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Chapter 3

Notes for Chapter 3 of Business, Vol. 1, 2e

Management (MGT)
Course Code
Chris Bovaird

of 5
MGTA03 โ€“ Business, Volume 1
R. Griffin, R. Ebert, F. Starke
Chapter 3 โ€“ Understanding Entrepreneurship, Small Business, and New Venture Creation
The Links Among Small Business, New Venture Creation, and Entrepreneurship
Small Business
-Industry Canada = federal government agency responsible for small business
-Small business stats rely on the Business Registrar (which tracks businesses) and
the Labour Force Survey (which tracks individuals)
-A business must have at least one paid employee, annual sales revenue โ‰ฅ $30,000,
or be incorporated to be included in the register
-Goods-producing business = small when it has <100 employees
-Service-producing business = small when it has <50 employees
-Only 15% of those who reported establishing an operating business had
incorporated their firm
-Small business: owner-managed business with less than 100 employees
New Venture/Firm
-A business is new if became operational within the previous 12 months, is any of the
main organizational forms (partnership, corporation, etc.), and if it sells goods/services
-The process of identifying an opportunity in the marketplace and accessing resources
needed to capitalize on it
-Entrepreneurs: creative people who recognize and seize opportunities
-Small businesses are often influenced by unpredictable market forces
-Intrapreneurs: people (with entrepreneurial characteristics) who create things in existing
firms or organizations; donโ€™t have to worry about obtaining the necessary resources for
their product because their employee provides them
-Starting a new business from scratch comes with uncertainty, ambiguity, and
The Role of Small and New Businesses in the Canadian Economy
Small Businesses
-๎€ 98% of Canadian businesses are small, the majority (57%) of which have <5
-Private sector: part of the economy that is made of companies and organizations that are
not owned/controlled by the government; includes >10 million employees, of which 49%
work for small businesses
-Small businesses account for 90-69% of employment in 4 industries (non-institutional
health care (90), construction (77), other (73), accommodation and food (69))
- Small businesses account for 25% of Canadaโ€™s GDP annually
New Ventures
-New firms are the main source of job creation and are responsible for the majority of new
products and services
onew firms lead the way in terms of innovation and new technology
-between 1991 and 2003, the number of businesses grew by an average of 9300/year, with
most of the growth occurring in the services-producing sector and most of the firms
being small-and medium-sized enterprises (SMEs)
-in the past 2 decades, the number of female entrepreneurs has grown 208% (compared to
38% for males) and there are now >800,000 women entrepreneurs in Canada
-new venture statistics exclude businesses without employees (i.e. unincorporated business
operated by self-employed person)
The Entrepreneurial Process
The Entrepreneur
-main things entrepreneurs need to do: identify opportunity and access resources
Identifying Opportunities
-identifying opportunities involves generating ideas for new, or improved, products,
processes, or services
oIdea Generation
๎€‚generating ideas involves abandoning traditional assumptions
๎€‚most common source of venture ideas = work experience (45-85%)
๎€‚next most frequent source = personal interest/hobby (16%), chance
happening (11%)
๎€‚the faster you weed out the โ€œdead-endโ€ 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/add value 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:
competitive advantage exists when potential customers see the product
or service as better than the competition, fatal flaws of a new venture;
absence of a competitive advantage or an unsustainable competitive
๎€‚The idea is marketable and financially viable: estimating market
demand (who are the customers, what do they need, how will the
product satisfy their needs better than competitors); consumers define
the competition in terms of who best satisfies their needs
โ€ขsales forecast: estimate of quantity of product/service will be
purchased by prospective customers over a period; forms the
foundation for determining the financial viability of the venture
and the needed resources
๎€‚The idea has low exit costs: exit costs are low if a business can be shut
down without significant loss of time, money, or reputation; if a
venture can make a profit quickly, exit costs will be lower
oDeveloping the Opportunity
๎€‚some new ventures develop entirely new markets, products, and
sources of competitive advantage when the businessโ€™ needs of the
marketplace and economy are understood
๎€‚important to be responsive to new information and to be aware of
unanticipated opportunities
๎€‚Main entry strategies:
โ€ขintroduce a totally new product/service
โ€ขintroduce a product/service to compete directly with the
โ€ขfranchise (: arrangement in which a buyer purchases the right to
sell the product/service of the seller)
๎€‚planning does not have to be completed before action is taken
Accessing Resources
-entrepreneurs make do with as few resources as possible and use othersโ€™ resources
whenever they can
oFinancial Resources