ADMN 201 — Ch4: Entrepreneurship, Small Business, and New Venture Creation
Chapter at a Glance
mindmap root((Ch4)) LO4.1 Three Core Concepts Entrepreneurship = Process New Venture = Result Small Business = Scale Canadian stats LO4.2 Role of Small Business Job Creation Innovation Economic Diversity Intrapreneurs LO4.3 Entrepreneurial Process Traits 3-Element Process Financing Sources Crowdfunding Building a Team LO4.4 Pathways to Ownership Start from Scratch Buy Existing Buy Franchise LO4.5 Success and Failure Survival Rates 4 Success Factors 4 Failure Factors LO4.6 Legal Forms Sole Proprietorship Partnership Corporation Cooperative
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Opening Case — Jim Pattison
Jim Pattison is one of Canada’s most celebrated entrepreneurs. He founded the Jim Pattison Group in 1961 with a single GM auto dealership. As of 2021 (age 92), his company has grown into a private conglomerate with:
- US$9.6 billion net worth (Canada’s 3rd wealthiest individual)
- 48,000 employees
- $10.9 billion in annual sales
- Operations across automotive, food, media, entertainment, and signs
Pattison has deliberately refused to take the company public (no IPO), keeping it private so he can manage it on his own terms without shareholder pressure. His story illustrates the core tensions in this chapter: independence vs. scale, entrepreneurship vs. management, and personal vision vs. institutional capital.
LO 4.1 — Three Core Concepts
The most-tested idea in this chapter. Students frequently confuse these three:
| Term | What It Is | Example |
|---|---|---|
| Entrepreneurship | The process of identifying an opportunity and accessing resources to pursue it | Lisa spots a gap in the salad cafe market and starts acting on it |
| New Venture | The result — a recently formed commercial organization | The salad cafe opens its doors |
| Small Business | The scale — independently owned, not dominating the market | The cafe a year later, still local and independent |
Exam trap: Entrepreneurship is NOT the business. Entrepreneurship = the process of baking the bread. New venture = the bakery that opens. Small business = the bakery that stays local and independent.
Fill-in-the-blank version: Entrepreneurship is the process. A new venture is the result.
Canadian Stats
- Self-employed = ~15% of the Canadian workforce
- Approximately 380 businesses are started daily in Canada
- 2.68 million Canadians were self-employed in 2021
- Small businesses account for ~30% of Canada’s GDP
- BC has the highest small-business share of provincial GDP: 33%
- Newfoundland has the lowest: 23%
- PEI has the highest business density: 50.8 businesses per 1,000 people
- Alberta ranks second: 48.3 businesses per 1,000 people
The Heritage Foundation Economic Freedom Index (2021)
Countries with more economic freedom tend to have more entrepreneurship. The 2021 index rankings:
| Rank | Country |
|---|---|
| 1 | Singapore |
| 2 | New Zealand |
| 3 | Australia |
| 9 | Canada (77.9 / 100) |
| Last | North Korea (5.2 / 100) |
LO 4.2 — Role of Small Business in Canada
Small businesses make up the vast majority of Canadian businesses. Four contributions:
- Job Creation — primary source of local employment; new ventures created 35.8% of private-sector jobs between 2014 and 2019
- Innovation — entrepreneurs bring new products and models that large firms overlook
- Economic Diversity — fill niche markets; make the economy more resilient
- Community Impact — keep capital circulating locally
Small-Business Employment by Sector
Some industries are dominated almost entirely by small businesses:
| Sector | % of jobs in small firms |
|---|---|
| Agriculture | 88.9% |
| Other services | 91.1% |
| Accommodation and food | 91.1% |
| Construction | 81.2% |
MCQ trap: Small businesses do NOT dominate international export markets — doing so would disqualify them from being classified as “small.”
Women Entrepreneurs
Women now start approximately half of all new businesses in Canada. However, they lead only 14.8% of SMBs that export. Key reasons women start businesses (Figure 4.2):
| Reason | Share |
|---|---|
| Gain control over their work/life | 46% |
| Saw a business opportunity | 24% |
| Hit a glass ceiling | 23% |
| Other | 7% |
Intrapreneurs
An intrapreneur creates something new inside an existing large organization rather than starting their own company.
