CHAPTER 1:
Enterprise: The ability to come up with and carry out new ideas and new ways of doing things. It often involves making judgments about the risks
and rewards of a situation and acting on them.
Entrepreneur: someone who starts and runs a business and has responsibility for the risks involved. In order to do this, an entrepreneur has to be
able to manage the 4 four factors of production effectively:
- Land or natural resources
- Labour
- Capital
- Enterprise
Characteristics of a successful entrepreneur:
Passionate – about product and getting things right
Visionary – Faith in what they are doing
Energetic & driven – prepared to work consistently long hours
Self-starting & decisive – Don’t wait for others to make decisions
Calculated risk taker – Not reckless but are prepared to take a risk to maximize rewards
Multitasker – Able to take on more than one role
Resilient – Able to handle problems and overcome hurdles
Focused – Set clear goals
Results orientated
EU defines a small business as having fewer than 50 employees.
The companies act 1985 defines a business as small as long as it meets 2 of the following criteria:
- The value of sales less than £2.8 million
- The value of the balance sheet is less than £1.4 million
- Fewer than 50 employees
Motives to become an entrepreneur/ Reasons for starting a business:
More control over working life (flexibility)
Feeling that skills are being wasted
To escape an uninteresting job
To pursue an interesting hobby
Exploit a gap in the market
To be their own boss
Satisfaction / More rewards for the effort being put in
Fed up working within a business hierarchy
As a response to change in personal life
Out of financial necessity
To work from home, reducing travelling
Have a second career
To have a big business one day
Risks of starting up a business Rewards for the entrepreneur
Investing personal assets Potential for significant income/ profit
Loss of pay from previous job Satisfaction
Potentially unlimited liability for business debts Freedom of decision making
Stress Control over working life
Period of time earning little or nothing Capital gain if a profitable business is then to be sold
Loneliness
Opportunity costs: The cost (missed benefits) of an activity expressed in terms of the next best alternative, which has to be given up when making a
choice.
How opportunity costs affects the start up:
When resources are scarce, significant decisions about what to spend and where become more risky
Calculated risk and the weighing up of potential implications of opportunity cost
Small businesses are vulnerable in the early stages and may fail. However there are lots of sources of help and guidance for entrepreneurs from the
government and other sources.
Government grants: Sums of money given to a business from both central, regional and local governments for a specific purpose or project. They
often contribute to the costs of a project rather than fund the whole thing. Grants usually tend to not have to be paid back.
Sources of Government support:
Grants for start-ups to encourage economic growth
DirectGove – advice on business laws / regulations
UKTI – helps with international sales
Tax breaks / incentives
Other support for startups:
Online sources
Business associations / Local business networks
Professional firms (lawyers / accountants)
Exam Points:
Entrepreneurs should not fear risk. The challenge is to identify risks, evaluate them and making decisions using sound reasoning
It is relatively easy to start up a business in the UK however ongoing support from government is limited
(When exam describes a business in trouble) running a start-up is always tough – even successful businesses have problems to
overcome
, CHAPTER 2:
Benefits Disadvantages
Knowing the product or service Entrepreneur will have a good knowledge of the features of the Is there room for another competitor?
product
Entrepreneur may have a passion or interest in the product so will be The entrepreneur’s passion for the product might not be
motivated to do well shared by anyone else
Good contacts in an established market The entrepreneur’s passion may over estimate the size of the
potential market
Entrepreneur may already have a good reputation in the market that Knowledge of the product or service is not the only skill
they can use needed – the person may not possess the other skills needed
for successful entrepreneurship
Spotting a gap in the market Entrepreneur is basing idea on the customer’s needs rather than their Entrepreneur will have little or no expertise in the product/
own, which might improve chances of success. service or market – prone to mistakes
More likely to enjoy first mover advantage Is the gap real? Has someone tried to exploit it before and
discovered why it can’t be done?
Little or no competition in the early stages when a business start – up Competition may enter the market quickly and capture
is most vulnerable market share – how long can first mover advantage last?
Easier to market a new idea than to persuade people to buy an
established idea from one business rather than another?
The combination of both has the benefit of good knowledge with a differentiated approach.
