Entrepreneurship 3rd Edition Bygrave

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Questions for Chapter 6

True/False

1. A talented entrepreneur should be able to substitute for an experienced management team.

(False)

2. The size of your organization is inversely correlated to the amount of revenue your business can
derive
(False)

3. Hiring a salesperson is more attractive than increasing support staff in regards to revenue
generated.
(True)

4. In the early years, it is critical for firms to focus on revenue-generating employees, instead of
support staff.
(True)

5. Your team members can help you to evaluate feedback from outside sources.
(True)

6. Over 95% of entrepreneurs in the US report that their team members are the main source of seed
financing.
(False)

7. A business superstar is unlikely to possess all the business skills needed for long term success.
(True)

8. If the business is your idea, it is best if you are the CEO.

(False)

9. Analysis of your resume will help you decide what other team members your firm needs.
(True)

10. Entrepreneurs who are overly conscious of their own weaknesses are more likely to fail
(True)

11. You can’t build a successful team unless you understand your strengths and the best place for
you at the company.
(True)

12. The Myers-Briggs personality type indicator can accurately predict an individual’s likelihood for
success in an entrepreneurial endeavor.
(False)

13. Certain personalities are better suited for entrepreneurship than others.
(False)
14. Fast, dramatic growth can be a mistake for a business.
(True)

15. Early stage companies tend to be hierarchal.

(False)

16. Entrepreneurship is hard work but most entrepreneurs become millionaires in five years.
(False)

17. Co-founders of a start-up should work on every task and decision together.
(False)

18. It is more common for teams to self-destruct because of personal conflicts than for lack of
funding.
(True)

19. If you decide to start a venture, you should notify your current employer as soon as possible.
(True)

20. After you have started a business, it is a bad idea to combine your new job with working fulltime
elsewhere.
(False)

21. It often takes four months or more to identify and hire key employees.
(True)

22. If employees own equity in the company, they usually work harder.
(True)

23. In general, founder shares should be granted to at least 10 people.

(False)

24. Founder shares should be distributed equally between all founders.

(False)

25. It is a mistake to distribute the entire supply of options to existing employees.

(True)

26. Startups should negotiate employee salaries below market levels.

(True)

27. You may find an angel investor who will guide you at the early stages of your venture.
(True)

28. Free resources are poor substitutes for a qualified lawyer.

(False)

29. Board members should be encouraged to act in the best interest of the principal owner
exclusively.
(False)

30. Company culture is incredibly difficult to change after it has been established.
(True)

Multiple Choice

1. According to a study by Babson College and London Business School, businesses with growth
aspirations plan on employing more than 20 people within the next:
A) 2 Years
B) 3 Years
C) 4 Years
D) 5 Years
E) None of the above
(Answer – D)

2. How much, according to Robert Morris and AssociatesDeloitte & Touche, do restaurants generate
in net income before taxes on average, approximately?
A) 2%
B) 53%
C) 10%
D) 13%
E) 17%
(Answer – B)

3. Which of the following is true about teams?

A) Teams provide constructive feedback for your ideas.
B) Teams increase your contact network exponentially.
C) Teams increase your revenue.
D) Teams provide you with moral support.
E) All of the above
(Answer – E)

4. Which of the following should the founder of the venture do first when deciding whether or not to
be the CEO of his company?
A) Ask for his/her friends opinion
B) Take at least three personality tests
C) Review his/her resume
D) Work as a hired manager for at least 4 years
E) Consult with his/her team members
(Answer – C)

5. Individuals that possess which of the following traits are most likely to launch their own
businesses?
A) Overly conscious of their own weaknesses
B) An aptitude for benchmarking their competitors’ strengths
C) Can objectively evaluate his strengths and weaknesses
D) Emphasizes his or her strengths
E) Oblivious to his or her own weaknesses
(Answer – E)

6. Which of the following personality traits best predicts entrepreneurial success?

A) Analytical
B) Driver
C) Expressive
D) Amiable
E) None of the above
(Answer – E)

7. A study by Inc. 500 found that many CEOS had what quality in common?
A) Patience
B) An ability to work well under highly stressful conditions
C) High risk tolerance
D) A high IQ
E) An ability to accept constructive criticism
(Answer – B)

8. According to Inc. 500, what percent of entrepreneurs start businesses with their friends or family
members?
A) Less than 5%
B) About 10%
C) About 20%
D) Approximately 40%
E) More than 65%
(Answer – D)

9. What does the movie, Startup.com, demonstrate?

A) How outside financing contributes to equity
B) How expensive lawyers can be
C) How working together can affect the relationship of two lifelong friends
D) How much the government is willing to help young entrepreneurs
E) None of the above
(Answer – C)

10. What opportunities can a young company offer its potential team members?
A) Growth into higher management positions
B) Above average market salaries
C) More attractive social benefits packages
D) Secure and stable jobs
E) All of the above
(Answer – A)

