Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
Chapter 08
Entrepreneurial Strategy and Competitive Dynamics
1. Small businesses and entrepreneurial firms create the majority of new jobs in the U. S.
economy.
True False
2. Most small businesses in the U.S. are in retail trade and construction industries.
True False
5. The evaluation phase of opportunity recognition includes the "Aha!" experience that often
leads to new venture development.
True False
6. The majority of entrepreneurial start-ups are financed with personal savings and the
contributions of family and friends.
True False
7. The majority of entrepreneurial firms are started with financing from venture capitalists and
banks.
True False
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Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
8. Angel investors are private individuals who provide equity investments for seed capital
during the early stages of a new venture.
True False
10. Venture capital funding for entrepreneurial ventures is usually available only after the
start-up has become a going concern and established a track record.
True False
11. The term "angel investors" refers to private individuals who provide seed capital to young
ventures.
True False
12. Venture capital is a form of public equity financing used to help young firms grow
rapidly.
True False
13. To obtain venture capital financing, business founders often have to give up some
ownership and control of their business.
True False
14. According to the text, venture capitalists and angel investors regard the management team
as the most important asset of an entrepreneurial venture.
True False
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Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
15. Because of the Small Business Administration and government regulations, small
businesses are rarely allowed to bid on government contracts.
True False
16. An entry wedge, according to the text, is a type of entrepreneurial strategy firms can use
to enter into business.
True False
17. Founders using a pioneering new entry strategy look for opportunities to capitalize on
proven market successes.
True False
18. Adaptive new entry involves offering a radical new product or highly innovative service.
True False
19. Rather than fighting over existing customers, firms pursuing a "blue ocean" strategy seek
opportunities in uncontested markets.
True False
20. "Blue ocean" strategies rarely provide sustainable advantages because they are easily
imitated.
True False
21. Because new ventures are typically small, they usually don't have high economies of scale
relative to competitors.
True False
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Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
22. Entrepreneurial firms are often in a strong position to use combination strategies because
they have the flexibility to approach situations uniquely.
True False
23. Entrepreneurial competitive dynamics refers to a cycle of actions and responses between
firms competing for the same customers.
True False
24. Entrepreneurial new entry is often perceived as a competitive threat because most market
needs are being met, either directly or indirectly, by an existing firm.
True False
25. 25 Market commonality is the extent to which rivals draw from the same types of
resources.
True False
26. Market commonality refers to the extent to which competitors are vying for the same
customers in the same markets.
True False
27. When attacked, older and larger firms tend to respond more quickly, but their responses
are often more predictable.
True False
28. Cutting prices or increasing marketing efforts are examples of tactical competitive
actions.
True False
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Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
29. In the context of competitive dynamics, tactical actions involve major commitments of
distinctive and specific resources to strategic initiatives.
True False
30. Refinements or extensions of existing strategies are often referred to as tactical actions.
True False
32. Co-opetition, where competitors work together behind the scenes, is a form of illegal tacit
collusion.
True False
33. In the opening case, iSold It, a firm that helped others sell products on eBay, went from
one of the fastest growing franchise businesses to a firm that saw a number of its franchises
close and declining sales in a matter of months. What was a major challenge iSold It faced
that led to these problems?
A. It did not have the financial resources to maintain the rapidly growing firm.
B. The company lacked knowledgeable executives in key positions.
C. Its concept was rapidly imitated by others.
D. It had weak operational systems and could not maintain control of the growing network of
stores.
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Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
34. According to the text, for an entrepreneurial start-up to be successful, three ingredients are
critical. What are they?
A. good ideas, a team of investors, and a business plan
B. a viable opportunity, available resources, and a qualified and motivated founding team
C. an opportunity, a marketing plan, and office space
D. management, marketing, and money
36. 36 The process of identifying, selecting, and developing new venture opportunities is
known as
A. innovativeness.
B. bootstrapping.
C. opportunity recognition.
D. brainstorming.
37. Generally speaking, the opportunity recognition process consists of two phases of activity.
They are
A. Global Search and Recycling Profits.
B. Value Creation and Affordability.
C. Discovery and Evaluation.
D. none of these.
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Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
39. When an opportunity is attractive long enough for it to be successfully developed and
deployed, it is said to be
A. value creating.
B. affordable.
C. achievable.
D. durable.
40. Which of the following terms is used to refer to opportunities that are practical and
physically possible?
A. durable
B. valuable
C. achievable
D. sustainable
42. Which of the following sources of entrepreneurial financing are available to ventures that
have already started to conduct business and generate sales?
A. bank financing
B. venture capital
C. public financing
D. all of these
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Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
44. Private individuals who provide seed capital to young ventures are known as
A. angels.
B. gazelles.
C. cash cows.
D. rising stars.
45. All of the following statements about venture capital are true EXCEPT
A. entrepreneurs raise venture capital by selling shares of ownership in their business.
B. venture capital is a form of public equity financing.
C. venture capital is used to finance rapid growth or large capital expenditures.
D. venture capital groups can often provide helpful management advice.
46. Based on statistics reported in the text, which of the following statements is FALSE?
A. Firms that obtain venture-capital funding receive an average of over $1 million each.
B. Total investment in start-up firms averages about $80,000 in the firm's first year.
C. Among the 100 fastest-growing new businesses identified by Entrepreneur magazine, 61
percent obtained start-up funding from personal savings.
D. Ninety percent of the companies financed with venture capital funds fail.
47. According to the text, new ventures launched by entrepreneurial teams are more likely to
be successful than ventures launched by
A. established corporations.
B. bootstrappers.
C. "lone wolf" entrepreneurs.
D. all of these.
48. Which of the following types of resources contribute to the success of entrepreneurial
firms?
A. social capital
B. financial resources
C. human resources
D. All of these contribute to the success of entrepreneurial firms.
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Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
49. __________ provide(s) a key avenue for growth for many young and small firms through
partnering to obtain resources and/or expand into new markets.
A. Strategic alliances
B. Bootstrappers
C. "Lone wolf" entrepreneurs
D. Research & development
50. The U.S. Small Business Administration supports small business through all of the
following EXCEPT
A. government contracting.
B. underwriting loans.
C. investing venture capital.
D. training and counseling.
51. Which of the following is NOT one of the three characteristics of entrepreneurial
leadership mentioned by the text?
