Typically managed by small groups such as husband-and-wife teams and c

Question

Typically managed by small groups such as husband-and-wife teams and characterized by insignificant growth opportunities, lifestyle businesses are far less attractive to outside investors than growth businesses are. Lifestyle businesses mostly expand their capital through debt financing as equity financing is much more difficult for them to attract. Even when equity financing is an option, it is mostly because of the investments made by family and friends in the business.

However, outside investors’ lack of relative interest does not indicate that such businesses are not profitable. All it means is that these companies do not necessarily have aspirations of rapid growth in revenue and as such their goals are indicative of their prime aim of sustaining a particular level of income that provides a basis to the founders of such companies to enjoy a particular lifestyle - hence the name, lifestyle business. In fact, in that sense, a lifestyle business doesn’t have to be small at all, either in revenue or employees.

Although lifestyle businesses do share some features with other types of businesses, their success is not dependent on the scalability of their business models, which is an important factor for many investor funded businesses including start-up companies typically founded by close family and friends. Also, the focus of the founders in investor funded businesses is on building the equity value of the company so that they can harvest their investment and labor through the sale of the company in the short term. Whereas, even when the equity value of a lifestyle company is modest, it can continue to provide very high salaries to the founders of the company who can choose to keep it running as long as they want to.   1 
 D 
 1. The author implies that which of the following statements about lifestyle businesses is true?

A. Mostly only these businesses are managed by small groups such as life partners.

B. The revenues of such businesses do not necessarily represent the aspirations of the founders of such businesses.

C. Debt financing and equity financing by insiders are the only options available to such businesses looking for capital.

D. In the short run, factors guiding the efforts of the founders of investor funded companies could differ from those of life-style businesses.

E. It is very rare for the founders of such businesses to sell them in the short term.

2 
 E 
 2. The author is primarily concerned with

A. describing how lifestyle businesses provide less hectic lifestyles for their founders.

B. explaining how difficult it is for lifestyle businesses to obtain capital from outside investors

C. suggesting how lifestyle businesses are concerned with matters not entirely dissimilar from other business types

D. advocating how lifestyle businesses are equally profitable as other businesses despite the limited interest by outside investors

E. explaining various features of lifestyle businesses while differentiating them from other business types

3 
 A 
 3. Which of the following is the function of the final paragraph in the passage?

A. To contrast lifestyle businesses from other business types.

B. To describe the similarities and dissimilarities between investor funded businesses and life-style businesses.

C. To indicate how most of the factors determining the success of a life-style business are internal and not external.

D. To discuss a feature of lifestyle businesses in detail.

E. To suggest how the efforts of lifestyle businesses differ from those of investor funded businesses in the short-run.

4 
 A 
 4. Which of the following would the author most likely agree with?

A. The potential for fast growth in revenues is not synonymous with overall profitability of a business.

B. Although lifestyle businesses are fundamentally different from investor funded businesses, most of their features are common with those of other types of businesses.

C. Lifestyle businesses are generally limited in their scale because of their founders' modest aspirations.

D. The fields entered by lifestyle businesses are generally not found profitable by other types of businesses such as those funded by investors.

E. For companies typically founded by friends and family, equity value is not a prime concern.

Nikhil · Accepted Answer

1. The author implies that which of the following statements about lifestyle businesses is true?

A. Mostly only these businesses are managed by small groups such as life partners.

Incorrect : Out of Scope

The passage states that LB are normally managed by such teams and not ONLY LB are.

B. The revenues of such businesses do not necessarily represent the aspirations of the founders of such businesses.

Incorrect : Out of Scope

In the second paragraph, the author states that these companies do not necessarily have aspiration rapid growth in revenue and that their goals are aligned with the aspiration of the founders to sustain a particular lifestyle. This choice picks up words from this portion and twists them to state something which is not stated or implied at all.

C. Debt financing and equity financing by insiders are the only options available to such businesses looking for capital.

Incorrect : Out of Scope

The passage states that these business mostly produce capital by debt financing and that equity financing in such businesses is mostly done by close family and friends. This by no means implies that there are no other available options. It is possible that these are the preferred ways to procure capital by such companies.

D. In the short run, factors guiding the efforts of the founders of investor funded companies could differ from those of life-style businesses.

Correct

The final two sentences of the passage lead to this inference. The founders of investor funded businesses are concerned with building the equity value of the company in order to sell it in the short run. However, that's not necessarily the case with lifestyle businesses.

E. It is very rare for the founders of such businesses to sell them in the short term.

Incorrect : Out of Scope

The final sentence says that the founders can choose to keep these businesses as long as they want to. It by no means indicates the probability of their selling it.

2. The author is primarily concerned with

A. describing how lifestyle businesses provide less hectic lifestyles for their founders.

Incorrect : Irrelevant

Nowhere in the passage does the author compare the lifestyles of the founders of lifestyle businesses with those of others.

B. explaining how difficult it is for lifestyle businesses to obtain capital from outside investors

Incorrect : Partial Scope

The author does mention in the first paragraph that such businesses are of less interest to outside investors but that is just a detail in the passage and does not form the main focus of the passage.