11. Which of the following should an entrepreneur do when creating a venture?

A) Expropriate her current employer’s intellectual property
B) Use her employer’s resources for the new venture
C) Notify her current employer about the intention to create a new venture
D) Spend all her time working for the new venture
E) Live off her savings
(Answer – C)

12. According to the chapter, which of the following is not an acceptable means of maintaining an
entrepreneurs’ personal cash flow?
A) Working full-time and devoting time to the new venture
B) Working part-time and devoting time to the new venture
C) Living off personal savings
D) Living for his/her spouses’ income
E) All of the above are acceptable
(Answer – E)

13. Which of the following is not a reason for distributing equity among employees?
A) New companies often can’t pay market rates for salary and wages
B) Including some equity in the compensation package aligns the employee with the company
C) The sense of ownership boosts morale
D) Distributing equity among employees reduces the risk of hostile takeover
E) Having some equity, the team sticks together during the rough times in the early launch
phase
(Answer – D)

14. How much equity is commonly set aside for employee options?
A) 15-20%
B) 20-25%
C) 25-30%
D) 35-40%
E) 45-50%
(Answer – A)

15. What is the most commonly used form of equity compensation?

A) Restricted stock
B) Phantom stock
C) Options
D) Stock appreciation rights
E) None of the above
(Answer – C)

16. None of the following tools are usually considered a reward for “sweat equity,” except:
A) Founder shares
B) Option pool
C) Restricted stock
D) Stock appreciation rights
E) Phantom stock
(Answer – A)

17. What are the disadvantages of distributing founder shares equally among all co-founders?
A) The lack of a primary shareholder slows down the decision making process
B) CEO may be doing as much work as CEOs of comparable companies, but have less potential
upside
C) Such distribution makes unwanted acquisitions easy
D) A and B
E) A and C
(Answer – D)

18. Options give the holder the right to:

A) Increase the number of the company shares he is allowed to purchase
B) Buy a share in the company at a below-market rate
C) Secure a salary increase on a regular basis
D) Sell his stocks on the open market for more than the prevailing market price
E) Demand a refund on his contribution to company’s equity
(Answer – B)

19. What attribute characterizes “restricted stock”?

A) Does not grant voting rights
B) Cost less per share
C) Become vested over time
D) Has a reduced interest rate
E) Higher liquidation priority than unsecured debt
(Answer – C)

20. Stock appreciation rights of employees accrue only if:

A) The stock price decreases
B) Combined with options
C) The employees perform well
D) The stock price increases
E) None of the above
(Answer – D)

21. All of the following is true about phantom stocks except:

A) They are expensed over the vesting period
B) They give employees the right to own equity
C) The company needs cash when phantom stocks are exercised
D) They grant the holders additional voting power
E) They lower the dilution effect
(Answer – D)

22. Which of the following are not mentioned in the chapter as external team members?
A) Board of Directors
B) Lawyers
C) Accountants
D) Angel investors
E) Foreign partners
(Answer – E)

23. What is the minimum expected level of lawyers’ fees?

A) $50/hour
B) $100/hour
C) $150/hour
D) $200/hour
E) $250/hour
(Answer – C)

24. Which factor should you consider when choosing a lawyer:

A) Size of the firm
B) Billing rates
C) A lawyer that has a deep knowledge of the industry
D) If you get along
E) All of the above
(Answer – E)

25. Inappropriate sources of members for Board of Advisors include:

A) Shareholders’ representatives
B) Entrepreneurs
C) Individual with insights about your target customer
D) Your professors
E) Venture capitalists
(Answer – A)

26. Why should you have one or two board members who can be considered independent?
A) So they can act in the interest of the principal owner
B) They are not susceptible to potential conflicts of interest
C) They usually make the final decisions
D) They have a long list of business and professional contacts
E) They will answer the majority of the entrepreneur’s questions
(Answer – B)

27. Which of the following is true about a company’s culture?

A) A company’s culture is relatively easy to change
B) As a company grows, it is common for the culture to evolve
C) More team members will fit your company’s culture over time
D) Problems with the team do not arise in companies with strong culture
E) All elements of a company’s culture constantly change
(Answer – B)

28. By making your team members work long hours, you put them at risk of:
A) Burnout
B) Family pressure
C) Stress
D) Reduced efficiency
E) All of the above
(Answer –E)

29. You are least likely to resolve an interpersonal conflict in your team by:
A) Firing one of the parties
B) Hiring an outside expert who is perceived as a neutral party
C) Explaining to the parties involved that their arguments reduce the team’s efficiency
D) Mediating between the parties
E) Transferring one of the parties to another team
(Answer – C)

Open ended

1. Explain why solo entrepreneurs are generally less successful than team players.
a. A team is able to do more than the entrepreneur can on his or her own.
b. Solo entrepreneurs suffer from a number of shortcomings, including a limited
perspective, little moral support, and a small network
c. Solo entrepreneurs often fail to get sufficient feedback on their ideas.
d. If you build your team wisely you will gain access to a broader range of contacts.
e. A team rounds out the skill set needed to launch a business

2. What are some of the methods used to identify an entrepreneur’s strengths and
weaknesses?
a. Self-assessment
b. Conducting feedback analysis
c. Talk to people who know you well and whom you respect.
d. Take a psychological or a personality test.