Sourcing a business idea:
Creative thinking
Business / personal experience
Frustrations with existing service
Elaborating on existing idea (innovation)
Invention
A good business idea:
Something which solves a problem
A cheaper/ better way of providing an existing product
Simpler/ easier to use
Clearly focused on the needs of the target customer
Anticipates a change in the market or exploits an emerging growth trend
Protecting a business idea:
Copyright- protection given to creative or knowledge industries, protection granted instantly, protects the way an idea is expressed, lasts
70 years after the authors death.
Trademarks- Something which identifies a product in the eye of the customer, can be a name, logo, symbol etc. Trademarks allow the
business to prevent others from using identical/ confusingly similar marks. If granted TM lasts for 10 years.
Patents- Difficult to obtain, must be based on inventions that are new and innovative. If granted protection lasts 20 years. Key benefit is
ability to license right to use the invention in return for royalties. But patents are expensive and time consuming to obtain.
Franchise: The business format, which a franchisor allows a franchisee to use, under license, usually for a fee and share in profits
Franchisor: the ultimate owner of the franchise format
Franchisee: the business, which is granted the right to operate a franchise on behalf of the franchisor.
Franchise agreement: legal contract, which sets out the commercial deal between franchisor and franchisee.
Advantages Disadvantages
Franchisee Its your own business You don’t own the business format
Business format should be well thought through Expected to act in best interest of the franchisor and oth
franchisees
Ongoing advice and support from franchisor Large proportions of revenues and profits have to be pa
the franchisor
Should be running a business with a recognised trusted brand name / Risk of the franchisor going out of business
reputation & product / service
Don’t necessarily need experience in the market Right to operate the franchise could be withdrawn
Benefit from franchisors scale (buying power) and centeral services
Franchisor Relatively quick method of expansion Poor franchisee can damage reputation of whole franch
Regular fees and levies from franchisees create a strong flow of income Need robust franchisee recruitment and management sy
Risk is shared – much of the cost is met by the franchisee Potential loss of control over how the product is presen
the customers
Franchisee may have good entrepreneurial skills which may result in revenue Communication problems may arise as franchise netwo
grow
Exam points:
The best business ideas are usually copied, often quickly, as it is hard for small businesses to be granted protection often the
best defense is establishing customer loyalty with a great product
A start-up business doesn’t have to be with an original idea. The use of franchises is an example of this. Why set up a pizza
delivery outlet when you could open a dominos pizza and trade successfully almost immediately.
, By choosing a franchise, the entrepreneur is foregoing some potential benefits that they might not have enjoyed setting up
alone. E.g. a 100% share of profits vs. sharing them with a franchisor.
CHAPTER 3
Input: something that contributes to the production of a product or service.
Output: Something that occurs as a result of the transformation of the business inputs.
- Primary production – The extraction of resources at the first stage of production. E.g. farming
- Secondary production – The transformation of resources to produce finished goods and
components. E.g. car manufacture
- Tertiary production – Transformation of resources to provide a service. E.g. retailing (selling
of products from the primary & secondary sectors).
- Quaternary production – Name given to industries whose main purpose is the transformation
of information.
Adding value: the difference in value between the price of the finished product and the cost of inputs
used in making it.
Ways a business can successfully add value:
- Delivering excellent & distinctive customer service – adds to the perceived value enjoyed by
customers.
- Building a distinctive brand – particularly a reputation for innovation and quality.
- Product features and benefits which customer’s value.
- Advertising – creates interest in a product and may convince customers to pay a higher price.
Benefits of adding value:
- Differentiation from the competition
- Charging a higher price – higher profit margins
- Reducing the sensitivity of demand to changes in price
- An easier transfer between market segments
Niche market segment: A specialist part of a larger market where customers have particular needs and
wants
Two ways to segment market:
Geographic – countries, regions, cities, population densities
Demographic – Customer age, gender, family size, socio- economic group, religion, social class
Limitations – start-ups likely to have relatively little data, it is difficult to measure consumer behaviour
Should a startup target a niche segment:
Advantages:
- Better able to add value through distinctive and innovative product, customer service and
higher quality
- Customers needs & wants more precisely defined
- Potential to charge higher selling prices
- Possibly encounter less competition
- Targeted promotion
Disadvantages:
- Customers are more demanding
- Likely to be existing competitors in the niche with established customer base
- Less able to benefit from cost savings associated with operating at higher scale
- Competitors soon attracted to a niche segment
Exam points:
Start-ups are advised to target niche market segments as these are usually lower risk
, CHAPTER 4
A business plan is a document designed to allow a business to plan for the future, allocate
resources, identify key decisions and prepare for problems and opportunities. It has a
number of purposes. It provides focus and helps to plan for the future because it requires
the entrepreneur to think carefully about the business and commit all the main
information and ideas to paper. It enables to entrepreneur to identify the main courses of
action needed to start and run the business and set objectives of which performance can
be measured. A business plan allows an entrepreneur to present a request for extra
funding. It will provide all the information needed for the investor to decide whether to
invest or not. Even once running a business plan provides a regular check on progress
regarding cash flow and financial forecasts.