C. suggesting how lifestyle businesses are concerned with matters not entirely dissimilar from other business types

Incorrect : Irrelevant

If anything, the author dedicated more than a paragraph to differentiate between the key features of lifestyle businesses and others.

D. advocating how lifestyle businesses are equally profitable as other businesses despite the limited interest by outside investors

Incorrect : Irrelevant

The author does not compare the profitability of these businesses with others.

E. explaining various features of lifestyle businesses while differentiating them from other business types

Correct

This answer choices matches our pre-thinking and is the correct answer.

3. Which of the following is the function of the final paragraph in the passage?

A. To contrast lifestyle businesses from other business types.

Correct

This answer matches the summary we came up with and indeed represents the author's tone in the final paragraph. The author lists two features of such businesses while differentiating them with other business types.

B. To describe the similarities and dissimilarities between investor funded businesses and life-style businesses.

Incorrect : Partial Scope

The author does mention certain dissimilarities; however, no similarities between these two business types are discussed/mentioned.

C. To indicate how most of the factors determining the success of a life-style business are internal and not external.

Incorrect : Out of Scope

The author does not discuss the factors responsible for the success of these businesses.

D. To discuss a feature of lifestyle businesses in detail.

Incorrect : Irrelevant

The author doesn't discuss any feature of such businesses here. He/She describes two features while differentiating them from other business types.

E. To suggest how the efforts of lifestyle businesses differ from those of investor funded businesses in the short-run.

Incorrect : Partial scope

This aspect is touched on only in the final two sentences of the paragraph; hence, it does not cover the complete scope of the paragraph.

4. Which of the following would the author most likely agree with?

A. The potential for fast growth in revenues is not synonymous with overall profitability of a business.

Correct

The first two sentences of the second paragraph lead to this inference. The author suggests that these businesses are profitable despite the lack of aspirations for rapid growth.

B. Although lifestyle businesses are fundamentally different from investor funded businesses, most of their features are common with those of other types of businesses.

Incorrect : Out of Scope

The author does say in the first sentence of the final paragraph that these businesses share "some" common features with types of businesses but that does not give us any grounds to conclude that they share "most" features.

C. Lifestyle businesses are generally limited in their scale because of their founders' modest aspirations.

Incorrect : Opposite

In the last sentence of the second paragraph, the author distinctly states that In fact, in that sense, a lifestyle business doesn't have to be small at all, either in revenue or employees.
The author gives us no information to conclude that "generally" such businesses are small.

D. The fields entered by lifestyle businesses are generally not found profitable by other types of businesses such as those funded by investors.

Incorrect : Irrelevant

Nowhere has the author given any information about the kinds of fields entered by lifestyle businesses and those entered by other business types.

E. For companies typically founded by friends and family, equity value is not a prime concern.

Incorrect : Out of Scope

The author does not make any generalization regarding the relationship between equity value and the founders of the company.

hongg7 · Answer

Can anyone explain how answer B was eliminated in Question 1?

If anyone can explain, please provide the part of the passage which you used to eliminate it.

Thanks

Lowkya · Answer

B. The revenues of such businesses do not necessarily represent the aspirations of the founders of such businesses. 
Option B tells that revenues do not represent aspirations.
In the lines above tell us that they do not have aspirations of rapid growth because of which they aim for a sustainable level of income.
A sustainable level of income = their aspiration = revenue.

So, I think B is wrong.

TaN1213 · Answer

Nice Questions! 
May I know the source ?

Time : 7.2 minutes
Accuracy: 100 %

warrior1991 · Answer

The lifestyle business owners do not aspire to have  HIGH GROWTH  in their revenues because all they want to have is a particular amount of income.

B. The revenues of such businesses do not necessarily represent the aspirations of the founders of such businesses.

The revenues do represent the aspirations but the founders do not aspire for a HIGH GROWTH in Revenues .

Support to Option D can be found in last paragraph.

Press Kudos if you find this helpful!

aragonn · Answer

1. The author implies that which of the following statements about lifestyle businesses is true?

A. Mostly only these businesses are managed by small groups such as life partners. --- Typically vs Mostly
B. The revenues of such businesses do not necessarily represent the aspirations of the founders of such businesses. ---- no 
C. Debt financing and equity financing by insiders are the only options available to such businesses looking for capital. - no 
D. In the short run, factors guiding the efforts of the founders of investor funded companies could differ from those of life-style businesses. ---- yes
E. It is very rare for the founders of such businesses to sell them in the short term. ---- no
------------------------------------------

2. The author is primarily concerned with

E. explaining various features of lifestyle businesses while differentiating them from other business types ---- only this one make any sense.

------------------------------------------

3. Which of the following is the function of the final paragraph in the passage?

A. To contrast lifestyle businesses from other business types. ---- this is the only options

-----------------------------------------

4. Which of the following would the author most likely agree with?

A. The potential for fast growth in revenues is not synonymous with overall profitability of a business. ---- this is straight correct

Gmatprep550 · Answer

Hi  workout

For Question number 3 option B seems correct as

Passage mentions  "Although lifestyle businesses do share some features with other types of businesses"  Could you please advise if we need to ignore this part and why.

VerbalBot · Answer

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Typically managed by small groups such as husband-and-wife teams and c

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Typically managed by small groups such as husband-and-wife teams and c

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