Description
In this criteria in relation to small business management, fifth canadian edition.
03900_00_FM.indd xvi 12/26/11 5:43 PM
Licensed to: CengageBrain User
03900_00_FM.indd xvi 12/26/11 5:43 PM
This is an electronic version of the print textbook. Due to electronic rights restrictions,
some third party content may be suppressed. Editorial review has deemed that any suppressed
content does not materially affect the overall learning experience. The publisher reserves the right
to remove content from this title at any time if subsequent rights restrictions require it. For
valuable information on pricing, previous editions, changes to current editions, and alternate
formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword for
materials in your areas of interest.
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Vice President, Editorial
Higher Education:
Anne Williams
Acquisitions Editor:
Alwynn Pinard
Marketing Manager:
David Stratton
Developmental Editor:
Elke Price
Photo Researcher/
Permissions Coordinator:
Kristiina Paul
Senior Content Production
Manager:
Imoinda Romain
Production Service:
Integra
Copy Editor:
Karen Rolfe
Proofreader:
Integra
Indexer:
Integra
Manufacturing Manager:
Joanne McNeil
Design Director:
Ken Phipps
Managing Designer:
Franca Amore
Interior Design Modifications:
Peter Papayanakis
Cover Design:
Peter Papayanakis
Cover Image:
Kathryn Hollinrake, Hollinrake
Photography
Compositor:
Integra
Printer:
Edwards Brothers
Small Business Management, Fifth Canadian Edition
by Justin G. Longenecker, Leo B. Donlevy, Terri Champion,
J. William Petty, Leslie E. Palich, and Carlos W. Moore
COPYRIGHT © 2013, 2010
by Nelson Education Ltd.
Adapted from Small Business
Management, Fifteenth Edition,
by Justin G. Longenecker,
J. William Petty, Leslie E. Palich,
Carlos W. Moore, published by
South-Western Cengage Learning
Copyright © 2010 by South-
Western, a part of Cengage
Learning.
Printed and bound in the United
States of America
1 2 3 4 15 14 13 12
For more information contact
Nelson Education Ltd.,
1120 Birchmount Road, Toronto,
Ontario, M1K 5G4. Or you can visit
our Internet site athttp://www.nelson.com
Statistics Canada information is used
with the permission of Statistics
Canada. Users are forbidden to copy
this material and/or redisseminate the
data, in an original or modified
form, for commercial purposes,
without the expressed permissions of
Statistics Canada. Information on the
availability of the wide range of data
from Statistics Canada can be obtained
from Statistics Canada's Regional
Offices, its World Wide Web site at
,
and its toll-free access number
1-800-263-1136.
ALL RIGHTS RESERVED. No part of
this work covered by the copyright
herein may be reproduced,
transcribed, or used in any form or
by any means—graphic, electronic,
or mechanical, including
photocopying, recording, taping,
Web distribution, or information
storage and retrieval systems—
without the written permission of
the publisher.
For permission to use material
from this text or product, submit
all requests online at
www.cengage.com/permissions.
Further questions about
permissions can be emailed to
[email protected]
Every effort has been made to
trace ownership of all copyrighted
material and to secure permission
from copyright holders. In the
event of any question arising as
to the use of any material, we will
be pleased to make the necessary
corrections in future printings.
Library and Archives Canada
Cataloguing in Publication
Small business management:
launching and growing new
ventures / Justin G. Longenecker ...
[et al.]. — 5th Canadian ed.
Includes bibliographical references
and index.
ISBN 978-0-17-650390-1
1. Small business—Management—
Textbooks. 2. New business
enterprises—Textbooks.
I. Longenecker, Justin G.
(Justin Gooderl),
HD62.7.S618 2012 658.02’2
C2011-905710-7
ISBN-13: 978-0-17-650390-1
ISBN-10: 0-17-650390-0
03900_00_FM.indd ii 12/26/11 5:43 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
NEL 2
2
1
3
4
5
6
7
L OOK I NG A H E A D
After studying this chapter, you
should be able to
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.
I N T HE S P OT L I GHT
Moving Made Easy
Most people do not look forward to moving, the countless hours spent hunting
for boxes, and not just any boxes, boxes that will be sturdy enough to fit your
prized possessions, not to mention the time spent organizing and packing all
your belongings.
Enter Frogbox, the Vancouver-based company that rents reusable sturdy
plastic boxes, with fold-down tops and easy stacking, for residential moving.
Customers simply order online and the boxes are delivered and then picked
up from their new home when they are done. This saves the consumer the
time and effort required to hunt for suitable boxes, and costs about the same
as buying moving boxes from a moving company. On top of that, it’s envi-
ronmentally friendly since the boxes are reused and made from recycled
materials.
Doug Burgoyne and his silent partner searched for many months for the
right business opportunity, one with a short sales cycle and as Doug explains,
“an old school, cash-based service business. We wanted something with a
bad reputation that we could come in and offer a good service and stand
out. We also wanted to wrap a little technology around it.”
Entrepreneurs
CHAPTER 1
03900_01_Ch01.indd 2 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
3 NEL
Their research led them
to explore the moving industry,
which in Canada comprises
several national companies
offering traditional moving
services and a few mom-and-
pop operations providing
moving supplies and services.
However, Doug felt that none
had managed to build a strong
brand image or presence in the
residential marketplace. On top
of that, he estimated the North
American residential market to
be worth about $5 billion a
year. The first Frogbox location
opened in 2008 in Vancouver,
followed by Seattle in 2009,
and Toronto in 2010. Doug
and his partner are convinced
they now have a solid business
model in place, one that can
be successfully franchised. In
order to do that, however, an
injection of capital is neces-
sary, which is why Doug pitched his concept to would-be investors on the TV program Dragon’s
Den. In the end, he received the investment he asked for, in exchange for partial ownership in the
business. It is now up to Doug and his team to see if they can make their dream come true—to have
Frogbox locations in the 100 largest cities in North America.
www.frogbox.com
Sources: Mary Teresa Bitti, “Seeing Green,” Financial Post, January 31, 2011, available athttp://frogbox.com/blog/2011/01/financial-post-likes-frogbox (accessed August 8, 2011)
and Wendy Stueck, “Frogbox Makes Your Move Green,” The Globe and Mail, October 20, 2009,
available at www.theglobeandmail.com/report-on-business/small-business/business-incubator/
frogbox-makes-your-move-green/article1330296 (accessed August 15, 2011).
Courtesy of Frogbox
03900_01_Ch01.indd 3 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Part 1 Entrepreneurial Opportunity 4
NEL
Would you like to become an entrepreneur, to start and operate a small business of
your own? If so, you are not alone. In 2010, 2.7 million Canadians were self-employed
and according to a report published by the BDC, indicators show that the level of entre-
preneurial activity in Canada has increased. Approximately 10 percent of the Cana-
dian population currently owns a business and, looking to the future, 11.2 percent of
Canadians intend to start a business at some point in their lives.
1
Entrepreneurial fever is also sweeping the nation’s campuses, as students take
classes to learn how to launch, finance, and run their own companies. In today’s world,
your business courses, whatever your particular specialty or major, should include the
study of entrepreneurship. Business students, along with engineers, teachers, artists,
pharmacists, lawyers, nurses, and others such as Doug Burgoyne of Frogbox are hearing
the call to own their own businesses. You are living in a world of entrepreneurial
opportunity, one that is an immensely more hospitable place for entrepreneurs than it
was 20 years ago!
You are about to embark on a course of study that will prove invaluable if you
elect to pursue a career in entrepreneurship or small business—or even if you
don’t. An entrepreneurial career can provide an exciting life and substantial per-
sonal rewards, while also contributing to the welfare of society. As a general rule,
when you talk to entrepreneurs about what they are currently doing and what their
plans are for the future, you can feel their excitement and anticipation—which can
be contagious!
Taking a small business or entrepreneurship class is not likely to turn a student who
lacks basic business intuition into an opportunity-spotting, money-making genius. Yet
there is considerable evidence suggesting that such classes can facilitate the learning
curve for those who have the “right stuff.” These classes teach many of the basic skills,
such as understanding financial statements, writing a business plan, and imposing struc-
ture and deadlines on dreams that you might never achieve otherwise.
ENTREPRENEURIAL OPPORTUNITIES
Entrepreneurial opportunities exist for those who can produce enough products or
services desired by customers to make the enterprise economically attractive. A prom-
ising entrepreneurial opportunity is more than just an interesting idea. It involves a
product or service that is so attractive to customers that they are willing to pay their
hard-earned money for it. In other words, an entrepreneur must find a way to create
value for customers.
Our working definition of entrepreneurial opportunity, as an economically
attractive and timely opportunity that creates value for interested buyers or end users,
distinguishes between opportunities and ideas. It is important to note, however, that
a given opportunity will not be equally attractive to everyone. Because of differences
in experiences and perspectives, one person may see an opportunity where others do
not. But, in any case, a true opportunity exists only for the entrepreneur who has the
interest, resources, and capabilities required to succeed.
Entrepreneurial opportunities exist today in a business world that differs mark-
edly from the business world of yesterday. At any given time, many potentially profit-
able business opportunities exist. But these opportunities must be recognized and
grasped by individuals with abilities and desire strong enough to assure success. Not
only are there diverse opportunities available to entrepreneurs looking to launch a
Discuss the availability
of entrepreneurial
opportunities and give
examples of successful
businesses started by
entrepreneurs.
1
entrepreneurial
opportunity
An economically
attractive and timely
opportunity that
creates value
03900_01_Ch01.indd 4 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Chapter 1 Entrepreneurs 5
NEL
business, but also varying levels of success. Some entrepreneurs are quite successful,
some achieve more modest rewards, and others fail. However, failure in business is
not a failure in life. Many learn from the experience and go on to start a successful
business.
ENTREPRENEURSHIP AND SMALL BUSINESS
Thus far, we have discussed entrepreneurship and small business opportunities in a
very general way. However, it is important to note that, despite many similarities, the
terms entrepreneur and small business manager are not synonymous. Some entrepreneurial
endeavours, for example, begin as small businesses but quickly grow into large busi-
nesses. They may still be entrepreneurial. We need, then, to clarify the meanings of
these terms.
Entrepreneurial Experiences
Flip Girls
“Mom, I have nothing to wear!!!!” Sound familiar? For Linda Maslechko and Mona
Rae Peterson, mothers to five girls between them, this was the jumping off point for
Triple Flip, a retail concept that caters to preteen and tween girls who want high-
quality, fashionable clothes and accessories to match their busy, activity-filled lifestyle.
Based in Calgary, Alberta, co-owners Linda and Mona Rae spent considerable time
researching the market, after finding out through firsthand experience with their girls
that the retail apparel industry offered little for the preteen girl. As they put it, there
was “no brand for them to aspire to” and with that, they decided to pursue what they
considered to be a niche market, creating a positive, inspirational brand that would
not only appeal to young girls, but also meet the needs of parents when it came to
value, quality, and fit.
The first Triple Flip store opened in Calgary in 2005; following that success, the
company has grown to now six locations in Alberta, Saskatchewan, and Ontario, with
plans to open more stores in B.C. and Ontario in the future. Linda and Mona Rae
believe a large part of their success is based on the commitment they have to their
customers, taking the time to solicit opinions and feedback from their target market,
to ensure their unique needs are being met. “We have always made sure we ask the
girls what they want, and show respect for their opinions.”
As a private-label retailer, manufacturing has definitely been a challenge, trying to
produce a quality product at a price that will work for the market. At present, Triple
Flip is proud to be able to manufacture its clothing in Canada, utilizing local suppliers
that are responsive to the company’s needs and offering the quality standards Triple
Flip demands. In addition, the company believes that superior customer service and
the use of social media and community involvement has helped it create a unique and
differentiated brand in the competitive retail apparel industry.
Sources: Sean C. Tarry, “Calgary’s Original Flip Girls,” Canadian Retailer, Winter 2011, p. 25–28,
andhttp://tripleflip.ca/
IN THE TRENCHES
Explain the nature of
entrepreneurship and
how it is related to
small business.
2
03900_01_Ch01.indd 5 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Part 1 Entrepreneurial Opportunity 6
NEL
WHO ARE THE ENTREPRENEURS?
Entrepreneurs are frequently thought to be individuals who discover market needs and
launch new firms to meet those needs. They provide an impetus for change, innovation,
and progress in economic life, while trying to mitigate risk in pursuit of a new venture
opportunity. (In contrast, salaried employees receive some specified compensation and
do not assume ownership risks.)
For our purposes, we consider all active owner-managers to be entrepreneurs. We
do not limit the term entrepreneur to only founders of business firms; we also apply the
term to second-generation operators of family-owned firms, franchisees, and owner-
managers who have bought out the founders of existing firms. Our definition, however,
does exclude salaried managers of larger corporations, even those sometimes described
as entrepreneurial because of their flair for innovation and willingness to accept risk.
To get an idea of the unlimited potential of entrepreneurial ventures, think of the
achievements of entrepreneurs Chip Wilson of Lululemon, or Clive Beddoe of WestJet,
who founded organizations that developed into industry leaders. It is easy to overesti-
mate the importance of large corporations, because of their high visibility. Small busi-
nesses seem dwarfed by corporate giants such as Canadian Tire Corporation Limited
(over 485 stores, 57,000 employees, and serving over 180 million customers a year),
RBC Royal Bank (over 18 million customers in 50 countries and 80,000 staff), and Tim
Horton’s (3,841 locations in Canada, generating over $4 billion in sales, the first Cana-
dian restaurant company to accomplish this milestone). Yet almost all companies start
as small businesses, and small business remains a vital component of our economy. What
is a small business? Definitions vary: Statistics Canada classifies businesses as “small” if
they have fewer than 50 employees. Canada Revenue Agency uses profits (less than
$400,000) and value of assets as criteria.
DEFINITION OF SMALL BUSINESS
CRITERIA USED IN THIS BOOK
In this book we use the following general criteria for defining a small business:
1. Financing of the business is supplied by one individual or a small group. Only in
rare cases would the business have more than five owners.
2. Except for its marketing function, the firm’s operations are geographically
localized.
3. Compared with the biggest firms in the industry, the business is small.
4. The number of employees in the business is usually fewer than 100.
Obviously, some small firms fail to meet all of the criteria. For example, a small exec-
utive search firm—a firm that helps corporate clients recruit managers from other
organizations—may operate in many parts of the country and thereby fail to meet the
second criterion. Nevertheless, the discussion of management concepts in this book is
aimed primarily at the type of firm that fits the general pattern outlined by these criteria.
WHY IS SMALL BUSINESS IMPORTANT?
As mentioned above, almost all businesses start very small. Few ever reach the size of the
major corporations mentioned above, but even WestJet started as a very small company
in Calgary in 1996 with three aging aircraft, offering limited flights in Western Canada.
entrepre neur
a person who
launches, builds,
and/or operates a
business
Define small business
and identify the
importance of small
business.
3
03900_01_Ch01.indd 6 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Chapter 1 Entrepreneurs 7
NEL
Small businesses dominate the economy of Canada. According to Statistics Canada,
a “small business” is a firm that has fewer than 100 employees; in 2009, there were
1,114,915 small businesses in Canada and over 2.7 million self-employed workers. Some
additional key facts about small business in Canada are as follows:
• Over 98 percent of small businesses have fewer than 100 employees.
• Small businesses with fewer than 100 employees contribute about 42 percent to
Canada’s GDP.
• Small businesses employ approximately 5 million Canadians or 48 percent of the
total labour force in the private sector.
• Slightly more than one third of self-employed workers are female.
• 46 percent of small and medium-sized enterprises have some degree of female
ownership.
• Almost 87 percent of Canadian exporters are small businesses and make up about
21 percent of Canada’s total value of exports.
• About 75 percent of small businesses in Canada operate in service industries,
25 percent in goods-producing industries.
2
Refer to the data in “In the Trenches” on pages 8–9 for greater insight into the Cana-
dian small business environment.
THE MOTIVATORS OF ENTREPRENEURSHIP
Individuals are pulled toward entrepreneurship by a number of powerful incentives
(see Exhibit 1-2 on p. 11). Some are especially attracted by one kind of incentive,
while others are drawn by some blend of potential satisfactions. These rewards may be
grouped, for the sake of simplicity, into three basic categories: profit, independence,
and a satisfying way of life.
THE REWARD OF PROFIT
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.
THE REWARD OF INDEPENDENCE
Freedom to operate independently is another reward of entrepreneurship. A study con-
ducted 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.
3
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.
Some entrepreneurs use their independence to achieve flexibility in their personal
lives and work habits. An example would be the owner of a mountain biking tour firm
located in Banff. The owner offers tours during the spring and summer season to earn
Identify rewards and
drawbacks of entre-
preneurial careers.