A. vision
B. dedication and drive
C. commitment to excellence
D. clarifying job responsibilities
53. Which of the following is NOT a common new entry strategy according to the text?
A. imitative new entry
B. adaptive new entry
C. proactive new entry
D. pioneering new entry
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Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
54. Seeking products or services that have been successful in one market and introducing the
same basic product or service in another segment of the market is referred to as
A. imitative new entry.
B. adaptive new entry.
C. proactive new entry.
D. pioneering new entry.
55. Which of the following is NOT a key element of a blue ocean strategy?
A. Pursue low cost and differentiation advantages simultaneously.
B. Make the competition irrelevant.
C. Highlight incremental improvements to capture market share.
D. Create new demand in uncharted territory.
56. Cirque du Soleil is an example of a firm that successfully enacted a "blue ocean" strategy.
Which of the following is a feature of the strategy it enacted?
A. It developed its own musical scores for its circus performances.
B. It discontinued traditional parts of the circus, such as animal acts.
C. It researched customers to learn what circus features are more in demand.
D. All of these.
57. "Doing more with less", by holding down costs or making more efficient use of resources
is one of the ways entrepreneurs achieve success. This is an example of how entrepreneurs
use
A. an imitative strategy.
B. a low-cost leader strategy.
C. a differentiation strategy.
D. a combination strategy.
58. Entrepreneurial firms that pursue a low-cost leadership strategy use which of the
following to achieve lower costs?
A. cost-saving technology such as the Internet
B. simple organizational structures
C. rapid decision making
D. all of these
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Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
59. When an industry is mature, a __________ strategy is considered to be one of the most
effective approaches for a new entrant.
A. focus
B. differentiation
C. overall low-cost
D. small business
60. According to the text, all of the following might make it difficult for entrepreneurial firms
to effectively pursue a strategy of differentiation EXCEPT
A. incumbent firms are constantly seeking opportunities to specialize in market niches.
B. differentiation strategies are often expensive to enact.
C. it may be difficult for a young firm to establish a strong brand identity.
D. implementing superior new technologies may be challenging for entrepreneurial firms.
61. Intense rivalry involving actions and responses among similar competitors vying for the
same customers in a marketplace is known as
A. competitive dynamics.
B. resource similarity.
C. threat of substitutes.
D. pioneering new entry.
62. Which of the following is NOT one of the reasons a company might launch new
competitive actions?
A. to obtain first mover advantages
B. to improve market position
C. to capitalize on growing demand
D. to find new sources of raw materials
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Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
63. Netflix CEO Reed Hastings made this important observation about dealing with rivals:
A. "In a highly competitive marketplace, firms must be paranoid about the multitude of
potential rivals."
B. "You can afford to ignore rivals in small markets, but you can never ignore rivals in large
markets, such as online video companies like YouTube."
C. "There are tens and maybe hundreds of start-ups who think that they are going to eat
Netflix's lunch. The challenge for a management team is to figure out which are real threats
and which aren't."
D. "Netflix's position is so strong that I don't worry about new entrants."
64. Aircraft makers Boeing and Airbus have a high degree of __________ because they make
very similar products and have many buyers in common.
A. dynamic capabilities
B. market commonality
C. first mover advantages
D. equity funding
65. The Wall Street Journal and the New York Times have seen the intensity of their rivalry
increase. One factor driving this is that the Wall Street Journal has moved from financial news
reporting to general national and global news reporting and finally, to adding local New York
news. The rivalry of these two news providers has increased due to
A. increased dynamic capabilities.
B. increased market commonality.
C. erosion of first mover advantages.
D. the choice of tactical over strategic actions.
66. Which of the following questions should a firm ask itself before responding to a
competitive attack?
A. How serious is the impact of the attack?
B. What is our competitive intentdo we want to blunt the attack or enhance our competitive
position with our response?
C. What resources do we have available for a response?
D. All of these.
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Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
67. Which of the below best describes the competitive tendencies of small firms?
A. Because they lack legitimacy in the marketplace, small firms tend to signal their
competitive actions long before they launch those actions.
B. Small firms typically have more resources available as they undertake competitive attacks
than do large firms.
C. Small firms are more nimble and can respond quickly to competitive attacks.
D. All of these.
68. Cirrus Aircraft, a leading manufacturer of small airplanes, sees a market opportunity and
has decided to double its plant capacity over the next two years. What type of competitive
action does this represent?
A. A tactical action because the move is an attempt to fill a gap in service.
B. A strategic action because such a large plant expansion will require a major commitment of
resources.
C. A strategic action because the firm can easily reverse the action at any time, thus giving
Cirrus more strategic flexibility.
D. A guerilla offensive because it is fast and will surprise its rivals.
69. All of the following are examples of strategic actions a firm might take EXCEPT
A. acquire with competitors to reduce competition.
B. expand into neglected markets.
C. change product packaging.
D. tie up raw materials sources.
70. The best example of a tactical action that a company might use in response to a
competitive attack is to
A. acquire the competitor.
B. target the rival's markets.
C. expand into new geographical areas.
D. offer price discounts and rebates.
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Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
71. All of the below are factors that affect how a competitor will respond to a competitive
attack EXCEPT
A. how dependent the competitor is on that industry or particular market segment.
B. the degree of market power and reputation of the company that initiated the attack.
C. the resources which are available for a firm to respond.
D. the stock market reaction to the initial competitive attack.
72. Which of the following refers to a situation where a company has a high concentration of
its business in a particular industry's market?
A. competitor's resources
B. market dependence
C. resource similarity
D. actor's reputation
73. A firm is considering a large price cut on its leading product as a way to gain market
share. One executive strongly disagrees with the price cut and states, "We are in the same
marketplace as our rivals, and we do not have any competitive advantages in our cost
structure. If we cut prices, our competitors will likely do the same. The end result is that we
will all make less money." These arguments are an example of
A. a strategy of forbearance.
B. a strategy of co-opetition.
C. a hardball strategy whereby competitive actions are not undertaken without a clear
advantage.
D. a weakness strategy that leads a company into constant decline.
Essay Questions
74. What is the role of opportunity recognition in the new venture development process?
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Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
75. Discuss the four characteristics of an entrepreneurial opportunity. Explain why each is
important for the opportunity to be viable.
76. Discuss the role of informal investments versus venture-capital financing as it is used by
entrepreneurial ventures. What are the advantages and disadvantages of each type?
77. What are the advantages and disadvantages of using venture capital to finance new
ventures?
78. 78 In what ways are human capital and social capital valuable to an entrepreneurial start-
up? Provide examples of each.
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Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
79. Compare and contrast the three most common new venture entry strategies: pioneering,
imitative, and adaptive.
80. Define the term "competitive dynamics." Then, describe the cycle of actions and
responses that are characteristic of a competitive dynamics process.
