms stops.

D. the growth phase begins.

70. The _____ is marked by a stabilization of demand, with firms in the industry moving to stabilize or improve profits through cost strategies.

A. decline stage B. maturity stage C. growth stage D. retrenchment stage 71. Retrenchment is:

A. the third life cycle stage.

B. a stage marked by a stabilization of demand.

C. a type of life cycle stage following a boom in which there is a rapid decrease in the number of firms.

D. an organizational life cycle stage in which established firms must find new approaches to improve the business.

72. A research process that provides the entrepreneur with key information about other firms in the same line of business as his or her, the current situation and trends is known as:

A. SWOT analysis.

B. VRIO analysis.

C. value chain analysis.

D. industry analysis.

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73. Gross profit is defined as:

A. what is left after deducting the cost of goods sold.

B. what is left after deducting the operating expenses of the business.

C. the amount of money the owner takes out of the firm annually.

D. the profit earned by a company when its product is in the maturity stage of the product life cycle.

74. _____ is the amount of money left after deducting the operating expenses of the business.

A. Gross profit B. Net profit C. Profit after taxes D. Generic profit 75. _____ are classic strategies for businesses of all types and they include differentiation, cost, and focus.

A. Personalization strategies B. Altruistic strategies C. Retrenchment strategies D. Generic strategies 76. Which of the following statements concerning cost strategies is not true?

A. Cost strategies are aimed at a small niche market.

B. Small businesses in a variety of industries make use of cost strategies.

C. In a cost strategy, you try to show how your firm offers a combination of cost benefits that appeal to the customer.

D. A cost strategy comes when a small business can pursue a very low cost operation.

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77. Which of the following is true of a differentiation strategy?

A. It requires a firm to offer a combination of cost benefits that appeals to the customers.

B. It is generally pursued by all small businesses.

C. It is aimed at mass markets.

D. It is used by businesses that pursue a very low cost operation.

78. Which of the following is a generic strategy that targets a portion of the market, called a segment or niche?

A. Focus strategy B. Differentiation strategy C. Cost strategy D. Value strategy 79. According to Shepherd, Shanley, and Porter, which of the following is a small business suprastrategy?

A. Altruism B. Single-mindedness C. Scope savings D. Technology 80. An opportunity that makes it possible for a new business to gain a foothold in a market is referred to as a(n) _____.

A. parallel competition B. incremental innovation C. differentiation strategy D. entry wedge

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81. Which of the following statements is true regarding the entry wedge of supply shortage?

A. It occurs when a new product is in demand.

B. It takes place in a stable market that doesn't change rapidly.

C. It takes place in a long-term market.

D. It occurs when certain physical resources are unutilized.

82. When looking at the typical start-up strategy of a classic innovator, which of the following statements is not true?

A. Their market scope is a niche market.

B. Industry attractiveness is moderate to high.

C. They may use an elite supra-strategy.

D. Innovation only happens during the introduction phase of the life cycle.

83. Which of the following is true of the entry wedge of second sourcing?

A. It occurs when business firms leave a market.

B. It occurs because many big businesses have policies that provide for set-asides for purchases from small businesses.

C. It offers the advantage of being globally based.

D. It provides a competitive pressure to ensure that suppliers keep providing the best service and prices.

84. Which of the following statements about Michael Porter's Five-Forces Model of Industry Competition is not true?

A. Substitutes and alternatives are indirect competition.

B. There are five sets of sources of competition.

C. Rivals are direct competition.

D. New entrants are an industry source of competition.

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85. In the context of entry wedges, _____ occurs because government agencies, governmentsponsored commercial contracts, and many big businesses have policies that provide for quotas for buying from small businesses.

A. second sourcing B. favored purchasing C. market relinquishment D. customer contracting 86. Michael Porter identifies five different threats of competition for any business. Which of the following choices is not one of Michael Porter's five threats?

A. Rivals B. Suppliers C. Substitutes D. Investors 87. _____ is the particular way a firm implements customer benefits that keeps the firm ahead of other firms in the market.

A. Industry analysis B. Competitive advantage C. Resource distribution D. Market relinquishment 88. Which of the following is a strategic action?

A. Price cutting B. Product enhancements C. New product introductions D. Increased marketing efforts

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89. Which of the following is a tactical action?

A. New distribution channels B. Mergers C. New product introductions D. Entering new markets 90. _____ is a strategic action.

A. Increasing marketing efforts B. Using new distribution channels C. Acquiring a competitor D. Increasing prices

Essay Questions

91. What are the four key decisions that entrepreneurs need to make to build the strategy for their firms?

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92. Differentiate between incremental innovation and pure innovation.

