CHAPTER 18: HARVESTING THE ENTREPRENEURIAL VENTURE
TRUE/FALSE
1. A harvest plan defines how and when the owners and investors will realize an actual cash return on
their investment.
ANS: T
2. Once the decision is made to harvest the business, the way forward is easy.
ANS: F
3. The harvest decision may come when the venture has grown to a stage where an IPO is a possibility.
ANS: T
4. Only one-third of all enterprises makes it to a second generation.
ANS: T
5. Only one percent of all enterprises makes it to a third generation.
ANS: F
6. The basic rule for privately held businesses is this: The owner should develop a succession plan.
ANS: T
7. There are two types of succession pressures: family and non-family.
ANS: T
8. External environmental factors do not have any effect on the succession issue.
ANS: F
9. Non-family members sometimes bring pressure on the owner-manager in an effort to protect their
personal interests.
ANS: T
10. Although family members may not play an active role in the business, they still may want to inherit
part of the business.
ANS: T
11. When the founder of a business is willing to share authority, succession problems can be maximized.
ANS: F
1
,12. The forcing events that require an entrepreneur to step aside and let someone direct the operation are
usually unforeseen and create major problems for the business.
ANS: T
13. An entrepreneurial successor is someone who is interested in efficiency and the effective use of
resources.
ANS: F
14. When looking ahead in choosing a successor from inside the organization, the founder often trains a
team of executive managers consisting of both family and non-family members.
ANS: T
15. The Oakland Scavenger case may have a major effect on the management succession plans of family
business.
ANS: T
16. An important issue in the Oakland Scavenger case is that of whether non-family members should be
allowed to be successors in family businesses.
ANS: F
17. The steps in developing a succession strategy are understanding the contextual aspects, identifying
successor qualities, and carrying out the succession plan.
ANS: T
18. Some entrepreneurs are easy to replace, and some cannot be replaced.
ANS: T
19. If the successor and the business environment have a “right fit,” the successor will be minimally
effective.
ANS: F
20. Depending on the situation, some qualities or characteristics a successor should possess are more
important than others.
ANS: T
21. The successor of a small business should not be identified until the last possible moment when the
business is being turned over.
ANS: F
22. Especially in small firms, when a succession plan is being put into effect, attention should be given to
day-to-day operations.
ANS: T
2
, 23. The liquidity event stands for positioning the venture for the realization of a cash return for the owners
and investors.
ANS: T
24. The liquidity event can be achieved through an IPO or selling out.
ANS: T
25. It is not necessary for the entrepreneur to seek outside advice when liquidating the firm.
ANS: F
MULTIPLE CHOICE
1. A harvest plan
a. is similar to a will.
b. defines when and how the owners will realize a cash return on investment.
c. leaves the business to the next generation.
d. is simple to implement.
ANS: B
2. “Harvest” does not mean
a. family members agree about the business.
b. that any profits will be reaped.
c. that the firm continues to exist.
d. the challenges and responsibilities of the entrepreneur are over.
ANS: D
3. Research shows that many privately held firms go out of business within
a. one year.
b. 25 years.
c. any number of years.
d. 10 years.
ANS: D
4. The average life expectancy of a privately held firm is
a. 24 years.
b. 10 years.
c. and indefinite number of years.
d. 50 years.
ANS: A
5. Research on family firms demonstrates which of the following facts?
a. only 16% make it to a third generation
b. many family firms cease to exist after one month
c. only nine out of ten make it to a second generation
d. only 3% make it to the next generation
ANS: A
3
, 6. Barriers to successful succession planning include which of the following?
a. nobody wanting to own the firm.
b. lack of a final will.
c. dilemma of choice.
d. lack of profits.
ANS: C
7. Most privately held firms
a. lack a succession plan.
b. pass the firm to a child.
c. don’t view succession as a major issue.
d. leave the succession decision to the executor of the owner’s will.
ANS: A
8. Which of the following is not an example of pressures or interests from within a firm that are
considered in the succession issue?
a. rivalry among various branches of the family
b. pressure from a family member to start his/her own business
c. employee wanting a percentage of the business in the owner’s will
d. pressure on the owner/manager to designate an heir
ANS: B
9. Which of the following is an event that would require the entrepreneur to step aside and let someone
else direct the operation?
a. non-terminal physical incapacitation
b. divorce
c. age
d. disagreements with children or business partners
ANS: A
10. When considering financial difficulties, which of the following statements constitutes a forcing event?
a. The business has a loss for one quarter.
b. A lender demands the removal of the owner-manager before lending the necessary funds.
c. The business does not make a substantial profit for the first year of business.
d. The product does not sell well over a holiday season.
ANS: B
11. A succession pressure inside the firm exists
a. when the entrepreneur want to give up authority.
b. when family members want to keep and manage the business.
c. non-family employees don’t want the business.
d. competition-is hurting the business.
ANS: B
12. Each of the following are non-family elements under pressure and interest from outside the firm except
a. increased insurance rates.
b. the competition changing strategy.
c. regulatory agencies.
d. customers.
