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Entrepreneurship Essentials
Assignment- Week 2
TYPE OF QUESTION: MCQ/MSQ
Number of questions: 15 Total mark: 15 X 1 = 15
______________________________________________________________________________
QUESTION 1:
Which of the following cannot be concluded from the story of Dhirubhai Ambani? (Rely on the
information disseminated in the lecture)
a. Entrepreneurs identify opportunities in adversities
b. Entrepreneurs are the greatest philanthropists
c. Entrepreneurs are knowledge seekers
d. Entrepreneurs are great contributors to national income.
e. Entrepreneurs have a compelling vision and a comprehensive plan to execute it.
Correct Answer: b
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Detailed Solution:
While it is true that many of the entrepreneurs are the greatest of the philanthropists to walk on
this planet and the Ambanis are also known to be donors for various social causes, the story of
Dhirubhai Ambani does not really mention any great message about philanthropy. The answer is
therefore ‘Entrepreneurs are the greatest philanthropists’. On the flip side, Dhirubhai demonstrates
exemplary examples of identifying opportunities in adversities, knowledge seeking, and
contribution to national income. He had a great vision to find petrol in India and putting up refinery
to refine that. He made comprehensive plans to earn enough money, gain adequate expertise and
execute his long-term vision.
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QUESTION 2:
Which of the following represents the correct five forces of competition that shape every industry and
help determine an industry's weaknesses and strengths as espoused by Porter?
a. Competitive rivalry, government policy, buyer power, threat of substitution, threat of new
entry
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b. Competitive rivalry, supplier power, buyer power, threat of substitution, International
competition
c. Global rivalry, supplier power, buyer power, threat of substitution, threat of new entry
d. Competitive rivalry, government policy, Core competency, threat of new entrant, threat of
substitution
e. Competitive rivalry, supplier power, buyer power, threat of substitution, threat of new
entrant
Correct Answer: e
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Detailed solution
The five forces of competition espoused by Porter are Competitive rivalry, supplier power, buyer
power, threat of substitution, threat of new entrant
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QUESTION 3:
Which of the following may directly give us competitive advantage? In other words, out of the
following, how can we gain competitive advantage?
a. Innovative technology and create moat around the business.
b. Efficient cost management and passing on the benefits to customers in the form of lower
price.
c. Building brand by acquiring increasing number of loyal customers and gaining pricing power
d. Distribution channel and ready availability of product with easy access so that customers
find it easy to identify and purchase the product or services being offered.
e. Creating core competency that gives unique competitive advantages invisible to outsiders
and difficult to emulate by others.
f. Only a, c, and d
g. a, b, c, d and e
Answer: g
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---------------------
Detailed solution
A startup may gain competitive advantage through innovative technologies, by efficient cost
management to competitively price the product, acquiring loyal followers of the brand through
building of trust, distribution channel & market access, and core competency that give unique
strength. All the items mentioned in the options are part of the efforts through which a company
can create competitive advantages.
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Question 4.
John C Maxwell said “Fail early, fail often, but always fail forward”. What did he mean by the
construct ‘fail forward’?
a. Fail forward on a support so that one does not get overly brutalized. That is if someone
fail backward, it would be difficult to find a support.
b. It means to preempt the failure before it happens so that one can take measures not to fail
at all.
c. It means to predict the failure and not proceed further and save the resources and time.
d. It means that one should not give up after failure.
e. It means that one should not begin again since failure is destined.
Answer: d
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Detailed solution
By the construct ‘fail forward’ Maxwell conveyed that one should never give up. One may fail
many times, but should move forward with the new experience.
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Question 5.
John C Maxwell said “Fail early, fail often, but always fail forward”. What did he mean by the
construct ‘fail often’, particularly, which of the following is the closest to that?
a. One should not feel afraid even if they fail frequently and perennially.
b. One should keep experimenting and be ready to fail frequently as it would give new
experiences.
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c. He did not mean to say ‘fail often’, he actually wanted to convey to avoid to fail often as
it is difficult to sustain.
d. He wanted to mean that all startups fail four to five times before meeting success.
Therefore, startups should fail quickly to complete this cycles so that they meet success
early on.
e. He meant failing is unavoidable. Just don’t be afraid.
Answer: b
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Detailed solution
By the construct ‘fail often’ Maxwell wants to mean that failures give valuable experience and
make you resilient. The more you will fail, the more experience you will gain. So, keep
experimenting, fail often and learn from your failure.
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Question 6.
Which of the following is the reason for maximum percentage of startups failure?
a. Running out of money and no other option but to shut the business.
b. Business is not profitable, so burning cash at high rate.
c. Cash flow problem and lack of planning to arrange fund on time.
d. Customers are not interested in the product or service
e. Disharmony among founders and breaking of business.
f. Got outcompeted
Answer: d
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Detailed solution
About 42% of the failures occur due to the fact that customers are not interested in the product or
service that the startups offer.
