Bus201 Chapter 4.doc

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Chapter 4
Entrepreneurship, Small Business, and New Venture Creation
Small Business
Measures of a small business: the number of people, the business employs, the company’s sales
revenue, the size of the investment required, or the type of ownership structure the business has
Industry Canada is the main federal government agency responsible for small business
The government relies on two distance information for Canadian small business statistics : the
Business Register (tracks businesses) and the Labour Force Survey (which tracks individuals)
to be included in the register : at least one paid employee, annual sales rev. $30,000 or more,
incorporated
goodsproducing business in the Register is considered small if it has fewer than 100 employees
serviceproducing business is considered small if it has fewer than 50 employees
Labour Force Survey uses information from individuals to make estimates of employment and
unemployment rate
Industry Canada reports that there are 2.3 million “business establishments” in Canada and about
2.6 million people who are “self-employed.”
an unincorporated business operated by a self-employed person would not be counted among the
2.3 million businesses in the Register because the majority of businesses in Canada have no
employees nor are they incorporated
nascent entrepreneurs: people who were trying to start a business
over four years, only 15% of those who reported establishing an operating business had
incorporated their firm
small business: owner-managed business with less than 100 employees
Industry Canada estimates the percentage of small business’s contribution to Canada’s GDP over
the past decade at 26 percent annually
Queen’s Centre for Business Venturing develops a ranking of the top 50 small and medium sized
employers to work for (superior employee recognition, managing performance, career
opportunities, and organizational reputation)
The New Venture/Firm
oDetermine when a new firm comes into existence: incorporated, sold goods and or services, when
it was formed
oNew Venture – a recently formed commercial organization that provides goods and/or services
for sale
Entrepreneurship
oEntrepreneurship: process of identifying an opportunity in the marketplace and accessing the
resources needed to capitalize on it
opeople start new businesses b/c they want to control their own destiny and prefer to take a chance
rather than looking for a secure job
oEntrepreneurs: a business person who accepts both the risks and the opportunities involved in
creating and operating a new business venture
oHeritage Foundation publishes an index of economic freedom (helps the extent to which
entrepreneurs have freedom to pursue new business opportunities)
otop three countries 2010: Hong Kong, Singapore, and Australia
osmall businesses often provide an environment to use personal attributes (creativity) that have
come to be associated with entrepreneurs
oIntrapreneurs: People who create something new within an existing large firm or organization
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oDifference 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
big companies tend to have the necessary resources already available
The Role of Small and New Businesses in the Canadian Economy
Small Businesses
o97.8% businesses in Canada are small and more than half of them have fewer than 5 employees
oMedium-sized businesses (100-499 employees) comprise 1.9% of employer businesses
oLarge-sized businesses (more than 500 employees) represent just 0.3%
osmall businesses provide more jobs than large businesses because it leads the way when it comes
to innovation and new technology
oAccording to Statistics Canada, there were 10901100 private sector employees in 2010
oPrivate Sector: part of the economy that is made up of companies and organizations that are not
owned or controlled by the government
oSmall businesses account for over 2/3 of employment in non-institutional health care (90%),
construction industry (77%), other services (73%) and accommodation and food (69%)
oanother five industries, at least half of the workforce is employed by small businesses
New Ventures
onew firms are not only the main source of job creation, they rae also responsible for the vast
majority of new products and services
owoman now account for half of all new businesses that are formed
o877000 women entrepreneurs in Canada, and 47% of small and medium sized enterprises have
some degree of female ownership
oHowever, women lead only 12% of the small-and medium-sized businesses that export goods and
services
oMompreneurs: women who run businesses from their homes
oThe Mompreneur Networking Group organizes seminars and publishes Mompreneur, a free
magazine that helps women who want to start a business
The Entrepreneurial Process
entrepreneurial process is influenced by the social, economic, political and technological factors
in the broader environment
three key process: entrepreneur, opportunity, and resources
Entrepreneur is at the heart of the entrepreneurial process: behavioural, personality traits, skills
Entrepreneurs must identify an opportunity and access resources
Identifying Opportunities
oinvolves generating ideas for new (or improved) products, processes, or services, screening those
ideas, and developing the best ones
Idea Generation
generating ideas involves abandoning traditional assumptions about how things work and how
they ought to be, and seeing what others do not
prospective new (or improved) product, process, or service can be profitably produced and is
attractive relative to other potential venture ideas, it might present an opportunity
majority originate from events relating to work or every life
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work experience is the most common source of ideas because as employees of a company,
prospective entrepreneurs are familiar with the product or service, the customers, the suppliers,
and the competitors
also aware of marketplace needs, can relate those needs to personal capabilities, and can
determine whether they are capable of producing products or services that can fill the void
frequent sources of new venture ideas: personal interest/hobby (16%) or a chance happening
(11%)
chance happening: a situation in which a venture idea comes about unexpectedly
Screening
the faster you can weed out the dead-end venture ideas, the more time and effort you can devote
to the ones that remain
The Idea Creates or Adds Value for the customer
a product or service 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
Ex. Sally Fox’s cross-breeding long fibre white cotton and short-fibre coloured cotton (envrt.
Friendly)
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
Ex. Cameron Piron developed a better cancer detection technology and received the Ontario
Government Innovation Award
sustaining a competitive advantage involves maintain it in the face of competitors’ actions or
changes int eh industry
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
absence of a competitive advantage or developing a competitive advantage that is not sustainable
constitutes two fatal flaws of many new ventures
The Idea is Marketable and Financially Viable
it is important to determine whether sales will lead to profits
estimating the market demand requires an initial understanding of who the customers are, what
their needs are, and how the product or service will satisfy their needs better than competitors’
products will
requires a thorough understanding of the key competitors who can provide similar products,
services, or benefits to the target customer
ex. 10 years ago few ppl thought that manufacturers of cell phones would be competitors of
camera
entrepreneur must prepare a sales forecast (an estimate of how much of a product or service will
be purchased by prospective customers over a specific period typically one year)
Total sales revenue is estimated by multiplying the units expected to be sold by the selling price
sales forecast forms the foundation for determining the financial viability of the venture and the
resources needed to start it
typically consist of an estimate of start up costs, a cash budget, an income statement, and a
balance sheet
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