At one time, individuals who could not pay their debts were jailed. Today, however, both organizations and individuals can seek relief by filing for bankruptcy, which is the court-granted permission to not pay some or all of their debts.
Thousands of individuals and businesses file for bankruptcy every year. They do so for various reasons, including cash-flow problems, reduced demand for their products, or some other problem that makes it difficult or impossible for them to resolve their financial problems. In recent years, large businesses like Eaton’s, Olympia & York, and Enron have sought the protection of bankruptcy laws. Three main factors account for the increase in bankruptcy filings:
1. the increased availability of credit
2. the “fresh-start” provisions in current bankruptcy laws 3. the growing acceptance of bankruptcy as a financial tactic
In Canada, jurisdiction over bankruptcy is provided by the Bankruptcy and Insolvency Act. An insolvent person (or company) is defined as one who cannot pay current obligations to creditors as they come due, or whose debts exceed their assets. A bankrupt person (or company) is one who has either made a voluntary application to start bankruptcy pro- ceedings (voluntary bankruptcy) or been forced by creditors into bank- ruptcy (involuntary bankruptcy) by a process referred to as a receiving order. A person who is insolvent may or may not be bankrupt, and a person who is bankrupt may or may not be insolvent, as there are other bases for bankruptcy under the Act. Another procedure under the Act is referred to as a proposal, which can delay or avoid liquidation by provid- ing the debtor with time to reorganize affairs and/or propose a payment schedule to creditors.
Business bankruptcy under the Act may be resolved or avoided by one of three methods:
1. Under a liquidation plan, the business ceases to exist. Its assets are sold and the proceeds are used to pay creditors.
2. Under a repayment plan, the bankrupt company works out a new payment schedule to meet its obligations. The time frame is usually extended, and payments are collected and distributed by a court- appointed trustee.
3. Reorganization is the most complex form of business bankruptcy.
The company must explain the sources of its financial difficulties
BANKRUPTCY The court-granted permission for organizations or individuals to not pay some or all of their debts.
INSOLVENT PERSON (OR COMPANY) One who cannot pay current obligations to creditors as they come due, or whose debts exceed their assets.
BANKRUPT PERSON (OR COMPANY) One who has either made a voluntary application to start bankruptcy proceedings (voluntary bankruptcy) or has been forced by creditors into bankruptcy (invol- untary bankruptcy) by a process referred to as a receiving order.
INTERNATIONAL LAW The very general set of co-operative agree- ments and guidelines established by countries to govern the actions of individuals, businesses, and nations themselves.
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Mr. Ma: King
of the Canadian Food Court!
04
In previous chapters we have examined companies that thrive in traditional industries and we have highlighted tech- nology-based success stories. Regardless of the industry, pure entrepreneurs share a passion and commitment for their businesses. Stanley Ma is one of those individuals.
Who is he? You might not know the name, but you have probably had a meal at one (if not dozens) of his 2800 restaurants across the nation. He is the undisputed king of the food court. He built the MTY Group into a major force in the food service sector, and in 2015 their franchisees actually employed over 25 000 people. Some of you may have even worked at one of their locations at some point in your life.
The MTY Group has restaurants that operate under 37 separate banners (32 wholly owned and 5 under exclu- sive licences)—Mr. Sub, Thai Express, Country Style, Jugo Juice, KimChi, Tiki-Ming, Cultures, and Yogen Früz, to name a few. In total, MTY has revenues that surpass $115 million
LO
AFTER READING THIS CHAPTER, YOU SHOULD BE ABLE TO:LO-1 Explain the meaning and interrelationship of the terms small business, new venture creation, and entrepreneurship.
LO-2 Describe the role of small and new businesses in the Canadian economy.
LO-3 Explain the entrepreneurial process and describe its three key elements.
LO-4 Describe three alternative strategies for becoming a business owner—starting from scratch, buying an existing business, and buying a franchise.
LO-5 Identify four key reasons for success in small busi- nesses and four key reasons for failure.
LO-6 Describe four forms of legal organization for a busi- ness and discuss the advantages and disadvantages of each.
and system-wide sales (which include franchisee revenues) of approximately $1 billion annually.
Origins of a Success Story
It all began way back in 1979 when a young entrepre- neur named Stanley Ma opened his first restaurant serving
Entrepreneurship, Small Business,
and New Venture Creation
CHAPTER
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Part 1Introducing the Contemporary Business World74
Grill and Noodle, Extreme Pita, and Mr. Burrito.
