BUSI 433. Review & Discussion Questions: Answer Guide 1. Lesson 1: Entrepreneurship and Small Business Development

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1 BUSI 433 Review & Discussion Questions: Answer Guide 1 Lesson 1: Entrepreneurship and Small Business Development 1. Pros of operating a small business include: flexibility to respond to changing market conditions small size enables efficient operation specialized markets can be served more profitably than in larger companies high level of personal service can be provided financial independence ability to create the lifestyle you want and gain personal satisfaction from the work opportunities for success (advancement, potential for profit) Cons of operating a small business include: limited managerial skills can result in difficulty growing the company difficulty raising capital for start-up and expansion costs of complying with increasing levels of government regulation major personal commitment required on the part of the owner difficulty finding and retaining good employees requirement to be involved in all aspects of the company s operations long hours of work Reasons why small businesses thrive in Canada include: Small business owners receive personal satisfaction from their work. Rapidly changing technology has made it easier for small businesses to compete with larger ones. There is a growing use of outsourcing. Many small business owners support larger companies by providing outsourcing services. Small businesses offer their owners the best route to success. Corporate restructuring and downsizing has forced many people to look for new jobs and new careers. 2. In deciding whether to buy an existing business or start a new one, some factors to consider are: profitability risk tolerance costs reputation real property and equipment personnel existing customer base Finally, an existing business may provide profits more quickly, but starting a new business means the entrepreneur does not have to pay anyone for past contributions.

2 Guide 1 Page 2 of 6 3. a. Entrepreneurs and small business owners share many of the same characteristics, but they are not the same thing. Entrepreneurship involves taking a risk, either to create a new business or to greatly change the scope and direction of an existing one. Entrepreneurs are typically innovators who start companies to pursue their ideas for a new product or service; they are visionaries and trend spotters. On the other hand, small business owners are managers or people with technical expertise who started a business or bought an existing business, making a conscious decision to stay small. An entrepreneurial person can start a small business, thus being both an entrepreneur and a small business owner but a small business owner does not always have to be an entrepreneurial type. A non-entrepreneurial person can successfully run a small business. b. Traits of entrepreneurs: able to handle uncertainty confident disciplined driven/ambitious energetic flexible independent able to seize an opportunity persistent good problem solving abilities risk taking visionary creative passionate committed imaginative and innovative intuitive c. Answers will vary. d. See the course discussion forum. 3. a. The first steps involved in starting your own business are: finding the idea developing and testing the business concept developing a business plan b. A business plan is a formal written statement that describes in detail the idea for a new business and the plan for how it will be established. The process of developing a formal business plan helps the business owner to analyze the feasibility of his or her idea. This written plan describes in detail the idea for the business and how it will be implemented. The plan also helps the owner obtain both debt and equity financing for the new business. Among the initial decisions to be made will be choosing a form of business organization.

3 Guide 1 Page 3 of 6 All business plans will vary to some degree, but the main components of a business plan can include: Executive summary Vision and mission statement Company overview Product/service description Customer and market analysis Business model and competitive strategy Competitor analysis Implementation plan, including marketing and sales, operations, employment and human resources, and milestones Risk section Financial highlights and assumptions Financial projections Team overview 5. Answers will vary. 6. Advantages include: greater flexibility more efficient operations greater ability to service specialized markets ability to offer more personalized service there can be greater autonomy and consultants have more control fewer layers or hierarchy less competition within the business Disadvantages include: fewer resources (for example, a larger company might have an entire marketing team, whereas a small business might have a single marketing assistant, or consultants might have to do their own marketing) level of personal commitment required by the owner working with smaller budgets (for marketing, training, technology, etc.) more difficult to establish a reputation often has a smaller geographical reach One consideration as a small real estate enterprise is to pursue opportunities to collaborate with the big guys remain independent but gain the access to bigger and more diverse projects. 7. Answers will vary. 8. See course discussion forum.

