Deck 13: Preparing for and Evaluating the Challenges of Growth

Question 1

Big Fish Presentations, the company profiled in the opening feature of Chapter 13, prepares presentations that help clients present themselves in new and innovative ways. In regard to growth, Big Fish Presentations has opted to ________.

A) pursue a conservative and patient approach to growth based primarily on international expansion
B) pursue a liberal and aggressive approach to growth based primarily on mergers and acquisitions
C) pursue a conservative and patient approach to growth based primarily on strategic alliances and joint ventures
D) pursue a liberal and aggressive approach to growth based primarily on expanding their product lines
E) pursue a conservative and patient approach to growth based primarily on expanding their product lines

Answer 1

E

Question 2

According to the textbook, the three important things that a business can do to prepare for growth are ________.

A) plan for growth, adopt a growth-oriented business model, and stay committed to a core strategy
B) appreciate the nature of business growth, stay committed to a core strategy, and plan for growth
C) develop a viral marketing campaign, stay committed to a core strategy, and adopt a growth-oriented business model
D) develop business partnerships, diversify beyond the company's core strategy, and appreciate the nature of business growth
E) retain or hire one or more business growth consultants, diversify beyond the company's core strategy, and plan for growth

Answer 2

B

Question 3

A firm's core strategy is largely determined by its core competencies, or what it does particularly well.

Answer 3

True

Question 4

Jeremy Westbrook owns an organic food company which has increased both its profits and revenues over an extended period of time. Jeremy's firm is experiencing ________ growth.

A) persistent
B) unremitting
C) sustained
D) unbroken
E) moderate

Question 5

All businesses have the potential to be aggressive growth firms.

Question 6

In regard to firm growth, evidence shows that ________.

A) relatively few firms generate sustained growth
B) the majority of firms generate sustained growth
C) about 50 percent of firms generate sustained growth
D) manufacturing firms tend to generate sustained growth while service firms do not
E) service firms tend to generate sustained growth while manufacturing firms do not

Question 7

Which of the following is not one of the 10 warning signs that a business is growing too fast?

A) Borrowing money to pay for routine expenses
B) Comfortable operating margins
C) Customer complaints are up.
D) Those working with the business's financial structure are starting to worry.
E) E-mail and text messages start going unanswered.

Question 8

According to the textbook, the businesses that have the potential to grow the fastest over a sustained period of time are ones that ________.

A) solve a significant problem or have a major impact on their customers' productivity or lives
B) are cost leaders and promote themselves aggressively
C) have a major impact on their customers' lives and sell high quality products
D) take advantage of environmental trends and are cost leaders
E) solve a significant problem or sell high quality products

Question 9

Sustained growth is defined as growth in both revenues and profits over an extended period of time.

Question 10

Most entrepreneurial firms are reluctant to try to grow.

Question 11

The Partnering for Success feature in Chapter 13 focuses on Threadless, the popular community-centered T-shirt design site. According to the feature, at one point during its early growth, Threadless almost collapsed under the weight of operational problems. Threadless solved the problem by ________.

A) hiring professional managers
B) replacing the founder CEO with a seasoned CEO from an established company
C) hiring a consulting firm
D) selling a minority interest to a venture capital firm, which provided Threadless operational assistance
E) merging with Zappos and folding its operations into Zappos' operations

Question 12

According to Chapter 13, business success doesn't always scale. What is meant by this statement?

Question 13

Which of the following statements regarding firm growth is incorrect?

A) Most entrepreneurial firms want to grow.
B) Growth in sales revenue is a poor indicator of an entrepreneurial firm's potential to survive today and be successful tomorrow.
C) Firm growth is exciting.
D) Many entrepreneurial firms have grown quickly, producing impressive results for their employees and owners.
E) Growing a business successfully requires preparation, good management, and an appreciation of the issues involved.

Question 14

Which of the following is not an appropriate reason for firm growth?

A) Increasing the compensation of the top managers of the firm
B) Ability to attract and retain talented employees
C) Need to accommodate the growth of key customers
D) Market leadership
E) Economies of scale

Question 15

According to the textbook, there are three issues about business growth that entrepreneurs should appreciate. These issues are ________.