93. What are the two market decisions that entrepreneurs need to make early in the process of going into business?

94. Differentiate between value and cost benefits. Provide examples for each type of benefit.

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95. Briefly describe the industry life cycle.

96. What is meant by industry analysis? How does industry analysis help an individual in the strategy process?

97. Name and briefly describe the different types of generic strategies.

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98. Briefly describe Michael Porter's Five-Forces Model of industry competition. Why is it important to pay attention to these five forces of competition?

99. What is an entry wedge? Explain any five of the entry wedges.

100. Differentiate between strategic actions and tactical actions.

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Chapter 07 Small Business Strategies: Imitation with a Twist Answer Key

True / False Questions

1.

Strategy is the idea and actions that explain how a firm will make its profits.

TRUE Strategy is the idea and actions that explain how a firm will make its profit.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-01 Describe the decisions needed as a foundation for strategic planning.

Level of Difficulty: 1 Easy Topic: Strategy in the Small Business

2.

Small businesses typically use the strategy of innovativeness rather than imitativeness.

FALSE Strategy in small business is special because most small businesses are more imitative than innovative.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-01 Describe the decisions needed as a foundation for strategic planning.

Level of Difficulty: 1 Easy Topic: Strategy in the Small Business

7-25 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

3.

The first step of the strategic planning process for small businesses is considering your customers and the benefits you want to offer them.

FALSE The first step of the strategic planning process for small businesses involves reviewing and confirming the goals that define entrepreneurs' firms and knowing their magic number.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-01 Describe the decisions needed as a foundation for strategic planning.

Level of Difficulty: 1 Easy Topic: Strategy in the Small Business

4.

There are two major classification systems that code industries: NAICS and SIC. TRUE There are two major classification systems that code industries: the new NAICS (North American Industry Classification System) and the SIC (Standard Industrial Classification system).

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-01 Describe the decisions needed as a foundation for strategic planning.

Level of Difficulty: 1 Easy Topic: Product/Service Idea and Industry

5.

Your magic number is the number of customers you can comfortably provide with your product or service.

FALSE Your magic number is the post-tax income you personally seek from the business.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember 7-26 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objective: 07-01 Describe the decisions needed as a foundation for strategic planning.

Level of Difficulty: 1 Easy Topic: Owner Rewards

6.

The new NAICS covers more industries than the SIC. TRUE There are two major classification systems that code industries, the new NAICS and the SIC. NAICS covers more industries and more of the newer types of industries.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-02 Identify the forms for imitative and innovative businesses.

Level of Difficulty: 1 Easy Topic: Product/Service Idea and Industry

7.

Imitation minus one degree of similarity is the business equivalent of an innovative strategy.

FALSE In practice, most firms use imitation plus or minus one degree of similarity. Imitation minus one degree of similarity would be the business equivalent of cloning.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 07-02 Identify the forms for imitative and innovative businesses.

Level of Difficulty: 2 Medium Topic: Imitation and Innovation

8.

Incremental innovation is also called a blue ocean strategy.

FALSE Pure innovation, not incremental innovation, is also called a blue ocean strategy.

AACSB: Analytical Thinking

7-27 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 07-02 Identify the forms for imitative and innovative businesses.

Level of Difficulty: 2 Medium Topic: Imitation and Innovation

9.

Market scale refers to the geography of the target market.

FALSE Market scale is a characteristic of a market that describes the size of the market—a mass market or a niche market. Market scope refers to the geography of the target market.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-02 Identify the forms for imitative and innovative businesses.

Level of Difficulty: 1 Easy Topic: To Whom Will You Sell?

10.

A niche market is a narrowly defined segment of the population that is likely to share interests or concerns.

TRUE A niche market is a narrowly defined segment of the population that is likely to share interests or concerns.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-02 Identify the forms for imitative and innovative businesses.

Level of Difficulty: 1 Easy Topic: To Whom Will You Sell?

7-28 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

11.

Cost benefits include scale and scope savings.

TRUE Cost benefits refer to the ways by which a firm can keep costs low for the customer. These include scale and scope savings.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-03 Articulate the benefits that win over customers.

Level of Difficulty: 1 Easy Topic: Value and Cost Benefits

12.

Generally, benefits do not influence a firm's strategy process.

FALSE Benefits drive a firm's offering to its customers and influence every part of the strategy process.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-03 Articulate the benefits that win over customers.

Level of Difficulty: 1 Easy Topic: Value and Cost Benefits

13.

Shake-out is a type of life cycle growth stage marked by a very rapid increase in sales in a relatively short time.

