Building a New Venture Team Answer Key 2

34) A board of directors has three formal responsibilities: A) periodically update the firm's business plan, declare dividends, and write the firm's marketing plan B) appoint the officers of the firm, declare dividends, and oversee the affairs of the corporation C) write the firm's strategic plan, declare dividends, and conduct the annual meeting D) appoint the officers of the firm, conduct the annual meeting, and submit the firm's annual report to the Securities & Exchange Commission E) provide funding to the firm, write the firm's strategic plan, and submit the firm's annual report to the Securities & Exchange Commission Answer: B 35) A board of directors has three formal responsibilities: appoint the officers of the firm, oversee the affairs of the corporation, and: A) conduct the annual meeting B) provide funding for the firm C) submit the firm's annual report to the stockholders D) declare dividends E) write the firm's strategic plan Answer: D 36) A board of directors has three formal responsibilities: appoint the officers of the firm, declare dividends, and: A) write the firm's strategic plan B) conduct the annual meeting C) provide funding for the firm D) represent the firm in public relations activities E) oversee the affairs of the corporation Answer: E 37) Which of the following statements is incorrect regarding boards of directors? A) If a new venture organizes as a corporation, it is not legally required to have a board of directors, but it is strongly recommended. B) A board is typically made up of both inside and outside directors. C) The board is responsible for declaring dividends. D) Most boards meet formally three or four times a year. E) The boards for publicly traded companies are required by law to have audit and compensation committees. Answer: A 38) According to the textbook, although a board of directors has formal governance responsibilities, its most useful role is to: A) provide guidance and support to the firm's managers B) submit papers on behalf of the firm to the SEC C) represent the firm in public relations activities D) conduct the firm's annual meeting E) provide funding to the firm Answer: A 39) Andy Zackery just launched a firm in the sporting goods industry. On the day the company was launched, Andy issued a press release, indicating that the vice president of Brunswick, a highly respected sporting goods company, had agreed to serve on his board of directors. Andy knows that such a high quality appointment will send an important message to his potential clientele. This phenomenon is referred to as: A) championing B) signaling C) profiling D) indicating E) trumping Answer: B 40) Melissa Jones just launched a firm in the wireless communications industry. Shortly after the company was launched, Melissa announced that a prominent Silicon Valley venture capitalist had agreed to serve on her board of directors. Melissa knows that such a high quality appointment will send an important message to her potential business partners and clientele. This phenomenon is referred to as: A) trumping B) championing C) profiling D) signaling E) indicating Answer: D 41) Which of the following was not identified in the textbook as an attribute of an effective board of directors? A) homogeneous set of experiences and talents B) customer-focused point of view C) ability and willingness to stand up to the CEO and top managers of the firm D) strong communication with the CEO E) decisiveness Answer: A 42) Which of the following was not identified in the textbook as an attribute of an effective board member? A) strong personal and professional networks B) unknown in their field C) investment and/or operating experience D) ability and willingness to mentor the CEO and the top managers of the firm E) pattern recognition skills Answer: B 43) A(n) ________ is a panel of experts who are asked by a firm's managers to provide counsel and advice on an ongoing basis. A) consultation board B) idea panel C) counseling panel D) advisory board E) suggestion panel Answer: D 44) William Woods recently launched a printing company. One thing William is thinking about creating is a panel of experts who can provide him ongoing direction and advice regarding the future of his business. William is thinking about creating a(n): A) analysis panel B) discussion board C) advisory board D) suggestion panel E) accountability panel Answer: C 45) Amy Phillips founded a cosmetics firm several years ago. Her firm has grown rapidly and is financially successful. One thing that Amy attributes her success to is that early on she assembled a panel of experts who provided her ongoing direction and advice about her business. What Amy created is called a(n): A) consultation panel B) suggestion panel C) idea board D) accountability panel E) advisory board Answer: E 46) Which of the following statements about advisory boards is incorrect? A) The fact that a corporation has a board of directors does not preclude it from establishing one or more advisory boards. B) An advisory board can be established for general purposes or can be set up to address a specific issue or need. C) Similar to a board of directors, an advisory board has legal responsibility for the firm in certain areas. D) An advisory board is a panel of experts who are asked by a firm's managers to provide counsel and advice on an ongoing basis. E) A growing number of startups are forming advisory boards. Answer: C 47) Which of the following statements about advisory boards is incorrect? A) If a firm has a board of directors it is not permitted to have an advisory board. B) Many people are more willing to serve on a company's board of advisors than its board of directors because it requires less time and there is no potential legal liability involved. C) Most boards of advisers have between 5 and 15 members. D) A growing number of startups are forming advisory boards. E) An advisory board can be established for general purposes or can be set up to address a specific issue or need. Answer: A 48) According to the textbook, most boards of advisers have between: A) 5 and 15 members B) 2 and 4 members C) 10 and 18 members D) 2 and 3 members E) 4 and 7 members Answer: A 49) The Partnering for Success feature in Chapter 9 focuses on iConclude, a company that set up a customer advisory board. The main point of the feature is: A) the proper time to set up a customer advisory board is just after a business has been launched B) the members of a firm's customer advisory board should be as diverse as possible C) a customer advisory board can be a good source of new product