82. According to competitive dynamics, competitors are more likely to respond when attacked
in a market where the competitor relies on that market for a large portion of its sales. Why is
this so? That is, what "dynamic" is at work in this situation that would cause that response?
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Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
83. What are the differences between strategic actions and tactical actions? What are the
implications of each approach to the competitive dynamics process?
84. In the context of competitive dynamics, what factors determine the likelihood of a
competitive response?
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Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
1. (p. 281) Small businesses and entrepreneurial firms create the majority of new jobs in the U.
S. economy.
TRUE
Young and small firms are responsible for more innovations and more new job creation than
any other type of business.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-01 The role of new ventures and small businesses in the U.S. economy.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
2. (p. 282) Most small businesses in the U.S. are in retail trade and construction industries.
FALSE
Though construction and retail trade are among the largest segments in small business, they
still make up only about 25% of all US small companies.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-01 The role of new ventures and small businesses in the U.S. economy.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
8-18
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
3. (p. 281, 284) Opportunity recognition is the process of identifying, selecting, and developing
entrepreneurial opportunities.
TRUE
To determine which ideas are strong enough to become new ventures, entrepreneurs must go
through a process of identifying, selecting, and developing potential opportunities. This is the
process of opportunity recognition.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 1 Easy
Topic: Recognizing Entrepreneurial Opportunities
4. (p. 284) Opportunity recognition involves two phases of activity: discovery and evaluation.
TRUE
Opportunity recognition refers to more than just the "Eureka!" feeling that people sometimes
experience at the moment they identify a new idea. Although such insights are often very
important, the opportunity recognition process involves two phases of activity, discovery and
evaluation, that lead to viable new venture opportunities.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 1 Easy
Topic: Recognizing Entrepreneurial Opportunities
5. (p. 284) The evaluation phase of opportunity recognition includes the "Aha!" experience that
often leads to new venture development.
FALSE
The discovery phase refers to the process of becoming aware of a new business concept.
Many entrepreneurs report that their idea for a new venture occurred to them in an instant, as
a sort of "Aha!" experiencethat is, they had some insight or epiphany, often based on their
prior knowledge, that gave them an idea for a new business.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
8-19
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
6. (p. 286) The majority of entrepreneurial start-ups are financed with personal savings and the
contributions of family and friends.
TRUE
The funding available to young and small firms tends to be quite limited. In fact, the majority
of new firms are low-budget start-ups launched with personal savings and the contributions of
family and friends.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
7. (p. 286) The majority of entrepreneurial firms are started with financing from venture
capitalists and banks.
FALSE
The funding available to young and small firms tends to be quite limited. In fact, the majority
of new firms are low-budget start-ups launched with personal savings and the contributions of
family and friends.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
8-20
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
8. (p. 287) Angel investors are private individuals who provide equity investments for seed
capital during the early stages of a new venture.
TRUE
Although bank financing, public financing, and venture capital are important sources of small
business finance, these types of financial support are typically available only after a company
has started to conduct business and generate sales. Even "angel" investors, private individuals
who provide equity investments for seed capital during the early stages of a new venture,
favor companies that already have a winning business model and dominance in a market
niche.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 1 Easy
Topic: Recognizing Entrepreneurial Opportunities
9. (p. 289) 9 As investors, venture capitalists rarely provide any help or services to
entrepreneurial firms other than financing.
FALSE
Venture capitalists nearly always have high performance expectations from the companies
they invest in, but they also provide important managerial advice and links to key contacts in
an industry.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
8-21
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
10. (p. 288-289) Venture capital funding for entrepreneurial ventures is usually available only after
the start-up has become a going concern and established a track record.
TRUE
Once a venture has established itself as a going concern, other sources of financing become
readily available. Banks, for example, are more likely to provide later-stage financing to
companies with a track record of sales or other cash-generating activity. Start-ups that involve
large capital investments or extensive development costs or those on the brink of rapid growth
often seek venture capital.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
11. (p. 289) The term "angel investors" refers to private individuals who provide seed capital to
young ventures.
TRUE
In contrast to angel investors, who invest their own money, venture capital companies are
organized to place the funds of private investors into lucrative business opportunities.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 1 Easy
Topic: Recognizing Entrepreneurial Opportunities
12. (p. 289) Venture capital is a form of public equity financing used to help young firms grow
rapidly.
FALSE
Venture capital is a form of private equity financing through which entrepreneurs raise money
by selling shares in the new venture.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 1 Easy
Topic: Recognizing Entrepreneurial Opportunities
8-22
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
13. (p. 289) To obtain venture capital financing, business founders often have to give up some
ownership and control of their business.
TRUE
Venture capital is a form of private equity financing through which entrepreneurs raise money
by selling shares in the new venture.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
14. (p. 289) According to the text, venture capitalists and angel investors regard the management
team as the most important asset of an entrepreneurial venture.
TRUE
Bankers, venture capitalists, and angel investors agree that the most important asset an
entrepreneurial firm can have is strong and skilled management.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
15. (p. 290) Because of the Small Business Administration and government regulations, small
businesses are rarely allowed to bid on government contracts.
FALSE
A key area of support for small business is in government contracting. Programs sponsored by
the SBA and other government agencies ensure that small businesses have the opportunity to
bid on contracts to provide goods and services to the government.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
8-23
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
16. (p. 293) An entry wedge, according to the text, is a type of entrepreneurial strategy firms can
use to enter into business.
TRUE
One of the most challenging aspects of launching a new venture is finding a way to begin
doing business that quickly generates cash flow, builds credibility, attracts good employees,
and overcomes the liability of newness. The idea of an entry strategy or "entry wedge"
describes several approaches that firms may take to get a foothold in a market.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-03 Three types of entry strategies-pioneering; imitative; and adaptive-commonly used to launch a new venture.
Level of Difficulty: 1 Easy
Topic: Entrepreneurial Strategy
17. (p. 293) Founders using a pioneering new entry strategy look for opportunities to capitalize
on proven market successes.
FALSE
An imitative new entry strategy is used by entrepreneurs when they look for opportunities to
capitalize on proven market successes. New entrants with a radical new product or highly
innovative service may change the way business is conducted in an industry. This kind of
breakthrough, creating new ways to solve old problems or meeting customers' needs in a
unique new way, is referred to as a pioneering new entry.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-03 Three types of entry strategies-pioneering; imitative; and adaptive-commonly used to launch a new venture.