FALSE A shake-out is a type of life cycle stage following a boom in which there is a rapid decrease in the number of firms in an industry.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-04 Assess how industry changes can affect strategy.

7-29 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Level of Difficulty: 1 Easy Topic: Industry Dynamics and Analysis: The Third Step of Strategic Planning

14.

Eventually, mature industries begin a decline stage. Some industries face death, while others find new life in a process called retrenchment.

TRUE True, some companies find new life in a process called retrenchment, finding new approaches to improve the business and its chances for survival.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-04 Assess how industry changes can affect strategy.

Level of Difficulty: 1 Easy Topic: Industry Dynamics and Analysis: The Third Step of Strategic Planning

15.

Funds left over after deducting the cost of goods sold are referred to as the net profit.

FALSE Net profit is what is left after deducting the operating expenses of the business.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-04 Assess how industry changes can affect strategy.

Level of Difficulty: 1 Easy Topic: Tool: Industry Analysis

16.

Differentiation strategies target a niche segment of the market.

FALSE Differentiation strategies are aimed at mass markets—situations in which nearly everyone might buy a product or service.

AACSB: Analytical Thinking

7-30 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-05 Explain the major strategies of business-differentiation; cost; and focus.

Level of Difficulty: 1 Easy Topic: Strategy Selection: The Fourth Step in Strategic Planning

17.

The supra-strategies are designed to work when there are very few small business in an industry, along with many larger firms.

FALSE The supra-strategies are all designed to work where there are many small businesses in an industry, along with a few larger firms.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-05 Explain the major strategies of business-differentiation; cost; and focus.

Level of Difficulty: 1 Easy Topic: Strategy Selection: The Fourth Step in Strategic Planning

18.

Second sourcing provides customers with greater certainty of supplies or services.

TRUE Second sourcing provides the customer with greater certainty of supplies or services, and at its best provides a competitive pressure to keep both suppliers providing the best service and prices.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-05 Explain the major strategies of business-differentiation; cost; and focus.

Level of Difficulty: 1 Easy Topic: Strategy Selection: The Fourth Step in Strategic Planning

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19.

Tactical actions are competitive responses with low resource requirements.

TRUE Tactical actions are competitive responses with low resource requirements.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-06 Determine how to sustain competitive advantage through attracting customers and discouraging competition.

Level of Difficulty: 1 Easy Topic: Post Start-Up Tactics

20.

The major ways you cope with competitive pressures is by undertaking some combination of strategic actions and tactical actions.

TRUE In order to keep or establish a competitive advantage you use strategic and tactical actions.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 07-06 Determine how to sustain competitive advantage through attracting customers and discouraging competition.

Level of Difficulty: 2 Medium Topic: Post Start-Up Tactics

Multiple Choice Questions

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21.

_____ is the idea and actions that explain how a firm will make its profits.

A. Strategy B. Objective C. Mission D. Goal Strategy is the idea and actions that explain how a firm will make its profit. Strategy defines how a business operates.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-01 Describe the decisions needed as a foundation for strategic planning.

Level of Difficulty: 1 Easy Topic: Strategy in the Small Business

22.

Most small businesses are more _____ than _____.

A. cost-directed; profit-directed B. imitative; innovative C. profit-directed; cost-directed D. innovative; imitative Strategy in small business is special because most small businesses are more imitative than innovative.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-01 Describe the decisions needed as a foundation for strategic planning.

Level of Difficulty: 1 Easy Topic: Strategy in the Small Business

7-33 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

23.

The first step of the strategic planning process for a small business is:

A. performing a SWOT analysis.

B. reviewing and confirming the goals that define the firm.

C. mapping the prospective customers.

D. studying the dynamics and trends of the industry.

The first step of the strategic planning process involves reviewing and confirming the goals that define the firm and knowing the magic number.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-01 Describe the decisions needed as a foundation for strategic planning.

Level of Difficulty: 1 Easy Topic: Strategy in the Small Business

24.

Which of the following is the second step of a small business' strategic planning process?

A. Reviewing and confirming the goals that define the firm B. Knowing the magic number C. Studying the dynamics and trends of the industry D. Considering the customers and the benefits to offer them The second step of a small business' strategic planning process is considering the customers and the benefits to offer them and plotting these out in a procedure called perceptual mapping.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 07-01 Describe the decisions needed as a foundation for strategic planning.

Level of Difficulty: 2 Medium Topic: Strategy in the Small Business

7-34 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

25.

