Business Essentials: Tenth Canadian Edition

Business Essentials
Tenth Canadian Edition
Chapter 4
Entrepreneurship, Small
Business, and New Venture
Creation
Copyright © 2023 Pearson Canada Inc. 4-1

Learning Objectives
• Explain the meaning and interrelationship of the terms small business, new
venture creation, and entrepreneurship.
• Describe the role of small and new businesses in the Canadian economy.
• Describe some key characteristics of entrepreneurial personalities and
explain the entrepreneurial process and describe its key elements.
• Describe three alternative strategies for becoming a business owner—starting
a business, buying an existing business and buying a franchise.
• Identify four key reasons for success in small businesses and four key
reasons for failure.
• Describe four forms of legal organization for a business and discuss the
advantages and disadvantages of each.
Women of Influence Inc

Small Business, New Venture Creation,
and Entrepreneurship (LO 4.1) (1 of 2)
• Small Business
– owner-managed business
with fewer than 100
employees
▪ definitions vary; some
statistics do not include
unincorporated
businesses with one
owner and no employees WENN/WENN Rights Ltd/Alamy Stock
Photo
• New Venture
– recently formed
organization, opened within
the last 12 months, that sells
goods or services
Small Business, New Venture Creation,
and Entrepreneurship (LO 4.1) (2 of 2)
• Entrepreneurship
– process of identifying
and capitalizing on a
marketplace opportunity
• Entrepreneur
– person who recognizes
and seizes
opportunities
• Intrapreneurs
– create something new
Heinz Ruckemann/UPI/Shutterstock
within an existing large
organization
Small and New Businesses in the
Canadian Economy (LO 4.2) (1 of 2)
Role of Small Business Figure 4.1 Small business
employment
• 98% of all employer
businesses in Canada
are small (fewer than 100
employees)
• main source of job
creation
• leaders in innovation and
new technology

Small and New Businesses in the
Canadian Economy (LO 4.2) (2 of 2)
Increasing Role of Female Figure 4.2 Reasons women
Entrepreneurs give for starting their own
• women now account for businesses
approximately half of all
new businesses
• rise of mompreneurs

The Entrepreneurial Process (LO 4.3)
(1 of 6)
Figure 4.3 The Entrepreneurial process in a new venture

(2 of 6)
Identifying Opportunities
• Generating ideas
• Screening ideas
– Idea adds or creates value
– Idea provides a competitive advantage
– Idea is marketable and financially viable
– Idea has low exit costs
• Developing the opportunity

– Business Plan

(3 of 6)
Business Plan
• Cover Page
• Executive Summary
• Table of Contents
• Company Description
• Product or Service Description
• Marketing
• Operating Plan
• Management
• Financial Plan
• Supporting Details/Appendix
(4 of 6)
Accessing Resources
• Bootstrapping
– doing more with less
– preferably external resources
• Financial Resources
– debt
– equity
• Other resources
Popular tourist locations like Peggy’s Cove in Nova
– Business Development Bank Scotia draw in tourists who then visit shops and
restaurants in these communities. These companies and
of Canada (BDC) the employees that rely on that tourism for employment
were hit particularly hard by the economic impact of the
– incubators shutdown of the cruise ship industry during the COVID-
19 pandemic.
– the Internet
– crowdfunding Andysartworks/Shutterstock
Copyright © 2023 Pearson Canada Inc. 4 - 10

(5 of 6)
Equity Debt
• Personal Savings • Financial Institutions
• Love Money • Suppliers
• Venture Capitalists
• Private Investors (Angels)

(6 of 6)
Assessing the “Fit”

• Entrepreneur–Opportunity
Fit
– is it possible?
• Opportunity–Resources Fit
– can required resources
be acquired? At the beginning of 2018, Drake was actively promoting
his partnership with spirits producer Brent Hocking for a
• Entrepreneur–Resources planned IPO for US$30 million for their Virginia Black
Decadent American Whiskey brand.
Fit
George Pimentel/Getty Images
– capacity to meet Entertainment/Getty Images
requirements?
Alternative Approaches (LO 4.4) (1 of 3)
Starting Up a Small Business
• Buying an already existing business
• Taking over a family business
• Buying a franchise

Buying an Existing Business

Family-Owned Business
Challenges
• Ongoing Management
– which family members
have control?
– price to be paid?
– family members rights
to a job? Kal Tire is a positive example of a family business that
has stood the test of time and grown into a major
• Succession company.
– successor selection? Rosanne Tackaberry/Alamy Stock Photo
– succession timing?
– successor training?

