Theme 1

Topic 1.1

Theme 1

Topic 1.2

Topic 1.3

Topic 1.1: Enterprise & Entrepreneurship

1.1.1 The dynamic nature of business

Starting a Business

Businesses need to be dynamic to be successful and grow. A dynamic business sees meeting the changing needs of customers as important for survival. If businesses are not constantly adapting and evolving then they will be unlikely to meet the changing customer needs, and with technology constantly changing and evolving this is all the more important.

Why do new business ideas come about?

New business ideas are central to our economy. They help our economy to grow and help people to improve their lives. new business ideas usually arise because of changes in society and changes to what consumers want. Entrepreneurs then identify opportunities based on these changes, which include:

Advances/changes in technology; such as the introduction of fast and reliable broadband.
- Technology is constantly developing and businesses need to be flexible. A good example of this is the number of people using a smartphone, 10 years ago it was not nearly as many, now as a result, businesses must ensure their websites are compatible with smartphones,
Changes in what consumers want, such as interest in gluten free for example
- Consumers wants and needs are changing over time too. Think about Deliveroo, people don't just want take-away they want good quality food from restaurants delivered to their doors too. Fashions and consumer tastes are always changing. As well as the more obvious areas of clothing, designs will also change in areas such as cars, furniture, buildings and many more consumer goods. There are also new trends in terms of healthy eating, fitness and specialist types of holidays. Businesses must listen to their customers and respond to what they want and desire.
Products and services becoming obsolete, such as VHS videotapes
- Most products have a limited lifespan and at some point will be no longer sold. Sometimes products can recover from being obsolete, Vinyl records are making a comeback for example at the moment. New technology is often the reason a product becomes obsolete, for example CD's replaced the audio cassette and as a result the Sony Walkman, digital downloads may replace CD;s altogether in the future.
- Other reasons for products becoming obsolete are changes in the economy, for example increased wealth will decrease demand for inferior products, such as supermarket value products and bus travel.

How do new business ideas come about?

There are two ways entrepreneurs usually come up with new business ideas:

Adapt an existing product
- Adaptation is the process of modifying an existing product or service so that it is suitable for different customers or markets. It is often seen as less risky than launching a brand new product as it already has established itself in the marketplace. Some exmaples:
  - - A restaurant may change its menu/type of cuisine to suit changing trends
    - A new burger restaurant chain called Burger & Co. have halal meat for their burgers to staify changing needs ona cultural baiss, theyhave adapted a traditional burger chain model
    - Changing a products brand name, for example Coco Pops changed its name to Choco Krispies (what it was known as in Europe) in 1998, but changed i back to Coco Pops in 1999 because of falling sales.
    - Offering a wider range can also be considered adaptation, eg increasing the number of colours for example Mini recently launched some new colours on their range.
Create a completely original product
- It can be very challenging for a entrepreneur or business to come up with completely original ideas. It can also be expensive! New technology however has made this process slightly easier. The Dyson cyclone technology was revolutionary when it was first launched and enabled bag-less vacuum cleaners.

1.1.2 Risk & Reward

Being an entrepreneur involves risks. Risk in the business sense means an exposure to loss, generally a financial one. When an entrepreneur launches a new business, they risk the capital that they have invested into the business. This might be their own savings, which they risk, or they may have taken a loan, and used their house as collateral (security in case the loan cannot be repaid) and if they are unable to repay the loan the bank would be in a position to repossess their house. They are in fact, risking their financial security . Even once successful, an entrepreneur will continue to take risks, every decision comes with an element of risk. Of course, where there is risk there is the potential for reward.

Risks

The main risks associated with starting a business are as follows; business failure, financial loss and lack of security.

Business failure: There are many reasons a business may fail, perhaps the idea is not popular and there is no demand for the product, or if there are too many competitors who have lower costs and you cannot compete with such low prices, or even if you expand too quickly and you cannot cover the costs. Many businesses do in fact fail, and one major reason is cash flow. This means the funds available to pay their bills. Even if some businesses have many sales, if their customers are slow to pay, then they will struggle to pay their bills, which may cause them to have to close. Another major reason is a drop in sales revenue, sometimes fads and trends can last for a short time, take fidget spinners for example, these were a trend for a relatively short period of time. If this was your only product, then you might find you fail once the sales slow/stop completely. Sometimes it can happen due to reasons outside the business' control, such as suppliers or the economy, eg if we are in recession then sales may be slow.

Financial loss: As well as potentially losing their own savings, if they fail and damage their reputation they may struggle to raise finance again in the future. Financial loss can sometimes be caused by lack of planning, an error or underestimating the costs. If the entrepreneur loses their savings their is an opportunity cost. They had alternative uses for those savings and whatever the benefits of those alternatives they may have gained are now gone.

Lack of security: When you work for yourself you do not have the same security as working for someone else. When you work for someone else you have the safety of a salary or wage each month. This also means sick pay and a pension for example. When you work for yourself your income is not guaranteed, as if the business is not making a profit then it will be difficult for you to take a salary for yourself. In addition, if you do not have any employees and you are unwell, then who will run your business? The other element to financial security is around the opportunity cost of your savings, if you have used your savings to start your business you may not have any more savings which may have been you and possibly your family's financial security if something were to happen.

