1.7: Chapter 7 – Business Set-Up, Start-Up, and Growth
Learning Objectives
After completing this chapter you will be able to
- Explain the considerations entrepreneurs face during the set-up phase of their business development
- Explain the considerations entrepreneurs face during the start-up phase of their business development
- Explain the considerations entrepreneurs face during the growth phase of their business development
Twenty years from now you will be more disappointed by the things that you didn’t do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover. – Mark Twain
This defines entrepreneur and entrepreneurship—the entrepreneur always searches for change, responds to it, and exploits it as an opportunity. – Peter Drucker
Overview
This chapter introduces entrepreneurship topics related to the business set-up phase, start-up phase, and growth phase. These phases are relevant for most start-ups other than those that follow the lean start-up approach in which the elements of the phases described in this chapter are blended together in a process that involves releasing and continually revising product or service prototypes in response to customer feedback.
Set-Up
The goal of the venture set-up phase is to implement the plans needed to start the business prior to its actual start-up. This might include developing and testing the products or services the entrepreneur anticipates selling. It also includes planning around protecting any intellectual property that the venture might have and determine how to gain competitive advantages over its rivals.
Protecting Intellectual Property
Intellectual property refers to the ideas, goods, and services that can be legally protected by copyrights, patents, trade secrets, and trademarks.
Copyright
Copyrights provide protection to original software created by someone. They also protect music, literature, and dramatic and other artistic works for the life of the author of the work plus another 50 years (there are some modifications to this rule for some works). Copyright arises when someone creates a work whether or not they register the copyright. It is also not required in Canada to indicate that a work is copyrighted, although works—like this book—might include the © symbol to remind people that they are copyrighted (even if they are not registered). A copyright can be registered in Canada for a nominal fee—around $50—but most works that are created are not registered.
The Canadian Intellectual Property Office provides a searchable Copyrights Database ( http://www.ic.gc.ca/app/opic-cipo/cpyrghts/dsplySrch.do?lang=eng ) of the copyrights that have been registered.
The Canadian Intellectual Property Office (2015a) website lists the following categories of copyright protection:
Copyright applies to all original literary, dramatic, musical and artistic works provided the conditions set out in the Copyright Act have been met. Each of these general categories covers a wide range of creations, including:
- literary works such as books, pamphlets, computer programs and other works consisting of text
- dramatic works such as motion picture films, plays, screenplays and scripts
- musical works such as compositions with or without words
- artistic works such as paintings, drawings, maps, photographs, sculptures and plans
Copyright also applies to other subject-matter consisting of:
- performers’ performances, meaning any of the following:
- a performance of an artistic, dramatic or musical work, whether or not the work was previously recorded and whether or not the work’s term of copyright protection has expired
- a recitation or reading of a literary work, whether or not the work’s term of copyright protection has expired
- an improvisation of a dramatic, musical or literary work, whether or not the improvised work is based on a pre-existing work
- sound recordings, meaning recordings consisting of sounds, whether or not a performance of a work, but excluding any soundtrack of a cinematographic work where it accompanies the cinematographic work
- communication signals, meaning radio waves transmitted through space without any artificial guide, for reception by the public (Canadian Intellectual Property Office, 2015a)
Patents
Patents provide protection for 20 years (from date of filing patent application) to inventors by giving them recourse if others make, use, or sell their invention without permission: “Patents apply to newly developed technology as well as to improvements on products or processes. Patents provide a time-limited, legally protected, exclusive right to make, use and sell an invention. In this way, patents serve as a reward for ingenuity” (Canadian Intellectual Property Office, 2015d).
Patents must be filed in order to provide patent protection to new inventions. It can be time-consuming and expensive to file patents. The Canadian Intellectual Property Office (2015d) says the following about them:
Patents can have a great deal of value. You can sell them, license them or use them as assets to attract funding from investors.
In exchange for these benefits, you must provide a full description of the invention when you file a patent. This helps enrich technical knowledge worldwide. Details of patent applications filed in Canada are disclosed to the public after an 18-month period of confidentiality.
