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

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

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.

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 Employees 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

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

Employees

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% 2,228,572 Total100%

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%

2,228,572 Total100%

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.

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)

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

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

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

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

“ 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 Optimistic outlook Action orientation Moderate risk taker Active user of external resources Strong and trusted leader

Create/control a new venture to create economic value for themselves and their stakeholders.

Top 6 characteristics

Desire for independence

Optimistic outlook

Action orientation

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 Optimistic outlook Action orientation Moderate risk taker Active user of internal resources Good team builder

Creates new opportunity inside an existing organization creating economic value for company.

Top 6 characteristics

Desire for recognition

Optimistic outlook

Action orientation

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

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 Resource requirements Leadership requirements Scalability

Level of technology risk

Time to market

Resource requirements

Leadership requirements

Scalability

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?

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

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?

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

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.

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

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.

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.