3. Explain how entrepreneurs should use psychological or personality tests as one way to
develop self-awareness.
a. The tests are designed to help individuals understand things like their underlying
interests, motivations, and communication styles.
b. However, they cannot accurately predict an individual’s likelihood for success in an
entrepreneurial endeavor. Can only give you a deeper understanding of your
strengths and weaknesses.
c. Industry newsletter HRfocus recommends that you have a professional administer
and interpret the test for you and that you take a test that has been statistically
validated.

4. What valuable contributions can your team members bring to your company?
a. Professional knowledge
b. Money required to start a business
c. Resources/contacts
d. Managerial skills

5. What are some indicators of the right co-founders and team members for your start-
up?
a. Everyone can contribute meaningful skills to the business.
b. You can work together without personal issues standing in the way.
c. Your team members are excited about the venture and its future.

6. Describe what a sample staffing plan might look like.

a. Early on, you likely need only one or two other team members.
b. Roles should be complementary and each co-founder should also participate
extensively in shaping the vision of the business.
c. The lead entrepreneur may take on the role of product development while the other
founder does market development.
 d. If the team needs a strong finance person with previous experience raising equity
capital, may want to identify that person but delay bringing him or her onto the team
until needed

7. Describe the pros and cons of a dual job strategy at the early stages of the venture.
a. Pros: you have a source of cash for you to live on while you are developing your
idea; you can keep the job if you see that your new start-up is not progressing well.
b. Cons: dual jobs mean that you have to work over nights and weekends; you cannot
use your current company’s resources or compete with it until you quit; and, simply,
your current job limits the time that you can dedicate to the venture.

8. Give examples of compensations used to make your start-up attractive for valuable
team members.
a. Founder Shares
b. Option pool
c. Restricted stock
d. Stock appreciation rights
e. Phantom stock

9. Explain the benefits, to the firm, of a vesting schedule for employee options and shares.
a. Vesting basically means that people earn their shares or options over time, usually
over four or more years.
b. Without a vesting schedule, employees can leave the company soon after being hired
and retain 100% of their options or shares.
c. A vesting schedule adds additional incentives for employees to remain with the
company for the entire vesting period, usually four or more years.

10. How can entrepreneurs ensure that options improve organizational performance?
a. Employees need to fully understand the stock ownership program and how they will
participate in it.
b. Staff must know how to measure company success, know how company is doing, and
how to achieve it through individual roles
c. Entrepreneurs need to listen to their workforce for solutions or innovations.
d. A stock ownership plan should offer employees a true opportunity to earn a financial
reward.

11. Who should you invite to join the Board of Advisors of your firm and why?
a. Professors – for their fundamental knowledge
b. Current and former entrepreneurs – for their practical knowledge and experience
c. Professional investors such as venture capitalists and angels – for network extension
and fund raising
d. Suppliers for your firm – for insights about new customer and market trends

12. Describe the balance between too much and too little communication with a board of
advisors.
a. Don’t email or phone every time you have a question. Try to find alternative answers
on your own and accumulate questions.
b. Prepare – so you can can more productive conversations.
 c. Touching base too rarely or when you want help raising money suggests interest only
in the advisor’s network.
d. Produce a monthly newsletter with information about the company’s progress.

13. Why are lawyers and accountants considered to be external members of your team?
a. Your lawyer will most likely work very closely with you and will know everything
about your company. Therefore, it is essential that he offers a highly customized
service to you and his contributions are usually as important as those of your team
members.
b. An accountant is a trained business professional who can help you analyze the
strengths and weaknesses of your company’s financial performance. He or she may
be able to find ways to improve cash flow, strengthen margins, and identify tax
benefits.
c. Both lawyers and accountants represent another spoke in your network, as both
groups frequently have a long list of business and professional contacts. This can
include everything from potential partners, customers, angel investor networks, and
venture capital firms.

14. Explain why company culture is important.

a. It is the key to building and growing a successful team. It evolves from the way the
founders interact among themselves and with other employees.
b. It reflects the values and skills of the CEO and other leaders.
c. The most successful cultures are those rooted in core values and beliefs that are a part
of the company’s mission, vision, and mantra.

15. Three major problems your team may face are burnout, interpersonal conflicts and family
pressure. Describe how you can prevent and overcome them.
a. Listen to each team member, not only about the progress of their assignments, but
also about the stresses they may be feeling
b. You can introduce stress-relieving activities, or bonding experiences such as the
Friday happy hour, or the lunchtime basketball game
c. Counsel your team members to set expectations for their families even before they
join your team
d. Resolve interpersonal conflicts as quickly as possible or they may escalate to the
point where they are destructive – mediate, hire an outside expert, or fire one of the
arguing parties