Test Questions & Answers Ch.13 Entrepreneurial Growth

Questions for Chapter 13

True/False

1. As the organization grows, managerial skills negate the importance of entrepreneurial skills. (pg. 412)

2. Essentially customer needs do not change, therefore you need to identify them and maintain focus. (pg. 412)

3. Entrepreneurs should constantly develop the firm’s entrepreneurial capability. (pg. 412)

4. The opportunity domain is one of the four driving forces in the growth stages of any firm. (pg. 414)

5. A typical acquisition gives the owner 50% in cash and 50% in the acquiring company’s stock. (pg. 413)

6. It is always best to appoint a CEO from the employees who were with the company from the very beginning (pgs. 413-414)

7. Stockholders have the largest impact on a firm’s growth potential (pg. 415)

8. During the early growth, the entrepreneur needs to focus on the company’s strategy (pg. 415)

9. At the core of the growth model lays execution. (pg. 416)

10. Execution has the most direct link to profits (pg. 416)

11. The most critical first task in transitioning a business beyond the startup stage is to sustain an entrepreneurial organization. (pg. 417)

12. Managing cash is one of the key objectives of a control system (pg. 418)

13. You should try to implement a complex system of control from the early stages of growth (pg. 417)

14. Rapidly growing administrative and selling expenditures are often appropriate (pg. 418)

15. Performance measures in an early-stage company are designed more for helping in entrepreneurial decision-making than for evaluating current performance (pg. 418)

16. Tracking performance is necessary to support quality decision making. (pg. 418)

17. The majority of your performance tracking efforts should be focused on your competition during your initial growth stages. (pgs. 418-419)

18. Tracked items and metrics should be focused on supporting specifically anticipated decisions to the greatest extent possible. (pgs. 418-419)

19. Performance measures for a growing firm should be simple and inexpensive to track (pg. 419)

20. The Cash Cycle shows the relationship between three key metrics: days in payables, assets turnover, and days sales are outstanding (pg. 420)

21. It is possible to have a negative cash conversion period (pg. 421)

22. Diversifying opportunities in early stages of the company generates better results than crafting only one (pg. 424)

23. Growing companies who choose to expand through acquisition do so by primarily looking beyond their opportunity domain. (pg. 424)

24. The company should be driven only by opportunities that leverage current capabilities (pg. 424)

25. Bootstrapping policy should not be discontinued once the company is successful (pg. 426)

26. Financing for longer term investments that incur a higher degree of risk are often funded through equity rather than bank loans. (pg. 427)

27. It will often be acceptable for an entrepreneur to find him/herself routinely doing portions of other people’s jobs during growth. (pg. 430)

28. The best management team consists of both internally promoted and externally hired people (pg. 431)

29. Professional managers for companies in later growth stages are almost always internal candidates because of their unique experience with the company. (pg. 432)

30. As the company grows, bureaucracy has to be increasingly instilled to help coordinate different departments (pg. 433)

Multiple Choice

1. What does entrepreneurship begin with? (pg. 411)

1. Leadership
2. A loan
3. Venture capital
4. Opportunity
5. A management team

2. What is the least likely to lead to a failure in growth management? (pg. 412)

1. Having limited time and resources to spend on organization building
2. Spending too much time on day-to-day operations
3. Chasing many opportunities
4. Spending time on planning
5. Not having a strong management team

3. What skills become increasingly important at later stages of development for a company? (pg. 412)

1. Marketing
2. Managerial
3. Technical
4. Entrepreneurial
5. Opportunity identification

4. Which of the following is not a part of the driving forces in the growth stages? (pg. 412)

1. Leadership
2. The opportunity domain
3. Resources and capabilities
4. Execution
5. Outside investors

5. According to the chapter, 50% of businesses started today will not exist in how many years? (pg. 412)

1. 2
2. 3
3. 5
4. 6
5. 8

6. What fraction of firms started today, according to the chapter, will still be growing and profitable in eight years? (pg. 412)

1. 1/5
2. 1/6
3. 1/7
4. 1/8
5. 1/9

7. What is NOT an option an entrepreneur must consider beyond startup? (pg. 413)

1. Leaving the venture
2. Selling the venture
3. Maintaining the venture
4. Growing the venture
5. All of them are options

8. In a typical acquisition deal, what portion of the selling price does the entrepreneur receive in cash? (pg. 413)

1. 1/2 of the price.
2. 1/3 of the price.
3. 1/4 of the price.
4. 1/5 of the price.
5. 1/6 of the price.

