Entrepreneurship

Question 1

What does entrepreneurship concern?

Answer 1

1. The identification of opportunities
2. The evaluation of opportunities
3. The exploitation of opportunities

Question 2

Describe Entrepreneurial Opportunities

Answer 2

1. They exist when (a) new products or services can satisfy unmet needs and/or (b) extant products and services can be offered in new markets and/or in new ways.
2. Can occur in for-profit or nonprofit sectors; also can occur in startups, established firms, small firms, or large firms.
3. Often involve using underpriced resources and /or using resources in different, unanticipated, and novel ways.
4. Can be discovered, created, or some combination thereof.

Question 3

Describe the value of entrepreneurship at a micro-economic level

Answer 3

1. Can be a source of new firms, as well as new competitive advantages for existing firms
2. Can position individuals and firms to succeed in future endeavors.

Question 4

Describe the value of entrepreneurship at a macro-economic level

Answer 4

1. Fuels economic growth
2. Creates wealth for employees and investors
3. Creates employment
4. Generates prosperity for citizens
5. Generates government revenue

Question 5

Describe Incremental Innovation

Answer 5

1. Most innovations are incremental
2. Provides small changes in current product lines and service offerings
3. May change an industry without altering its basic foundation
4. Improves existing process and knowledge
5. Can create valuee

Question 6

Describe Radical Innovation

Answer 6

1. Rare because of difficulty and risk
2. Represents significant technological breakthroughs
3. May transform an industry or create a new one
4. May change the knowledge and processes others must have
5. Can create value

Question 7

What are the 3 “I’s” of the Entrepreneurial Process?

Answer 7

1. Invention
2. Innovation
3. Imitation

Question 8

Describe “Innovation”

Answer 8

1. Creating commercial viability from an invention
2. Brings something new into use
3. Commercial criteria are used to evaluate success
4. A fundamental goal of entrepreneurship

Question 9

Describe “Invention”

Answer 9

1. Creating or developing a new product, process, or service
2. Brings something new into being
3. Technical criteria are used to evaluate success
4. Alone, invention does not produce competitive advantage

Question 10

Describe “Imitation”

Answer 10

1. Adoption of an innovation by other firms, perhaps with slight changes; might be inevitable at some point
2. Can happen quickly (e.g., soon after a product launches)
3. Moves industries toward product or process standardization
4. Though unlikely to generate competitive advantage, imitation might be necessary sometimes

Question 11

What are Business Angels

Answer 11

Individuals who invest their own money in exchange for equity

Question 12

Describe how Angel Investment works

Answer 12

1. Generally invest in firms owned and managed by people they know and trust
2. Investment usually occurs in amounts that are a small fraction of the angels’ net worth
3. Often allow the entrepreneur to maintain more ownership, perhaps enhancing the entrepreneur’s return.

Question 13

Describe Government sources of funding

Answer 13

1. Because governments have an interest in facilitating entrepreneurship, they sometimes provide seed money
2. Can be direct grants, loans, or government contracts
3. Examples include initiatives to facilitate entrepreneurship by women, minorities, and nonprofits

Question 14

What are venture capital firms?

Answer 14

Individuals or firms investing on behalf of other entities in exchange for equity

Question 15

How do VC’s work?

Answer 15

1. Tend to seek high returns on their investments
2. May take an active role in firm management
3. Often invest in stages

Question 16

What do VC’s usually pay attention to?

Answer 16

1. Human capital, particularly that of leaders (e.g. founders, top managers)
2. Anticipated competitive rivalry and market instability
3. Are usually highly selective

Question 17

What are VC returns?

Answer 17

1. Increasing firm value and selling firms (e.g., via acquisitions)
2. Maintaining ownership in firms that go public

Question 18

What are initial public offerings

Answer 18

A firm offers tradable shares of stock to external market investors for the first time

Question 19

How do IPOs work?

Answer 19

1. Firms transition from private to public
2. Provides capital, legitimacy, and liquidity
3. Entrepreneurs often relinquish much of their control of the firm

Question 20

Underwriters and institutional investors are influential

Answer 20

true

Question 21

How do IPOs provide capital to fund past liabilities or future activities?

Answer 21

1. Capital Raised = (offer price x shares sold) - Underwriters’ fees
2. The amount of capital raised often reflects the firm’s potential but can also reflect other factors
3. Due to uncertainty, signaling is important