BUSN 1200 - Chapter 4 PDF

Preview

Summary

BUSN 1200 Chapter 4 Entrepreneurship, Small Business, and New Venture Creation Small Business, New Venture Creation, and Entrepreneurship: Small Business business with fewer than 100 employees definitions key factor it is not dominant in its industry markets are often local but not necessarily so ma...

Description

BUSN 1200 Chapter 4 - Entrepreneurship, Small Business, and New Venture Creation Small Business, New Venture Creation, and Entrepreneurship: • Small Business – owner-managed business with fewer than 100 employees § definitions vary; § key factor – it is not dominant in its industry § markets are often local but not necessarily so § make up the majority of businesses in Canada (about 95%) • New Venture - recently formed organization, opened within the last 12 months, that sells goods or services • Entrepreneurship - process of identifying and capitalizing on a marketplace opportunity • Entrepreneur - person who recognizes and seizes opportunities • Intrapreneurs - create something new within an existing large organization

Small Businesses: • Employees often prefer working for smaller businesses as they get a greater “family feel” sense • Small businesses can be relatively cheap to start up, especially in services industry • Small businesses are often quicker to cut jobs in a bad economy than larger companies due to limited resources • Many products produced by large companies are sold to consumers through small businesses (e.g.: groceries) • Can be as innovative as larger companies. Often sell their ideas to corporations for mass production • Small businesses dominate in certain industries, such as construction and retail but are less prevalent in manufacturing industries.

• • • •

On average, 13% - 15% of small businesses fail every year About 50% will fail in 3 years About 75% will fail by its 10th year Average life span of a small business is 7.25 years.

The Entrepreneurial Process:



Identifying Opportunities o Idea Generation





o Screening o Developing the Opportunity Assessing Resources o Financial Resources o Other Resources § Business Development Bank of Canada (BDC) § Incubators - Facilities that support small businesses during their early growth phase by providing basic services, office space, legal advice, and more. § The Internet Assessing the Fit Between Elements In The Entrepreneurial Process o The Entrepreneur-Opportunity Fit o The Opportunity-Resources Fit o The Entrepreneur-Resources Fit

Parts of a Well-Designed Business Plan:  Cover Page  Executive Summary  Table of Contents  Company Description  Product or Service Description  Marketing  Operating Plan  Management  Financial Plan  Supporting Details/Appendix Starting and Operating a Small Business: 1) Start a business from scratch 2) Taking over a family business 3) Buy an existing enterprise a. Clearer expectations, proven ability, better odds of success 4) Buying a franchise a. Franchisee purchases right to sell product/service of franchiser b. Franchising agreement lays out duties and responsibilities c. Usually initial payment, royalties (% of revenue) & advertising fee

Pros & Cons of Starting a Business from Scratch:  Pros – Total freedom to do whatever you want – No pre-existing ‘baggage”



Cons – No financial or supplier relationships – High start-up costs – No profits until established (may even incur significant losses for a long time)

Restaurants are the riskiest businesses to start as they tend to have a very high failure rate. Pros & Cons of Taking Over a Family Business:  Pros: – More positive image by customers – Increased employee loyalty – Financial help from family members – May bind family members together  Cons: – Succession disagreements – Management disagreements – May tear family apart Pros & Cons of Buying an Existing Business:  Pros: o Established clientele o Ease of financing o Experienced employees o Established lines of credit and supply o Less risky than starting from scratch  Cons o Uncertainty about financial health o Location may be poor o The pricing strategy may need to be revisited o May have a poor reputation

Franchising • Franchising Benefits (for the Franchiser) – Attain rapid growth – Share advertising cost – Increased investment money – Development of a motivated sales team – Increased revenue – No need to deal with local business issues • Franchising Benefits (for the Franchisee) – Expert advice – Training provided

– – – – – – –

Lower failure rates Well-developed brand Keep most of the profits Help with external financing Access to management expertise Economies of scale in buying supplies No need to build a business from scratch

Success and Failure in Small Business:  Reasons for Success o Hard work, drive and dedication o Market demand o Managerial competence o Luck  Reasons for Failure o Poor management skills o Inadequate marketing capabilities o Inadequate financial capabilities o Inadequate production capabilities o Personal reasons o Disasters

Forms of Business Organizations:  Sole Proprietorship - Business owned and usually operated by one person who is responsible for all of its debts. o Advantages § freedom § simplicity § low start-up costs § tax benefits o Disadvantages § unlimited liability § lack of continuity § difficult to raise money § reliance on one individual  Partnership - Two or more people agree to combine their financial, managerial, and technical abilities to run a business. Frequently used by professionals o Two most common types § General Partners - A partner who is actively involved in managing the firm and has unlimited liability.





§ Limited Partners - A partner who generally does not participate actively in the business, and whose liability is limited to the amount invested in the partnership. o Advantages § larger talent pool § larger money pool § ease of formation § tax benefits o Disadvantages § unlimited liability § lack of continuity § ownership transfer is difficult § potential conflict Corporation - A business considered by law to be a legal entity separate from its owners with many of the legal rights and privileges of a person; a form of business organization in which the liability of the owners is limited to their investment in the firm. o Public Corporation • Shares are widely held and available for sale to the general public • Initial Public Offering (IPO) - the sale of shares for the first time to the general investing public o Private Corporation • shares held by a few shareholders (not widely available) o Board of Directors - A group of individuals elected by a firm’s shareholders and charged with overseeing, and taking legal responsibility for, the firm’s actions. o Shareholders - investors who buy shares of ownership in a company • may share in profits through dividends o Chief Executive Officer (CEO) – The highest-ranking executive in a company or organization. Responsible for the firm’s overall performance o Advantages • limited liability • continuity • professional management • easier to raise money o Disadvantages • start-up costs • double taxation • regulations • stockholder revolts Co-Operative - An organization that is formed to benefit its owners in the form of reduced prices and/or the distribution of surpluses at year-end. o Each member has 1 vote o Different types include financial, housing, consumer o Advantages

§ limited liability § owner continuity § equal voice regardless of size § income taxed only at the individual member level o Disadvantages § no incentive to invest § members simply benefit from usage Costco is an example of a Consumer Co-Operative. Vancity is an example of a Financial Co-Operative.

Videos to Watch: • Shark Tank – https://www.youtube.com/watch?v=G9BGc3yxJ8Q • Young Entrepreneurs – https://www.youtube.com/watch?v=SogvenQQS5Q...