PowerPoint Presentations for Small Business Management: Launching and Growing New Ventures, Fifth Canadian Edition Adapted by Cheryl Dowell Algonquin College

Copyright © 2013 by Nelson Education Limited CHAPTER 1 Entrepreneurs Copyright © 2013 by Nelson Education Limited

Copyright © 2013 by Nelson Education Limited LOOKING AHEAD After studying this chapter, you should be able to: 1. Discuss the availability of entrepreneurial opportunities and give examples of successful businesses started by entrepreneurs. Explain the nature of entrepreneurship and how it is related to small business. Define small business and identify the importance of small business. Identify rewards and drawbacks of entrepreneurial careers. Describe the various types of entrepreneurs and entrepreneurial ventures. Discuss several factors related to readiness for entrepreneurship and getting started in an entrepreneurial career. Describe some characteristics of successful entrepreneurs. Copyright © 2013 by Nelson Education Limited

ENTREPRENEURIAL OPPORTUNITY Economically attractive and timely opportunity that creates value True opportunity exists only for entrepreneur who has: interest, resources, and capabilities required to succeed In 2010, 2.7 million Canadians were self-employed and according to a report published by the BDC, indicators show that the level of entrepreneurial activity in Canada has increased. Approximately 10 % of the Canadian population currently owns a business and, looking to the future, 11.2 % of Canadians intend to start a business at some point in their lives LO 1 Copyright © 2013 by Nelson Education Limited

Copyright © 2013 by Nelson Education Limited ENTREPRENEURSHIP AND SMALL BUSINESS Entrepreneurs: active owner-managers second-generation operators of family-owned firms franchisees owner managers who have bought out the founders of existing firms Small business managers: receive specified compensation do not assume ownership risks LO 2 Copyright © 2013 by Nelson Education Limited

WHAT IS A SMALL BUSINESS? Criteria Financing supplied by one person or small group Localized business operations (except marketing) Business’ size small relative to larger competitors Fewer than 100 employees LO 3 Copyright © 2013 by Nelson Education Limited

WHAT IS A SMALL BUSINESS? According to Statistics Canada, in 2009: 1,114,915 small businesses in Canada 2.7 million self-employed workers 98 % have fewer than 100 employees contribute about 42 % to Canada’s GDP employ 48 % of total labour force in private sector 46 % have female ownership 87 % of Canadian exporters and make up 21 % of Canada’s total value of exports 75 % operate in service industries 25 % in goods-producing industries According to Statistics Canada, a “small business” is a firm that has fewer than 100 employees LO 3 Copyright © 2013 by Nelson Education Limited

THE MOTIVATORS OF ENTREPRENEURSHIP The financial return of any business must compensate its owner for investing his or her personal time (a salary equivalent) and personal savings (an interest and/or dividend equivalent) before any true profits are realized. Entrepreneurs expect a return that will not only compensate them for the time and money they invest but also reward them well for the risks and initiative they take in operating their own businesses. Freedom to operate independently is another reward of entrepreneurship. A study conducted by the Canadian Federation of Independent Business in 2007 determined the desire for making their own decisions as the primary motivator for Canadians starting their own business. Other motivators, in descending order of importance were, it fit their lifestyle, they wanted to better use their skills, they saw it as a path to financial freedom, they had a great business idea, and they could not find a suitable job. Like these entrepreneurs, many of us have a strong desire to make our own decisions, take risks, and reap the rewards. Being one’s own boss seems an attractive ideal. LO 4 Copyright © 2013 by Nelson Education Limited

KEY SMALL BUSINESS STATISTICS EXHIBIT 1.1 About one-quarter of all business establishments produce goods, whereas the remainder provide services. Small firms (those with fewer than 100 employees) make up 98 % of goods-producing employer businesses and 98 % of all service-producing employer businesses LO 4 Copyright © 2013 by Nelson Education Limited