Industry analysis is defined as the technique used to:

A. determine the magic number in a particular industry.

B. determine the extent to which a product is similar to another product.

C. study the dynamics and trends of an industry.

D. study the effects of low cost on an industry.

Industry analysis is the technique used to study the dynamics and trends of the industry.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-01 Describe the decisions needed as a foundation for strategic planning.

Level of Difficulty: 1 Easy Topic: Strategy in the Small Business

26.

The fourth step of a small business' strategic planning process involves:

A. considering the customers and the benefits to offer them.

B. refining the firm's capabilities in order to maintain a competitive advantage.

C. determining the best strategic direction and strategy for the firm.

D. studying the dynamics and trends of the industry.

The fourth step of the strategic planning process involves building on the prior three steps to determine the best strategic direction and strategy for the firm.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 07-01 Describe the decisions needed as a foundation for strategic planning.

Level of Difficulty: 2 Medium Topic: Strategy in the Small Business

7-35 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

27.

For a small business that is just starting out, all strategy starts with _________.

A. the product or service B. the owner C. the competition D. the customers For a small business that is just starting out, all strategy starts with the owner. As owner, what do you want out of your business?

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-01 Describe the decisions needed as a foundation for strategic planning.

Level of Difficulty: 1 Easy Topic: Owner Rewards

28.

Which of the following is the advantage of knowing the magic number?

A. It helps in evaluating if the proposed business can deliver the desired return.

B. It helps in retaining customers.

C. It seeks out customers who are already being serviced by another firm.

D. It helps in making incremental product improvements.

Knowing the magic number from the start, entrepreneurs are better able to evaluate if their proposed business can deliver on that very basic need that everyone reports needing.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 07-01 Describe the decisions needed as a foundation for strategic planning.

Level of Difficulty: 2 Medium Topic: Owner Rewards

7-36 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

29.

As a new entrepreneur, Anthony's magic number for 2013 is $42,000. If the current tax rate for his business is 30 percent, calculate the amount that Anthony's firm would need to sell for him to get his magic number.

A. $50,000 B. $50,495 C. $60,000 D. $60,854 The formula to calculate the pretax income is as follows: Pretax income = (The desired post-tax income)/(1 - Tax percentage rate)

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Learning Objective: 07-01 Describe the decisions needed as a foundation for strategic planning.

Level of Difficulty: 3 Hard Topic: Owner Rewards

30.

_____ is the general name for the line of product or service being sold, or the firms in that line of business.

A. Industry B. Market C. Scope D. Niche group Industry is the general name for the line of product or service being sold, or the firms in that line of business.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-01 Describe the decisions needed as a foundation for strategic planning.

Level of Difficulty: 1 Easy Topic: Product/Service Idea and Industry

7-37 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

31.

Which of the following are the two major classification systems that code industries?

A. NAICS and SIC B. SCALE and SCOPE C. SWOT and VRIO D. OLC and SWOT There are two major classification systems that code industries: the new NAICS (North American Industry Classification System) and the better-known Standard Industrial Classification system, or SIC.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-01 Describe the decisions needed as a foundation for strategic planning.

Level of Difficulty: 1 Easy Topic: Product/Service Idea and Industry

32.

Standard industrial classification system (SIC) codes have _____ digits.

A. four B. six C. seven D. nine Standard industrial classification system (SIC) codes have four digits.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-01 Describe the decisions needed as a foundation for strategic planning.

Level of Difficulty: 1 Easy Topic: Product/Service Idea and Industry

7-38 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

33.

Which of the following statements concerning choosing an industry is not correct?

A. Picking the right industry is key to the success of your small business.

B. Insurance firms and health-related firms do well in bad times and good historically.

C. Industry is vitally important to your core strategy decisions.

D. There are industries that are more profitable than others.

Industries which do well in good times and poor historically include financial firms tied to banking, health-related firms, insurance firms, and business consulting.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-01 Describe the decisions needed as a foundation for strategic planning.

Level of Difficulty: 1 Easy Topic: Product/Service Idea and Industry

34.

In an imitative strategy, an entrepreneur:

A. creates a new product or service which has no competitors.

B. considers prospective customers before creating a product or service.

C. seeks to do something that is very different from what others are doing.

D. does more or less what others are already doing.

An imitative strategy is an overall strategic approach in which the entrepreneur does more or less what others are already doing.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 07-02 Identify the forms for imitative and innovative businesses.

Level of Difficulty: 2 Medium Topic: Imitation and Innovation

7-39 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

35.

Which of the following is an advantage of using an imitative strategy?

A. It allows entrepreneurs to do something that is very different from what others are doing.

B. It allows business owners to buy existing technologies.

C. It allows entrepreneurs to fit their businesses to their own ideas and preferences.

D. It allows business owners to create unique settings.

Using an imitative strategy allows business owners to benefit from being able to buy existing technologies.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 07-02 Identify the forms for imitative and innovative businesses.