Level of Difficulty: 1 Easy
Topic: Entrepreneurial Strategy
8-24
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
18. (p. 293) Adaptive new entry involves offering a radical new product or highly innovative
service.
FALSE
New entrants with a radical new product or highly innovative service may change the way
business is conducted in an industry. This kind of breakthrough, creating new ways to solve
old problems or meeting customers' needs in a unique new way, is referred to as a pioneering
new entry.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-03 Three types of entry strategies-pioneering; imitative; and adaptive-commonly used to launch a new venture.
Level of Difficulty: 1 Easy
Topic: Entrepreneurial Strategy
19. (p. 296) Rather than fighting over existing customers, firms pursuing a "blue ocean" strategy
seek opportunities in uncontested markets.
TRUE
In their new book Blue Ocean Strategy, W.Chan Kim and Renee Mauborgne conclude that
companies that are willing to venture into market spaces where there is little or no
competition, labeled "blue oceans", will outperform those firms that limit growth to
incremental improvements in competitively crowded industries, labeled "red oceans."
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-03 Three types of entry strategies-pioneering; imitative; and adaptive-commonly used to launch a new venture.
Level of Difficulty: 1 Easy
Topic: Entrepreneurial Strategy
8-25
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
20. (p. 296) "Blue ocean" strategies rarely provide sustainable advantages because they are easily
imitated.
FALSE
Once created, a blue ocean strategy is difficult to imitate. If customers flock to blue ocean
creators, firms rapidly achieve economies of scale, learning advantages, and synergies across
their organizational systems.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-03 Three types of entry strategies-pioneering; imitative; and adaptive-commonly used to launch a new venture.
Level of Difficulty: 2 Medium
Topic: Entrepreneurial Strategy
21. (p. 297) Because new ventures are typically small, they usually don't have high economies of
scale relative to competitors.
TRUE
Because new ventures are typically small, they usually don't have high economies of scale
relative to competitors. This means that new firms must seek a different approach if they wish
to pursue a cost-leadership strategy.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-04 How the generic strategies of overall cost leadership; differentiation; and focus are used by new ventures and
small businesses.
Level of Difficulty: 2 Medium
Topic: Entrepreneurial Strategy
8-26
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
22. (p. 299) Entrepreneurial firms are often in a strong position to use combination strategies
because they have the flexibility to approach situations uniquely.
TRUE
Entrepreneurial firms are often in a strong position to offer a combination strategy because
they have the flexibility to approach situations uniquely. For example, holding down expenses
can be difficult for big firms because each layer of bureaucracy adds to the cost of doing
business across the boundaries of a large organization.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-04 How the generic strategies of overall cost leadership; differentiation; and focus are used by new ventures and
small businesses.
Level of Difficulty: 2 Medium
Topic: Entrepreneurial Strategy
23. (p. 300) Entrepreneurial competitive dynamics refers to a cycle of actions and responses
between firms competing for the same customers.
TRUE
Competitive dynamics is intense rivalry, involving actions and responses, among similar
competitors vying for the same customers in a marketplace.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-05 How competitive actions; such as the entry of new competitors into a marketplace; may launch a cycle of actions
and reactions among close competitors.
Level of Difficulty: 1 Easy
Topic: Competitive Dynamics
8-27
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
24. (p. 299-300) Entrepreneurial new entry is often perceived as a competitive threat because most
market needs are being met, either directly or indirectly, by an existing firm.
TRUE
New entry into markets, whether by start-ups or by incumbent firms, nearly always threatens
existing competitors. This is true in part because nearly every market need is already being
met, either directly or indirectly, by existing firms. As a result, the competitive actions of a
new entrant are very likely to provoke a competitive response from companies that feel
threatened. This, in turn, is likely to evoke a reaction to the response.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-05 How competitive actions; such as the entry of new competitors into a marketplace; may launch a cycle of actions
and reactions among close competitors.
Level of Difficulty: 2 Medium
Topic: Competitive Dynamics
25. (p. 302) 25 Market commonality is the extent to which rivals draw from the same types of
resources.
FALSE
Market commonality is whether or not competitors are vying for the same customers and how
many markets they share in common. Resource similarity is the degree to which rivals draw
on the same types of resources to compete.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 1 Easy
Topic: Competitive Dynamics
8-28
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
26. (p. 302) Market commonality refers to the extent to which competitors are vying for the same
customers in the same markets.
TRUE
Market commonality is whether or not competitors are vying for the same customers and how
many markets they share in common. For example, aircraft manufacturers Boeing and Airbus
have a high degree of market commonality because they make very similar products and have
many buyers in common.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 1 Easy
Topic: Competitive Dynamics
27. (p. 304) When attacked, older and larger firms tend to respond more quickly, but their
responses are often more predictable.
FALSE
Older and larger firms may have more resources and a repertoire of competitive techniques
they can use in a counterattack. Large firms, however, tend to be slower to respond. Older
firms tend to be predictable in their responses because they often lose touch with the
competitive environment and rely on strategies and actions that have worked in the past.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 2 Medium
Topic: Competitive Dynamics
8-29
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
28. (p. 306) Cutting prices or increasing marketing efforts are examples of tactical competitive
actions.
TRUE
Two broadly defined types of competitive action include strategic actions and tactical actions.
Tactical actions include refinements or extensions of strategies. Examples of tactical actions
include cutting prices, improving gaps in service, or strengthening marketing efforts. Such
actions typically draw on general resources and can be implemented quickly.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 2 Medium
Topic: Competitive Dynamics
29. (p. 306) In the context of competitive dynamics, tactical actions involve major commitments
of distinctive and specific resources to strategic initiatives.
FALSE
Two broadly defined types of competitive action include strategic actions and tactical actions.
Strategic actions represent major commitments of distinctive and specific resources. Such
actions require significant planning and resources and, once initiated, are difficult to reverse.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 2 Medium
Topic: Competitive Dynamics
8-30
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
30. (p. 306) Refinements or extensions of existing strategies are often referred to as tactical
actions.
TRUE
Two broadly defined types of competitive action include strategic actions and tactical actions.
Tactical actions include refinements or extensions of strategies. Examples of tactical actions
include cutting prices, improving gaps in service, or strengthening marketing efforts. Such
actions typically draw on general resources and can be implemented quickly.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 1 Easy
Topic: Competitive Dynamics
There may be many circumstances in which the best reaction is no reaction at all. This is
known as forbearance, refraining from reacting at all as well as holding back from initiating
an attack.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 1 Easy
Topic: Competitive Dynamics
8-31
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
32. (p. 309) Co-opetition, where competitors work together behind the scenes, is a form of illegal
tacit collusion.