- Examples: P&G, 3M, Xerox, TELUS have all built intrapreneurship cultures
- A Wharton School study found that 22 of the top 30 inventions of the 20th century came from intrapreneurs inside corporations — only 8 came from independent entrepreneurs
- Intrapreneurs carry the creative risk but rely on the company’s infrastructure and capital
Entrepreneurship Goals: Independence vs. Growth
Not all entrepreneurs want the same outcome:
- Independence goal — the entrepreneur wants to own their own job; content with staying small and local
- Growth goal — the entrepreneur wants to build a large, scalable business (the Jim Pattison model)
These goals shape every major decision: financing, hiring, legal structure, and exit strategy.
LO 4.3 — Entrepreneurial Characteristics and Process
Entrepreneurial Characteristics
Traits that predict entrepreneurial success fall into three types:
| Type | Examples |
|---|---|
| Behavioural | Taking initiative, acting on opportunities |
| Personality | Independence, drive, high tolerance for uncertainty/risk, creativity |
| Skills | Problem solving, interpersonal communication, leadership |
The most exam-relevant single trait is internal locus of control — the belief that personal actions (not luck or fate) shape outcomes. Entrepreneurs attribute results to themselves, not to external forces.
The Three-Element Entrepreneurial Process
flowchart LR A["1 · Opportunity Recognition\nSpot the market gap\nRecognize unmet need"] --> B["2 · Resource Acquisition\nWrite business plan\nApply for loans\nAssemble capital & people"] B --> C["3 · Entrepreneur / Team\nThe person who organizes\nand leads the venture"] C --> D["New Venture\nLaunches"] E["Environmental Factors\nEconomics · Technology\nCompetition · Politics"] --> A D --> F["Growth / Stability /\nDecline / Demise"]
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Scenario tip: Writing a business plan + applying for a bank loan = Element 2, Resource Acquisition. The opportunity was already identified at that point. The entrepreneur is who they are, not what they’re doing right now.
The process has four possible outcomes: growth, stability, decline, or demise. Not every venture succeeds.
Acquiring Resources — Financing
Bootstrapping
Bootstrapping = self-funding a business using personal savings and revenue, doing more with less, and minimizing external capital.
Example: Omeed Asadi co-founded Sherpa.Tax using bootstrapping — he built the product without investor money, relying on sweat equity and creative cost-cutting.
Equity Financing (4 Sources)
Equity financing means selling ownership stakes in exchange for capital — no repayment required, but ownership is diluted.
| Source | Description |
|---|---|
| Personal savings | Most common first source; full control retained |
| Love money | Friends and family; informal terms; relationship risk |
| Angel investors | Wealthy individuals who invest early-stage capital; example: Harley Finkelstein (now Shopify President) got angel funding for early ventures |
| Venture capital firms | Professional investors seeking high returns; in 2020, Canadian VCs deployed $4.4 billion across 509 deals; typically demand a 35–50% return and often take a board seat |
Government Financing — CEBA
The Canada Emergency Business Account (CEBA) was introduced during COVID-19:
- Offered 20,000 supplement in interest-free loans
- If a business repaid 20,000 was forgiven**
- Designed to help small businesses survive lockdowns and reduced revenue
Debt Financing (3 Sources)
Debt financing means borrowing money with an obligation to repay with interest — ownership is retained.
| Source | Description |
|---|---|
| Financial institutions | Chartered banks and credit unions; require business plan and often collateral |
| Personal loans | Borrowing against personal assets (e.g., home equity) |
| Suppliers / Trade credit | Suppliers allow ~30 days to pay invoices; effectively a short-term loan |
The Business Plan
A business plan is a formal document in which the entrepreneur summarizes their business strategy for the proposed venture and how that strategy will be implemented. It is the primary tool used when applying for bank loans or investor capital.
Key uses:
- Convinces lenders and investors that the opportunity is viable
- Forces the entrepreneur to think through operations, market, and finances before launch
- Required by most chartered banks before they will discuss a loan
LO link: The business plan sits squarely in Element 2 — Resource Acquisition. You’ve identified the opportunity; now you document how you’ll pursue it to unlock capital.
Major Canadian banks (BDC, RBC, Scotiabank, TD) provide free templates and interactive tools for writing business plans. The Business Development Bank of Canada (BDC) is the government’s primary resource for entrepreneur support.
