Deck 2: Developing the Business Idea

Question 1

The first component of a sound business model is the need to generate revenues.

Answer 1

True

Question 2

A well-designed entrepreneurial venture begins with an idea that survives an analysis of its feasibility and results in a business plan.

Answer 2

True

Question 3

Best practices of high-growth, high-performance firms applied in the financial practices area include "preparing detailed monthly financial plans for the next year and annual financial plans for the next five years."

Answer 3

True

Question 4

Lifestyle firms are growth driven in terms of revenues, profits, and cash flows and also performance oriented as reflected in rapid value creation over time.

Question 5

Best practices of high-growth, high-performance firms applied in the marketing practices area include "preparing detailed monthly financial plans for the next year and annual financial plans for the next five years."

Question 6

Entrepreneurial ventures are firms that allow owners to pursue specific lifestyles while being paid for doing what they like to do.

Question 7

A sound business model should provide a plan to generate revenues, make profits, and produce free cash flows.

Question 8

Best practices of high-growth, high-performance firms applied in the marketing practices area include "developing new products or services that are considered to be the best."

Question 9

Entrepreneurial ventures emphasize survival and providing an acceptable living for their owners, with growth being a secondary goal.

Question 10

Mark Twain said, "Like I tell anybody, if you fail to plan, you're planning to fail."

Question 11

Only a small number of new business ideas become viable business opportunities with funded business plans.

Question 12

An entrepreneur may start a number of different types of businesses, including salary-replacement firms, lifestyle firms, and entrepreneurial firms or ventures.

Question 13

A sound business model is a plan to generate investor interest, make profits, and grow asset investments.

Question 14

It has been estimated that venture capitalists invest in about 10 to 30 percent of business plans presented to them.

Question 15

A successful, sound business model does not have to ultimately produce free cash flows.

Question 16

For ventures that get to market first or create intellectual property rights, it is common to price new products or services at high markups or profit margins.

Question 17

Salary-replacement firms provide their owners with income levels comparable to what they could have earned working for much larger firms.

Question 18

Best practices of high-growth, high-performance firms applied in the management practices area include "assembling a management team that is balanced in both functional area coverage and industry/market knowledge."

Question 19

Business opportunities exist in real time, and most ideas have a relatively narrow window of opportunity to become successful business ventures.

Question 20

The process of moving from entrepreneurial opportunities to new businesses, products, or services begins with ideas, then moves to the preparation of a business plan, and finally ends with a feasibility study.

Question 21

A high asset intensity implies a large investment in fixed assets and/or net working capital is needed to support revenue growth.

Question 22

One way to describe asset intensity is the dollar investment in assets needed to generate a dollar in sales.

Question 23

The compound rate of return that equates the present value of the cash inflows with the initial investment outlay is called the internal rate of return (IRR).

Question 24

A SWOT analysis should consider as potential strengths or opportunities the extent of existing competition and the likelihood of substitute products or services.

Question 25

Asset intensity is the net after-tax profit divided by total assets.

Question 26

A venture opportunity screening guide, called the VOS Indicator™, is used to screen venture opportunities for potential attractiveness.

Question 27

The VOS Indicator™ provides both qualitative and quantitative information about a venture's commercial potential.

Question 28

Once conceptualized, a new idea should be examined for its business feasibility.

Question 29

Being first to market does not guarantee success.

Question 30

Venture opportunity screening involves assessment of an idea's commercial potential to produce revenue growth, financial performance, and value.

Question 31

The VOS Indicator™ is useful in assessing the commercial potential of a venture, but should not be used as the sole tool to determine a venture's fate.

Question 32

Ideas that are said to be ahead of their time are too late to become viable business opportunities for the inventor or innovator.

Question 33

A SWOT analysis should consider as potential strengths or weaknesses whether there are unfilled customer needs and the extent to which intellectual property rights exist.

