Week 1 SB - Characteristics of Small and New Firms

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Questions and Answers

What is a key difference between small firms and large firms according to the text?

Small firms lack scale advantages that large firms have. (correct)

Large firms face market failure when it comes to financing.

Small firms have a higher level of formality and bureaucracy than large firms.

Large firms contribute significantly to job creation compared to small firms.

Which type of firms are defined based on firm age in the text?

New/young firms and established firms (correct)

Prospective entrepreneurs and successful entrepreneurs

Formal entrepreneurs and informal entrepreneurs

Opportunity entrepreneurs and necessity entrepreneurs

What motivates necessity entrepreneurs according to the text?

Skills and intentions to start a business

To create employment opportunities for others

Wealth accumulation and personal satisfaction

Push factors as a last-ditch effort for economic survival (correct)

Which sector of activity do formal entrepreneurs focus on?

Legally registered new firms in a country Signup and view all the answers

What is a common challenge faced by small firms according to the text?

Market failure when it comes to financing Signup and view all the answers

Which group is referred to as prospective entrepreneurs in the text?

Those with skills and intentions to start a business Signup and view all the answers

What distinguishes nascent entrepreneurs from high-growth entrepreneurs?

Nascent entrepreneurs focus on taking initial actions to set up their business, while high-growth entrepreneurs grow rapidly over a short period of time. Signup and view all the answers

Which theory explains entrepreneurship as an occupational choice based on expected utility and opportunity costs?

Rational choice theory Signup and view all the answers

According to O'brien et al. (2003), how does uncertainty impact entry into entrepreneurship?

Uncertainty lowers the rate of entry into entrepreneurship. Signup and view all the answers

What factor intensifies the impact of uncertainty on investment decisions in the context of entrepreneurship?

Lower regional concentration of similar firms Signup and view all the answers

How does Liang et al. (2018) view the effect of workforce aging on entrepreneurship rates?

Older employees gain valuable experience for entrepreneurship, leading to a decline in entrepreneurship rates. Signup and view all the answers

According to theory, why do small firms produce most entrepreneurs?

Small firms provide a good training ground and spawn entrepreneurs at a higher rate than larger firms. Signup and view all the answers

What differentiates creative destruction from creative construction in the context of new startups?

'Creative destruction' involves new companies from new knowledge, while 'creative construction' involves employees from existing companies starting new ventures. Signup and view all the answers

Why is the entry of new firms considered important in the context of industries?

To bring about transformation or renewal of industries Signup and view all the answers

'Serial entrepreneurs' are individuals who...

...sell or step back from one business before starting another. Signup and view all the answers

What factors influence occupational choices according to Levesque & Minniti (2006)?

Inherent factors such as age and contextual factors like taxation. Signup and view all the answers

Study Notes

Key Differences Between Small and Large Firms

Small firms typically offer personalized service and flexibility, while large firms benefit from economies of scale and greater resources.

Firm Age Classification

Startups and young firms are defined based on firm age, indicating how long a business has been in operation.

Motivation of Necessity Entrepreneurs

Necessity entrepreneurs are driven by the need to create income due to lack of employment opportunities rather than a desire to pursue business opportunities.

Sector Focus of Formal Entrepreneurs

Formal entrepreneurs primarily focus on the formal economy, engaging in established and regulated sectors.

Common Challenges for Small Firms

Small firms often face difficulties in accessing capital and financing, hindering their growth potential.

Definition of Prospective Entrepreneurs

Prospective entrepreneurs are individuals who are actively considering starting a business but have not yet taken the plunge.

Distinction Between Nascent and High-Growth Entrepreneurs

Nascent entrepreneurs are in the early stages of establishing their ventures, while high-growth entrepreneurs aim for rapid expansion and scalability.

Theoretical Framework of Entrepreneurship

The occupational choice theory explains entrepreneurship through expected utility and opportunity costs, emphasizing decision-making processes.

Impact of Uncertainty on Entrepreneurship Entry

Uncertainty tends to deter individuals from entering entrepreneurship, as unpredictable outcomes can lead to an aversion to risk.

Factors Intensifying Uncertainty’s Impact

The degree of market volatility significantly intensifies the impact of uncertainty on investment decisions, making potential entrepreneurs more cautious.

Workforce Aging and Entrepreneurship Rates

Liang et al. (2018) argue that an aging workforce could potentially lead to lower entrepreneurship rates due to reduced risk-taking behavior.

Role of Small Firms in Entrepreneurship Production

Small firms are seen as breeding grounds for entrepreneurs due to their lower barriers to entry and ability to adapt quickly to market changes.

Creative Destruction vs. Creative Construction

Creative destruction focuses on the process of replacing outdated industries with new ones, while creative construction highlights the innovation and development of new industries.

Importance of New Firm Entry in Industries

The entry of new firms disrupts stagnant market conditions, promoting competition, innovation, and economic dynamism.

Definition of Serial Entrepreneurs

Serial entrepreneurs are individuals who repeatedly start new businesses, often pursuing multiple ventures over time.

Influential Factors in Occupational Choices

According to Levesque & Minniti (2006), personal motives, environmental context, and economic conditions significantly influence individuals' occupational choices in entrepreneurship.

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Description

Explore the key differences between small and new firms compared to large firms, focusing on aspects like liability, formality, bureaucracy, and internal opportunity structure. Understand the specific challenges faced by small firms, including market failure in financing.