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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-1
The Nature & Importance of Entrepreneurs
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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-2
Chapter Learning Objectives
• To understand the different types of organizational structures
• To understand the importance of the management team
• To understand the advantages and disadvantages of the alternative legal forms
• To learn the importance of both the formal and informal organization
• To understand the importance of human resource management
• To illustrate how entrepreneurs should lead and motivate
• To illustrate how the board of directors, or board of advisors, can be used
• To understand the unique positions associated with family business
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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-3
Building an Organization
Selecting an Organizational Structure
The basic three legal forms• Proprietorship
• Partnership
• Corporation
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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-4
Building an Organization
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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-5
Building an Organization
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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-6
Organizational Structure: Sole Proprietorship
• Single owner• Unlimited liability• Controls all decisions• Receives all profits
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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-7
Organizational Structure: Partnerships
• Two or more owners• Unlimited liability if a general partnership• Limited liability if a “limited partnership”• LLP “limited liability partnership”
– Commonly used in law firms and CA firms
• Share decisions• Share profits
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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-8
Organizational Structure: Corporations
• Separate legal entities from the people that run/own them• Run by shareholders• Shareholders/owners have limited liability• “public” corporations
– Shares listed on the stock market
– Publically owned
• “private” corporations– AKA “closely held” corporations
– Owned by a few people
• Liability– One of the critical reasons for establishing a corporation
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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-9
Costs of Starting a Business
• Sole Proprietorship– Least expensive
• Partnership– An agreement needs to be written out
– “limited” partnerships have to abide by provincial regulations
• Corporations– Need to file “articles of incorporation” with gov’t office
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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-10
Continuity of Business
Continuity differs for each form of business• Sole Proprietorship
– Death of the proprietor usually signals end of the business
• Partnership– Partner can pass on the business to another partner
• Corporation– Death or withdrawal has little impact
Transferability of Interest
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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-11
Organizational Structure
Capital Requirements• Sole Proprietor
– Personal savings
– Loans from a bank
• Partnership– Loans from a bank
– Or one of the partners may have some money, which they agree gives him an appropriate share of the ownership
• Corporation– Can become a “public” corporation and list stocks for sale
– Can issue corporate bonds
– Can also borrow from a bank, if the company has assests
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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-12
Organizational Structure
Management Control• Sole Proprietor
– The most control & flexibility
• Partnership– Can be problems if the partners disagree
• Corporation– Control in the hands of management
– Shareholders , through the board, control senior managers
Distribution of Profits & Losses
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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-13
Organizational Structure
Attractiveness for raising capital• Sole Proprietor
– poor
• Partnership– Personal liability a problem
• Corporation– Issue stocks
– Bonds
– Debt financing
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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-14
Tax issues
• Sole Proprietor– Treated as an individual owner
• Partnership– Treated as an individual owner, depending on the %’age
share that each partner owns
• Corporation– Can make deductions
– List business expenses
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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-15
Tax issues
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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-16
Management Teams & Organization Design
Functions• Execute the business plan• Raise finances• Develop partnerships• Identify changes in the business environment• Make adjustments to the plans
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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-17
Management Teams & Organization Design
Management leads and creates a vision.
Managers make sure the management team:
• Acst as cohesive as possible• Allows people the freedom and knowledge to act• Rewards contributions• Sees the company comes first• Allow managers to share in the company profits
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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-18
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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-19
Human Resources
Canada & the U.S. has a labour shortage in skilled positions.
Entrepreneurs need to plan carefully to keep their
organization staffed with qualified people.
Strategies:• Hire other company’s star employees• Reward systems• Generous vacations• Hire baby Boomers• Generation Y – 16-26• Offer training programs• Balance work and life
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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-20
Human Resources
The Staffing Process
Do’s and Don’ts of hiring
When Interviewing candidates• PAR
– Present the candidate with a problem
– Ask what action they took
– Ask if the result was positive or negative
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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-21
Human Resources
The design of the organization indicates what is expected of
the employees.
These expectations are – Organizational structure
– Planning and evaluation systems
– Rewards
– Selection criteria
– Training
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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-22
Building a successful organizational culture
• The entrepreneur’s desired culture must match the business strategy
• The leader’s must lead and be role models• The entrepreneurs should be flexible• Spend extra time in the hiring process• Communication structure
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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-23
The Role of the Board of Directors
• Reviewing budgets• Developing long-term plans• Supporting day-to-day activities• Resolving conflicts among owners and shareholders• Ensuring proper use of assets• Developing a network of information resources
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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-24
The Organization and use of Advisors
• Mentors
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Chapter 6
Concept & Development of Entrepreneurship
Entrepreneurial Decision Process
Types of Start-up Ventures
Entrepreneurship & Economic Development
Ethics and Social Responsibility
Entrepreneurship 2nd Canadian Edition © 2009 McGraw-Hill Ryerson Ltd. 6-25
• The Legal form of business• Differences among Sole Proprietorship, Partnership and
Corporation• Need for a strong Management Team• Importance of organization culture• Board of Director and / or Advisors
Chapter Closing Comments