New Horizons
Some of the new acquisitions have provided MTY with a grow- ing footprint in the United States, but Mr. Ma is now looking beyond North American options. Look at some of the new MTY franchise locations that have opened their doors abroad: Sushi Shop in Qatar, Tiki-Ming in Lebanon, Vanelli’s in Kuwait, Sukiyaki in the United Arab Emirates, Tandori in Bahrain, Pad Thai in Saudi Arabia, Extreme Pita in Australia, and many more. As you can see, it is not simply an expansion of a single restaurant concept to a strategic market; it is actually an expansion of the various brands under the MTY banner, with the supporting expertise, appearing where opportunities arise and where franchisees can be expected to thrive.
Despite the successful expansion, clearly this entrepre- neur still has a passion for what he does. Recently, while eating lunch at a food court that houses about 20 of his restaurant banners, he was quoted as saying that all of his brands were like his children and he could not pick a favou- rite. Like any good parent (and entrepreneur) he still spends significant time observing his children and trying to find new ways to improve their chances of success.
QUESTIONS FOR DISCUSSION
1. From what you have read, how does Mr. Ma fit the profile of an entrepreneur?
2. What are the reasons for Mr. Ma’s success where so many others have failed (particularly in the food service business)?
3. How does the case demonstrate the important relation- ships between franchisors and franchisees in the modern business world? Describe the role each side plays in the success of the other.
4. How does the decision to list MTY on the Toronto Stock Exchange relate to the overall strategy pursued by MTY in recent years?
Chinese and Polynesian food.
By 1983 Mr. Ma had made his first steps into the world of franchising after launching Tiki- Ming. This was the path that would eventually lead to expo- nential growth. The organic expansion phase lasted from 1988 until 2008; it was centred on internal development of new restaurant concepts. During that time 13 brands were cre- ated and nurtured from within.
However, during the past few years of that time period, Mr.
Ma and his team began to simultaneously focus on expan-
sion through acquisition. In fact, from 2001 until 2013 MTY spent over $170 million acquiring 22 restaurant brands.
Another key moment occurred in 2010 when MTY was listed on the Toronto Stock Exchange.
In recent years, additional acquisitions have enabled MTY to add to the roster names like Van Houtte Coffee, Koryo Korean BBQ, Manchu Wok, SenseAsian, Wasabi
A recent Gallup poll suggests that almost half of the young people surveyed were interested in entrepre- neurship.1 Even if you are not among that number, you will still be called on to interact with small businesses and entrepreneurs as a customer, as an investor, or as a client. You may also be trying to sell products or ser- vices to small businesses and entrepreneurs. One key to understanding entrepreneurship is to understand entrepreneurs themselves and what it takes for them to succeed. As an investor, you should also be better prepared to assess the market potential for new and up-and-coming businesses. This chapter will discuss these and additional issues important for starting and owning a business, including the business plan, the reasons for success and failure, and the advantages and disadvantages of different kinds of ownership.
Let’s start by defining a small business and identifying its importance in the Canadian economy.
HOW WILL THIS HELP ME?
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Chapter 4Entrepreneurship, Small Business, and New Venture Creation75 In this chapter we examine established companies with an endur-
ing entrepreneurial spirit (MTY), exciting growth-oriented newcomers (Facebook and Beyond the Rack), major family organizations that have stood the test of time (Kal Tire), and a host of small organizations with dreams and aspirations. Each of these examples gives us a glimpse of an important element of the Canadian business landscape. We begin by examining the lifeblood of an economy: small business, entrepreneur- ship, and new ventures.
Self-employed Canadians account for 15.5 percent of the work- force.2 Every day, approximately 380 businesses are started in Canada.3 New firms create the most jobs, are noted for their entrepreneurship, and are typically small.4 But does this mean most small businesses are entrepreneurial? Not necessarily.
The terms small business, new venture, and entrepreneurship are closely linked, but each idea is distinct. In the following paragraphs we will explain these terms to help you understand these topics and how they are interrelated.
LO- 1 Small Business
Defining a “small” business can be a bit tricky. Various measures might be used, including the number of people the business employs, the com- pany’s sales revenue, the size of the investment required, or the type of ownership structure the business has. Some of the difficulties in defining a small business can be understood by considering the way the Canadian government collects and reports information on small businesses.
Industry Canada is the main federal government agency responsible for small business. In reporting small business statistics, the government relies on two distinct sources of information, both provided by Statistics Canada: the Business Register (which tracks businesses) and the Labour Force Survey (which tracks individuals). To be included in the Register, a business must have at least one paid employee, have annual sales revenues of $30 000 or more, or be incorporated (we describe incorpo- ration later in this chapter). A goods-producing business in the Register