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Chapter 3

Chapter 3 notes (What I used to study for final)

Management (MGT)
Course Code
Chris Bovaird

of 3
Chapter 3
Small business: an owner-managed business with less than 100 employees
you are self-employed if you run your own business, work for yourself (musician) or work
without pay in a family business
New venture/firm: a recently formed commercial organization that provides goods and/or
services for sale (must have been formed within the last 12 months, follow one of the main
organizational methods, and sells a good/service)
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
Intrapreneurs: people who exhibit entrepreneurial characteristics and create something new in an
existing organization (dont have to worry about resources, because they are already provided)
Private sector: part of the economy that is made up of organizations that are not owned or
controlled by the government
New ventures:
responsible for the vast majority of new products and services
between 1991 and 2003, th number of businesses grew on average 9300/year
Identifying opportunities:
1) generating ideas for new (or improved) products, processes or services
2) screening so that the one that presents the best opportunity can be developed
3) developing the opp
Idea generation:
abandoning conventional assumptions
if is profitable opportunity
come from everyday life
personal interests/hobbies or chance happenings
Screening: the fasted you can weed out dead end opportunities, the more time you can devote to
ones that remain
Factors of idea:
1) the idea creates or adds value for the customer
2) Provides a competitive advantage that can be sustained
3) The idea is marketable and financially viable
4) Has low exit costs
Developing the opportunity –
develop new markets, products and sources of competitive advantage once the needs of
the marketplace and economy are better understood
business either: offer a new product, offer an existing product with a twist, or franchize
Franchise: an arrangement in which a buyer purchases the right to sell the product or service of
the seller
Business plan: a document that describes the entrepreneurs proposed business venture; explains
why it is an opportunity and outlines its marketing plan, its operational and financial details and
its managerial skills and details
Accessing resources
entrepreneurs try to use as few resources as they can and try to use other peoples
resources as much as they can
Financial resources
1) debt: borrowing money in hopes of a profitable return
2) equity: investing money in a business for an ownership interest
to service loans, a business must have adequate equity investment (20%) and collateral
Collateral: Assets that a borrower uses to secure a loan or other credit, and that are subject to
seizure by the lender if the loan isnt repaid according to the employment terms
Common sources of debt financing –
1) financial institutions
difficult for small businesses to receive a loan from a bank
usually given a personal loan rather than a business loan
other ex: credit unions, co-operatives, finanace companies, etc.
2) suppliers
provide goods and them bill them later
30 days is the usual pay-back period
Common equity financing:
1) personal saving
2) love money: investments from friends, family and associates
3) private investors: wealthy entrepreneurs looking to invest
4) venture capitalist: professionally managed pools of investor’s money
ways to start up a new business:
1) buying an existing business
2) taking over a family business
3) buying a franchise
Franchise agreement: states the duties and responsibilities between a franchiser and a a
hardwork, drive, education
market demand for the product or service
managerial competence
managerial incompetence
weak control system
insufficient capital