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MGTA01H3 (337)

Chapter 3 Notes.doc

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University of Toronto Scarborough
Management (MGT)
Chris Bovaird

Chapter 3 Notes: Understanding Entrepreneurship, Small Business, and New Venture Creation SMALL BUSINESS • Small Business: An owner- managed business with less than 100 employees.  Hard to define  Measures of small business  # of employees  company’s sales revenue  size of investment required  type of ownership structure • Industry Canada : Responsible for small businesses • Gov’t relies on Business Register and Labour Force Survey.  Business register: Tracks businesses  To be included, it must have 1. at least 1 paid employee 2. annual sales rev of $30000+ 3. or be incorporated  Labour Force Survey: info from individuals to estimates employ and unemployment levels Self-employed: working owners of the business that is un/incorporated ex/ Work for themselves but don’t have a business (musicians) ex/ work without pay in a family business • Many self-employed people are not counted as a business in the register.  # of new firms are always underestimated The NEW VENTRUE/ FIRM Page | 1 • New venture/ Firm: Recently formed commercial organization that provides goods and services for sale.  If operated within the past 12 months  Adopted any organizational form (proprietorship, partnership etc.)  Sells goods or services ENTREPRENEURSHIP • Entrepreneurship: The process of identifying an opportunity in the marketplace and accessing the resources needed to capitalize on it. • Entrepreneurs: People who recognize and seize opportunities.  Creativity  Occurs everywhere, public/ private sector, small/ old firms etc • Intrapreneurs: People who create something new within an existing large firm/ organization  Don’t need to worry about resources because company will provide them unlike entrepreneurs ROLES OF SMALL AND NEW BUSINESSES IN CANADIAN ECONOMY • Small businesses:  98% of Canadian businesses are small  Huge % of small business have less than 5 employees  Accounts for 2/3 of employment in:  non-institutional health care, construction, services, food/ accommodations  Contribute 25% of GDP • Private Sector: The part of the economy that is made up of companies and organizations that are not owned or controlled by the government. • New Ventures: Page | 2  Main source of job creation  New products and services  Innovation and new technologies  Service-producing firms are growing FAST (esp high-knowledge industry such as IT, biotech etc)  Women play big role in the growth of new firms  Female entrepreneurs + self-employed are growing rapidly in the past 10 years • “New” business could have been operating for several years before it actually counts as “new”. THE ENTREPRENEURIAL PROCESS • Steps to start-up a new venture: 1. Being an entrepreneur (with entrepreneurial characteristics) 2. Identify a business opportunity 3. Access the resources needed to capitalize on it  If the “elements” above are matched, the business will most likely to become operational • The Entrepreneur characteristics  Behavioural – High energy level  Skills – Problem solving, Team building  Personality traits  High need for achievement (set goals for themselves)  internal locus of control (believe if they try hard, they will be able to change)  risk tolerance (view risk as desirable) + self confident  Demographic traits:  Pulled: children of entrepreneurs  Pushed: immigrants/ children of immigrants  Older than average worker Page | 3  Doers not thinker  Women are better risk manager = less likely to fail • Identifying Opportunities  Idea Generation 1. New way of thinking/ seeing things (aka abandon traditional assumptions) 2. Could be new/ improved products, services or processes 3. Sources of ideas: from work exp. and everyday life, personal interest/ hobby and a chance happening  People are usually familiar with the environment/ market, and are able to spot the need  A Chance Happening: situation where a venture idea comes about unexpectedly • Screening the Ideas  The faster you screen out ideas, the more time and devotion for other ideas  If the idea has more characteristics than just an idea, it’s a greater opportunity  Types of Ideas: 1. Creates or adds value for the customer  Products or services that solve problems or meet a need in a new/ different way 2. Provides a competitive advantage that can be sustained  Competitive advantage: when potential customers see the product or service as better than others  The idea has be to better than the competitors and that you can sustain this idea/ business 3. Marketable and financially viable  Whether there are enough customers to buy the products/ service to make a profit  Need to estimate the market demand Page | 4  Who the customers are, what their needs are, what products/ services will satisfy them better than others  Entrepreneur needs to prepare a sales forecast  Sales forecast: An estimate of how much of a product or service will be purchased by prospective customers over a specific period.  The foundation for determining the financial viability and the resources needed  Total revenue = estimated sold units x selling $  Determining financial viability:  Prepare financial forecast : 2-3 years projections of a venture’s future financial position and performance  It has estimated start-up cost, cash budget, income statement and balance sheet  Cash budget: forecasts the cash receipts and cash disbursements of the business  Income statement: shows net earnings or net loss  Balance sheets: shows what the business owns (assets), owes (liabilities) and owner’s equity  They serve as the basis for decisions regarding whether to proceed with the venture and what financial help is needed in the future 4. Has low exit cost  Low if the venture can be closed down without losing much time, money or reputation  If the venture can’t make much profit for years, then its exit costs are HIGH  can’t abandon it in short run  If the venture can make profits quickly, then exit costs are low • Develop the Opportunity  Purpose of the business and strategy needs to be developed Page | 5  Business concepts usually change  different from original goals once the ideas start developing  New market, products etc  Important to response to new info and keep an eye for new opportunities  3 main entry strategies  Brand new products/ services  Improved products/ services  Franchise: an arrangement in which a buyer (franchisee) purchases the right to sell the product or service of the seller (franchiser).  If it requires lots of capitals or the product development is complex, research is required  Business plan: A document that describes the entrepreneur’s proposed business venture; explains why it is an opportunity; and outlines its marketing plan, its operational
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