Deck 5: Crafting a Business Plan and Building a Solid Strategic Plan

Question 1

To convince lenders and investors to put their money into the venture, a business plan must prove to them that it offers a high probability of repayment or an attractive rate of return. This is the ________ test.

A) attractiveness
B) competitive
C) reality
D) value

Answer 1

D

Question 2

The primary purpose of building a business plan is to raise capital.

Answer 2

False

Question 3

A business plan is a written summary of an entrepreneur's proposed venture, its operational and financial details, its marketing opportunities and strategy, and its managers' skills and abilities.

Answer 3

True

Question 4

The reality test that a business plan must pass to attract financing from lenders and investors involves proving that a market for the company's product or service actually does exist, and that the company actually can build it for the cost estimates in the plan.

Question 5

A business plan ________.

A) is a valuable managerial tool that helps an entrepreneur focus on developing a course for the business in the future
B) is a valuable tool for convincing lenders or investors to put money into the business
C) forces an entrepreneur to think a business idea through, considering both its positive and its negative aspects
D) All of the above

Question 6

The competitive test that a business plan must pass to attract financing for lenders and investors involves proving to them that the venture offers a high probability of repayment or an attractive rate of return.

Question 7

The reality test that a business plan must pass to attract financing from lenders and investors involves proving ________.

A) that the company can gain a competitive advantage over its key competitors
B) that the business venture will provide lenders and investors a high probability of repayment or an attractive rate of return
C) that a market for the company's product or service actually does exist and that the company can actually build it for the cost estimates included in the plan
D) that the industry in which the business will compete is growing faster than the overall economy and has room for more competitors

Question 8

Although building a business plan does not guarantee an entrepreneur's success, it does increase his or her chances of succeeding in business.

Question 9

The ________ test that a business plan must pass to attract financing from lenders and investors involves proving that a market for the company's product or service actually does exist and that the company actually can build it for the cost estimates included in the plan.

A) reality
B) competitive
C) value
D) profitability

Question 10

A solid business plan ________.

A) forces potential entrepreneurs to look at their business idea in the harsh light of reality
B) requires a potential entrepreneur to assess the venture's chances of success more objectively
C) helps prove to outsiders, such as potential lenders and investors, that a business idea can be successful
D) All of the above

Question 11

The three "tests" associated with a business plan are ________.

A) reality, competitive, and value
B) competitive, profitability, and value
C) value, reality, and profitability
D) reality, value and litmus

Question 12

A well-prepared business plan forces an entrepreneur to assess the venture's chances of success more objectively.

Question 13

To get external financing, an entrepreneur's business plan must pass the reality test, the competitive test, and the value test with potential lenders and investors.

Question 14

A business plan is a written summary of ________.

A) an entrepreneur's proposed business venture
B) a business venture's operational, financial, and marketing details
C) the skills and abilities of a business venture's managers
D) All of the above

Question 15

Potential investors tend to believe that if an entrepreneur cannot develop a good plan, the entrepreneur ________.

A) is probably the action-oriented sort of person they need running a business
B) needs to hire a consultant to write the plan for him
C) probably lacks the discipline to run a business
D) is just like the majority of entrepreneurs and will probably do quite well

Question 16

The value test that a business plan must pass to attract financing from lenders and investors involves proving ________.

A) that the company can gain a competitive advantage over its key competitors
B) that the business venture will provide lenders and investors a high probability of repayment or an attractive rate of return
C) that a market for the company's product or service actually does exist and that the company can actually build it for the cost estimates included in the plan
D) that the industry in which the business will compete is growing faster than the overall economy and has room for more competitors

Question 17

The value test that a business must pass to attract financing from lenders and investors involves proving to them that the venture offers a high probability of repayment or an attractive rate of return.

Question 18

The data shows that writing a business plan increases the odds that a venture will successfully accomplish important tasks (initializing product development, obtaining inputs, starting marketing, talking to customers, and asking for external funds) as well as continue in business.

Question 19

The second essential purpose for creating a business plan is ________.