Contents of a business plan: No single format as it varies from business to business but
key elements are:
Executive summary: Summary of the main features of the business.
Business description: Description of the history of the business, start – up plans,
type of business structure, legal structure, entrepreneurs vision for the business.
Product or service: A description of the product/ service being sold. Should
include its key features and how the customer will benefit - how its different from
the competition, plans for product development, any protection in place.
Market analysis: Analysis of the market and its competition, customer analysis
and how the market may change in the future and how the business would
respond.
Strategy and implementation: Analysis of key decisions and strategies that need to
be carried out and by who. It would also involve marketing and sales strategies.
Management team: Description of key members of the team along with their
skills, experiences and salaries.
Financial plan: Include key financial documents such as the profit and loss
account, cash flow forecast, balance sheet and break-even analysis.
Exist strategy
Help for business planning
Small business advisors: e.g. business link, which provides detailed advice on the
contents of a plan, templates and examples of completed plans
Accountants and bank managers: advice on how to write and present a business
plan in the form of guides, CD’s, local business managers and small seminars
Government agencies: business plan competitions which provides winners with
£25000 to help start-ups business as well as grants to help with writing plans
Problems for small business planning
Time: some business ideas may require the entrepreneur to start trading ASAP
Money: not expensive a plan costs some money e.g. external advice
Expertise: entrepreneur may not know enough about the product or market
initially to be able to construct a business plan accurately.
Opportunity cost: time spent planning, is time wasted trading?
Enterprise: The ability to come up with and carry out new ideas and new ways of doing things. It often involves making judgments about the risks
and rewards of a situation and acting on them.
Entrepreneur: someone who starts and runs a business and has responsibility for the risks involved. In order to do this, an entrepreneur has to be
able to manage the 4 four factors of production effectively:
- Land or natural resources
- Labour
- Capital
- Enterprise
Characteristics of a successful entrepreneur:
Passionate – about product and getting things right
Visionary – Faith in what they are doing
Energetic & driven – prepared to work consistently long hours
Self-starting & decisive – Don’t wait for others to make decisions
Calculated risk taker – Not reckless but are prepared to take a risk to maximize rewards
Multitasker – Able to take on more than one role
Resilient – Able to handle problems and overcome hurdles
Focused – Set clear goals
Results orientated
EU defines a small business as having fewer than 50 employees.
The companies act 1985 defines a business as small as long as it meets 2 of the following criteria:
- The value of sales less than £2.8 million
- The value of the balance sheet is less than £1.4 million
- Fewer than 50 employees
Motives to become an entrepreneur/ Reasons for starting a business:
More control over working life (flexibility)
Feeling that skills are being wasted
To escape an uninteresting job
To pursue an interesting hobby
Exploit a gap in the market
To be their own boss
Satisfaction / More rewards for the effort being put in
Fed up working within a business hierarchy
As a response to change in personal life
Out of financial necessity
To work from home, reducing travelling
Have a second career
To have a big business one day
Risks of starting up a business Rewards for the entrepreneur
Investing personal assets Potential for significant income/ profit
Loss of pay from previous job Satisfaction
Potentially unlimited liability for business debts Freedom of decision making
Stress Control over working life
Period of time earning little or nothing Capital gain if a profitable business is then to be sold
Loneliness
Opportunity costs: The cost (missed benefits) of an activity expressed in terms of the next best alternative, which has to be given up when making a
choice.
How opportunity costs affects the start up:
When resources are scarce, significant decisions about what to spend and where become more risky
Calculated risk and the weighing up of potential implications of opportunity cost
Small businesses are vulnerable in the early stages and may fail. However there are lots of sources of help and guidance for entrepreneurs from the
government and other sources.