To be eligible for patent protection, your invention must be:
- new—first in the world
- useful—functional and operative
- inventive—showing ingenuity and not obvious to someone of average skill who works in the field of your invention
The invention can be:
- a product (e.g., door lock)
- a composition (e.g., chemical composition used in lubricants for door locks)
- a machine (e.g., for making door locks)
- a process (e.g., a method for making door locks)
- an improvement on any of these (Canadian Intellectual Property Office, 2015d)
You can search the Canadian Patents Database from the Canadian Intellectual Property Office website. If you use this search engine, notice the level of detail included with each patent entry.
Trademarks
When registered, trademark protection lasts for 15 years and can be often be renewed for another term. The Canadian Intellectual Property Office (2015c) website lists the three kinds of trademarks:
- An ordinary mark is made up of words, sounds, designs or a combination of these used to distinguish the goods or services of one person or organization from those of others. For example, suppose you started a courier business that you chose to call Giddy-up. You could register these words as a trademark (if you met all the legal requirements) for the service that you offer.
- A certification mark can be licensed to many people or companies for the purpose of showing that certain goods or services meet a defined standard. For example, the Woolmark design, owned by Woolmark Americas Ltd., is used on clothing and other goods.
- A distinguishing guise is about the shape of goods or their containers, or a way of wrapping or packaging goods that shows they have been made by a specific individual or firm. For example, if you manufactured butterfly-shaped candy you could register the butterfly shape as a distinguishing guise. (Canadian Intellectual Property Office, 2015c)
Industrial Designs
Original industrial designs can be registered for up to 10 years. They “are about how things look. More technically speaking, they are the visual features of shape, configuration, pattern or ornament, or any combination of these features, applied to a finished article. For example, the shape of a table or the shape and decoration of a spoon may be industrial designs” (Canadian Intellectual Property Office, 2015b).
Product/Process/Trade Secrets
Product/process/trade secrets come into play when patents are not filed, but instead innovations are kept secret. For example, the formula for Coca-Cola and the recipe for the KFC herbs and spices are not registered anywhere, but instead are kept secret by their owners. This protection lasts for as long as the secret is kept.
Competitive Performance
While entrepreneurs must always strive to establish competitive performance advantages, it is particularly important when the potential protection afforded by patents, copyrights, trade secrets, or trademarks is weak. In these cases the best protection is to out-compete rivals with production, pricing, distribution, selling, and other strategies.
Other Set-Up Considerations
Among the other set-up activities for new ventures are the following:
- Attract purchase orders or otherwise line up initial sales
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Set up organizational and legal structure
- Sole Proprietorship
- Partnership
- Limited Partnership
- Corporation
- Cooperative
- Set up control systems
- Set up relationships with suppliers and others
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Set up everything else in preparation for start-up
- Choose name
- Check zoning, equipment prices, suppliers, etc.
- Choose location
- Arrange lease terms, leasehold improvements, signage, pay deposits, etc.
- Get business license, permits, etc.
- Set up banking arrangements
- Set up legal and accounting systems (or professionals)
- Order equipment, locks and keys, furniture, etc.
- Recruit employees, set up payroll system, benefit programs, etc.
- Decide on graphics, logos, promotional methods, etc.
- Order business cards, letterhead, etc.
- Set up supplier agreements
- Buy inventory, insurance, etc.
- Revise business plan
Start-Up
The goal of the venture start-up phase is to implement the plans needed to sustain the venture from the time when it begins making sales until when the business has moved beyond the point where the entrepreneur must continually fight for the business’s survival and persistence. It ends when the entrepreneur can instead shift emphasis toward business growth or maintaining the venture’s stability.
A major consideration during the start-up phase is making the needed sales to establish an adequate cash flow.
Another important consideration is ensuring that the venture is adaptable enough to productively respond to when things do not proceed as planned. Part of this involves implementing appropriate leadership and management strategies.
Growth
The goal during the growth phase is to grow or maintain the venture until the time when the entrepreneur chooses to harvest the value they generated by starting and running the venture. To do this entrepreneurs must continually monitor their operating environment at all levels: at the societal level using analysis tools like a PESTEL analysis; at the industry level using a tool like Porter’s Five Forces Model; at the market level using tools like market profile analyses; and at the firm level using tools like a SWOT Analysis/TOWS Matrix, VRIO, financial analysis methods, and stakeholder analyses. They must also continually strive to be innovative to generate new ideas and to maintain their competitive advantages.