A) to guide the operation of the company by charting its future course and devising a strategy for following it
B) to attract lenders and investors
C) to file with the SEC before a public stock offering
D) to attract potential managers and employees to run the new venture

Question 20

The competitive test that a business plan must pass to attract financing from lenders and investors involves proving ________.

A) that the company can gain a competitive advantage over its key competitors
B) that the business venture will provide lenders and investors a high probability of repayment or an attractive rate of return
C) that a market for the company's product or service actually does exist and that the company can actually build it for the cost estimates included in the plan
D) that the industry in which the business will compete is growing faster than the overall economy and has room for more competitors

Question 21

"Sometimes the greatest service a business plan provides an entrepreneur is the realization that the business venture just won't succeed." Explain this statement.

Question 22

Before presenting a business plan to potential lenders and investors, an entrepreneur must be well informed and well prepared.

Question 23

Which of the following is true about the preparation of a business plan?

A) The format should follow a "cookie-cutter" approach to ensure uniformity and consistency with others and to promote ease of understanding.
B) The elements of the plan may be standard, but the content should reflect the unique aspects of the business and the excitement of the entrepreneur.
C) The plan should cover every standard element in great detail and be at least 100 pages long to prove to potential lenders and investors that the entrepreneur has studied the business and the market opportunity.
D) The entrepreneur should avoid seeking the advice of professionals, such as accountants, business professors, and attorneys.

Question 24

The company history section of the business plan typically includes ________.

A) significant financial and operational events
B) highlights of the key goals and objectives the company has accomplished in the past
C) a brief description of when and how the company was formed and how it has evolved over time
D) All of the above

Question 25

To get external financing, an entrepreneur's plan must pass three tests with potential lenders and investors. List and briefly explain all three.

Question 26

The ________ serves as the "thesis statement" for the entire business plan and is the broadest expression of a company's purpose and defines the direction in which it will move.

A) executive summary
B) mission statement
C) company history
D) marketing strategy

Question 27

The ideal business plan should be at least 100 pages long to prove to potential lenders and investors that the entrepreneur has studied the business and the market opportunity sufficiently.

Question 28

The real value in preparing a business plan is not so much in the plan itself as it is in the process the entrepreneur goes through to create the plan.

Question 29

An entrepreneur may find that the business plan indicates that the business concept is not viable. This is another potential benefit of writing a business plan; this revelation occurred before the owner committed significant resources (time and money) to the venture.

Question 30

A business plan should contain certain basic elements, but it should also be tailored to the individual company by emphasizing its particular personality and reflecting the entrepreneur's excitement for the business opportunity.

Question 31

The executive summary section of the business plan ________.

A) should be a concise summary of the business venture
B) should be no more than two pages long
C) must capture the reader's attention and entice her/him to read the rest of the plan
D) All of the above

Question 32

Explain at least two functions or purposes of preparing a business plan.

Question 33

The "two-thirds rule" says that only two-thirds of the entrepreneurs with a sound new business venture will get financing, that they will get only two-thirds of what they need, and that it will take them two-thirds longer to get it than they anticipated.

Question 34

The most effective business plans follow the "cookie cutter approach," following the standard format most preferred by lenders and investors.

Question 35

The ________ is also known as the "elevator pitch" and is written last, but is included as the first part of the business plan and should summarize all the relevant points in about two pages.

A) loan proposal
B) business history
C) business profile
D) executive summary

Question 36

Because the entrepreneur is the driving force behind a business idea, he or she should also be the driving force behind the business plan.

Question 37

Which of the following is true regarding the process of building a business plan?

A) It allows an entrepreneur to replace "I think" with "I know" and to make mistakes on paper, which is cheaper than making them in reality.
B) It reduces the risk and uncertainty of launching a company by "teaching" the entrepreneur more about the industry, the market and the proposed venture.
C) It requires an entrepreneur to subject the business idea to a more objective and critical evaluation.
D) All of the above

Question 38

A table of contents that allows lenders to navigate a business plan easily is an important element of any business plan.

Question 39

Ideally, a business plan should be about ________ pages in length.