FALSE
Co-opetition is a term that was coined by network software company Novell's founder and
former CEO Raymond Noorda to suggest that companies often benefit most from a
combination of competing and cooperating. Close competitors that differentiate themselves in
the eyes of consumers may work together behind the scenes to achieve industrywide
efficiencies.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 1 Easy
Topic: Competitive Dynamics
33. (p. 280) In the opening case, iSold It, a firm that helped others sell products on eBay, went
from one of the fastest growing franchise businesses to a firm that saw a number of its
franchises close and declining sales in a matter of months. What was a major challenge iSold
It faced that led to these problems?
A. It did not have the financial resources to maintain the rapidly growing firm.
B. The company lacked knowledgeable executives in key positions.
C. Its concept was rapidly imitated by others.
D. It had weak operational systems and could not maintain control of the growing network of
stores.
iSold It overestimated customer willingness to pay an intermediary 20-30 percent of the sales
price for the convenience of listing their products and collecting the money. And with low
barriers to entry in this industry, many copycat firms quickly entered the market. In early
2007, iSold It stopped selling new franchises and is quickly losing the ones they sold.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-01 The role of new ventures and small businesses in the U.S. economy.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
8-32
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
34. (p. 281) According to the text, for an entrepreneurial start-up to be successful, three
ingredients are critical. What are they?
A. good ideas, a team of investors, and a business plan
B. a viable opportunity, available resources, and a qualified and motivated founding team
C. an opportunity, a marketing plan, and office space
D. management, marketing, and money
Beyond merely identifying a venture concept, the opportunity recognition process also
involves organizing the key people and resources that are needed to go forward. Exhibit 8.3
depicts the three factors that are needed to successfully proceedopportunity, resources, and
entrepreneur(s).
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-01 The role of new ventures and small businesses in the U.S. economy.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
35. (p. 281) Which of the following is a common source of new business opportunities?
A. current or past work experiences
B. suggestions by family or friends
C. chance event
D. all of these
For new business start-ups, opportunities come from many sourcescurrent or past work
experiences, hobbies that grow into businesses or lead to inventions, suggestions by friends or
family, or a chance event that makes an entrepreneur aware of an unmet need.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
8-33
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
36. (p. 281, 284) 36 The process of identifying, selecting, and developing new venture
opportunities is known as
A. innovativeness.
B. bootstrapping.
C. opportunity recognition.
D. brainstorming.
To determine which ideas are strong enough to become new ventures, entrepreneurs must go
through a process of identifying, selecting, and developing potential opportunities. This is the
process of opportunity recognition.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 1 Easy
Topic: Recognizing Entrepreneurial Opportunities
37. (p. 284) Generally speaking, the opportunity recognition process consists of two phases of
activity. They are
A. Global Search and Recycling Profits.
B. Value Creation and Affordability.
C. Discovery and Evaluation.
D. none of these.
Opportunity recognition refers to more than just the "Eureka!" feeling that people sometimes
experience at the moment they identify a new idea. Although such insights are often very
important, the opportunity recognition process involves two phases of activity, discovery and
evaluation, that lead to viable new venture opportunities.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
8-34
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
38. (p. 286) Which of the following is NOT one of the characteristics of an entrepreneurial
opportunity?
A. attractive
B. affordable
C. achievable
D. value creating
For an opportunity to be viable, it needs to have four qualities: attractive, achievable, durable,
and value creating.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 1 Easy
Topic: Recognizing Entrepreneurial Opportunities
39. (p. 286) When an opportunity is attractive long enough for it to be successfully developed
and deployed, it is said to be
A. value creating.
B. affordable.
C. achievable.
D. durable.
For an opportunity to be viable, it needs to have four qualities, one of which is durable. This
means the opportunity must be attractive long enough for the development and deployment to
be successful; that is, the window of opportunity must be open long enough for it to be
worthwhile.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 1 Easy
Topic: Recognizing Entrepreneurial Opportunities
8-35
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
40. (p. 286) Which of the following terms is used to refer to opportunities that are practical and
physically possible?
A. durable
B. valuable
C. achievable
D. sustainable
For an opportunity to be viable, it needs to have four qualities, one of which is achievable.
This means the opportunity must be practical and physically possible.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 1 Easy
Topic: Recognizing Entrepreneurial Opportunities
41. (p. 286-287) Financing for entrepreneurial start-ups includes which of the following?
A. investments by family and friends
B. personal savings
C. private investors
D. all of these
The majority of new firms are low-budget start-ups launched with personal savings and the
contributions of family and friends. "Angel" investors, private individuals who provide equity
investments for seed capital during the early stages of a new venture, favor companies that
already have a winning business model and dominance in a market niche.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 1 Easy
Topic: Recognizing Entrepreneurial Opportunities
8-36
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
42. (p. 287) Which of the following sources of entrepreneurial financing are available to ventures
that have already started to conduct business and generate sales?
A. bank financing
B. venture capital
C. public financing
D. all of these
Although bank financing, public financing, and venture capital are important sources of small
business finance, these types of financial support are typically available only after a company
has started to conduct business and generate sales.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 1 Easy
Topic: Recognizing Entrepreneurial Opportunities
43. (p. 286) The majority of entrepreneurial start-ups are financed with
A. bank financing.
B. public financing (e.g., SBA loans).
C. venture-capital financing.
D. personal savings and the contributions of family and friends.
The majority of new firms are low-budget start-ups launched with personal savings and the
contributions of family and friends.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
8-37
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
44. (p. 287) Private individuals who provide seed capital to young ventures are known as
A. angels.
B. gazelles.
C. cash cows.
D. rising stars.
"Angel" investors, private individuals who provide equity investments for seed capital during
the early stages of a new venture, favor companies that already have a winning business
model and dominance in a market niche.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 1 Easy
Topic: Recognizing Entrepreneurial Opportunities
45. (p. 288-289) All of the following statements about venture capital are true EXCEPT
A. entrepreneurs raise venture capital by selling shares of ownership in their business.
B. venture capital is a form of public equity financing.
C. venture capital is used to finance rapid growth or large capital expenditures.
D. venture capital groups can often provide helpful management advice.
Start-ups that involve large capital investments or extensive development costs may seek
venture capital, a form of private equity financing through which entrepreneurs raise money
by selling shares in the new venture. Venture capitalists nearly always have high performance
expectations from the companies they invest in, but they also provide important managerial
advice and links to key contacts in an industry.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
8-38
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
46. (p. 286-289) Based on statistics reported in the text, which of the following statements is
FALSE?