9. What option does the entrepreneur have if he or she decides to maintain a business? (pg. 413)

1. Continue to lead the organization
2. Become a manager
3. Seek other employment
4. Take an alternative position in the firm
5. None of the above

10. Who or what has the largest impact on a firm’s growth potential? (pg. 415)

1. Stakeholders
2. Uncertainty
3. Environmental conditions
4. Technology changes
5. Competitors

11. What should an entrepreneur focus on during early growth? (pg. 415)

1. Expansion
2. Strategy
3. Operations
4. Accounting
5. Networking

12. What is the core of the growth model? (pg. 416)

1. Leadership
2. Resources and capabilities
3. The opportunity domain
4. The entrepreneur
5. Execution

13. The chapter warns that which of the following can lead to poor coordination between different activities within the company? (pg. 417)

1. Overdue collections
2. Inventory outages
3. Uncontrolled growth
4. Diminishing cash flows
5. None of the above

14. Which of the following is not mentioned in the chapter as a key objective for a control system? (pgs. 417-418)

1. To create culture
2. To institute control
3. To manage cash
4. To track performance
5. All of the above are mentioned

15. An effective control system includes all of following except: (pg. 417-418)

1. Account payables policies
2. Accounts receivables and collections policies
3. Assessment of performance and expenditures
4. An inventory management system
5. A risk-assessment ratios tracking

16. Which of the following is NOT characteristic of an effective performance tracking system? (pg. 418-419)

A) Determines where, when, and how to measure a key item, and who is responsible for measuring it.

B) Metrics tied to a decision (should be nearly all metrics) are assigned the latest time before which the measure will be relevant to making the decision.

C) The system is exhaustive of all possible metrics for a given questions.

D) All of the above.

E) None of the above

17. After tracking key metrics in your company’s performance, what should alert you that it may be time to consider making adjustments in your policies? (pg. 419)

1. If your metrics are below your expectations.
2. If the changes in your company are not the result of changes in your policies.
3. If the marketing expenditures are hard to predict.
4. If your metrics require in-depth analysis.
5. If receivables collection period is more than 30 days.

18. Which of the following are signs that your venture may be growing too fast? (pgs. 419-420)

A) The percentage of your cash flows from operations is declining against your cash flows from financing.

B) Profit margins are shrinking as sales are rising.

C) Customer complaints are declining while sales are rising.

D) A & B only

E) B & C only

19. What does the cash conversion period show? (pg. 420)

1. Number of dollars available to pay your short-term liabilities.
2. How quickly you get your receivables paid.
3. Time between cash outlays and cash inflows during the company’s sales process
4. How quickly you sell and replace your inventory over a period.
5. Degree to which a company is using borrowed money.

20. A positive cash conversion period means that: (pgs. 420-421)

1. You have an inefficient receivables control system
2. You are getting cash in before you deliver products/services
3. You have a very efficient receivables control system
4. You are receiving cash after you deliver products/services
5. Customers pay you before you provide them products/services

21. A series of steps showing the activities and entities that we need to coordinate in order for the company to execute its product or service is called: (pg. 422)

1. Customer value delivery
2. Value chain
3. STEP
4. Customer value proposition
5. Attributes model

22. What do customers usually want the company to do with its products? (pg. 423)

1. To improve the products they know best.
2. To introduce new products.
3. To change brand names of existing products.
4. To produce products inside the country.
5. None of the above.

23. What could identification of your firm’s range of value chain activities help you to detect? (pgs. 422-423)

1. New markets.
2. Legal liabilities.
3. Ways to shift your core business.
4. Resource draining side projects.
5. All of the above.