A) 10
B) 20 to 40
C) 40 to 75
D) 75 to 100

Question 40

Potential lenders and investors believe that an entrepreneur who lacks the discipline to develop a good business plan likely lacks the discipline to run a business.

Question 41

Narrower product lines, smaller customer bases, and more limited geographic areas give small companies a natural advantage over large businesses when preparing a strategic plan.

Question 42

The executive summary serves as the thesis statement for the entire business plan.

Question 43

Which of the following was not identified as a way for the typical small business to establish a competitive advantage?

A) Lowering prices
B) Providing higher quality goods or services
C) Improving customer service
D) Doing whatever the company does for its customers better than its competitors

Question 44

In the business and industry profile section of the business plan, the entrepreneur should provide information on the size of the market, growth trends, and the relative economic and competitive strength of the industry's major players.

Question 45

The value proposition that sets a company apart from its competitors and gives it a unique position in the market, superior to its competition, is its ________.

A) mission statement
B) competitive advantage
C) competitive profile
D) strategic plan

Question 46

The executive summary of a business plan should highlight significant financial and operational events.

Question 47

One of the biggest changes entrepreneurs face is the shift in the economy from a base of financial to intellectual capital.

Question 48

________ are a unique set of capabilities that a company develops in key operational areas-such as service, innovation, and others that allow it to potentially vault past its competitors.

A) Core competencies
B) Opportunities
C) Key success factors
D) Mission statements

Question 49

Few activities in the life of a business are as vital (or as overlooked) as that of developing a strategy for success once a business moves past its start-up.

Question 50

You have been asked to explain the basic elements of a sound business plan to your friend, who is considering beginning a new business. What elements should you recommend he include in his business plan?

Question 51

The business and industry profile section of the business plan should cover existing and anticipated profitability of firms in the targeted market segment and any significant entry or exit of firms.

Question 52

The executive summary of a business plan should summarize all of the relevant points of the proposed venture and should be concise - no more than one page.

Question 53

Which of the following is not one of the three components of intellectual capital?

A) Human
B) Structural
C) Competitor
D) Customer

Question 54

The three components of intellectual capital are human, structural, and customer.

Question 55

The relationship between core competencies and competitive advantage is best described by which statement?

A) Strengthening a company's competitive advantage strengthens its core competencies.
B) A company's core competencies become the nucleus of its competitive advantage.
C) As a company's core competencies become stronger, its competitive advantage becomes weaker.
D) There is no relationship between core competencies and competitive advantage.

Question 56

In a business plan, both company goals and objectives should relate to the company's mission.

Question 57

The company's mission statement expresses in words the entrepreneur's vision for what her/his company is and what it is to become.

Question 58

The key to entrepreneurial success over time is to build a ________ competitive advantage.

A) defensible
B) sustainable
C) coherent
D) random

Question 59

What is strategic management? What role does a strategic plan play in a small company?

Question 60

________ involves developing a game plan to guide a company as it strives to accomplish its mission, goals, and objectives to keep it on its desired course.

A) Competitive advantage
B) Mission
C) Strategic management
D) Market segmentation

Question 61

Which of the following is true about the information-gathering process in competitive analysis?

A) It is an expensive process that only large companies can afford.
B) It can be relatively inexpensive and easy for the small business owner to conduct.
C) It is a process closely regulated by various federal laws that prohibit doing things like purchasing competitive products and analyzing them.
D) It is a process that requires expert help and is relatively expensive.

Question 62

Every business is characterized by a set of controllable variables that determines the relative success (or lack of it) of market participants called ________.

A) distinctive competencies
B) key success factors
C) opportunities and threats
D) competitive edge

Question 63

Strengths and weaknesses are ________ to the organization.

A) internal factors
B) external factors
C) internal and/or external factors
D) factors not belonging

Question 64

Which of the following is not a characteristic of the strategic management procedure for a small company?

A) It should use a relatively short planning horizon (i.e., two years or less, typically).
B) It should begin with an extensive objective-setting session.
C) It should encourage the participation of employees and even outsiders to improve the reliability and creativity of the resulting plan.
D) It should allow for flexibility and not be overly structured.