Level of Difficulty: 2 Medium Topic: Imitation and Innovation

36.

Imitation minus one degree of similarity:

A. would be the business equivalent of cloning.

B. is equivalent to the blue ocean strategy.

C. leads to pure innovation.

D. helps in the creation of a unique setting.

In practice, most firms use imitation plus or minus one degree of similarity. Imitation minus one degree of similarity would be the business equivalent of cloning.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-02 Identify the forms for imitative and innovative businesses.

Level of Difficulty: 2 Medium Topic: Imitation and Innovation

7-40 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

37.

Which of the following statements is not true of degree of similarity?

A. Most firms use imitation plus or minus one degree of similarity.

B. Imitation minus one degree of similarity is called incremental innovation.

C. Imitation minus one degree of similarity is the business equivalent of cloning.

D. Imitation plus one degree of similarity is called incremental innovation.

Imitation minus one degree of similarity is not called incremental innovation, it is the business equivalent of cloning.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 07-02 Identify the forms for imitative and innovative businesses.

Level of Difficulty: 2 Medium Topic: Imitation and Innovation

38.

An imitative business that competes locally with others in the same industry is referred to as _____.

A. incremental competition B. niche business C. linear competition D. parallel competition An imitative business that competes locally with others in the same industry is referred to as parallel competition.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-02 Identify the forms for imitative and innovative businesses.

Level of Difficulty: 1 Easy Topic: Imitation and Innovation

7-41 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

39.

Imitation plus one degree of similarity results in:

A. patterning a business on existing firms.

B. creating previously unseen products or services.

C. creating products or services that have no competitors.

D. characterizing a business based on the returns it offers.

Imitation plus one degree of similarity is where entrepreneurs look at existing businesses and pattern themselves after them, with the exception of one or two key areas in which they seek to do things in a new, and hopefully better, way.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 07-02 Identify the forms for imitative and innovative businesses.

Level of Difficulty: 2 Medium Topic: Imitation and Innovation

40.

An overall strategic approach in which a firm patterns itself on other firms, with the exception of one or two key areas is referred to as _____.

A. pure innovation B. niche strategy C. incremental innovation D. blue ocean strategy An overall strategic approach in which a firm patterns itself on other firms, with the exception of one or two key areas is referred to as incremental innovation.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-02 Identify the forms for imitative and innovative businesses.

Level of Difficulty: 1 Easy Topic: Imitation and Innovation

7-42 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

41.

Amy plans to open a laundromat with a gym. She got the idea from the laundromat with a bar and game rooms, which she visits regularly. She wants to test her idea by starting out in a small space with the focus on the laundromat and a small space allocated for gym equipments.

Amy's idea is an example of _____.

A. a blue ocean strategy B. a pure innovation C. an altruistic approach D. an incremental innovation An overall strategic approach in which a firm patterns itself on other firms, with the exception of one or two key areas is referred to as incremental innovation.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Apply Learning Objective: 07-02 Identify the forms for imitative and innovative businesses.

Level of Difficulty: 3 Hard Topic: Imitation and Innovation

42.

Which of the following is true of a blue ocean strategy?

A. It results in a new product or service.

B. It is the business equivalent of cloning.

C. It involves patterning a business on existing firms.

D. It matches the precision of copying as seen in franchising.

Pure innovation, also called a blue ocean strategy, results in a new product or service. These situations are rare.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Understand Learning Objective: 07-02 Identify the forms for imitative and innovative businesses.

Level of Difficulty: 2 Medium Topic: Imitation and Innovation

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43.

A(n) _____ is the business term for the population of customers for a business owner's products or services.

A. market B. industry C. strategy D. SIC A market is the business term for the population of customers for a product or service. If entrepreneurs know their market inside and out, they are likely to know much of the key information for how to be successful in their line of business.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-02 Identify the forms for imitative and innovative businesses.

Level of Difficulty: 1 Easy Topic: To Whom Will You Sell?

44.

_____ refers to the size of the market, whereas _____ refers to the geographic range covered by the market.

A. Scope; scale B. Mass; niche C. Scale; scope D. Niche; mass The scale of the market is the size of the market—whether business owners plan to aim for a mass market or a niche market. The scope of the market defines the geographic range covered by the market—from local to global.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Blooms: Remember Learning Objective: 07-02 Identify the forms for imitative and innovative businesses.

Level of Difficulty: 1 Easy Topic: To Whom Will You Sell?

7-44 Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.