Government grants: Sums of money given to a business from both central, regional and local governments for a specific purpose or project. They
often contribute to the costs of a project rather than fund the whole thing. Grants usually tend to not have to be paid back.
Sources of Government support:
Grants for start-ups to encourage economic growth
DirectGove – advice on business laws / regulations
UKTI – helps with international sales
Tax breaks / incentives
Other support for startups:
Online sources
Business associations / Local business networks
Professional firms (lawyers / accountants)
Exam Points:
Entrepreneurs should not fear risk. The challenge is to identify risks, evaluate them and making decisions using sound reasoning
It is relatively easy to start up a business in the UK however ongoing support from government is limited
(When exam describes a business in trouble) running a start-up is always tough – even successful businesses have problems to
overcome
, CHAPTER 2:
Benefits Disadvantages
Knowing the product or service Entrepreneur will have a good knowledge of the features of the Is there room for another competitor?
product
Entrepreneur may have a passion or interest in the product so will be The entrepreneur’s passion for the product might not be
motivated to do well shared by anyone else
Good contacts in an established market The entrepreneur’s passion may over estimate the size of the
potential market
Entrepreneur may already have a good reputation in the market that Knowledge of the product or service is not the only skill
they can use needed – the person may not possess the other skills needed
for successful entrepreneurship
Spotting a gap in the market Entrepreneur is basing idea on the customer’s needs rather than their Entrepreneur will have little or no expertise in the product/
own, which might improve chances of success. service or market – prone to mistakes
More likely to enjoy first mover advantage Is the gap real? Has someone tried to exploit it before and
discovered why it can’t be done?
Little or no competition in the early stages when a business start – up Competition may enter the market quickly and capture
is most vulnerable market share – how long can first mover advantage last?
Easier to market a new idea than to persuade people to buy an
established idea from one business rather than another?
The combination of both has the benefit of good knowledge with a differentiated approach.
Sourcing a business idea:
Creative thinking
Business / personal experience
Frustrations with existing service
Elaborating on existing idea (innovation)
Invention
A good business idea:
Something which solves a problem
A cheaper/ better way of providing an existing product
Simpler/ easier to use
Clearly focused on the needs of the target customer
Anticipates a change in the market or exploits an emerging growth trend
Protecting a business idea:
Copyright- protection given to creative or knowledge industries, protection granted instantly, protects the way an idea is expressed, lasts
70 years after the authors death.
Trademarks- Something which identifies a product in the eye of the customer, can be a name, logo, symbol etc. Trademarks allow the
business to prevent others from using identical/ confusingly similar marks. If granted TM lasts for 10 years.
Patents- Difficult to obtain, must be based on inventions that are new and innovative. If granted protection lasts 20 years. Key benefit is
ability to license right to use the invention in return for royalties. But patents are expensive and time consuming to obtain.
Franchise: The business format, which a franchisor allows a franchisee to use, under license, usually for a fee and share in profits
Franchisor: the ultimate owner of the franchise format
Franchisee: the business, which is granted the right to operate a franchise on behalf of the franchisor.
Franchise agreement: legal contract, which sets out the commercial deal between franchisor and franchisee.
Advantages Disadvantages
Franchisee Its your own business You don’t own the business format
Business format should be well thought through Expected to act in best interest of the franchisor and oth
franchisees
Ongoing advice and support from franchisor Large proportions of revenues and profits have to be pa
the franchisor
Should be running a business with a recognised trusted brand name / Risk of the franchisor going out of business
reputation & product / service
Don’t necessarily need experience in the market Right to operate the franchise could be withdrawn
Benefit from franchisors scale (buying power) and centeral services
Franchisor Relatively quick method of expansion Poor franchisee can damage reputation of whole franch
Regular fees and levies from franchisees create a strong flow of income Need robust franchisee recruitment and management sy
Risk is shared – much of the cost is met by the franchisee Potential loss of control over how the product is presen
the customers
Franchisee may have good entrepreneurial skills which may result in revenue Communication problems may arise as franchise netwo
grow
Exam points:
The best business ideas are usually copied, often quickly, as it is hard for small businesses to be granted protection often the
best defense is establishing customer loyalty with a great product
A start-up business doesn’t have to be with an original idea. The use of franchises is an example of this. Why set up a pizza
delivery outlet when you could open a dominos pizza and trade successfully almost immediately.