4
03900_01_Ch01.indd 7 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Part 1 Entrepreneurial Opportunity 8
NEL
Entrepreneurial Experiences
Key Small Business Statistics
The Business Register of Statistics Canada maintains a count of business establishments
and publishes results twice a year. As of July 2010, there were more than 2.2 million
business establishments in Canada. About half of all business establishments are called
“employer businesses” because they maintain a payroll of at least one person (possibly
the owner). The other half are classified as “indeterminate” because they do not have
any employees registered with the CRA. Such businesses may have contract workers,
family members, and the owners working for them.
As shown in Table 1-1, approximately 57 percent of all business establishments in
Canada are located in Ontario and Quebec. Virtually all the rest are divided between
the western provinces (37 percent) and the Atlantic provinces (6 percent). The North-
west Territories, Yukon, and Nunavut represent only 0.3 percent of Canada’s businesses.
TABLE 1.1 Total Number of Business Establishments, and Number of Establishments Relative
to Provincial/Territorial Population, December 2009
No. of Busi ness Est abl i shment s
Pr ovi nc es/
Ter r i t or i es Tot al
Empl oyer
Busi nesses I ndet er mi nat e
1
No. of
Est abl i shment s per
1, 000 Popul at i on
Newfoundland
and Labrador
26,333 17,17,913 8,420 51.6
Prince Edward Island 10,397 6,131 4,266 73.6
Nova Scotia 54,509 31,556 22,953 57.9
New Brunswick 42,591 26,612 15,979 56.7
Quebec 474,308 247,340 226,968 60.3
Ontario 888,951 394,683 494,268 67.7
Manitoba 77,288 36,833 40,455 62.9
Saskatchewan 94,909 39,404 55,505 91.4
Alberta 341,502 155,171 184,331 92
British Columbia 362,665 176,124 186,541 80.7
Yukon Territory 2,881 1,635 1,246 84.8
Northwest Territories 2,630 1,670 960 60.8
Nunavut 834 609 225 25.6
Canada Total 2,379,798 1,137,681 1,242,117 70.1
Note 1: The “indeterminate” category consists of incorporated or unincorporated businesses that
do not have a Canada Revenue Agency payroll deductions account. The workforce of such
businesses may consist of contract workers, family members, and/or owners.
Source: Industry Canada, Business Register, December 2009 National Income and Expenditure, Key Small
Business Statistics, July 2010;http://www.ic.gc.ca/eic/site/sbrp-rppe.nsf/eng/rd02493.html.
Reproduced with the permission of the Minister of Public Works and Government Services, 2011.
IN THE TRENCHES
03900_01_Ch01.indd 8 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Chapter 1 Entrepreneurs 9
NEL
Relative to population, the western provinces, Yukon, and Prince Edward
Island have more business establishments than elsewhere, with the highest rates
in Saskatchewan and Alberta at 92.0 and 91.4 per 1,000 population respectively.
Nunavut, Newfoundland and Labrador, Nova Scotia, and New Brunswick have the
lowest ratios of business establishments per 1,000 population. Ontario and Quebec
are below the national average of 70.1, with 67.7 and 60.3 business establishments
per 1,000 population, respectively.
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 percent of goods-producing employer businesses and 98 percent of all
service-producing employer businesses (see Exhibit 1-1).
Table 1-2 (on p. 10) shows the distribution of employer businesses by size of busi-
ness establishment in each province and territory. Generally speaking, the distribu-
tion by size in the provinces is similar to the national average distribution by size.
However, there is some variation among the provinces and territories; for example,
there is a higher percentage of micro-enterprises (1–4 employees) in Alberta
(59 percent) and British Columbia (56 percent) than in Ontario (55 percent), Quebec
(51 percent), or the territories (from 25 to 50 percent).
4
Goods-Producing Sector
1
Service-Producing Sector
2
1–4 (53.9%)
5–9 (20.8%)
10–19 (12.7%)
20–49 (8.2%)
50–99 (2.5%)
100–199 (1.1%)
200–499 (0.5%)
500+ (0.3%)
Indeterminate
2
(51.1)%
Employer
Businesses
(48.9%)
1–4 (56.2%)
5–9 (19.6%)
10–19 (11.3%)
20–49 (7.7%)
50–99 (2.8%)
100–199 (1.4%)
200–499 (0.7%)
500+ (0.2%)
Employer
Businesses
(44.2%)
Indeterminate
1
(55.8%)
EXHIBIT 1-1
Distribution of Business Establishments in the Goods-Producing and Service-Producing Sectors by Firm Size
(Number of Employees), December 2009
Note 1: By conventional Statistics Canada definition, the goods-producing sector consists of North
American Industry Classification System (NAICS) codes 11 to 31–33, while NAICS codes 41 to
91 define the service-producing sector.
Note 2: The “indeterminate” category consists of incorporated or unincorporated businesses that
do not have a Canada Revenue Agency payroll deductions account. The workforce of such busi-
nesses may consist of contract workers, family members, and/or owners.
Source: Industry Canada, Business Register, December 2009 National Income and Expenditure, Key Small
Business Statistics, July 2010;http://www.ic.gc.ca/eic/site/sbrp-rppe.nsf/eng/rd02493.html.
Reproduced with the permission of the Minister of Public Works and Government Services, 2011.
(Continued)
03900_01_Ch01.indd 9 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Part 1 Entrepreneurial Opportunity 10
NEL
E
m
p
l
o
y
e
r
B
u
s
i
n
e
s
s
e
s
P
e
r
c
e
n
t
o
f
T
o
t
a
l
P
r
o
v
i
n
c
e
s
/
T
e
r
r
i
t
o
r
i
e
s
T
o
t
a
l
1
–
4
5
–
9
1
0
–
1
9
2
0
–
4
9
5
0
–
9
9
S
m
a
l
l
<
1
0
0
1
0
0
–
1
9
9
2
0
0
–
4
9
9
M
e
d
i
u
m
1
0
0
–
4
9
9
L
a
r
g
e
5
0
0
+
N
e
w
f
o
u
n
d
l
a
n
d
a
n
d
L
a
b
r
a
d
o
r
1
7
,
9
1
3
5
5
.
4
2
2
.
7
1
1
.
5
6
.
8
2
.
0
9
8
.
4
0
.
9
0
.
5
1
.
4
0
.
2
P
r
i
n
c
e
E
d
w
a
r
d
I
s
l
a
n
d
6
,
1
3
1
5
0
.
9
2
3
.
5
1
3
.
4
8
.
3
2
.
4
9
8
.
5
0
.
9
0
.
5
1
.
3
0
.
2
N
o
v
a
S
c
o
t
i
a
3
1
,
5
5
6
5
4
.
0
2
1
.
2
1
2
.
4
8
.
0
2
.
4
9
8
.
0
1
.
2
0
.
5
1
.
8
0
.
2
N
e
w
B
r
u
n
s
w
i
c
k
2
6
,
6
1
2
5
3
.
9
2
1
.
4
1
2
.
7
7
.
9
2
.
4
9
8
.
2
1
.
1
0
.
5
1
.
6
0
.
2
Q
u
e
b
e
c
2
4
7
,
3
4
0
5
0
.
7
2
2
.
6
1
3
.
2
8
.
8
2
.
7
9
8
.
1
1
.
1
0
.
5
1
.
7
0
.
2
O
n
t
a
r
i
o
3
9
4
,
6
8
3
5
4
.
8
1
9
.
8
1
2
.
2
8
.
1
2
.
7
9
7
.
7
1
.
4
0
.
7
2
.
1
0
.
3
M
a
n
i
t
o
b
a
3
6
,
8
3
3
4
9
.
5
2
1
.
8
1
4
.
0
9
.
4
3
.
0
9
7
.
7
1
.
2
0
.
7
1
.
9
0
.
3
S
a
s
k
a
t
c
h
e
w
a
n
3
9
,
4
0
4
5
5
.
0
2
0
.
8
1
2
.
7
7
.
8
2
.
2
9
8
.
5
0
.
9
0
.
5
1
.
3
0
.
2
A
l
b
e
r
t
a
1
5
7
,
1
7
1
5
8
.
8
1
8
.
2
1
1
.
3
7
.
4
2
.
4
9
8
.
2
1
.
1
0
.
6
1
.
6
0
.
2
B
r
i
t
i
s
h
C
o
l
u
m
b
i
a
1
7
6
,
1
2
4
5
6
.
3
2
0
.
3
1
2
.
1
7
.
4
2
.
3
9
8
.
4
1
.
0
0
.
5
1
.
4
0
.
2
Y
u
k
o
n
T
e
r
r
i
t
o
r
y
1
,
6
3
5
5
0
.
2
2
3
.
2
1
3
.
5
8
.
8
2
.
0
9
7
.
6
1
.
3
0
.
8
2
.
1
0
.
2
N
o
r
t
h
w
e
s
t
T
e
r
r
i
t
o
r
i
e
s
1
,
6
7
0
3
5
.
1
2
4
.
8
1
9
.
5
1
3
.
4
4
.
1
9
6
.
9
2
.
2
0
.
7
2
.
9
0
.
2
N
u
n
a
v
u
t
6
0
9
2
5
.
5
2
3
.
8
2
2
.
3
1
7
.
9
7
.
1
9
6
.
6
2
.
8
0
.
5
3
.
3
0
.
2
C
a
n
a
d
a
T
o
t
a
l
1
,
1
3
7
,
6
8
1
5
4
.
4
2
0
.
5
1
2
.
4
8
.
1
2
.
6
9
8
.
0
1
.
2
0
.
6
1
.
8
0
.
2
S
o
u
r
c
e
:
I
n
d
u
s
t
r
y
C
a
n
a
d
a
,
B
u
s
i
n
e
s
s
R
e
g
i
s
t
e
r
,
D
e
c
e
m
b
e
r
2
0
0
9
N
a
t
i
o
n
a
l
I
n
c
o
m
e
a
n
d
E
x
p
e
n
d
i
t
u
r
e
,
K
e
y
S
m
a
l
l
B
u
s
i
n
e
s
s
S
t
a
t
i
s
t
i
c
s
,
J
u
l
y
2
0
1
0
;
h
t
t
p
:
/
/
w
w
w
.
i
c
.
g
c
.
c
a
/
e
i
c
/
s
i
t
e
/
s
b
r
p
-
r
p
p
e
.
n
s
f
/
e
n
g
/
r
d
0
2
4
9
3
.
h
t
m
l
.
R
e
p
r
o
d
u
c
e
d
w
i
t
h
t
h
e
p
e
r
m
i
s
s
i
o
n
o
f
t
h
e
M
i
n
i
s
t
e
r
o
f
P
u
b
l
i
c
W
o
r
k
s
a
n
d
G
o
v
e
r
n
m
e
n
t
S
e
r
v
i
c
e
s
,
2
0
1
1
.
T
A
B
L
E
1
.
2
E
m
p
l
o
y
e
r
B
u
s
i
n
e
s
s
e
s
b
y
F
i
r
m
S
i
z
e
(
N
u
m
b
e
r
o
f
E
m
p
l
o
y
e
e
s
)
i
n
t
h
e
P
r
o
v
i
n
c
e
s
a
n
d
T
e
r
r
i
t
o
r
i
e
s
,
D
e
c
e
m
b
e
r
2
0
0
9
03900_01_Ch01.indd 10 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Chapter 1 Entrepreneurs 11
NEL
money, then closes the business in September to follow his passion for competitive
mountain biking by training and participating in the competitive circuit during the fall
and winter.
Obviously, most entrepreneurs don’t carry their quest for flexibility to such lengths.
But entrepreneurs in general appreciate the independence inherent in entrepreneurial
careers. They can do things their own way, reap their own profits, and set their own
schedules.
Of course, independence does not guarantee an easy life. Most entrepreneurs work
very hard for long hours. But they do have the satisfaction of making their own deci-
sions within the constraints imposed by economic and other environmental factors.
Refer to “In the Trenches” for a snapshot of the entrepreneur’s work life.
THE REWARD OF A SATISFYING WAY OF LIFE
Entrepreneurs frequently speak of the satisfaction they experience in their own busi-
nesses; some even refer to the work they do as “fun.” Part of their enjoyment may
derive from their independence, but some of it reflects an owner’s personal fulfillment
in working with the firm’s products and services—the pleasure, for example, that a ski
shop operator gets from talking about skiing and equipment related to it. An entre-
preneur may also enjoy being the boss and serving as a civic leader in the community.
At age 26 Tracy Wallace built Natsiq Productions to preserve and to market the Inuit
way of life. The firm, based in Nunavut, documents traditional Inuit culture including
harvests, hunts, sewing, and storytelling. It creates video documentaries such as eco-
tourism travelogues, original drama featuring young local actors, and the stories of Inuit
elders. As a winner of the Business Development Bank Young Entrepreneur Award,
Tracy is pursuing both a business opportunity and her passion.
THE DRAWBACKS OF ENTREPRENEURSHIP
Although the rewards of entrepreneurship are enticing, there are also costs associated
with business ownership. 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. Many of them describe their careers as exciting but very demanding. Refer
to “In the Trenches” for additional coverage on why entrepreneurs become small
business owners.
Rewards of Entrepreneurship
Profit
Freedom from
the limits of
standardized pay
for standardized work
Independence
Freedom from
supervision and rules
of bureaucratic
organizations
Satisfying Way
of Life
Freedom from
routine, boring,
and unchallenging
jobs
EXHIBIT 1-2
Rewards of
Entrepreneurship
03900_01_Ch01.indd 11 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Part 1 Entrepreneurial Opportunity 12
NEL
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. Entrepreneurs must assume a
variety of risks related to business failure. While the probability of business failure is often
overstated, the 6,729 business bankruptcies and proposals reported in Canada in 2009
Entrepreneurial Experiences
Profile of a Serial Entrepreneur
A serial entrepreneur is someone who possesses all the characteristics of a entrepre-
neur; however, he is not tied to one business concept as he will start a business, get
it up and running, and then divest himself of the business and move on to the next.
Whereas a traditional entrepreneur may view her business as a career, the serial entre-
preneur views entrepreneurship as his profession. In Canada, serial entrepreneurs
are on the rise; they represent approximately 1 in 7 entrepreneurs in Canada and are
usually between the ages of 18 and 54.
Ontario native Lorne Abony worked as a securities lawyer at a large corporate
law firm but gave up the profession when he realized it wasn’t for him; he wanted to
be able to apply his creativity and knowledge, and entrepreneurship seemed to be
calling. In high school he put on a Battle of the Bands contest and then later, while
in law school, he designed a business model whereby law students would defend indi-
viduals in traffic court. By this time, Abony was hooked and knew that entrepreneur-
ship was where he wanted to be.
He left the world of corporate law and in 1997 founded Petopia.com, an online
pet supply business, selling the company in 2000 to Petco Animal Supplies. His
interest in the Internet continued, as he went on to start Fun Technologies in 2001, a
company that focused on online skill games (such as chess, Scrabble, bridge, checkers
and solitaire), that managed to garner a fair bit of attention from equity investors,
raising over $160 million in financing. After selling that company in 2007 for $484 mil-
lion, he invested in Fluid Music Canada Inc., a company that provides in-store media
(a mix of music, visual, and scent media) to about 800 retail chains in more than
30 countries throughout North America, Europe, Asia, and Australia. The company
has followed an aggressive growth strategy, acquiring industry giants Mood Media
Group in 2010 and Muzak Holdings in 2011. You can read more about Lorne Abony
and his global company, now known as Mood Media, in Chapter 15 when we discuss
growth strategies.
According to this serial entrepreneur, the key to entrepreneurial success is not just
the idea; it’s having the ability to execute an idea and never giving up. As he explains,
“The key to being successful in an entrepreneurial venture is just fighting through
those times when you really think you’re done.”
Sources: Christine Dobby, “This Is My Favourite Place to Be,” Telegraph-Journal, June 19, 2010,
available athttp://telegraphjournal.canadaeast.com/front/article/1100983 (accessed August 10,
2011); BDC Fondation de l’entrepreneurship, Canadian Entrepreneurship Status 2010, available
at www.bdc.ca/Resources%20Manager/misc/CES_2010_EN%20Final.pdf (accessed August 10,
2011); Peter E. Newman, “The New Masters of the Universe: Lorne Abony,” Maclean’s,
October 1, 2007, available at www.macleans.ca/science/technology/article.jsp?content=
20071001_110036_110036 (accessed August 10, 2011).
IN THE TRENCHES
03900_01_Ch01.indd 12 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Chapter 1 Entrepreneurs 13
NEL
Entrepreneurial Experiences
Challenges and Rewards
5
Regardless of the motivations for starting a business small business, owners soon
find that running a business requires that obstacles be overcome and battles be
fought. The biggest hurdle for small business owners is finding new customers
and markets, with 59 percent of respondents reporting this as one of their main
challenges. Dealing with finances and paperwork are other challenges. A number
of regional differences are also noteworthy, with entrepreneurs from the Prairies
being challenged by employment issues and tax obligations. Respondents from
Quebec found paperwork most troublesome, while business owners from British
Columbia are the least likely to indicate that regulation and red tape are obstacles.