Question 34

A SWOT analysis is an examination of the strengths, weaknesses, opportunities, and threats to determine the business opportunity viability of an idea.

Question 35

A viable venture opportunity creates or meets a customer need, provides an initial competitive advantage, is timely in terms of time-to-market, and offers the expectation of added value to investors.

Question 36

Asset intensity and asset turnover are calculated as revenues divided by total assets.

Question 37

A venture opportunity screening is the same thing as preparing a business plan.

Question 38

Business changes resulting in higher net profit always increases ROA.

Question 39

A venture with a low score on the VOS Indicator™ should always be abandoned.

Question 40

A SWOT analysis focuses on strengths (S), worries (W), opportunities (O), and threats (T).

Question 41

Developing new and delivering high-quality products or services that command higher prices and margins best describes strong:

A)marketing practices
B)financial practices
C)operating practices
D)management practices

Question 42

The nonfinancial options available to managers as the venture progresses through its life cycle are known as real options.

Question 43

A sound business model provides a plan to do all of the following except :

A)generate revenues
B)make profits
C)retain all its earnings
D)produce free cash flows

Question 44

An effective entrepreneurial management team should do all of the following except :

A)provide expertise in the areas of marketing, finance, and operations
B)have successful experience in the venture's industry and markets
C)always work independently of each other
D)share the entrepreneurial spirit

Question 45

Firms that allow owners to pursue specific lifestyles while being paid for doing what they like to do are referred to as:

A)salary-replacement firms
B)lifestyle firms
C)entrepreneurial ventures
D)rapid-value-creation firms

Question 46

The definition of an entrepreneurial firm is:

A)survival
B)high growth
C)high growth and high performance
D)survival and average performance

Question 47

The first two requirements of a sound business model are:

A)generate revenues and make profits
B)make profits and produce free cash flows
C)produce free cash flows for creditors and owners of the venture
D)generate revenues and produce free cash flows

Question 48

U.S. small businesses are predominately:

A)salary-replacement or entrepreneurial firms
B)lifestyle or entrepreneurial firms
C)entrepreneurial ventures
D)salary-replacement or lifestyle firms

Question 49

A viable venture opportunity is characterized by all of the following except :

A)creating or meeting a customer need
B)having perceived attraction to prospective investors
C)providing an initial competitive advantage
D)being timely in terms of time-to-market

Question 50

When moving from entrepreneurial opportunities to new businesses, products, or services, which of the following is not considered a component?

A)ideas
B)feasibility
C)business plan
D)harvest of venture

Question 51

In a typical business plan, the section covering the management team does not need to disclose the management team's expertise and experience.

Question 52

In a study of high-growth, high-performance firms by the Kauffman Center for Entrepreneurial Leadership of best practices, which of the following practices was not included?

A)marketing practices
B)financial practices
C)management practices
D)production/operations practices

Question 53

A well-designed entrepreneurial venture typically includes:

A)generating ideas
B)analyzing the feasibility of ideas
C)producing a business plan
D)generating ideas, analyzing the feasibility of ideas, and producing a business plan

Question 54

A SWOT analysis does not focus on which of the following components or areas?

A)strengths
B)weaknesses
C)new ideas
D)opportunities

Question 55

Financial bootstrapping refers to the process of minimizing resources such as the need for financial capital and finding unique sources for financing a new venture.

Question 56

A sound business model includes a plan to:

A)generate revenues and make profits
B)make profits and produce free cash flows
C)produce free cash flows for the owners of the venture
D)generate revenues, make profits, and produce free cash flows

Question 57

A venture's value is determined by its:

A)future free cash flows (to equity)
B)revenues
C)profits
D)assets

Question 58

Which of the following is not a standard component of a sound business model?

A)produce low-cost products
B)generate revenues
C)make profits
D)produce free cash flows

Question 59

Free cash flow to equity is the cash flow from producing and selling a product or providing a service.

Question 60

Venture capitalists invest in approximately what percent of business plans presented to them?