After the Start-Up (LO 4.4) (1 of 2)
Franchising Benefits (for
the Franchiser)
• Attain rapid growth
• Share advertising cost
• Increased investment
money Bento Sushi has successfully franchised across Canada
with more than 540 locations. Each franchisee must pay
• Development of a motivated an initial fee of $25,000 for the name, and an approximate
$150,000 investment is required to get the business
sales team started.
Colin McConnell/Toronto Star/Getty Images

• Increased revenue
• No need to deal with local
business issues
After the Start-Up (LO 4.4) (2 of 2)
Franchising Benefits
(for the Franchisee)
• Expert advice
• Training provided
• Lower failure rates
• Well-developed brand
• Keep most of the profits
• Help with external financing Steve Russell/Toronto Star/Getty Images
• Access to management expertise
• Economies of scale in buying
supplies
• No need to build a business from
scratch

Success and Failure in Small
Business (LO 4.5) (1 of 2)
Reasons for Success
• Hard work, drive, and
dedication
• Market demand for product
or service
• Managerial competence
Ralph Gilles has found success in the corporate world
• Luck rather than the startup world, but he understands

innovation and success in a tough field. He grew up in
Montreal, attended Vanier College, but found success in
the car industry in Detroit, first as a designer then a design
director at Chrysler. He has held the role of president and
CEO of Chrysler’s SRT brand, and today he is the head of
design for Fiat Chrysler Automobiles.
James Fassinger/REUTERS/Alamy Stock

Photo
Success and Failure in Small
Business (LO 4.5) (2 of 2)
Reasons for Failure
• Managerial Incompetence
• Neglect
• Weak Control Systems
• Insufficient Capital

Forms of Business Organizations
(LO 4.6) (1 of 10)
• Sole Proprietorship
• Partnership
• Corporation
• Co-operative

(LO 4.6) (2 of 10)
Sole Proprietorships
• Advantages • Disadvantages
– freedom – unlimited liability
– simplicity – lack of continuity
– low start-up costs – difficult to raise money
– tax benefits – reliance on one
individual

(LO 4.6) (3 of 10)
• Partnership
– two or more people agree to combine their financial,
managerial, and technical abilities to run a business
– frequently used by professionals
• Two basic types
– General Partners
– Limited Partners

(LO 4.6) (4 of 10)
Partnerships
– larger talent pool – unlimited liability
– larger money pool – lack of continuity
– ease of formation – ownership transfer is
– tax benefits difficult
– potential conflict

(LO 4.6) (5 of 10)
• Corporations
– corporations have the following rights and
characteristics
▪ separate legal entity from its owners
▪ property rights and obligations
▪ indefinite lifespan

(LO 4.6) (6 of 10)
• 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
• Private Corporation
– shares held by a few shareholders (not widely
available)

(LO 4.6) (7 of 10)
• Board of Directors
– governing body; responsible for shareholder interests
– appoint management, set policy, make major
decisions
• Shareholders
– investors who buy shares of ownership in a company
– may share in profits through dividends
• Chief Executive Officer (CEO)
– person responsible for the firms overall performance

(LO 4.6) (8 of 10)
Corporations
– limited liability – start-up costs
– continuity – double taxation
– professional – regulations
management – stockholder revolts
– easier to raise money

(LO 4.6) (9 of 10)
• Co-operatives
– organization formed to benefit its owners through reduced
prices and distribution of surpluses
– limited liability – no incentive to invest
– owner continuity
– members simply benefit
– one vote per member;
from usage
equal voice regardless of
size
– income taxed only at the
individual member level

(LO 4.6) (10 of 10)
Sole Co-
Characteristic Proprietorship Partnership Corporation operative
Protection against liability for Low Low High High
bad debts
Ease of formation High High Medium Medium
Permanence Low Low High High
Ease of ownership transfer Low Low High High
Ease of raising money Low Medium High High
Freedom from regulation High High Low Medium
Tax advantages High High Low High

The Business Model –
Value Creation

Business Model

Business Model Canvas
https://www.youtube.com/watch?v=wlKP-BaC0jA

Provides a shared language for describing, visualizing, assessing, and
changing business models.
Source www.businessmodelgeneration.com/canvas. Canvas concept developed by Alexander Osterwalder and Yves Pigneur.