For more than 57 percent of respondents, a typical work week is more than 45 hours
long (see Exhibit 1-4 on p. 14). In fact, about one fifth of respondents say they usually
work more than 60 hours per week. Twenty-six percent 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.
IN THE TRENCHES
Other
Dealing with
technology
Developing the firm’s
products services
Keeping ahead of
tax obligations
% Response
Dealing with
employment issues
Keeping up with
competition
Govt regulations and
paperwork
Dealing with finances
Finding new customers/
markets
58.6
45.7
41.8
34.1
31.8
26.6
26.1
21.2
4.8
EXHIBIT 1-3
Entrepreneurs’ Biggest Challenges to Run a Business
Source: “Small Business, Big Value,” October 2007, athttp://www.cfib.ca/research/reports/rr3040.pdf.
Reprinted by permission of the CFIB.
(Continued)
03900_01_Ch01.indd 13 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Part 1 Entrepreneurial Opportunity 14
NEL
Source: “Small Business, Big Value,” October 2007, athttp://www.cfib.ca/research/reports/
rr3040.pdf. Reprinted by permission of the CFIB.
The majority of Canadian entrepreneurs find multiple rewards for running a busi-
ness, with enjoying the work, the independence and control, and personal drive stated
as their key motivators.
Source: “Small Business, Big Value,” October 2007, athttp://www.cfib.ca/research/reports/
rr3040.pdf. Reprinted by permission of the CFIB.
More than
60 hours
18.4%
35 hours
or less
25.9%
53 to 60
hours
23.9%
36 to 45
hours
18.8%
46 to 52
hours
15%
EXHIBIT 1-4
Entrepreneurs Number of Hours of Work per Week
Other
I was committed to the
family business
I could not find suitable job
opportunities at the time
I had a great idea for a business
that I wanted to pursue
I saw it as a path to
financial freedom
I wanted to make better use
of my skills and knowledge
I saw that it fits well
with my lifestyle
I wanted to be my own boss
and make my own decisions
58.3
39.0
36.1
35.2
22.6
15.2
9.3
5.6
% Response
EXHIBIT 1-5
Reasons for Becoming Small Business Owners
03900_01_Ch01.indd 14 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Chapter 1 Entrepreneurs 15
NEL
clearly indicate that the possibility of failure is very real. However, the number of busi-
ness insolvencies per 1,000 in Canada dropped from a high of 8.1 in 1998 to 2.9 in 2009.
6
In deciding on an entrepreneurial career, therefore, you should look at both positive
and negative aspects. The drawbacks of hard work, emotional stress, and risk require a
degree of commitment and some sacrifice on your part if you expect to reap the rewards.
CAUSES OF BUSINESS FAILURE
Extensive research conducted by Stewart Thornhill and Raphael Amit suggests that
failure among younger firms in the start-up or post-start-up phases is attributable to lack
of managerial and financial abilities. Older firms may have developed management pro-
cedures but may fail because they do not adapt to a competitive environment. Failure
also varies by industry, with bankruptcies in the food, construction, transportation, and
agriculture sectors identified as frequent failures, while retail and wholesale insolven-
cies were more common for senior enterprises. The emergence of e-commerce and big-
box outlet stores may have eroded the competitive position of established businesses.
7
In a broader study the causes for bankruptcy have been qualified as follows:
• 32 percent because of inadequate research and development
• 23 percent lacked competitive advantage
• 14 percent due to uncontrolled costs
• 13 percent due to poorly developed marketing strategies
• 10 percent because of poor market timing
• 8 percent succumbed to competitor activities*
, 8
Techniques for reducing the risk of failure will be addressed in Chapter 2.
THE MANY VARIETIES OF ENTREPRENEURSHIP
Entrepreneurship is marked by diversity—that is, there is great variety both in the
people and in the firms termed entrepreneurial. As a potential entrepreneur, you should
be encouraged by this diversity; you do not need to fit a narrow stereotype.
FOUNDER ENTREPRENEURS VERSUS OTHER BUSINESS OWNERS
AND FRANCHISEES
Generally considered to be “pure” entrepreneurs, founders may be inventors who ini-
tiate businesses on the basis of new or improved products or services. They may also be
artisans who develop skills and then start their own firms. Or they may be enterprising
individuals, often with marketing backgrounds, who draw on the ideas of others in
starting new firms. Whether acting as individuals or as part of a group, founders bring
firms into existence by surveying the market, raising funds, and arranging for the nec-
essary facilities. The process of starting an entirely new business is discussed in detail
in Chapter 2.
The research of J. Robert Baum confirms that successful founders use an entre-
preneurial thinking style to cope with uncertainty and opportunities. His three-year
study of 122 small businesses indicated that successful founders create a clear vision of
their venture, apply their skills from past experience, borrow to overcome insufficient
Describe the various
types of entrepre-
neurs and entrepre-
neurial ventures.
5
founder
an entrepreneur who
brings a new firm
into existence
*From Steve Bareham, “Planning to Fail Can Spell Success,” 1999, CanadaOne. Reprinted by permission.
03900_01_Ch01.indd 15 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Part 1 Entrepreneurial Opportunity 16
NEL
personal funds, adapt goals to manage problems and seize opportunities, and experi-
ment. He suggests a zigzag pattern of quick responses to surprises and shortages con-
tributed to their success.
9
At some point after a new firm is established, it may be purchased or taken over by a
second-generation family member or another entrepreneur who acts as administrator of
the business. These “second-stage” entrepreneurs do not necessarily differ greatly from
founding entrepreneurs in the way they manage their businesses. Sometimes, their well-
established small firms grow rapidly, and their orientation may be more akin to that of
a founder than to that of a manager. Nevertheless, it is helpful to distinguish between
entrepreneurs who found or substantially change firms (the “movers and shakers”) and
those who direct the continuing operations of established firms.
Another category of entrepreneurs comprises franchisees. Franchisees differ from
other business owners in the degree of their independence. Because of the constraints
and guidance provided by contractual relationships with franchising organizations,
some consider franchisees to be limited entrepreneurs. Chapter 4 presents more infor-
mation about franchisees.
HIGH-POTENTIAL VENTURES VERSUS ATTRACTIVE
SMALL FIRMS AND MICROBUSINESSES
Small businesses differ drastically in their growth potential. Amar V. Bhide, who studied
the nature of entrepreneurial businesses, distinguished between promising start-ups
and marginal start-ups.
10
According to Bhide, promising start-ups are those with the
potential for attaining significant size and profitability, while marginal start-ups lack
such prospects.
The few businesses that have such glowing prospects for growth are called
high-potential ventures, or gazelles. Even within this group, there is variation in styles
of operation and approaches to growth. Some are high-tech start-ups—these success
stories often feature a technology wizard with a bright idea, backed by venture capital-
ists eager to underwrite the next Microsoft. When such companies prosper, they usually
grow at blinding speed and make their founders wealthy by being sold or going public.
In contrast to such high-potential ventures, attractive small firms offer substantial
financial rewards for their owners. Income from these entrepreneurial ventures may
easily range from $100,000 to $500,000 or more annually. They represent a strong seg-
ment of small businesses—solid, healthy firms that can provide rewarding careers.
The least profitable types of firms, including many service firms such as dry cleaners,
beauty salons, and appliance repair shops, provide only very modest returns to their
owners. They are called microbusinesses, and their distinguishing feature is their lim-
ited ability to generate significant profits. Entrepreneurs who devote personal effort to
such ventures receive a profit that does little more than compensate them for their time.
Many businesses of this type are also called lifestyle businesses because they permit
an owner to follow a desired pattern of living, even though they provide only modest
returns. Businesses of this type do not attract investors.
A major trend in lifestyle businesses in Canada is the mompreneur, a woman who
starts a business because she’s been inspired by being a mother, and typically wants
more control over her life. The online community has been a tremendous support
to this unique type of entrepreneur, with websites such as themompreneur.com and
momtomom.ca providing information, resources, and forums to assist women in their
business endeavours. Mompreneur Trade Shows have been held in Toronto, Calgary,
franchisee
an entrepreneur
whose power is
limited by a con-
tractual relationship
with a franchising
organization
high-potential
venture (gazelle)
a small firm that has
great prospects for
growth
attractive small
firm
a small firm that
provides substantial
profits to its owner
microbusiness
a small firm that pro-
vides minimal profits
to its owner
lifestyle business
a microbusiness that
permits the owner
to follow a desired
pattern of living
03900_01_Ch01.indd 16 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Chapter 1 Entrepreneurs 17
NEL
and Vancouver. Most recently, the 50 Top Mompreneurs for 2010 were announced.
An example of a successful mompreneur-type business is Pippalily baby slings, started
by Toronto mother Victoria Turner in 2008, offering functional yet fashionable baby
slings and other baby accessories through her online store (pippalily.com) as well as in
75 stores across Canada.
11
ARTISAN VERSUS OPPORTUNISTIC ENTREPRENEURS
Because of their varied backgrounds, entrepreneurs display differences in the degrees
of professionalism and in the management styles they bring to their businesses. The
ways in which they analyze problems and approach decision making may differ radi-
cally. Norman R. Smith has suggested two basic entrepreneurial patterns, exemplified
by artisan (or craftsperson) entrepreneurs and opportunistic entrepreneurs.
12
According to Smith, the education of the artisan entrepreneur is limited to technical
training. Such entrepreneurs have technical job experience, but they typically lack
good communication skills and managerial training. Artisan entrepreneurs’ approach
to business decision making is often characterized by the following features:
• They are paternalistic—they guide their businesses much as they might guide their
own families.
• They are reluctant to delegate authority.
• They use few (usually only one or two) capital sources to create their firms.
• They define marketing strategy in terms of the traditional components of price,
quality, and company reputation.
• Their sales efforts are primarily personal.
• Their time orientation is short, with little planning for future growth or change.
A mechanic who starts an independent garage, an aesthetician who operates a salon,
or a painter who opens a studio is an example of an artisan entrepreneur.
In contrast to the artisan entrepreneur, an opportunistic entrepreneur is one who has
supplemented his or her technical education by studying nontechnical subjects such as busi-
ness, accounting, or marketing. Opportunistic entrepreneurs generally avoid paternalism,
delegate authority as necessary for growth, employ various marketing strategies and types of
sales efforts, obtain original capitalization from more than two sources, and plan for future
growth. An example of an opportunistic entrepreneur is a small building contractor and
developer who adopts a relatively sophisticated approach to management, including careful
record keeping and budgeting, precise bidding, and systematic marketing research.
Smith’s description of entrepreneurial styles illustrates two extremes: At one end is a
craftsperson in an entrepreneurial position, and at the other end is a well-educated and
experienced manager. The former “flies by the seat of the pants,” and the latter uses
systematic management procedures and something resembling a scientific approach. In
practice, of course, the distribution of entrepreneurial styles is less polarized than that
suggested by Smith’s model, with entrepreneurs scattered along a continuum of mana-
gerial sophistication. This book is intended to help you move toward the opportunistic
and away from the artisan end of the continuum.
ENTREPRENEURIAL TEAMS
The discussion so far has implied that entrepreneurs always function as individuals,
each with his or her own firm. And, of course, this is usually the case. However, entrepre-
neurial teams are becoming increasingly common, particularly in ventures of substantial
artisan
entrepreneur
a person with pri-
marily technical
skills and little busi-
ness knowledge who
starts a business
opportunistic
entrepreneur
a person with both
sophisticated mana-
gerial skills and tech-
nical knowledge who
starts a business
03900_01_Ch01.indd 17 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Part 1 Entrepreneurial Opportunity 18
NEL
size. An entrepreneurial team is formed when two or more individuals come together to
function as entrepreneurs.
By forming a team, founders can secure a broader range of managerial talents than
might otherwise be possible. For example, a person who has manufacturing experience
can team up with a person who has marketing experience. The need for such diversified
experience is particularly acute in new technology businesses.
GETTING STARTED IN ENTREPRENEURSHIP
Starting any type of business career is exciting. Launching one’s own business, however,
can be absolutely breathtaking because of the extreme risk and great potential in such
ventures. Before we examine the nuts and bolts of the start-up process, let’s think for a
moment about start-ups and getting one’s feet wet in entrepreneurial waters. There are,
in fact, four kinds of entrepreneurial opportunities, or routes to entrepreneurship, and
each requires proper preparation.
FOUR ROUTES TO ENTREPRENEURSHIP
As noted earlier, the term entrepreneur is sometimes restricted to those who build entirely
new businesses, in which case the only real entrepreneurial career opportunity is starting
a new firm. If the concept is broadened to include various independent business options,
it is apparent that launching an entirely new business is only one of four alternatives:
1. Starting a new business
2. Entering a family business
3. Opening a franchised business
4. Buying an existing business
By following any one of these four paths, an individual can become an independent
business owner. Chapters 2–4 will discuss these options in greater detail.
AGE, GENDER, AND ENTREPRENEURIAL OPPORTUNITY
One question faced by many prospective entrepreneurs, especially those who are stu-
dents, is “What is the best age for getting started?” As you might guess, there is no
entrepreneurial
team
two or more people
who work together
as entrepreneurs
Discuss several factors
related to readiness
for entrepreneurship
and getting started
in an entrepreneurial
career.
6
Early Career Concerns
1. Getting an education
2. Gaining work experience
3. Acquiring financial
resources
Late Career Concerns
1. Fulfilling family
responsibilities
2. Attaining seniority
in employment
3. Earning investment in
a retirement program
20 35 25 45
Age
EXHIBIT 1-6
Age Concerns in
Starting a Business
03900_01_Ch01.indd 18 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Chapter 1 Entrepreneurs 19
NEL
simple answer. Most businesses require some background knowledge. In addition, most
prospective entrepreneurs must build their financial resources in order to make the
necessary initial investments. A certain amount of time is usually required, therefore, to
gain education, experience, and financial resources.
Though there are no hard and fast rules concerning the right age for starting a
business, some age deterrents do exist. As Exhibit 1-6 shows, young adults are often dis-
couraged from entering entrepreneurial careers by inadequacies in their preparation
and resources. On the other hand, older adults develop family, financial, and job com-
mitments that make entrepreneurship seem too risky; they may have acquired interests
in retirement programs or achieved promotions to positions of greater responsibility
and higher salaries.
This seems to infer that the ideal age for entrepreneurship is mid 20s to mid 30s,
where there is a balance between preparation, experience, and family obligations. As
Canada’s population continues to age and more business owners exit the market, fos-
tering a new generation of entrepreneurs becomes even more important than ever.
Entrepreneurial Experiences
Young Entrepreneurs Quit Corporate Identity
Pablo Salzman is on a fast track: just 23, he and two pals unveiled their second busi-
ness last month, an online community that aims to be a socially conscious alterna-
tive to Facebook, the popular networking website. Inspired by Internet millionaires,
disillusioned by the loss of job security in the corporate world and being experts at
exploiting technology tools, more 20- to 30-somethings are starting businesses than
ever before. Pablo is a serial entrepreneur.
About three years ago, he and two partners started Blue Horizon Media, a mar-
keting company that devises Internet-based campaigns for clients trying to reach
young consumers. Last month the same partners launched Rethos.com, a networking
website than connects individuals, companies, and nonprofits interested in social
and environmental issues. Salzman; his partners Alex Salzman (a cousin) and Chris
Advansun; and their team of remote employees are based in different cities. They
communicate using Skype and other technologies.
Bakr Ibrahim is seeing more young people choosing entrepreneurship as a
career. He teaches at Concordia University’s school of business where it has become
a core course. “Young people have realized there’s no more guaranteed employment
if they join a large company,” said Ibrahim. The rising importance of the service
and technology sectors is also feeding the growth in entrepreneurship according
to Ibrahim. Companies in these sectors “don’t require too much capital or physical
assets,” he said.
Louis Jacques Filion’s classes are also filling with students who want to be their
own bosses. Many of his students saw relatives let go by big companies and want to
know how to go out on their own in case they too are laid off.
Source: Sarah Dougherty, CanWest News Service, “Young Entrepreneurs Quit Corporate
Uncertainty,” Calgary Herald, October 15, 2008, p. B6.
IN THE TRENCHES
03900_01_Ch01.indd 19 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Part 1 Entrepreneurial Opportunity 20
NEL
REFUGEES AS ENTREPRENEURS
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. Indeed, it is often a mixture of positive and nega-
tive considerations that provides the motivation.
THE FOREIGN REFUGEE
Many individuals escape the political, religious, or economic constraints of their home-
land by crossing national boundaries. Frequently, such foreign refugees face discrimina-
tion in seeking salaried employment in the new country. As a result, many go into business
for themselves. As of 2009, new immigrant majority-owned enterprises represented about
3 percent of small- and medium-sized businesses in Canada and these businesses were
located primarily in Ontario (46 percent) and British Columbia (18 percent).
13
THE CORPORATE REFUGEE
Individuals who flee the bureaucratic environment of big (or even medium-sized) firms
by going into business for themselves are identified by Knight as corporate refugees.