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QUESTION 7:
What Irridium should have done before launching full commercial operation? Choose the most
impactful option.
a. They should have made an assessment of affordability of the customers so as to price the
product suitably.
b. They should have made arrangements to outsource major components to reduce price of
their products.
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c. They should have done extensive market research to understand whether the customers
would buy their product and service before commercial operation.
d. They should have engaged in more R&D to innovate appropriate technologies that would
make the product and service suitable to the customers.
e. They should have roped in co-founders with more relevant experience.
Correct answer: c
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Detailed solution
Irridium failed because customers were not interested in their product and service since the
technology was not adequately matured, the service was overly costly, and the handset was bulky,
etc. The company should have performed extensive market research to know whether customers
would buy their product and service. They could engage in R&D to evolve suitable technologies,
but there was no guarantee that they would be successful. Since the service was not serving the
purpose, no amount of price reduction would have made the company viable. The founders were
the who’s who of telecom industry, and thus, no issue regarding team is the cause of failure. The
primary reason is the product and a proper market research would have revealed that customers
would not buy them. So, they would not have rolled out commercial operation and instead wait to
come up with something that customers would buy.
QUESTION 8:
Which of the following will contribute the LEAST in creating entry barrier?
a. Product diversification
b. Ownership of intellectual property that gives unique features in the product.
c. Strong brand with repeatable loyal customers
d. Efficient and effective logistics for faster delivery than competitors.
e. Superior customers service to ensure smooth performance of products and satisfaction
of customers.
Correct Answer: a
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Detailed Solution:
Entry barrier means strategic advantage for which a company can serve their customers better
than others and customers would prefer their products over those of the competitors. Product
diversification may add some benefits to some customers in the form of more choices but may
not add much to create loyal customers. Whereas, all other options will go a long way to create
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competitive advantages to the company, acquiring and retaining new customers and restricting
competitors from taking away customers, which is construed as entry barrier.
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Question 9
Two co-founders, A and B, have started a new venture with 50:50 ownerships. Both A and B have
invested 10,000 each. Whereas, A has personal wealth of ₹1,00,000, B has personal wealth of
₹2,00,000. Suppose at one point in time, the company has a loan outstanding of ₹5,00,000 and it
goes into liquidation (they have to repay this loan before making payment to any other or take
money home). The value of all the assets of the company is ₹2,00,000. How much the two co-
founders will pay to the bank after selling all the assets of the company in case the venture is a
PRIVATE LIMITED COMPANY.
a. A shall pay ₹1,00,000 and B shall pay ₹2,00,000 out of their personal assets and the
remaining money will come from the sale of the assets of the company.
b. A and B shall pay nothing from their personal assets and only ₹2,00,000 will be paid by
selling the assets of the company. Rest of the money will remain unpaid.
c. Since both have 50% ownership, they will pay equal sums, i.e. ₹1,00,000 each and
₹2,00,000 shall be paid by selling the assets of the company. Rest of the money will
remain unpaid.
d. A shall pay ₹1,50,000 by arranging ₹ 50,000 from some source and B shall also pay
₹1,50,000 out of their personal assets and the remaining money shall come from the sale
of the assets of the company.
e. None of the provided options is correct.
Answer: b
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Detailed solution
The liability of any founder of any limited liability company is limited to their investment (or say
ownership or their share of the assets of the company). When the company is liquidated, the
individual founders will simply forego their shares of the assets of the company to meet outside
liabilities. If anything is left after meeting all liabilities if anything is left that will be distributed
among the founders in proportion to their ownership. In the above case, the venture is a private
limited company. Therefore, the founders A and B will not have to pay anything from their own
source. Whatever will be available by selling the assets of the company will only be paid to the
bank.
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Question 10
Two co-founders, A and B, have started a new venture with 50:50 shareholdings. Both A and B
have invested 10,000 each. Whereas, A has personal wealth of ₹1,00,000, B has personal wealth
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of ₹2,00,000. Suppose the company has a loan outstanding of ₹5,00,000 and it goes into liquidation
(they have to repay this loan before making payment to any other or take money home). The value
of all the assets of the company is ₹2,00,000. How much the bank will recover from the co-
founders after selling all the assets of the company in case the venture is a PARTNERSHIP FIRM.
a. A will pay ₹1,00,000 and B will pay ₹2,00,000 out of their personal assets and the
remaining money will come from the sale of the assets of the company.
b. A and B will pay nothing from their personal assets and ₹2,00,000 will be paid by selling
the assets of the company. Rest of the money will remain unpaid.
c. Since both have 50% ownership, they will equal sums, i.e. ₹1,00,000 each and ₹2,00,000
will be paid by selling the assets of the company. Rest of the money will remain unpaid.
d. A will pay ₹1,50,000 by arranging ₹ 50,000 from some source and B will also pay
₹1,50,000 out of their personal assets and the remaining money will come from the sale
of the assets of the company.
e. None of the provided options is correct.