A. Firms that obtain venture-capital funding receive an average of over $1 million each.
B. Total investment in start-up firms averages about $80,000 in the firm's first year.
C. Among the 100 fastest-growing new businesses identified by Entrepreneur magazine, 61
percent obtained start-up funding from personal savings.
D. Ninety percent of the companies financed with venture capital funds fail.
Among firms included in the Entrepreneur list of the 100 fastest-growing new businesses in a
recent year, 61 percent reported that their start-up funds came from personal savings. When
firms receive venture-capital investments, they receive a substantial level of investment, over
$1 million on average in the Kaufmann Foundation survey. According to Exhibit 8.4, the total
average capital invested in a start-up firm is about $80,000.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
47. (p. 289) According to the text, new ventures launched by entrepreneurial teams are more
likely to be successful than ventures launched by
A. established corporations.
B. bootstrappers.
C. "lone wolf" entrepreneurs.
D. all of these.
Managers need to have a strong base of experience, extensive domain knowledge, and an
ability to make rapid decisions and change direction as needed. In the case of start-ups, more
is better. New ventures that are started by teams of three, four, or five entrepreneurs are more
likely to succeed in the long run than are ventures launched by "lone wolf" entrepreneurs.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
8-39
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
48. (p. 286) Which of the following types of resources contribute to the success of
entrepreneurial firms?
A. social capital
B. financial resources
C. human resources
D. All of these contribute to the success of entrepreneurial firms.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
49. (p. 291) __________ provide(s) a key avenue for growth for many young and small firms
through partnering to obtain resources and/or expand into new markets.
A. Strategic alliances
B. Bootstrappers
C. "Lone wolf" entrepreneurs
D. Research & development
Strategic alliances provide a key avenue for growth by entrepreneurial firms. By partnering
with other companies, young or small firms can expand or give the appearance of entering
numerous markets and/or handling a range of operations.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
8-40
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
50. (p. 290) The U.S. Small Business Administration supports small business through all of the
following EXCEPT
A. government contracting.
B. underwriting loans.
C. investing venture capital.
D. training and counseling.
In the U.S., the federal government provides support for entrepreneurial firms in two key
arenas, financing and government contracting. The Small Business Administration (SBA) has
several loan guarantee programs designed to support the growth and development of
entrepreneurial firms. The government itself does not typically lend money but underwrites
loans made by banks to small businesses. The SBA also offers training, counseling, and
support services through its local offices and Small Business Development Centers.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
51. (p. 290) Which of the following is NOT one of the three characteristics of entrepreneurial
leadership mentioned by the text?
A. vision
B. dedication and drive
C. commitment to excellence
D. clarifying job responsibilities
Entrepreneurs put themselves to the test and get their satisfaction from acting independently,
overcoming obstacles, and thriving financially. To do so, they must embody three
characteristics of leadership: vision, dedication and drive, and commitment to excellence.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
8-41
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
52. (p. 290) Why is vision such an important element of entrepreneurial leadership?
A. Because the entrepreneur has to envision realities that do not yet exist.
B. Because a vision statement must be part of the documentation used to obtain venture
financing.
C. Because organizations cannot function without a detailed and operational vision.
D. All of these
Vision may be an entrepreneur's most important asset. Entrepreneurs envision realities that do
not yet exist. Without a vision, most entrepreneurs would never even get their venture off the
ground.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
53. (p. 293) Which of the following is NOT a common new entry strategy according to the text?
A. imitative new entry
B. adaptive new entry
C. proactive new entry
D. pioneering new entry
For a new venture, the entry strategy will vary depending on how risky and innovative the
new business concept is. New-entry strategies typically fall into one of three categories:
pioneering new entry, imitative new entry, or adaptive new entry.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-03 Three types of entry strategies-pioneering; imitative; and adaptive-commonly used to launch a new venture.
Level of Difficulty: 2 Medium
Topic: Entrepreneurial Strategy
8-42
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
54. (p. 293) Seeking products or services that have been successful in one market and
introducing the same basic product or service in another segment of the market is referred to
as
A. imitative new entry.
B. adaptive new entry.
C. proactive new entry.
D. pioneering new entry.
Imitators look for opportunities to capitalize on proven market successes. An imitative new
entry strategy is used by entrepreneurs who see products or business concepts that have been
successful in one market niche or physical locale and introduce the same basic product or
service in another segment of the market.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-03 Three types of entry strategies-pioneering; imitative; and adaptive-commonly used to launch a new venture.
Level of Difficulty: 1 Easy
Topic: Entrepreneurial Strategy
55. (p. 296) Which of the following is NOT a key element of a blue ocean strategy?
A. Pursue low cost and differentiation advantages simultaneously.
B. Make the competition irrelevant.
C. Highlight incremental improvements to capture market share.
D. Create new demand in uncharted territory.
Companies that identify and pursue blue ocean strategies follow somewhat different rules
than those that are "bloodied" by the competitive practices in red oceans. These include:
creating uncontested market space, making the competition irrelevant, creating and capturing
new demand, breaking the value/cost trade-off, and pursuing differentiation and low cost
simultaneously.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-03 Three types of entry strategies-pioneering; imitative; and adaptive-commonly used to launch a new venture.
Level of Difficulty: 2 Medium
Topic: Entrepreneurial Strategy
8-43
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
56. (p. 296) Cirque du Soleil is an example of a firm that successfully enacted a "blue ocean"
strategy. Which of the following is a feature of the strategy it enacted?
A. It developed its own musical scores for its circus performances.
B. It discontinued traditional parts of the circus, such as animal acts.
C. It researched customers to learn what circus features are more in demand.
D. All of these.
Cirque questioned the traditional circus formula and researched what audiences really wanted.
It found that interest in animal acts was declining, in part because of public concerns over the
treatment of circus animals. Because managing animals was costly, Cirque eliminated them.
Cirque offers multiple productions with theatrical story lines, giving audiences a reason to go
to the circus more often. Each production has a different theme and its own original musical
score.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-03 Three types of entry strategies-pioneering; imitative; and adaptive-commonly used to launch a new venture.