A) not all businesses have the potential to be aggressive growth firms, business success scales, and business growth is a top priority of most entrepreneurial firms
B) business growth is a top priority of most entrepreneurial firms, a business can't grow too fast, and businesses that price their products aggressively grow the fastest
C) a business's valuation increases with its growth, a business can grow too fast, and business growth is a top priority of most entrepreneurial firms
D) the majority of businesses have the potential to be aggressive growth firms, a business can't grow too fast, and business success scales
E) not all businesses have the potential to be aggressive growth firms, a business can grow too fast, and business success doesn't always scale

Question 16

Business success doesn't always scale.

Question 17

A firm's pace of growth is the rate it is growing ________.

A) compared to industry norms
B) compared to a national index of all firms
C) on an annual basis
D) compared to the national economy
E) compared to its closest competitor

Question 18

Which of the following options was not identified in the textbook as an appropriate reason for growth?

A) Need to accommodate the growth of key customers
B) Influence, power, and survivability
C) Economies of scale
D) Market leadership
E) Maintain the appearance that the firm is successful

Question 19

Do most firms want to grow or are they reluctant to grow? What are the advantages of growth?

Question 20

According to the textbook, most entrepreneurial firms ________.

A) are ambivalent about growth
B) want to grow
C) do not want to grow
D) want to grow if the economy is strong but do not want to grow if the economy is weak
E) want to grow if they are a service firm but do not want to grow if they are a manufacturing firm

Question 21

The majority of businesses go through a discernable set of stages of growth referred to as the ________.

A) business rotation cycle
B) business existence cycle
C) organizational sequence
D) business life cycle
E) organizational life cycle

Question 22

________ costs are the costs a company incurs as it makes sales.

A) Static
B) Irregular
C) Balanced
D) Variable
E) Flexible

Question 23

Some firms feel that they can better appeal to their customers if they can advertise that they are the "Number 1 firm" in their industry. This sentiment is motivated by the reason for growth labeled ________.

A) economies of scope
B) need to accommodate the growth of key customer
C) economies of scale
D) market leadership
E) influence, power, and survivability

Question 24

________ costs are costs that a company incurs whether it sells something or not. ________ costs are the costs a company incurs as it generates sales.

A) Preset; Marginal
B) Variable; Fixed
C) Set; Marginal
D) Fixed; Variable
E) Marginal; Set

Question 25

The ________ stage of the organizational life cycle is the startup phase, where a business determines what its core strengths and capabilities are and starts selling its initial product or service.

A) introduction
B) launch
C) ramp-up
D) early growth
E) continuous growth

Question 26

Katlyn Williams owns a company that makes specialized components for the aerospace industry. Her most important customer is a company that is growing at a rate of 33% per year. Katlyn is working hard to grow her firm, because she knows that unless her company continually grows it will not be able to keep pace with the growth of its most important customer. This example illustrates the reason for growth referred to as ________.

A) capturing economies of scope
B) executing a scalable business model
C) market leadership
D) influence, power, and survivability
E) need to accommodate the growth of a key customer

Question 27

Which of the following is not one of the five stages in the organizational life cycle?

A) Introduction
B) Early growth
C) Scale
D) Maturity
E) Decline

Question 28

A firm's pace of growth is the rate at which it is growing compared to its main competitors.

Question 29

Define the term "market leadership." Why do firms work hard to obtain market leadership?

Question 30

________ costs are costs that a company incurs whether it sells something or not.

A) Fixed
B) Consistent
C) Steady
D) Variable
E) Regular

Question 31

London Simpson owns a company that makes smartphone accessories. She is trying to increase her sales, primarily because she knows that increasing production lowers the average cost of each unit produced. The reason for growth illustrated in this example is ________.

A) economies of scope
B) market leadership
C) influence, power, and survivability
D) need to accommodate the growth of key customers
E) economies of scale

Question 32

Market leadership occurs when a firm holds the number one or number two position in an industry or niche market in terms of sales volume.