Employees of large corporations often find the corporate atmosphere and/or the relo-
cations required by their jobs to be undesirable. Entrepreneurship provides an attrac-
tive alternative for many such individuals. Matt Hill and his partner James Kane recently
started a second venture installing coin-counting machines in retail outlets. When asked
why he quit the corporate world to launch his own company he voiced his disenchant-
ment with the former in five words: “the suits and the culture.” “They don’t think
outside the box—it is very structured. I work the same number of hours for myself, but
I have flexibility.” After completing an MBA, and working at a financial management
firm, Hill quit to start a juice bar called Liquid Nutrition. He and rugby buddy James
Kane, who is a chartered accountant, sold the business to launch Change for Change.
Coin counters swallow change, read the coins, and provide a receipt users can redeem
for cash or spend in stores. Hill and Kane make money on the commission, charged on
the amount counted.
14
PRECIPITATING EVENTS
A number of prospective entrepreneurs plan for and seek out independent business
opportunities. However, as the types of refugees suggest, many who actually make the
move are stimulated by a precipitating event, such as job termination, job dissatisfac-
tion, or an unexpected opportunity.
Criticizing management has the potential for creating change—especially in the
life of the critic! Many other types of experiences also serve as catalysts, hastening the
plunge into entrepreneurship. Some individuals become so disenchanted with formal
academic programs that they simply walk away from the classroom and start new lives as
entrepreneurs. Others become exasperated with rebuffs or perceived injustices at the
hands of superiors in large organizations and leave in disgust to start their own busi-
nesses. In a more positive vein, still other entrepreneurs unexpectedly stumble across
business opportunities.
It is difficult to say what proportion of new entrepreneurs makes their move because
of one event. However, many who launch new firms or otherwise go into business for
themselves are helped along by precipitating events.
refugee
a person who
becomes an entre-
preneur to escape an
undesirable situation
foreign refugee
a person who leaves
his or her native
country and becomes
an entrepreneur in
the new country
corporate refugee
a person who leaves
big business to go
into business for
him- or herself
precipitating event
an event, such as
losing a job, that
moves an indi-
vidual to become an
entrepreneur
03900_01_Ch01.indd 20 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Chapter 1 Entrepreneurs 21
NEL
Describe some
characteristics of
successful
entrepreneurs.
7
internal locus
of control
a belief that one’s
success depends on
one’s own efforts
external locus
of control
a belief that one’s
life is controlled
more by luck or fate
than by one’s own
efforts
CHARACTERISTICS OF SUCCESSFUL
ENTREPRENEURS
What kinds of people become successful entrepreneurs? As already mentioned, no well-
defined entrepreneurial profile exists; individual entrepreneurs differ greatly from each
other. Knowing this should encourage you if you wish to start your own business: You do
not need to fit some prescribed stereotype.
Some qualities, however, are common among entrepreneurs and probably con-
tribute to their success. One of these characteristics is a strong commitment to or pas-
sion for the business. It is an attitude that results in tenacity in the face of difficulty and
a willingness to work hard. Entrepreneurs do not give up easily.
Such individuals are typically confident of their ability to meet the challenges con-
fronting them. This factor of self-confidence was described by psychologist J. B. Rotter as an
internal locus of control—a feeling that success depends on one’s own efforts.
15
In contrast,
an external locus of control reflects an attitude of dependence on luck or fate for success.
Entrepreneurs are often portrayed as risk takers. Certainly, they do assume risk. By
investing their own money, they assume financial risk. If they leave secure jobs, they risk
their careers. The stress and time required to start and run a business may place their
families at risk. Even though entrepreneurs assume risk, they are what we might term
moderate risk takers—accepting risks over which they have some control—rather than
extreme risk takers, who accept outcomes depending purely on chance.
Jeffry Timmons and Stephen Spinelli have summarized research on entrepreneurial
characteristics.
16
They group what they describe as “desirable and acquirable attitudes
and behaviours” into the following six categories:
1. Commitment and determination. Such entrepreneurs are tenacious, decisive, and
persistent in problem solving.
2. Leadership. Such entrepreneurs are self-starters and team builders, and focus on
honesty in their business relationships.
3. Opportunity obsession. Such entrepreneurs are aware of market and customer needs.
4. Tolerance of risk, ambiguity, and uncertainty. Such entrepreneurs are risk takers, risk
minimizers, and uncertainty tolerators.
5. Creativity, self-reliance, and adaptability. Such entrepreneurs are open-minded,
flexible, uncomfortable with the status quo, and quick learners.
6. Motivation to excel. Such entrepreneurs are goal oriented and aware of their weak-
nesses and strengths.*
GROWING AND MANAGING THE BUSINESS
An airplane pilot not only controls the plane during takeoff but also flies it and lands it.
Similarly, entrepreneurs not only launch firms but also “fly” them; that is, they manage
their firm’s subsequent operation. In this book, you will find a discussion of the entire
entrepreneurial process. It begins in the remainder of Part 1 with planning and the
various methods of launching a venture including acquisition and franchising. This dis-
cussion is followed in Part 2 with a look at a firm’s marketing strategy. Part 3 deals with
the management of a growing business, including its human resources, operations, and
finances. Part 4 addresses special issues such as corporate turnaround and harvesting.
*Jeffry A. Timmons and Stephen Spinelli, New Venture Creation: Entrepreneurship for the 21st Century
(New York: McGraw-Hill/Irwin, 2007), pp. 249–55.
03900_01_Ch01.indd 21 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Part 1 Entrepreneurial Opportunity 22
NEL
L OOKI NG BAC K
Discuss the availability of entrepreneurial
opportunities and give examples of successful
businesses started by entrepreneurs.
• An entrepreneurial opportunity is a desirable and
timely innovation that creates value for interested
buyers and end users.
• Exciting entrepreneurial opportunities exist for those
who recognize them. However, a true opportunity
exists only for those who have the interest, resources,
and capabilities required to succeed.
Explain the nature of entrepreneurship and
how it is related to small business.
• Entrepreneurs are individuals who discover market
needs and launch new firms to meet those needs.
• Owner-managers who buy out founders of existing
firms, franchisees, and second-generation operators
of family firms may also be considered entrepreneurs.
• Definitions of small business are arbitrary, but this
book focuses on firms of fewer than 100 employees
that have mostly localized operations and are
financed by a small number of individuals.
• Most entrepreneurial firms are small when they begin,
but a few grow (some very quickly) into large businesses.
Define small business and identify the impor-
tance of small business.
• Small business definitions are necessarily arbitrary
and differ according to purpose.
• Canadian standards vary; Canada Revenue Agency
uses profits (less than $200,000), Statistics Canada
uses number of employees (fewer than 50 = small;
51–500 = medium-sized).
Identify rewards and drawbacks of entrepre-
neurial careers.
• Entrepreneurial motivators or rewards include profit,
independence, freedom (escaping from a bad situa-
tion), personal satisfaction, and personal fulfillment.
• Drawbacks to entrepreneurship include hard work,
personal stress, and danger of failure.
Describe the various types of entrepreneurs
and entrepreneurial ventures.
• Founders of firms are “pure” entrepreneurs, but those
who acquire established businesses and franchisees
may also be considered entrepreneurs.
• A few entrepreneurs start high-potential ventures
(gazelles); other entrepreneurs operate attractive
small firms and microbusinesses.
• Based on their backgrounds and management styles,
entrepreneurs may be characterized as artisan entre-
preneurs or opportunistic entrepreneurs.
• Entrepreneurial teams consist of two or more individuals
who combine their efforts to function as entrepreneurs.
Discuss several factors related to readiness
for entrepreneurship and getting started in an
entrepreneurial career.
• The period between the mid-20s and mid-30s appears
to be when a person’s education, work experience,
family situation, and financial resources are most likely
to enable him or her to become an entrepreneur.
• Entry into entrepreneurial careers is often triggered
by a precipitating event, such as losing a job.
• Once a business is launched, the entrepreneur must
manage growth of the business and issues related to
its ongoing operation.
Describe some characteristics of successful
entrepreneurs.
• There is no well-defined entrepreneurial profile, but
many entrepreneurs have characteristics such as a
passion for their business, strong self-confidence, and
a willingness to assume moderate risks.
• Successful entrepreneurs are also thought to possess
leadership skills, a strong focus on opportunities,
creativity, adaptability, and motivation to excel.
KE Y T E RMS
artisan entrepreneur, p. 17
attractive small firm, p. 16
corporate refugee, p. 20
entrepreneur, p. 6
entrepreneurial opportunity, p. 4
entrepreneurial team, p. 18
external locus of control, p. 21
foreign refugee, p. 20
founder, p. 15
franchisee, p. 16
high-potential venture (gazelle),
p. 16
internal locus of control, p. 21
lifestyle business, p. 16
microbusiness, p. 16
opportunistic entrepreneur, p. 17
precipitating event, p. 20
refugee, p. 20
1
2
3
4
5
6
7
03900_01_Ch01.indd 22 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Chapter 1 Entrepreneurs 23
NEL
of the features articulated by Robert Baum.
What are they?
5. Why is the period from the mid-20s to the
mid-30s considered to be the best time of life
for becoming an entrepreneur?
6. What would be your primary motivator for
starting a venture?
7. What is a precipitating event? Give some
examples.
1. What is meant by the term entrepreneur?
2. Consider an entrepreneur you know person-
ally. What was the most significant reason for
his or her deciding to follow an independent
business career? If you don’t already know the
reason, discuss it with that person.
3. What is the difference between an artisan
entrepreneur and an opportunistic
entrepreneur?
4. Doug Burgoyne, featured “In the Spotlight”
on pages 2–3 would appear to have many
DISCUSSION QUESTIONS
YOU MAKE THE CALL
SITUATION 1
In the following statement, a business owner
attempts to explain and justify his preference for
slow growth in his business.
I limit my growth pace and make every effort to
service my present customers in the manner they
deserve. I have some peer pressure to do otherwise
by following the advice of experts—that is, to take
on partners and debt to facilitate rapid growth in
sales and market share. When tempted by such
thoughts, I think about what I might gain. Per-
haps I could make more money, but I would also
expect a lot more problems. Also, I think it might
interfere somewhat with my family relationships,
which are very important to me.
Question 1 Should this venture be regarded
as entrepreneurial? Is the owner a true
entrepreneur?
Question 2 Do you agree with the philosophy
expressed here? Is the owner really doing what
is best for his family?
Question 3 What kinds of problems is this owner
trying to avoid?
SITUATION 2
Maria Potenia has just graduated from university.
She has developed a new idea for a floating security
device that could be used by police agencies or com-
mercial properties to “float” across floors; directed
by remote control, the device sends digital mes-
sages to a control centre. The device would reduce
costs for commercial properties that do not want to
install security cameras throughout their building,
and would help police to determine the risk of
potentially dangerous situations without sending
in staff. Maria developed the product while taking
a fourth-year engineering course. She has met with
several of her professors, as well as the representa-
tive of a major security-device manufacturing firm.
They have indicated the product has strong poten-
tial and that she should work on a venture launch.
Question 1 What type of venture could this
potentially be?
Question 2 What type of entrepreneur would she be?
Question 3 What are the benefits that Maria
would anticipate by owning her own firm? What
are the risks?
03900_01_Ch01.indd 23 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Part 1 Entrepreneurial Opportunity 24
NEL
3. Interview someone who has started a business,
being sure to ask for information regarding the
entrepreneur’s background and age at the time
the business was started. In the report of your
interview, indicate whether the entrepreneur
was in any sense a refugee and show how the
timing of her or his start-up relates to the ideal
time for start-up explained in this chapter.
1. Analyze your own education and experience
as qualifications for entrepreneurship. Iden-
tify your greatest strengths and weaknesses.
2. Explain your own interest in each type of
entrepreneurial reward—profit, indepen-
dence, and a satisfying way of life. Point out
which of these is most significant for you per-
sonally and explain why.
EXPERIENTIAL EXERCISES
EXPLORING THE WEB
1. There’s no time like the present. Go to the
textbook website at www.longenecker5e
.nelson.com, if you haven’t done so already,
to learn what’s there and how to navigate
the site.
a. Click on the student resources, and then
follow the link to the self-assessments.
Take at least one of the self-assessments,
which will help you learn more about the
skills needed to be an entrepreneur. What
did you discover about yourself?
CASE 1
DORI’S DIAMONDS (P. 487)
This case tells the story of a student-entrepreneur
who has grown her original business into three
complementary businesses and considers the chal-
lenges she faces as the businesses grow.
ALTERNATIVE CASES FOR CHAPTER 1
Case 2, eHarmony, p. 490
Case 3, Smitty’s Li’l Haulers, p. 492
Case 5, The Ultimate Garage, p. 498
Case 11, Prestige Dance Academy, p. 514
Case 13, My Own Money, p. 520
03900_01_Ch01.indd 24 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
NEL
Endnotes
555
10. Amar V. Bhide, The Origin and Evolution of New
Businesses (New York: Oxford University Press,
2000), Chapter 1.
11. Andrea Gordon, “Mompreneurs Boom,” The Toronto
Star, April 4, 2008, available athttp://pippalily.
com/index.php
12. Norman R. Smith, The Entrepreneur and His Firm:
The Relationship between Type of Man and Type
of Company (East Lansing, MI: Bureau of Business
and Economic Research, Michigan State University,
1967). Also see Norman R. Smith and John B. Miner,
“Type of Entrepreneur, Type of Firm, and Manage-
rial Motivation: Implications for Organizational Life
Cycle Theory,” Strategic Management Journal, vol. 4,
no. 4 (October–December 1983), pp. 325–40; and
Carolyn Y. Woo, Arnold C. Cooper, and William C.
Dunkelberg, “The Development and Interpretation of
Entrepreneurial Typologies,” Journal of Business
Venturing, vol. 6, no. 2 (March 1991), pp. 93–114.
13. Government of Canada, SME Financing Data
Initiative, Key Small Business Financing Statistics
December 2009, available at www.sme-fdi.gc.ca/
eic/site/sme_fdi-prf_pme.nsf/eng/02178.html
(accessed August 12, 2011).
14. Sarah Dougherty for CanWest News Service,
Montreal, “Young Entrepreneurs Quit Corporate Uncer-
tainty,” Calgary Herald, October 15, 2001, p. B6.
15. J. B. Rotter, “Generalized Expectancies for
Internal versus External Control of Reinforce-
ment,” Psychological Monographs, 1966. A more
recent review is given in Robert H. Brockhaus, Sr.,
and Pamela S. Horwitz, “The Psychology of the
Entrepreneur,” in Donald L. Sexton and Raymond W.
Smilor (eds.), The Art and Science of Entrepreneur-
ship (Cambridge, MA: Ballinger, 1986), pp. 25–48.
16. Jeffry A. Timmons and Stephen Spinelli, New Venture
Creation: Entrepreneurship for the 21st Century (New
York: McGraw-Hill/Irwin, 2007), pp. 249–55.
Chapter 1
1. Canadian Entrepreneurship Status 2010, BDC,
July 2010, available at www.bdc.ca/Resources%20
Manager/misc/CES_2010_EN%20Final.pdf (accessed
August 8, 2011); “Starting a Business,” RBC Royal
Bank, available at www.rbc.com/canada/_assets-
custom/pdf/Starting%20a%20Business%2057749%20
English.pdf (accessed August 8, 2011); and Statistics
Canada, Labour Force Survey, March 2010.
2. Industry Canada, Key Small Business Statistics,
July 2010, available at www.ic.gc.ca/eic/site/sbrp-
rppe.nsf/eng/rd02493.html (accessed August 9, 2011).
3. Aneliese Debus, “Small Business, Big Value,”
Canadian Federation of Independent Business
(October 2007) at www.cfib.ca
4. Based on “Key Small Business Statistics—December
2009,” available at www.ic.gc.ca/eic/site/sbrp-
rppe.nsf/vwapj/KSBS-PSRPE_July-Juillet2010_eng.
pdf/$FILE/KSBS-PSRPE_July-Juillet2010_eng.pdf
(accessed August 10, 2011).
5. Text and exhibits from “Small Business, Big Value,”
October 2007, athttp://www.cfib.ca/research/
reports/rr3040.pdf. Reprinted by permission of the
CFIB.
6. Insolvency Statistics in Canada 2009, available at
www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br02345.html
7. Stewart Thornhill and Raphael Amit, Learning about
Failure: Bankruptcy, Firm Age and the Resource-based
View (Richard Ivey School of Business/The Wharton
School, University of Pennsylvania, n.d.).
8. Steve Bareham, “Planning to Fail Can Spell
Success,” available at www.Canadaone.com
(accessed September 1999).
9. “Entrepreneurs’ Start-up Cognitions and Behaviours:
Dreams, Surprises, Shortages, and Fast Zigzags,”
available at www.babson.edu/entr/fer (accessed
January 10, 2005).
03900_18_Endnotes.indd 555 12/26/11 5:06 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
doc_997808305.pdf
In this criteria in relation to small business management, fifth canadian edition.