Answer: a
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Detailed solution
The liability of any founder of any proprietorship or partnership firm is unlimited, i.e. all the
liabilities are to be paid both from sale of all company assets and from personal source to meet any
shortfall. Therefore, after selling all assets of the company to recover ₹2,00,000, the bank will
recover the rest of the money from the personal assets of the co-founders. The bank will put their
assets on the block unless the founders come up with some other arrangements. Therefore,
₹1,00,000 and ₹2,00,000 will be recovered from A and B respectively.
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Question 11
Which of the following is NOT a reason for which investors prefer limited liability form of
venture?
a) Because any limited liability company has perpetual life.
b) Because liabilities of the investors would be limited to their investment in the company
and their personal assets will not be attached in case of liquidation or bankruptcy.
c) Because it is easy to induct new shareholders in a limited liability company.
d) Because all the limited liability company can issue shares to the public investors to raise
money.
e) All the options given here are correct and valid reasons for investors to choose limited
liability form of company to invest.
Correct Answer: d
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Detailed Solution:
There are mainly three types of limited liability companies: 1. One Person Company (or OPC) 2.
Private Limited Company, and 3. Public Limited Company. Out of these, only public limited
companies can issue shares to public investors and raise capital. Private Limited companies and
OPCs are not authorized to raise money from the public. All forms of limited liability companies
cannot issue shares to public investors to raise capital.
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Question 12
Which of the following forms of businesses has the most limited life?
a) Limited liability partnership firm
b) Proprietorship
c) Private limited company
d) Public limited company
e) One person company
Answer: b
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Detailed solution
Proprietorship firm has the shortest possible life since it ceases to exist when the sole proprietor
expires. All other forms of organization have longer possible life. One person company may
continue to remain live based on the arrangement with the nominee or guarantor.
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Question 13
Which of the followings is NOT a valid distinction between one-person company (OPC) and
proprietorship firm?
a. The liabilities of the owner of OPC is limited to the investment made, whereas, liabilities
of the owner of proprietorship firm is unlimited.
b. OPC tax bracket is same as any private company, whereas, proprietor’s personal income
and the profit from the business are taxed together.
c. OPC doesn’t have to submit annual report or audited accounts, whereas, proprietorship
firms have to do.
d. OPC succession is through nominee, whereas, succession of proprietorship business is
through court.
e. OPCs have longer plausible life span, the life span to proprietorship business is limited to
the life of the proprietor.
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Answer: c
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Detailed solution
Since OPC is registered with the Registrar of Companies, it has to submit annual financial
statements and other compliances. But partnership firm is less formal and requirement of
compliance is low. Proprietorship firm does not have to submit any accounting statement with the
registrar of companies.
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Question 14
Which of the following companies has the best competitive advantage? The question should not
be viewed as straightforward and should be given some thought on each of the options carefully.
Your answer should be based on the present state and not on future potentials.
a. A strong brand with growing loyal customer base.
b. A company with a new age product supported by cutting edge technology.
c. A company with a huge capital that can be used to create various strategic assets.
d. A company with many patents that they have built over the years that can be used by
many companies.
e. A company promoted by the most talented people with huge experience in the domain.
Answer: a
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Detailed solution
A great product like the one that Irridium had may not guarantee that customers will buy it. A lot
of money is not good enough to really come up with something that will sell. You may have
many patents, but how good will be them if you are yet to put them into commercial application?
Irridium had the best of people as co-founders a lot of money, the best technology, but they
failed miserably. Having a strong brand is an indication that everything is in place and growing
number of customers are buying the product repeatedly. This company is the most competitive.
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Question 15
Which phase of the startup lifecycle is referred to as the valley of death?
a. It is the early stage of companies when majority of them fail to gain traction, they run out
of cash and fail.
b. It is the phase when the majority of the startups move from the early success to growth
phase and fail to acquire customers and fail.
c. It is the idea stage since most of the ideas are not in the form of a tangible solution and do
not eventually emerge as a viable product.
d. It is when the company is matured but fail to raise enough capital and discontinue
operation.
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Answer: a
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Detailed solution
Valley of death refers to the early phase when most of the new ventures burn cash and there is
hardly an cash inflow. Since there is hardly any traction in terms of product validation or
customer acquisition, investors refrain from funding such ventures. Those who incur huge cash
losses fail to sustain and too many startups fail at this stage and that is why the early stage of
startups is known as the ‘Valley of Death’.
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