Rewards

Entrepreneurs are motivated to start their own business because of the potential rewards; business success, profit and independence.

Business Success: Being successful is motivating in itself for many, to feel proud of their accomplishments and to think that they have built something successful can provide many entrepreneurs with personal satisfaction and reward. To have others acknowledge that the business is successful can also be important, for example TripAdvisor Awards in the leisure and hospitality industries, Michelin Stars for restaurants are highly coveted or Great Taste Awards for restaurants.

Profit: Naturally entrepreneurs are motivated by profit as the potential to earn more than if you were working for someone else attracts a great number of entrepreneurs and help you build financial security and wealth. When a profit is made by the business, the profit can be distributed to the owners and be used to imporve their quality of life and provide for their families for example. This profit can also be reinvested back in to the business to help the businss to expand even further.

Independence allows you to make decisions about your business- how it operates, when you work, creative decisions, hiring decisions among many others. This level of independence is sought after as often when people work for someone else they are not able to have as much control or influence over these aspects and may be motivated by the idea of being able to make these decisions themselves.

1.1.3 The Role of Business Enterprise

The role of business enterprise and the purpose of business activity

The term “enterprise” has two common meanings.

Firstly, an enterprise is simply another name for a business. You will often come across the use of the word when reading about start-ups and other businesses...“Richard Branson’s enterprise” or “Julie set up her successful enterprise after leaving teaching”.

Secondly, and perhaps more importantly, the word enterprise describes the actions of someone who takes a risk by setting up, investing in and running a business.

Someone who shows enterprise by setting up a business is called an “entrepreneur”.

Business enterprise is the entrepreneurial activity undertaken by setting up or even expanding a business. Most people believe the main aim of an enterprise is to make profit, but these days there are many social enterprises that exist to give back in some way too. Businesses have three main purposes:

To produce goods and services
To meet customer needs
To add value

To produce goods and services

One purpose of business activity is to produce goods and services that satisfy the wants and needs of consumers. The rise in the standard of living in many countries is due to high levels of entrepreneurial activities coming up with new and original ideas as well as improving existing ones. The profit that is made by these businesses is then used to reinvest helping to create more jobs and wealth.

To meet customers needs

Another purpose of business activity is to meet customer needs by offering them products and services that they want. If a business does not understand what their customers want then they are unlikely to succeed. Customer needs extend neyond jst the product iteslef and lao include factors such as:

fast delivery
reasonable, competitive prices
friendly and helpful customer service
prompt answers to enquiries
stock availability
easy access/able to navigate websites/mobile sites

To add value

The final purpose for us to consider is of adding value. Added value is the difference between what the business sells the product for and the costs it has in producing the item. A business that successfully adds value should be able to operate profitably. Vaue can be added to a product or service in the following ways:

Branding: This is the way a business is perceived by its customer base, it should characterise their values, it is ore than just their logo or slogan. Successful branding means you can charge a premium or higher price. Branding can also help to build loyalty and repeat purchase. Loyalty can help businesses to launch new products once established, as once people trust the brand they will be more willing to purchase newer versions or other products.
Convenience: This includes excellent customer service, having products that are available, easy to purchase and pay for. This also encourages loyalty. Having a range of payment methods makes it more convenient for the shopper as they have choice in how to pay, as well as ways in which they can purchase, eg online and in store for example. Availability can be addressed through extended opening hours too for example or being open on Sundays where their competitors might not.
Quality: If the product or service is perceived to be of high or superior quality then customers will be more willing to the pay the price. High quality products/services allows a business to charge a premium price.
Design (function/formula): The way a product is made or how it is made can add value to the product or service, for example a German car is known for the engineering (function).
USP or Unique Selling Point: The characteristic or feature that sets the product apart from the competitor. It is 'unique' to that particular product.

The Role of an Entrepreneur

The first role of an entrepreneur is to organise resources; these can be categorized into the 4 factors of production.

An entrepreneur needs the four factors of production in order to provide goods and services; land, labour, capital and enterprise.

Capital:In this sense it is the equipment and resources needed to produce the good or service
Land: All the natural resources, eg wheat, solar power, space to provide the good or service
Labour: The human input, eg the staff, skills and qualifications required
Enterprise: The skills and characteristics needed to organise the other factors of production

Without the skills and characteristics the success of the business is at risk, as the factors of production enable the business to function.

In order to organise the resources the entrepreneur will need to make many business decisions.

They make all of their own decisions, which is a big responsibility, especially if they have risked their savings for example or if they employ a number of people. They need a long term vision as you have to develop a new concept before developing a product or service. Entrepreneurs must also be able to solve problems that customers may have and they need to find a way to resolve them or they may risk repeat purchase and struggle to build a strong brand image.

Entrepreneurs also take risks - As this is part of being an entrepreneur then it becomes part of the role. Financial risk taking is vital and it is important to try to minimise risks.

Report abuse