Question 33

Karen West owns a barbecue restaurant. One expense that Karen watches closely is the cost of propane, which she uses to heat her ovens. The more barbecue food Karen sells, the more it costs her for propane on a monthly basis. For Karen, the cost of propane is a(n) ________ cost.

A) variable
B) secondary
C) resultant
D) fixed
E) irregular

Question 34

Zack Shields leases a manufacturing facility that produces computer monitors. Zack tries to keep production high, because his lease payments are $10,500 a month, regardless of whether he produces one computer monitor a month or 10,000. Zach's lease payment is a ________ cost.

A) variable
B) secondary
C) fixed
D) marginal
E) tangible

Question 35

Fixed costs are the costs a company incurs as it generates sales.

Question 36

Paul Mason's firm sells medical equipment to heart surgeons. The company fields a direct sales force that travels the country demonstrating its equipment to heart surgeons and hospital administrators. Recently, Paul's company started producing equipment for eye surgeons, partly to maximize the value of his sales force, which can now call on both heart surgeons and eye surgeons when it makes hospital visits. Paul's firm is attempting to capture economies of ________ through this strategy.

A) reach
B) scope
C) capacity
D) range
E) scale

Question 37

Sometimes firms are compelled to grow to accommodate the growth of a key customer.

Question 38

________ are(is) generated when increasing production lowers the average cost of each unit produced.

A) Business scalability
B) Economies of scale
C) Reaching for scale
D) Market leadership
E) Economies of scope

Question 39

Market leadership occurs when a firm ________.

A) is the number one or number two firm in an industry or niche market in terms of net profits
B) is one of the top five firms in an industry or market niche in terms of sales volume
C) earns twice as much as its closest competitor
D) sells twice as much as its closest competitor
E) is the number one or the number two firm in an industry or niche market in terms of sales volume

Question 40

Economies of scale occur when ________.

A) increasing production lowers the average cost of each unit produced
B) increasing production increases the average cost of each unit produced
C) decreasing production lowers the average cost of each unit produced
D) decreasing production increases the average cost of each unit
E) increasing production increases the fixed cost of doing business

Question 41

According to the textbook, it is ________.

A) not inevitable that a business enter the decline stage of the organizational life cycle
B) inevitable that a business enter the decline stage of the organizational life cycle
C) not inevitable that service firms enter the decline stage of the organizational life cycle but is inevitable for manufacturing firms
D) not inevitable that manufacturing firms enter the decline stage of the organizational life cycle but is inevitable for service firms
E) not inevitable that international firms enter the decline stage of the organizational life cycle but is inevitable for strictly domestic firms

Question 42

________ means that as a firm grows and adds personnel, the new hires typically do not have the same ownership incentives as the original founders, so the new hires may not be as motivated as the founders to put in long hours or may even try to avoid hard work.

A) Difficult selection
B) Adverse hazard
C) Ethical selection
D) Productivity hazard
E) Moral hazard

Question 43

________ means that as the number of employees a firm needs increases, it becomes increasingly difficult for it to find the right employees, place them in appropriate positions, and provide adequate supervision.

A) Moral hazard
B) Adverse selection
C) Adverse hazard
D) Complex hazard
E) Complex selection

Question 44

The majority of businesses go through a discernable set of stages referred to as the business/industry life cycle.

Question 45

According to Penrose, ________ services generate new market, product and service ideas, while ________ services administer the routine functions of the firm and facilitate the profitable execution of new opportunities.

A) managerial; entrepreneurial
B) administrative; business
C) entrepreneurial; managerial
D) business; commercial
E) commercial; administrative

Question 46

The main challenges for a business in the introduction stage are to make sure the initial product or service is right and to start laying the groundwork for building a larger organization.

Question 47

According to the textbook, the toughest decisions regarding business growth are made in the ________ stage of the organizational life cycle.

A) introduction
B) early growth
C) continuous growth
D) maturity
E) decline

Question 48

According to the textbook, a well-managed business that finds its products and services are mature often ________.