24. Which of the following is not a source of financing for early growth? (pg. 427)

1. Angel investors
2. Founder loans
3. Investment from key management
4. Equipment leases
5. All of them are sources

25. What best characterizes an entrepreneur? (pg. 429)

1. Resource driven
2. Maintains consistency and predictability
3. Implements the business
4. Opportunity driven
5. Enhances efficiency of organization

26. Which of the following may be a common error when an entrepreneur tries to transition to an entrepreneurial leader (pick one). (pgs. 430-431)

A) Leads the venture through changes in both the organization and the competitive environment.

B) Sets a vision and empowers others to carry it out.

C) Avoids hiring managers whose domain experience exceeds their own.

D) Leverages the core business to grow in-line with critical capabilities.

E) All of the above

27. Which of the following is a sign that an entrepreneur is delegating well. (pgs. 430-431)

A) You are making more decisions, but accomplishing less

B) People are working hard, but critical mistakes are increasing

C) Action isn’t taken without the entrepreneurs’ involvement

D) Problems are solved without the entrepreneur being involved in the underlying mechanics.

E) None of the above

28. What purpose should the board of directors serve as a company professionalizes? (pg. 432)

1. Mentorship.
2. Strategic.
3. Operating.
4. Credit lending.
5. To represent suppliers.

29. According to the Driving Forces of Growth Model, opportunity domain interacts with which of the following? (pg. 432)

1. Stakeholders
2. Environmental conditions
3. Profitability
4. Coordination
5. Organizational capabilities

30. Which of the following is NOT an important factor is recruiting a board of directors? (pg. 432)

A) Willingness and ability to become key participants in the strategic planning process.

B) Whether or not the board member is a stakeholder with the ability to exert control over the firm.

C) Finding alternative perspectives and depth and breadth of experience.

D) The board member’s likely willingness to join the company as a senior manager in the future.

