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Indian Institute of Technology Kharagpur

Entrepreneurship Essentials
Assignment- Week 2
TYPE OF QUESTION: MCQ/MSQ
Number of questions: 10 Total mark: 10 X 1 = 10
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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 need not hail from business families.

Correct Answer: b

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Detailed Solution:

Dhirubhai identified opportunities in adversities and in the process, created wealth for his
company. In the 60s, India’s foreign exchange reserves were very low. Import was allowed only
for essential items. Alternately, one could import using the foreign exchange earned through
export. Many businessmen who were dependent on imported goods but did not earn foreign
exchange went out of business. Dhirubhai could identify opportunity under such adverse situation.
Dhirubhai exported rayon to contacts in Aden at a loss to earn foreign exchange and imported
synthetic fiber to sell in India almost like a monopolist. However, there is no data showing serious
philanthropic activities of Dhirubhai.

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QUESTION 2:
Which of the following is correct from the points of view of the five forces of competition espoused by
Porter?

a. Competitive rivalry refers to the competition faced by a company from the existing
businesses in the marketplace where it operates or plans to operate.

b. Buyers’ power is the power exerted by the vendors from where the company buys its inputs.
c. The threat of substitution is the danger when a company tries to substitute its existing
products with similar other new products.
d. The threat of new entry is the fear a new entrant feels while entering into a new market.

Correct Answer: a
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Detailed solution
The five forces of competition espoused by Porter are Competitive rivalry, supplier power, buyer
power, the threat of substitution, the threat of new entrants.

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QUESTION 3:
Which of the following does not directly add any competitive advantage? In other words, out of the
following, which will not help gain a competitive advantage?

a. Innovative technology and create a moat around the business.

b. Engaging growth hackers to bring many times more crowd to our website than existing
numbers.
c. Building brand by acquiring an increasing number of loyal customers with higher satisfaction
and gaining pricing power
d. Distribution channel and ready availability of the product with easy access so that customers
find it easy to identify and purchase the product or services being offered.
Answer: b

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Detailed solution
A startup may gain a competitive advantage through innovative technologies by efficient cost
management to competitively price the product, acquire loyal followers of the brand through
building trust, distribution channel & market access, and core competency that give unique
strength. However, increasing visitors to the website does not necessarily add competitive
advantages. It may increase footfall or increase the number of people visiting the website but may
not enhance 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
fails backward, it would be difficult to find support.
b. It means that one should not give up after failure, but rather try again.
c. It means to preempt the failure before it happens so that one can take measures not to fail
at all.
d. It means to fail slowly to get time to move forward and make progress so that one can get
enough time to take corrective measures and avoid failing.

Answer: b

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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. He did not mean to say ‘fail often’, he actually wanted to convey to avoid to fail often as
it is difficult to sustain.
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c. He wanted to mean that failure is a part of the entrepreneurial journey and unless you fail
you may not get matured. Since failure in inevitable, startups should fail quickly to
complete this cycle so that they eventually meet success.
d. One should keep experimenting and be ready to fail frequently as it would give new
experiences and one can explore many opportunities to identify a good one.

Answer: d

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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.
How to avoid failure that happens because enough customers do not want to buy the
product/service the startups offer. Which of the following is the best option as per the lectures
delivered?
a. The startups should advertise so that more people come to know about the offering and
buy.
b. The startups should make efforts to raise more money to do research and improve the
quality of the product.
c. Startups should reduce the price of their products or services.
d. All startups should follow a validated learning process to build products and services.
Answer: d
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Detailed solution
About 42% of the failures occur because customers are not interested in the startups' products or
services. This is because they build products or services relying purely on their perception of
customers’ aspirations and needs. What they should rather be doing is to get their idea and MVP
validated early on before committing huge sums and the process should continue until going to
market.
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QUESTION 7:
What Irridium should have done before launching full commercial operation? Choose the most
impactful option.
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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 the price
of their products.
c. They should have engaged in more R&D to innovate appropriate technologies that would
make the product and service suitable to the customers.
d. They should have taken customers’ feedback to know whether they are ready to buy their
products or services and then decide whether to move ahead.
Correct answer: d
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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.
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QUESTION 8:
Which of the following will contribute the most to creating an entry barrier?

a. Product diversification.
b. Advertisement to create awareness so that prospective customers may know that
your products are available helping you to acquire a majority of the customers.
c. Ensuring top quality and giving customers maximum satisfaction through services
to build a loyal customer base.
d. Invest more money in marketing so that the majority of the customers become
loyal to the company’s product or service and very few of them remain available
to new entrants.

