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Business Theme 1 > 1.5 Entrepreneurs and leaders > Flashcards

1.5 Entrepreneurs and leaders Flashcards

1
Q

What is an entrepreneur?

A

An individual who sets up and runs a business taking on the financial risk

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2
Q

What roles do entrepreneurs play?

A

• Innovators
• Organisers
• Decision makers
• Risk takers

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3
Q

How are entrepreneurs innovators?

A

They try to make money out of a business idea. Such ideas might come from spotting a gap in the market, a new invention or market research.

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4
Q

How are entrepreneurs organisers?

A

They give instructions, make arrangements, set up systems and buy the resources to make the products

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5
Q

How are entrepreneurs decision makers?

A

They make decisions on how to raise finance, product design, choice of production method, prices, recruitment and wages

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6
Q

How are entrepreneurs risk takers?

A

They risk losing any money they put into the business if it fails. However, if a business is successful they will be rewarded with profit.

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7
Q

Where do entrepreneurs get business ideas from?

A

• Business experience: from an existing job eg a plumber
• Personal experience: from outside of work eg mother with a baby product
• Skills: selling your own skills as a business
• Lifestyle choices: those who want to make a lifestyle change eg seasonal B&B when retired

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8
Q

What are the stages in setting up a business?

A
  1. Come up with an idea
  2. Do research
  3. Planning
  4. Financing
  5. Decide a location
  6. Gather resources
  7. Launch
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9
Q

What day to day duties do entrepreneurs need to attend to?

A

• Financial management eg cash flow forecasts
• Administration eg deal with tax authorities
• Marketing eg building an attractive website
• Purchasing eg buying resources
• Managing people eg recruitment and training
• Production eg packaging products

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10
Q

What is an intrapreneur?

A

An employee within a larger business who uses entrepreneurial skills to develop ideas for companies, they carry no personal financial risk

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11
Q

What are advantages of intrapreneurs?

A

• Drive innovation and helps businesses develop a competitive advantage
• Help to improve motivation and productivity of employees
• Able to innovate without fear of failure can improve job satisfaction
• Awards are won for unique and groundbreaking products enhances business images

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12
Q

What are barriers to entrepreneurship?

A

• Lack of finance
• Lack of entrepreneurial capacity
• Becoming an employer
• Legal barriers
• Lack of ideas
• Fear of failure
• Politics

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13
Q

What is risk in business?

A

Committing resources to something where the outcome is unknown, business chose when to take risks and weigh up the upsides and downsides

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14
Q

What is an example of risk?

A

We can predict ice cream sales will be high in summer so winter sales may not cover costs

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15
Q

How does a business anticipate risk?

A

Many entrepreneurs sacrifice employment and finances to set up. Greater the risk, greater the potential for losses or profits. Businesses try to reduce risk whenever possible.

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16
Q

What is uncertainty in business?

A

External events that cannot be predicted, these are beyond the control of businesses

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17
Q

What is an example of uncertainty?

A

Covid had significant impact and there was no way to prepare for it

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18
Q

How does a business anticipate uncertainty?

A

It is much more difficult as there is no control over nature and timing of external events. Although businesses can’t prevent these events, they can prepare to a degree such as setting aside a contingency fund.

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19
Q

What characteristics do entrepreneurs need?

A

• Self-confidence
• Self-determination
• Being a self-starter
• Judgement
• Commitment
• Perseverance
• Initiative

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20
Q

What skills do entrepreneurs need?

A

• Organising
• Financial management
• Communication
• Managing people
• Decision making
• Negotiating
• IT skills

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21
Q

What are financial motives of starting a business?

A

Profit maximisation
Profit satisficing

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22
Q

What is profit maximisation as a motive?

A

Making as much profit as possible, meaning taking lots of risks and can lead to marginalising the needs of employees

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23
Q

What is profit satisficing as a motive?

A

Making just enough profit to maintain an interest, this suits those who do not want the hassle of expanding and taking too many risks

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24
Q

What are non financial motives of starting a business?

A

Ethical stance
Social enterprise
Independence
Home working

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25
Q

What is ethical stance as a motive?

A

Creating a business to support a moral belief eg a vegetarian opening up a vegetarian restaurant

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26
Q

What is social enterprise as a motive?

A

Creating a business with the aim of improving human and environmental well-being eg fair trade

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27
Q

What is independence as a motive?

A

Creating a business for people who want to ‘be their own boss’ or want a better work-life balance

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28
Q

What is home working as a motive?