4 Guide 1 Page 4 of 6 9. Answers will vary and might include the following: Background: Materials currently used for roads, driveways, paths, etc. like concrete and asphalt are heavily flawed: they require expensive ongoing maintenance, and not sustainable to produce, and miss out on the potential to harness the energy of the sun, among other shortcomings. Problem Statement: Existing road coverings sufficed in the past, but they do not offer an optimal solution today. They cost communities in both money and environmental resources, without offering potential benefits that other road covering methods could offer. Proposed Product: Solar roadways are a modular paving system of solar panels that can be installed on any surface. They generate clean, renewable energy and pay for themselves through the generation of solar electricity. They also address flaws with existing road coverings, including: Reducing weather problems: heating elements help the surface stay snow and ice free Marking issues: LED lights create highly visible and flexible markings Financial information: Not available based on information given. Conclusion: Solar roadways represent the next step in innovation for the world s transportation and infrastructure industries. They could revolutionize the inefficient practices we ve been using, providing a sustainable, forward-thinking solution to the issues we face with existing road coverings. Comments on whether solar roadways can succeed: Through crowd-sources campaigns, celebrity endorsements, and a contract with the Federal Highway Administration, it appears that the idea has significant backing and support. The cost of developing and implementing the technology will be very significant. The lack of financial information makes it difficult to comment about the financial feasibility of the product. Solar roadways present creative solutions to many of the issues we have with existing road coverings. On the other hand, existing road coverings work relatively well most of the time is the current system broken enough to need fixing? 10. Factors to consider include: Identifying the reasons that you want to start the business. Determining whether you have the personality to start and operate a business. Assessing whether you have the time and energy needed to invest in starting a business. Assessing your personal skills, talents, attributes, and experience. Comparing the potential for income versus your current income. Determining what resources you will need to start the business (including human resources, capital needed to start the business, etc.). Determining whether there exists a market for your business by way of a market analysis. Establishing how the business will be financed. Considering the competitive landscape of the business. Establishing a long-term plan for your business. Determining the risks involved in starting the business. Determining where you will operate your business and what equipment you will need. 11. Answers will vary.

5 Guide 1 Page 5 of i. False Not all entrepreneurs are small business owners, and not all small business owners are entrepreneurs. ii. True The definition of an entrepreneur is a person with vision, drive, and creativity who is willing to take the risk of starting and managing a business to make a profit or greatly changing the scope and direction of an existing company. iii. True Generating a profit is included in the definition of what makes an entrepreneur. iv. True An entrepreneur is less likely to accept the status quo and is more likely to take a longerterm approach than a small-business owner. v. True The business plan should provide details on the team, including resumes for all team members and a description of the relevance of each member s related experience. vi. False A multipreneur is an entrepreneur who starts a series of companies and thrives on the challenge of building a business and watching it grow. They are often successful in their ventures. vii. False Most entrepreneurs are risk taking, meaning that they prefer situations with a moderate degree of risk where they have a chance to control the outcome. Note that while most entrepreneurs are not risk averse, they don t necessarily fall on the other end of the spectrum: they would rather avoid situations with an overly high degree of risk that depends entirely on luck. viii. False - Entrepreneurs and small-business owners need the managerial ability to organize a company, develop operating strategies, obtain financing, and supervise day-to-day activities. ix. False Different institutions define small business differently: some base it on the number of employees, others on revenues. There is no universal minimum or maximum number of employees to be considered a small business. x. False The business plan s conclusion should only be one sentence or so. xi. False Services dominate small businesses, with approximately 75% of all small business in Canada being in the service sector. xii. False Employing outside consultants is an essential way to ease the burden of managing a small business. xiii. True Increasing numbers of small businesses are discovering the benefits of looking beyond Canada for options. Many small business hire international-trade specialists or export management companies to help them sell overseas. xiv. True While the business plan can be used for many purposes, its primary purpose is to obtain financing for the venture. xv. False The grandparent/child test is a rule of thumb to determine whether or not a grandparent or a 12-year-old child would be able to understand the business after reading the business concept. xvi. False Debt involves borrowed funds that must be repaid with interest over a stated period. Angel investors and venture-capital companies are two forms of equity financing. xvii. True Some common causes for business closure are lack of experience, economic factors, financial causes, and personal reasons. xviii. True Smaller manufacturers can often introduce a new product to the marketplace much faster than a larger manufacturer. xix. True The Business Development Bank of Canada is a financial institution that is wholly owned by the Government of Canada. The BDC advises and helps small businesses in the areas of finance and management. xx. False The business plan should generally include financial pro forma statements for the first five years. xxi. False The BDC does not make loans from funds set aside each year by Parliament. xxii. False Women are increasing business ownership at a much faster rate than the national average. xxiii. True Frustration with the current work environment is one reason that women are increasingly starting their own companies.

6 Guide 1 Page 6 of 6 xxiv. xxv. xxvi. xxvii. True Technology plays a large role in the Canadian economy. As customers become more comfortable with technology, it introduces opportunities for new businesses. False Developing a business plan requires that an entrepreneur take a long-term perspective for setting goals. This perspective will help foster smarter decisions in the short term. True Small businesses are typically more flexible than their larger counterparts. True The decline stage of the business lifecycle can be caused by many different factors, including changes to technological, legal, government, and societal influences that have disrupted the market.