E) None of the above

Open ended

1. Describe some of the reasons that entrepreneurs fail to manage their companies’ growth. (pg. 412)
   • They have limited time and resources to spend on organization building
   • They’re constantly fighting fires in the business’s day-to-day operations
   • They’re chasing too many opportunities, leaving little time for planning
   • They neglect the planning and preparation required for long-term success
2. Once a company has moved beyond the startup stage, what are the three main paths that the founder can choose? What are some of the subordinate options within each of those three paths? (pgs. 412-413)
   • Sell the company:
     • stay with company;
     • start another venture;
     • seek other employment
   • Maintain the company:
     • become a manager;
     • exit day-to-day management
   • Grow the company:
     • become an entrepreneurial leader;
     • take alternative position in the company;
     • exit day-to-day management
3. What are the driving forces of growth? What is the core of the growth model? (pg. 414)
   • Leadership
   • The opportunity domain
   • Organizational resources and capabilities
   • Execution is the core and fourth driving force
4. Why is a control system so important for a growing organization? What are the features of a well-functioning control system? (pgs. 417-418)
   • Without an adequate system of controls, the company can’t optimize its decision making or prevent the waste of resources
   • An effective control system includes the following:
     • Accounts receivables and collections policies
     • An inventory management system
     • Account payables policies
     • Assessment of performance and expenditures
     • Metrics to track trends in cash, receivables, inventory, payables, expenditures and performance
5. Describe why performance measures must be linked to anticipated decisions. (pg. 418-419)
   1. There should be fewer top-level decisions if delegation is combined with a clearly communicated strategy and operating plan.
   2. Those decisions that remain for the entrepreneur are the most significant and affect the entire organization.
   3. Uncertainty at the organizational level of decision making is drawn from assumptions about the market, the competition, and about the venture itself.
   4. An entrepreneur’s limited resources must be focused on answering key questions about their own assumptions in time to improve decision making.
   5. Resource limitations will restrict performance tracking to those items that are most important which, by its very nature, are those decisions which affect the entire organization.
   6. Performance tracking that results in no decision to act, or act differently, is a waste of resources.
6. What are some indicators that a company is growing at an uncontrollable rate? (pgs. 419-420)
   1. The workforce is stretched too thin.
   2. The percentage of cash flows from operations is declining against the cash flows from financing, particularly debt.
   3. Profit margins are shrinking as sales are climbing.
   4. The entrepreneur is doing other peoples’ jobs.
   5. Customer complaints, in proportion to increases in sales, are increasing.
   6. The company’s accountant is nervous.
7. What are the components of the cash cycle? How can the company improve its cash conversion period? (pgs. 420-421)
   • The three components are: days in payables, days in inventory, and days sales are outstanding.
   • You can negotiate better period terms with suppliers.
   • You can optimize your inventory management and reduce your inventory holdings.
   • You can try to reduce your receivables period, thereby reducing the amount of time that your customers take to pay their invoices.
   • Keep everything else level and increase your sales.
8. What is the danger of chasing too many opportunities? Explain the significance of the opportunity domain. (pgs. 423-424)
   • By chasing too many opportunities the company cannot identify its own strength and differentiate itself as a provider of a specific product
   • Opportunity domain helps a company realize how to turn its seemingly slow growth into greater potential. It also identifies expansion opportunities which stretch your current capabilities
9. Name some of the sources of financing. What features do creditors look for in growing organizations? (pg. 427)
   1. Sources of financing for early growth include: investment from key management, founder loans, family and friends, angel investors, loans on assets, equipment leases, trade credit, and credit cards
   2. Investors typically want: a viable growth model, a strong management team, clear opportunity
10. How should entrepreneurs form their management team? What common problems might they face? (pgs. 431-432)
    1. In early growth, the first set of supervisors can come from within.
    2. Later, as your company grows, it may be necessary to hire outside managers.
    3. The main problem here is that your original team members may not have the necessary abilities and potential, and newcomers may not be accepted by other workers.
11. Describe the process of transition from entrepreneur to entrepreneurial leader. (pgs. 430-431)
    1. Creates and implements vision for a new organization.
    2. Provides specific direction to employees.
    3. Relies on specialized expertise of others to implement details.
    4. Grants authority and responsibility to managers for achieving objectives.
    5. Sets vision and allows others to participate in setting objectives; empowers and guides, but oversees execution.
12. What are the ways of nurturing entrepreneurs in an organization? (pg. 433)
    1. Identify those exhibiting passion for entrepreneurship and develop their ability to work under conditions of high ambiguity.
    2. Ensure that they have the inclination and credibility to convince others in the organization to contribute and commit to their projects.
    3. Facilitate, support and guide their efforts while also providing them with sufficient freedom and empowerment.
    4. Recognize their contribution to the company’s innovation and growth ambitions.
    5. View failure as a risk associated with entrepreneurship, and an opportunity for learning, therefore ensuring that well-intentioned failures are not punished.
13. Discuss some of the signs that reveal an organization has outgrown the entrepreneur’s capacity. (pg. 430)
    1. The volume of decisions multiplies. The entrepreneur is working harder but accomplishing less.
    2. Decisions become more difficult to make: more complex and specialized. The entrepreneur increasingly wonders whether she has made the right decision.
    3. Everyone is still pitching in and doing everything, but more and more, something critical slips by or mistakes occur.
    4. If the entrepreneur is not directly involved in the task, no progress can happen.
14. Discuss some options to support either the integration of outside managers into a venture, or to prepare existing employees for management roles. (pgs. 431-432)
    1. Consider having new managers spend time learning or performing some of the roles of existing employees if those roles are unique to your organization or central to its culture (e.g., Toyota executives work on the assembly line with front line factory workers)
    2. Identify employees with management potential, and invest in their development early enough that they are ready to assume more responsibility before more management is desperately needed. This could include formal schooling, or simply shadowing or apprentice programs, where employees are gradually handed additional responsibility as their capabilities grow.
15. Discuss some potential pitfalls of decentralization common to new leaders (pgs. 430-431)
    1. Under a more centralized structure, a leader may tell people why they are doing something, what to do, and even how to do it.
    2. As delegation increases leaders must still communicate why, and often what, must occur.
    3. As organizations decentralize in order to be more responsive to changes in the environment, the leader may not be able to supply even what must be done, but must always communicate WHY.
    4. Trust is the critical glue that makes a decentralized organization work. Without trust, leaders will tell people what and why to do things, and once conditions change and the ‘what’ no longer accomplishes the ‘why,’ the organization will not be able to function in a decentralized manner.
    5. Learning to increase communication of purpose when reducing the communication of ‘what’ to do, is a common error for leader of newly decentralized organizations.