A) replaces its board of directors to breathe new life into the firm
B) looks for licensing opportunities
C) looks for partnering or acquisition opportunities to breathe new life into the firm
D) looks for new managerial talent to breathe new life into the firm
E) looks for international business opportunities

Question 49

A business's early growth stage is generally characterized by increasing sales and heightened complexity.

Question 50

Jack Wills owns a commercial nursery. Jack has more business than he wants, in fact, he is presently turning away exciting new business opportunities because it is expensive to hire new employees, and he knows that if he did hire new employees it would take time for the new employees to be trained and to be socialized into the culture of his firm. Jack's inability to take advantage of the new business opportunities that are coming his way is due largely to the ________ problem.

A) business aptitude
B) entrepreneurial aptitude
C) commercial opportunity
D) business capacity
E) managerial capacity

Question 51

The author of the book titled The Theory of the Growth of the Firm, which is referred to in Chapter 13, is ________.

A) Jim Collins
B) Joseph Schumpeter
C) Edith Penrose
D) Michael Gerber
E) Seth Godin

Question 52

When a firm's managerial resources are insufficient to take advantage of its new product and service opportunities, the subsequent bottleneck is referred to as the ________ problem.

A) commercial capacity
B) entrepreneurial aptitude
C) managerial capacity
D) business capacity
E) business aptitude

Question 53

Kendell Adams owns a software development company. When he first launched his firm, he was careful to hire employees who had the experience he was looking for, were good matches for the positions he had available, and could be properly supervised. As Kendell's firm has grown, and his need for employees has increased, he is finding that it is increasingly difficult to find employees who have the qualifications he is looking for, are good matches for the positions he has available, and fit within the supervisory framework he has developed. Kendell is dealing with an issue referred to as ________.

A) adverse hazard
B) adverse selection
C) complicated hazard
D) ethical hazard
E) moral selection

Question 54

The main challenges for a business in the introduction stage of the organizational life cycle is ________.

A) beginning the process of transitioning the owner from a hands-on supervisor to a more managerial role and developing business partnerships
B) developing business partnerships and making sure the initial product or service is right
C) determining whether the owner of the business and the current management team is capable of taking the business further and developing systems and procedures
D) developing systems and procedures and beginning the process of transitioning the owner from a hands-on supervisor to a more managerial role
E) making sure the initial product or service is right and starting to lay the groundwork for building a larger organization

Question 55

For a business to be successful in the early growth stage of the organizational life cycle, the two important things that must happen are ________.

A) the founder or owner of the business must start transitioning from his or her role as the hands-on supervisor to a more managerial role, and increased formalization must take place
B) a decision must be made whether the owner-manager and the current management team is capable of taking the business further, and the organization must start laying the groundwork for future growth
C) increased formalization must take place, and the business must achieve price stability
D) a decision must be made whether the owner-manager or the current management team is capable of taking the business further, and business partnerships must be established
E) the founder or owner of the business must start transitioning from his or her role as the hands-on supervisor to a more managerial role, and the business must be cash flow positive

Question 56

________ means that as the number of employees a firm needs increases, it becomes increasingly difficult for it to find the right employees, place them in appropriate positions, and provide adequate supervision.

A) Difficult hazard
B) Adverse hazard
C) Adverse selection
D) Moral selection
E) Moral hazard

Question 57

What is the organizational life cycle and why is it important?

Question 58

The Savvy Entrepreneurial Firm feature in Chapter 13 focuses on Salesforce.com, a company that pioneered the idea of software as a service (SaaS). The main point of the case is that rather than remaining a niche product, Salesforce.com's product, which is an online software platform for salespeople, has ________ and appeals to mainstream customers.

A) crossed the divide
B) jumped the divide
C) leaped the technology curve
D) crossed the chasm
E) crossed the valley

Question 59

Trevor Kimble owns a firm that sells products to the publishing industry. Trevor is currently evaluating a set of opportunities that he feels his firm is capable of pursuing. According to the textbook, Trevor is evaluating his firm's ________.

A) prolific potential
B) dynamic opportunity options
C) productive opportunity set
D) passionate opportunity set
E) creative field of potential

Question 60

As a business moves beyond its early growth stage and its pace of growth accelerates, the need for structure and formalization decreases.