DRAWBACKS OF ENTREPRENEURSHIP For more than 57 per cent of respondents, a typical work week is more than 45 hours long (see figure below). In fact, about one fifth of respondents say they usually work more than 60 hours per week. Twenty-six % of business owners work 35 hours or less. Respondents from Atlantic Canada are most likely to work less than 35 hours while those from the Prairies are the most likely to work more than 60 hours per week. Starting and operating one’s own business typically demands hard work, long hours, and much emotional energy. Entrepreneurs experience the unpleasantness of personal stress as well as the need to invest much of their own time and labour. The possibility of business failure is a constant threat to entrepreneurs. There is no guarantee of success or even of a bailout for a failing owner. 6,729 business bankruptcies and proposals reported in Canada in 2009 clearly indicate that the possibility of failure is very real. However, the number of business insolvencies per 1,000 in Canada dropped from a high of 8.1 in 1998 to 2.9 in 2009. LO 4 Copyright © 2013 by Nelson Education Limited

CAUSES OF BUSINESS FAILURE 32 % inadequate research and development 23 % lacked competitive advantage 14 % due to uncontrolled costs 13 % due to poorly developed marketing strategies 10 % poor market timing 8 % succumbed to competitor activities LO 4 Copyright © 2013 by Nelson Education Limited

VARIETIES OF ENTREPRENEURSHIP Founder (“Pure” Entrepreneur) brings a new firm into existence General Manager (“Second Stage” Entrepreneur) directs the continuing operations of established firms Franchisee power is limited by the contractual relationship with a franchising organization LO 5 Copyright © 2013 by Nelson Education Limited

HIGH POTENTIAL VENTURES VS. SMALL FIRMS AND MICRO BUSINESS High-Potential Venture (Gazelle) has great prospects for growth Attractive Small Firm provides substantial profits to its owner Micro Business (Lifestyle) provides minimal profits to its owner LO 5 Copyright © 2013 by Nelson Education Limited

CHARACTERISTICS OF ARTISAN ENTREPRENEURS Technical skills and little business knowledge Paternalistic approach Reluctance to delegate Narrow view of strategy Personal sales effort Short planning horizon Simple record keeping LO 5 Copyright © 2013 by Nelson Education Limited

CHARACTERISTICS OF OPPORTUNISTIC ENTREPRENEURS Business skills and technical knowledge Scientific approach to problems Willing to delegate Broad view of strategy Diversified marketing approach Longer planning horizon Sophisticated accounting and financial control LO 5 Copyright © 2013 by Nelson Education Limited

ENTREPRENEURIAL TEAMS Two or more who work together as entrepreneurs Helpful to: Secure a broad range of managerial talents Enhance profits Useful in: High technology businesses Attractive small firms High potential ventures LO 5 Copyright © 2013 by Nelson Education Limited

GETTING STARTED IN ENTREPRENEURSHIP FOUR ROUTES TO ENTREPRENEURSHIP 1. Starting a new business 2. Entering a family business 3. Opening a franchised business 4. Buying an existing business LO 6 Copyright © 2013 by Nelson Education Limited

AGE, GENDER, AND ENTREPRENEURIAL OPPORTUNITY Copyright © 2013 by Nelson Education Limited

REFUGEES AS ENTREPRENEURS becomes an entrepreneur to escape an undesirable situation Foreign refugee leaves his or her native country and becomes an entrepreneur in the new country Corporate refugee leaves big business to go into business for themselves Some people, at various ages, “back into” entrepreneurship in a move to escape an undesirable situation. Many of these refugees are motivated more by entrepreneurial rewards than by an escapist mind-set. It is often a mixture of positive and negative considerations that provides the motivation. LO 6 Copyright © 2013 by Nelson Education Limited

Copyright © 2013 by Nelson Education Limited PRECIPITATING EVENTS An event, such as losing a job, that moves an individual to become an entrepreneur job termination job dissatisfaction unexpected opportunity LO 6 Copyright © 2013 by Nelson Education Limited

CHARACTERISTICS OF SUCCESSFUL ENTREPRENEURS Internal Locus of Control: entrepreneurs tend to hold themselves accountable for their own successes or failures External Locus of Control: non-entrepreneurs tend to believe that external circumstances, luck or fate impact upon their worlds LO 7 Copyright © 2013 by Nelson Education Limited

ENTREPRENEURIAL CHARACTERISTICS Commitment and determination Leadership Opportunity obsession Tolerance of risk, ambiguity and uncertainty Creativity, self-reliance and adaptability Motivation to excel LO 7 Copyright © 2013 by Nelson Education Limited