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Management Chapter 3 Notes.docx

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University of Toronto Scarborough
Management (MGT)
Chris Bovaird

Management Chapter 3 Notes The link among small business, new venture creation and entrepreneurship Approximately 380 new businesses are created in Canada each day. New firms create the most jobs. Small Business It is tricky to define a small business. The definition can include the number of people employed, the company’s revenue, the size of investment required, or the ownership structure of the business. Industry Canada says there are 2.2 million “business establishments” in Canada and about 2.5 million people are self-employed. The majority of businesses in Canada have no employees (just the owners) and are not incorporated. Approximately only 15% of people reported to be operating a business have incorporated their firm. Small Business – An owner-manages business with less than 100 employees. A business is considered new if it has become operational in the last 12 months, adopts the main organizational forms (proprietorship, partnership, corporation or co-operative) and if it ells goods or services. New venture/firm – A recently formed commercial organization that provides good and/or services for sale. 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. Small businesses are usually independently owned and influenced by unpredictable market forces. This results in an environment that promotes the use of personal attributes, such as creativity, that has come to be associated with entrepreneurs. Entrepreneurial characteristics aren’t only associated with small businesses, many managers of large organizations in both the public and private sectors also exhibit these characteristics. People who exhibit entrepreneurial characteristics and create something new within existing large firms/organizations are called intrapreneurs. Procter & Gamble is a firms is renowed for promoting intrapreneurship. The role of small and new businesses in the Canadian economy Small Businesses 98% of all businesses in Canada are small businesses (also true at provincial level). Ontario and Quebec contain 58% of all business establishments in Canada, Western Canada has 36% and the Atlantic Provinces contain 6%. Canada’s make up of businesses is essentially the same as the USA. Private Sector – The part of the economy that is made up of companies and organizations that are not owned or controlled by the government. Industry Canada estimates that small businesses’ contribution to Canada’s GPD is valued at 25%. New Ventures New firms are not only the main source of job creation, they are also responsible for the vast majority of new products and services. Between 1991 and 2003, the number of new firms in Canada grew by 12%. Most of the growth in firms occurred in services-producing sectors, with high knowledge industries nearly doubling (high-technology and biotechnology). There are now more than 800,000 women entrepreneurs in Canada, growing over 208% in the past 2 decades. New businesses lead the way when it comes to innovation and new technology. The Entrepreneurial Process Entrepreneurs need to be able to identify an opportunity and access resources. Identifying Opportunities Identifying opportunities involves generating ideas for new (or improved) products, processes, or services, screening those ideas so that the one that presents the best opportunity can be developed and then developing that opportunity. Idea Generation Most new ventures do not emerge from a deliberate search for viable business ideas, but rather, they originate from events relating to work or everyday life. Work experience accounts for 45-85% of ideas. As an employee, the prospective entrepreneur is familiar with the product or service, and the customers, suppliers, and competitors. They are always aware of the marketplace need, can relate those needs to personal capabilities and can determine whether they can fill that void or not. The next most frequent sources for venture ideas are from personal interest/hobbies and a chance happening (a situation where a venture idea comes about unexpectedly). Screening Entrepreneurs generate a lot of ideas, requiring them to screen their ideas to get rid of the “dead end” ideas. The more of the following characteristic an idea has, the greater the opportunity it has: Creates or adds value for the customer – A product or service that solves a significant problem or meets a significant need in new or different ways. Provides a competitive advantage that can be sustained – A competitive advantage exits when potential customers see the product or service as better than that of competitors. Idea is marketable and financially viable – Although it is important to determine whether there are enough customers who are willing to buy the product or service, it is also important to determine whether sales will lead to profits. The idea has low exit costs – Exit costs are low if a venture can be shut down without significant loss of time, money or reputation. If a venture is not expected to make a profit for a number of years, its exit costs are high since the project cannot be reasonably abandoned in the short run. Developing the opportunity As you weed out dead end ideas, you need to develop a business concept and an entry strategy. The business concept will often change from what was originally planned; some develop entirely new markets, products and sources of competitive advantage once the needs of the market and the economies of business are better understood. New ventures use one or more of these main three entry strategies: 1. They introduce a totally new product or service 2. They introduce a product or service that will compete directly with existing competitive offerings, but add a new twist 3. They franchise Franchise – An arrangement in which a buyer (franchisee) purchases the right to sell the product or service of the seller (franchiser) A business plan is required when trying to attract investors, trying to start a venture that is capital intensive or product development/operations is complex. 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 and financial details, and its managers’ skills and abilities. If market conditions are changing rapidly, benefits gained from extensive research and planning quickly disappear. If a product is highly innovative, market research is less valuable since the development of entirely new products involves creating needs and wants rather than responding to existing needs and w
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