Entrepreneurship Vocabulary 2026 | Key Terms,
Definitions, Study Guide, Practice Questions,
Answers & Exam Review
Chapter 1: Core Concepts & The Entrepreneurial Mindset
1. Which of the following best describes the concept of "creative destruction" as
coined by economist Joseph Schumpeter?
A. The process of a business failing and being replaced by a more innovative
competitor.
B. The elimination of creative jobs due to automation.
C. The process by which new innovations continually disrupt and replace
established industries and technologies, driving economic progress.
D. The destruction of a company's creative culture by rigid corporate policies.
Correct Answer: C
Rationale: Schumpeter's theory of creative destruction describes the
"process of industrial mutation that incessantly revolutionizes the economic
structure from within, incessantly destroying the old one, incessantly creating a
new one." It is a core concept in understanding how innovation drives long-term
economic growth. Option A is a symptom, but C describes the broader economic
mechanism.
2. An entrepreneur who starts a business with the primary goal of creating a
positive social or environmental impact, often reinvesting profits to further the
mission, is best described as a:
A. Venture Capitalist
B. Social Entrepreneur
C. Angel Investor
D. Franchisee
Correct Answer: B
Rationale: A social entrepreneur is distinct from a traditional
entrepreneur because their primary objective is to create social value, not just
economic profit. They often use market-based methods to address social issues. A
,VC or Angel Investor provides funding, while a franchisee operates under an
established brand.
3. Which of the following are key characteristics of an "entrepreneurial
mindset"? (SATA)
A. Risk aversion
B. Opportunity obsession
C. Tolerance for ambiguity
D. Reliance on established routines
E. Calculated risk-taking
Correct Answer: B, C, E
Rationale: The entrepreneurial mindset is characterized by a focus on
opportunities (B), the ability to remain productive in uncertain situations (C), and
the willingness to take calculated, not reckless, risks (E). Risk aversion (A) and
reliance on established routines (D) are characteristics of a more traditional,
administrative management style.
4. The term "lifestyle business" refers to:
A. A business that provides products for a healthy lifestyle.
B. A small business that is designed to support a specific lifestyle and income level
for its owner, rather than to achieve rapid growth or scale.
C. A business that is traded on a public stock exchange.
D. A temporary business set up for a specific event.
Correct Answer: B
Rationale: A lifestyle business is focused on the owner's personal goals,
such as location independence, work-life balance, or a certain income target. This
contrasts with a "growth-oriented" or "scalable" startup that seeks to expand
rapidly and maximize market share and profit.
5. What is the primary difference between an entrepreneur and a small business
owner?
A. Entrepreneurs are always younger than small business owners.
B. Small business owners are not innovative, while entrepreneurs are.
C. An entrepreneur seeks to create new markets or disrupt existing ones with
innovation, while a small business owner may operate a traditional business with
,less focus on growth and disruption.
D. Entrepreneurs are always funded by venture capital.
Correct Answer: C
Rationale: While the terms overlap, the key distinction is often innovation
and growth ambition. An entrepreneur is typically focused on innovation and
scalability, aiming to create something new. A small business owner, like a
restaurant owner or a plumber, may operate a successful and profitable business
without the goal of disrupting a market or achieving high-growth scale. The other
options are stereotypes or incorrect generalizations.
6. "Bootstrapping" a new venture means:
A. Building a company using only personal finances and revenue from the
business, without external investment.
B. Raising a large first round of venture capital.
C. Hiring a large team of experienced executives from day one.
D. Licensing a technology from a university.
Correct Answer: A
Rationale: Bootstrapping involves starting a company with minimal
capital, relying on personal savings, sweat equity, and early customer revenue to
fund operations. This allows the founder to maintain full control and ownership
but can limit the speed of growth.
7. The term "intrapreneurship" refers to:
A. The process of an employee leaving a company to start their own business.
B. A system where employees within a large organization act like entrepreneurs,
developing new products, services, and processes.
C. A type of business that operates between two industries.
D. The study of entrepreneurs.
Correct Answer: B
Rationale: Intrapreneurship (or corporate entrepreneurship) encourages
employees to use entrepreneurial skills within the safety and resources of a larger
organization. It's a way for companies to foster innovation and stay competitive.
, 8. Which of the following is NOT a typical trait of a successful entrepreneur?
A. Resilience
B. Adaptability
C. External Locus of Control
D. Passion for their business
Correct Answer: C
Rationale: An entrepreneur typically has an internal locus of control,
meaning they believe their actions and decisions directly influence outcomes. An
external locus of control is the belief that outcomes are determined by luck, fate,
or external forces, which is generally detrimental to entrepreneurial success.
9. A "serial entrepreneur" is someone who:
A. Starts and runs several businesses in the same industry.
B. Has failed at multiple businesses.
C. Habitually starts new ventures and businesses, often moving on after the
business is established or sold.
D. Only starts one business and runs it for their entire career.
Correct Answer: C
Rationale: A serial entrepreneur is characterized by their pattern of
repeatedly conceiving, launching, and building new businesses. They may stay
with a venture for a few years and then exit, moving on to their next idea.
10. What does "sweat equity" refer to?
A. The value of a company's physical assets.
B. An ownership stake in a company earned through hard work and effort instead
of a monetary investment.
C. The amount of debt a company has.
D. Money invested by friends and family.
Correct Answer: B
Rationale: Sweat equity is a non-monetary contribution to a startup.
Founders and early employees often receive equity in the company in exchange
for their time, skills, and effort, which is crucial when cash is limited.