A

Creating a business to start from home which saves time on travel and allows greater flexibility eg writers

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29
Q

What are the aims of a business?

A

What the business wants to achieve in the long term. Aims tend to be general and examples might be to be the ‘best’ in the market.

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30
Q

What are the objectives of a business?

A

The goals or targets that need to be met in order to achieve an aim. Objectives give something to work towards and may change over time.

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31
Q

What is a SMART objective?

A

Specific
Measurable
Agreed
Realistic
Time-specific

32
Q

What is an example of a SMART objective?

A

For a business to increase turnover by 8% in the next 12 months

33
Q

What are the common business objectives?

A

• Survival: common for new businesses and so they set a target to just survive for 12 months
• Profit maximisation: common where large shareholders and investment funds are and so businesses set high prices with low costs

34
Q

What are other business objectives?

A

• Sales maximisation: selling as much as possible in a period of time to increase market share
• Market share: a larger market share helps increase revenue and raise profile of business
• Cost efficiency: reducing costs (eg lay off staff) due to increased competition or economic downturn
• Employee welfare: looking after the interests of the employees helps to improve motivation
• Customer satisfaction: satisfied customers will return, this requires high levels of communication
• Social objectives: developing a strong relationship with local community

35
Q

What is liability?

A

Legal responsibility of a business towards their debts

36
Q

What is unlimited liability?

A

Business and owner are considered the same entity. The owner is personally and fully responsible for all losses and debts of the business.

37
Q

What is limited liability?

A

Business and owner are considered separate entities. The owner is only responsible for the original amount put into the business.

38
Q

What are the common forms of business?

A

Sole trader
Partnership
Private limited company (Ltd)
Public limited company (plc)
Franchising

39
Q

Sole Trader

A

• Most common type of business
• They own and run their own business
• Tend to be small-scale and in the tertiary sector
• Have unlimited liability
• No legal requirements

40
Q

What are advantages of sole traders?

A

+ Owner keeps all the profit
+ Owner has complete control
+ Simple to set up
+ Can be flexible and can adapt to change quickly

41
Q

What are disadvantages of sole traders?

A
  • Unlimited liability
  • Difficult to raise finance
  • Independence can be a burden (eg if owner is ill)
  • Won’t benefit from economies of scale
42
Q

Partnership

A

• Second most common type of business
• Joint owners share responsibility and profits
• Have unlimited liability
• No legal requirements however a deed of partnership can be created to state partners’ rights in event of dispute

43
Q

What are advantages of partnerships?

A

+ Simple to set up
+ Partners can raise specialise in their area of expertise
+ Shared burden of running the business
+ Does not have to publish financial info

44
Q

What are disadvantages of partnerships?

A
  • Partners have unlimited liability
  • Partners share profit
  • Partners may disagree or fall out
  • One partners decision is legally binding on all other partners
45
Q

Limited Partnership

A

This is where some partners provide capital but take no part in the management of the business. Such a partner will have limited liability.

46
Q

Limited Companies

A

A limited company has a separate legal identity from its owners. The company can own assets, form contracts, employ people, sue people and be sued. Common features include: capital is raised by selling shares, owners have limited liability, they are run by directors that are elected by shareholders and pay corporation tax.

47
Q

Private Limited Companies

A

• Tend to be small or medium-sized businesses
• Shares can only be transferred privately and must be agreed by all shareholders
• Directors tend to be shareholders and are involved in running the business
• Have limited liability

48
Q

What are advantages of private limited companies?

A

+ Shareholders have limited liability
+ More capital can be raised by issuing shares
+ Owners may pay less tax
+ They are considered to have a higher status than sole traders

49
Q

What are disadvantages of private limited companies?

A
  • Have to publish their financial info
  • Profits shared between all members
  • It can take time to transfer shares to new owners
  • Cannot raise large amounts of money as easily as PLCs
50
Q

Franchising

A

• A franchisee owns a successful business, they allow a franchisee to use their ideas and methods for a fee
• They licence out their product or service and offer a recognised brand name
• They can provide advice, equipment, materials etc so the franchisee gets off to a good start
• The franchisor chargers a percentage from sales, profit, management costs etc.

51
Q

What are advantages of franchising for the franchisee?

A

+ A tried and tested business = low risk
+ Support provided from franchisor
+ Set-up costs are predictable
+ Can benefit from national marketing campaigns

52
Q

What are disadvantages of franchising for the franchisee?

A
  • Profit is shared with franchisor
  • Reduced independence
  • Can be an expensive way to set up a business
  • Must abide by strict operating rules
53
Q

What are advantages of franchising for the franchisor?