4
TRUE/FALSE
1. A harvest plan defines how and when the owners and investors will realize an actual cash return on
their investment.
ANS: T
2. Once the decision is made to harvest the business, the way forward is easy.
ANS: F
3. The harvest decision may come when the venture has grown to a stage where an IPO is a possibility.
ANS: T
4. Only one-third of all enterprises makes it to a second generation.
ANS: T
5. Only one percent of all enterprises makes it to a third generation.
ANS: F
6. The basic rule for privately held businesses is this: The owner should develop a succession plan.
ANS: T
7. There are two types of succession pressures: family and non-family.
ANS: T
8. External environmental factors do not have any effect on the succession issue.
ANS: F
9. Non-family members sometimes bring pressure on the owner-manager in an effort to protect their
personal interests.
ANS: T
10. Although family members may not play an active role in the business, they still may want to inherit
part of the business.
ANS: T
11. When the founder of a business is willing to share authority, succession problems can be maximized.
ANS: F
1
,12. The forcing events that require an entrepreneur to step aside and let someone direct the operation are
usually unforeseen and create major problems for the business.
ANS: T
13. An entrepreneurial successor is someone who is interested in efficiency and the effective use of
resources.
ANS: F
14. When looking ahead in choosing a successor from inside the organization, the founder often trains a
team of executive managers consisting of both family and non-family members.
ANS: T
15. The Oakland Scavenger case may have a major effect on the management succession plans of family
business.
ANS: T
16. An important issue in the Oakland Scavenger case is that of whether non-family members should be
allowed to be successors in family businesses.
ANS: F
17. The steps in developing a succession strategy are understanding the contextual aspects, identifying
successor qualities, and carrying out the succession plan.
ANS: T
18. Some entrepreneurs are easy to replace, and some cannot be replaced.
ANS: T
19. If the successor and the business environment have a “right fit,” the successor will be minimally
effective.
ANS: F
20. Depending on the situation, some qualities or characteristics a successor should possess are more
important than others.
ANS: T
21. The successor of a small business should not be identified until the last possible moment when the
business is being turned over.
ANS: F
22. Especially in small firms, when a succession plan is being put into effect, attention should be given to
day-to-day operations.
ANS: T
2
, 23. The liquidity event stands for positioning the venture for the realization of a cash return for the owners
and investors.
ANS: T
24. The liquidity event can be achieved through an IPO or selling out.
ANS: T
25. It is not necessary for the entrepreneur to seek outside advice when liquidating the firm.
ANS: F
MULTIPLE CHOICE
1. A harvest plan
a. is similar to a will.
b. defines when and how the owners will realize a cash return on investment.
c. leaves the business to the next generation.
d. is simple to implement.
ANS: B
2. “Harvest” does not mean
a. family members agree about the business.
b. that any profits will be reaped.
c. that the firm continues to exist.
d. the challenges and responsibilities of the entrepreneur are over.
ANS: D
3. Research shows that many privately held firms go out of business within
a. one year.
b. 25 years.
c. any number of years.
d. 10 years.
ANS: D
4. The average life expectancy of a privately held firm is
a. 24 years.
b. 10 years.
c. and indefinite number of years.
d. 50 years.
ANS: A
5. Research on family firms demonstrates which of the following facts?
a. only 16% make it to a third generation
b. many family firms cease to exist after one month
c. only nine out of ten make it to a second generation
d. only 3% make it to the next generation
ANS: A
3
, 6. Barriers to successful succession planning include which of the following?
a. nobody wanting to own the firm.
b. lack of a final will.
c. dilemma of choice.
d. lack of profits.
ANS: C
7. Most privately held firms
a. lack a succession plan.
b. pass the firm to a child.
c. don’t view succession as a major issue.
d. leave the succession decision to the executor of the owner’s will.
ANS: A
8. Which of the following is not an example of pressures or interests from within a firm that are
considered in the succession issue?
a. rivalry among various branches of the family
b. pressure from a family member to start his/her own business
c. employee wanting a percentage of the business in the owner’s will
d. pressure on the owner/manager to designate an heir
ANS: B
9. Which of the following is an event that would require the entrepreneur to step aside and let someone
else direct the operation?
a. non-terminal physical incapacitation
b. divorce
c. age
d. disagreements with children or business partners
ANS: A
10. When considering financial difficulties, which of the following statements constitutes a forcing event?
a. The business has a loss for one quarter.
b. A lender demands the removal of the owner-manager before lending the necessary funds.
c. The business does not make a substantial profit for the first year of business.
d. The product does not sell well over a holiday season.
ANS: B
11. A succession pressure inside the firm exists
a. when the entrepreneur want to give up authority.
b. when family members want to keep and manage the business.
c. non-family employees don’t want the business.
d. competition-is hurting the business.
ANS: B
12. Each of the following are non-family elements under pressure and interest from outside the firm except
a. increased insurance rates.
b. the competition changing strategy.
c. regulatory agencies.
d. customers.
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