Business

Second Canadian Edition

Pride • Hughes • Kapoor • Althouse •

Allan

Copyright © 2023 Cengage Learning Canada Inc. 1

 CHAPTER 5
Creating Businesses:
The Importance of Entrepreneurship

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Learning Objectives

5-1 Describe the five common characteristics of

successful entrepreneurs.
5-2 Characterize the small business sector of the
Canadian economy in terms of size, employment,
and economic impacts.
5-3 Understand three factors contributing to the high
number of small businesses in Canada.
5-4 Summarize the four contributions that small
businesses make to the Canadian economy.
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Learning Objectives

5-5 List the five major components of a business plan,

and the nine blocks of a business model canvas.
5-6 Understand the different types of businesses and the
spectrum of business models used by entrepreneurs.
5-7 Determine the most likely source of financing for
different business ventures.
5-8 Contrast the advantages and disadvantages of a
franchise with those of a typical new business start-
up.

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Introduction
• Entrepreneurial spirit is measured around the world
by the Global Entrepreneurship Monitor (GEM)
• Based on three key questions:
1. Do they know someone who started a business in the
past year? (entrepreneurial awareness)
2. Do they think there are good opportunities for starting a
business in their local area? (entrepreneurial
opportunity perception)
3. Do they think they have the knowledge, skills, and
experience to start a business? (entrepreneurial self-
efficacy)
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Introduction

• Enhance learning by
engaging with the
interactive figure under
Introduction in MindTap

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Introduction
• Inspiring Success Story: STIL Solutions
• Hilary Scanlon, a student at Wilfrid Laurier University,
started a business to aid people with difficulty seeing
find and differentiate between waste and recycling
units
• Her business empowers individuals of all abilities to
independently dispose of waste in public spaces

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Characteristics of Entrepreneurs
• Confidence
• Ability to act decisively and lead the business
• Energy
• Willing to put in long hours
• Internal Drive
• Desire to control one’s own destiny
• Vision
• Ability to think strategically and creatively
• Effectively manage details to make vision a reality
• Willingness to Endure Risk
• Ability to persevere and learn from mistakes
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Characteristics of Entrepreneurs

• Enhance learning by
engaging with the
interactive figure under
Characteristics of
Entrepreneurs in MindTap

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Intrapreneurs
• Employees who bring an entrepreneurial spirit to their
organization
• Large businesses look for employees who can apply
entrepreneurial principles and spirit to their
organizations
• Characteristics of effective entrepreneurs are
valuable regardless of career goals

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Key Takeaway

Factors leading to entrepreneurial

success include confidence, energy,
internal drive, vision, and tolerance for
uncertainty

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Class Activity
• Jeff Bezos, founder and CEO of Amazon.com, is one of
North America’s successful entrepreneurs
• Read more about Jeff Bezos and compare the
characteristics of successful entrepreneurs to his
leadership qualities in class

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Motivations for Starting a Business
Decision to quit working for someone else

Loss of a job

An idea for a new product or a new way to sell

an existing product

An opportunity to go into business as the result

of a hobby

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Small Business: A Profile
• Small business: a business that is independently
owned and operated for profit and is not dominant in its
field
• Size: Small businesses represent 98% of all
companies with employees in Canada
• Employment: Small businesses employ 8.4 million
individuals in Canada, approx. 69% of all private-
sector employees
• Economy: Small businesses contribute 42% of
Canada’s GDP
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Small Business: A Profile

• Visit MindTap to watch

the video The Size and
Scope of Small
Business in Canada
• Go to login.cengage.com
to access the digital
resources.

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Key Takeaway
Entrepreneurs start small businesses

for a variety of reasons

Small businesses contribute toward

employment and Canada’s economic
growth

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Class Activity
• Divide into groups and research a small business in
your town/city
• Present a profile of the business to the class

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Factors Contributing to
Entrepreneurship
• Culture of Entrepreneurship
• Organizations promote small businesses in their
communities
• Advances in Technology
• Technology is more accessible and affordable to small
businesses
• Corporate Downsizing and Outsourcing
• Laid-off employees realize they have skills and an
entrepreneurial spirit
• Large companies that outsource fuel the growth of small
businesses that serve them
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Factors Contributing
to Entrepreneurship

• Enhance learning by
engaging with the
interactive figures under
Factors Contributing to
Entrepreneurship in
MindTap

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Key Takeaway

Culture of entrepreneurship, advances

in technology, and downsizing and
outsourcing are factors that support
the significant role of small businesses
in shaping
Canada’s economy

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Poll
Holy Crap Cereal—Out of this World
Corin Mullins invented Holy Crap breakfast cereal to address her husband’s
food allergies. After renaming the cereal Holy Crap in 2009, sales jumped
1000%. After Mullins’s appearance on Dragons’ Den in 2010, demand for
Holy Crap was so high a factory was built in 2011. The cereal was served to
Col. Hadfield on the International Space Station. Which factor likely
supported the growth of Holy Crap cereal?
A. Culture of entrepreneurship
B. Advances in technology
C. Downsizing and outsourcing

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The Importance of Small Business
in Our Economy
• Provide:
• Technical innovation: leveraging innovation to find new
ways of doing more with less resources
• Compared to large businesses, small businesses are
more inventive
• Forefront of today’s emerging “green economy”
• Employment
• Canadian small businesses employ 70.5% or 8.2
million private-sector workers
• Canadian women are more likely to open their own
business than any other nation in the world
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The Importance of Small Business
in Our Economy
• Provide:
• Competition
• A number of small
companies, each
competing in its own
particular area and its own
particular way, can
collectively achieve the
desired competitive effect