Question 61

Megan Johnson owns a kitchen and bathroom cabinet company. Her market research is telling her that she is taking business away from the large home improvement stores in her trade area. One thing that Megan is worried about is that the large stores might fight back by lowering their prices, which hurts everyone except the consumer. The day-to-day challenge of firm growth that this example is referring to is ________.

A) quality control
B) price stability
C) capital constraints
D) cash flow management
E) benchmarking

Question 62

According to the basic model of firm growth articulated in Chapter 13, the ability to increase managerial services to facilitate growth is not friction free but is constrained and limited. Which of the following selections is not one of the factors that constrains or limits a firm's ability to increase its managerial services?

A) The time required to socialize new managers
B) How motivated entrepreneurs and/or managers are to grow the firm
C) Adverse selection
D) Moral hazard
E) Benchmarking

Question 63

The What Went Wrong feature in Chapter 13 focuses on Wesabe, a Web-based company that was launched in 2006 to help people manage their personal finances. According to Marc Hedlund, one of Wesabe's cofounders, the company failed for two primary reasons. First, it didn't allow a partner to provide it with an essential service that it decided to build on its own. Second, it ________.

A) didn't hire an experienced CEO
B) didn't achieve a large enough critical mass of users
C) didn't implement a revenue model fast enough
D) didn't utilize both internal and external growth strategies
E) misunderstood its users

Question 64

Kelly Andrews owns a company that makes office furniture. Recently, a favorable article was written about Kelly's company in a business magazine, and as a result, Kelly has seen a spike in his orders. Although Kelly is grateful for the additional orders, he is worried about one thing. An increase in activity means that his firm must handle more service requests and paperwork and contend with more customers, stakeholders, and vendors. Kelly knows that if he doesn't handle this increased activity properly, the workmanship of his products could decline. The day-to-day challenge of firm growth that this example illustrates is ________.

A) quality control
B) price stability
C) capital constraints
D) benchmarking
E) cash flow management

Question 65

One of the most difficult challenges that businesses encounter as they grow is maintaining high levels of quality and customer service.

Question 66

What are the primary day-to-day challenges involved with growing a firm? Briefly describe each challenge.

Question 67

Which of the following statements is not true regarding the day-to-day challenges of growing a firm?

A) As a firm grows, it requires a decreasing amount of cash to service its customers.
B) If firm growth comes at the expense of a competitor's market share, price competition can set in.
C) Most businesses, regardless of their industry, need capital from time to time to invest in growth-enabling projects.
D) Although most businesses are started fairly inexpensively, the need for capital is typically the most prevalent in the early growth and continuous stages of the organizational life cycle.
E) One of the most difficult challenges that businesses encounter as they grow is maintaining high levels of quality and customer service.

Question 68

Growth usually increases rather than decreases the challenges involved with cash flow management.

Question 69

Adverse selection means that as a firm grows and adds personnel, the new hires typically do not have the same ownership incentives as the original founders, so the new hires may not be as motivated as the founders to put in long hours or may even try to avoid hard work.

Question 70

Which of the following was not identified in the textbook as one of the day-to-day challenges involved with growing a firm?

A) Cash flow management
B) Channel conflict
C) Capital constraints
D) Quality control
E) Price stability

Question 71

Moral hazard means that as the number of employees a firm needs increases, it becomes increasingly difficult for it to find the right employees, place them in appropriate positions, and provide adequate supervision.

Question 72

Few businesses need access to capital to fuel their growth.

Question 73

According to Penrose, managerial services generate new market, product, and service ideas, while entrepreneurial services administer the routine functions of the firm and facilitate the proper execution of new opportunities.

Question 74

Terry Wells owns a growing company that makes innovative kitchen appliances. One thing that Terry has to continually work at is to keep enough cash on hand to make sure she has sufficient liquidity to meet her payroll and cover her other short-term obligations. The day-to-day challenge of firm growth this example is referring to is ________.

A) quality control
B) capital constraints
C) price stability
D) cash flow management
E) personnel issues

Question 75

According to Penrose, entrepreneurial services generate new market, product, and service ideas.