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RSM100Y1 (431)
John Oesch (214)
Chapter

4_-_Understanding_Entrepreneurship,_Small_Business,_and_New_Venture_Creation.doc

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Department
Rotman Commerce
Course
RSM100Y1
Professor
John Oesch
Semester
Fall

Description
Understanding Entrepreneurship, Small Business, and New Venture Creation Small Business, New Venture Creation, and En- trepreneurship Small Business: An owner-managed business with fewer than 100 employees New Venture (or New Firm): A recently formed commercial organization that provides goods and/or services for sale Entrepreneurship: The process of identifying an opportunity in the marketplace and ac- cessing the resources needed to capitalize on that opportunity EntrepreneurL A business person who accepts both the risks and the opportunities in- volved in creating and operating a new business venture ‣ Creativity is an important personal attribute that has come to be associated with en- trepreneurs ‣ Small businesses provide a great environment to use creativity Intrapreneuring: Entrepreneurial characteristics that can create and maintain the innova- tion and flexibility of a small business environment within the confines of a large, bu- reaucratic structure ‣ A key difference between intrapreneurs and entrepreneurs is that intrapreneurs typi- cally don’t have to concern themselves with getting the resources needed to bring the new product to market, sine their employer provides the resources The Role of Small and New Businesses in the Canadi- an Economy Small Businesses ‣ 97.8% of all employer businesses in Canada are small, and more than half of these have fewer than 5 employees New Ventures ‣ An important source of job creation and for the introduction of new products and ser- vices ‣ Women are play a more prominent role than ever before in starting new ventures ‣ Women now account for half of all new businesses that are formed ‣ Women lead only 12% of the small and medium sized businesses that export goods and services The Entrepreneurial Process ‣ The entrepreneurial process is where the entrepreneur identifies a business opportu- nity and accesses the resources needed to capitalize on it The Entrepreneur ‣ What is important is not who the person is but what the person does Identifying Opportunities ‣ Involves generating ideas for new (or improved) products, processes, or services, then screening those ideas so that the one that presents the best opportunity can be de- veloped, and then developing the opportunity ‣ Generating ideas involves abandoning traditional assumptions about how things work and how they ought to be and involves seeing what others do not ‣ Screening involves weeding out the “dead-end” venture ideas to be able to spend more time on the ones that remain ‣ 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 ‣ A competitive advantage exists when potential customers see the product or service as being better than that of competitors ‣ Sustaining a competitive advantage involves maintaining it in the face of competitors’ actions or changes in the industry ‣ Estimating 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 Sales Forecast: An estimate of how much of a product or service will be purchased by the prospective customers for a specific period of time ‣ The sales forecast forms the foundation for determining the financial viability of the venture and the resources needed to start it Exit Costs: The costs in terms of time, money, and reputation that are incurred when a business shuts down ‣ New ventures use one or more entry strategy: 1. They introduce a new product or service 2. They introduce a product or service that will compete directly with existing com- petitive 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) Business Plan: A document that describes the entrepreneur’s proposed business ven- ture, explains why it is an opportunity, and outlines its marketing plan, its operational and financial details, and its managers’ skills and abilities Accessing Resources Bootstrapping: Financing techniques whereby entrepreneurs make do with as few re- sources as possible and use other people’s resources wherever they can, “doing more with less” ‣ Debt financing refers to money that is borrowed, the borrower is obliged to repay the full amount of the loan in addition to interest charges on the debt ‣ Equity financing refers to money that the entrepreneur (or others) invests in a busi- ness in return for an ownership interest ‣ Borrowing money increases the potential for higher rates of return to the entrepreneur when a business is performing well ‣ Equity makes it possible to reduce risk by giving up some control ‣ Debt provides more control which does not give up any control to outsiders Collateral: Items (assets) owned by the business (such as a building and equipment) or by the individual (such as a house or car) that the borrower uses to secure a loan or oth- er credit ‣ Whether a team is necessary depends on certain conditions: 1. The size and scope of the venture 2. Personal competencies ‣ The ideal team consists of people with complementary skills covering the key success areas for the business (e.g. Marketing, finance, and production) ‣ Quite common for the initial team to consist of just two people, a craftsperson and a salesperson Assessing the “Fit” Between Elements in the Entrepreneurial Process ‣ The entrepreneur needs to decide whether the opportunity is something they can do and wants to do, a realistic self-assessment is important ‣ Assessing the opportunity-resources fit involves determining whether the resources needs to capitalize on the opportunity can be acquired ‣ Once the resource requirements of the venture have been determined, the entrepre- neur needs to asses whether they have the capacity to meet those requirements After the Start-Up Starting Up a Small Business ‣ Many experts recommend buying an existing business because the odds of success are better ‣ Existing businesses have already proven its ability to attract customers, established relationships with lenders, suppliers, and other stakeholders, as well as an existing track record which gives potential buys a much clearer picture of what to expect ‣ Franchising accounts for 43% of retail sales in Canada Franchising Agreement: Outlines the duties and responsibilities of the franchiser and the franchisee Benefits of Franchising For the Franchiser For the Franchisee ‣ Can attain rapid growth for the chain by signing up anOwn a small business that has access to big business man- chises in many different locations agement skills ‣ Franchisees share in the cost of advertising ‣ Does not have to build up a business from scratch ‣ Investment money provided by the franchisees ‣ Failure rates are lower than those who start their own busi- ‣ Advertising money is spent more efficiently ness ‣ Franchisees are motivated to work hard for themselves;Well-advertised brand name comes with the franchise, fran- more revenue the franchisee makes, the more money the chisee’s outlet is recognizable chiser makes ‣ Get lower prices for the raw materials they must purchase ‣ Franchiser is freed from all details of local operatioFinancial assistance provided by the franchiser in the form are handled by the franchisee of loans Forms of Business Ownership The Sole Proprietorship Sole Proprietorship: A business owned
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