or service ideas D) the main purpose of a customer advisory board is to assess customer satisfaction E) setting up a customer advisory board before a business is launched can be a useful way of getting feedback while a product is being developed Answer: E 50) Which of the following is incorrect regarding the typical role of consultants in business startups? A) give professional advice B) international consulting firms, like Accenture and Bearing Point, are financially beyond the reach of most small firms C) consultants fall into two categories: paid consultants and consultants who are made available for free D) give expert advice E) help manage the day-to-day activities of the firm Answer: E 51) A new venture team is the group of founders, key employees, and advisers that move a new venture from an idea to a fully functioning firm. Answer: TRUE 52) The term "liability of newness" refers to the fact that companies often falter because the people who start the firms can't adjust quickly enough to their new roles and because the firms lack "track records" with outside buyers and suppliers. Answer: TRUE 53) Studies show that more than one individual starts 80 to 90 percent of all new firms. Answer: FALSE 54) It is generally believed that new ventures started by an individual have an advantage over those started by a team. Answer: FALSE 55) Founding teams that have worked together before, as opposed to teams that are working together for the first time, have an edge. Answer: TRUE 56) Homogeneous teams are diverse in terms of their abilities and experiences. Answer: FALSE 57) Prior entrepreneurial experience, relevant industry experience, and networking are attributes that strengthen the chances of a founder's success. Answer: TRUE 58) Relevant industry experience is a poor predictor of future entrepreneurial performance. Answer: FALSE 59) Networking is building and maintaining relationships with people whose interests are similar or whose relationship could bring advantages to a firm. Answer: TRUE 60) A skills profile is a chart that depicts the most important skills that are needed and where skills gaps exist. Answer: TRUE 61) An increasingly important approach for recruiting employees is via social media sites like LinkedIn, Facebook, and Twitter. Answer: TRUE 62) Although a board of directors has formal governance responsibilities, its most useful role is to provide guidance and support to the firm's managers. Answer: TRUE 63) An advisory board is a panel of experts who are asked by a firm's managers to provide counsel and advice on an ongoing basis. Answer: TRUE 64) Similar to a board of directors, an advisory board possesses legal responsibility for the firm. Answer: FALSE 65) An advisory board can be established for general purposes or can be set up to address a specific need. Answer: TRUE 66) The fact that a corporation has a board of directors precludes it from having a board of advisors. Answer: FALSE 67) Most boards of advisers have between 3 and 5 members. Answer: FALSE 68) More people are willing to serve on a company's board of directors than board of advisors. Answer: FALSE 69) Consultants fall into two categories: paid consultants and consultants who are made available for free or at a reduced rate through a nonprofit or government agency. Answer: TRUE 70) SCORE is a for-profit organization that provides consulting services to small businesses. Answer: FALSE 71) Describe the term "liability of newness" and suggest several ways that a new venture can overcome this handicap. Answer: The term "liability of newness" refers to the fact that companies often falter because the people who start them aren't able to adjust quickly enough to their new roles and because the firms lack "track records" with outside buyers and suppliers. Assembling a talented and experienced new venture team is one path firms can take to overcome these limitations. In addition, firms able to persuade high-quality individuals to join them as directors or advisers quickly gain legitimacy with a variety of individuals, such as some of those working inside the venture as well as some people outside the venture (e.g., suppliers, customers, and investors). In turn, legitimacy opens doors that otherwise would be closed. 72) Are more firms started by individuals or founding teams? What are the advantages to founding a firm as a team rather than as an individual? Answer: Studies show that more than one individual starts 50 to 70 percent of all new firms. It is generally believed that new ventures started by a team have an advantage over those started by an individual because a team brings more talent, resources, ideas, and professional contacts to a new venture than does a sole entrepreneur. In addition, the psychological support that cofounders of a new business can offer one another is an important element in the firm's success. 73) What is the difference between a heterogeneous and a homogeneous founding team? Which type of team has the advantage? Answer: Heterogeneous founding teams are diverse in terms of their abilities and experiences. Homogeneous founding teams are very similar on the same dimensions. Heterogeneous teams typically have the advantage. The members of heterogeneous teams are likely to have different points of view about technology, hiring, decisions, competitive tactics, and other important activities. These different points of view are likely to generate debate and constructive conflict among the founders, reducing the likelihood that decisions will be made in haste or without the airing of alternative points of view. 74) What is a skills profile and what is it used for? Answer: A skills profile is a chart that depicts the most important skills that are needed in a startup (such as executive leadership, finance, operations, HR) on the horizontal axis and lists the members of the new venture team and the skills that each individual contributes on the vertical axis. The idea is to see whether the skills that are needed to launch a firm are adequately covered by the members of the new venture team, or whether skills gaps exist that need to be filled. 75) What is SCORE? What is its role in helping a firm fill out its new venture team? Answer: SCORE is a nonprofit organization that provides free consulting services to small businesses. SCORE currently has over 13,000 volunteers, who are typically retired business owners and who counsel in areas as diverse as finance, operations, and sales. SCORE helps a business fill out its new venture team by providing important advice and direction in areas that the new venture cannot provide for itself.