Level of Difficulty: 2 Medium
Topic: Entrepreneurial Strategy
57. (p. 297) "Doing more with less", by holding down costs or making more efficient use of
resources is one of the ways entrepreneurs achieve success. This is an example of how
entrepreneurs use
A. an imitative strategy.
B. a low-cost leader strategy.
C. a differentiation strategy.
D. a combination strategy.
One of the ways entrepreneurial firms achieve success is by doing more with less. By holding
down costs or making more efficient use of resources than larger competitors, new ventures
are often able to offer lower prices and still be profitable. Thus, under the right circumstances,
a low-cost leader strategy is a viable alternative for some new ventures.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-04 How the generic strategies of overall cost leadership; differentiation; and focus are used by new ventures and
small businesses.
Level of Difficulty: 2 Medium
Topic: Entrepreneurial Strategy
8-44
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
58. (p. 297) Entrepreneurial firms that pursue a low-cost leadership strategy use which of the
following to achieve lower costs?
A. cost-saving technology such as the Internet
B. simple organizational structures
C. rapid decision making
D. all of these
Compared to large firms, new ventures often have simple organizational structures that make
decision making both easier and faster. The smaller size also helps young firms change more
quickly when upgrades in technology or feedback from the marketplace indicate that
improvements are needed.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-04 How the generic strategies of overall cost leadership; differentiation; and focus are used by new ventures and
small businesses.
Level of Difficulty: 2 Medium
Topic: Entrepreneurial Strategy
59. (p. 298-299) When an industry is mature, a __________ strategy is considered to be one of the
most effective approaches for a new entrant.
A. focus
B. differentiation
C. overall low-cost
D. small business
Most start-ups enter industries that are mature, where growth in demand tends to be slow and
there are often many competitors. If a start-up wants to get a piece of the action, it often has to
take business away from an existing competitor. If a start-up enters a market with a broad or
aggressive strategy, it is likely to evoke retaliation from a more powerful competitor. Young
firms can often succeed best by finding a market niche where they can get a foothold.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-04 How the generic strategies of overall cost leadership; differentiation; and focus are used by new ventures and
small businesses.
Level of Difficulty: 2 Medium
Topic: Entrepreneurial Strategy
8-45
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
60. (p. 298) According to the text, all of the following might make it difficult for entrepreneurial
firms to effectively pursue a strategy of differentiation EXCEPT
A. incumbent firms are constantly seeking opportunities to specialize in market niches.
B. differentiation strategies are often expensive to enact.
C. it may be difficult for a young firm to establish a strong brand identity.
D. implementing superior new technologies may be challenging for entrepreneurial firms.
There are several factors that make it more difficult for new ventures to be successful as
differentiators. For one thing, the strategy is generally thought to be expensive to enact.
Differentiation is often associated with strong brand identity, and establishing a brand is
usually considered to be expensive because of the cost of advertising and promotion, paid
endorsements, exceptional customer service, etc. Differentiation successes are sometimes
built on superior innovation or use of technology.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-04 How the generic strategies of overall cost leadership; differentiation; and focus are used by new ventures and
small businesses.
Level of Difficulty: 2 Medium
Topic: Entrepreneurial Strategy
61. (p. 300) Intense rivalry involving actions and responses among similar competitors vying for
the same customers in a marketplace is known as
A. competitive dynamics.
B. resource similarity.
C. threat of substitutes.
D. pioneering new entry.
Competitive dynamics is the term for an intense rivalry, involving actions and responses,
among similar competitors vying for the same customers in a marketplace.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-05 How competitive actions; such as the entry of new competitors into a marketplace; may launch a cycle of actions
and reactions among close competitors.
Level of Difficulty: 1 Easy
Topic: Competitive Dynamics
8-46
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
62. (p. 301) Which of the following is NOT one of the reasons a company might launch new
competitive actions?
A. to obtain first mover advantages
B. to improve market position
C. to capitalize on growing demand
D. to find new sources of raw materials
There are several reasons why companies launch new competitive actions, including to
improve market position, capitalize on growing demand, expand production capacity, provide
an innovative new solution, or obtain first mover advantages.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 2 Medium
Topic: Competitive Dynamics
63. (p. 302) Netflix CEO Reed Hastings made this important observation about dealing with
rivals:
A. "In a highly competitive marketplace, firms must be paranoid about the multitude of
potential rivals."
B. "You can afford to ignore rivals in small markets, but you can never ignore rivals in large
markets, such as online video companies like YouTube."
C. "There are tens and maybe hundreds of start-ups who think that they are going to eat
Netflix's lunch. The challenge for a management team is to figure out which are real threats
and which aren't."
D. "Netflix's position is so strong that I don't worry about new entrants."
Netflix founder and CEO Reed Hastings has faced numerous competitive threats since
launching the online movie rental company in 1997. According to Hastings, however, not all
potential threats need to be taken seriously: "We have to recognize that now there are tens and
maybe hundreds of start-ups who think that they are going to eat Netflix's lunch. The
challenge for a management team is to figure out which are real threats and which aren't. . . .
It's conventional to say, "only the paranoid survive" but that's not true. The paranoid die
because the paranoid take all threats as serious and get very distracted."
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 2 Medium
Topic: Competitive Dynamics
8-47
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
64. (p. 302) Aircraft makers Boeing and Airbus have a high degree of __________ because they
make very similar products and have many buyers in common.
A. dynamic capabilities
B. market commonality
C. first mover advantages
D. equity funding
Market commonality is whether or not competitors are vying for the same customers and how
many markets they share in common. For example, aircraft manufacturers Boeing and Airbus
have a high degree of market commonality because they make very similar products and have
many buyers in common.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 2 Medium
Topic: Competitive Dynamics
65. (p. 302-305) The Wall Street Journal and the New York Times have seen the intensity of their
rivalry increase. One factor driving this is that the Wall Street Journal has moved from
financial news reporting to general national and global news reporting and finally, to adding
local New York news. The rivalry of these two news providers has increased due to
A. increased dynamic capabilities.
B. increased market commonality.
C. erosion of first mover advantages.
D. the choice of tactical over strategic actions.
Market commonality is whether or not competitors are vying for the same customers and how
many markets they share in common. Here, the changes to the Wall Street Journal's reporting
means the two newspapers are now competing for the same customers.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 2 Medium
Topic: Competitive Dynamics
8-48
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
66. (p. 302, 306) Which of the following questions should a firm ask itself before responding to a
competitive attack?
A. How serious is the impact of the attack?
B. What is our competitive intentdo we want to blunt the attack or enhance our competitive
position with our response?
C. What resources do we have available for a response?
D. All of these.
Market commonality is whether or not competitors are vying for the same customers and how
many markets they share in common. For example, chipmakers Intel and Advanced Micro
Devices (AMD) have fought an intense competitive battle for over two decades. Their battle
points out how highly competitive firms can take their competitive attacks to multiple
battlefields.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 2 Medium
Topic: Competitive Dynamics
67. (p. 304) Which of the below best describes the competitive tendencies of small firms?