Business Incubators
Incubators are facilities that support early-stage small businesses by providing:
- Shared office space and equipment
- Mentorship and management advice
- Access to networks and financing contacts
- According to CABI (Canadian Association of Business Incubation), businesses that go through incubators have an 80% survival rate after 5 years, far above the general average
- Examples operate at universities and regional economic development centres across Canada
Crowdfunding
Crowdfunding = raising small amounts of money from a large number of people, typically online.
- Kickstarter stats: 19 million+ backers, $5.7 billion pledged, 199,838 projects successfully funded
- Became legal in Canada in 2014
- Women-led campaigns are 32% more successful than comparable male-led campaigns on crowdfunding platforms
- Canada raised US504 million in the U.S.
Investor limits in Canada:
- Maximum $2,500 per project
- Maximum $10,000 per year total
Example: Revols (Calgary startup) raised $2.5 million on Kickstarter for custom-moulded wireless earbuds. The company was later acquired by Logitech.
Building the Right Team
A new venture’s team can be formed in two ways:
- A solo founder who hires employees as the business grows
- A founding team assembled before launch
The classic entrepreneurial pairing is:
- Craftsperson — the technical expert who builds the product or delivers the service
- Salesperson — the relationship builder who finds customers and drives revenue
Both skillsets are typically needed from day one. A team strong in one but missing the other is a common early-stage vulnerability.
LO 4.4 — Three Pathways to Ownership
graph TD OWN[Business Ownership] --> A[Start from Scratch] OWN --> B[Buy Existing Business] OWN --> C[Buy a Franchise] A --> A1[Highest independence\nHighest risk\nNo existing customers] B --> B1[Medium independence\nMedium risk\nMay inherit hidden problems] C --> C1[Lowest independence\nLowest risk\nProven system + support]
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| Strategy | Independence | Risk | Core Advantage | Core Risk |
|---|---|---|---|---|
| Start from Scratch | Highest | Highest | Full control and vision | No customer base; build everything from zero |
| Buy Existing Business | Medium | Medium | Customers, cash flow, suppliers already in place | May inherit hidden debt or poor reputation |
| Buy a Franchise | Lowest | Lowest | Proven brand, training, ongoing support | High fees + royalties; strict rules; limited independence |
The rule: Independence and risk move together. Most independence = most risk. Least risk = least independence.
Franchising — Key Details
Franchising is a licensing arrangement where:
- The franchiser owns the brand and system; collects fees and royalties
- The franchisee buys the right to use the brand and system in a specific territory
- The franchising agreement spells out the duties of both parties
Franchising by the numbers in Canada:
- Franchises represent 40% of all retail sales
- 76,000 franchise establishments
- 1.9 million employees
- More than $100 billion in revenues annually
Royalties typically range from 2% to 30% of annual revenues.
Franchise-specific cost examples:
| Franchise | Details |
|---|---|
| Tim Hortons | 26-page franchising contract (considered streamlined for the industry) |
| Bento Sushi | 150,000 to open |
| Harvey’s | 5% royalty + 4% advertising fee; 1M for a free-standing outlet |
Six franchise cost categories:
- Franchise fee
- Training costs
- Equipment and supplies
- Leasehold improvements
- Royalties (ongoing)
- Advertising/marketing fees (ongoing)
Disclosure laws: BC, Manitoba, Alberta, Ontario, New Brunswick, and PEI have franchise disclosure laws requiring franchisers to provide detailed information before a franchisee signs.
Benefits of franchising — for both sides:
| Franchiser Benefits | Franchisee Benefits |
|---|---|
| Rapid expansion with less capital | Proven brand and customer base |
| Motivated owner-operators at each location | Training and ongoing support |
| Local knowledge at each site | Tested business system |
| Royalty income stream | Purchasing power through the network |
LO 4.5 — Success and Failure
Survival Statistics
Under normal (non-COVID) conditions:
- 85 out of 100 new businesses survive year 1
- 70 out of 100 survive to year 3
- 51 out of 100 survive to year 5
A CIBC study on high-growth firms found they shared common characteristics: more educated owners, use of professional advisers, adoption of a corporate legal structure, outsourcing non-core functions, and internet connectivity.
Example: Bit Stew Systems, a BC startup, was acquired by GE for $153 million — illustrating how a high-growth small firm can scale to a major exit.