03900_00_FM.indd xvi 12/26/11 5:43 PM
Licensed to: CengageBrain User
03900_00_FM.indd xvi 12/26/11 5:43 PM
This is an electronic version of the print textbook. Due to electronic rights restrictions,
some third party content may be suppressed. Editorial review has deemed that any suppressed
content does not materially affect the overall learning experience. The publisher reserves the right
to remove content from this title at any time if subsequent rights restrictions require it. For
valuable information on pricing, previous editions, changes to current editions, and alternate
formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword for
materials in your areas of interest.
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Vice President, Editorial
Higher Education:
Anne Williams
Acquisitions Editor:
Alwynn Pinard
Marketing Manager:
David Stratton
Developmental Editor:
Elke Price
Photo Researcher/
Permissions Coordinator:
Kristiina Paul
Senior Content Production
Manager:
Imoinda Romain
Production Service:
Integra
Copy Editor:
Karen Rolfe
Proofreader:
Integra
Indexer:
Integra
Manufacturing Manager:
Joanne McNeil
Design Director:
Ken Phipps
Managing Designer:
Franca Amore
Interior Design Modifications:
Peter Papayanakis
Cover Design:
Peter Papayanakis
Cover Image:
Kathryn Hollinrake, Hollinrake
Photography
Compositor:
Integra
Printer:
Edwards Brothers
Small Business Management, Fifth Canadian Edition
by Justin G. Longenecker, Leo B. Donlevy, Terri Champion,
J. William Petty, Leslie E. Palich, and Carlos W. Moore
COPYRIGHT © 2013, 2010
by Nelson Education Ltd.
Adapted from Small Business
Management, Fifteenth Edition,
by Justin G. Longenecker,
J. William Petty, Leslie E. Palich,
Carlos W. Moore, published by
South-Western Cengage Learning
Copyright © 2010 by South-
Western, a part of Cengage
Learning.
Printed and bound in the United
States of America
1 2 3 4 15 14 13 12
For more information contact
Nelson Education Ltd.,
1120 Birchmount Road, Toronto,
Ontario, M1K 5G4. Or you can visit
our Internet site athttp://www.nelson.com
Statistics Canada information is used
with the permission of Statistics
Canada. Users are forbidden to copy
this material and/or redisseminate the
data, in an original or modified
form, for commercial purposes,
without the expressed permissions of
Statistics Canada. Information on the
availability of the wide range of data
from Statistics Canada can be obtained
from Statistics Canada's Regional
Offices, its World Wide Web site at
,
and its toll-free access number
1-800-263-1136.
ALL RIGHTS RESERVED. No part of
this work covered by the copyright
herein may be reproduced,
transcribed, or used in any form or
by any means—graphic, electronic,
or mechanical, including
photocopying, recording, taping,
Web distribution, or information
storage and retrieval systems—
without the written permission of
the publisher.
For permission to use material
from this text or product, submit
all requests online at
www.cengage.com/permissions.
Further questions about
permissions can be emailed to
[email protected]
Every effort has been made to
trace ownership of all copyrighted
material and to secure permission
from copyright holders. In the
event of any question arising as
to the use of any material, we will
be pleased to make the necessary
corrections in future printings.
Library and Archives Canada
Cataloguing in Publication
Small business management:
launching and growing new
ventures / Justin G. Longenecker ...
[et al.]. — 5th Canadian ed.
Includes bibliographical references
and index.
ISBN 978-0-17-650390-1
1. Small business—Management—
Textbooks. 2. New business
enterprises—Textbooks.
I. Longenecker, Justin G.
(Justin Gooderl),
HD62.7.S618 2012 658.02’2
C2011-905710-7
ISBN-13: 978-0-17-650390-1
ISBN-10: 0-17-650390-0
03900_00_FM.indd ii 12/26/11 5:43 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
NEL 2
2
1
3
4
5
6
7
L OOK I NG A H E A D
After studying this chapter, you
should be able to
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.
I N T HE S P OT L I GHT
Moving Made Easy
Most people do not look forward to moving, the countless hours spent hunting
for boxes, and not just any boxes, boxes that will be sturdy enough to fit your
prized possessions, not to mention the time spent organizing and packing all
your belongings.
Enter Frogbox, the Vancouver-based company that rents reusable sturdy
plastic boxes, with fold-down tops and easy stacking, for residential moving.
Customers simply order online and the boxes are delivered and then picked
up from their new home when they are done. This saves the consumer the
time and effort required to hunt for suitable boxes, and costs about the same
as buying moving boxes from a moving company. On top of that, it’s envi-
ronmentally friendly since the boxes are reused and made from recycled
materials.
Doug Burgoyne and his silent partner searched for many months for the
right business opportunity, one with a short sales cycle and as Doug explains,
“an old school, cash-based service business. We wanted something with a
bad reputation that we could come in and offer a good service and stand
out. We also wanted to wrap a little technology around it.”
Entrepreneurs
CHAPTER 1
03900_01_Ch01.indd 2 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
3 NEL
Their research led them
to explore the moving industry,
which in Canada comprises
several national companies
offering traditional moving
services and a few mom-and-
pop operations providing
moving supplies and services.
However, Doug felt that none
had managed to build a strong
brand image or presence in the
residential marketplace. On top
of that, he estimated the North
American residential market to
be worth about $5 billion a
year. The first Frogbox location
opened in 2008 in Vancouver,
followed by Seattle in 2009,
and Toronto in 2010. Doug
and his partner are convinced
they now have a solid business
model in place, one that can
be successfully franchised. In
order to do that, however, an
injection of capital is neces-
sary, which is why Doug pitched his concept to would-be investors on the TV program Dragon’s
Den. In the end, he received the investment he asked for, in exchange for partial ownership in the
business. It is now up to Doug and his team to see if they can make their dream come true—to have
Frogbox locations in the 100 largest cities in North America.
www.frogbox.com
Sources: Mary Teresa Bitti, “Seeing Green,” Financial Post, January 31, 2011, available athttp://frogbox.com/blog/2011/01/financial-post-likes-frogbox (accessed August 8, 2011)
and Wendy Stueck, “Frogbox Makes Your Move Green,” The Globe and Mail, October 20, 2009,
available at www.theglobeandmail.com/report-on-business/small-business/business-incubator/
frogbox-makes-your-move-green/article1330296 (accessed August 15, 2011).
Courtesy of Frogbox
03900_01_Ch01.indd 3 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Part 1 Entrepreneurial Opportunity 4
NEL
Would you like to become an entrepreneur, to start and operate a small business of
your own? If so, you are not alone. In 2010, 2.7 million Canadians were self-employed
and according to a report published by the BDC, indicators show that the level of entre-
preneurial activity in Canada has increased. Approximately 10 percent of the Cana-
dian population currently owns a business and, looking to the future, 11.2 percent of
Canadians intend to start a business at some point in their lives.
1
Entrepreneurial fever is also sweeping the nation’s campuses, as students take
classes to learn how to launch, finance, and run their own companies. In today’s world,
your business courses, whatever your particular specialty or major, should include the
study of entrepreneurship. Business students, along with engineers, teachers, artists,
pharmacists, lawyers, nurses, and others such as Doug Burgoyne of Frogbox are hearing
the call to own their own businesses. You are living in a world of entrepreneurial
opportunity, one that is an immensely more hospitable place for entrepreneurs than it
was 20 years ago!
You are about to embark on a course of study that will prove invaluable if you
elect to pursue a career in entrepreneurship or small business—or even if you
don’t. An entrepreneurial career can provide an exciting life and substantial per-
sonal rewards, while also contributing to the welfare of society. As a general rule,
when you talk to entrepreneurs about what they are currently doing and what their
plans are for the future, you can feel their excitement and anticipation—which can
be contagious!
Taking a small business or entrepreneurship class is not likely to turn a student who
lacks basic business intuition into an opportunity-spotting, money-making genius. Yet
there is considerable evidence suggesting that such classes can facilitate the learning
curve for those who have the “right stuff.” These classes teach many of the basic skills,
such as understanding financial statements, writing a business plan, and imposing struc-
ture and deadlines on dreams that you might never achieve otherwise.
ENTREPRENEURIAL OPPORTUNITIES
Entrepreneurial opportunities exist for those who can produce enough products or
services desired by customers to make the enterprise economically attractive. A prom-
ising entrepreneurial opportunity is more than just an interesting idea. It involves a
product or service that is so attractive to customers that they are willing to pay their
hard-earned money for it. In other words, an entrepreneur must find a way to create
value for customers.
Our working definition of entrepreneurial opportunity, as an economically
attractive and timely opportunity that creates value for interested buyers or end users,
distinguishes between opportunities and ideas. It is important to note, however, that
a given opportunity will not be equally attractive to everyone. Because of differences
in experiences and perspectives, one person may see an opportunity where others do
not. But, in any case, a true opportunity exists only for the entrepreneur who has the
interest, resources, and capabilities required to succeed.
Entrepreneurial opportunities exist today in a business world that differs mark-
edly from the business world of yesterday. At any given time, many potentially profit-
able business opportunities exist. But these opportunities must be recognized and
grasped by individuals with abilities and desire strong enough to assure success. Not
only are there diverse opportunities available to entrepreneurs looking to launch a
Discuss the availability
of entrepreneurial
opportunities and give
examples of successful
businesses started by
entrepreneurs.
1
entrepreneurial
opportunity
An economically
attractive and timely
opportunity that
creates value
03900_01_Ch01.indd 4 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Chapter 1 Entrepreneurs 5
NEL
business, but also varying levels of success. Some entrepreneurs are quite successful,
some achieve more modest rewards, and others fail. However, failure in business is
not a failure in life. Many learn from the experience and go on to start a successful
business.
ENTREPRENEURSHIP AND SMALL BUSINESS
Thus far, we have discussed entrepreneurship and small business opportunities in a
very general way. However, it is important to note that, despite many similarities, the
terms entrepreneur and small business manager are not synonymous. Some entrepreneurial
endeavours, for example, begin as small businesses but quickly grow into large busi-
nesses. They may still be entrepreneurial. We need, then, to clarify the meanings of
these terms.
Entrepreneurial Experiences
Flip Girls
“Mom, I have nothing to wear!!!!” Sound familiar? For Linda Maslechko and Mona
Rae Peterson, mothers to five girls between them, this was the jumping off point for
Triple Flip, a retail concept that caters to preteen and tween girls who want high-
quality, fashionable clothes and accessories to match their busy, activity-filled lifestyle.
Based in Calgary, Alberta, co-owners Linda and Mona Rae spent considerable time
researching the market, after finding out through firsthand experience with their girls
that the retail apparel industry offered little for the preteen girl. As they put it, there
was “no brand for them to aspire to” and with that, they decided to pursue what they
considered to be a niche market, creating a positive, inspirational brand that would
not only appeal to young girls, but also meet the needs of parents when it came to
value, quality, and fit.
The first Triple Flip store opened in Calgary in 2005; following that success, the
company has grown to now six locations in Alberta, Saskatchewan, and Ontario, with
plans to open more stores in B.C. and Ontario in the future. Linda and Mona Rae
believe a large part of their success is based on the commitment they have to their
customers, taking the time to solicit opinions and feedback from their target market,
to ensure their unique needs are being met. “We have always made sure we ask the
girls what they want, and show respect for their opinions.”
As a private-label retailer, manufacturing has definitely been a challenge, trying to
produce a quality product at a price that will work for the market. At present, Triple
Flip is proud to be able to manufacture its clothing in Canada, utilizing local suppliers
that are responsive to the company’s needs and offering the quality standards Triple
Flip demands. In addition, the company believes that superior customer service and
the use of social media and community involvement has helped it create a unique and
differentiated brand in the competitive retail apparel industry.
Sources: Sean C. Tarry, “Calgary’s Original Flip Girls,” Canadian Retailer, Winter 2011, p. 25–28,
andhttp://tripleflip.ca/
IN THE TRENCHES
Explain the nature of
entrepreneurship and
how it is related to
small business.
2
03900_01_Ch01.indd 5 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Part 1 Entrepreneurial Opportunity 6
NEL
WHO ARE THE ENTREPRENEURS?
Entrepreneurs are frequently thought to be individuals who discover market needs and
launch new firms to meet those needs. They provide an impetus for change, innovation,
and progress in economic life, while trying to mitigate risk in pursuit of a new venture
opportunity. (In contrast, salaried employees receive some specified compensation and
do not assume ownership risks.)
For our purposes, we consider all active owner-managers to be entrepreneurs. We
do not limit the term entrepreneur to only founders of business firms; we also apply the
term to second-generation operators of family-owned firms, franchisees, and owner-
managers who have bought out the founders of existing firms. Our definition, however,
does exclude salaried managers of larger corporations, even those sometimes described
as entrepreneurial because of their flair for innovation and willingness to accept risk.
To get an idea of the unlimited potential of entrepreneurial ventures, think of the
achievements of entrepreneurs Chip Wilson of Lululemon, or Clive Beddoe of WestJet,
who founded organizations that developed into industry leaders. It is easy to overesti-
mate the importance of large corporations, because of their high visibility. Small busi-
nesses seem dwarfed by corporate giants such as Canadian Tire Corporation Limited
(over 485 stores, 57,000 employees, and serving over 180 million customers a year),
RBC Royal Bank (over 18 million customers in 50 countries and 80,000 staff), and Tim
Horton’s (3,841 locations in Canada, generating over $4 billion in sales, the first Cana-
dian restaurant company to accomplish this milestone). Yet almost all companies start
as small businesses, and small business remains a vital component of our economy. What
is a small business? Definitions vary: Statistics Canada classifies businesses as “small” if
they have fewer than 50 employees. Canada Revenue Agency uses profits (less than
$400,000) and value of assets as criteria.
DEFINITION OF SMALL BUSINESS
CRITERIA USED IN THIS BOOK
In this book we use the following general criteria for defining a small business:
1. Financing of the business is supplied by one individual or a small group. Only in
rare cases would the business have more than five owners.
2. Except for its marketing function, the firm’s operations are geographically
localized.
3. Compared with the biggest firms in the industry, the business is small.
4. The number of employees in the business is usually fewer than 100.
Obviously, some small firms fail to meet all of the criteria. For example, a small exec-
utive search firm—a firm that helps corporate clients recruit managers from other
organizations—may operate in many parts of the country and thereby fail to meet the
second criterion. Nevertheless, the discussion of management concepts in this book is
aimed primarily at the type of firm that fits the general pattern outlined by these criteria.
WHY IS SMALL BUSINESS IMPORTANT?
As mentioned above, almost all businesses start very small. Few ever reach the size of the
major corporations mentioned above, but even WestJet started as a very small company
in Calgary in 1996 with three aging aircraft, offering limited flights in Western Canada.
entrepre neur
a person who
launches, builds,
and/or operates a
business
Define small business
and identify the
importance of small
business.
3
03900_01_Ch01.indd 6 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Chapter 1 Entrepreneurs 7
NEL
Small businesses dominate the economy of Canada. According to Statistics Canada,
a “small business” is a firm that has fewer than 100 employees; in 2009, there were
1,114,915 small businesses in Canada and over 2.7 million self-employed workers. Some
additional key facts about small business in Canada are as follows:
• Over 98 percent of small businesses have fewer than 100 employees.
• Small businesses with fewer than 100 employees contribute about 42 percent to
Canada’s GDP.
• Small businesses employ approximately 5 million Canadians or 48 percent of the
total labour force in the private sector.
• Slightly more than one third of self-employed workers are female.
• 46 percent of small and medium-sized enterprises have some degree of female
ownership.
• Almost 87 percent of Canadian exporters are small businesses and make up about
21 percent of Canada’s total value of exports.
• About 75 percent of small businesses in Canada operate in service industries,
25 percent in goods-producing industries.
2
Refer to the data in “In the Trenches” on pages 8–9 for greater insight into the Cana-
dian small business environment.
THE MOTIVATORS OF ENTREPRENEURSHIP
Individuals are pulled toward entrepreneurship by a number of powerful incentives
(see Exhibit 1-2 on p. 11). Some are especially attracted by one kind of incentive,
while others are drawn by some blend of potential satisfactions. These rewards may be
grouped, for the sake of simplicity, into three basic categories: profit, independence,
and a satisfying way of life.
THE REWARD OF PROFIT
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.
THE REWARD OF INDEPENDENCE
Freedom to operate independently is another reward of entrepreneurship. A study con-
ducted 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.
3
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.
Some entrepreneurs use their independence to achieve flexibility in their personal
lives and work habits. An example would be the owner of a mountain biking tour firm
located in Banff. The owner offers tours during the spring and summer season to earn
Identify rewards and
drawbacks of entre-
preneurial careers.
