Entrepreneurship: Chapter 3 Study Notes

Which of the following is not an element of business definition?

A) The offer

B) The acceptance

C) Target market

D) Production and delivery capability

B) The acceptance

A target market of every adult in the United States is too ________.

A) narrow

B) broad

C) specific

D) limiting

B) broad

Business definition answers the questions of who, what, and ________.

A) how

B) when

C) why

D) None of the above.

A) how

A ________ is a group of people who would be interested in buying a given product or service.

A) market

B) consumer

C) customer

D) target

A) market

The business definition has three elements: ________.

A) target market, potential customers, and production capability

B) offer, target market, and production/delivery capability

C) offer, acceptance, and consideration

D) business definition, target market, and market analysis

B) offer, target market, and production/delivery capability

True or false: A solid business definition has three elements: 1) the offer, 2) target market, 3) production and delivery capability.

TRUE

Before you can start your business, you must define it. Describe the questions the business definition answers and its three elements.

The business definition answers three questions: Who, What, and How? A. Who will the business serve? In other words, who is in the market for your product or service? B. What will the business offer the customers? What are the products (or services) the business will sell? C. How will the business provide the products or services it offers? What are the primary actions and activities required to conduct this business?

The definition of the business has three elements: 1. The Offer, 2. Target Market, 3. Production and Delivery Capability

The concept of "affordable loss" is a feature of ________ logic.

A) effectual

B) circular

C) causal

D) linear

A) effectual

________ is the core values of an organization in action.

A) Mission

B) Culture

C) Vision

D) None of the above.

B) Culture

Your ________ is a concise communication of your strategy including your business definition, purpose, and your competitive advantage.

A) target market analysis

B) business plan

C) values statement

D) mission statement

D) mission statement

Which of the following is not a strong method of identifying business opportunities?

A) Searching through a process of identification and selection beginning with self-developed (or group-developed) ideas.

B) A person has a talent for making something and decides that (s)he should go into business.

C) Searching through a process of identification and selection starting with research on "hot" businesses or growth areas.

D) A person has an idea for a product or service and searches for a market

B) A person has a talent for making something and decides that (s)he should go into business.

True or False: Your company's vision defines the work environment.

FALSE

Which item below is not a primary route in the deliberative search process to create and identify opportunities?

A) The entrepreneur looks for business opportunities through a process of identification and selection, beginning with self-developed (or group-developed) ideas.

B) The entrepreneur attends various pitch competitions in search of ideas.

C) The entrepreneur starts with research on hot businesses, trends, or growth areas.

D) The entrepreneur has an idea for a product or service or has a problem to solve and searches for a market.

B) The entrepreneur attends various pitch competitions in search of ideas.

Business definition + competitive advantage is ________.

A) competitive tactics

B) competitive strategy

C) business mission

D) business plan success

B) competitive strategy

For a business to be successful, a competitive advantage must be ________.

A) expensive

B) legal

C) sustainable

D) profitable

C) sustainable

A competitive advantage can be based on any of several factors. Which factor below is not one of them?

A) Opportunity

B) Selection

C) Service

D) Quality

A) Opportunity

For your business to be successful, you will need a strategy for beating the competition, i.e., your ________.

A) competitive advantage

B) customer analysis

C) target market

D) market analysis

A) competitive advantage

In analyzing competitive advantage, you will need to ask three questions. Among these are:

A) Cost structure - are you at a cost advantage or disadvantage?

B) What is your unique selling proposition? What do you have that competitors cannot or will not match?

C) Competitive offers - how do you compare with competitors on a feature-by-feature basis?

D) All of the above.

D) All of the above.

Entrepreneurs tend to be ________.

A) risk averse

B) negative

C) optimistic

D) dispassionate

C) optimistic

True or False: The factors of competitive advantage are quality, price, location, selection, service, speed/turnaround, convenience, getting the job done, brand status, newness, and customization.

Answer: TRUE

Describe the factors of competitive advantage.

Competitive advantage comes from one (or a combination) of several factors: 1. Quality - Can you provide higher quality than competing businesses? 2. Price - Can you offer a lower price than your competition? 3. Location - Can you find a more convenient location for customers? 4. Selection - Can you provide a wider range of choices than your competitors? 5. Service - Can you provide better, more personalized customer service? 6. Speed/Turnaround - Can you deliver your product or service more quickly than the competition? 7. Convenience - Is it easy to use your product? Is your product accessible? 8. "Getting the job done" - Does the product or service accomplish a task that has been problematic? 9. Brand/status - Will customers associate your product with a quality brand or with luxury and status? 10. Newness - Is your product new and novel? Is it on the leading edge of technology? 11. Customization - Can your product or service be tailored to the requirements of your customers?