Four Reasons for Success
- Hard work, drive, and dedication — the entrepreneur outworks competitors
- Market demand — selling what customers actually want
- Managerial competence — sound planning, decisions, and financial control
- Luck — good timing and favourable external conditions
Four Reasons for Failure
- Poor management (managerial incompetence or inexperience) — bad decisions, lack of relevant skill
- Weak control systems — financial or operational problems go undetected until too late
- Neglect — the owner fails to devote sufficient time and energy to the business
- Insufficient capital — running out of cash before reaching profitability
Exam trap on neglect: Neglect = too little attention, not too much work. The failure is absence, not overexertion.
Exam trap on capital: A business can have revenue and still fail from running out of cash. Insufficient capital is about cash flow timing, not just total sales volume.
LO 4.6 — Legal Forms of Business Organization
The two exam-critical attributes are liability and double taxation.
graph TD UL[Unlimited Liability\nSole Prop · General Partners] -->|personal assets can be seized| Risk[Higher Personal Risk] LL[Limited Liability\nCorporation · Cooperative] -->|only investment is at stake| Safe[Personal Assets Protected] Corp[Corporation Only] -->|profits taxed at corporate level\nthen dividends taxed personally| DT[Double Taxation] DT --> DTC[Dividend Tax Credit\npartially offsets double taxation]
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| Form | Owners | Liability | Double Tax? |
|---|---|---|---|
| Sole Proprietorship | 1 | Unlimited | No |
| Partnership | 2+ | Unlimited (general partners) | No |
| Corporation | Shareholders | Limited | Yes |
| Cooperative | Members | Limited | No |
Sole Proprietorship
The simplest and cheapest form.
- Owner and business are one legal entity — no legal separation
- Unlimited personal liability: all personal assets can be seized to pay business debts
- No name registration required if the business operates under the owner’s own legal name
- Business legally dissolves on the owner’s death — no continuity
- Business losses are deductible against other personal income (a tax advantage)
- Difficult to borrow large sums — the business has no independent credit history
Partnership
Two or more people share ownership.
Two partner types:
- General partner — actively manages the business; unlimited liability
- Limited partner — passive investor only; limited liability (only what they invested at risk)
A partnership agreement is a private document — it does not need to be filed publicly, but it is strongly recommended. Key questions the agreement should address:
- Who contributes what capital?
- How are profits and losses divided?
- What happens if a partner wants to leave?
- What happens on a partner’s death?
Each partner is taxed as an individual on their share of income. There is no continuity — the partnership technically dissolves when a partner dies or leaves. Partners cannot transfer their ownership share without consent from all other partners.
Corporation
A corporation is a separate legal entity from its owners (shareholders).
- Limited liability for all shareholders — personal assets are protected
- Shareholders elect a Board of Directors to oversee management
- Can raise capital by selling shares to the public (IPO) or privately
- Most complex and regulated form; highest setup cost
- Subject to double taxation: profits are taxed at the corporate rate, then dividends paid to shareholders are taxed again as personal income
- The dividend tax credit partially offsets double taxation — it reduces the personal tax owing on dividend income
Top 10 Canadian corporations by revenue (Table 4.5 approximation, 2021):
| Company | Revenue |
|---|---|
| Alimentation Couche-Tard | $78.8B |
| Brookfield Asset Management | $78.5B |
| Royal Bank of Canada | $60.3B |
| TD Bank | $55.5B |
| Magna International | $53.4B |
Private vs. Public Corporation:
| Type | Definition |
|---|---|
| Private Corporation | Shares held by a small group of individuals; stock is not available for sale to the general public |
| Public Corporation | Shares widely held and available for sale to the general public; issued through an IPO |
Exam note: Jim Pattison deliberately kept his company a private corporation — he refused to go public (no IPO) to avoid shareholder pressure.
A Private Equity Firm buys publicly traded companies and converts them back to private ownership — the reverse of an IPO.
Shareholders are investors who buy shares (stock) of ownership in a corporation. They elect the Board of Directors, who oversee management and bear legal responsibility for the firm’s actions. The highest-ranking executive they appoint is the Chief Executive Officer (CEO). Profits returned to shareholders are called dividends.
Common Stock = shares whose owners have last claim on assets if the company fails, but who hold voting rights in the firm. An Income Trust is a structure allowing companies to avoid corporate income tax by distributing all or most earnings to investors — not a legal form, but an alternative structure sometimes tested.
Cooperative
A cooperative is owned and operated by its members for mutual benefit, not profit maximization.