, By choosing a franchise, the entrepreneur is foregoing some potential benefits that they might not have enjoyed setting up
alone. E.g. a 100% share of profits vs. sharing them with a franchisor.
CHAPTER 3
Input: something that contributes to the production of a product or service.
Output: Something that occurs as a result of the transformation of the business inputs.
- Primary production – The extraction of resources at the first stage of production. E.g. farming
- Secondary production – The transformation of resources to produce finished goods and
components. E.g. car manufacture
- Tertiary production – Transformation of resources to provide a service. E.g. retailing (selling
of products from the primary & secondary sectors).
- Quaternary production – Name given to industries whose main purpose is the transformation
of information.
Adding value: the difference in value between the price of the finished product and the cost of inputs
used in making it.
Ways a business can successfully add value:
- Delivering excellent & distinctive customer service – adds to the perceived value enjoyed by
customers.
- Building a distinctive brand – particularly a reputation for innovation and quality.
- Product features and benefits which customer’s value.
- Advertising – creates interest in a product and may convince customers to pay a higher price.
Benefits of adding value:
- Differentiation from the competition
- Charging a higher price – higher profit margins
- Reducing the sensitivity of demand to changes in price
- An easier transfer between market segments
Niche market segment: A specialist part of a larger market where customers have particular needs and
wants
Two ways to segment market:
Geographic – countries, regions, cities, population densities
Demographic – Customer age, gender, family size, socio- economic group, religion, social class
Limitations – start-ups likely to have relatively little data, it is difficult to measure consumer behaviour
Should a startup target a niche segment:
Advantages:
- Better able to add value through distinctive and innovative product, customer service and
higher quality
- Customers needs & wants more precisely defined
- Potential to charge higher selling prices
- Possibly encounter less competition
- Targeted promotion
Disadvantages:
- Customers are more demanding
- Likely to be existing competitors in the niche with established customer base
- Less able to benefit from cost savings associated with operating at higher scale
- Competitors soon attracted to a niche segment
Exam points:
Start-ups are advised to target niche market segments as these are usually lower risk
, CHAPTER 4
A business plan is a document designed to allow a business to plan for the future, allocate
resources, identify key decisions and prepare for problems and opportunities. It has a
number of purposes. It provides focus and helps to plan for the future because it requires
the entrepreneur to think carefully about the business and commit all the main
information and ideas to paper. It enables to entrepreneur to identify the main courses of
action needed to start and run the business and set objectives of which performance can
be measured. A business plan allows an entrepreneur to present a request for extra
funding. It will provide all the information needed for the investor to decide whether to
invest or not. Even once running a business plan provides a regular check on progress
regarding cash flow and financial forecasts.
Contents of a business plan: No single format as it varies from business to business but
key elements are:
Executive summary: Summary of the main features of the business.
Business description: Description of the history of the business, start – up plans,
type of business structure, legal structure, entrepreneurs vision for the business.
Product or service: A description of the product/ service being sold. Should
include its key features and how the customer will benefit - how its different from
the competition, plans for product development, any protection in place.
Market analysis: Analysis of the market and its competition, customer analysis
and how the market may change in the future and how the business would
respond.
Strategy and implementation: Analysis of key decisions and strategies that need to
be carried out and by who. It would also involve marketing and sales strategies.
Management team: Description of key members of the team along with their
skills, experiences and salaries.
Financial plan: Include key financial documents such as the profit and loss
account, cash flow forecast, balance sheet and break-even analysis.
Exist strategy
Help for business planning
Small business advisors: e.g. business link, which provides detailed advice on the
contents of a plan, templates and examples of completed plans
Accountants and bank managers: advice on how to write and present a business
plan in the form of guides, CD’s, local business managers and small seminars
Government agencies: business plan competitions which provides winners with
£25000 to help start-ups business as well as grants to help with writing plans
Problems for small business planning
Time: some business ideas may require the entrepreneur to start trading ASAP
Money: not expensive a plan costs some money e.g. external advice
Expertise: entrepreneur may not know enough about the product or market
initially to be able to construct a business plan accurately.
Opportunity cost: time spent planning, is time wasted trading?