Source www.businessmodelgeneration.com/canvas.
Canvas concept developed by Alexander Osterwalder and Yves Pigneur.
1. Customer Segments
Customer segments
For whom are we Who are our most

creating value? important customers?
Mass Niche Segmented Diversified Multi-

market market sided
Types of Customer Segments

1. Customer Segments
Athletes
Mass
Market
Sports Fans
Sneaker
Enthusiasts

2. Value Proposition
ValueProposition
What value do we deliver to our customers?
Which customer’s needs are we satisfying?
Getting the
Newness Performance Customizatio Design Brand Convenience
Job Done
n

2. Value Proposition
High
product Athletes
performance
Mass
Comfortable
Market
Everyday
Wear
Sports Fans
Passion for Retail
sport stores Young
Website People
Innovative (trendy)
design

3. Channels
Channels
Awareness Evaluation Purchase Delivery After Sales
Direct Indirect
How are the value proposition(s) promoted, sold and delivered? Why? Is it working?

3. Channels
High
product Athletes
performance
Mass
Comfortable
Market
Everyday
Wear
Retail Sports Fans
Passion for stores
sport Website Young
Nike + People
Innovative TV (trendy)
design Ind. Stores

4. Customer Relationships
Customer relationships
What type of relationship do Which ones

How costly
each of our customer have we
are they?
segments want? established?
Dedicated Automated
Personal Self-Service Community Co-creation
Personal
Assistance Assistance Services
Categories of relationships
4. Customer Relationships
High
product Personal Athletes
performance Selling
Co Creation Mass
Comfortable Self-Service Market
Everyday
Wear
Retail Sports Fans
Passion for stores
sport Website Young
Nike + People
design Ind. Stores

5. Revenue Streams
Revenue Streams
How does the business

earn revenue from the How would they prefer to pay?
value propositions?
Asset Sale Usage Fee Subscription Lending, Renting, Licensing Advertising

Fee or Leasing

5. Revenue Streams
High
product Personal Athletes
performance Selling
Co Creation Mass
Everyday
Wear
Retail Sports Fans
Passion for stores
sport Website Young
Nike + People
design Ind. Stores
Product Sales

6. Key Resources
Key Resources
What key resources

…our distribution …our customer
do our value
channels? relationships?
propositions require?
Physical Financial Intellectual Human Technological

6. Key Resources
High Personal
product Personal
Selling Athletes
performance Selling
Co Creation
Co Creation
Self-Service Mass
Everyday
Wear
Retail Sports Fans
Brand Passion for stores
sport Website Young
Distribution Nike + People
chain Innovative TV (trendy)
design Ind. Stores
Product Sales
Product Sales

7. Key Activities
Key Activities
Production Problem Solving Platform /

Network
What uniquely strategic things does the business do to deliver

its proposition?

7. Key Activities
Supply High
chain product Personal
Athletes
Manageme performance Selling
nt Co Creation
Comfortable Mass
Marketing Self-Service
Everyday Market
Innovation
Wear
Retail Sports Fans
Brand Passion for stores
sport Website Young
Distribution Nike + People
chain Innovative TV (trendy)
design Ind. Stores
Product Sales

8. Key Partnerships
Key Partnerships
Risk Reduction Acquisition of

Optimization / Cost
resources & activities
Reduction
What can the company not do so it can focus on its Key Activities?

7. Key Activities
8. Partnerships
Supply High
Manufacture chain product Personal
rs manageme performance Selling
nt
Co Creation
Profession Marketing Comfortable Self-Service Sport
al athletes Everyday
Innovation Wear Lifestyle
Physiologis Retail
ts Brand Passion for stores Training
sport Website
Retail Distribution Nike +
stores chain Innovative TV
design Ind. Stores
Product Sales

9. Cost Structure
Cost Structure
Cost - Driven Value - Driven
What are the business’ major cost drivers? How are they linked to
revenue?

