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Lecture

Chapter 3 notes.docx

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Department
Management (MGT)
Course
MGTA01H3
Professor
Chris Bovaird
Semester
Fall

Description
MGTA03 Chapter 3 – Understanding Entrepreneurship, Small Business, and New Venture Creation Small Business - Industry Canada is the main federal government agency responsible for small businesses - In small business statistics, the government relies on two sources 1. The Business Register  Tracks businesses  To be included in the register, a business must have one paid employee, annual sales revenue of $30 000 or more, or be incorporated  Goods-producing business is considered small if it has less than 100 employees, whereas a service-producing business is small if it has less than 50 employees 2. The Labour Force Survey  Tracks individuals  Uses information from individuals to make estimates of employment and unemployment levels - Individuals are self-employed if they: a) are working owners of a business that is either incorporated or unincorporated b) work for themselves but do not have a business c) work without pay in a family business - unincorporated business operated by a self-employed person would not be counted among the 2.2 million business register - Small business: owner-managed business with less than 100 employees The New Venture/Firm - When a new firm comes into existence, there are three most common criteria: 1. When it was formed 2. Whether it was incorporated 3. If it sold goods and/or services - A business is considered new if it has become operational within the previous 12 months - New venture/firm: recently formed commercial organization that provides goods and/or services for sale Entrepreneurship - Entrepreneurship: the process of identifying an opportunity in the marketplace and accessing the resources needed to capitalize on that opportunity - Entrepreneurs: people who recognize and seize opportunities - small businesses are usually independently owned and influenced by unpredictable market forces, which provide an environment to use personal attributes like creativity MGTA03 - Intrapreneurs: people who exhibit entrepreneurial characteristics and create something new within an existing large firm or organization - A key difference between intrapreneurs and entrepreneurs is that intrapreneurs typically don’t have to concern themselves with getting the resources needed to bring the new product to market since their employer provides the resources Small Businesses - Prior to the 1980’s, large businesses were the focus of attention in terms of economic impact with industrialized nations - Approximately 58% of all business establishments in Canada are located in Canada and Quebec - Majority of small businesses have fewer than 5 employees - According to Stats Canada, there were 10 317 481 private sector employees in 2005 - Private sector: part of the economy that is made up of companies and organizations that are not owned or controlled by the government - The distribution of employment by size of firm varies considerably across industries - Small businesses account for over two third of employment n four industries: a) Non-institutional health care (90%) b) Construction industry (77%) c) Other services (73%) d) Accommodation and food (69%) New Ventures - The number of firms in Canada grew 12% between 1991 and 2003 - Alberta led in growth with 38%, BC and Ontario followed with 20% and 14% - Most of the growth in firms occurred in the services-producing sector - Between 1991 and 2003, the number of businesses grew by an average of 9300 each year with 8800 of these small and medium sized enterprises - There are now more than 800 000 women entrepreneurs in Canada, and the number has been increasing by more than 3% each year in recent years - Over the past 2 decades the number of female entrepreneurs has grown by 208% compared with just a 38% increase for men - Between 1991 and 2001, self-employment among women increased by 43% as compared with an increase in 21% among men - Government statistics on new ventures exclude businesses without employees - Unincorporated business operated by a self-employment person would not be included in Stats Canada Business Register The Entrepreneurial Process - Entrepreneurial process consists of 3 key points: a) The entrepreneur b) The opportunity MGTA03 c) Resources - If the process elements are well-matched, the new business venture will likely become operational - After start-up, the ventures next phase of development will result in one of the following outcomes: a) Growth b) Stability (staying the same) c) Decline d) Demise (ceasing to exist) The Entrepreneur - Personal characteristics often have less impact on a persons actions that the situation the person is in - Two main things that entrepreneurs need to do: a) Identify an opportunity b) Access resources Identifying Opportunities - Involves generating ideas for new or improved products, processes, or services so that the one that presents the best opportunity can be developed  Idea Generation  If the prospective new or improved product, process, or services can be profitably produced and is attractive relate to other potential venture ideas, it might present an opportunity  Work experience is the most common source of ideas, accounting for 45-85% of those generated  One is aware of the marketplace needs, can relate those needs to personal capabilities, and can determine whether he or she is capable of producing products or services that can fill the void  The next most frequent sources of venture ideas are a personal interest/hobby (16%) and a chance happening (11%)  Screening - The Idea Creates or Adds Value for the Customer  A product or serve that creates or adds value for the customer is one that solves a significant problem, or meets a significant need in new or different ways - The Idea Provides a Competitive Advantage that Can Be Sustained  A competitive advantage exists when potential customers see the product or service as better than that of competitors  All other things being equal, the longer markets are in a state of flux, the greater the likelihood of being able to sustain a competitive advantage - The Idea is Marketable and Financially Viable MGTA03  Estimating the market demand requires an initial understanding of how the customers are, what their needs are, and how the product or service will satisfy their needs better than competitors products will  Sales forecast: an estimate of how much of a product or service will be purchased by the prospective customers for a specific period of time, typically 1 year.  Total sales revenue is estimated by multiplying the units expected to be sold by the selling price  Determining financial viability consists of an estimate of a) start up costs b) a cash budget – forecasts the cash receipts and cash disbursements of the business c) an income statement – shows the profit or loss d) balance sheet – shows the assets (what the business owns), liabilities (what is owed), and the owners equity (owners investment, including any profits that the business retains) - The Idea Has Low Exit Costs  Exit costs are low if a venture can be shut down without a significant loss of time, money, or reputation  If a ve
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