Definitions, Study Guide, Practice Questions,
Answers & Exam Review
Chapter 1: Core Concepts & The Entrepreneurial Mindset
1. Which of the following best describes the concept of "creative destruction" as
coined by economist Joseph Schumpeter?
A. The process of a business failing and being replaced by a more innovative
competitor.
B. The elimination of creative jobs due to automation.
C. The process by which new innovations continually disrupt and replace
established industries and technologies, driving economic progress.
D. The destruction of a company's creative culture by rigid corporate policies.
Correct Answer: C
Rationale: Schumpeter's theory of creative destruction describes the
"process of industrial mutation that incessantly revolutionizes the economic
structure from within, incessantly destroying the old one, incessantly creating a
new one." It is a core concept in understanding how innovation drives long-term
economic growth. Option A is a symptom, but C describes the broader economic
mechanism.
2. An entrepreneur who starts a business with the primary goal of creating a
positive social or environmental impact, often reinvesting profits to further the
mission, is best described as a:
A. Venture Capitalist
B. Social Entrepreneur
C. Angel Investor
D. Franchisee
Correct Answer: B
Rationale: A social entrepreneur is distinct from a traditional
entrepreneur because their primary objective is to create social value, not just
economic profit. They often use market-based methods to address social issues. A
,VC or Angel Investor provides funding, while a franchisee operates under an
established brand.
3. Which of the following are key characteristics of an "entrepreneurial
mindset"? (SATA)
A. Risk aversion
B. Opportunity obsession
C. Tolerance for ambiguity
D. Reliance on established routines
E. Calculated risk-taking
Correct Answer: B, C, E
Rationale: The entrepreneurial mindset is characterized by a focus on
opportunities (B), the ability to remain productive in uncertain situations (C), and
the willingness to take calculated, not reckless, risks (E). Risk aversion (A) and
reliance on established routines (D) are characteristics of a more traditional,
administrative management style.
4. The term "lifestyle business" refers to:
A. A business that provides products for a healthy lifestyle.
B. A small business that is designed to support a specific lifestyle and income level
for its owner, rather than to achieve rapid growth or scale.
C. A business that is traded on a public stock exchange.
D. A temporary business set up for a specific event.
Correct Answer: B
Rationale: A lifestyle business is focused on the owner's personal goals,
such as location independence, work-life balance, or a certain income target. This
contrasts with a "growth-oriented" or "scalable" startup that seeks to expand
rapidly and maximize market share and profit.
5. What is the primary difference between an entrepreneur and a small business
owner?
A. Entrepreneurs are always younger than small business owners.
B. Small business owners are not innovative, while entrepreneurs are.
C. An entrepreneur seeks to create new markets or disrupt existing ones with
innovation, while a small business owner may operate a traditional business with
,less focus on growth and disruption.
D. Entrepreneurs are always funded by venture capital.
Correct Answer: C
Rationale: While the terms overlap, the key distinction is often innovation
and growth ambition. An entrepreneur is typically focused on innovation and
scalability, aiming to create something new. A small business owner, like a
restaurant owner or a plumber, may operate a successful and profitable business
without the goal of disrupting a market or achieving high-growth scale. The other
options are stereotypes or incorrect generalizations.
6. "Bootstrapping" a new venture means:
A. Building a company using only personal finances and revenue from the
business, without external investment.
B. Raising a large first round of venture capital.
C. Hiring a large team of experienced executives from day one.
D. Licensing a technology from a university.
Correct Answer: A
Rationale: Bootstrapping involves starting a company with minimal
capital, relying on personal savings, sweat equity, and early customer revenue to
fund operations. This allows the founder to maintain full control and ownership
but can limit the speed of growth.
7. The term "intrapreneurship" refers to:
A. The process of an employee leaving a company to start their own business.
B. A system where employees within a large organization act like entrepreneurs,
developing new products, services, and processes.
C. A type of business that operates between two industries.
D. The study of entrepreneurs.
Correct Answer: B
Rationale: Intrapreneurship (or corporate entrepreneurship) encourages
employees to use entrepreneurial skills within the safety and resources of a larger
organization. It's a way for companies to foster innovation and stay competitive.
, 8. Which of the following is NOT a typical trait of a successful entrepreneur?
A. Resilience
B. Adaptability
C. External Locus of Control
D. Passion for their business
Correct Answer: C
Rationale: An entrepreneur typically has an internal locus of control,
meaning they believe their actions and decisions directly influence outcomes. An
external locus of control is the belief that outcomes are determined by luck, fate,
or external forces, which is generally detrimental to entrepreneurial success.
9. A "serial entrepreneur" is someone who:
A. Starts and runs several businesses in the same industry.
B. Has failed at multiple businesses.
C. Habitually starts new ventures and businesses, often moving on after the
business is established or sold.
D. Only starts one business and runs it for their entire career.
Correct Answer: C
Rationale: A serial entrepreneur is characterized by their pattern of
repeatedly conceiving, launching, and building new businesses. They may stay
with a venture for a few years and then exit, moving on to their next idea.
10. What does "sweat equity" refer to?
A. The value of a company's physical assets.
B. An ownership stake in a company earned through hard work and effort instead
of a monetary investment.
C. The amount of debt a company has.
D. Money invested by friends and family.
Correct Answer: B
Rationale: Sweat equity is a non-monetary contribution to a startup.
Founders and early employees often receive equity in the company in exchange
for their time, skills, and effort, which is crucial when cash is limited.