A

+ Fast method of growth
+ Franchisee takes some of the risk
+ Franchisees are more motivated to succeed than employees

54
Q

What are disadvantages of franchising for the franchisor?

A
  • Profit is shared
  • Poor franchisees may damage reputation
  • Franchisees may require high supporting costs
55
Q

What are other forms of business?

A

Social enterprise
Lifestyle business
Online business

56
Q

Social Enterprise

A

• Aims to improve environmental and human well-being
• Generally not for the profit
• Co-operatives: members purchase shares that allows them to vote at AGMs and receive dividends
• Mutual organisation: owned by their customers and return profits in the form of better and cheaper products
• Charities: raise money for causes and disadvantaged groups

57
Q

Lifestyle Business

A

• Aim to make enough money to sustain a particular lifestyle
• Generally small
• Usually based on a personal interest
• Tends to be less stressful than other forms
• Likely to be based from home

58
Q

Online businesses

A

• Includes large businesses such as Amazon
• Also includes consultants, gaming companies, influencers etc
• Collect payment electronically
• No formal procedures to start
• Low set-up costs
• Advertising tends to be the main source of revenue

59
Q

Public Limited Companies

A

• Tends to be for larger businesses aiming to grow further
• Owned by shareholders and run by a board of directors
• Shares can be bought and sold on the stock market
• Stock market flotation is when a company’s shares are made available to the public for the first time

60
Q

What are advantages of public limited companies?

A

+ Large sums of money can be raised
+ Can often dominate the market due to size
+ Easier to raise finance as banks and investors are more likely to have assets to protect loans
+ Pressure from media encourages managers to perform well

61
Q

What are disadvantages of public limited companies?

A
  • High set-up costs
  • Outsiders can buy and control the company
  • Shareholders may not have much control
  • More difficult to interact with individual customers
62
Q

What is the process of Stock Market Flotation?

A

It is a time consuming and expensive process. A detailed prospectus must be created that advertises the company to potential investors, have this reviewed by lawyers. High value flotations can attract a lot of attention and share prices can rise rapidly as a result.

63
Q

What is an opportunity cost?

A

The benefit lost from the next best alternative when making a choice (a consequence of option you didn’t take)

64
Q

What is a trade-off?

A

When a business is forced to make a compromise between two different alternatives (a decision that is made)

65
Q

How can businesses make sure they’re making the best decision?

A

• Obtain information - list pros and cons
• Balance short & long term - what is lost long term for a short term decision
• Gauge support - views of others can be important

66
Q

What is the difference between an entrepreneur, manager and leader?

A

Entrepreneur:
• focus is creativity
• can often work alone
Manager:
• focus is working with a group of people towards a goal
• commands, organises and plans for future
Leader:
• focus is working with a group of people towards a goal
• inspires, helps others grow, motivates and affects change

67
Q

What grows when a business becomes more successful?

A

• Number of employees
• Number & size of financial transactions
• Number & size of customers
• Amount of regulation
• Quantity of resources used
• Level & range of communication needed

68
Q

How does the role of an entrepreneur change with growing success of business?

A

• Formality
• Shared ownership
• Responsibility towards others
• Motivation and inspiration
• Strategy and vision

69
Q

How does formality change?

A

• More structured and documented meetings
• Formal communication channels
• Entrepreneur may become executive or chairperson

70
Q

How does shared ownership change?

A

• Selling shares to raise finance
• Usually shared with investment firms that have larger percentages and a large number of private minority investors

71
Q

How does responsibility towards others change?

A

• Increased number of employees
• Pressure upon every decision made as it could affect others’ lives

72
Q

How does motivation and inspiration change?

A

• More people to manage means need to keep motivated
• Workers will look toward leaders for support and inspiration

73
Q

How does strategy and vision change?

A

• With larger businesses, specialists are hired to undertake the entrepreneur’s old tasks
• Leader forces on providing a vision and future direction for business

74
Q

Why do some entrepreneurs find leadership difficult?

A

• Adapting the mindset
• Stress
• Sharing ownership and control - loss of control over ethos with more shareholders
• Trust - leader may not trust employees
• Lack of qualities - skills need applying to whole new scale

75
Q

How do leaders overcome these difficulties?

A

• Delegation: delegate tasks to honest, trustworthy and skilled people
• Earn respect: people will be trusting, effective and flexible if treated well
• Maturity & experience
• Education: specialist courses for improvement
• Stress: calm leaders succeed more than stressful ones

Business Theme 1 (6 decks)

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