Key features:
- One member, one vote — democratic control regardless of investment size
- Income is taxed at the individual level only — no double taxation
- Limited liability for members
- Disadvantage: less incentive for equity investment — since voting power doesn’t scale with ownership, wealthy investors have less motivation to contribute capital
- Slower decision-making due to democratic governance
- Limited ability to raise external capital compared to corporations
Canadian cooperative examples:
- Arctic Co-operatives Limited — federation of 32 co-operatives across Nunavut, Yukon, and the NWT; 1,000 employees; distributed $12.8 million to member communities
- Gay Lea Foods Co-op — dairy cooperative owned by Ontario dairy farmers
- Vancity — Canada’s largest community credit union (cooperative structure)
Exam Recall Hacks (Mnemonics)
- Three concepts: Process · Result · Scale = Entrepreneurship · New Venture · Small Business
- Ownership pathways ranked by risk: Scratch > Existing > Franchise (also independence order)
- Four failure reasons: Poor Management · Weak Controls · Neglect · Insufficient Capital
- Liability rule: Sole Prop + General Partners = Unlimited. Corporation + Cooperative = Limited.
- Double taxation: Corporations only. Partially offset by the dividend tax credit.
- Franchise disclosure laws: BC, MB, AB, ON, NB, PEI — six provinces.
- Survival: 85% year 1 → 70% year 3 → 51% year 5.
- Canadian VC (2020): $4.4B across 509 deals; VCs need 35–50% return.
Key Terms Quick Reference
| Term | Definition |
|---|---|
| Entrepreneurship | The process of identifying an opportunity and organizing resources to pursue it |
| New Venture | A recently formed commercial organization |
| Small Business | Independently owned, managed by its owners, not dominant in its market |
| Intrapreneur | Creates something new inside an existing large organization |
| Bootstrapping | Self-funding a venture using personal resources and revenue; minimizing external capital |
| Angel Investor | Wealthy individual who provides early-stage equity funding |
| Venture Capital Firm | Provides equity funds to new or expanding high-potential firms; demands high returns |
| Crowdfunding | Raising small amounts from many people, typically online |
| Franchisee | Buys the right to use a franchiser’s brand and system |
| Franchiser | Owns the brand; collects fees and royalties from franchisees |
| Franchising Agreement | Contract spelling out rights and duties of franchiser and franchisee |
| Unlimited Liability | Personal assets can be seized to pay business debts |
| Limited Liability | Personal assets protected; only the invested amount is at risk |
| Double Taxation | Corp pays corporate tax on profits; shareholders also pay personal tax on dividends |
| Dividend Tax Credit | Tax credit that partially offsets double taxation on dividend income |
| General Partner | Partner who actively manages the business; has unlimited liability |
| Limited Partner | Passive investor partner; has limited liability |
| Cooperative | Member-owned organization; one member, one vote; run for mutual benefit |
| IPO | First sale of shares to the general public by a previously private corporation |
| Collateral | Asset pledged to secure a loan; seized if the borrower defaults |
| Sales Forecast | Estimate of products/services expected to be purchased over a specific period |
| Business Incubator | Facility providing space, mentorship, and resources to early-stage businesses |
| Internal Locus of Control | Belief that personal actions, not luck, shape outcomes |
| Business Plan | Document summarizing the entrepreneur’s business strategy and how it will be implemented; required when seeking financing |
| CEO | Chief Executive Officer — highest-ranking executive in a company, appointed by the Board of Directors |
| Common Stock | Shares whose owners have last claim on corporate assets but hold voting rights |
| Dividends | A portion of profits distributed to shareholders |
| Income Trust | Structure allowing companies to avoid corporate income tax by distributing all or most earnings to investors |
| Private Corporation | A business whose stock is held by a small group and is not available for public sale |
| Private Equity Firm | Companies that buy publicly traded companies and convert them back to private ownership |
| Public Corporation | A business whose stock is widely held and available for sale to the general public |
| Shareholders | Investors who buy shares (stock) of ownership in a corporation |
| Stock | A share of ownership in a corporation |
| Board of Directors | Group elected by shareholders to oversee management and bear legal responsibility for the firm’s actions |
Related Pages
Entrepreneurship, LegalFormsOfBusiness, BusinessOwnershipStrategies, PrivateEnterprise, ClassificationSystems-LegalForms, ADMN201-Ch3, ADMN201-Ch15