4
03900_01_Ch01.indd 7 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Part 1 Entrepreneurial Opportunity 8
NEL
Entrepreneurial Experiences
Key Small Business Statistics
The Business Register of Statistics Canada maintains a count of business establishments
and publishes results twice a year. As of July 2010, there were more than 2.2 million
business establishments in Canada. About half of all business establishments are called
“employer businesses” because they maintain a payroll of at least one person (possibly
the owner). The other half are classified as “indeterminate” because they do not have
any employees registered with the CRA. Such businesses may have contract workers,
family members, and the owners working for them.
As shown in Table 1-1, approximately 57 percent of all business establishments in
Canada are located in Ontario and Quebec. Virtually all the rest are divided between
the western provinces (37 percent) and the Atlantic provinces (6 percent). The North-
west Territories, Yukon, and Nunavut represent only 0.3 percent of Canada’s businesses.
TABLE 1.1 Total Number of Business Establishments, and Number of Establishments Relative
to Provincial/Territorial Population, December 2009
No. of Busi ness Est abl i shment s
Pr ovi nc es/
Ter r i t or i es Tot al
Empl oyer
Busi nesses I ndet er mi nat e
1
No. of
Est abl i shment s per
1, 000 Popul at i on
Newfoundland
and Labrador
26,333 17,17,913 8,420 51.6
Prince Edward Island 10,397 6,131 4,266 73.6
Nova Scotia 54,509 31,556 22,953 57.9
New Brunswick 42,591 26,612 15,979 56.7
Quebec 474,308 247,340 226,968 60.3
Ontario 888,951 394,683 494,268 67.7
Manitoba 77,288 36,833 40,455 62.9
Saskatchewan 94,909 39,404 55,505 91.4
Alberta 341,502 155,171 184,331 92
British Columbia 362,665 176,124 186,541 80.7
Yukon Territory 2,881 1,635 1,246 84.8
Northwest Territories 2,630 1,670 960 60.8
Nunavut 834 609 225 25.6
Canada Total 2,379,798 1,137,681 1,242,117 70.1
Note 1: The “indeterminate” category consists of incorporated or unincorporated businesses that
do not have a Canada Revenue Agency payroll deductions account. The workforce of such
businesses may consist of contract workers, family members, and/or owners.
Source: Industry Canada, Business Register, December 2009 National Income and Expenditure, Key Small
Business Statistics, July 2010;http://www.ic.gc.ca/eic/site/sbrp-rppe.nsf/eng/rd02493.html.
Reproduced with the permission of the Minister of Public Works and Government Services, 2011.
IN THE TRENCHES
03900_01_Ch01.indd 8 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Chapter 1 Entrepreneurs 9
NEL
Relative to population, the western provinces, Yukon, and Prince Edward
Island have more business establishments than elsewhere, with the highest rates
in Saskatchewan and Alberta at 92.0 and 91.4 per 1,000 population respectively.
Nunavut, Newfoundland and Labrador, Nova Scotia, and New Brunswick have the
lowest ratios of business establishments per 1,000 population. Ontario and Quebec
are below the national average of 70.1, with 67.7 and 60.3 business establishments
per 1,000 population, respectively.
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 percent of goods-producing employer businesses and 98 percent of all
service-producing employer businesses (see Exhibit 1-1).
Table 1-2 (on p. 10) shows the distribution of employer businesses by size of busi-
ness establishment in each province and territory. Generally speaking, the distribu-
tion by size in the provinces is similar to the national average distribution by size.
However, there is some variation among the provinces and territories; for example,
there is a higher percentage of micro-enterprises (1–4 employees) in Alberta
(59 percent) and British Columbia (56 percent) than in Ontario (55 percent), Quebec
(51 percent), or the territories (from 25 to 50 percent).
4
Goods-Producing Sector
1
Service-Producing Sector
2
1–4 (53.9%)
5–9 (20.8%)
10–19 (12.7%)
20–49 (8.2%)
50–99 (2.5%)
100–199 (1.1%)
200–499 (0.5%)
500+ (0.3%)
Indeterminate
2
(51.1)%
Employer
Businesses
(48.9%)
1–4 (56.2%)
5–9 (19.6%)
10–19 (11.3%)
20–49 (7.7%)
50–99 (2.8%)
100–199 (1.4%)
200–499 (0.7%)
500+ (0.2%)
Employer
Businesses
(44.2%)
Indeterminate
1
(55.8%)
EXHIBIT 1-1
Distribution of Business Establishments in the Goods-Producing and Service-Producing Sectors by Firm Size
(Number of Employees), December 2009
Note 1: By conventional Statistics Canada definition, the goods-producing sector consists of North
American Industry Classification System (NAICS) codes 11 to 31–33, while NAICS codes 41 to
91 define the service-producing sector.
Note 2: The “indeterminate” category consists of incorporated or unincorporated businesses that
do not have a Canada Revenue Agency payroll deductions account. The workforce of such busi-
nesses may consist of contract workers, family members, and/or owners.
Source: Industry Canada, Business Register, December 2009 National Income and Expenditure, Key Small
Business Statistics, July 2010;http://www.ic.gc.ca/eic/site/sbrp-rppe.nsf/eng/rd02493.html.
Reproduced with the permission of the Minister of Public Works and Government Services, 2011.
(Continued)
03900_01_Ch01.indd 9 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Part 1 Entrepreneurial Opportunity 10
NEL
E
m
p
l
o
y
e
r
B
u
s
i
n
e
s
s
e
s
P
e
r
c
e
n
t
o
f
T
o
t
a
l
P
r
o
v
i
n
c
e
s
/
T
e
r
r
i
t
o
r
i
e
s
T
o
t
a
l
1
–
4
5
–
9
1
0
–
1
9
2
0
–
4
9
5
0
–
9
9
S
m
a
l
l
<
1
0
0
1
0
0
–
1
9
9
2
0
0
–
4
9
9
M
e
d
i
u
m
1
0
0
–
4
9
9
L
a
r
g
e
5
0
0
+
N
e
w
f
o
u
n
d
l
a
n
d
a
n
d
L
a
b
r
a
d
o
r
1
7
,
9
1
3
5
5
.
4
2
2
.
7
1
1
.
5
6
.
8
2
.
0
9
8
.
4
0
.
9
0
.
5
1
.
4
0
.
2
P
r
i
n
c
e
E
d
w
a
r
d
I
s
l
a
n
d
6
,
1
3
1
5
0
.
9
2
3
.
5
1
3
.
4
8
.
3
2
.
4
9
8
.
5
0
.
9
0
.
5
1
.
3
0
.
2
N
o
v
a
S
c
o
t
i
a
3
1
,
5
5
6
5
4
.
0
2
1
.
2
1
2
.
4
8
.
0
2
.
4
9
8
.
0
1
.
2
0
.
5
1
.
8
0
.
2
N
e
w
B
r
u
n
s
w
i
c
k
2
6
,
6
1
2
5
3
.
9
2
1
.
4
1
2
.
7
7
.
9
2
.
4
9
8
.
2
1
.
1
0
.
5
1
.
6
0
.
2
Q
u
e
b
e
c
2
4
7
,
3
4
0
5
0
.
7
2
2
.
6
1
3
.
2
8
.
8
2
.
7
9
8
.
1
1
.
1
0
.
5
1
.
7
0
.
2
O
n
t
a
r
i
o
3
9
4
,
6
8
3
5
4
.
8
1
9
.
8
1
2
.
2
8
.
1
2
.
7
9
7
.
7
1
.
4
0
.
7
2
.
1
0
.
3
M
a
n
i
t
o
b
a
3
6
,
8
3
3
4
9
.
5
2
1
.
8
1
4
.
0
9
.
4
3
.
0
9
7
.
7
1
.
2
0
.
7
1
.
9
0
.
3
S
a
s
k
a
t
c
h
e
w
a
n
3
9
,
4
0
4
5
5
.
0
2
0
.
8
1
2
.
7
7
.
8
2
.
2
9
8
.
5
0
.
9
0
.
5
1
.
3
0
.
2
A
l
b
e
r
t
a
1
5
7
,
1
7
1
5
8
.
8
1
8
.
2
1
1
.
3
7
.
4
2
.
4
9
8
.
2
1
.
1
0
.
6
1
.
6
0
.
2
B
r
i
t
i
s
h
C
o
l
u
m
b
i
a
1
7
6
,
1
2
4
5
6
.
3
2
0
.
3
1
2
.
1
7
.
4
2
.
3
9
8
.
4
1
.
0
0
.
5
1
.
4
0
.
2
Y
u
k
o
n
T
e
r
r
i
t
o
r
y
1
,
6
3
5
5
0
.
2
2
3
.
2
1
3
.
5
8
.
8
2
.
0
9
7
.
6
1
.
3
0
.
8
2
.
1
0
.
2
N
o
r
t
h
w
e
s
t
T
e
r
r
i
t
o
r
i
e
s
1
,
6
7
0
3
5
.
1
2
4
.
8
1
9
.
5
1
3
.
4
4
.
1
9
6
.
9
2
.
2
0
.
7
2
.
9
0
.
2
N
u
n
a
v
u
t
6
0
9
2
5
.
5
2
3
.
8
2
2
.
3
1
7
.
9
7
.
1
9
6
.
6
2
.
8
0
.
5
3
.
3
0
.
2
C
a
n
a
d
a
T
o
t
a
l
1
,
1
3
7
,
6
8
1
5
4
.
4
2
0
.
5
1
2
.
4
8
.
1
2
.
6
9
8
.
0
1
.
2
0
.
6
1
.
8
0
.
2
S
o
u
r
c
e
:
I
n
d
u
s
t
r
y
C
a
n
a
d
a
,
B
u
s
i
n
e
s
s
R
e
g
i
s
t
e
r
,
D
e
c
e
m
b
e
r
2
0
0
9
N
a
t
i
o
n
a
l
I
n
c
o
m
e
a
n
d
E
x
p
e
n
d
i
t
u
r
e
,
K
e
y
S
m
a
l
l
B
u
s
i
n
e
s
s
S
t
a
t
i
s
t
i
c
s
,
J
u
l
y
2
0
1
0
;
h
t
t
p
:
/
/
w
w
w
.
i
c
.
g
c
.
c
a
/
e
i
c
/
s
i
t
e
/
s
b
r
p
-
r
p
p
e
.
n
s
f
/
e
n
g
/
r
d
0
2
4
9
3
.
h
t
m
l
.
R
e
p
r
o
d
u
c
e
d
w
i
t
h
t
h
e
p
e
r
m
i
s
s
i
o
n
o
f
t
h
e
M
i
n
i
s
t
e
r
o
f
P
u
b
l
i
c
W
o
r
k
s
a
n
d
G
o
v
e
r
n
m
e
n
t
S
e
r
v
i
c
e
s
,
2
0
1
1
.
T
A
B
L
E
1
.
2
E
m
p
l
o
y
e
r
B
u
s
i
n
e
s
s
e
s
b
y
F
i
r
m
S
i
z
e
(
N
u
m
b
e
r
o
f
E
m
p
l
o
y
e
e
s
)
i
n
t
h
e
P
r
o
v
i
n
c
e
s
a
n
d
T
e
r
r
i
t
o
r
i
e
s
,
D
e
c
e
m
b
e
r
2
0
0
9
03900_01_Ch01.indd 10 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Chapter 1 Entrepreneurs 11
NEL
money, then closes the business in September to follow his passion for competitive
mountain biking by training and participating in the competitive circuit during the fall
and winter.
Obviously, most entrepreneurs don’t carry their quest for flexibility to such lengths.
But entrepreneurs in general appreciate the independence inherent in entrepreneurial
careers. They can do things their own way, reap their own profits, and set their own
schedules.
Of course, independence does not guarantee an easy life. Most entrepreneurs work
very hard for long hours. But they do have the satisfaction of making their own deci-
sions within the constraints imposed by economic and other environmental factors.
Refer to “In the Trenches” for a snapshot of the entrepreneur’s work life.
THE REWARD OF A SATISFYING WAY OF LIFE
Entrepreneurs frequently speak of the satisfaction they experience in their own busi-
nesses; some even refer to the work they do as “fun.” Part of their enjoyment may
derive from their independence, but some of it reflects an owner’s personal fulfillment
in working with the firm’s products and services—the pleasure, for example, that a ski
shop operator gets from talking about skiing and equipment related to it. An entre-
preneur may also enjoy being the boss and serving as a civic leader in the community.
At age 26 Tracy Wallace built Natsiq Productions to preserve and to market the Inuit
way of life. The firm, based in Nunavut, documents traditional Inuit culture including
harvests, hunts, sewing, and storytelling. It creates video documentaries such as eco-
tourism travelogues, original drama featuring young local actors, and the stories of Inuit
elders. As a winner of the Business Development Bank Young Entrepreneur Award,
Tracy is pursuing both a business opportunity and her passion.
THE DRAWBACKS OF ENTREPRENEURSHIP
Although the rewards of entrepreneurship are enticing, there are also costs associated
with business ownership. 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. Many of them describe their careers as exciting but very demanding. Refer
to “In the Trenches” for additional coverage on why entrepreneurs become small
business owners.
Rewards of Entrepreneurship
Profit
Freedom from
the limits of
standardized pay
for standardized work
Independence
Freedom from
supervision and rules
of bureaucratic
organizations
Satisfying Way
of Life
Freedom from
routine, boring,
and unchallenging
jobs
EXHIBIT 1-2
Rewards of
Entrepreneurship
03900_01_Ch01.indd 11 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Part 1 Entrepreneurial Opportunity 12
NEL
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. Entrepreneurs must assume a
variety of risks related to business failure. While the probability of business failure is often
overstated, the 6,729 business bankruptcies and proposals reported in Canada in 2009
Entrepreneurial Experiences
Profile of a Serial Entrepreneur
A serial entrepreneur is someone who possesses all the characteristics of a entrepre-
neur; however, he is not tied to one business concept as he will start a business, get
it up and running, and then divest himself of the business and move on to the next.
Whereas a traditional entrepreneur may view her business as a career, the serial entre-
preneur views entrepreneurship as his profession. In Canada, serial entrepreneurs
are on the rise; they represent approximately 1 in 7 entrepreneurs in Canada and are
usually between the ages of 18 and 54.
Ontario native Lorne Abony worked as a securities lawyer at a large corporate
law firm but gave up the profession when he realized it wasn’t for him; he wanted to
be able to apply his creativity and knowledge, and entrepreneurship seemed to be
calling. In high school he put on a Battle of the Bands contest and then later, while
in law school, he designed a business model whereby law students would defend indi-
viduals in traffic court. By this time, Abony was hooked and knew that entrepreneur-
ship was where he wanted to be.
He left the world of corporate law and in 1997 founded Petopia.com, an online
pet supply business, selling the company in 2000 to Petco Animal Supplies. His
interest in the Internet continued, as he went on to start Fun Technologies in 2001, a
company that focused on online skill games (such as chess, Scrabble, bridge, checkers
and solitaire), that managed to garner a fair bit of attention from equity investors,
raising over $160 million in financing. After selling that company in 2007 for $484 mil-
lion, he invested in Fluid Music Canada Inc., a company that provides in-store media
(a mix of music, visual, and scent media) to about 800 retail chains in more than
30 countries throughout North America, Europe, Asia, and Australia. The company
has followed an aggressive growth strategy, acquiring industry giants Mood Media
Group in 2010 and Muzak Holdings in 2011. You can read more about Lorne Abony
and his global company, now known as Mood Media, in Chapter 15 when we discuss
growth strategies.
According to this serial entrepreneur, the key to entrepreneurial success is not just
the idea; it’s having the ability to execute an idea and never giving up. As he explains,
“The key to being successful in an entrepreneurial venture is just fighting through
those times when you really think you’re done.”
Sources: Christine Dobby, “This Is My Favourite Place to Be,” Telegraph-Journal, June 19, 2010,
available athttp://telegraphjournal.canadaeast.com/front/article/1100983 (accessed August 10,
2011); BDC Fondation de l’entrepreneurship, Canadian Entrepreneurship Status 2010, available
at www.bdc.ca/Resources%20Manager/misc/CES_2010_EN%20Final.pdf (accessed August 10,
2011); Peter E. Newman, “The New Masters of the Universe: Lorne Abony,” Maclean’s,
October 1, 2007, available at www.macleans.ca/science/technology/article.jsp?content=
20071001_110036_110036 (accessed August 10, 2011).
IN THE TRENCHES
03900_01_Ch01.indd 12 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Chapter 1 Entrepreneurs 13
NEL
Entrepreneurial Experiences
Challenges and Rewards
5
Regardless of the motivations for starting a business small business, owners soon
find that running a business requires that obstacles be overcome and battles be
fought. The biggest hurdle for small business owners is finding new customers
and markets, with 59 percent of respondents reporting this as one of their main
challenges. Dealing with finances and paperwork are other challenges. A number
of regional differences are also noteworthy, with entrepreneurs from the Prairies
being challenged by employment issues and tax obligations. Respondents from
Quebec found paperwork most troublesome, while business owners from British
Columbia are the least likely to indicate that regulation and red tape are obstacles.
