SBE 2-Entrepreneurial Mistakes and Decisions Quiz

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Questions and Answers

What is the main aim of Active Labor Market Policies (ALMP)?

Promote awareness of entrepreneurship

Provide training and incentives for the employed

Decrease employment opportunities for workers

Increase employment opportunities for workers and job seekers (correct)

Why is there a concern about Active Labor Market Policies (ALMP) leading to adverse selection?

It may target the wrong people for training (correct)

It encourages young people to build networks

It lacks externalities for underprivileged individuals

It promotes a culture of entrepreneurship

What is one common criticism of Entrepreneurship Education based on the text?

Entrepreneurship can be effectively taught

Evaluation of entrepreneurship education is easy

It only stimulates the right people to start businesses

It lacks practical relevance (correct)

What was one task assigned to kids in the field experiment on entrepreneurship education?

Selling products to peers Signup and view all the answers

What are two main functions of Venture Capital (VC) mentioned in the text?

Scouting and coaching Signup and view all the answers

What is a potential implication of entrepreneurial exit?

Direct social and economical consequences Signup and view all the answers

According to Population Ecology theory, what could lead to firm exit?

Heavy competition and lack of skilled workers Signup and view all the answers

What is the 'Liability of newness' often associated with in terms of firm exit?

Younger firms that may face challenges due to their newness Signup and view all the answers

What does exit signaling function indicate when a firm fails?

Changes might be needed for other firms to avoid failure Signup and view all the answers

What becomes available in the economy when a business exits?

Resources that can be redirected elsewhere Signup and view all the answers

Why might an older firm face closure according to Population Ecology theory?

'Liability of aging' problem Signup and view all the answers

Which factor is identified as a main contributor to securing VC funding according to the text?

Former work experience in the same sector Signup and view all the answers

How may founders' human capital influence firm growth indirectly, according to the text?

Through attracting VC investments Signup and view all the answers

What is highlighted as a highly significant and positive value for firm growth in the text?

Economics education and technical work experience in the same sector Signup and view all the answers

What type of founders' human capital is emphasized as causing a lot of growth alongside tech work experience?

Founders with economics education and tech work experience in the same sector Signup and view all the answers

What type of management experience can help attract VC financing?

Management experience in small firms Signup and view all the answers

What caused lower margins for the entrepreneur?

Focusing on unproductive customer segments Signup and view all the answers

What did the entrepreneur think about the tradeoff of being an entrepreneur compared to being a worker?

The tradeoff is high Signup and view all the answers

Why did the entrepreneur want to sell the company?

Lower margins Signup and view all the answers

What are the two ways through which public policy can support small businesses and entrepreneurs?

Creating favorable general conditions and providing director support Signup and view all the answers

What is the aim of macro-economic policy in relation to entrepreneurship?

Provide a stable economic environment conducive to economic growth Signup and view all the answers

What does competition policy aim to ensure?

Healthy competition without harming society's economy and entrepreneurship Signup and view all the answers

Why is business support justified according to the text?

Due to information imperfections and externalities Signup and view all the answers

What is a common consequence of lack of business resources?

Inefficiencies due to lack of uniqueness or organizational structure Signup and view all the answers

What aspect can help businesses get better at taking risky decisions over time?

Learning from past experiences Signup and view all the answers

What is one way in which the exit of older firms can benefit new entrants?

Release of immobile resources Signup and view all the answers

How did the Malaysian and Dutch consultants initially struggle when pitching their business?

The market was poorly defined and investments were hard to find Signup and view all the answers

What was the outcome after the Malaysian partner was fired from the company?

They bought his shares through finding another person Signup and view all the answers

Why did moving the production plant to NL benefit the company?

To accommodate faster production changes Signup and view all the answers

How did the higher quality and lower cost of LED lights from Asia impact the industry in NL and Europe?

Attracted new entrances to the industry Signup and view all the answers

What is a key reason why new firms may not survive according to the text?

'Liability of newness' Signup and view all the answers

How did the exit of older firms contribute to regional productivity according to Pe’er and Vertinsky (2008)?

'Exit released resources crucial for new firms' Signup and view all the answers

Study Notes

Active Labor Market Policies (ALMP)

Main aim is to enhance employment opportunities and reduce unemployment through various initiatives.
Concerns arise over adverse selection, where only less capable individuals utilize ALMP, potentially leading to inefficiencies in labor allocation.

Entrepreneurship Education

Common criticism includes questioning its effectiveness in fostering real entrepreneurial skills and behaviors.
In a field experiment, one task assigned to kids involved developing business ideas and presenting them.

Venture Capital (VC)

Two main functions of VC include providing financial resources for startups and offering strategic guidance to enhance business growth.
A key factor for securing VC funding is having a strong business plan and operational strategy.

Entrepreneurial Exit

Potential implications of entrepreneurial exit include shifts in market dynamics and the release of resources for new ventures.
Population Ecology theory suggests firm exit can result from stiff competition and inability to adapt to changes.

Liability of Newness

This concept refers to the challenges new firms face, such as lack of established relationships and operational stability, often leading to higher exit rates.
Exit signaling serves as a warning that the firm's business model or market strategy may not be sustainable.

Economic Implications of Exit

Business exits can free up resources, allowing them to be reallocated to more viable enterprises.
Older firms may face closure due to inability to adapt to evolving market demands, as explained by Population Ecology theory.

Founders' Human Capital

Founders' human capital, particularly technical expertise and relevant experience, plays a crucial role in indirectly influencing firm growth.
Significant growth is often tied to founders with tech work experience, which drives innovation and competitively positions firms.

Management Experience and VC Financing

Strong managerial experience enhances the chances of attracting VC financing as it reflects competence in handling business operations.
The tradeoff between entrepreneurship and traditional employment often leaves entrepreneurs with lower margins, creating financial strain.

Public Policy Support

Public policy can aid small businesses through financial support and creating a conducive regulatory environment.
The aim of macroeconomic policy is to stimulate entrepreneurship and promote overall economic growth.

Business Support Justification

Justification for business support stems from the potential for job creation, innovation, and economic resilience.
Consequences of lack of business resources often include reduced ability to innovate and compete effectively.

Risk Management Improvement

Experience with decision-making over time enhances a business's capability to take calculated risks.

Industry Impact from Firm Exits

Exits of older firms can create opportunities for new entrants, leading to industry revitalization.
Malaysian and Dutch consultants faced initial challenges in pitching their business and improved their approach post-firing the Malaysian partner.

Production Plant Transition

Moving production to the Netherlands allowed the company to benefit from higher quality standards and reduced costs.
Lower-cost LED lights from Asia disrupted the industry in the Netherlands and Europe, prompting tight competition.

Firm Survival Challenges

New firms often struggle due to inadequate market knowledge and established competition.
Pe’er and Vertinsky's findings highlighted that the exit of older firms can enhance regional productivity by reallocating resources to emerging firms.

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Test your knowledge on entrepreneurial mistakes and decisions such as focusing on wrong market segments, low margins, and failed international expansion. Explore the challenges faced by an entrepreneur in running and selling a company.