Correct Answer: c
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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 a large customer base. Though other options may help create some
competitive advantages for the company, the real entry barrier can be created by creating trust
among customers by offering quality products and giving top-class service to them so that it
becomes difficult to snatch your customers and enter into the market.
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Question 9
Three co-founders, A, B and C, have started a new venture with 50:30:20 percent ownerships. A,
B, and C have invested Rs. 5,00,000 Rs. 3,00,000, and Rs. 2,00,000 in the venture. Assume that
all the three partners have personal assets of ₹10,00,000 each. Suppose at one point in time, the
company has a loan outstanding of ₹20,00,000 and it becomes bankrupt. The value of all the assets
of the company is ₹10,00,000, meaning that the bank can recover Rs. 10,00,000 by selling the
assets of the company. How much the three co-founders will have to pay to the bank in case the
venture is a PRIVATE LIMITED COMPANY.
a. A, B, and C will pay Rs. 5,00,000, Rs. 3,00,000, and Rs. 2,00,000 respectively and the
remaining Rs. 10,00,000 will come from the sale of the assets of the company.
b. The bank will recover Rs. 10,00,000 by selling the assets of the company and will not be
able to recover any amount from the cofounders. The remaining amount of ₹10,00,000
will remain unpaid and the bank has to write it off.
c. All A, B, and C will pay Rs. 3,33,333 each and ₹10,00,000 shall be recovered by selling
the assets of the company.
d. A shall pay ₹7,50,000 and B shall also pay ₹7,50,000 by arranging ₹ 2,50,000 from some
source, and the remaining Rs. 10,00,000 shall come from the sale of the assets of the
company.
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 and the company
may sell all its assets to meet outside liabilities. If anything is left after meeting all liabilities 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, B, and C will not have to pay
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anything from their own source. Whatever will be available by selling the assets of the company
will only be paid to the bank and the bank has to write off the remaining amount.
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Question 10
Two co-founders, A and B, have started a new venture with 50:50 ownerships. Both A and B have
invested 5,00,000 each. Whereas, A has personal wealth of ₹5,00,000, B has personal wealth of
₹10,00,000. Suppose at one point in time, the company has a loan outstanding of ₹25,00,000 and
it becomes bankrupt. The value of all the assets of the company is ₹5,00,000. How much the bank
can recover through a court decree if the venture is a PARTNERSHIP FIRM.
a) A will pay ₹5,00,000 and B will pay ₹10,00,000 out of their personal assets and the
remaining Rs. 5,00,000 will come from the sale of the assets of the company. The
remaining Rs. 5,00,000 will remain unpaid which the bank will have to write off.
b) A and B will pay nothing from their personal assets and ₹5,00,000 will be recovered by
selling the assets of the company. Rest of the money will remain unpaid which the bank
will have to write off.
c) Since both have 50% ownership, they will pay equal sums, i.e. B shall pay ₹10,00,000 and
A shall also pay ₹10,00,000 by arranging ₹ 5,00,000 from some source, and the remaining
Rs. 5,00,000 shall come from the sale of the assets of the company.
d) Since it’s a 50:50 venture, A will pay a maximum of ₹5,00,000 and B will also pay
₹5,00,000 out of their personal assets and Rs. 5,00,000 will come from the sale of the
assets of the company. The remaining loan amount, i.e. Rs. 10,00,000 will remain
outstanding which the bank will have to write off.
Answer: a
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Detailed solution
The liability of any founder of any proprietorship and partnership firm is unlimited, i.e. the
outstanding liabilities are to be paid by selling company assets and any shortfall has to be paid
from personal sources. Therefore, the bank will recover ₹5,00,000 by selling company assets and
recover the remaining amount by selling the partners’ personal assets. The bank will recover Rs.
5,00,000 from A and Rs. 10,00,000 from B.
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