For more than 57 percent of respondents, a typical work week is more than 45 hours
long (see Exhibit 1-4 on p. 14). In fact, about one fifth of respondents say they usually
work more than 60 hours per week. Twenty-six percent 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.
IN THE TRENCHES
Other
Dealing with
technology
Developing the firm’s
products services
Keeping ahead of
tax obligations
% Response
Dealing with
employment issues
Keeping up with
competition
Govt regulations and
paperwork
Dealing with finances
Finding new customers/
markets
58.6
45.7
41.8
34.1
31.8
26.6
26.1
21.2
4.8
EXHIBIT 1-3
Entrepreneurs’ Biggest Challenges to Run a Business
Source: “Small Business, Big Value,” October 2007, athttp://www.cfib.ca/research/reports/rr3040.pdf.
Reprinted by permission of the CFIB.
(Continued)
03900_01_Ch01.indd 13 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Part 1 Entrepreneurial Opportunity 14
NEL
Source: “Small Business, Big Value,” October 2007, athttp://www.cfib.ca/research/reports/
rr3040.pdf. Reprinted by permission of the CFIB.
The majority of Canadian entrepreneurs find multiple rewards for running a busi-
ness, with enjoying the work, the independence and control, and personal drive stated
as their key motivators.
Source: “Small Business, Big Value,” October 2007, athttp://www.cfib.ca/research/reports/
rr3040.pdf. Reprinted by permission of the CFIB.
More than
60 hours
18.4%
35 hours
or less
25.9%
53 to 60
hours
23.9%
36 to 45
hours
18.8%
46 to 52
hours
15%
EXHIBIT 1-4
Entrepreneurs Number of Hours of Work per Week
Other
I was committed to the
family business
I could not find suitable job
opportunities at the time
I had a great idea for a business
that I wanted to pursue
I saw it as a path to
financial freedom
I wanted to make better use
of my skills and knowledge
I saw that it fits well
with my lifestyle
I wanted to be my own boss
and make my own decisions
58.3
39.0
36.1
35.2
22.6
15.2
9.3
5.6
% Response
EXHIBIT 1-5
Reasons for Becoming Small Business Owners
03900_01_Ch01.indd 14 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Chapter 1 Entrepreneurs 15
NEL
clearly indicate that the possibility of failure is very real. However, the number of busi-
ness insolvencies per 1,000 in Canada dropped from a high of 8.1 in 1998 to 2.9 in 2009.
6
In deciding on an entrepreneurial career, therefore, you should look at both positive
and negative aspects. The drawbacks of hard work, emotional stress, and risk require a
degree of commitment and some sacrifice on your part if you expect to reap the rewards.
CAUSES OF BUSINESS FAILURE
Extensive research conducted by Stewart Thornhill and Raphael Amit suggests that
failure among younger firms in the start-up or post-start-up phases is attributable to lack
of managerial and financial abilities. Older firms may have developed management pro-
cedures but may fail because they do not adapt to a competitive environment. Failure
also varies by industry, with bankruptcies in the food, construction, transportation, and
agriculture sectors identified as frequent failures, while retail and wholesale insolven-
cies were more common for senior enterprises. The emergence of e-commerce and big-
box outlet stores may have eroded the competitive position of established businesses.
7
In a broader study the causes for bankruptcy have been qualified as follows:
• 32 percent because of inadequate research and development
• 23 percent lacked competitive advantage
• 14 percent due to uncontrolled costs
• 13 percent due to poorly developed marketing strategies
• 10 percent because of poor market timing
• 8 percent succumbed to competitor activities*
, 8
Techniques for reducing the risk of failure will be addressed in Chapter 2.
THE MANY VARIETIES OF ENTREPRENEURSHIP
Entrepreneurship is marked by diversity—that is, there is great variety both in the
people and in the firms termed entrepreneurial. As a potential entrepreneur, you should
be encouraged by this diversity; you do not need to fit a narrow stereotype.
FOUNDER ENTREPRENEURS VERSUS OTHER BUSINESS OWNERS
AND FRANCHISEES
Generally considered to be “pure” entrepreneurs, founders may be inventors who ini-
tiate businesses on the basis of new or improved products or services. They may also be
artisans who develop skills and then start their own firms. Or they may be enterprising
individuals, often with marketing backgrounds, who draw on the ideas of others in
starting new firms. Whether acting as individuals or as part of a group, founders bring
firms into existence by surveying the market, raising funds, and arranging for the nec-
essary facilities. The process of starting an entirely new business is discussed in detail
in Chapter 2.
The research of J. Robert Baum confirms that successful founders use an entre-
preneurial thinking style to cope with uncertainty and opportunities. His three-year
study of 122 small businesses indicated that successful founders create a clear vision of
their venture, apply their skills from past experience, borrow to overcome insufficient
Describe the various
types of entrepre-
neurs and entrepre-
neurial ventures.
5
founder
an entrepreneur who
brings a new firm
into existence
*From Steve Bareham, “Planning to Fail Can Spell Success,” 1999, CanadaOne. Reprinted by permission.
03900_01_Ch01.indd 15 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Part 1 Entrepreneurial Opportunity 16
NEL
personal funds, adapt goals to manage problems and seize opportunities, and experi-
ment. He suggests a zigzag pattern of quick responses to surprises and shortages con-
tributed to their success.
9
At some point after a new firm is established, it may be purchased or taken over by a
second-generation family member or another entrepreneur who acts as administrator of
the business. These “second-stage” entrepreneurs do not necessarily differ greatly from
founding entrepreneurs in the way they manage their businesses. Sometimes, their well-
established small firms grow rapidly, and their orientation may be more akin to that of
a founder than to that of a manager. Nevertheless, it is helpful to distinguish between
entrepreneurs who found or substantially change firms (the “movers and shakers”) and
those who direct the continuing operations of established firms.
Another category of entrepreneurs comprises franchisees. Franchisees differ from
other business owners in the degree of their independence. Because of the constraints
and guidance provided by contractual relationships with franchising organizations,
some consider franchisees to be limited entrepreneurs. Chapter 4 presents more infor-
mation about franchisees.
HIGH-POTENTIAL VENTURES VERSUS ATTRACTIVE
SMALL FIRMS AND MICROBUSINESSES
Small businesses differ drastically in their growth potential. Amar V. Bhide, who studied
the nature of entrepreneurial businesses, distinguished between promising start-ups
and marginal start-ups.
10
According to Bhide, promising start-ups are those with the
potential for attaining significant size and profitability, while marginal start-ups lack
such prospects.
The few businesses that have such glowing prospects for growth are called
high-potential ventures, or gazelles. Even within this group, there is variation in styles
of operation and approaches to growth. Some are high-tech start-ups—these success
stories often feature a technology wizard with a bright idea, backed by venture capital-
ists eager to underwrite the next Microsoft. When such companies prosper, they usually
grow at blinding speed and make their founders wealthy by being sold or going public.
In contrast to such high-potential ventures, attractive small firms offer substantial
financial rewards for their owners. Income from these entrepreneurial ventures may
easily range from $100,000 to $500,000 or more annually. They represent a strong seg-
ment of small businesses—solid, healthy firms that can provide rewarding careers.
The least profitable types of firms, including many service firms such as dry cleaners,
beauty salons, and appliance repair shops, provide only very modest returns to their
owners. They are called microbusinesses, and their distinguishing feature is their lim-
ited ability to generate significant profits. Entrepreneurs who devote personal effort to
such ventures receive a profit that does little more than compensate them for their time.
Many businesses of this type are also called lifestyle businesses because they permit
an owner to follow a desired pattern of living, even though they provide only modest
returns. Businesses of this type do not attract investors.
A major trend in lifestyle businesses in Canada is the mompreneur, a woman who
starts a business because she’s been inspired by being a mother, and typically wants
more control over her life. The online community has been a tremendous support
to this unique type of entrepreneur, with websites such as themompreneur.com and
momtomom.ca providing information, resources, and forums to assist women in their
business endeavours. Mompreneur Trade Shows have been held in Toronto, Calgary,
franchisee
an entrepreneur
whose power is
limited by a con-
tractual relationship
with a franchising
organization
high-potential
venture (gazelle)
a small firm that has
great prospects for
growth
attractive small
firm
a small firm that
provides substantial
profits to its owner
microbusiness
a small firm that pro-
vides minimal profits
to its owner
lifestyle business
a microbusiness that
permits the owner
to follow a desired
pattern of living
03900_01_Ch01.indd 16 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Chapter 1 Entrepreneurs 17
NEL
and Vancouver. Most recently, the 50 Top Mompreneurs for 2010 were announced.
An example of a successful mompreneur-type business is Pippalily baby slings, started
by Toronto mother Victoria Turner in 2008, offering functional yet fashionable baby
slings and other baby accessories through her online store (pippalily.com) as well as in
75 stores across Canada.
11
ARTISAN VERSUS OPPORTUNISTIC ENTREPRENEURS
Because of their varied backgrounds, entrepreneurs display differences in the degrees
of professionalism and in the management styles they bring to their businesses. The
ways in which they analyze problems and approach decision making may differ radi-
cally. Norman R. Smith has suggested two basic entrepreneurial patterns, exemplified
by artisan (or craftsperson) entrepreneurs and opportunistic entrepreneurs.
12
According to Smith, the education of the artisan entrepreneur is limited to technical
training. Such entrepreneurs have technical job experience, but they typically lack
good communication skills and managerial training. Artisan entrepreneurs’ approach
to business decision making is often characterized by the following features:
• They are paternalistic—they guide their businesses much as they might guide their
own families.
• They are reluctant to delegate authority.
• They use few (usually only one or two) capital sources to create their firms.
• They define marketing strategy in terms of the traditional components of price,
quality, and company reputation.
• Their sales efforts are primarily personal.
• Their time orientation is short, with little planning for future growth or change.
A mechanic who starts an independent garage, an aesthetician who operates a salon,
or a painter who opens a studio is an example of an artisan entrepreneur.
In contrast to the artisan entrepreneur, an opportunistic entrepreneur is one who has
supplemented his or her technical education by studying nontechnical subjects such as busi-
ness, accounting, or marketing. Opportunistic entrepreneurs generally avoid paternalism,
delegate authority as necessary for growth, employ various marketing strategies and types of
sales efforts, obtain original capitalization from more than two sources, and plan for future
growth. An example of an opportunistic entrepreneur is a small building contractor and
developer who adopts a relatively sophisticated approach to management, including careful
record keeping and budgeting, precise bidding, and systematic marketing research.
Smith’s description of entrepreneurial styles illustrates two extremes: At one end is a
craftsperson in an entrepreneurial position, and at the other end is a well-educated and
experienced manager. The former “flies by the seat of the pants,” and the latter uses
systematic management procedures and something resembling a scientific approach. In
practice, of course, the distribution of entrepreneurial styles is less polarized than that
suggested by Smith’s model, with entrepreneurs scattered along a continuum of mana-
gerial sophistication. This book is intended to help you move toward the opportunistic
and away from the artisan end of the continuum.
ENTREPRENEURIAL TEAMS
The discussion so far has implied that entrepreneurs always function as individuals,
each with his or her own firm. And, of course, this is usually the case. However, entrepre-
neurial teams are becoming increasingly common, particularly in ventures of substantial
artisan
entrepreneur
a person with pri-
marily technical
skills and little busi-
ness knowledge who
starts a business
opportunistic
entrepreneur
a person with both
sophisticated mana-
gerial skills and tech-
nical knowledge who
starts a business
03900_01_Ch01.indd 17 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Part 1 Entrepreneurial Opportunity 18
NEL
size. An entrepreneurial team is formed when two or more individuals come together to
function as entrepreneurs.
By forming a team, founders can secure a broader range of managerial talents than
might otherwise be possible. For example, a person who has manufacturing experience
can team up with a person who has marketing experience. The need for such diversified
experience is particularly acute in new technology businesses.
GETTING STARTED IN ENTREPRENEURSHIP
Starting any type of business career is exciting. Launching one’s own business, however,
can be absolutely breathtaking because of the extreme risk and great potential in such
ventures. Before we examine the nuts and bolts of the start-up process, let’s think for a
moment about start-ups and getting one’s feet wet in entrepreneurial waters. There are,
in fact, four kinds of entrepreneurial opportunities, or routes to entrepreneurship, and
each requires proper preparation.
FOUR ROUTES TO ENTREPRENEURSHIP
As noted earlier, the term entrepreneur is sometimes restricted to those who build entirely
new businesses, in which case the only real entrepreneurial career opportunity is starting
a new firm. If the concept is broadened to include various independent business options,
it is apparent that launching an entirely new business is only one of four alternatives:
1. Starting a new business
2. Entering a family business
3. Opening a franchised business
4. Buying an existing business
By following any one of these four paths, an individual can become an independent
business owner. Chapters 2–4 will discuss these options in greater detail.
AGE, GENDER, AND ENTREPRENEURIAL OPPORTUNITY
One question faced by many prospective entrepreneurs, especially those who are stu-
dents, is “What is the best age for getting started?” As you might guess, there is no
entrepreneurial
team
two or more people
who work together
as entrepreneurs
Discuss several factors
related to readiness
for entrepreneurship
and getting started
in an entrepreneurial
career.
6
Early Career Concerns
1. Getting an education
2. Gaining work experience
3. Acquiring financial
resources
Late Career Concerns
1. Fulfilling family
responsibilities
2. Attaining seniority
in employment
3. Earning investment in
a retirement program
20 35 25 45
Age
EXHIBIT 1-6
Age Concerns in
Starting a Business
03900_01_Ch01.indd 18 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Chapter 1 Entrepreneurs 19
NEL
simple answer. Most businesses require some background knowledge. In addition, most
prospective entrepreneurs must build their financial resources in order to make the
necessary initial investments. A certain amount of time is usually required, therefore, to
gain education, experience, and financial resources.
Though there are no hard and fast rules concerning the right age for starting a
business, some age deterrents do exist. As Exhibit 1-6 shows, young adults are often dis-
couraged from entering entrepreneurial careers by inadequacies in their preparation
and resources. On the other hand, older adults develop family, financial, and job com-
mitments that make entrepreneurship seem too risky; they may have acquired interests
in retirement programs or achieved promotions to positions of greater responsibility
and higher salaries.
This seems to infer that the ideal age for entrepreneurship is mid 20s to mid 30s,
where there is a balance between preparation, experience, and family obligations. As
Canada’s population continues to age and more business owners exit the market, fos-
tering a new generation of entrepreneurs becomes even more important than ever.
Entrepreneurial Experiences
Young Entrepreneurs Quit Corporate Identity
Pablo Salzman is on a fast track: just 23, he and two pals unveiled their second busi-
ness last month, an online community that aims to be a socially conscious alterna-
tive to Facebook, the popular networking website. Inspired by Internet millionaires,
disillusioned by the loss of job security in the corporate world and being experts at
exploiting technology tools, more 20- to 30-somethings are starting businesses than
ever before. Pablo is a serial entrepreneur.
About three years ago, he and two partners started Blue Horizon Media, a mar-
keting company that devises Internet-based campaigns for clients trying to reach
young consumers. Last month the same partners launched Rethos.com, a networking
website than connects individuals, companies, and nonprofits interested in social
and environmental issues. Salzman; his partners Alex Salzman (a cousin) and Chris
Advansun; and their team of remote employees are based in different cities. They
communicate using Skype and other technologies.
Bakr Ibrahim is seeing more young people choosing entrepreneurship as a
career. He teaches at Concordia University’s school of business where it has become
a core course. “Young people have realized there’s no more guaranteed employment
if they join a large company,” said Ibrahim. The rising importance of the service
and technology sectors is also feeding the growth in entrepreneurship according
to Ibrahim. Companies in these sectors “don’t require too much capital or physical
assets,” he said.
Louis Jacques Filion’s classes are also filling with students who want to be their
own bosses. Many of his students saw relatives let go by big companies and want to
know how to go out on their own in case they too are laid off.
Source: Sarah Dougherty, CanWest News Service, “Young Entrepreneurs Quit Corporate
Uncertainty,” Calgary Herald, October 15, 2008, p. B6.
IN THE TRENCHES
03900_01_Ch01.indd 19 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Part 1 Entrepreneurial Opportunity 20
NEL
REFUGEES AS ENTREPRENEURS
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. Indeed, it is often a mixture of positive and nega-
tive considerations that provides the motivation.
THE FOREIGN REFUGEE
Many individuals escape the political, religious, or economic constraints of their home-
land by crossing national boundaries. Frequently, such foreign refugees face discrimina-
tion in seeking salaried employment in the new country. As a result, many go into business
for themselves. As of 2009, new immigrant majority-owned enterprises represented about
3 percent of small- and medium-sized businesses in Canada and these businesses were
located primarily in Ontario (46 percent) and British Columbia (18 percent).
13
THE CORPORATE REFUGEE
Individuals who flee the bureaucratic environment of big (or even medium-sized) firms
by going into business for themselves are identified by Knight as corporate refugees.