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Meeting the Needs of Society and
Other Businesses
• Small businesses exist in local service industries where
there is little advantage to being big
• Examples: dry cleaning, food services, personal and home
services
• Small businesses are critical to the supply chains of
most large businesses in Canada
• More cost-effective for big businesses to buy parts
from smaller ones

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Key Takeaway
Contributions of small businesses to
the
Canadian economy
Provide technical
innovation
and competition

Provide employment

Meet the needs of society

and
larger organizations
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Class Activity
• Divide into groups
• Research a small business at the forefront of today’s
“green economy”
• Present the company’s contributions to the class

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The Importance of a Business Plan
• Business plan: written document that describes the
opportunity, goals, and plans for a business
• Purposes
• Communication tool—Does the business have the
potential to make a profit?
• Management tool—Helps to track, monitor, and
evaluate progress
• Planning tool—Guides a businessperson through the
various phases of business
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The Importance of a Business Plan
• Questions a business plan should answer:
• What exactly is the nature and mission of the new
venture?
• Why is this new business a good idea?
• What are the goals and milestones for the business?
• How much will the new business cost?

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Components of a Business Plan
Executive Summary

Product Description and Market Analysis

Marketing Plan

Operations Plan

Financial Projections

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Poll
Suppose you’ve been hired to create a business plan for the Student
Union, which wants to create a student-run coffee shop that’s open
24 hours a day, 7 days a week. Survey results, however, suggest
there’ll be virtually no demand from 2–6 a.m. daily. How would you
address this issue in your business plan?
A. Don’t address this issue because survey results could be wrong
B. Don’t address this issue because demand will pick up with
advertising
C. Discuss survey results in your market analysis and offer
alternative options
D. Create a business plan based on the Student Union’s request (i.e.,
24/7)
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Types of Ventures and Business
Models

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Types of Ventures and Business
Models
• Social enterprise: a venture driven first by a
higher social purpose but that still is profit-driven
in order to be self-sustaining
• Types of ventures can be categorized by who they
serve:
• B2C (business to consumer)
• B2B (business to business)
• C2B (consumer to business)
• C2C (consumer to consumer)
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Sources of Funding for Ventures
• Personal resources: 80% of new business start-ups rely
on savings, credit cards, home equity, retirement savings
and loans or investments from friends and family
• Angel investors: private individuals who invest money in
exchange for ownership in a company
• Bank loans: though they more often loan to existing
businesses with a track record
• Venture capital: money invested in high-growth
companies that have the potential to become large and
successful
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Sources of Funding for Small
Business
• Visit MindTap to watch
the video Sources of
Funding for Small
Business

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The Growth of Crowdfunding
• Crowdfunding: inviting people to contribute to a
business or project, usually via online platform (e.g.,
Kickstarter, Indiegogo)
• Instead of ownership of the company, contributors
receive a reward depending on level of
contributions
• Global crowdfunding sector was calculated at $14.2
billion USD in 2019 and is expected to reach $28.8
billion USD by 2025

Copyright © 2023 Cengage Learning Canada Inc. 35

Poll
Every week, Neveah sells out of her homemade BBQ sauce at the
farmers’ market. She decides to open a small business dedicated to
making and selling her BBQ sauce. Neveah needs $3,000 in start-up
capital. Which of the following financing sources should Neveah
choose?
A. Her credit cards (19% interest, $300 monthly)
B. Aunt Bea, a retired chef and angel investor (5% interest, open
payment)
C. Her brother Liam, a high school teacher (interest-free loan, open
payment)
D. Her bank (9% interest, $275 monthly, car will be taken as
collateral)
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Class Activity
• In small groups, explore Kickstarter.com and select a
project
• Give a short presentation about the project that
includes a description of the project, the funding
required, and the rewards
• Identify similarities between a project pitch and the
components of a business plan

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Franchising
• Entrepreneurs who want to run their own businesses need
not start from scratch—they may purchase a franchise:
• Franchise: a licence to operate an individually owned
business as though it were part of a chain of outlets or
stores
• Franchisor: an individual or organization granting a
franchise
• Franchisee: a person or organization purchasing a
franchise
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Franchising
Franchisor Franchisee
For a fee, franchisors provide: For a fee, franchisees:
• Use of known business name • Access a proven business model
• Management expertise • Provide labour and capital
• Training and materials • Operate franchised business
• Products and production methods for • Agree to abide by terms of franchise
serving customers agreement

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Franchising
Advantages Disadvantages
• Gain fees, royalties, new location,• Continual franchisee support
product distribution • Monitor franchisees’ performance
Franchisor
• Motivated franchisees and adherence to terms of
franchise agreement
• Brand name recognition • High upfront franchise fees
• Training and turn-key start-up • Royalties on gross sales
Franchisee • Gain economies of scale on • Pays for building and renos
purchases of supplies/services • Must adhere to terms of franchise
• Access franchisors’ experience and agreement
expertise

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Key Takeaway
Franchising offers franchisees an
alternative to starting a business from
scratch, but they give up control and
share of profit

Franchisors can grow company while

increasing income but must monitor
and support franchisees’ progress

Copyright © 2023 Cengage Learning Canada Inc. 41

Class Activity
• Divide the class in two groups and hold a debate on the
topic “Franchising: An effortless alternative to
entrepreneurship”

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Poll
If It’s Too Good To Be True…
A franchisor has approached you with a “ground floor opportunity”
to sign as his business’s first franchisee. He is so confident that he
has a fool-proof formula to make money he’s offering to refund your
franchise fee if the business fails during the first 12 months—but
you must sign now. What should you do?
A. Sign up
B. Run away quickly
C. Ask your lawyer to review the franchise agreement before you
sign
D. Do your due diligence

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