How do you decide if your competitive advantage is strong enough, and give an example?

1. Sell to a market that is large and growing, for example, China or iPods. 2. Sell to a market where the competition is able to make a profit. For example, right now, the jury is out on whether hybrid cars will be profitable. However, selling the Honda Accord (the United States' most purchased car) is obviously profitable for Honda. 3. Sell to a market where competitors are succeeding, but they cannot block your entry or make market entry hard. For example, take your product and sell it at a flea market. 4. Sell a product or service that solves problems consumers have with competitors. For example, FedEx offered overnight delivery and began to beat the United States Postal Service and United Parcel Service (UPS). 5. Sell a product or service at a competitive price that will attract customers. For example, UPS fought back against FedEx by offering a lower price than FedEx for overnight delivery

Briefly describe a product or service idea, e.g., a bookstore, and describe how you might create a competitive advantage

Answers will vary, but the answer should focus on using the following tactics/elements to develop a unique selling proposition: a) location, b) product characteristics, c) design, and/or d) price. The student may include promotion as well.

The cost of selling one unit of a product is called ________

A) cost of materials

B) cost of goods sold

C) cost of services sold

D) marginal cost

B) cost of goods sold

To help determine whether your business will be profitable, calculate the ________.

A) difference between the costs and profits for one unit

B) economics of one unit

C) cost of goods sold

D) marginal cost of one unit

B) economics of one unit

Total gross profit = ________.

A) profit - cost of goods sold

B) cost of goods sold - total revenue

C) revenue - cost of goods sold

D) revenue - operating costs

C) revenue - cost of goods sold

A typical unit of sale for a wholesaler would be ________.

A) one item

B) one dozen

C) a block of time devoted to a task

D) one hour of work

B) one dozen

Average gross profit per customer is average ________.

A) cost of sale - average sale per customer

B) cost of tangible product - average cost of intangible product

C) sale per customer - average cost of sale per customer

D) sale per consumer + average sale per wholesaler

C) sale per customer - average cost of sale per customer

For a business to be successful, a competitive advantage must be ________.

A) expensive

B) legal

C) sustainable

D) profitable

C) sustainable

Business leaders create wealth by ________.

A) avoiding the cost of hiring employees

B) reducing their gross margins

C) hiring employees to sell more units and generate more profit

D) charging high prices to customers

C) hiring employees to sell more units and generate more profit

What is the average unit of sale for a restaurant that serves $3,250 per day in meals to 200 customers per day?

A) $32.50

B) $20.00

C) $16.25

D) $15.84

C) $16.25

If the Foreign Exchange rate between the Japanese yen and the Euro is 190:1, how many yen will equal 10 euros?

A) 1,900 B) 100 C) 1,910 D) 1,901

A) 1,900

The foreign exchange rate is the ________.

A) relative value between one currency and another

B) rate at which countries do business

C) relative value between the dollar and foreign currencies

D) relative value of last year's currency to this year's

A) relative value between one currency and another

Tray has a T-shirt business that buys shirts from a wholesaler for four dollars each and sells them to retailers for eight dollars each. He imprints each shirt with a picture of a musical artist that costs him two dollars. He also pays his cousin to do the printing at five dollars an hour. LaShawn prints five shirts per hour. A retailer offers to buy 1,000 shirts at seven dollars each. Should Tray agree to the deal?

A) Yes, Tray will make a profit of one dollar per shirt.

B) No, Tray will not make a profit at this price.

C) Yes, Tray will make a marginal profit at this rate.

D) Yes, even though he may lose money he can make up for it in volume.

B) No, Tray will not make a profit at this price

Once you know your ________, you can calculate gross profit.

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

A) cost of goods sold

The unit of sale for a retailer is ________.

A) a dozen of an item B) one item C) one order D) one hour of time

B) one item

The unit of sale for a manufacturer is ________.

A) a dozen of an item B) one item C) one order D) one hour of time

C) one order

True or False: The COGS and COSS are equivalent mathematically

TRUE

Why is it a good idea to figure out your Economics of One Unit?

The Economics of One Unit of Sale (EOU) is a method for seeing whether your business idea might be profitable. The EOU tells you how much gross profit you will earn on every unit of your product or service that you sell. If one unit of sale is profitable, the whole business is likely to be profitable, too. On the other hand, if one unit of sale is not profitable, then no matter how many units you sell, your business will never be successful.

True or False: To determine the value of a business you can use asset valuation. It is a method that analyzes the underlying value of a business's sales and operating costs as a basis for negotiating a price.

FALSE