Introduction to technology entrepreneurshipPresentation Transcript
Tech Entrepreneurship Andrew Maxwell MBA P.Eng Lecture 1
The Entrepreneurial Process
The process through which a new venture is created by an entrepreneur
Four distinct phases:
Identification and evaluation of the opportunity
Development of the business plan
Determination of the required resources
Management of the resulting enterprise
Each stage depends upon the other
Importance of new ventures
Scale/Importance of Small Business Activity in Canada
Q. How many business enterprises are there in Canada?
A. 2,228,572 (as of June 2003) of which half are defined as small businesses
The Nature and Development of Entrepreneurship
The word “entrepreneur” stems from French and means “between-taker” or “go between.”
The definition involves four aspects:
The creation process.
The devotion of time and effort.
The assumption of risk.
Rewards of independence, satisfaction, money.
Entrepreneurship… is the process of creating something new with value by devoting the necessary time and effort, assuming the accompanying financial, physical and social risks, and receiving the resulting rewards of monetary and personal satisfaction and independence.
What defines a business?
Statistics Canada, one of the following:
at least one paid employee (with payroll deductions remitted to CRA)
have annual sales revenues of $30 000
be incorporated and have filed a federal corporate income tax return in past 3 years
half (1,047,132) "employer establishments" maintain at least one person on payroll
half "indeterminate" do not have employees (but may have workers, family members and/or owners) - majority are self employed
Number and Size of businesses
1,181,440 Indeterminate (self employed) 53%
596,043 <5 employees 26%
182,892 5-9 employees 8%
124,417 10-19 employees 5%
88,444 20-49 employees 4%
31,284 50-99 employees 1.4%
14,433 100-199 employees 0.6%
6,846 200-499 employees 0.3%
2,773 500+ employees 0.1%
What do they do?
About ¼ produce goods. The other ¾ provide services.
How does this relate to Canada’s GDP?
Pretty close: In 2002, Canada’s GDP of approximately $1T was made up of $300B (30%) production and $700B (70%) services
Between 1978 and 1991 the number of registered businesses increased from 600,000 to 900,000, a 50% increase.
What About Jobs?
The total private sector workforce in Canada is roughly 12,000,000
50% of workforce work with less than 50 others.
This is up from 30% in 1979, in same period large firms shed 10% of jobs
During 1980s small firm sector created 85% of 2.5 million net new jobs (even during the recession)
Are they more innovative?
Small Firms Spend More on R&D
2x - 3x more on R&D per $ of sales than average
more scientists/engineers - 6.4% compared to 4.1%
produce 55% of innovations, more than 2 times
more patents per sales dollar
New Firms Hire Young People More Readily
30% of employees in 1 year old firms are < 25
15% of employees in 11 year old firms are <25
What about high tech firms?
Small firms provided 28% of the jobs in high tech
73% of high tech firms have less than 20 employees
They pay wages about 28% higher than average (excluding natural resources)
They generate about 35% more revenue per employee than average (excluding natural resources
They create more secondary jobs in the community
Are all small businesses similar?
No there are significant differences:
Cottage industries – employing up to 10
Lifestyle businesses – usually only self employed
Foundation businesses – based on R & D
High potential ventures and gazelles - of interest to external investors
What is an entrepreneur?
“ One who organizes, manages and assumes the risks of a business or enterprise” Hisrich et al
“ An act of innovation that involves endowing existing resources with new wealth producing capacity not restricted to a new technological innovation that results from research and development, or to an innovative cost reduction process, but maybe a new application for existing technologies, a product or service innovation or a new way or place of doing business ” Peter Drucker
What is an entrepreneur?
Create/control a new venture to create economic value for themselves and their stakeholders.
Top 6 characteristics
Desire for independence
Moderate risk taker
Active user of external resources
Strong and trusted leader
What is an intrapreneur?
Creates new opportunity inside an existing organization creating economic value for company.
Top 6 characteristics
Desire for recognition
Moderate risk taker
Active user of internal resources
Good team builder
What is technology entrepreneurship?
There are two primary types of technology entrepreneurship, the characteristics of each raising different business issues:
Technology developers: those who develop a unique technology capable of diving a new business
Technology users: those who see a new technology development and understand how it can be applied to meet a market need
What is difference between two forms of technology entrepreneurship?
Level of technology risk
Time to market
What is difference between technology innovation and business model?
Creating an innovative technology does not necessarily lead to the creation of a new business opportunity, either inside an existing business or externally.
You also need to create a business model – example Xerox.
Can you think of others, either inside existing businesses or through new venture creation?
When do you need to create a new venture?
Nature of the business innovation – combination of technological innovation and business model:
Disruptive Innovation: a technology innovation which either fills an existing unmet demand or offers a way to provide a significant improvement over current solutions
Sustaining innovation: a technology innovation, which improves on current performance by existing players
Entrepreneurial vs. intrepraneurial activity
Disruptive innovations lead to new venture creation
Incremental innovations lead to enhancing the position of existing players, although they may change market shares.
Can you think why this might be so?
Characteristics of new technology ventures which give them high potential?
Create a new value for their customers
Have a significant level of technology understanding which is difficult to replicate and can often be protected (patented)
Have a significant first mover advantage
Have a level of scalability
Have created a barrier to entry
Have a high level of initial risk which can be translated into high levels of return
High risk also means high risk of failure !
Only 1 in 6 million high tech business ideas ends up with an IPO
Less than 1% of business plans received by VCs get funded
Founder CEO’s typically own less than 4% of a company after IPO
60% of tech firms funded by VCs go bankrupt
Typical time to IPO is usually five years or more.
How do new tech ventures link to University activities?
In Canada generate more than $2.5 billion of revenue and $84 million of license income
Employ grads (RIM hired 3000 from U of W)
Provide co-op opportunities for undergraduates
Provide a significant source of contract research
Create demand for local infrastructure
Channel to market, early adopters or licensee
Continue to interact with Universities creating industry oriented culture
If successful become significant donors
Food for Thoughts
Why study entrepreneurship?
Give some reasons why an individual entrepreneur might succeed in bringing a product to the market where the government or a large corporation might fail.
Why do you think that some successful entrepreneurs have had difficulty in managing their companies beyond the start-up stage? How could entrepreneurship education help with this problem?
Discuss business pressures that have led to intrapreneurship.