Employees of large corporations often find the corporate atmosphere and/or the relo-
cations required by their jobs to be undesirable. Entrepreneurship provides an attrac-
tive alternative for many such individuals. Matt Hill and his partner James Kane recently
started a second venture installing coin-counting machines in retail outlets. When asked
why he quit the corporate world to launch his own company he voiced his disenchant-
ment with the former in five words: “the suits and the culture.” “They don’t think
outside the box—it is very structured. I work the same number of hours for myself, but
I have flexibility.” After completing an MBA, and working at a financial management
firm, Hill quit to start a juice bar called Liquid Nutrition. He and rugby buddy James
Kane, who is a chartered accountant, sold the business to launch Change for Change.
Coin counters swallow change, read the coins, and provide a receipt users can redeem
for cash or spend in stores. Hill and Kane make money on the commission, charged on
the amount counted.
14
PRECIPITATING EVENTS
A number of prospective entrepreneurs plan for and seek out independent business
opportunities. However, as the types of refugees suggest, many who actually make the
move are stimulated by a precipitating event, such as job termination, job dissatisfac-
tion, or an unexpected opportunity.
Criticizing management has the potential for creating change—especially in the
life of the critic! Many other types of experiences also serve as catalysts, hastening the
plunge into entrepreneurship. Some individuals become so disenchanted with formal
academic programs that they simply walk away from the classroom and start new lives as
entrepreneurs. Others become exasperated with rebuffs or perceived injustices at the
hands of superiors in large organizations and leave in disgust to start their own busi-
nesses. In a more positive vein, still other entrepreneurs unexpectedly stumble across
business opportunities.
It is difficult to say what proportion of new entrepreneurs makes their move because
of one event. However, many who launch new firms or otherwise go into business for
themselves are helped along by precipitating events.
refugee
a person who
becomes an entre-
preneur to escape an
undesirable situation
foreign refugee
a person who leaves
his or her native
country and becomes
an entrepreneur in
the new country
corporate refugee
a person who leaves
big business to go
into business for
him- or herself
precipitating event
an event, such as
losing a job, that
moves an indi-
vidual to become an
entrepreneur
03900_01_Ch01.indd 20 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Chapter 1 Entrepreneurs 21
NEL
Describe some
characteristics of
successful
entrepreneurs.
7
internal locus
of control
a belief that one’s
success depends on
one’s own efforts
external locus
of control
a belief that one’s
life is controlled
more by luck or fate
than by one’s own
efforts
CHARACTERISTICS OF SUCCESSFUL
ENTREPRENEURS
What kinds of people become successful entrepreneurs? As already mentioned, no well-
defined entrepreneurial profile exists; individual entrepreneurs differ greatly from each
other. Knowing this should encourage you if you wish to start your own business: You do
not need to fit some prescribed stereotype.
Some qualities, however, are common among entrepreneurs and probably con-
tribute to their success. One of these characteristics is a strong commitment to or pas-
sion for the business. It is an attitude that results in tenacity in the face of difficulty and
a willingness to work hard. Entrepreneurs do not give up easily.
Such individuals are typically confident of their ability to meet the challenges con-
fronting them. This factor of self-confidence was described by psychologist J. B. Rotter as an
internal locus of control—a feeling that success depends on one’s own efforts.
15
In contrast,
an external locus of control reflects an attitude of dependence on luck or fate for success.
Entrepreneurs are often portrayed as risk takers. Certainly, they do assume risk. By
investing their own money, they assume financial risk. If they leave secure jobs, they risk
their careers. The stress and time required to start and run a business may place their
families at risk. Even though entrepreneurs assume risk, they are what we might term
moderate risk takers—accepting risks over which they have some control—rather than
extreme risk takers, who accept outcomes depending purely on chance.
Jeffry Timmons and Stephen Spinelli have summarized research on entrepreneurial
characteristics.
16
They group what they describe as “desirable and acquirable attitudes
and behaviours” into the following six categories:
1. Commitment and determination. Such entrepreneurs are tenacious, decisive, and
persistent in problem solving.
2. Leadership. Such entrepreneurs are self-starters and team builders, and focus on
honesty in their business relationships.
3. Opportunity obsession. Such entrepreneurs are aware of market and customer needs.
4. Tolerance of risk, ambiguity, and uncertainty. Such entrepreneurs are risk takers, risk
minimizers, and uncertainty tolerators.
5. Creativity, self-reliance, and adaptability. Such entrepreneurs are open-minded,
flexible, uncomfortable with the status quo, and quick learners.
6. Motivation to excel. Such entrepreneurs are goal oriented and aware of their weak-
nesses and strengths.*
GROWING AND MANAGING THE BUSINESS
An airplane pilot not only controls the plane during takeoff but also flies it and lands it.
Similarly, entrepreneurs not only launch firms but also “fly” them; that is, they manage
their firm’s subsequent operation. In this book, you will find a discussion of the entire
entrepreneurial process. It begins in the remainder of Part 1 with planning and the
various methods of launching a venture including acquisition and franchising. This dis-
cussion is followed in Part 2 with a look at a firm’s marketing strategy. Part 3 deals with
the management of a growing business, including its human resources, operations, and
finances. Part 4 addresses special issues such as corporate turnaround and harvesting.
*Jeffry A. Timmons and Stephen Spinelli, New Venture Creation: Entrepreneurship for the 21st Century
(New York: McGraw-Hill/Irwin, 2007), pp. 249–55.
03900_01_Ch01.indd 21 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Part 1 Entrepreneurial Opportunity 22
NEL
L OOKI NG BAC K
Discuss the availability of entrepreneurial
opportunities and give examples of successful
businesses started by entrepreneurs.
• An entrepreneurial opportunity is a desirable and
timely innovation that creates value for interested
buyers and end users.
• Exciting entrepreneurial opportunities exist for those
who recognize them. However, a true opportunity
exists only for those who have the interest, resources,
and capabilities required to succeed.
Explain the nature of entrepreneurship and
how it is related to small business.
• Entrepreneurs are individuals who discover market
needs and launch new firms to meet those needs.
• Owner-managers who buy out founders of existing
firms, franchisees, and second-generation operators
of family firms may also be considered entrepreneurs.
• Definitions of small business are arbitrary, but this
book focuses on firms of fewer than 100 employees
that have mostly localized operations and are
financed by a small number of individuals.
• Most entrepreneurial firms are small when they begin,
but a few grow (some very quickly) into large businesses.
Define small business and identify the impor-
tance of small business.
• Small business definitions are necessarily arbitrary
and differ according to purpose.
• Canadian standards vary; Canada Revenue Agency
uses profits (less than $200,000), Statistics Canada
uses number of employees (fewer than 50 = small;
51–500 = medium-sized).
Identify rewards and drawbacks of entrepre-
neurial careers.
• Entrepreneurial motivators or rewards include profit,
independence, freedom (escaping from a bad situa-
tion), personal satisfaction, and personal fulfillment.
• Drawbacks to entrepreneurship include hard work,
personal stress, and danger of failure.
Describe the various types of entrepreneurs
and entrepreneurial ventures.
• Founders of firms are “pure” entrepreneurs, but those
who acquire established businesses and franchisees
may also be considered entrepreneurs.
• A few entrepreneurs start high-potential ventures
(gazelles); other entrepreneurs operate attractive
small firms and microbusinesses.
• Based on their backgrounds and management styles,
entrepreneurs may be characterized as artisan entre-
preneurs or opportunistic entrepreneurs.
• Entrepreneurial teams consist of two or more individuals
who combine their efforts to function as entrepreneurs.
Discuss several factors related to readiness
for entrepreneurship and getting started in an
entrepreneurial career.
• The period between the mid-20s and mid-30s appears
to be when a person’s education, work experience,
family situation, and financial resources are most likely
to enable him or her to become an entrepreneur.
• Entry into entrepreneurial careers is often triggered
by a precipitating event, such as losing a job.
• Once a business is launched, the entrepreneur must
manage growth of the business and issues related to
its ongoing operation.
Describe some characteristics of successful
entrepreneurs.
• There is no well-defined entrepreneurial profile, but
many entrepreneurs have characteristics such as a
passion for their business, strong self-confidence, and
a willingness to assume moderate risks.
• Successful entrepreneurs are also thought to possess
leadership skills, a strong focus on opportunities,
creativity, adaptability, and motivation to excel.
KE Y T E RMS
artisan entrepreneur, p. 17
attractive small firm, p. 16
corporate refugee, p. 20
entrepreneur, p. 6
entrepreneurial opportunity, p. 4
entrepreneurial team, p. 18
external locus of control, p. 21
foreign refugee, p. 20
founder, p. 15
franchisee, p. 16
high-potential venture (gazelle),
p. 16
internal locus of control, p. 21
lifestyle business, p. 16
microbusiness, p. 16
opportunistic entrepreneur, p. 17
precipitating event, p. 20
refugee, p. 20
1
2
3
4
5
6
7
03900_01_Ch01.indd 22 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Chapter 1 Entrepreneurs 23
NEL
of the features articulated by Robert Baum.
What are they?
5. Why is the period from the mid-20s to the
mid-30s considered to be the best time of life
for becoming an entrepreneur?
6. What would be your primary motivator for
starting a venture?
7. What is a precipitating event? Give some
examples.
1. What is meant by the term entrepreneur?
2. Consider an entrepreneur you know person-
ally. What was the most significant reason for
his or her deciding to follow an independent
business career? If you don’t already know the
reason, discuss it with that person.
3. What is the difference between an artisan
entrepreneur and an opportunistic
entrepreneur?
4. Doug Burgoyne, featured “In the Spotlight”
on pages 2–3 would appear to have many
DISCUSSION QUESTIONS
YOU MAKE THE CALL
SITUATION 1
In the following statement, a business owner
attempts to explain and justify his preference for
slow growth in his business.
I limit my growth pace and make every effort to
service my present customers in the manner they
deserve. I have some peer pressure to do otherwise
by following the advice of experts—that is, to take
on partners and debt to facilitate rapid growth in
sales and market share. When tempted by such
thoughts, I think about what I might gain. Per-
haps I could make more money, but I would also
expect a lot more problems. Also, I think it might
interfere somewhat with my family relationships,
which are very important to me.
Question 1 Should this venture be regarded
as entrepreneurial? Is the owner a true
entrepreneur?
Question 2 Do you agree with the philosophy
expressed here? Is the owner really doing what
is best for his family?
Question 3 What kinds of problems is this owner
trying to avoid?
SITUATION 2
Maria Potenia has just graduated from university.
She has developed a new idea for a floating security
device that could be used by police agencies or com-
mercial properties to “float” across floors; directed
by remote control, the device sends digital mes-
sages to a control centre. The device would reduce
costs for commercial properties that do not want to
install security cameras throughout their building,
and would help police to determine the risk of
potentially dangerous situations without sending
in staff. Maria developed the product while taking
a fourth-year engineering course. She has met with
several of her professors, as well as the representa-
tive of a major security-device manufacturing firm.
They have indicated the product has strong poten-
tial and that she should work on a venture launch.
Question 1 What type of venture could this
potentially be?
Question 2 What type of entrepreneur would she be?
Question 3 What are the benefits that Maria
would anticipate by owning her own firm? What
are the risks?
03900_01_Ch01.indd 23 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
Part 1 Entrepreneurial Opportunity 24
NEL
3. Interview someone who has started a business,
being sure to ask for information regarding the
entrepreneur’s background and age at the time
the business was started. In the report of your
interview, indicate whether the entrepreneur
was in any sense a refugee and show how the
timing of her or his start-up relates to the ideal
time for start-up explained in this chapter.
1. Analyze your own education and experience
as qualifications for entrepreneurship. Iden-
tify your greatest strengths and weaknesses.
2. Explain your own interest in each type of
entrepreneurial reward—profit, indepen-
dence, and a satisfying way of life. Point out
which of these is most significant for you per-
sonally and explain why.
EXPERIENTIAL EXERCISES
EXPLORING THE WEB
1. There’s no time like the present. Go to the
textbook website at www.longenecker5e
.nelson.com, if you haven’t done so already,
to learn what’s there and how to navigate
the site.
a. Click on the student resources, and then
follow the link to the self-assessments.
Take at least one of the self-assessments,
which will help you learn more about the
skills needed to be an entrepreneur. What
did you discover about yourself?
CASE 1
DORI’S DIAMONDS (P. 487)
This case tells the story of a student-entrepreneur
who has grown her original business into three
complementary businesses and considers the chal-
lenges she faces as the businesses grow.
ALTERNATIVE CASES FOR CHAPTER 1
Case 2, eHarmony, p. 490
Case 3, Smitty’s Li’l Haulers, p. 492
Case 5, The Ultimate Garage, p. 498
Case 11, Prestige Dance Academy, p. 514
Case 13, My Own Money, p. 520
03900_01_Ch01.indd 24 12/26/11 4:46 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Licensed to: CengageBrain User
NEL
Endnotes
555
10. Amar V. Bhide, The Origin and Evolution of New
Businesses (New York: Oxford University Press,
2000), Chapter 1.
11. Andrea Gordon, “Mompreneurs Boom,” The Toronto
Star, April 4, 2008, available athttp://pippalily.
com/index.php
12. Norman R. Smith, The Entrepreneur and His Firm:
The Relationship between Type of Man and Type
of Company (East Lansing, MI: Bureau of Business
and Economic Research, Michigan State University,
1967). Also see Norman R. Smith and John B. Miner,
“Type of Entrepreneur, Type of Firm, and Manage-
rial Motivation: Implications for Organizational Life
Cycle Theory,” Strategic Management Journal, vol. 4,
no. 4 (October–December 1983), pp. 325–40; and
Carolyn Y. Woo, Arnold C. Cooper, and William C.
Dunkelberg, “The Development and Interpretation of
Entrepreneurial Typologies,” Journal of Business
Venturing, vol. 6, no. 2 (March 1991), pp. 93–114.
13. Government of Canada, SME Financing Data
Initiative, Key Small Business Financing Statistics
December 2009, available at www.sme-fdi.gc.ca/
eic/site/sme_fdi-prf_pme.nsf/eng/02178.html
(accessed August 12, 2011).
14. Sarah Dougherty for CanWest News Service,
Montreal, “Young Entrepreneurs Quit Corporate Uncer-
tainty,” Calgary Herald, October 15, 2001, p. B6.
15. J. B. Rotter, “Generalized Expectancies for
Internal versus External Control of Reinforce-
ment,” Psychological Monographs, 1966. A more
recent review is given in Robert H. Brockhaus, Sr.,
and Pamela S. Horwitz, “The Psychology of the
Entrepreneur,” in Donald L. Sexton and Raymond W.
Smilor (eds.), The Art and Science of Entrepreneur-
ship (Cambridge, MA: Ballinger, 1986), pp. 25–48.
16. Jeffry A. Timmons and Stephen Spinelli, New Venture
Creation: Entrepreneurship for the 21st Century (New
York: McGraw-Hill/Irwin, 2007), pp. 249–55.
Chapter 1
1. Canadian Entrepreneurship Status 2010, BDC,
July 2010, available at www.bdc.ca/Resources%20
Manager/misc/CES_2010_EN%20Final.pdf (accessed
August 8, 2011); “Starting a Business,” RBC Royal
Bank, available at www.rbc.com/canada/_assets-
custom/pdf/Starting%20a%20Business%2057749%20
English.pdf (accessed August 8, 2011); and Statistics
Canada, Labour Force Survey, March 2010.
2. Industry Canada, Key Small Business Statistics,
July 2010, available at www.ic.gc.ca/eic/site/sbrp-
rppe.nsf/eng/rd02493.html (accessed August 9, 2011).
3. Aneliese Debus, “Small Business, Big Value,”
Canadian Federation of Independent Business
(October 2007) at www.cfib.ca
4. Based on “Key Small Business Statistics—December
2009,” available at www.ic.gc.ca/eic/site/sbrp-
rppe.nsf/vwapj/KSBS-PSRPE_July-Juillet2010_eng.
pdf/$FILE/KSBS-PSRPE_July-Juillet2010_eng.pdf
(accessed August 10, 2011).
5. Text and exhibits from “Small Business, Big Value,”
October 2007, athttp://www.cfib.ca/research/
reports/rr3040.pdf. Reprinted by permission of the
CFIB.
6. Insolvency Statistics in Canada 2009, available at
www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br02345.html
7. Stewart Thornhill and Raphael Amit, Learning about
Failure: Bankruptcy, Firm Age and the Resource-based
View (Richard Ivey School of Business/The Wharton
School, University of Pennsylvania, n.d.).
8. Steve Bareham, “Planning to Fail Can Spell
Success,” available at www.Canadaone.com
(accessed September 1999).
9. “Entrepreneurs’ Start-up Cognitions and Behaviours:
Dreams, Surprises, Shortages, and Fast Zigzags,”
available at www.babson.edu/entr/fer (accessed
January 10, 2005).
03900_18_Endnotes.indd 555 12/26/11 5:06 PM
Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
doc_997808305.pdf