McMaster University

Centre for Continuing Education

BUS 825 Business Foundations
Spring 2020
Jeffrey O’Leary
Chapter 4

1
Small Business, New Venture Creation, and
Entrepreneurship
• Small Business
o owner-managed business with
fewer than 100 employees
 definitions vary; some statistics do
not include unincorporated
businesses with one owner and
no employees

• New Venture
o recently formed organization,
opened within the last 12 months,
that sells goods or services

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Small Business, New Venture Creation, and
Entrepreneurship
• Entrepreneurship
o process of identifying and
capitalizing on a marketplace
opportunity
• Entrepreneur
o person who recognizes and
seizes opportunities
• Intrapreneurs
o create something new within an
existing large organization

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Small & New Businesses in the Canadian Economy

Role of Small Business

• 98% of all employer
businesses in Canada are
small (fewer than 100
employees)
• main source of job creation
• leaders in innovation and
new technology

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Small & New Businesses in the Canadian Economy
Increasing Role of Female
Entrepreneurs
• women now account for
approximately half of all
new businesses
• rise of mompreneurs

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The Entrepreneurial Process

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The Entrepreneurial Process
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

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The Entrepreneurial Process

Business Plan

Cover Page
Executive Summary
Table of Contents
Company Description
Product or Service Description
Marketing
Operating Plan
Management
Financial Plan
Supporting Details/Appendix

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The Entrepreneurial Process
Accessing Resources
• Bootstrapping
o doing more with less
o preferably external resources

• Financial Resources
o debt
o equity

• Other resources
o Business Development Bank of
Canada (BDC)
o incubators
o the Internet
o crowdfunding
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The Entrepreneurial Process
Equity
Personal
Love Money
Savings

Private
Venture
Investors
Capitalists
(Angels)

Debt
Financial
Institutions

Suppliers

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Alternative Approaches
Starting Up a Small Business

Buying an already existing business

Taking over a family business

Buying a franchise

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Alternative Approaches
Buying an Existing Business

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Alternative Approaches
Family-Owned Business Challenges
• Ongoing Management
o which family members
have control?
o price to be paid?
o family members rights
to a job?

• Succession
o successor selection?
o succession timing?
o successor training?

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Alternative Approaches
Franchising Benefits
• 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

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Alternative Approaches
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
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Success and Failure in Small Business

Reasons for Success

• Hard work, drive, and dedication

• Market demand for product or service
• Managerial competence
• Luck

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Success and Failure in Small Business

Reasons for Failure

• Managerial Incompetence
• Neglect
• Weak Control Systems
• Insufficient Capital

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Forms of Business Organizations

Sole Proprietorship

Partnership

Corporation

Co-operative

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Forms of Business Organizations
Sole Proprietorships
• Advantages • Disadvantages
o freedom o unlimited liability
o simplicity o lack of continuity
o low start-up costs o difficult to raise money
o tax benefits o reliance on one individual

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Forms of Business Organizations
• Partnership
o two or more people agree to combine their financial, managerial, and
technical abilities to run a business
o frequently used by professionals

• Two basic types

General Partners Limited Partners

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Forms of Business Organizations
Partnerships
• Advantages • Disadvantages
o larger talent pool o unlimited liability
o larger money pool o lack of continuity
o ease of formation o ownership transfer is difficult
o tax benefits o potential conflict

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Forms of Business Organizations
• Corporations
o corporations have the following rights and characteristics

separate legal
property rights
entity from its indefinite lifespan
and obligations
owners

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Forms of Business Organizations
• Public Corporation
o shares are widely held and available for sale to the general public
o initial public offering (IPO): the sale of shares for the first time to the
general investing public

• Private Corporation
o shares held by a few shareholders (not widely available)

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Forms of Business Organizations
• Board of Directors
o governing body; responsible for shareholder interests
o appoint management, set policy, make major decisions

• Shareholders
o investors who buy shares of ownership in a company
o may share in profits through dividends

• Chief Executive Officer (CEO)

o person responsible for the firms overall performance

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Forms of Business Organizations
Corporations
• Advantages • Disadvantages
o limited liability o start-up costs
o continuity o double taxation
o professional management o regulations
o easier to raise money o stockholder revolts

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Forms of Business Organizations
• Co-operatives
o organization formed to benefit its owners through reduced prices and
distribution of surpluses

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Forms of Business Organizations
Co-operatives
• Advantages • Disadvantages
o limited liability o no incentive to invest
o owner continuity o members simply benefit
o one vote per member; equal from usage
voice regardless of size
o income taxed only at the
individual member level

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Forms of Business Organizations

Sole
Characteristic Proprietorship Partnership Corporation Co-operative
Protection against liability for bad debts Low Low High High

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

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Quick-Check Questions
1) The first section of a business plan is the:
A) Company Description
B) Market analysis
C) Executive Summary
D) Operating Plan

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Quick-Check Answer
1) The first section of a business plan is the:
A) Company Description
B) Market analysis
C) Executive Summary
D) Operating Plan

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Quick-Check Questions
2) _________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

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Quick-Check Answer
2) _________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

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Quick-Check Questions
3) 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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Quick-Check Answer
3) 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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