A. Because they lack legitimacy in the marketplace, small firms tend to signal their
competitive actions long before they launch those actions.
B. Small firms typically have more resources available as they undertake competitive attacks
than do large firms.
C. Small firms are more nimble and can respond quickly to competitive attacks.
D. All of these.
Consider the role of firm age and size in calculating a company's ability to respond. Most
entrepreneurial new ventures start out small. The smaller size makes them more nimble
compared to large firms so they can respond quickly to competitive attacks.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 2 Medium
Topic: Competitive Dynamics
8-49
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
68. (p. 306) Cirrus Aircraft, a leading manufacturer of small airplanes, sees a market opportunity
and has decided to double its plant capacity over the next two years. What type of competitive
action does this represent?
A. A tactical action because the move is an attempt to fill a gap in service.
B. A strategic action because such a large plant expansion will require a major commitment of
resources.
C. A strategic action because the firm can easily reverse the action at any time, thus giving
Cirrus more strategic flexibility.
D. A guerilla offensive because it is fast and will surprise its rivals.
This is a strategic action because it represents a major commitments of distinctive and specific
resources. Such actions require significant planning and resources and, once initiated, are
difficult to reverse.
AACSB: Analytic
Blooms: Apply
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 3 Hard
Topic: Competitive Dynamics
69. (p. 306-307) All of the following are examples of strategic actions a firm might take EXCEPT
A. acquire with competitors to reduce competition.
B. expand into neglected markets.
C. change product packaging.
D. tie up raw materials sources.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 2 Medium
Topic: Competitive Dynamics
8-50
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
70. (p. 306-307) The best example of a tactical action that a company might use in response to a
competitive attack is to
A. acquire the competitor.
B. target the rival's markets.
C. expand into new geographical areas.
D. offer price discounts and rebates.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 2 Medium
Topic: Competitive Dynamics
71. (p. 308) All of the below are factors that affect how a competitor will respond to a
competitive attack EXCEPT
A. how dependent the competitor is on that industry or particular market segment.
B. the degree of market power and reputation of the company that initiated the attack.
C. the resources which are available for a firm to respond.
D. the stock market reaction to the initial competitive attack.
How a competitor is likely to respond will depend on three factors: market dependence,
competitor's resources, and the reputation of the firm that initiates the action (actor's
reputation).
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 2 Medium
Topic: Competitive Dynamics
8-51
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
72. (p. 308) Which of the following refers to a situation where a company has a high
concentration of its business in a particular industry's market?
A. competitor's resources
B. market dependence
C. resource similarity
D. actor's reputation
If a company has a high concentration of its business in a particular industry, it has more at
stake because it must depend on that industry's market for its sales, which is known as market
dependence. Single-industry businesses or those where one industry dominates are more
likely to mount a competitive response.
AACSB: Analytic
Blooms: Remember
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 1 Easy
Topic: Competitive Dynamics
73. (p. 309) A firm is considering a large price cut on its leading product as a way to gain market
share. One executive strongly disagrees with the price cut and states, "We are in the same
marketplace as our rivals, and we do not have any competitive advantages in our cost
structure. If we cut prices, our competitors will likely do the same. The end result is that we
will all make less money." These arguments are an example of
A. a strategy of forbearance.
B. a strategy of co-opetition.
C. a hardball strategy whereby competitive actions are not undertaken without a clear
advantage.
D. a weakness strategy that leads a company into constant decline.
There may be many circumstances (such as this potential price war) in which the best reaction
is no reaction at all. This is known as forbearance, refraining from reacting at all as well as
holding back from initiating an attack.
AACSB: Analytic
Blooms: Apply
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 3 Hard
Topic: Competitive Dynamics
8-52
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
Essay Questions
74. (p. 281-286) What is the role of opportunity recognition in the new venture development
process?
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
75. (p. 286) Discuss the four characteristics of an entrepreneurial opportunity. Explain why each
is important for the opportunity to be viable.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
76. (p. 286-289) Discuss the role of informal investments versus venture-capital financing as it is
used by entrepreneurial ventures. What are the advantages and disadvantages of each type?
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
8-53
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
77. (p. 286-289) What are the advantages and disadvantages of using venture capital to finance
new ventures?
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 2 Medium
Topic: Recognizing Entrepreneurial Opportunities
78. (p. 289-290) 78 In what ways are human capital and social capital valuable to an
entrepreneurial start-up? Provide examples of each.
AACSB: Analytic
Blooms: Apply
Learning Objective: 08-02 The role of opportunities; resources; and entrepreneurs in successfully pursuing new ventures.
Level of Difficulty: 3 Hard
Topic: Recognizing Entrepreneurial Opportunities
79. (p. 293-295) Compare and contrast the three most common new venture entry strategies:
pioneering, imitative, and adaptive.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-03 Three types of entry strategies-pioneering; imitative; and adaptive-commonly used to launch a new venture.
Level of Difficulty: 2 Medium
Topic: Entrepreneurial Strategy
8-54
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
80. (p. 299-309) Define the term "competitive dynamics." Then, describe the cycle of actions and
responses that are characteristic of a competitive dynamics process.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-05 How competitive actions; such as the entry of new competitors into a marketplace; may launch a cycle of actions
and reactions among close competitors.
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 2 Medium
Topic: Competitive Dynamics
81. (p. 302-304) Compare and contrast market commonality and resource similarity.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 2 Medium
Topic: Competitive Dynamics
82. (p. 308-309) According to competitive dynamics, competitors are more likely to respond when
attacked in a market where the competitor relies on that market for a large portion of its sales.
Why is this so? That is, what "dynamic" is at work in this situation that would cause that
response?
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 2 Medium
Topic: Competitive Dynamics
8-55
Chapter 08 - Entrepreneurial Strategy and Competitive Dynamics
83. (p. 305-308) What are the differences between strategic actions and tactical actions? What are
the implications of each approach to the competitive dynamics process?
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 2 Medium
Topic: Competitive Dynamics
84. (p. 308-309) In the context of competitive dynamics, what factors determine the likelihood of
a competitive response?
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-06 The components of competitive dynamics analysis-new competitive action; threat analysis; motivation and
capability to respond; types of competitive actions; and likelihood of competitive reaction.
Level of Difficulty: 2 Medium
Topic: Competitive Dynamics
8-56