A)1%-3%
B)10%-13%
C)20%-23%
D)30%-33%

Question 61

The return on assets (ROA)model measures:

A)revenues divided by net profit multiplied by the asset turnover
B)net profit margin multiplied by the equity multiplier
C)net profit margin multiplied by the asset turnover
D)net profit divided by total assets multiplied by the asset turnover

Question 62

When conducting a SWOT analysis, assessing unfilled customer needs is examined in terms of:

A)strengths or weaknesses
B)weaknesses or threats
C)opportunities or threats
D)threats or strengths

Question 63

A VOS Indicator™ stands for:

A)"venture opportunity screening" indicator
B)"viable opportunity statement" indicator
C)"venture only success" indicator
D)"viable assessment screening" indicator

Question 64

The evaluation of entry barriers occurs under which of the factor categories of the VOS Indicator™?

A)industry/market considerations
B)pricing/profitability considerations
C)financial/harvest considerations
D)management team considerations

Question 65

Which of the following assessment categories is not used at the end of a qualitative-based venture opportunity screening exercise?

A)natural commercial potential
B)high commercial potential
C)average commercial potential
D)low commercial potential

Question 66

Revenues minus the cost of goods sold is called:

A)gross profit
B)gross profit margin
C)net profit
D)net profit margin

Question 67

Return on assets can be stated as:

A)net after-tax profit divided by total assets
B)total assets divided by net after-tax profit
C)total assets divided by revenues
D)revenues divided by total assets

Question 68

All else held constant, a higher asset turnover:

A)increases ROA
B)decreases ROA
C)has no effect on ROA
D)may raise or lower ROA, depending on how it affects revenues.

Question 69

The factor categories in a VOS Indicator™ are:

A)industry/market considerations
B)industry/market and pricing/profitability considerations
C)industry/market, pricing/profitability, and financial/harvest considerations
D)industry/market, pricing/profitability, financial/harvest, and management team considerations

Question 70

If the asset intensity is 0.80, the asset turnover would be:

A)0.80 times
B)1.00 times
C)1.25 times
D)1.50 times

Question 71

The dollar profit left after all expenses, including financing costs and taxes, have been deducted from the firm's revenues is called:

A)gross profit
B)gross profit margin
C)net profit
D)net profit margin

Question 72

When conducting a SWOT analysis, which of the following areas would not be considered as a potential opportunity or threat?

A)existing competition
B)reputation value
C)possibility of new technologies
D)recent or potential regulatory changes

Question 73

Asset intensity is:

A)total assets divided by total revenues
B)total revenues divided by total assets
C)calculated the same as asset turnover
D)one-half of the asset turnover

Question 74

A score in the range of 2.34-3.00 using the VOS Indicator™ would be considered a(n):

A)low score
B)average score
C)high score
D)very high score

Question 75

Some venture investors like to draw analogies between baseball terms and venture performance. The baseball term used to reflect a total loss of an investment is:

A)"home run"
B)"single"
C)"strikeout"
D)"double"

Question 76

A SWOT analysis focuses on which of the following components or areas?

A)strengths and weaknesses
B)weaknesses and opportunities
C)strengths, opportunities, and threats
D)threats, opportunities, weaknesses, and strengths

Question 77

The direct costs of producing a product or providing a service is called:

A)gross profit
B)gross profit margin
C)net profit margin
D)cost of goods sold

Question 78

Which of the following is not one of the factor categories of the VOS Indicator™?

A)industry/market considerations
B)pricing/profitability considerations
C)financial/harvest considerations
D)location/profitability considerations

Question 79

An average score using the VOS Indicator™ would fall in the range:

A)0.00-0.99
B)1.00-1.66
C)1.67-2.33
D)2.34-3.00

Question 80

Free cash flow, which can be paid back to investors, occurs when cash generated from operations exceeds all of the following except :

A)borrowing costs
B)noncash depreciation
C)taxes
D)investment in assets