9. Cost Structure
Supply High
Manufacture chain product Personal
rs manageme performance Selling
nt
Co Creation
Profession Marketing Comfortable Self-Service Sport
al athletes Everyday
Innovation Wear Lifestyle
Physiologis Retail
ts Brand Passion for stores Training
sport Website
Retail Distribution Nike +
stores chain Innovative TV
design Ind. Stores
Manufacturing
Sponsorships
R&D Product Sales
Marketing Distribution

How It All Fits Together

Why Use the Canvas
• Visual Thinking
• Iterate Quickly
• Grasp the relationship between the 9 blocks
• Short and Succinct
• Easyto circulate
• Contrast and Compare

Activity – Business Model Canvas
What is this?

https://www.youtube.com/watch?v=2xBiin2HHhY
Instant
Pot

Visit a small to medium
sized, individually owned
business in Greater
Vancouver and learn
about it.

Quick-Check Questions (1 of 5)
1) ____________ are people that create something new
within the context of a large organization.
A) Venture Capitalists
B) Angels
C) Intrapreneurs
D) Nascent Investors

Quick-Check Answer (1 of 5)
1) ____________ are people that create something new
within the context of a large organization.
A) Venture Capitalists
B) Angels
C) Intrapreneurs
D) Nascent Investors

2) The entrepreneurial process is like a journey which is
influenced by social, economic, political, and
technological factors. The three key elements in the
process are:
A) The product, the promotions and the place or location
of the venture
B) The entrepreneur, the size of the market and the
scale of the business
C) The market, the capital investment and the growth
potential
D) The entrepreneur, the opportunity, and the resources

2) The entrepreneurial process is like a journey which is
influenced by social, economic, political, and
technological factors. The three key elements in the
process are:
A) The product, the promotions and the place or location
of the venture
B) The entrepreneur, the size of the market and the
scale of the business
C) The market, the capital investment and the growth
potential
D) The entrepreneur, the opportunity, and the
resources

3) The first section of a business plan is the:
A) Company Description
B) Market analysis
C) Executive Summary
D) Operating Plan

3) The first section of a business plan is the:
A) Company Description
B) Market analysis
C) Executive Summary
D) Operating Plan

4) _________have voting rights and receive a vote for each
share that they own. They are considered owners of the
company although the extent of ownership depends on
the number of shares they possess.
A) Preferred Capitalists
B) Bondholders
C) Common stockholders
D) Derivative titleholders

4) _________have voting rights and receive a vote for each
share that they own. They are considered owners of the
company although the extent of ownership depends on
the number of shares they possess.
A) Preferred Capitalists
B) Bondholders
C) Common stockholders
D) Derivative titleholders

5) A ___________ is an organization that is owned and
controlled by the people who use it - producers,
consumers and workers with similar needs who pool their
resources for mutual benefit.
A) private corporation
B) joint venture
C) co-operative
D) public corporation

5) A ___________ is an organization that is owned and
controlled by the people who use it - producers,
consumers and workers with similar needs who pool their
resources for mutual benefit.
A) private corporation
B) joint venture
C) co-operative
D) public corporation

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Business Essentials

Tenth Canadian Edition

Copyright © 2023 Pearson Canada Inc. 4-1

Women of Influence Inc

Copyright © 2023 Pearson Canada Inc. 4-2

Copyright © 2023 Pearson Canada Inc. 4-5

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Figure 4.3 The Entrepreneurial process in a new venture

Copyright © 2023 Pearson Canada Inc. 4-7

• Developing the opportunity

Copyright © 2023 Pearson Canada Inc. 4-8

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Assessing the “Fit”

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– successor selection? Rosanne Tackaberry/Alamy Stock Photo

Copyright © 2023 Pearson Canada Inc. 4 - 15

Colin McConnell/Toronto Star/Getty Images

Copyright © 2023 Pearson Canada Inc. 4 - 17

• Luck rather than the startup world, but he understands

James Fassinger/REUTERS/Alamy Stock

Copyright © 2023 Pearson Canada Inc. 4 - 19

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Permanence Low Low High High

Ease of ownership transfer Low Low High High

Ease of raising money Low Medium High High

Freedom from regulation High High Low Medium

Tax advantages High High Low High

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For whom are we Who are our most

Mass Niche Segmented Diversified Multi-

Types of Customer Segments

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Awareness Evaluation Purchase Delivery After Sales

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What type of relationship do Which ones

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How does the business

Asset Sale Usage Fee Subscription Lending, Renting, Licensing Advertising

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What key resources

Physical Financial Intellectual Human Technological

Copyright © 2023 Pearson Canada Inc. 4 - 46

Copyright © 2023 Pearson Canada Inc. 4 - 47