Question 65

A strategic plan serves as a blueprint to help a company to ________.

A) match their company's strengths and weaknesses to the environment's opportunities and threats
B) accomplish its mission, goals, and objectives
C) identify a company's competitive advantage and set it apart from its competition with a unique position in the market
D) All of the above

Question 66

Large companies have a natural advantage over small firms when it comes to preparing a strategic plan.

Question 67

Gathering competitive intelligence, such as "dumpster diving" in a competitors' trash, may raise questions regarding ________.

A) the integrity of the data
B) the competitive profile matrix
C) a cost benefit analysis
D) ethical standards

Question 68

Maria Sanchez is the owner of the Main Street Café and a new restaurant opens a few blocks away. From Maria's perspective, this new restaurant constitutes a(n) ________.

A) strength
B) weakness
C) threat
D) opportunity

Question 69

A clearly defined vision helps a company in which of the following ways?

A) Provides direction
B) Determines decisions
C) Motivates people
D) All of the above

Question 70

Which of the following is an effective method of collecting information about competitors?

A) Ask customers and suppliers what competitors are doing.
B) Talk to employees, especially sales representatives and purchasing agents, about competitors.
C) Attend trade shows and collect competitors' sales literature.
D) All of the above

Question 71

Kevin Abt noticed that people were cooking meals in their homes less often but wanted to avoid the hassle of going out to eat. They wanted to "eat in" without cooking. Abt launched a company, Takeout Taxi, that delivers restaurant-prepared food to his customers' homes and businesses. Takeout Taxi is the result of a(n) ________.

A) strength
B) weakness
C) opportunity
D) threat

Question 72

Although developing a strategic plan is important for large companies, it is not essential to managing a small company successfully because of its limited resources.

Question 73

A small company's mission statement ________.

A) establishes its purpose in writing
B) gives the business and everyone in it a sense of direction
C) defines what the company is, why it exists, and its reason for being
D) All of the above

Question 74

When developing a company's mission statement, an entrepreneur should remember to ________.

A) write the statement alone without anyone else's interference
B) omit statements about her/his values because they may turn some stakeholders off
C) keep it short and simple
D) All of the above

Question 75

The most effective way for a small business to establish a competitive advantage is by offering lower prices.

Question 76

Your ________ competitors offer the same products and services, and customers often compare prices, features, and deals from these competitors as they shop.

A) significant
B) direct
C) indirect
D) All of the above

Question 77

Mini-Case 5-1: Finding a Competitive Advantage
Copreneurs Ed and Yolanda recently opened a vintage used car lot called Cherry Lane. They sell antique and collectible cars on consignment for the owners at a fee of 30 percent of the selling price. The price is further reduced by 10 percent if a particular car is not sold within the first 30 days. One of the first customers convinced Yolanda that this was the only fair thing to do, and in an effort to provide something for "the cost conscious buyer," she provided what she thought was excellent customer service and implemented the idea.
Ed and Yolanda feel Cherry Lane has an ideal location. It is located adjacent to the city's baseball stadium, alongside the freeway in the center of all the other car dealerships. Although Cherry Lane has significant foot traffic, most people never make offers to buy.
In an effort to increase sales, Ed and Yolanda are working on a new marketing strategy that they believe should be quite different from the "shotgun" approach they had been using over the last few months.
What is a competitive advantage? Does Cherry Lane have one? If so, what is it?

Question 78

________ are positive internal factors that contribute toward accomplishing the company's mission, goals, and objectives, while ________ are negative internal factors that inhibit the accomplishment of a firm's mission, goals, and objectives.

A) Strengths; weaknesses
B) Weaknesses; strengths
C) Opportunities; threats
D) Threats; opportunities

Question 79

Small companies' core competencies are often the result of benefits such as agility, speed, closeness to customers, superior service, and innovative ability - all of which are size advantages that allow them to do things that their larger competitors cannot.

Question 80

A(n) ________ competitor offers the same or similar products or services only in a small number of areas, and their target customers seldom overlap yours.

A) indirect competitor
B) direct
C) parallel
D) divergent