Textbook Notes (368,317)
Canada (161,798)
RSM100Y1 (431)
John Oesch (214)
Chapter 4

Textbook Summary Chapter 4 Concise information on chapter 4 of the textbook.

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Rotman Commerce
John Oesch

RSM 100 Y1 Chapter 4 Small Business, New Venture Creation, and Entrepreneurship Small Business Defining a small business is difficult. Measured through the number of people the business employs, sale’s revenue, required investment or type of ownership. Industry Canada uses Business Register (tracks businesses) and Labor Force Survey (tracks individuals). Businesses must have at least 1 paid employee and an annual revenue of at least $30,000 or incorporated. Considered small if less than 100 employees for GOODS and less than 50 for SERVICES. For our purposes, SMALL BUSINESS is a owner-managed business with LESS THAN 100 employees. The New Venture/Firm A recently formed commercial organization that provides goods and services for sale. Entrepreneurship The process of identifying an opportunity in the marketplace and accessing the resources needed to capitalize on that opportunity. Entrepreneurs are the people who do just that. Examples include MARK ZUCKERBERG (FACEBOOK). Creativity is an important attribute. INTRAPRENEURING is entrepreneurship within a large-business structure with the innovation and flexibility of a small business. The Role of Small and New Businesses in the Canadian Economy Role of Small Businesses 1. Provides jobs 2. Leads in innovation and new technology New Ventures 1. Job creation 2. New products and services 3. Women entrepreneurs becoming increasingly popular: Mompreneur The Entrepreneurial Process The process is a journey to starting up a new venture. The entrepreneur must first find an opportunity and then access the resources needed to capitalize on it. There will be social, economic, political and technological factors that will have an influence. There are three elements to the process: 1. Entrepreneur There are behavioral, personality and skill characteristics common among entrepreneurs. The most important aspect is not WHO the PERSON IS, but WHAT the PERSON DOES. 2. Identifying Opportunities Generation of ideas for new products and services then screening them to ensure that the best opportunity can be developed. Finally, actually developing this opportunity. a) Idea Generation Abandoning traditional assumptions and how others do things. Ideas come from previous jobs and how to improve upon them. Ideas also come from personal interest/hobbies and chance. b) Screening When many ideas are proposed, ideas need to be screened so that “dead-ends” can be identified and more focus on profitable products is given. The more of the 4 characteristics the idea has, the greater the opportunity: 1. Idea Creates or Adds Value for Customer 2. Idea Provides Competitive Advantage that can be Sustained When customers see the product or service as better than that of competitors. 3. Idea is Marketable and Financially Viable Will the sales lead to profits? Estimating demand required understanding of potential customers, their needs and how the product or service will satisfy their needs better than the competitors. A sales forecast will need to be prepared after the research to determine the financial viability of the venture and the resources needed to start it. 4. Idea has Low Exit Costs The costs in terms of time, money and reputation that are incurred when a business shuts down. This needs to be kept low. c) Developing the Opportunity Once all dead-ends have been screened out, a business concept and an entry strategy need to be developed. Businesses may, at this point, change their initial product or service plans as they now have more information on the market and the customer demands. To make these adjustments, ventures may: 1. Introduce an entirely new product 2. Introduce a product that will compete with existing competitors but add a new twist 3. Franchise: An arrangement in which a buyer purchases the right to sell the product of the seller. 4. A business plan needs to be formed, detailing the venture, opportunity and its marketing plan in order to attract investors. 3. Accessing Resources a) Bootstrapping: The financing technique to make do with as few resources as possible and using other people’s resources wherever they can. b) Financial Resources 1. Debt Financing: Borrowing Money 2. Equity Financing: Investment made by entrepreneurs in return for an ownership interest. They come from PERSONAL SAVINGS, LOVE MONEY (investments from friends and family), VENTURE CAPITALISTS (loaning of money to new ventures in return for a share of ownership of the business) and PRIVATE INVESTORS (Angels). Collateral refers to items owned by the business or by the individual that the borrower of money uses to secure loans. If the loans are not paid back, the lenders can keep these items. This is attractive to lenders as it shows commitment by the borrowers. c) Other Resources Partners Employees Customers Suppliers Professionals Consultants Government Agencies Lenders Shareholders Venture Capitalists Should ownership be shared among these stakeholders? Whether it needs to share ownership depends on: 1. Size and Scope of the Venture: How many people does the venture require? 2. Personal Competencies: What are the talents, skills, contacts and resources that the entrepreneur brings to the venture? 3. Assessing the “Fit” Between Elements in the Entrepreneurial Process a) The Entrepreneur – Opportunity Fit Is the opportunity something the entrepreneur WANTS and CAN do? With limited interest, it will not go well. b) The Opportunity – Resources Fit Can the resources needed to capitalize on the opportunity be ACQUIRED? c) The Entrepreneur – Resources Fit Does the entrepreneur have the CAPACITY to meet the REQUIREMENTS? After the Start-Up 1. Starting Up A Small Business Not only can we start business from scratch but there are two other possibilities. a) Buy an Already Existing Business Odds of success are better as it has already proven its ABILITY to ATTRACT CUSTOMERS. It has also ESTABLISHED RELATIONSHIPS with LENDERS, SUPPLIERS and other STAKEHOLDERS. However, there may already be a poor reputation and/or location. 1. Taking Over a Family Business Positives are: i) Provides other unobtainable financial and management resources. ii) Strong reputation and goodwill. iii) Employee loyalty is high. Negatives
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